U.S. ENERGY CORP.
4643 S. Ulster Street, Suite 970
Denver, Colorado 80237
Report of the Audit Committee
Note: Notwithstanding anything to
the contrary otherwise set forth in any of the Company’s filings under the Securities act of 1933 or the Exchange Act that
might incorporate other filings (including this Proxy Statement) with the SEC, the following Report of the Audit Committee shall
not be deemed to be incorporated by reference into any other such filings.
Management
is responsible for the preparation of the Company’s financial statements, and the reporting process, as well as maintaining
effective internal control over financial reporting and assessing the effectiveness of the controls. Hein & Associates LLP
is responsible for auditing the annual financial statements and expressing an opinion as to whether they are presented fairly,
in all material respects, in conformity with accounting principles generally accepted in the United States. The Audit Committee
is responsible for, among other things, reviewing and selecting the independent registered public accounting firm, reviewing our
annual and interim financial statements, and pre-approving all engagement letters and fees for audit and non-audit services provided
by our independent accountant.
In performing
its oversight functions in connection with the Company’s financial statements as of and for the year ended December 31, 2016,
the Audit Committee has:
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Reviewed and discussed the audited financial statements
with management and Hein & Associates LLP, including the quality of the accounting principles, and the reasonableness of significant
judgments made in the preparation of the financial statements;
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Discussed with Hein & Associates LLP those matters
required to be discussed by the statement on Auditing Standards No. 61, as amended and as adopted by the Public Accounting Oversight
Board in Rule 3200T;
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Received written disclosures from Hein & Associates
LLP regarding its independence as required by the PCAOB and discussed with Hein & Associates LLP its independence; and
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Reviewed and approved the services provided by Hein
& Associates LLP.
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Based upon the foregoing reports
and discussions, and subject to the limitations on the roles and responsibilities of the Audit Committee referred to in its charter,
the Audit Committee recommended to the Board, and the Board has approved, that the Company’s audited financial statements
be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC on April
17, 2017.
Respectfully submitted by the Audit Committee of the
Board
Javier F. Pico, Chairman
J. Weldon Chitwood
John G. Hoffman
APPENDIX
A
SECURITIES
PURCHASE AGREEMENT
This Securities Purchase
Agreement (this “
Agreement
”) is dated as of December 16, 2016, between U.S. Energy Corp., a Wyoming corporation
(the “
Company
”), and each purchaser identified on the signature pages hereto (each, including its successors
and assigns, a “
Purchaser
” and collectively the “
Purchasers
”).
WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to (i) an effective registration statement under the Securities Act
of 1933, as amended (the “
Securities Act
”) as to the Shares and (ii) an exemption from the registration requirements
of Section 5 of the Securities Act contained in Section 4(a)(2) thereof and/or Regulation D thereunder as to the Warrants, the
Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the
Company, securities of the Company as more fully described in this Agreement.
NOW, THEREFORE, IN CONSIDERATION
of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, the Company and each Purchaser agree as follows:
ARTICLE I.
DEFINITIONS
1.1
Definitions
.
In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the
meanings set forth in this Section 1.1:
“
Acquiring
Person
” shall have the meaning ascribed to such term in Section 4.5.
“
Action
”
shall have the meaning ascribed to such term in Section 3.1(j).
“
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 under the Securities Act.
“
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.
“
Closing
”
means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“
Closing Date
” means
the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and
all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations
to deliver the Securities, in each case, have been satisfied or waived, but in no event later than the third Trading Day following
the date hereof.
“
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.
“
Common Stock Equivalents
”
means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“
Company
Counsel
” means Kutak Rock LLP, with offices located at 1801 California Street, Suite 3000, Denver, Colorado 80202.
“
EGS
” means Ellenoff
Grossman & Schole LLP, with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302.
“
Evaluation
Date
” shall have the meaning ascribed to such term in Section 3.1(s).
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Exempt Issuance
”
means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any
stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority
of the members of a committee of non-employee directors established for such purpose for services rendered to the Company, (b)
securities upon the exercise or exchange of or conversion of any Securities issued hereunder and/or other securities exercisable
or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease
the exercise price, exchange price or conversion price of such securities (other than in connection with stock splits or combinations)
or to extend the term of such securities and (c) securities issued pursuant to acquisitions or strategic transactions approved
by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the
equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business
synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment
of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital
or to an entity whose primary business is investing in securities.
“
FCPA
”
means the Foreign Corrupt Practices Act of 1977, as amended.
“
GAAP
”
shall have the meaning ascribed to such term in Section 3.1(h).
“
Indebtedness
”
shall have the meaning ascribed to such term in Section 3.1(aa).
“
Intellectual
Property Rights
” shall have the meaning ascribed to such term in Section 3.1(p).
“
Legend
Removal Date
” shall have the meaning ascribed to such term in Section 4.1(c).
“
Liens
”
means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“
Material
Adverse Effect
” shall have the meaning assigned to such term in Section 3.1(b).
“
Material
Permits
” shall have the meaning ascribed to such term in Section 3.1(n).
“
Participation
Maximum
” shall have the meaning ascribed to such term in Section 4.11(a).
“
Per Share Purchase Price
”
equals $1.50, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.
“
Person
” means an
individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company,
joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“
Placement
Agent
” means Roth Capital Partners, LLC.
“
Pre-Notice
”
shall have the meaning ascribed to such term in Section 4.11(b).
“
Pro
Rata Portion
” shall have the meaning ascribed to such term in Section 4.11(e).
“
Proceeding
” means
an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.
“
Prospectus
”
means the final prospectus filed for the Registration Statement.
“
Prospectus Supplement
”
means the supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with the Commission and delivered
by the Company to each Purchaser at the Closing.
“
Purchaser
Party
” shall have the meaning ascribed to such term in Section 4.8.
“
Registration Statement
”
means the effective registration statement with Commission file No. 333-204350 which registers the sale of the Shares to the Purchasers.
“
Required
Approvals
” shall have the meaning ascribed to such term in Section 3.1(e).
“
Rule 144
” means
Rule 144 promulgated by the Commission pursuant to 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 424
” means
Rule 424 promulgated by the Commission pursuant to 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.
“
SEC
Reports
” shall have the meaning ascribed to such term in Section 3.1(h).
“
Securities
”
means the Shares, the Warrants and the Warrant Shares.
“
Securities
Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Shareholder Approval
”
means such approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market (or any successor entity)
from the shareholders of the Company with respect to the transactions contemplated by the Transaction Documents, including the
elimination of the Floor Price from the Warrants.
“
Shares
”
means the shares of Common Stock issued or issuable to each Purchaser pursuant to this Agreement.
“
Short Sales
” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include
locating and/or borrowing shares of Common Stock).
“
Subscription Amount
”
means, as to each Purchaser, the aggregate amount to be paid for Shares and Warrants purchased hereunder as specified below such
Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United
States dollars and in immediately available funds.
“
Subsequent
Financing
” shall have the meaning ascribed to such term in Section 4.11(a).
“
Subsequent
Financing Notice
” shall have the meaning ascribed to such term in Section 4.11(b).
“
Subsidiary
” means
any subsidiary of the Company, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed
or acquired after the date hereof.
“
Trading
Day
” means a day on which the principal Trading Market is open for trading.
“
Trading Market
”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange,
OTCQB or OTCQX (or any successors to any of the foregoing).
“
Transaction Documents
”
means this Agreement, the Warrants and any other documents or agreements executed in connection with the transactions contemplated
hereunder.
“
Transfer Agent
”
means Computershare, the current transfer agent of the Company, with a mailing address of 8742 Lucent Blvd., Suite 225, Highlands
Ranch, CO 80129 and a facsimile number of (303) 262-0609, and any successor transfer agent of the Company.
“
Variable
Rate Transaction
” shall have the meaning ascribed to such term in Section 4.12(b).
“
Warrants
” means,
collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable six months from the Closing Date and have a term of exercise equal to five (5) years from such
initial exercise date, in the form of
Exhibit A
attached hereto.
“
Warrant
Shares
” means the shares of Common Stock issuable upon exercise of the Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1
Closing
.
On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution
and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally and not jointly,
agree to purchase, up to an aggregate of $1,500,000 of Shares and Warrants. Each Purchaser’s Subscription Amount as set forth
on the signature page hereto executed by such Purchaser shall be made available for “Delivery Versus Payment” settlement
with the Company. The Company shall deliver to each Purchaser its respective Shares and a Warrant as determined pursuant to Section
2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon
satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of EGS or
such other location as the parties shall mutually agree. Unless otherwise directed by the Placement Agent, settlement of the Shares
shall occur via “Delivery Versus Payment” (“
DVP
”)
(i.e., on the Closing Date, the Company
shall issue the Shares registered in the Purchasers’ names and addresses and released by the Transfer Agent directly to the
account(s) at the Placement Agent identified by each Purchaser; upon receipt of such Shares, the Placement Agent shall promptly
electronically deliver such Shares to the applicable Purchaser, and payment therefor shall be made by the Placement Agent (or its
clearing firm) by wire transfer to the Company).
2.2
Deliveries
.
(a) On
or prior to the Closing Date, the Company shall deliver or cause to be delivered to each Purchaser the following:
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(i)
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this Agreement duly executed by the Company;
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(ii)
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a legal opinion of Company Counsel, substantially in the
form of
Exhibit B
attached hereto;
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(iii)
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if not settled via DVP pursuant to the last sentence of
Section 2.1, the Company shall have provided each Purchaser with the Company’s wire instructions, on Company letterhead
and executed by the Chief Executive Officer or Chief Financial Officer;
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(iv)
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subject to the last sentence of Section 2.1, a copy of
the irrevocable instructions to the Transfer Agent instructing the Transfer Agent to deliver on an expedited basis via The Depository
Trust Company Deposit or Withdrawal at Custodian system (“
DWAC
”) Shares equal to such Purchaser’s Subscription
Amount divided by the Per Share Purchase Price, registered in the name of such Purchaser;
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(v)
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a Warrant registered in the name of such Purchaser to purchase
up to a number of shares of Common Stock equal to 100% of such Purchaser’s Shares, with an exercise price equal to $2.05,
subject to adjustment therein; and
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(vi)
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the Prospectus and Prospectus Supplement (which may be
delivered in accordance with Rule 172 under the Securities Act).
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(b) On
or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company the following:
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(i)
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this Agreement duly executed by such Purchaser; and
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(ii)
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such Purchaser’s Subscription Amount, which shall
be made available for “Delivery Versus Payment” settlement with the Company.
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2.3
Closing
Conditions
.
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(a)
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The obligations of the Company hereunder in connection
with the Closing are subject to the following conditions being met:
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(i)
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the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) on the Closing Date of
the representations and warranties of the Purchasers contained herein (unless as of a specific date therein in which case they
shall be accurate as of such date);
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(ii)
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all obligations, covenants and agreements of each Purchaser
required to be performed at or prior to the Closing Date shall have been performed; and
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(iii)
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the delivery by each Purchaser of the items set forth in
Section 2.2(b) of this Agreement.
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(b)
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The respective obligations of the Purchasers hereunder
in connection with the Closing are subject to the following conditions being met:
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(i)
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the accuracy in all material respects (or, to the extent
representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing
Date of the representations and warranties of the Company contained herein (unless as of a specific date therein in which case
they shall be accurate as of such date);
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(ii)
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all obligations, covenants and agreements of the Company
required to be performed at or prior to the Closing Date shall have been performed;
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(iii)
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the delivery by the Company of the items set forth in Section
2.2(a) of this Agreement;
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(iv)
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there shall have been no Material Adverse Effect with
respect to the Company since the date hereof; and
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(v)
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from the date hereof to the Closing Date, trading in the
Common Stock shall not have been suspended by the Commission or the Company’s principal Trading Market, and, at any time
prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited,
or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market,
nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have
occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its
effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of such Purchaser,
makes it impracticable or inadvisable to purchase the Securities at the Closing.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
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3.1
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Representations and Warranties of the Company
. Except
as set forth in the SEC Reports, which SEC Reports shall be deemed a part hereof and shall qualify any representation made herein
to the extent that such disclosure is contained in such SEC Reports, the Company hereby makes the following representations and
warranties to each Purchaser:
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(a)
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Subsidiaries
. 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. If the Company has no subsidiaries, all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.
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(b)
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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, could not have or
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, 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
”), provided that none of the following alone shall be deemed, in and of itself,
to constitute a Material Adverse Effect under this Agreement: (x) a change in the market price or trading volume of the Common
Stock or (y) changes in general economic conditions or changes affecting the industry in which the Company operates generally
(as opposed to Company-specific changes) so long as such changes do not have a materially disproportionate effect on the Company,
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.
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(c)
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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 stockholders in connection herewith or therewith other than in connection
with 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, (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited
by applicable law.
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(d)
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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, or (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 could not have or reasonably
be expected to result in a Material Adverse Effect.
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(e)
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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 federal, state, local or other governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section
4.4 of this Agreement, (ii) the filing with the Commission of the Prospectus Supplement, (iii) application(s) to each applicable
Trading Market for the listing of the Shares and Warrant Shares for trading thereon in the time and manner required thereby, and
(iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws
(collectively, the “
Required Approvals
”).
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(f)
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Issuance of the Securities; Registration
. The Securities
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 imposed by the Company. The Warrant Shares, when issued in accordance
with the terms of the Warrants, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the
Company. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable
pursuant to this Agreement and the Warrants. The Company has prepared and filed the Registration Statement in conformity with
the requirements of the Securities Act, which became effective on July 29, 2015 (the “
Effective Date
”),
including the Prospectus, and such amendments and supplements thereto as may have been required to the date of this Agreement.
The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness
of the Registration Statement or suspending or preventing the use of the Prospectus has been issued by the Commission and no proceedings
for that purpose have been instituted or, to the knowledge of the Company, are threatened by the Commission. The Company, if required
by the rules and regulations of the Commission, shall file the Prospectus with the Commission pursuant to Rule 424(b). At the
time the Registration Statement and any amendments thereto became effective, at the date of this Agreement and at the Closing
Date, the Registration Statement and any amendments thereto conformed and will conform in all material respects to the requirements
of the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus and any amendments
or supplements thereto, at time the Prospectus or any amendment or supplement thereto was issued and at the Closing Date, conformed
and will conform in all material respects to the requirements of the Securities Act and did not and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(g)
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Capitalization
. The capitalization of the Company
is as set forth in the SEC Reports. The Company has not issued any capital stock since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plans and pursuant
to the conversion and/or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report
under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right
to participate in the transactions contemplated by the Transaction Documents. Except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock or the capital stock of any Subsidiary, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate
the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and
will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under
any of such securities. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption
or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary
is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any stock appreciation
rights or “phantom stock” plans or agreements or any similar plan or agreement. All of the outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights
or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board
of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements
or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge
of the Company, between or among any of the Company’s stockholders.
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(h)
|
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, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, together with the Prospectus and the Prospectus Supplement,
being collectively referred to herein as the “
SEC Reports
”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied 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 any untrue statement of a material fact or omitted 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. The Company has never been an issuer subject to Rule 144(i) under the Securities Act. The
financial statements of the Company included in the SEC Reports 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 prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during
the periods involved (“
GAAP
”), 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 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.
|
|
(i)
|
Material Changes; Undisclosed Events, Liabilities or
Developments
. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically
disclosed in a subsequent SEC Report filed prior to the date hereof, (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, (ii) the Company has 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 financial statements pursuant to GAAP
or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company
has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or
made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending
before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated
by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably
expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties,
operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws
at the time this representation is made or deemed made that has not been publicly disclosed at least 1 Trading Day prior to the
date that this representation is made.
|
|
(j)
|
Litigation
. There is no action, suit, inquiry, notice
of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company,
any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency
or regulatory authority (federal, state, county, local or foreign) (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.
|
|
(k)
|
Labor Relations
. No labor dispute exists or, to
the knowledge of the Company, is imminent with respect to any of the employees of the Company, which could reasonably be expected
to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union
that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its
Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. To the knowledge of the Company, no 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 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 applicable
U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions
of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.
|
|
(l)
|
Compliance
. Neither the Company nor any Subsidiary:
(i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time
or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice
of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation
has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority
or (iii) is or has been in violation of any applicable statute, rule, ordinance or regulation of any governmental authority, including
without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health
and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be
expected to result in a Material Adverse Effect.
|
|
(m)
|
Environmental Laws
.
The Company and
its Subsidiaries (i) are in compliance with all applicable federal, state, local and foreign laws relating to pollution or protection
of human health or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata), including
laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, “
Hazardous Materials
”) into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands, or demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations, issued, entered, promulgated or approved thereunder (“
Environmental Laws
”);
(ii) have received all permits licenses or other approvals required of them under applicable Environmental Laws to conduct their
respective businesses; and (iii) are in compliance with all terms and conditions of any such permit, license or approval where
in each clause (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect.
|
|
(n)
|
Regulatory Permits
. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits
could not reasonably be expected to result in a Material Adverse Effect (“
Material Permits
”), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
|
|
(o)
|
Title to Assets
. The Company and the Subsidiaries
have good and marketable title in fee simple to all real property owned by them 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 (i) Liens as do not materially affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and the Subsidiaries, (ii) Liens for the payment of federal, state
or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither
delinquent nor subject to penalties and (iii) Liens disclosed in the SEC Reports. 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 are in compliance.
|
|
(p)
|
Intellectual Property
. The Company and the Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names,
trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required
for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could
have a Material Adverse Effect (collectively, the “
Intellectual Property Rights
”). None of, and neither the
Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired,
terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this
Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included
within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate
or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect.
To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by
another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could
not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
|
|
(q)
|
Insurance
. The Company and the Subsidiaries are
insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and
customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
|
|
(r)
|
Transactions With Affiliates and Employees
. Except
as set forth in the SEC Reports, 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, 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, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment
of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii)
other employee benefits, including stock option agreements under any stock option plan of the Company.
|
|
(s)
|
Sarbanes-Oxley; Internal Accounting Controls
. The
Company and the Subsidiaries are in material compliance with any and all applicable requirements of the Sarbanes-Oxley Act of
2002 that are effective as of the date hereof, 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 Closing 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and the Subsidiaries and designed such disclosure controls and procedures to ensure 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)
of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal
control over financial reporting of the Company and its Subsidiaries.
|
|
(t)
|
Certain Fees
. Except as set forth in the Prospectus
Supplement, no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any
broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents. The Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.
|
|
(u)
|
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.
|
|
(v)
|
Registration Rights
. No Person has any right to
cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any
Subsidiary.
|
|
(w)
|
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. The Company
has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has
been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such
Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance
with all such listing and maintenance requirements. The Common Stock is currently eligible for electronic transfer through the
Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the
Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
|
|
(x)
|
Application of Takeover Protections
. 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 similar anti-takeover provision
under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchasers as a result of the Purchasers 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 the Purchasers’ ownership of the Securities.
|
|
(y)
|
Disclosure
. Except with respect to the material
terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that it believes
constitutes or might constitute material, non-public information which is not otherwise disclosed in the Prospectus Supplement.
The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in
securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchasers regarding the Company
and its Subsidiaries, their respective businesses and the transactions contemplated hereby is true and correct in all material
respects and does not contain any untrue statement of a material fact or omit 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 press releases
disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges
and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2 hereof.
|
|
(z)
|
No Integrated Offering
. Assuming the accuracy of
the Purchasers’ representations and warranties set forth in Section 3.2, 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 prior
offerings by the Company for purposes of (i) the Securities Act which would require the registration of the Warrants or Warrant
Shares under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of
the securities of the Company are listed or designated.
|
|
(aa)
|
Solvency
. Based on the consolidated financial condition
of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the
Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be
paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as
they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business
conducted by the Company, consolidated and projected capital requirements and capital availability thereof, and (iii) the current
cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after
taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities
when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no
knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The SEC Reports set forth as of the
date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any
Subsidiary has commitments. For the purposes of this Agreement, “
Indebtedness
” means (x) any liabilities for
borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business),
(y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same
are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present
value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither
the Company nor any Subsidiary is in default with respect to any Indebtedness.
|
|
(bb)
|
Tax Status
. Except for matters that would not, individually
or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each
(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 the officers of the Company or of any Subsidiary know of no basis for any such claim.
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|
(cc)
|
Foreign Corrupt Practices
. Neither the Company nor
any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company
or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials
or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully
any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any provision of FCPA.
|
|
(dd)
|
Accountants
. To the knowledge and belief of the
Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ending
December 31, 2016.
|
|
(ee)
|
Acknowledgment Regarding Purchasers’ Purchase
of Securities
. The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s
length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges
that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental
to the Purchasers’ purchase of the Securities. The Company further represents to each Purchaser that the Company’s
decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation
of the transactions contemplated hereby by the Company and its representatives.
|
|
(ff)
|
Acknowledgement Regarding Purchaser’s Trading
Activity
. Anything in this Agreement or elsewhere herein to the contrary notwithstanding (except for Sections 3.2(f) and 4.14
hereof), it is understood and acknowledged by the Company that: (i) none of the Purchasers has been asked by the Company to agree,
nor has any Purchaser agreed, to desist from purchasing or selling, long and/or short, securities of the Company, or “derivative”
securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) past or future open
market or other transactions by any Purchaser, specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement transactions, may negatively impact the market price
of the Company’s publicly-traded securities; (iii) any Purchaser, and counter-parties in “derivative” transactions
to which any such Purchaser is a party, directly or indirectly, presently may have a “short” position in the Common
Stock, and (iv) each Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party
in any “derivative” transaction. The Company further understands and acknowledges that (y) one or more Purchasers
may engage in hedging activities at various times during the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Warrant Shares deliverable with respect to Securities are being determined, and (z) such
hedging activities (if any) could reduce the value of the existing stockholders' equity interests in the Company at and after
the time that the hedging activities are being conducted. The Company acknowledges that such aforementioned hedging activities
do not constitute a breach of any of the Transaction Documents.
|
|
(gg)
|
Regulation M Compliance
. The Company has not,
and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result
in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Securities, or (iii)
paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other
than, in the case of clauses (ii) and (iii), compensation paid to the Company’s placement agent in connection with the placement
of the Securities.
|
|
(ii)
|
Office of Foreign Assets Control
. Neither the Company
nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or affiliate of the Company or any
Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (“
OFAC
”).
|
|
(jj)
|
U.S. Real Property Holding Corporation
. The Company
is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code
of 1986, as amended, and the Company shall so certify upon Purchaser’s request.
|
|
(kk)
|
Bank Holding Company Act
. Neither the Company nor
any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “
BHCA
”)
and to regulation by the Board of Governors of the Federal Reserve System (the “
Federal Reserve
”). Neither
the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the
outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates
exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation
by the Federal Reserve.
|
|
(ll)
|
Money Laundering
. The operations of the Company
and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes
and applicable rules and regulations thereunder (collectively, the “
Money Laundering Laws
”), and no Action
or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any
Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
|
|
(mm)
|
Private Placement
. Assuming the accuracy of the
Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required
for the offer and sale of the Warrants or the Warrant Shares by the Company to the Purchasers as contemplated hereby.
|
|
(nn)
|
No General Solicitation
. Neither the Company nor
any Person acting on behalf of the Company has offered or sold any of the Warrant or Warrant Shares by any form of general solicitation
or general advertising. The Company has offered the Warrants and Warrant Shares for sale only to the Purchasers and certain other
“accredited investors” within the meaning of Rule 501 under the Securities Act.
|
|
(oo)
|
No Disqualification Events
. With respect to the
Warrant and Warrant Shares to be offered and sold hereunder in reliance on Rule 506 under the Securities Act, none of the Company,
any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in
the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated
on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the
Company in any capacity at the time of sale (each, an “
Issuer Covered Person
”) is subject to any of the “Bad
Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “
Disqualification
Event
”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable
care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent
applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Purchasers a copy of any disclosures provided
thereunder.
|
|
(pp)
|
Other Covered Persons
. Other than the Placement
Agent, the Company is not aware of any person (other than any Issuer Covered Person) that has been or will be paid (directly or
indirectly) remuneration for solicitation of purchasers in connection with the sale of any Securities.
|
|
(qq)
|
Notice of Disqualification Events
. The Company will
notify the Purchasers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Issuer Covered Person
and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to
any Issuer Covered Person, in each case of which it is aware.
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3.2
|
Representations and Warranties of the Purchasers
.
Each Purchaser, for itself and for no other Purchaser, hereby represents and warrants as of the date hereof and as of the Closing
Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
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(a)
|
Organization; Authority
. Such Purchaser is either
an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction
of its incorporation or formation with full right, corporate, partnership, limited liability company or similar 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 such Purchaser of the transactions
contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability
company or similar action, as applicable, on the part of such Purchaser. Each Transaction Document to which it is a party has
been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute
the valid and legally binding obligation of such 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, (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
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(b)
|
Understandings or Arrangements
. Such Purchaser is
acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any
other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting such
Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable
federal and state securities laws). Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser understands that the Warrants and the Warrant Shares are “restricted securities” and have not been
registered under the Securities Act or any applicable state securities law and is acquiring such Securities as principal for his,
her or its own account and not with a view to or for distributing or reselling such 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 such Purchaser’s right to sell such Securities
pursuant to a registration statement or otherwise in compliance with applicable federal and state securities laws).
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(c)
|
Purchaser Status
. At the time such Purchaser was
offered the Securities, it was, and as of the date hereof it is, and on each date on which it exercises any Warrants, it will
be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities
Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
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(d)
|
Experience of Such Purchaser
. Such Purchaser, either
alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters
so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and,
at the present time, is able to afford a complete loss of such investment.
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(e)
|
Access to Information
. Such Purchaser acknowledges
that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC
Reports and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and
risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to
obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary
to make an informed investment decision with respect to the investment. Such Purchaser acknowledges and agrees that neither
the Placement Agent nor any Affiliate of the Placement Agent has provided such Purchaser with any information or advice with respect
to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate
has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate
may have acquired non-public information with respect to the Company which such Purchaser agrees need not be provided to it.
In connection with the issuance of the Securities to such Purchaser, neither the Placement Agent nor any of its Affiliates has
acted as a financial advisor or fiduciary to such Purchaser.
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(f)
|
Certain Transactions and Confidentiality
. Other
than consummating the transactions contemplated hereunder, such Purchaser has not, nor has any Person acting on behalf of or pursuant
to any understanding with such Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of
the securities of the Company during the period commencing as of the time that such Purchaser first received a term sheet (written
or oral) from the Company or any other Person representing the Company setting forth the material pricing terms of the transactions
contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing
other portions of such Purchaser’s assets, the representation set forth above shall only apply with respect to the portion
of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered by this Agreement.
Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation,
its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty,
or preclude any actions, with respect to the identification of the availability of, or securing of, available shares to borrow
in order to effect Short Sales or similar transactions in the future.
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(g)
|
General Solicitation
. Such Purchaser is not purchasing
the Securities as a result of any advertisement, article, notice or other communication regarding the Securities 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.
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The Company acknowledges and agrees that the
representations contained in this Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall
constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect
Short Sales or similar transactions in the future.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
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(a)
|
The
Warrants and Warrant Shares may only be disposed
of in compliance with state and federal securities laws. In connection with any transfer of Warrants or Warrant Shares other than
pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection
with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion
of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred
Warrant under the Securities Act.
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(b)
|
The Purchasers agree to the imprinting, so long as is required
by this Section 4.1, of a legend on any of the Warrants or Warrant Shares in the following form:
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NEITHER THIS SECURITY NOR THE SECURITIES
INTO WHICH THIS SECURITY IS EXERCISABLE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION
THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.
The Company acknowledges
and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Warrants or Warrant Shares to a financial institution that is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Purchaser
may transfer pledged or secured Warrants or Warrant Shares to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall
be required in connection therewith. Further, no notice shall be required of such pledge. At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Warrants and Warrant
Shares may reasonably request in connection with a pledge or transfer of the Warrants or Warrant Shares.
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(c)
|
Certificates evidencing the Warrant Shares shall not contain
any legend (including the legend set forth in Section 4.1(b) hereof): (i) while a registration statement covering the resale of
such security is effective under the Securities Act, or (ii) following any sale of such Warrant Shares pursuant to Rule 144, or
(iii) if such Warrant Shares are eligible for sale under Rule 144, or (iv) if such legend is not required under applicable requirements
of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company
shall cause its counsel to issue a legal opinion to the Transfer Agent promptly if required by the Transfer Agent to effect the
removal of the legend hereunder. If all or any portion of a Warrant is exercised at a time when there is an effective registration
statement to cover the resale of the Warrant Shares, or if such Warrant Shares may be sold under Rule 144 or if such legend is
not otherwise required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements
issued by the staff of the Commission) then such Warrant Shares shall be issued free of all legends. The Company agrees that following
such time as such legend is no longer required under this Section 4.1(c), the Company will, no later than the earlier of (i) three
Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) following the delivery
by a Purchaser to the Company or the Transfer Agent of a certificate representing Warrant Shares, as applicable, issued with a
restrictive legend (such third Trading Day, the “
Legend Removal Date
”), deliver or cause to be delivered to
such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not
make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth
in this Section 4. Certificates for Warrant Shares subject to legend removal hereunder shall be transmitted by the Transfer Agent
to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed
by such Purchaser. As used herein, “
Standard Settlement Period
” means the standard settlement period, expressed
in a number of Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the
date of delivery of a certificate representing Warrant Shares issued with a restrictive legend.
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(d)
|
In addition to such Purchaser’s other available remedies,
the Company shall pay to a Purchaser, in cash, (i) as partial liquidated damages and not as a penalty, for each $1,000 of Warrant
Shares (based on the VWAP of the Common Stock on the date such Securities are submitted to the Transfer Agent) delivered for removal
of the restrictive legend and subject to Section 4.1(c), $10 per Trading Day (increasing to $20 per Trading Day five (5) Trading
Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered
without a legend and (ii) if the Company fails to (a) issue and deliver (or cause to be delivered) to a Purchaser by the Legend
Removal Date a certificate representing the Securities so delivered to the Company by such Purchaser that is free from all restrictive
and other legends and (b) if after the Legend Removal Date such Purchaser purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Purchaser of all or any portion of the number of shares of
Common Stock, or a sale of a number of shares of Common Stock equal to all or any portion of the number of shares of Common Stock,
that such Purchaser anticipated receiving from the Company without any restrictive legend, then an amount equal to the excess
of such Purchaser’s total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (including brokerage commissions and other out-of-pocket expenses, if any) (the “
Buy-In
Price
”) over the product of (A) such number of Warrant Shares that the Company was required to deliver to such Purchaser
by the Legend Removal Date multiplied by (B) the lowest closing sale price of the Common Stock on any Trading Day during the period
commencing on the date of the delivery by such Purchaser to the Company of the applicable Warrant Shares (as the case may be)
and ending on the date of such delivery and payment under this Section 4.1(d).
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(e)
|
The Shares shall be issued free of legends.
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|
4.2
|
Furnishing of Information
.
|
|
(a)
|
Until the earliest of the time that (i) no Purchaser owns
Securities or (ii) the Warrants have expired, the Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting requirements of the Exchange Act.
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(b)
|
At any time during the period commencing from the six (6)
month anniversary of the date hereof and ending at such time that all of the Warrant Shares (assuming cashless exercise) may be
sold without the requirement for the Company to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation
pursuant to Rule 144, if the Company (i) shall fail for any reason to satisfy the current public information requirement under
Rule 144(c) or (ii) has ever been an issuer described in Rule 144(i)(1)(i) or becomes an issuer in the future, and the Company
shall fail to satisfy any condition set forth in Rule 144(i)(2) (a “
Public Information Failure
”) then, in addition
to such Purchaser’s other available remedies, the Company shall pay to a Purchaser, in cash, as partial liquidated damages
and not as a penalty, by reason of any such delay in or reduction of its ability to sell the Warrant Shares, an amount in cash
equal to two percent (2.0%) of the aggregate Exercise Price of such Purchaser’s Warrants on the day of a Public Information
Failure and on every thirtieth (30
th
) day (pro rated for periods totaling less than thirty days) thereafter until the
earlier of (a) the date such Public Information Failure is cured and (b) such time that such public information is no longer required
for the Purchasers to transfer the Warrant Shares pursuant to Rule 144. The payments to which a Purchaser shall be entitled
pursuant to this Section 4.2(b) are referred to herein as “
Public Information Failure Payments
.” Public
Information Failure
Payments shall be paid on the earlier of (i) the last day of the calendar month during which such
Public Information Failure
Payments are incurred and (ii) the third (3
rd
) Business Day after the event
or failure giving rise to the Public Information Failure
Payments is cured. In the event the Company fails to
make Public Information Failure
Payments in a timely manner, such Public Information Failure
Payments
shall bear interest at the rate of 1.5% per month (prorated for partial months) until paid in full. Nothing herein shall limit
such Purchaser’s right to pursue actual damages for the Public Information Failure, and such Purchaser shall have the right
to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or
injunctive relief.
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|
4.
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 Warrants or Warrant Shares or that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.
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4.4
|
Securities Laws Disclosure; Publicity
. The Company
shall (a) by 9:00 a.m. (New York City time) on the Trading Day immediately following the date hereof, issue a press release disclosing
the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K, including the Transaction
Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. From and after the issuance of
such press release, the Company represents to the Purchasers that it shall have publicly disclosed all material, non-public information
delivered to any of the Purchasers by the Company or any of its Subsidiaries, or any of their respective officers, directors,
employees or agents in connection with the transactions contemplated by the Transaction Documents. In addition, effective upon
the issuance of such press release, the Company acknowledges and agrees that any and all confidentiality or similar obligations
under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates on the one hand, and any of the Purchasers or any of their Affiliates on the other
hand, shall terminate. The Company and each Purchaser shall consult with each other in issuing any other press releases with respect
to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release nor otherwise
make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or
without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably
be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide
the other party with prior notice of such public statement or communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (a) as required by federal securities
law in connection with the filing of final Transaction Documents with the Commission and (b) to the extent such disclosure is
required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such
disclosure permitted under this clause (b).
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|
4.5
|
Shareholder Rights Plan
. No claim will be made or
enforced by the Company or, with the consent of the Company, any other Person, that any Purchaser is an “
Acquiring Person
”
under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or
similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed
to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or
under any other agreement between the Company and the Purchasers.
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|
4.6
|
Non-Public Information
. Except with respect to the
material terms and conditions of the transactions contemplated by the Transaction Documents, which shall be disclosed pursuant
to Section 4.4, the Company covenants and agrees that neither it, nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public
information, unless prior thereto such Purchaser shall have consented to the receipt of such information and agreed with the Company
to keep such information confidential. The Company understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public
information to a Purchaser without such Purchaser’s consent, the Company hereby covenants and agrees that such Purchaser
shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors,
agents, employees or Affiliates, or a duty to the Company, any of its Subsidiaries or any of their respective officers, directors,
agents, employees or Affiliates not to trade on the basis of, such material, non-public information, provided that the Purchaser
shall remain subject to applicable law. To the extent that any notice provided pursuant to any Transaction Document constitutes,
or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file
such notice with the Commission pursuant to a Current Report on Form 8-K. The Company understands and confirms that each Purchaser
shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
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|
4.7
|
Use of Proceeds
. The Company shall use the net proceeds
from the sale of the Securities hereunder for working capital purposes and shall not use such proceeds: (a) for the satisfaction
of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s
business and prior practices), (b) for the redemption of any Common Stock or Common Stock Equivalents, (c) for the settlement
of any outstanding litigation or (d) in violation of FCPA or OFAC regulations.
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|
4.8
|
Indemnification of Purchasers
. Subject to the provisions
of this Section 4.8, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding
a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and
any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or
any other title) of such controlling persons (each, a “
Purchaser Party
”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements,
court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur
as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company
in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity,
or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party,
with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of
such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings
such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities
laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If
any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement,
such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense
thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right
to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized
by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between
the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable
fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this
Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall
not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability
is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made
by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section
4.8 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills
are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar
right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
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4.9
|
Reservation of Common Stock
. As of the date hereof,
the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights,
a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement
and Warrant Shares pursuant to any exercise of the Warrants.
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|
4.10
|
Listing of Common Stock
. The Company hereby agrees
to use best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed,
and concurrently with the Closing, the Company shall apply to list or quote all of the Shares and Warrant Shares on such Trading
Market and promptly secure the listing of all of the Shares and Warrant Shares on such Trading Market. The Company further agrees,
if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all
of the Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Shares and Warrant Shares
to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company agrees to
maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established
clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established
clearing corporation in connection with such electronic transfer. In addition, the Company shall hold a special meeting of shareholders
(which may also be at the annual meeting of shareholders) at the earliest practical date for the purpose of obtaining Shareholder
Approval, with the recommendation of the Company’s Board of Directors that such proposal be approved, and the Company shall
solicit proxies from its shareholders in connection therewith in the same manner as all other management proposals in such proxy
statement and all management-appointed proxyholders shall vote their proxies in favor of such proposal. If the Company does not
obtain Shareholder Approval at the first meeting, the Company shall use best efforts to seek Shareholder Approval as promptly
as possible thereafter until the earlier of the date Shareholder Approval is obtained or the Warrants are no longer outstanding.
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|
4.11
|
Participation in Future Financing
.
|
|
(a)
|
From the date hereof until the date that is the 12 month
anniversary of the Closing Date, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents
for cash consideration, Indebtedness or a combination of units hereof (a “
Subsequent Financing
”), each Purchaser
shall have the right to participate in up to an amount of the Subsequent Financing equal to 35% of the Subsequent Financing (the
“
Participation Maximum
”) on the same terms, conditions and price provided for in the Subsequent Financing.
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|
(b)
|
At least five (5) Trading Days prior to the closing
of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent
Financing (“
Pre-Notice
”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such
financing (such additional notice, a “
Subsequent Financing Notice
”). Upon the request of a Purchaser,
and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one
(1) Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser. The Subsequent Financing Notice
shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised
thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be effected and shall include
a term sheet or similar document relating thereto as an attachment.
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|
(c)
|
Any Purchaser desiring to participate in such Subsequent
Financing must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth (5
th
)
Trading Day after all of the Purchasers have received the Pre-Notice that such Purchaser is willing to participate in the Subsequent
Financing, the amount of such Purchaser’s participation, and representing and warranting that such Purchaser has such funds
ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives
no such notice from a Purchaser as of such fifth (5
th
) Trading Day, such Purchaser shall be deemed to have notified
the Company that it does not elect to participate.
|
|
(d)
|
If by 5:30 p.m. (New York City time) on the fifth (5
th
)
Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to
participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total
amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms
and with the Persons set forth in the Subsequent Financing Notice.
|
|
(e)
|
If by 5:30 p.m. (New York City time) on the fifth (5
th
)
Trading Day after all of the Purchasers have received the Pre-Notice, the Company receives responses to a Subsequent Financing
Notice from Purchasers seeking to purchase more than the aggregate amount of the Participation Maximum, each such Purchaser shall
have the right to purchase its Pro Rata Portion (as defined below) of the Participation Maximum. “
Pro Rata Portion
”
means the ratio of (x) the Subscription Amount of Securities purchased on the Closing Date by a Purchaser participating under
this Section 4.11 and (y) the sum of the aggregate Subscription Amounts of Securities purchased on the Closing Date by all Purchasers
participating under this Section 4.11.
|
|
(f)
|
The Company must provide the Purchasers with a second Subsequent
Financing Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.11, if the Subsequent
Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such
Subsequent Financing Notice within thirty (30) Trading Days after the date of the initial Subsequent Financing Notice.
|
|
(g)
|
The Company and each Purchaser agree that if any Purchaser
elects to participate in the Subsequent Financing, the transaction documents related to the Subsequent Financing shall not include
any term or provision whereby such Purchaser shall be required to agree to any restrictions on trading as to any of the Securities
purchased hereunder or be required to consent to any amendment to or termination of, or grant any waiver, release or the like
under or in connection with, this Agreement, without the prior written consent of such Purchaser.
|
|
(h)
|
Notwithstanding anything to the contrary in this Section
4.11 and unless otherwise agreed to by such Purchaser, the Company shall either confirm in writing to such Purchaser that the
transaction with respect to the Subsequent Financing has been abandoned or shall publicly disclose its intention to issue the
securities in the Subsequent Financing, in either case in such a manner such that such Purchaser will not be in possession of
any material, non-public information, by the tenth (10
th
) Business Day following delivery of the Subsequent Financing
Notice. If by such tenth (10
th
) Business Day, no public disclosure regarding a transaction with respect to the Subsequent
Financing has been made, and no notice regarding the abandonment of such transaction has been received by such Purchaser, such
transaction shall be deemed to have been abandoned and such Purchaser shall not be deemed to be in possession of any material,
non-public information with respect to the Company or any of its Subsidiaries.
|
|
(i)
|
Notwithstanding the foregoing, this Section 4.11 shall
not apply in respect of an Exempt Issuance or, commencing 45 days after the date hereof, the issuance of Common Stock purchase
warrants issued solely in connection with a bona-fide loan facility provided that such warrants have an exercise price not less
than the market price at the time of issuance, would not be deemed a Variable Rate Transaction (and have no anti-dilution provisions
or subsequent reset provisions) and are not registered or carry registration rights.
|
|
4.12
|
Subsequent Equity Sales
.
|
|
(a)
|
From the date hereof until 90 days after the Closing Date,
neither the Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance
of any shares of Common Stock or Common Stock Equivalents; provided, further, that prior to Shareholder Approval, neither the
Company nor any Subsidiary shall issue, enter into any agreement to issue or announce the issuance or proposed issuance of any
shares of Common Stock or Common Stock Equivalents at an effective price below the Floor Price (as defined in the Warrants).
|
|
(b)
|
From the date hereof until the date that is the 12 month
anniversary of the Closing Date, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance
by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving
a Variable Rate Transaction. “
Variable Rate Transaction
” means a transaction in which the Company (i) issues
or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive
additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based
upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance
of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into, or effects
a transaction under, any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities
at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any
such issuance, which remedy shall be in addition to any right to collect damages.
|
|
(c)
|
Unless Shareholder Approval has been obtained and deemed
effective, neither the Company nor any Subsidiary shall make any issuance whatsoever of Common Stock or Common Stock Equivalents
which would cause any adjustment of the exercise price of the Warrants below the Floor Price. Any Purchaser shall be entitled
to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right
to collect damages.
|
|
(d)
|
Notwithstanding the foregoing, this Section 4.12 shall
not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance or, commencing
45 days after the date hereof, the issuance of Common Stock purchase warrants issued solely in connection with a bona-fide loan
facility provided that such warrants have an exercise price not less than the market price at the time of issuance, would not
be deemed a Variable Rate Transaction (and have no anti-dilution provisions or subsequent reset provisions) and are not registered
or carry registration rights.
|
|
4.13
|
Equal Treatment of Purchasers
. No consideration
(including any modification of any Transaction Document) shall be offered or paid to any Person to amend or consent to a waiver
or modification of any provision of the Transaction Documents unless the same consideration is also offered to all of the parties
to the Transaction Documents. For clarification purposes, this provision constitutes a separate right granted to each Purchaser
by the Company and negotiated separately by each Purchaser, and is intended for the Company to treat the Purchasers as a class
and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition
or voting of Securities or otherwise.
|
|
4.14
|
Certain Transactions and Confidentiality
. Each Purchaser,
severally and not jointly with the other Purchasers, covenants that neither it nor any Affiliate acting on its behalf or pursuant
to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company’s securities
during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by
this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4. Each
Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated
by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section 4.4, such
Purchaser will maintain the confidentiality of the existence and terms of this transaction. Notwithstanding the foregoing
and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i)
no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities
of the Company after the time that the transactions contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.4, (ii) no Purchaser shall be restricted or prohibited from effecting any transactions
in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated
by this Agreement are first publicly announced pursuant to the initial press release as described in Section 4.4 and (iii) no
Purchaser shall have any duty of confidentiality or duty not to trade in the securities of the Company to the Company or its Subsidiaries
after the issuance of the initial press release as described in Section 4.4. Notwithstanding the foregoing, in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of
such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the covenant set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Securities covered
by this Agreement.
|
|
4.15
|
Capital Changes
. Until the one year anniversary
of the Closing Date, the Company shall not undertake a reverse or forward stock split or reclassification of the Common Stock
without the prior written consent of the Purchasers holding a majority in interest of the Shares.
|
|
4.16
|
Exercise Procedures
. The form of Notice of Exercise
included in the Warrants set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants.
No additional legal opinion, other information or instructions shall be required of the Purchasers to exercise their Warrants.
Without limiting the preceding sentences, no ink-original Notice of Exercise shall be required, nor shall any medallion guarantee
(or other type of guarantee or notarization) of any Notice of Exercise form be required in order to exercise the Warrants. The
Company shall honor exercises of the Warrants and shall deliver Warrant Shares in accordance with the terms, conditions and time
periods set forth in the Transaction Documents.
|
|
4.17
|
Form D; Blue Sky Filings
. The Company agrees to
timely file a Form D with respect to the Warrant and Warrant Shares as required under Regulation D and to provide a copy thereof,
promptly upon request of any Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary
in order to obtain an exemption for, or to qualify the Warrant and Warrant Shares for, sale to the Purchasers at the Closing under
applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions
promptly upon request of any Purchaser.
|
|
4.18
|
Registration Statement
. As soon as reasonably practicable
(and in any event within 45 calendar days after the date of this Agreement), the Company shall file a registration statement on
Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by the Purchasers of the
Warrant Shares issued and issuable upon exercise of the Warrants. The Company shall use commercially reasonable efforts to cause
such registration to become effective no later than 181 days following the Closing Date and to keep such registration statement
effective at all times until (a) the Warrant Shares are sold under such registration statement or pursuant to Rule 144 or other
exemption under the Securities Act, (b) the Warrant Shares may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144 under the Securities Act, and (c) the five (5) year anniversary of the date of the issuance of the Warrants, whichever
is the earliest to occur. Subject to the accuracy of the information provided by the Purchasers to the Company, the Company shall
ensure that such registration statement (including any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary
to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading.
After the date hereof and during any period in which a prospectus or prospectus supplement relating to any of the Securities subject
to registration under this Section 4.18 is required to be delivered by any Purchaser pursuant to the Securities Act (including
in circumstances where such requirement may be satisfied pursuant to Rule 172 of the Securities Act), (i) the Company will notify
the Purchasers promptly of the time when any subsequent amendment to such registration statement, other than documents incorporated
by reference, has been filed with the Commission or has become effective or any subsequent supplement to the prospectus regarding
such Securities or any of the Purchasers or any subsequent amendment to the prospectus or any supplement or amendment to the prospectus
supplement has been filed with the Commission and of any comment letter from the Commission or any request by the Commission for
any amendment or supplement to such registration statement, any amendment to the prospectus, any supplement to the prospectus
that relates to the Securities subject to such registration statement under this Section or any of the Purchasers, or any amendment
or supplement to the prospectus supplement, provided that no notification of the Purchasers shall be required if such amendment,
supplement, or comment, or request would not, and would not seek, to limit the rights of the Purchasers or the Warrant Shares,
(ii) the Company will prepare and file with the Commission, promptly upon a Purchaser’s request, any amendments or supplements
to such registration statement, prospectus or prospectus supplement that, in the Company’s reasonable opinion, may be necessary
in connection with any resale of the Warrant Shares by such Purchaser (provided, however, that the failure of such Purchaser to
make such request shall not relieve the Company of any obligation or liability hereunder), (iii) the Company will not file any
amendment or supplement to a registration statement, prospectus or prospectus supplement, other than documents incorporated by
reference, relating to the Warrant Shares subject to registration under this Section 4.18 unless a copy thereof has been submitted
or made available to each Purchaser within a reasonable period of time before the filing and no Purchaser has reasonably objected
in writing thereto (provided, however, that (A) the failure of any Purchaser to make such objection shall not relieve the Company
of any obligation or liability hereunder, and (B) the Company has no obligation to provide a Purchaser any advance copy of such
filing or to provide such Purchaser an opportunity to object to such filing if such filing does not name such Purchaser or specifically
discuss the Warrant Shares subject to registration under this Section 4.18 as contemplated hereby) and the Company will furnish
or make available to each Purchaser at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated
by reference into a registration statement, prospectus or prospectus supplement, except for those documents available via EDGAR,
and (iv) the Company will cause each amendment or supplement to the prospectus or prospectus supplement, other than documents
incorporated by reference, to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of
the Securities Act. Each Purchaser shall furnish the Company a completed questionnaire in the form attached hereto as Schedule
4.18 prior to the filing of such registration statement.
|
ARTICLE V.
MISCELLANEOUS
|
5.1
|
Termination
. This Agreement may be terminated
by any Purchaser, as to such Purchaser’s obligations hereunder only and without any effect whatsoever on the obligations
between the Company and the other Purchasers, by written notice to the other parties, if the Closing has not been consummated
on or before December 23, 2016;
provided
,
however
, that no such termination will affect the right of any
party to sue for any breach by any other party (or parties).
|
|
5.2
|
Fees and Expenses
. Except as expressly set forth
in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its 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 (including, without limitation, any
fees required for same-day processing of any instruction letter delivered by the Company and any exercise notice delivered by
a Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.
|
|
5.3
|
Entire Agreement
. The Transaction Documents, together
with the exhibits and schedules thereto, the Prospectus and the Prospectus Supplement, 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.
|
|
5.4
|
Notices
. Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the
earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number
or email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number or email attachment at the email address as set forth on the signature pages attached hereto
on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2
nd
)
Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual
receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as
set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document
constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously
file such notice with the Commission pursuant to a Current Report on Form 8-K.
|
|
5.5
|
Amendments; Waivers
. No provision of this Agreement
may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company
and Purchasers which purchased at least 67% in interest of the Shares based on the initial Subscription Amounts hereunder or,
in the case of a waiver, by the party against whom enforcement of any such waived provision is sought, provided that if any amendment,
modification or waiver disproportionately and adversely impacts a Purchaser (or group of Purchasers), the consent of such disproportionately
impacted Purchaser (or group of Purchasers) shall also be required. 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. Any proposed amendment or waiver that disproportionately,
materially and adversely affects the rights and obligations of any Purchaser relative to the comparable rights and obligations
of the other Purchasers shall require the prior written consent of such adversely affected Purchaser, Any amendment effected in
accordance with accordance with this Section 5.5 shall be binding upon each Purchaser and holder of Securities and the Company.
|
|
5.6
|
Headings
. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
|
|
5.7
|
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 each Purchaser (other than by merger). Any
Purchaser may assign any or all of its rights under this Agreement to any Person to whom such 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 the “Purchasers.”
|
|
5.8
|
No Third-Party Beneficiaries
. The Placement Agent
shall be the third party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations
and warranties of the Purchasers in Section 3.2. 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,
except as otherwise set forth in Section 4.8 and this Section 5.8.
|
|
5.9
|
Governing Law
. All questions concerning the construction,
validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees
that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement
and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers,
shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in
the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting
in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding.
Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at
the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process
in any other manner permitted by law. If any party shall commence an Action or Proceeding to enforce any provisions of the Transaction
Documents, then, in addition to the obligations of the Company under Section 4.8, the prevailing party in such Action or Proceeding
shall be reimbursed by the non-prevailing party for its reasonable attorneys’ fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such Action or Proceeding.
|
|
5.10
|
Survival
. The representations and warranties contained
herein shall survive the Closing and the delivery of the Securities.
|
|
5.11
|
Execution
. 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 facsimile transmission or 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 facsimile or “.pdf” signature page
were an original thereof.
|
|
5.12
|
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 hereto 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. It is hereby stipulated and declared to be the intention of the parties that they would have executed
the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
|
|
5.13
|
Rescission and Withdrawal Right
. Notwithstanding
anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole
discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights;
provided
,
however
, that in the case of a rescission of an
exercise of a Warrant, the applicable Purchaser shall be required to return any shares of Common Stock subject to any such rescinded
exercise notice concurrently with the return to such Purchaser of the aggregate exercise price paid to the Company for such shares
and the restoration of such Purchaser’s right to acquire such shares pursuant to such Purchaser’s Warrant (including,
issuance of a replacement warrant certificate evidencing such restored right).
|
|
5.14
|
Replacement of Securities
. If any certificate or
instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in
exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor,
a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party
costs (including customary indemnity) associated with the issuance of such replacement Securities.
|
|
5.15
|
Remedies
. In addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled
to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive
and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
|
|
5.16
|
Payment Set Aside
. To the extent that the Company
makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded,
repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation,
any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as
if such payment had not been made or such enforcement or setoff had not occurred.
|
|
5.17
|
Independent Nature of Purchasers’ Obligations
and Rights
. The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations
of any other Purchaser, and no Purchaser shall be responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action
taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each Purchaser shall be
entitled to independently protect and enforce its rights including, without limitation, the rights arising out of this Agreement
or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional
party in any Proceeding for such purpose. Each Purchaser has been represented by its own separate legal counsel in its review
and negotiation of the Transaction Documents. For reasons of administrative convenience only, each Purchaser and its respective
counsel have chosen to communicate with the Company through EGS. EGS does not represent any of the Purchasers and only represents
the Placement Agent. The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience
of the Company and not because it was required or requested to do so by any of the Purchasers. It is expressly understood and
agreed that each provision contained in this Agreement and in each other Transaction Document is between the Company and a Purchaser,
solely, and not between the Company and the Purchasers collectively and not between and among the Purchasers.
|
|
5.18
|
Liquidated Damages
. The Company’s obligations
to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the
Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall
have been canceled.
|
|
5.19
|
Saturdays, Sundays, Holidays, etc.
If the last or
appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next succeeding Business Day.
|
|
5.20
|
Construction
. The parties agree that each of them
and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal
rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in
the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices
and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
|
|
5.21
|
WAIVER OF JURY TRIAL
.
IN ANY ACTION,
SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY,
TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.
|
APPENDIX
B
PLACEMENT
AGENCY AGREEMENT
Roth Capital Partners, LLC
888 San Clemente Drive, Suite 400
Newport Beach, CA 92660
Ladies and Gentlemen:
U.S. Energy Corp., a Wyoming
corporation (the “
Company
”), proposes, subject to the terms and conditions stated herein, to issue and sell,
through Roth Capital Partners, LLC (“
Roth
”), securities of the Company consisting of shares (“
Shares
”)
of the Company’s common stock (“
Common Stock
”), par value $0.01 per share, and warrants to purchase shares
of Common Stock (“
Warrants
”, and collectively with the Shares, the “
Securities
”), directly
to various investors (the “
Investors
”).
The Company and Roth hereby confirm their agreement
as follows:
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1.
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Agreement to Act as Placement Agent
.
On the basis of the representations, warranties and agreements
of the Company herein contained, and subject to all the terms and conditions of this Agreement, Roth shall serve as the exclusive
placement agent in connection with the issuance and sale by the Company of the Shares from the Registration Statement (as defined
in Section 2 below) (such offering, the “
Public Offering
”), together with a concurrent private placement of
the Warrants to a limited number of accredited investors pursuant to the exemption from registration provided by Regulation D,
Rule 506 (such private placement, the “
Private Placement
,” and together with the Public Offering, the “
Offering
”)
to be subject to market conditions and negotiations between the Company, Roth and the Investors. Roth shall act on a best efforts
basis and does not guarantee that it will be able to sell the Securities in the prospective Offering. As compensation for services
rendered, on the Closing Date (as defined below), the Company shall pay to Roth an aggregate amount equal to 7% of the aggregate
gross proceeds received by the Company from the sale of such Securities. The purchase price of the Securities to the Investors
(the “
Offering Price
”) shall be mutually agreed to between the Company and Roth. Roth may retain other brokers
or dealers to act as sub-agents on its behalf in connection with the Offering; provided, however, to the extent that such other
brokers or dealers are retained, the commissions paid to such brokers or dealers shall reduce by equal amounts from the compensation
paid to Roth. The term of Roth’s exclusive engagement will be 30 days from the date hereof (the “
Exclusive Term
”).
Roth will be entitled to collect all fees earned through termination. The Company also agrees (i) to reimburse Roth up to $30,000
for its reasonable out-of-pocket expenses, including the fees and disbursements of its counsel, subject to submission of applicable
documentation to the Company (reasonably acceptable to the Company) evidencing such out-of-pocket expenses that were incurred,
and (ii) subject to the foregoing, such reimbursement may be made directly out of the proceeds of the Closing; provided, however,
that in no event shall Roth be entitled to reimbursement for out-of-pocket expenses (including the fees and disbursements of its
counsel) in excess of $30,000 to which the Company did not give its prior written approval.
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2.
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Registration Statement and Final Prospectus
. The Company has prepared and filed with the Securities and Exchange
Commission (the “
Commission
”) a registration statement on Form S-3 (File No. 333-204350) under the Securities
Act of 1933 (the “
Securities Act
”) and the rules and regulations (the “
Rules and Regulations
”)
of the Commission thereunder, and such amendments to such registration statement (including post effective amendments) as may have
been required to the date of this Agreement. Such registration statement, as amended (including any post effective amendments),
has been declared effective by the Commission. Such registration statement, as amended (including post effective amendments thereto),
the exhibits and any schedules thereto and the documents and information otherwise deemed to be a part thereof or included therein
by the Securities Act or otherwise pursuant to the Rules and Regulations, is herein called the “
Registration Statement
.”
If the Company has filed or files an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the “
Rule
462 Registration Statement
”), then any reference herein to the term Registration Statement shall include such Rule 462
Registration Statement. The Company will file with the Commission pursuant to Rule 424 under the Securities Act a prospectus supplements
relating to the Public Offering of the Shares to the form of prospectus included in the Registration Statement. Such prospectus
in the form in which it appears in the Registration Statement is hereinafter called the “
Base Prospectus
,” and
the final prospectus supplement as filed, along with the Base Prospectus, is hereinafter called the “
Final Prospectus
.”
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For purposes of this Agreement,
all references to the Registration Statement, the Rule 462 Registration Statement, the Base Prospectus, the Final Prospectus, or
any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its
Interactive Data Electronic Applications system. Any reference to the Registration Statement, the Base Prospectus or the Final
Prospectus shall be deemed to refer to and include the documents incorporated by reference therein. All references in this Agreement
to amendments or supplements to the Registration Statement, the Rule 462 Registration Statement, the Base Prospectus, or the Final
Prospectus shall be deemed to mean and include the subsequent filing of any document under the Securities Exchange Act of 1934,
as amended (the “
Exchange Act
”), that is deemed to be incorporated therein by reference therein or otherwise
deemed by the Rules and Regulations to be a part thereof.
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3.
|
Representations and Warranties Regarding the Offering.
|
(a)The Company
represents and warrants to, and agrees with, Roth, as of the date hereof and as of the Closing Date, except as otherwise indicated,
as follows:
(i) At each
time of effectiveness, at the date hereof and at the Closing Date, the Registration Statement and any post-effective amendment
thereto, complied or will comply in all material respects with the requirements of the Securities Act and the Rules and Regulations
and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The Time of Sale Disclosure Package (as defined below) as of
the date hereof and at the Closing Date, and the Final Prospectus, as amended or supplemented, at the time of filing pursuant to
Rule 424(b) under the Securities Act and at the Closing Date, did not and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding
sentences shall not apply to statements in or omissions from the Registration Statement or any post-effective amendment thereto
or the Final Prospectus in reliance upon, and in conformity with, written information furnished to the Company by Roth specifically
for use in the preparation thereof. The Registration Statement contains all exhibits and schedules required to be filed by the
Securities Act or the Rules and Regulations. No order preventing or suspending the effectiveness or use of the Registration Statement
or the Final Prospectus is in effect and no proceedings for such purpose have been instituted or are pending, or, to the Knowledge
of the Company, are contemplated or threatened by the Commission. The term “Knowledge” as used in this Agreement shall
mean actual knowledge of the Company’s officers after due and reasonable inquiry.
(ii) The documents
incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus, when they
became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements
of the Securities Act or the Exchange Act, as applicable, were filed on a timely basis with the Commission and none of such documents,
when they were filed (or, if amendments to such documents were filed, when such amendments were filed), contained an untrue statement
of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. Any further documents so filed and incorporated by reference in the Registration Statement,
the Time of Sale Disclosure Package or the Final Prospectus, when such documents are filed with the Commission, will conform in
all material respects to the requirements of the Exchange Act, and will not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made,
not misleading. As used in this paragraph and elsewhere in this Agreement, “
Time of Sale Disclosure Package
”
means the Base Prospectus, the Final Prospectus most recently filed with the Commission before the time of this Agreement, any
subscription agreement between the Company and the Investors, and any issuer free writing prospectus as defined in Rule 433 of
the Securities Act (each, an “
Issuer Free Writing Prospectus
”), if any, that the parties hereto shall hereafter
expressly agree in writing to treat as part of the Time of Sale Disclosure Package.
(iii) The financial
statements of the Company, together with the related notes, included or incorporated by reference in the Registration Statement,
the Time of Sale Disclosure Package and the Final Prospectus comply in all material respects with the requirements of the Securities
Act and the Exchange Act and fairly present in all material respects the financial condition of the Company as of the dates indicated
and the results of operations and changes in cash flows for the periods therein specified in conformity with generally accepted
accounting principles consistently applied throughout the periods involved; and the supporting schedules included in the Registration
Statement present fairly in all material respects the information required to be stated therein. No other financial statements
or schedules are required to be included in the Registration Statement, the Time of Sale Disclosure Package or the Final Prospectus.
To the Company’s Knowledge, Hein & Associates LLP is an independent public accounting firm with respect to the Company
within the meaning of the Securities Act and the Rules and Regulations. The interactive data in extensible Business Reporting Language
included or incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus
fairly presents the information called for in all material respects and has been prepared in accordance with the Commission’s
rules and guidelines applicable thereto.
(iv) The Company
had a reasonable basis for, and made in good faith, each “forward-looking statement” (within the meaning of Section
27A of the Securities Act or Section 21E of the Exchange Act) contained or incorporated by reference in the Registration Statement,
the Time of Sale Disclosure Package or the Final Prospectus.
(v) All statistical
or market-related data included or incorporated by reference in the Registration Statement, the Time of Sale Disclosure Package
or the Final Prospectus are based on or derived from sources that the Company reasonably believes to be reliable and accurate,
and the Company has obtained the written consent to the use of such data from such sources, to the extent required.
(vi) Except
as described in the Final Prospectus, there is no action pending to delist the Common Securities from the NASDAQ Capital Market
(“
NASDAQ
”), nor has the Company received any notification that NASDAQ Capital Market is currently contemplating
terminating such listing. When issued, the Shares and the shares underlying the Warrants will be listed on NASDAQ Capital Market.
(vii) The Securities
are “Covered Securities” within the meaning of Section 18 of the Securities Act.
(viii) The Company
has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected
to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale
of the Securities.
(ix) The Company
is not an “
ineligible issuer
,” as defined in Rule 405 of the Securities Act. Subject to Section 6.1(d) below,
the Company represents and warrants that it has not prepared or had prepared on its behalf or used or referred to any Issuer Free
Writing Prospectus in connection with the Offering. Subject to Section 6.1(d) below, the Company has not distributed and the Company
will not distribute, prior to the completion of the distribution of the Securities, any offering material in connection with the
Offering other than subscription agreements between the Company and the Investors and the Base Prospectus, the Final Prospectus,
the Registration Statement, and copies of the documents, if any, incorporated by reference therein.
(x) The Company
is not and, after giving effect to the offering and sale of the Securities, will not be an “investment company,” as
such term is defined in the Investment Company Act of 1940, as amended.
(b) Any certificate
signed by any officer of the Company and delivered to Roth or to Roth’s counsel shall be deemed a representation and warranty
by the Company to Roth as to the matters covered thereby.
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4.
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Representations and Warranties Regarding the Company.
|
(a) The Company
represents and warrants to and agrees with, Roth, except as set forth in the Registration Statement, the Time of Sale Disclosure
Package and the Final Prospectus, as follows:
(i) The Company
and each of its subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation. The Company and each of its subsidiaries has the corporate power and authority to own its properties
and conduct its business as currently being carried on and as described in the Registration Statement, the Time of Sale Disclosure
Package and the Final Prospectus, and is duly qualified to do business as a foreign corporation in good standing in each jurisdiction
in which it owns or leases real property or in which the conduct of its business makes such qualification necessary and in which
the failure to so qualify would have or is reasonably likely to result in a material adverse effect upon the business, prospects,
properties, operations, condition (financial or otherwise) or results of operations of the Company and its subsidiaries, taken
as a whole, or in its ability to perform its obligations under this Agreement (“
Material Adverse Effect
”); provided
that none of the following alone shall be deemed, in and of itself, to constitute a Material Adverse Effect: (x) a change in the
market price or trading volume of the Company’s common stock or (y) changes in general economic conditions or changes affecting
the industry in which the Company operates generally (as opposed to Company-specific changes) so long as such changes do not have
a materially disproportionate effect on the Company.
(ii) The Company
has the power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the
Company, and constitutes a valid, legal and binding obligation of the Company, enforceable in accordance with its terms, except
as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles
of equity.
(iii) The execution,
delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not (A) result in
a breach or violation of any of the terms and provisions of, or constitute a default under, any law, rule or regulation to which
the Company or any subsidiary is subject, or by which any property or asset of the Company or any subsidiary is bound or affected,
(B) conflict with, result in any violation or breach of, or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, lease, credit facility, debt, note, bond, mortgage, indenture or other
instrument (the “
Contracts
”) or obligation or other understanding to which the Company or any subsidiary is
a party of by which any property or asset of the Company or any subsidiary is bound or affected, or (C) result in a breach or violation
of any of the terms and provisions of, or constitute a default under, the Company’s charter or bylaws, except in the case
of each of clauses (A) or (B), such as would not have or reasonably be expected to result in a Material Adverse Effect.
(iv) All consents,
approvals, orders, authorizations and filings required on the part of the Company and its subsidiaries in connection with the execution,
delivery or performance of this Agreement have been obtained or made, other than such consents, approvals, orders and authorizations
the failure of which to make or obtain is not reasonably likely to result in a Material Adverse Effect.
(v) All of the
issued and outstanding shares of capital stock of the Company are duly authorized and validly issued, fully paid and nonassessable,
and have been issued in compliance with all applicable securities laws, and conform to the description thereof in the Registration
Statement, the Time of Sale Disclosure Package and the Final Prospectus. Except for the issuances of options, restricted stock
or restricted stock units in the ordinary course of business, since the respective dates as of which information is provided in
the Registration Statement, the Time of Sale Disclosure Package or the Final Prospectus, the Company has not entered into or granted
any convertible or exchangeable securities, options, warrants, agreements, contracts or other rights in existence to purchase or
acquire from the Company any shares of the capital stock of the Company. The Securities, when issued, will be duly authorized and
validly issued, and the Shares, when issued, will be fully paid and nonassessable, issued in compliance with all applicable securities
laws, and free of preemptive, registration or similar rights. The shares of Common Stock underlying the Warrants, when issued,
will be duly authorized and validly issued, fully paid and nonassessable, issued in compliance with all applicable securities laws,
and free of preemptive, registration or similar rights.
(vi) The Company
does not own, directly or indirectly, any capital stock or other ownership interest in any partnership, corporation, business trust,
limited liability company, limited liability partnership, joint stock company, trust, unincorporated association, joint venture
or other entity, other than the Company’s interest in its subsidiaries.
(vii) Except
for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect,
(a) each of the Company and its subsidiaries has filed all foreign, federal, state and local returns (as hereinafter defined) required
to be filed with taxing authorities prior to the date hereof or has duly obtained extensions of time for the filing thereof, (b)
each of the Company and its subsidiaries has paid all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company or such respective subsidiary, and (c) the provisions for taxes
payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued
and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements.
Except as disclosed in writing to Roth, (i) no issues have been raised (and are currently pending) by any taxing authority in connection
with any of the returns or taxes asserted as due from the Company or its subsidiaries, and (ii) no waivers of statutes of limitation
with respect to the returns or collection of taxes have been given by or requested from the Company or its subsidiaries. The term
“
taxes
” mean all federal, state, local, foreign, and other net income, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges
of any kind whatever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto.
The term “
returns
” means all returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.
(viii) Since
the respective dates as of which information is given in the Registration Statement, the Time of Sale Disclosure Package or the
Final Prospectus or otherwise described therein, (a) neither the Company nor any of its subsidiaries has incurred any material
liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of
business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital
stock; (c) there has not been any change in the capital stock of the Company or any of its subsidiaries (other than a change in
the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants
or the issuance of restricted stock awards or restricted stock units under the Company’s existing stock awards plan, or any
new grants thereof in the ordinary course of business), (d) there has not been any material change in the Company’s long-term
or short-term debt, and (e) there has not been the occurrence of any Material Adverse Effect.
(ix) There is
not pending or, to the Knowledge of the Company, threatened, any action, suit or proceeding to which the Company or any of its
subsidiaries is a party or of which any property or assets of the Company is the subject before or by any court or governmental
agency, authority or body, or any arbitrator or mediator, which is reasonably likely to result in a Material Adverse Effect.
(x) The Company
and each of its subsidiaries holds, and is in compliance with, all franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders (“
Permits
”) of any governmental or self-regulatory agency, authority or body
required for the conduct of its business, and all such Permits are in full force and effect, in each case except where the failure
to hold, or comply with, any of them is not reasonably likely to result in a Material Adverse Effect.
(xi) The Company
and its subsidiaries have good and valid title to all property (whether real or personal) described in the Registration Statement,
the Time of Sale Disclosure Package and the Final Prospectus as being owned by them that are material to the business of the Company,
in each case free and clear of all liens, claims, security interests, other encumbrances or defects, except those that are not
reasonably likely to result in a Material Adverse Effect. The property held under lease by the Company and its subsidiaries is
held by them under valid, subsisting and enforceable leases with only such exceptions with respect to any particular lease as do
not interfere in any material respect with the conduct of the business of the Company or its subsidiaries or which would not reasonably
be expected to have a Material Adverse Effect.
(xii) To the
Company’s Knowledge, the Company and each of its subsidiaries owns or possesses or has valid right to use all patents, patent
applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets and similar rights (“
Intellectual Property
”) necessary for the conduct of the business
of the Company and its subsidiaries as currently carried on and as described in the Registration Statement, the Time of Sale Disclosure
Package and the Final Prospectus and which the failure to so have would have a Material Adverse Effect. To the Knowledge of the
Company, no action or use by the Company or any of its subsidiaries will involve or give rise to any infringement of, or license
or similar fees for, any Intellectual Property of others, except where such action, use, license or fee is not reasonably likely
to result in a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any notice alleging any such
infringement or fee.
(xiii) The Company
and each of its subsidiaries has complied with, is not in violation of, and has not received any notice of violation relating to
any law, rule or regulation relating to the conduct of its business, or the ownership or operation of its property and assets,
including, without limitation, (A) the Currency and Foreign Transactions Reporting Act of 1970, as amended, or any money laundering
laws, rules or regulations, (B) any laws, rules or regulations related to health, safety or the environment, including those relating
to the regulation of hazardous substances, (C) the Sarbanes-Oxley Act and the rules and regulations of the Commission thereunder,
(D) the Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder, and (E) the Employment Retirement Income
Security Act of 1974 and the rules and regulations thereunder, in each case except where the failure to be in compliance is not
reasonably likely to result in a Material Adverse Effect.
(xiv) Neither
the Company nor any of its subsidiaries nor, to the Knowledge of the Company, any director, officer, employee, representative,
agent or affiliate of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office
of Foreign Assets Control of the U.S. Treasury Department (“
OFAC
”); and the Company will not directly or indirectly
use the proceeds of the Offering of the Securities contemplated hereby, or lend, contribute or otherwise make available such proceeds
to any person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered
by OFAC.
(xv) The Company
and each of its subsidiaries carries, or is covered by, insurance in such amounts and covering such risks as the Company reasonably
believes is adequate for the conduct of its business and the value of its properties and as is customary for companies of similar
size engaged in similar businesses in similar industries.
(xvi) No labor
dispute with the employees of the Company or any of its subsidiaries exists or, to the Knowledge of the Company, is imminent that
is reasonably likely to result in a Material Adverse Effect.
(xvii) Neither
the Company nor any of its subsidiaries is in violation, breach or default under its certificate of incorporation, bylaws or other
equivalent organizational or governing documents, except where the violation is not reasonably likely to result in a Material Adverse
Effect.
(xviii) Neither
the Company, its subsidiaries nor, to its Knowledge, any other party is in violation, breach or default of any Contract that
is reasonably likely to result in a Material Adverse Effect.
(xix) No supplier,
customer, distributor or sales agent of the Company has notified the Company that it intends to discontinue
or decrease the rate of business done with the Company, except where such discontinuance or decrease is not reasonably
likely to result in a Material Adverse Effect.
(xx) There are
no claims, payments, issuances, arrangements or understandings for services in the nature of a finder’s, consulting or origination
fee with respect to the introduction of the Company to Roth or the sale of the Securities hereunder or any other arrangements,
agreements, understandings, payments or issuances with respect to the Company that may affect Roth’s compensation, as determined
by FINRA.
(xxi) Except
as disclosed to Roth in writing, the Company has not made any direct or indirect payments (in cash, securities or otherwise) to
(i) any person, as a finder’s fee, investing fee or otherwise, in consideration of such person raising capital for the Company
or introducing to the Company persons who provided capital to the Company, (ii) any FINRA member, or (iii) any person or entity
that has any direct or indirect affiliation or association with any FINRA member within the 12-month period prior to the date on
which the Registration Statement was filed with the Commission (“
Filing Date
”) or thereafter.
(xxii) To the
Company’s Knowledge, no (i) officer or director of the Company or its subsidiaries, (ii) owner of 5% or more of the Company’s
unregistered securities or that of its subsidiaries or (iii) owner of any amount of the Company’s unregistered securities
acquired within the 180-day period prior to the Filing Date, has any direct or indirect affiliation or association with any FINRA
member. The Company will advise Roth and its counsel if it becomes aware that any officer, director or stockholder of the Company
or its subsidiaries is or becomes an affiliate or associated person of a FINRA member participating in the Offering.
(xxiii) Other
than Roth, no person has the right to act as a placement agent, underwriter or as a financial advisor in connection with the sale
of the Securities contemplated hereby.
5.
Closing and Settlement
. Subject
to the terms and conditions hereof, payment of the purchase price for, and delivery of, the Securities shall be made at one or
more closings (each a “
Closing
” and the date on which each Closing occurs, a “
Closing Date
”)
at the offices of Ellenoff Grossman & Schole LLP (with offices located at 1345 Avenue of the Americas, New York, New York 10105-0302)
(or at such other place as shall be agreed upon by Roth and the Company), the first such Closing to take place at 7 am, Pacific
Daylight time, on December 21, 2016 (unless another time shall be agreed to by Roth and the Company). Payment of the purchase price
at each Closing shall be made by the Investors directly to the Company by Federal Funds wire transfer, against delivery of such
Shares (through the DWAC facilities of the Depository Trust Company), and Warrants and such Securities shall be registered in such
name or names and shall be in such denominations, as Roth may request and as set forth in the applicable subscription agreement
executed by each Investor.
6. Covenants.
6.1
The Company covenants
and agrees with Roth as follows:
(a) During
the period beginning on the date hereof and ending on the Closing Date (or the date that the Final Prospectus is filed if after
the Closing) (the “
Prospectus Delivery Period
”), except for filings under the Exchange Act, prior to amending
or supplementing the Registration Statement, including any Rule 462 Registration Statement, the Time of Sale Disclosure Package
or the Final Prospectus, the Company shall furnish to Roth for review and comment a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to which Roth reasonably objects.
(b) From the
date of this Agreement until the end of the Prospectus Delivery Period, the Company shall promptly advise Roth in writing (A) of
the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (B) of the time and
date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to the Time of
Sale Disclosure Package or the Final Prospectus, (C) of the time and date that any post-effective amendment to the Registration
Statement becomes effective and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending its use or the use of the Time of Sale Disclosure Package, or of any proceedings
to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which it is listed
for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes.
If the Commission shall enter any such stop order at any time during the Prospectus Delivery Period, the Company will use its reasonable
efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply
with the provisions of Rules 424(b), 430A and 430B, as applicable, under the Securities Act and will use its reasonable efforts
to confirm that any filings made by the Company under Rule 424(b) or Rule 433 were received in a timely manner by the Commission
(without reliance on Rule 424(b)(8) or Rule 164(b) of the Securities Act).
(c) During
the Prospectus Delivery Period, the Company will comply with all requirements imposed upon it by the Securities Act, as now and
hereafter amended, and by the Rules and Regulations, as from time to time in force, and by the Exchange Act, as now and hereafter
amended, so far as necessary to permit the continuance of sales of or dealings in the Securities as contemplated by the provisions
hereof, the Registration Statement, the Time of Sale Disclosure Package and the Final Prospectus. If during such period any event
occurs the result of which the Final Prospectus would include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if during such
period it is necessary or appropriate in the opinion of the Company or its counsel or Roth or its counsel to amend the Registration
Statement or supplement the Final Prospectus to comply with the Securities Act, the Company will promptly notify Roth and will
amend the Registration Statement or supplement the Final Prospectus so as to correct such statement or omission or effect such
compliance.
(d) The Company
covenants that it will not, unless it obtains the prior written consent of Roth, make any offer relating to the Securities that
would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “
free writing prospectus
”
(as defined in Rule 405 of the Securities Act) required to be filed by the Company with the Commission or retained by the Company
under Rule 433 of the Securities Act. In the event that Roth expressly consents in writing to any such free writing prospectus
(a “
Permitted Free Writing Prospectus
”), the Company covenants that it shall (i) treat each Permitted Free Writing
Prospectus as an Issuer Free Writing Prospectus, and (ii) comply with the requirements of Rule 164 and 433 of the Securities Act
applicable to such Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and
record keeping.
(e) The Company
will furnish to Roth and counsel for Roth copies of the Registration Statement, the Final Prospectus and all amendments and supplements
to such documents, in each case as soon as available and in such quantities as Roth may from time to time reasonably request.
(f) The Company
will make generally available to its security holders as soon as practicable, but in any event not later than 15 months after the
end of the Company’s current fiscal quarter, an earnings statement (which need not be audited) covering a 12-month period
that shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules and Regulations.
(g) The Company
will not take, directly or indirectly, during the Prospectus Delivery Period, any action designed to or which might reasonably
be expected to cause or result in, or that has constituted, the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(h) In addition
to the fees and expenses set forth in Section 1, the Company, whether or not the transactions contemplated hereunder are consummated
or this Agreement is terminated, will pay or cause to be paid (A) all expenses (including transfer taxes allocated to the respective
transferees) incurred in connection with the delivery of the Securities, (B) all expenses and fees (including, without limitation,
fees and expenses of the Company’s counsel) in connection with the preparation, printing, filing, delivery, and shipping
of the Registration Statement (including the financial statements therein and all amendments, schedules, and exhibits thereto),
the Securities, the Time of Sale Disclosure Package, the Final Prospectus, any Issuer Free Writing Prospectus and any amendment
thereof or supplement thereto, (C) the fees and expenses of any transfer agent or registrar, (D) listing fees, if any, and (E)
all other costs and expenses incident to the performance of its obligations hereunder that are not otherwise specifically provided
for herein.
(i) The Company will not issue or sell any Common Stock or other equity or equity-linked securities (other than under existing stock option, restricted stock unit or other equity incentive plans) during the Exclusive Term at less than the Offering Price or equivalent.
6.2
Roth represents, warrants, covenants
and agrees with the Company as follows:
(a) With respect
to the Securities to be offered and sold in the Private Placement in reliance on Rule 506 under the Securities Act, none of Roth
or any general partner or managing member of Roth, or any director, executive officer or other officer participating in the Offering
of Roth or the general partner or managing member of Roth (any such person, a “
Placement Agent Covered Person
”)
is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities
Act (a "
Disqualification Event
"), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Roth
has exercised reasonable care to determine whether any Placement Agent Covered Person is subject to a Disqualification Event. Roth
has furnished to the Company a copy of any disclosures required in connection with any Placement Agent Covered Person under Rule
506(e).
(b) Roth will
notify the Company in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Placement Agent Covered
Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Placement Agent
Covered Person, in each case, of which Roth has knowledge.
(c) Roth understands
and acknowledges that the Securities (other than the Shares) have not been and will not be registered under the Securities Act
and may not be offered or issued, except in compliance with the registration requirements of the Securities Act or pursuant to
an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.
(d) Roth agrees
that neither it nor any person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising
(within the meaning of Section 502(c) under the Securities Act) in connection with the Private Placement or attempt to place any
Securities outside the United States to non-U.S. persons (as that terms is defined in Regulation S under the Securities Act) by
means of any directed selling efforts (within the meaning of Regulation S).
7. Conditions of Roth’s Obligations.
The
obligations of Roth hereunder are subject to the accuracy, as of the date hereof and at the applicable Closing Date (as if made
at the Closing Date), of and compliance with all representations, warranties and agreements of the Company contained herein, the
performance by the Company of its obligations hereunder and the following additional conditions:
(a) If filing
of the Final Prospectus, or any amendment or supplement thereto, is required under the Securities Act or the Rules and Regulations,
the Company shall have filed the Final Prospectus (or such amendment or supplement) with the Commission in the manner and within
the time period so required (without reliance on Rule 424(b)(8) or Rule 164(b) under the Securities Act); the Registration Statement
shall remain effective; no stop order suspending the effectiveness of the Registration Statement or any part thereof, any Rule
462 Registration Statement, or any amendment thereof, nor suspending or preventing the use of the Time of Sale Disclosure Package
or the Final Prospectus shall have been issued; no proceedings for the issuance of such an order shall have been initiated or threatened;
any request of the Commission for additional information (to be included in the Registration Statement, the Time of Sale Disclosure
Package, the Final Prospectus, or otherwise) shall have been complied with to Roth’s satisfaction.
(b) Roth shall
not have
reasonably determined and
advised the Company that the Registration Statement, the Time of Sale Disclosure
Package or the Final Prospectus, or any amendment thereof or supplement thereto, contains an untrue statement of fact which, in
Roth’s reasonable opinion, is material, or omits to state a fact which, in Roth’s reasonable opinion, is material and
is required to be stated therein or necessary to make the statements therein not misleading.
(c) On the
applicable Closing Date, there shall have been furnished to Roth the opinion and negative assurance letters of counsel for the
Company, dated the applicable Closing Date and addressed to Roth, in form and substance reasonably satisfactory to Roth, and in
form substantially in the forms previously circulated to Roth.
(d) Roth shall
have received a letter from Hein & Associates LLP, on the applicable Closing Date addressed to Roth, confirming that they are
independent public accountants within the meaning of the Securities Act and are in compliance with the applicable requirements
relating to the qualifications of accountants under Rule 2-01 of Regulation S-X of the Commission, and confirming, as of the date
of each such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified
financial information is given in the Time of Sale Disclosure Package, as of a date not more than five days prior to the date of
such letter), the conclusions and findings of said firms with respect to the financial information, including any financial information
contained in Exchange Act Reports filed by the Company, and other matters required by Roth.
(e) On the
applicable Closing Date, there shall have been furnished to Roth a certificate, dated the applicable Closing Date and addressed
to Roth, signed by the chief executive officer and the chief financial officer of the Company, in their capacity as officers of
the Company, to the effect that:
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(i)
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The representations and warranties of the Company in this Agreement are true and correct, in all
material respects, as if made at and as of the applicable Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or prior to the applicable Closing Date;
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(ii) No stop
order or other order (A) suspending the effectiveness of the Registration Statement or any part thereof or any amendment thereof,
(B) suspending the qualification of the Securities for offering or sale, or (C) suspending or preventing the use of the Time of
Sale Disclosure Package or the Final Prospectus has been issued, and no proceeding for that purpose has been instituted or, to
their Knowledge, is contemplated by the Commission or any state or regulatory body; and
(iii) There
has been no occurrence of any event resulting or reasonably likely to result in a Material Adverse Effect during the period from
and after the date of this Agreement and prior to the applicable Closing Date.
(f) The Common
Stock shall be registered under the Exchange Act and shall be listed on Nasdaq Capital Market, and the Company shall not have taken
any action designed to terminate, or likely to have the effect of terminating, the registration of the Common Stock under
the Exchange Act or delisting or suspending from trading the Common Stock from Nasdaq Capital Market, nor shall the Company have
received any information suggesting that the Commission is contemplating terminating such registration.
(g) The Company
shall have furnished to Roth and counsel for Roth such additional documents, certificates and evidence as Roth or counsel for Roth
may have reasonably requested.
If any condition specified in this
Section 7 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by Roth by notice
to the Company at any time at or prior to the applicable Closing Date and such termination shall be without liability of any party
to any other party, except that the last sentence of Section 1
,
Section 6.1(h), Section 8 and Section 9 shall survive
any such termination and remain in full force and effect.
8.
Indemnification and Contribution
.
(a) The Company
agrees to indemnify, defend and hold harmless Roth, its affiliates, directors and officers and employees, and each person, if any,
who controls Roth within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any
losses, claims, damages or liabilities to which Roth or such person may become subject, under the Securities Act or otherwise (including
in settlement of any litigation if such settlement is effected with the written consent of the Company), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, including the information deemed to be a part of the
Registration Statement at the time of effectiveness and at any subsequent time pursuant to Rules 430A and 430B of the Rules and
Regulations, the Time of Sale Disclosure Package, the Final Prospectus, or any amendment or supplement thereto (including any documents
filed under the Exchange Act and deemed to be incorporated by reference into the Registration Statement or the Final Prospectus),
or any Issuer Free Writing Prospectus or in any materials or information provided to Investors by, or with the written approval
of, the Company in connection with the marketing of the Offering of the Securities, including any roadshow or investor presentations
(whether in person or electronically) (“
Marketing Materials
”), or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, (ii) in whole or in part, any inaccuracy in the representations
and warranties of the Company contained herein, or (iii) in whole or in part, any failure of the Company to perform its obligations
hereunder or under law, and will reimburse Roth for any legal or other expenses reasonably incurred by it in connection with evaluating,
investigating or defending against such loss, claim, damage, liability or action;
provided, however
, that the Company
shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, the Time
of Sale Disclosure Package, the Final Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus or
any Marketing Materials, in reliance upon and in conformity with written information furnished to the Company by Roth specifically
for use in the preparation thereof.
(b) Roth will
indemnify and hold harmless the Company, its affiliates, directors, officers and employees, and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any losses,
claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise (including in settlement
of any litigation, if such settlement is effected with the written consent of such Roth), insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, the Time of Sale Disclosure Package, the Final Prospectus, or any amendment
or supplement thereto, any Issuer Free Writing Prospectus or any Marketing Materials, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Time of Sale Disclosure Package, the Final Prospectus, or any amendment
or supplement thereto, any Issuer Free Writing Prospectus or any Marketing Materials, in reliance upon and in conformity with written
information furnished to the Company by Roth specifically for use in the preparation thereof, and will reimburse the Company for
any legal or other expenses reasonably incurred by the Company in connection with defending against any such loss, claim, damage,
liability or action.
(c) Promptly
after receipt by an indemnified party under subsection (a) or (b), above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying
party in writing of the commencement thereof; but the failure to notify the indemnifying party shall not relieve the indemnifying
party from any liability that it may have to any indemnified party except to the extent such indemnifying party has been materially
prejudiced by such failure. In case any such action shall be brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to such indemnified party of the indemnifying party’s
election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection
for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation;
provided
,
however
, that if (i) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (ii) a conflict or potential conflict exists (based on the reasonable
advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying
party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iii) the indemnifying
party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within
a reasonable time after receiving notice of the commencement of the action, the indemnified party shall have the right to employ
a single counsel to represent it in any claim in respect of which indemnity may be sought under subsection (a) or (b) of this Section
8, in which event the reasonable and documented fees and expenses of such separate counsel shall be borne by the indemnifying party
or parties and reimbursed to the indemnified party as incurred.
The indemnifying
party under this Section 8 shall not be liable for any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment
in any pending or threatened action, suit or proceeding in respect of which any indemnified party is a party or could be named
and indemnity was or would be sought hereunder by such indemnified party, unless such settlement, compromise or consent (a) includes
an unconditional release of such indemnified party from all liability for claims that are the subject matter of such action, suit
or proceeding and (b) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf
of any indemnified party.
(d) If the
indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under subsection
(a) or (b), above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above, (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company, on the one hand, and Roth, on the other hand, from the Offering of the
Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company,
on the one hand, and Roth, on the other hand, in connection with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company,
on the one hand, and Roth, on the other hand, shall be deemed to be in the same proportion as the total net proceeds from the Offering
(before deducting expenses) received by the Company, and the total placement agent fees received by Roth, in each case as set forth
on the cover page of the Final Prospectus, bear to the aggregate offering price of the Securities set forth on such cover. The
relative fault 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 Company or Roth and the
parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or
omission. The Company and Roth agree that it would not be just and equitable if contributions pursuant to this subsection (d) were
to be determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this subsection (d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim that is
the subject of this subsection (d). Notwithstanding the provisions of this subsection (d),
Roth
shall not be required to contribute any amount in excess of the amount of Roth’s placement agent fees actually received by
Roth from the Offering of the Securities. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(e) The obligations
of the Company under this Section 8 shall be in addition to any liability that the Company may otherwise have and the benefits
of such obligations shall extend, upon the same terms and conditions, to each person, if any, who controls Roth within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act; and the obligations of Roth under this Section 8 shall be
in addition to any liability that Roth may otherwise have and the benefits of such obligations shall extend, upon the same terms
and conditions, to the Company, and its officers, directors and each person who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act.
(f) For purposes
of this Agreement, Roth confirms, and the Company acknowledges, that there is no information concerning Roth furnished in writing
to the Company by Roth specifically for preparation of or inclusion in the Registration Statement, the Time of Sale Disclosure
Package or the Final Prospectus, other than the statements regarding Roth set forth in the “Plan of Distribution” section
of the Final Prospectus and Time of Sale Disclosure Package, only insofar as such statement relate to the amount of selling concession
and related activities that may be undertaken by Roth.
9. Representations and Agreements to Survive
Delivery
. All representations, warranties, and agreements of the Company and Roth herein or in certificates delivered pursuant
hereto including, but not limited to, the agreements of Roth and the Company contained in the last sentence of Section 1, Section
6.1(h) and Section 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on
behalf of Roth or any controlling person thereof, or the Company or any of its officers, directors, or controlling persons, and
shall survive delivery of, and payment for, the Securities to and by Roth hereunder.
10. Notices
. Except as otherwise provided
herein, all communications hereunder shall be in writing and, if to Roth, shall be mailed, delivered or telecopied to Roth Capital
Partners, LLC, 888 San Clemente Drive, Suite 400, Newport Beach, CA, telecopy number: 949-720-7227, Attention: Equity Capital Markets;
and if to the Company, shall be mailed, delivered, emailed or telecopied to it at 4643 S. Ulster Street, #970, Denver, Colorado
80237, e-mail: david@usnrg.com, telecopy number: _______________, Attention: David Veltri; or in each case to such other address
as the person to be notified may have requested in writing. Any party to this Agreement may change such address for notices by
sending to the parties to this Agreement written notice of a new address for such purpose.
11. Persons Entitled to Benefit of Agreement
.
This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns
and the controlling persons, officers and directors referred to in Section 8. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or equitable remedy or claim under or in respect of this Agreement
or any provision herein contained. The term “successors and assigns” as herein used shall not include any purchaser,
as such purchaser, of any of the Securities.
12. Absence of Fiduciary Relationship
.
The Company acknowledges and agrees that: (a) Roth has been retained solely to act as placement agent in connection with the sale
of the Securities and that no fiduciary, advisory or agency relationship between the Company and Roth has been created in respect
of any of the transactions contemplated by this Agreement, irrespective of whether Roth has advised or is advising the Company
on other matters; (b) the price and other terms of the Securities set forth in this Agreement were established by Roth and the
Investors following discussions and arms-length negotiations and the Company is capable of evaluating and understanding and understands
and accepts the terms, risks and conditions of the transactions contemplated by this Agreement; (c) it has been advised that Roth
and its affiliates are engaged in a broad range of transactions that may involve interests that differ from those of the Company
and that Roth has no obligation to disclose such interest and transactions to the Company by virtue of any fiduciary, advisory
or agency relationship; (d) it has been advised that Roth is acting, in respect of the transactions contemplated by this Agreement,
solely for the benefit of Roth, and not on behalf of the Company.
13. No Limitations
. Nothing in this Agreement
shall be construed to limit the ability of Roth or its affiliates to (a) trade in the Company’s or any other company’s
securities or publish research on the Company or any other company, subject to applicable law, or (b) pursue or engage in investment
banking, financial advisory or other business relationships with entities that may be engaged in or contemplate engaging in, or
acquiring or disposing of, businesses that are similar to or competitive with the business of the Company.
14. Entire Agreement, Amendments and Waivers
.
Except as provided in Section 15 below, this Agreement constitutes the entire agreement and supersedes all other prior and contemporaneous
agreements and undertakings, both written and oral, among the parties hereto with regard to the subject matter hereof. No supplement,
modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. The failure
of a party to exercise any right or remedy shall not be deemed or constitute a waiver of such right or remedy in the future. No
waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless
of whether similar), nor shall any such waiver be deemed or constitute a continuing waiver unless otherwise expressly provided.
15. Partial Unenforceability; Engagement Agreement
.
The invalidity or unenforceability of any section, paragraph, clause or provision of this Agreement shall not affect the validity
or enforceability of any other section, paragraph, clause or provision. Notwithstanding anything herein to the contrary, except
as expressly set forth herein, the Engagement Agreement, dated December 15, 2016, between the Company and Roth, including, without
limitation, Section 4 therein, shall continue to be effective and the terms therein shall continue to survive and be enforceable
by Roth in accordance with its terms, provided that, in the event of a conflict between the terms of the Engagement Agreement and
this Agreement, the terms of this Agreement shall prevail.
16. Governing Law
. This Agreement shall
be governed by and construed in accordance with the laws of the State of New York, without giving effect to conflict of laws principles.
17. Counterparts.
This Agreement
may be executed and delivered (including by facsimile transmission and electronic mail attaching a portable document file (.pdf))
in one or more counterparts and, if executed and delivered in more than one counterpart, the executed counterparts shall each be
deemed to be an original and all such counterparts shall together constitute one and the same instrument.
************************
Please sign and return to the Company the enclosed
duplicates of this letter whereupon this letter will become a binding agreement between the Company and Roth in accordance with
its terms.
Very truly yours,
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U.S. ENERGY CORP.
|
|
By:
|
/s/ David Veltri
|
Name:
|
David Veltri
|
Title:
|
CEO & President
|
Confirmed as of the date first above-mentioned
by Roth.
ROTH
CAPITAL PARTNERS, LLC
By:
|
/s/ Aaron M. Gurewitz
|
Name:
|
Aaron M. Gurewitz
|
Title:
|
Head of Equity Capital Markets
|
APPENDIX
C
NEITHER THIS SECURITY NOR THE SECURITIES FOR
WHICH THIS SECURITY IS EXERCISABLE HAVE 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. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
U.S.
energy corp.
Warrant Shares: 500,000
|
Initial Exercise Date: June 21, 2017
|
THIS COMMON STOCK PURCHASE WARRANT (the “
Warrant
”)
certifies that, for value received, _____________ or its assigns (the “
Holder
”) is entitled, upon the terms
and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after June 21, 2017 (the
“
Initial Exercise Date
”) and on or prior to the close of business on the five (5) year anniversary of the Initial
Exercise Date (the “
Termination Date
”) but not thereafter, to subscribe for and purchase from U.S. Energy Corp.,
a Wyoming corporation (the “
Company
”), up to 500,000 shares (as subject to adjustment hereunder, the “
Warrant
Shares
”) of Common Stock. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise
Price, as defined in Section 2(b).
Section 1
.
Definitions
.
Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement
(the “
Purchase Agreement
”), dated December 16, 2016, among the Company and the purchasers signatory thereto.
Section 2
.
Exercise
.
a)
Exercise
of Warrant
. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times
on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company or the Transfer Agent (or
such other office or agency that the Company may designate by notice in writing to the registered Holder at the address of the
Holder appearing on the books of the Company), as applicable, of a duly executed facsimile copy or PDF copy submitted by electronic
(or e-mail attachment) of the Notice of Exercise in the form annexed hereto. Within the earlier of (i) three (3) Trading Days and
(ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the
date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable
Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure
specified in Section 2(c) below is specified in the applicable Notice of Exercise.
No ink-original Notice of Exercise shall
be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required.
Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which
case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final
Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records
showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice
of Exercise within one (1) Business Day of receipt of such notice.
The Holder and any assignee, by acceptance of this Warrant,
acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares
hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on
the face hereof.
b)
Exercise
Price
. The exercise price per share of the Common Stock under this Warrant shall be
$2.05
, subject to adjustment hereunder
(the “
Exercise Price
”).
c)
Cashless
Exercise
. If at any time after the six-month anniversary of the Closing Date, there is no effective Registration Statement
registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also
be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled
to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the last VWAP immediately preceding
the time of delivery of the Notice of Exercise giving rise to the applicable “cashless exercise”, as set forth in the
applicable Notice of Exercise (to clarify, the “last VWAP” will be the last VWAP as calculated over an entire Trading
Day such that, in the event that this Warrant is exercised at a time that the Trading Market is open, the prior Trading Day’s
VWAP shall be used in this calculation);
(B) = the Exercise Price of this
Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares
that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means
of a cash exercise rather than a cashless exercise.
If
Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9)
of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period
of the Warrant Shares being issued may be tacked on to the holding period of this Warrant. The Company agrees not to
take any position contrary to this Section 2(c).
“
VWAP
” means, for
any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted
on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date)
on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day
from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the
volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable,
(c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then
reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding
to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all
other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith
by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.
Notwithstanding anything herein to
the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section
2(c).
|
d)
|
Mechanics of Exercise
.
|
i.
Delivery
of Warrant Shares Upon Exercise
. Warrant Shares purchased hereunder shall be transmitted by the Transfer Agent to the Holder
by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through
its Deposit or Withdrawal at Custodian system (“
DWAC
”) if the Company is then a participant in such system and
either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant
Shares by the Holder or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations
pursuant to Rule 144, and otherwise by physical delivery of a certificate, registered in the Company’s share register in
the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise
to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) three (3) Trading Day and
(ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise
(such date, the “
Warrant Share Delivery Date
”). Upon delivery of the Notice of Exercise, the Holder shall be
deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant
has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise
Price (other than in the case of a cashless exercise) is received within the earlier of (i) three Trading Days and (ii) the number
of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for
any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the
Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject
to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day
after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees
to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
As used herein, “
Standard Settlement Period
” means the standard settlement period, expressed in a number of
Trading Days, on the Company’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery
of the Notice of Exercise.
ii.
Delivery
of New Warrants Upon Exercise
. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder
and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall
in all other respects be identical with this Warrant.
iii.
Rescission
Rights
. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i)
by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv.
Compensation
for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise
. In addition to any other rights available to the Holder,
if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions
of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder
is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise
purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a “
Buy-In
”), then the Company shall (A) pay in cash to the Holder the amount,
if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required
to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such
purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver
to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise
and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such
purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the
Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the
Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
v.
No Fractional
Shares or Scrip
. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.
As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at
its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price or round up to the next whole share.
vi.
Charges,
Taxes and Expenses
. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the
Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder;
provided
,
however
, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees
to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day
electronic delivery of the Warrant Shares.
vii.
Closing
of Books
. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.
e)
Holder’s
Exercise Limitations
. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise
any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after
exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “
Attribution
Parties
”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes
of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution
Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining,
nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii)
exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation,
any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein
beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence,
for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act
and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing
to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible
for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e)
applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together
with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion
of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this
Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties)
and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder
may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual
report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent
written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder
the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder
or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported.
The “
Beneficial Ownership Limitation
” shall be 4.99% of the number of shares of the Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon
notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that
the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately
after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions
of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the
61
st
day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented
in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof)
which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall
apply to a successor holder of this Warrant.
Section 3
.
Certain Adjustments
.
a)
Stock
Dividends and Splits
. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise
makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable
in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon
exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including
by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues by reclassification
of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding
immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately
after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become
effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b)
Adjustment
Upon Issuance of Common Stock or Common Stock Equivalents
. If and whenever on or after the Initial Exercise Date, the Company
issues, sells, publicly announces the contemplated issuance or sale of, or in accordance with this Section 3(b) is deemed to have
issued or sold, any shares of Common Stock (including the issuance, sale or public announcement of the issuance or sale, of shares
of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued
or sold by the Company in connection with any Exempt Issuance) for a consideration per share (the “
New Issuance Price
”)
less than a price (the “
Applicable Price
”) equal to the Exercise Price in effect immediately prior to such issuance
or sale or deemed issuance or sale (the foregoing a “
Dilutive Issuance
”), then immediately after such Dilutive
Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price;
provided
,
however
,
that (i) in no event shall an adjustment be made under this Section 3(b) to a price that is less than $0.392 and (ii) prior to
the Company’s receipt of Shareholder Approval, no adjustment shall be made under this Section 3(b) to a price that is less
than $1.96 (the “
Floor Price
”) (in each case of (i) and (ii), as adjusted for any stock splits, reverse splits
and similar capital adjustments effected subsequent to the date of the Purchase Agreement). For purposes of determining the adjusted
Exercise Price under this Section 3(b), the following shall be applicable.
(i)
Issuance
of Options
. If the Company in any manner grants or sells, or the Company publicly announces the issuance or sale of, any rights,
warrants or options to subscribe for or purchase shares of Common Stock or Common Stock Equivalents (rights, warrants or options,
“
Options
”) and the lowest price per share for which one share of Common Stock is issuable upon the exercise
of any such Options or upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of any such
Options is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the granting or sale of such Options for such price per share. For purposes of this Section
3(b)(i), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options
or upon conversion, exercise or exchange of any Common Stock Equivalents issuable upon exercise of any such Options” shall
be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one
share of Common Stock upon the granting or sale of the Options, upon exercise of the Options and upon conversion, exercise or exchange
of any Common Stock Equivalents issuable upon exercise of such Options less any consideration paid or payable by the Company with
respect to such one share of Common Stock upon the granting or sale of such Options, upon exercise of such Options and upon conversion
exercise or exchange of any Common Stock Equivalents issuable upon exercise of such Options. No further adjustment of the Exercise
Price shall be made upon the actual issuance of such shares of Common Stock or of such Common Stock Equivalents upon the exercise
of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Common
Stock Equivalent.
(ii)
Issuance
of Common Stock Equivalents
. If the Company in any manner issues or sells, or the Company publicly announces the issuance or
sale of, any Common Stock Equivalents and the lowest price per share for which one share of Common Stock is issuable upon the conversion,
exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding
and to have been issued and sold by the Company at the time of the issuance or sale of such Common Stock Equivalents for such price
per share. For the purposes of this Section 3(b)(ii), the “lowest price per share for which one share of Common Stock is
issuable upon the conversion, exercise or exchange thereof” shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Common
Stock Equivalents and upon conversion, exercise or exchange of such Common Stock Equivalents less any consideration paid or payable
by the Company with respect to such one share of Common Stock upon the issuance or sale of such Common Stock Equivalents and upon
conversion, exercise or exchange of such Common Stock Equivalents. No further adjustment of the Exercise Price shall be made upon
the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents, and
if any such issuance or sale of such Common Stock Equivalents is made upon exercise of any Options for which adjustment of the
Exercise Price has been or is to be made pursuant to other provisions of this Section 3(b), no further adjustment of the Exercise
Price shall be made by reason of such issuance or sale.
(iii)
Change
in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Common Stock Equivalents, or the rate at which any Common
Stock Equivalents are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any
time, the Exercise Price in effect at the time of such increase or decrease shall be adjusted to the Exercise Price, which would
have been in effect at such time had such Options or Common Stock Equivalents provided for such increased or decreased purchase
price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued
or sold. For purposes of this Section 3(b)(iii), if the terms of any Option or Common Stock Equivalents that was outstanding as
of the Initial Exercise Date are increased or decreased in the manner described in the immediately preceding sentence, then such
Option or Common Stock Equivalents and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof
shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 3(b) shall
be made if such adjustment would result in an increase of the Exercise Price then in effect.
(iv)
Calculation
of Consideration Received
. If any Option and/or Common Stock Equivalents is issued in connection with the issuance or sale
or deemed issuance or sale of any other securities of the Company (as determined by the Holder, the “
Primary Security
”,
and such Option and/or Common Stock Equivalents, the “
Secondary Securities
”, and together with the Primary Security,
each a “
Unit
”), together comprising one integrated transaction, the aggregate consideration per share of Common
Stock with respect to such Primary Security shall be deemed to be the lower of (x) the purchase price of such Unit, (y) if such
Primary Security is an Option and/or Common Stock Equivalent, the lowest price per share for which one share of Common Stock is
at any time issuable upon the exercise or conversion of the Primary Security in accordance with Section 3(b)(i) or 3(b)(ii) above
and (z) the lowest VWAP of the Common Stock on any Trading Day during the eight Trading Day period immediately following the public
announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening
of the principal Trading Market on a Trading Day, such Trading Day shall be the first Trading Day in such eight Trading Day period).
If any shares of Common Stock, Options or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor will be deemed to be the net amount of consideration received by the Company therefor.
If any shares of Common Stock, Options or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor (for the purpose of determining the consideration paid for such Common Stock, Option
or Common Stock Equivalents, but not for the purpose of the calculation of the Black Scholes Value) will be deemed to be the net
amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Common Stock Equivalents
are issued or sold for a consideration other than cash, the amount of such consideration received by the Company (for the purpose
of determining the consideration paid for such Common Stock, Option or Common Stock Equivalents, but not for the purpose of the
calculation of the Black Scholes Value) will be the fair value of such consideration, except where such consideration consists
of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the
arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt.
If any shares of Common Stock, Options or Common Stock Equivalents are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining
the consideration paid for such Common Stock, Option or Common Stock Equivalents, but not for the purpose of the calculation of
the Black Scholes Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such shares of Common Stock, Options or Common Stock Equivalents (as the case may be). The fair
value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder.
If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “
Valuation
Event
”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10
th
)
day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder.
The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses
of such appraiser shall be borne by the Company.
(v)
Record
Date
. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in shares of Common Stock, Options or in Common Stock Equivalents or (B) to subscribe
for or purchase shares of Common Stock, Options or Common Stock Equivalents, then such record date will be deemed to be the date
of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may
be.
(vi)
No Readjustments
.
For the avoidance of doubt, in the event the Exercise Price has been adjusted pursuant to this Section 3(b) and the Dilutive Issuance
that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever,
in no event shall the Exercise Price be readjusted to the Exercise Price that would have been in effect if such Dilutive Issuance
had not occurred or been consummated.
c)
Subsequent
Rights Offerings
. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues
or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record
holders of any class of shares of Common Stock (the “
Purchase Rights
”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired
if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to
any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date
on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder
exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such
extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase
Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in
the Holder exceeding the Beneficial Ownership Limitation).
d)
Pro
Rata Distributions
. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other
distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital
or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of
a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “
Distribution
”),
at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution
to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock
acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation,
the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such
record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in
such Distribution (
provided
,
however
, to the extent that the Holder's right to participate in any such Distribution
would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate
in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution
to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
e)
Fundamental
Transaction
. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets
in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether
by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange
their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common
Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group
acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person
or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination) (each a “
Fundamental Transaction
”), then, upon any subsequent
exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon
such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard
to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “
Alternate Consideration
”)
receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise
of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to
apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common
Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder
shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental
Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor
Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after,
the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash
equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental
Transaction. “
Black Scholes Value
” means the value of this Warrant based on the Black and Scholes Option Pricing
Model obtained from the “OV” function on Bloomberg, L.P. (“
Bloomberg
”) determined as of the day
of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding
to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained
from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental
Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered
in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and
the Termination Date. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds within
five Business Days of the Holder’s election (or, if later, on the effective date of the Fundamental Transaction). The Company
shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “
Successor
Entity
”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents
in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory
to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option
of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital
stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and
with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the
relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock,
such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant
immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance
to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted
for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company herein.
f)
Calculations
.
All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall
be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g)
Notice
to Holder
.
i.
Adjustment
to Exercise Price
. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly
deliver to the Holder by facsimile or email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment
to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii.
Notice
to Allow Exercise by Holder
. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the
Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the
Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection
with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer
of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted
into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by facsimile or email
to the Holder at its last facsimile number or email address as it shall appear upon the Warrant Register of the Company, at least
20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice
or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified
in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant
to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the
date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4
.
Transfer
of Warrant
.
a)
Transferability
.
Subject to compliance with any applicable securities laws and the conditions set forth in Section 4(d) hereof and to the provisions
of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated
agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder
or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.
Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender
this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this
Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning
this Warrant full.
The Warrant, if properly assigned in accordance
herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b)
New
Warrants
. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the
Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by
the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants
to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial
Exercise Date and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c)
Warrant
Register
. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “
Warrant
Register
”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered
Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and
for all other purposes, absent actual notice to the contrary.
d)
Transfer
Restrictions
. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer
of this Warrant shall not be either (i) registered pursuant to an effective registration statement under the Securities Act and
under applicable state securities or blue sky laws or (ii) eligible for resale without volume or manner-of-sale restrictions or
current public information requirements pursuant to Rule 144, the Company may require, as a condition of allowing such transfer,
that the Holder or transferee of this Warrant, as the case may be, comply with the provisions of Section 5.7 of the Purchase Agreement.
e)
Representation
by the Holder
. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any
exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for
distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities
law, except pursuant to sales registered or exempted under the Securities Act.
Section 5
.
Miscellaneous
.
a)
No
Rights as Stockholder Until Exercise
. This Warrant does not entitle the Holder to any voting rights, dividends or other rights
as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in
Section 3.
b)
Loss,
Theft, Destruction or Mutilation of Warrant
. The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of
the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate,
if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
c)
Saturdays,
Sundays, Holidays, etc
. If the last or appointed day for the taking of any action or the expiration of any right required or
granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding
Business Day.
d)
Authorized
Shares
.
The Company covenants that, during the period the Warrant
is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that
its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary
Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as
may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived
or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 of this Warrant, but will
at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary
or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality
of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon
such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant
and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory
body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would
result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company
shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.
e)
Jurisdiction
.
All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance
with the provisions of the Purchase Agreement.
f)
Restrictions
.
The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered and the Holder does
not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g)
Nonwaiver
and Expenses
. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies, notwithstanding the fact that
all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision
of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall
be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those
of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of
its rights, powers or remedies hereunder.
h)
Notices
.
Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered
in accordance with the notice provisions of the Purchase Agreement.
i)
Limitation
of Liability
. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase
Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder
for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
j)
Remedies
.
The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation
for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert
the defense in any action for specific performance that a remedy at law would be adequate.
k)
Successors
and Assigns
. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure
to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and
shall be enforceable by the Holder or holder of Warrant Shares.
l)
Amendment
.
This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m)
Severability
.
Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions
of this Warrant.
n)
Headings
.
The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of
this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|
u.s. energy corp.
|
|
|
|
By:
|
/s/ David Veltri
|
|
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Name:
David Veltri
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Title:
CEO
|
APPENDIX
D
AMENDED
AND RESTATED 2012 EQUITY AND PERFORMANCE INCENTIVE PLAN (AS AMENDED)
U.S. Energy Corp.
Amended and Restated 2012 Equity
and Performance Incentive Plan
Adopted By the Board:
April 24,
2010,
March 20, 2015,
April 27, 2017
Approved by the Shareholders:
June
29, 2012
June 19, 2015,
July 17, 2017
Effective:
July 1
,
2012
2015
July 17, 2017
1.
Purpose.
The purpose of the 2012 Equity and Performance Incentive Plan is to attract and retain officers and other employees of U.S.
Energy Corp., a Wyoming corporation, and its Subsidiaries and to provide to such persons incentives and rewards for superior performance.
2.
Definitions.
As used in this Plan,
(a) "Award"
means any Option, Stock Appreciation Right, Restricted Stock, Performance Share, Performance Unit, Other Share-Based Award, or
any other right, interest or option related to Shares or other property (including cash) granted pursuant to the provisions of
this Plan.
(b) "Base
Price" means the price to be used as the basis for determining the Spread upon the exercise of a Free-Standing Appreciation
Right and a Tandem Appreciation Right.
(c) "Board"
means the Board of Directors of the Company and, to the extent of any delegation by the Board to a committee (or subcommittee thereof)
pursuant to Section 14 of this Plan, such committee (or subcommittee).
(d) "Change
in Control" has the meaning set forth in Section 11.
(e) "Code"
means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder, as such law, rules
and regulations may be amended from time to time.
(f) "Common
Stock" means the Common Stock, par value $0.01 per share, of the Company or any security into which such Common Stock may
be changed by reason of any transaction or event of the type referred to in Section 13 of this Plan.
(g) "Company"
means U.S. Energy Corp., a Wyoming corporation, and its successors.
(h) "Date
of Grant" means the date specified by the Board on which a grant of Options, Stock Appreciation Rights, Performance Shares,
Performance Units or other awards contemplated by Section 9 of this Plan, or a grant or sale of Restricted Stock, Restricted Stock
Units, or other awards contemplated by Section 9 of this Plan, will become effective (which date will not be earlier than the date
on which the Board takes action with respect thereto).
(i) "Director"
means a member of the Board of Directors of the Company.
(j) "Effective
Date" means July 1, 2012.
As amended, the Effective Date shall be the later of (1) July 1, 2015, or (2) the date
that shareholder approval is obtained for the Amended and Restated 2012 Equity and Performance Incentive Plan.
(k) "Eligible
Individual" means an officer,
or
employee
or Director
of the Company or any one or more of its
Subsidiaries.
(l) "Evidence
of Award" means an agreement, certificate, resolution or other type or form of writing or other evidence approved by the Board
that sets forth the terms and conditions of the Awards granted. An Evidence of Award may be in an electronic medium, may be limited
to notation on the books and records of the Company and, unless otherwise determined by the Board, need not be signed by a representative
of the Company or a Participant.
(m) "Exchange
Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as such law, rules and
regulations may be amended from time to time.
(n) "Free-Standing
Appreciation Right" means a Stock Appreciation Right granted pursuant to Section 5 of this Plan that is not granted in tandem
with an Option.
(o) "Incentive
Stock Options" means Options that are intended to qualify as "incentive stock options" under Section 422 of the
Code or any successor provision.
(p) "Management
Objectives" means the measurable performance objective or objectives established pursuant to this Plan for Participants who
have received grants of Performance Shares or Performance Units or, when so determined by the Board, Options, Stock Appreciation
Rights, Restricted Stock, Restricted Stock Units, dividend credits or other awards pursuant to this Plan. Management Objectives
may be described in terms of Company-wide objectives or objectives that are related to the performance of the individual Participant
or of the Subsidiary, division, department, region or function within the Company or Subsidiary in which the Participant is employed.
The Management Objectives may be made relative to the performance of one or more other companies or subsidiaries, divisions, departments,
regions or functions within such other companies, and may be made relative to an index of one or more of the performance objectives
themselves.
If the Board determines
that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts
its business, or other events or circumstances render the Management Objectives unsuitable, the Board may in its discretion modify
such Management Objectives or the related level or levels of achievement, in whole or in part, as the Board deems appropriate and
equitable.
(q) "Market
Value per Share" means, as of any particular date, the closing sale price of a share of Common Stock as reported on the principal
national securities exchange on which the Common Stock is listed. If the Common Stock is not traded on a given date, the Market
Value per Share means the closing price for a share of Common Stock on the principal national securities exchange on which the
Common Stock is traded for the immediately preceding date on which the Common Stock is traded. If the Common Stock is not listed
on a national securities exchange, the Market Value per Share shall be the fair market value of a share of Common Stock as determined
in good faith by the Board in accordance with the fair market value pricing rules set forth in Section 409A of the Code.
(r) "Optionee"
means the Eligible Individual named in an Evidence of Award evidencing an outstanding Option.
(s) "Option
Price" means the purchase price per Share payable on exercise of an Option.
(t) "Option"
means an option to purchase Common Stock granted pursuant to Section 4 of this Plan.
(u) "Participant"
means an Eligible Individual who has received an Award under this Plan.
(v) "Performance
Period" means, in respect of a Performance Share or Performance Unit, a period of time established pursuant to Section 8 of
this Plan within which the Management Objectives relating to such Performance Share or Performance Unit are to be measured.
(w) "Performance
Share" means a bookkeeping entry that records the equivalent of one share of Common Stock awarded pursuant to Section 8 of
this Plan.
(x) "Performance
Unit" means a bookkeeping entry awarded pursuant to Section 8 of this Plan that records a unit equivalent to $1.00 or such
other value as is determined by the Board.
(y) "Plan"
means this U.S. Energy Corp. 2012 Equity and Performance Incentive Plan, as may be amended from time to time.
(z) "Restricted
Stock" means Common Stock granted or sold pursuant to Section 6 of this Plan as to which the applicable Restriction Period
has not yet lapsed.
(aa) "Restriction
Period" means the period of time during which Restricted Stock is subject to a substantial risk of forfeiture or Restricted
Stock Units are subject to restrictions, as provided in Section 6 and Section 7 of this Plan.
(bb) "Restricted
Stock Unit" means an award made pursuant to Section 7 of this Plan of the right to receive Common Stock or cash at the end
of a specified period.
(cc) "Share"
means one share of Common Stock.
(dd) "Spread"
means, on any applicable measurement date, the excess of the Market Value per Share over the Option Price or Base Price provided
for in an Option or Stock Appreciation Right, respectively.
(ee) "Separation
from Service" means a Participant's Termination of Employment with the Company and any of its Subsidiaries or affiliates that
qualifies as a "separation from service" for purposes of Section 409A of the Code. A Separation from Service will
be deemed to occur where the Participant and the Company, its Subsidiary or affiliate, reasonably anticipate that the bona fide
level of services the Participant will perform (whether as an employee or as an independent contractor) will be permanently reduced
to a level that is less than thirty-seven and a half percent (37.5%) of the average level of bona fide services the Participant
performed during the immediately preceding 36 months (or the entire period the Participant has provided services if the Participant
has been providing services to the Company and any of its Subsidiaries or affiliates for less than 36 months).
(ff) "Stock
Appreciation Right" means a right granted pursuant to Section 5 of this Plan, and includes both Tandem Appreciation Rights
and Free-Standing Appreciation Rights.
(gg) "Subsidiary"
means a corporation, company or other entity (i) more than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or unincorporated association), but more than 50 percent of whose
ownership interest representing the right generally to make decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining whether any person may be a Participant for purposes
of any grant of Incentive Stock Options, "Subsidiary" means any corporation in which at the time the Company owns or
controls, directly or indirectly, more than 50 percent of the total combined voting power represented by all classes of stock issued
by such corporation.
(hh) "Tandem
Appreciation Right" means a Stock Appreciation Right granted pursuant to Section 5 of this Plan that is granted in tandem
with an Option.
(ii) "Termination
of Employment" means the termination of a Participant's employment with, or performance of services for, the Company and any
of its Subsidiaries or affiliates. Unless otherwise determined by the Board, if a Participant's employment with the Company and
its affiliates terminates but such Participant continues to provide services to the Company and its affiliates in a non-employee
capacity, such change in status shall not be deemed a Termination of Employment. A Participant shall be deemed to incur a Termination
of Employment in the event of the disaffiliation of such Participant's subsidiary, affiliate, or division unless the Board specifies
otherwise. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company
and its Subsidiaries and affiliates do not constitute a Termination of Employment. If an Award is subject to Section 409A
of the Code, however, Termination of Employment for purposes of that Award shall mean the Participant's Separation from Service.
3.
Shares
Available Under the Plan.
(a)
Maximum
Shares Available Under Plan.
(i) Subject
to adjustment as provided in Section 13 of this Plan, a maximum of 1,533,333 shares of Common Stock may be delivered pursuant to
Awards granted under this Plan. All of the shares reserved for issuance may be subject to Incentive Stock Options.
(ii) Shares
of Common Stock covered by an Award shall not be counted as used unless and until they are actually issued to a Participant and,
therefore, the total number of shares of Common Stock available under the Plan as of a given date shall not be reduced by any Common
Stock relating to prior Awards that have expired or have been forfeited or cancelled. If the Award is to be settled in cash,
the number of shares of Common Stock on which the Award is based shall not count toward the share limits set forth in this Section 3.
Notwithstanding anything to the contrary contained herein: (A) if shares of Common Stock are tendered or otherwise used in payment
of the Option Price of an Option or the Base Price of a Stock Appreciation Right, the total number of shares of Common Stock covered
by the Option or Stock Appreciation Right being exercised shall count against the aggregate Plan limit described above and (B)
shares of Common Stock withheld by the Company to satisfy the tax withholding obligation shall count against the aggregate Plan
limit described above.
(b)
Limitations
on Grants to Individual Participant.
(i) Subject
to adjustment as provided in Section 13 of this Plan, the maximum number of Shares with respect to which Awards may be granted
hereunder to any Participant or Director during any fiscal year of the Company shall be 400,000 shares
(the "Limitation").
If an Option is canceled, the canceled Option shall continue to be counted toward the Limitation for the year granted. An Option
(or a Stock Appreciation Right) that is repriced during any fiscal year is treated as the cancellation of the Option (or Stock
Appreciation Right) and a grant of a new Option (or Stock Appreciation Right) for purposes of the Limitation for that fiscal year.
4.
Options.
The Board may, from time to time and upon such terms and conditions as it may determine, grant to Eligible Individuals options
to purchase Common Stock. Each grant of Options will be evidenced by an Evidence of Award which shall contain such terms
and conditions as the Board may approve that are not inconsistent with the following terms and conditions and those of the remainder
of the Plan:
(a) Each
Evidence of Award will specify the number of shares of Common Stock to which it pertains subject to the limitations set forth in
Section 3 of this Plan.
(b) Each
Evidence of Award will specify an Option Price per share, which may not be less than the Market Value per Share on the Date of
Grant (or 110% of the Market Value Per Share in the case of an Incentive Stock Option issued to the owner of 10% or more of the
voting power of the Company or any of its Subsidiaries).
(c) Each
Evidence of Award will specify whether the Option Price will be payable, to the extent permitted by applicable statutes and regulations,
either (a) in cash or by certified or bank check at the time the Option is exercised or (b) in the discretion of the Committee,
in any form of lawful consideration approved by the Committee. As of the Effective Date (and subject to any future
action by the Committee to restrict the forms of consideration that may be used to pay the Option Price) the Committee has approved
the following:: (i) by delivery to the Company of other Common Stock, duly endorsed for transfer to the Company, with a Market
Value per Share on the date of delivery equal to the Option Price (or portion thereof) due for the number of Shares being acquired,
or by means of attestation whereby the Participant identifies for delivery specific shares of Common Stock that have an aggregate
Market Value per Share on the date of attestation equal to the Option Price (or portion thereof) and receives a number of shares
of Common Stock equal to the difference between the number of shares thereby purchased and the number of identified attestation
shares of Common Stock; (ii) a "cashless" exercise program established with a broker; (iii) reduction in the number of
shares of Common Stock otherwise deliverable upon exercise of such Option with a Market Value per Share equal to the aggregate
Option Price at the time of exercise; (iv) any combination of the foregoing methods; or (v) any other form of legal consideration
that may be acceptable to the Committee including but not limited to "net" or "immaculate" exercise. Unless
otherwise specifically provided in the Evidence of Award, the exercise price of Common Stock acquired pursuant to an Option that
is paid by delivery (or attestation) to the Company of other Common Stock acquired, directly or indirectly from the Company, shall
be paid only by shares of Common Stock of the Company that have been held for more than six months (or such longer or shorter period
of time required to avoid a charge to earnings for financial accounting purposes). Notwithstanding the foregoing, during any period
for which the Common Stock is publicly traded (i.e., the Common Stock is listed on any established stock exchange or a national
market system) an exercise by a Director or officer that involves or may involve a direct or indirect extension of credit or arrangement
of an extension of credit by the Company, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002
shall be prohibited with respect to any Award under this Plan.
(d) Successive
grants may be made to the same Participant whether or not any Options previously granted to such Participant remain unexercised.
(e) Each
Evidence of Award will specify the period or periods of continuous service by the Optionee with the Company or any Subsidiary,
if any, that is necessary before the Options or installments thereof will become exercisable. The Evidence of Award may provide
for the earlier exercisability of such Options in the event of the retirement, death or disability of a Participant, or a Change
of Control.
(f Any Evidence of Award Option may specify
Management Objectives that must be achieved as a condition to the Options becoming exercisable.
(g) Options
granted under this Plan may be (i) options, including, without limitation, Incentive Stock Options that are intended to qualify
under particular provisions of the Code, (ii) options that are not intended so to qualify, or (iii) combinations of the foregoing.
Incentive Stock Options shall be designated as such in the Evidence of Award and may only be granted to Participants who meet the
definition of "employees" under Section 3401(c) of the Code.
(h) No
grant of Options may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend equivalents or
other distributions to be paid on such Options.
(i) The
exercise of an Option will result in the cancellation on a share for-share basis of any Tandem Appreciation Right authorized under
Section 5 of this Plan.
(j) Each
Evidence of Award shall specify the period during which the Option may be exercisable; provided, however that no Option will be
exercisable more than 10 years from the Date of Grant (5 years for any Incentive Stock Option issued to any owner of 10% or more
of the outstanding voting securities of the Company or any of its Subsidiaries). Each Evidence of Award may provide for accelerated
expiration of the Option upon the Participant's Termination of Employment.
5.
Stock
Appreciation Rights.
(a) The
Board may, from time to time and upon such terms and conditions as it may determine, authorize the granting (i) to any Optionee,
of Tandem Appreciation Rights in respect of Options granted hereunder, or (ii) to any Eligible Individual, of Free-Standing Appreciation
Rights. A Tandem Appreciation Right will be a right of the Optionee, exercisable by surrender of the related Option, to receive
from the Company an amount determined by the Board, which will be expressed as a percentage of the Spread (not exceeding 100 percent)
of the Tandem Appreciation Right at the time of exercise. Tandem Appreciation Rights may be granted at any time prior to the exercise
or termination of the related Options; provided, however, that a Tandem Appreciation Right awarded in relation to an Incentive
Stock Option must be granted concurrently with such Incentive Stock Option. A Free-Standing Appreciation Right will be a right
of the Participant to receive from the Company an amount determined by the Board, which will be expressed as a percentage of the
Spread (not exceeding 100 percent) of the Free Standing Appreciation Right at the time of exercise.
(b) Each
grant of Stock Appreciation Rights will be evidenced by an Evidence of Award which shall identify the Stock Appreciation Right
as a Free-Standing Appreciation Right or a Tandem Appreciation Right (and in the case of Tandem Appreciation Rights shall identify
the related Option) and shall contain such terms and conditions as the Board may approve that are not inconsistent with the following
terms and conditions of this section and section 5(c) and 5(d) below (as applicable), and those of the remainder of the Plan:
(i) Each
Evidence of Award shall specify the amount payable upon exercise of the Stock Appreciation Right and may provide that such may
be paid by the Company in cash, in Common Stock or in any combination thereof and may retain in the Board the right to elect among
those alternatives.
(ii) Any
Evidence of Award may specify that the amount payable on exercise of a Stock Appreciation Right may not exceed a maximum specified
by the Board at the Date of Grant.
(iii) No
grant of Stock Appreciation Rights may be accompanied by a tandem award of dividend equivalents or provide for dividends, dividend
equivalents or other distributions to be paid on such Stock Appreciation Rights.
(c) Each
Evidence of Award of Tandem Appreciation Rights shall specify the Base Price of such Tandem Appreciation Rights (which shall generally
equal the Option Price of the Related Option) and will provide that such Tandem Appreciation Rights may be exercised only at a
time and during the period when the related Option is also exercisable and at a time when the Spread is positive, and by surrender
of the related Option for cancellation. Successive grants of Tandem Appreciation Rights may be made to the same Participant regardless
of whether any Tandem Appreciation Rights previously granted to the Participant remain unexercised.
(d) Regarding
Free-Standing Appreciation Rights only:
(i) Each Evidence of Award will specify in respect of each Free-Standing Appreciation Right a Base Price, which will be equal to or greater than the Market Value per Share on the Date of Grant
(ii) Each Evidence of Award will specify the period or periods of continuous service by the Participant with the Company or any Subsidiary, if any, that is necessary before the Free-Standing Appreciation Right or installments thereof will become exercisable. The Evidence of Award may provide for the earlier exercisability of such Free-Standing Appreciation Rights in the event of the retirement, death or disability of a Participant, or a Change of Control;
(iii) Any Evidence of Award of Free-Standing Appreciation Rights may specify Management Objectives that must be achieved as a condition of the Free-Standing Appreciation Rights becoming exercisable;
(iv) Each Evidence of Award shall specify the period during which the Free-Standing Appreciation Right may be exercisable; provided, however that no Free-Standing Appreciation Right will be exercisable more than 10 years from the Date of Grant. Each Evidence of Award may provide for accelerated expiration of the Free-Standing Appreciation Right upon the Participant's Termination of Employment; and
(v) Successive grants of Free-Standing Appreciation Rights may be made to the same Participant regardless of whether any Free-Standing Appreciation Rights previously granted to the Participant remain unexercised.
6.
Restricted
Stock.
The Board may, from time to time and upon such terms and conditions as it may determine, grant or sell Restricted Stock
to Participants. Each grant or sale of Restricted Stock will be evidenced by an Evidence of Award which shall contain such terms
and conditions as the Board may approve that are not inconsistent with the following terms and conditions and those of the remainder
of the Plan:
(a) Each
such grant or sale will constitute an immediate transfer of the ownership of Common Stock to the Participant in consideration of
the performance of services, entitling such Participant to voting, dividend and other ownership rights, but subject to the substantial
risk of forfeiture and restrictions on transfer hereinafter referred to.
(b) Each
such grant or sale may be made without additional consideration or in consideration of a payment by such Participant that is less
than or equal to the Market Value per Share at the Date of Grant.
(c) Each
Evidence of Award will provide that the Restricted Stock covered by such grant or sale will be subject to a "substantial risk
of forfeiture" within the meaning of Section 83 of the Code during the Restriction Period, which "substantial risk of
forfeiture" may lapse upon the passage of time and/or upon achievement of Management Objectives referred to in subparagraph
(e) below.
(d) Each
such grant or sale will provide that during the Restriction Period for which such substantial risk of forfeiture is to continue,
the transferability of the Restricted Stock will be prohibited or restricted in the manner and to the extent prescribed by the
Board in the Evidence of Award (which restrictions may include, without limitation, rights of repurchase or first refusal in the
Company or provisions subjecting the Restricted Stock to a continuing substantial risk of forfeiture in the hands of any transferee).
(e) Any
Evidence of Award may specify Management Objectives that, if achieved, will result in termination or early termination of the restrictions
applicable to such Restricted Stock. Each Evidence of Award may specify in respect of such Management Objectives a minimum acceptable
level of achievement and may set forth a formula for determining the number of shares of Restricted Stock on which restrictions
will terminate if performance is at or above the minimum or threshold level or levels, or is at or above the target level or levels,
but falls short of maximum achievement of the specified Management Objectives.
(f) Notwithstanding
anything to the contrary contained in this Plan, any Evidence of Award may provide for the earlier termination of restrictions
on such Restricted Stock in the event of the retirement, death or disability of a Participant, or a Change of Control.
(g) Any
such grant or sale of Restricted Stock may require that any or all dividends or other distributions paid thereon during the Restriction
Period be subject to the same restrictions as the underlying award and/or reinvested or deemed reinvested in additional shares
of Restricted Stock. In the event such dividends are not reinvested or deemed reinvested in additional shares of Restricted
Stock, they shall be paid in cash (without interest) on the date on which the Restricted Period lapses.
(h) Unless
otherwise directed by the Board, (i) all certificates representing shares of Restricted Stock will be held in custody by the Company
until all restrictions thereon will have lapsed, together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such Shares, or (ii) all shares of Restricted Stock will be held
at the Company's transfer agent in book entry form with appropriate restrictions relating to the transfer of such shares of Restricted
Stock.
7.
Restricted
Stock Units.
The Board may, from time to time and upon such terms and conditions as it may determine, grant Restricted Stock
Units to Eligible Individuals. Each grant of Restricted Stock Units will be evidenced by an Evidence of Award which shall
contain such terms and conditions as the Board may approve that are not inconsistent with the following terms and conditions and
those of the remainder of the Plan:
(a) Each
such grant will constitute the agreement by the Company to deliver one share of Common Stock per Restricted Stock Unit (or to deliver
the cash equivalent thereof) to the Participant in the future in consideration of the performance of services, but subject to the
fulfillment of such conditions (which may include the achievement of Management Objectives) during the Restriction Period as the
Board may specify in the Evidence of Award. Each Evidence of Award may specify in respect of such Management Objectives a minimum
acceptable level of achievement and may set forth a formula for determining the number of Common Shares subject to the Restricted
Stock Units as to which restrictions will terminate if performance is at or above the minimum or threshold level or levels, or
is at or above the target level or levels, but falls short of maximum achievement of the specified Management Objectives.
(b) Notwithstanding
anything to the contrary contained in this Plan, any Evidence of Award may provide for the earlier lapse or modification of the
Restriction Period in the event of the retirement, death or disability of a Participant, or a change of Control.
(c) During
the Restriction Period, the Participant will have no right to transfer any rights under his or her award and will have no rights
of ownership in the Restricted Stock Units and will have no right to vote the Common Shares subject to the Restricted Stock Units,
but the Board may in the Evidence of Award authorize the payment of dividend equivalents on either a current, deferred or contingent
basis, either in cash or in additional shares of Common Stock, provided that dividend equivalents shall not be paid in a
manner that would cause any tax to be due under 409A of the Code.
(d) Each
Evidence of Award Unit will specify the time and manner of payment of the Restricted Stock Units that have been earned. Each Evidence
of Award will specify that the amount payable with respect thereto will be paid by the Company in Common Stock or cash. If
a cash payment is made in lieu of delivering shares of Common Stock, the amount of such payment shall be based on the Market Value
per Share as of the date on which the Restriction Period lapsed with respect to each Restricted Stock Unit.
8.
Performance
Shares and Performance Units.
The Board may, from time to time and upon such terms and conditions as it may determine, grant
Performance Shares and Performance Units that will become payable to a Participant upon achievement of specified Management Objectives
during the Performance Period. Each grant or sale of Performance Shares and Performance Units will be evidenced by an Evidence
of Award which shall contain such terms and conditions as the Board may approve that are not inconsistent with the following terms
and conditions and those of the remainder of the Plan:
(a) Each
Evidence of Award will specify the number of Performance Shares or Performance Units to which it pertains, which number may be
subject to adjustment to reflect changes in compensation or other factors.
(b) The
Performance Period with respect to each Performance Share or Performance Unit will be such period of time as will be determined
by the Board at the time of grant, and may be subject to earlier lapse or other modification in the event of the retirement, death
or disability of a Participant, or a Change of Control.
(c) Any
Evidence of Award will specify Management Objectives which, if achieved, will result in payment or early payment of the award,
and each Evidence of Award may specify in respect of such Management Objectives a minimum acceptable level of achievement and may
set forth a formula for determining the number of Performance Shares or Performance Units that will be earned if performance is
at or above the minimum or threshold level or levels, or is at or above the target level or levels, but falls short of maximum
achievement of the specified Management Objectives. The grant of Performance Shares or Performance Units will specify that, before
the Performance Shares or Performance Units will be earned and paid, the Board must certify that the Management Objectives have
been satisfied.
(d) Each
Evidence of Award will specify the payment to be made pursuant to any award of Performance Shares or Performance Units and the
time and manner of such payment. Any Evidence of Award may specify that the amount payable with respect thereto may be paid by
the Company in cash, in Common Stock or in any combination thereof and may retain in the Board the right to elect among those alternatives.
(e) Any
Evidence of Award may specify that the amount payable or the number of shares of Common Stock issued with respect thereto may not
exceed maximums specified by the Board at the Date of Grant.
(f) The
Evidence of Award may provide for the payment of dividend equivalents to the holder thereof either in cash or in additional shares
of Common Stock subject in all cases to payment on a contingent basis based on the Participant's earning of the Performance Shares
with respect to which such dividend equivalents are paid, provided that dividend equivalents shall not be paid in a manner that
would cause any tax to be due under 409A of the Code.
9.
Other
Awards.
(a) The
Board may, subject to limitations under applicable law, grant to any Eligible Individual such other awards that may be denominated
or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors
that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other
rights convertible or exchangeable into Common Stock, purchase rights for Common Stock, awards with value and payment contingent
upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated
by the Board, and awards valued by reference to the book value of shares of Common Stock or the value of securities of, or the
performance of specified Subsidiaries or affiliates or other business units of the Company. The Board shall determine the terms
and conditions of such awards. Shares of Common Stock delivered pursuant to an award in the nature of a purchase right granted
under this Section 9 shall be purchased for such consideration, paid for at such time, by such methods, and in such forms, including,
without limitation, cash, shares of Common Stock, other awards, notes or other property, as the Board shall determine.
(b) Cash
awards, as an element of or supplement to any other award granted under this Plan, may also be granted pursuant to this Section
9 of this Plan.
(c) The
Board may grant Common Stock as a bonus, or may grant other awards in lieu of obligations of the Company or a Subsidiary to pay
cash or deliver other property under this Plan or under other plans or compensatory arrangements, subject to such terms as shall
be determined by the Board in a manner that complies with Section 409A of the Code.
(d) Share-based
awards pursuant to this Section 9 are not required to be subject to any minimum vesting period.
10.
Transferability.
(a) Except
as otherwise determined by the Board, no Option, Stock Appreciation Right or other Award shall be transferable by the Participant
except by will or the laws of descent and distribution, and in no event shall any such Award be transferred for value. Except as
otherwise determined by the Board, Options and Stock Appreciation Rights will be exercisable during the Participant's lifetime
only by him or her or, in the event of the Participant's legal incapacity to do so, by his or her guardian or legal representative
acting on behalf of the Participant in a fiduciary capacity under state law and/or court supervision.
(b) Any
Evidence of Award may provide that part or all of the shares of Common Stock that are (i) to be issued or transferred by the Company
upon (A) the exercise of Options or Stock Appreciation Rights, (B) upon the termination of the Restriction Period applicable to
Restricted Stock Units or (C) upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject
to the substantial risk of forfeiture and restrictions on transfer referred to in Section 6 of this Plan, will be subject to further
restrictions on transfer that are consistent with applicable law.
11.
Change
in Control.
(a) In
the event of a Change in Control, but notwithstanding any other provision of the Plan to the contrary, the Board may, in its discretion,
take any of the actions listed in this Section 11.
|
(i)
|
provide that any Options and Stock Appreciation Rights
outstanding which are not then exercisable and vested shall become immediately vested and fully exercisable;
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(ii)
|
provide that any Restricted Stock, Restricted Stock Unit
and other Awards shall become vested in full;
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(iii)
|
provide that Performance Criteria applicable to Performance
Shares and Performance Units or Management Objectives applicable to other Awards shall be deemed to be satisfied and such Awards
shall be considered to be earned and payable in full;
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(iv)
|
provide for the assumption or substitution of equal or
greater value of any Award on such terms and conditions as the Board deems appropriate and consistent with Section 409A of the
Code;
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(v)
|
make such settlements of outstanding Awards as it deems
appropriate, including, without limitation, the cancellation of outstanding Awards in exchange for payments of cash, property
or a combination thereof having an aggregate value equal to the value of such Awards, as determined by the Board in its sole discretion;
and
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(vi)
|
provide for the cancellation without payment of each Option
or Stock Appreciation Right or other Award with an Option Price or Base Price (or similar amount) greater than the consideration
offered in connection with any such Change in Control.
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(a)
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The Board's actions need not be uniform, and may result
in disparate treatment among Participants, Awards, and portions of the same Award, as the Board determines in its sole and absolute
discretion
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(b)
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Notwithstanding the foregoing, in the event the Board does
not, for any reason, provide for the assumption or substitution with an award of equal or greater value of any Award (or portion
thereof) pursuant to the Change in Control transaction, such Award (or portion thereof) shall become vested in full immediately
prior to such Change in Control.
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(c)
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To the extent the Board provides for the assumption or
substitution with an award of equal or greater value of an outstanding Award (or portion thereof), then, to the extent not otherwise
vested by the Board in accordance with the provisions of this Section 11 and notwithstanding any other provision of this
Plan to the contrary, during the 12-month period following a Change in Control: (i) upon the involuntary termination of an
Optionee or Participant's employment other than termination for Cause; (ii) upon the voluntary termination of employment
by the Participant following a material and adverse change in the Optionee or Participant's compensation, responsibilities, functions
or reporting relationship; or (iii) in the event an Optionee or Participant resigns rather than accept a mandatory
relocation greater than 50 miles; then, in any such event, all outstanding Awards held by such Optionee or Participant shall become
vested as of the Date of Termination. Any Option or Stock Appreciation Right held by the Optionee or Participant as of the date
of the Change in Control that remains outstanding as of the date of Termination of Employment may thereafter be exercised, until
the earlier of (i) the third anniversary of the date of Termination of Employment; or (ii) the expiration of the Term
of such Option or Stock Appreciation Right. Restricted Stock shall immediately be vested free and transferable. Restricted Stock
Units, Performance Shares, Performance Units and other Awards shall be vested as of the Termination of Employment and settled
as soon as practicable as specified in the Evidence of Award; provided, however, that if the Award is subject to Section 409A
and the Optionee or Participant is a Specified Employee, the Award shall be settled on the first day of the seventh month following
the Participant's Termination of Employment
.
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(d)
|
For purposes of the Plan, a "Change in Control"
shall mean any of the following events:
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(i)
|
The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of the then-outstanding Shares of Common Stock plus any
other outstanding shares of stock of the Corporation entitled to vote in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the Company and any employee benefit plan (or related trust) sponsored by it
shall not be deemed to be a Person; or
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(ii)
|
A change in the composition of the Board such that the
individuals who constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board. For this purpose, any individual whose election or nomination for election by the Company's shareholders was approved
by a vote of at least two-thirds of the directors then comprising the Incumbent Board shall be considered a member of the Incumbent
Board; or
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(iii)
|
The consummation of a reorganization, merger, statutory
share exchange or consolidation or similar corporate transaction involving the Company or any of its Subsidiaries or a sale or
other disposition of substantially all of the assets of the Company or a material acquisition of assets or stock of another entity
by the Company or any of its Subsidiaries, (each, a "Business Combination") if:
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(A)
|
the individuals and entities that were the beneficial owners
of the Outstanding Company Voting Securities immediately prior to such Business Combination do not beneficially own, directly
or indirectly, more than 50% of the then-outstanding shares of stock and the combined voting power of the then-outstanding voting
securities of the corporation resulting from such Business Combination; or
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(B)
|
a Person beneficially owns, directly or indirectly, 25%
or more of the then-outstanding shares of stock of the corporation resulting from such Business Combination; or
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(C)
|
members of the Incumbent Board do not comprise at least
a majority of the members of the board of directors of the corporation resulting from such Business Combination; or
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(iv)
|
A complete liquidation or dissolution of the Company.
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(e)
|
If an Award is subject to Section 409A of the Code,
any provision regarding the timing or form of payment upon a Change in Control shall be set forth in the Award Agreement when
the Award is granted. The payment or settlement of any such Award that is subject to Section 409A of the Code shall
accelerate upon a Change in Control only if the event also constitutes a "change in ownership," "change in effective
control," or "change in the ownership of a substantial portion of the Company's assets" as defined under Section 409A
of the Code. Any adjustment to the Award that does not affect the Award's status under Section 409A (including, but not limited
to, accelerated vesting or adjustment of the amount of the Award) may occur upon a Change-in-Control as defined in the Plan without
regard to this paragraph, even if the event does not constitute a "change in ownership," "change in effective control,"
or "change in the ownership of a substantial portion of the Company's assets" under Section 409A.
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12.
Securities
Act Compliance.
(a) If
the Board deems it necessary to comply with the Securities Act of 1933, as amended, and the regulations and rulings thereunder,
the Board may require a written investment intent representation by the Optionee or Participant and may require a restrictive legend
be affixed to certificates for shares of Common Stock.
(b) If,
based upon the opinion of counsel for the Company, the Committee determines that the exercise or nonforfeitability of, or delivery
of benefits pursuant to, any Award would violate any applicable provision of (i) U.S. federal, state or local securities law
or (ii) the listing requirements of any national securities exchange on which are listed any of the Company's equity securities,
then the Committee may postpone any such exercise, nonforfeitability or delivery, as the case may be, until such provisions would
be satisfied. Nothing herein shall require the Company to take any actions to cause such exercise, nonforfeitability or delivery
to comply with all such provisions.
13.
Adjustments.
The Board shall make or provide for such adjustments in the numbers of shares of Common Stock covered by outstanding Awards,
the Option Price of Options and the Base Price of Stock Appreciation Rights, Options and in the kind of shares covered thereby,
as the Board, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement
of the rights of Participants or Optionees that otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the Company, (b) any merger, consolidation, spin-off, split-off,
spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants
to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. The Board
shall also make or provide for such adjustments in the numbers of shares of Common Stock specified in Section 3 of this Plan as
the Board in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described
in this Section 13;
provided
,
however
, that any such adjustment to the number specified in Section 3(a)(i)
will be made only if and to the extent that such adjustment would not cause any Option intended to qualify as an Incentive Stock
Option to fail to so qualify.
14.
Administration
of the Plan.
(a) This
Plan will be administered by the Board, which may from time to time delegate all or any part of its authority under this Plan to
the Compensation Committee (the "Committee") of the Board (or a subcommittee thereof), as constituted from time to time.
To the extent of any such delegation, references in this Plan to the Board will be deemed to be references to such Committee or
subcommittee. A majority of the Board or Committee (or subcommittee), as applicable, will constitute a quorum, and the action of
the members of the Board or Committee (or subcommittee) present at any meeting at which a quorum is present, or acts unanimously
approved in writing, will be the acts of the Board or Committee (or subcommittee).
(b) The
interpretation and construction by the Board of any provision of this Plan or of any agreement, notification or document evidencing
the grant of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units
or other awards pursuant to Section 9 of this Plan and any determination by the Board pursuant to any provision of this Plan or
of any such agreement, notification or document will be final and conclusive. No member of the Board will be liable for any such
action or determination made in good faith.
(c) The
Board or, to the extent of any delegation as provided in Section 14(a), the Committee, may delegate to one or more of its members
or to one or more officers of the Company, or to one or more agents or advisors, such administrative duties or powers as it may
deem advisable, and the Board, the committee, or any person to whom duties or powers have been delegated as aforesaid, may employ
one or more persons to render advice with respect to any responsibility the Board, the Committee or such person may have under
the Plan. The Board or the Committee may, by resolution and consistent with applicable law, authorize one or more officers of the
Company to do one or both of the following on the same basis as the Board or the Committee: (i) designate employees to be recipients
of awards under this Plan; (ii) determine the size of any such awards;
provided
,
however
, that (A) the Board or the
Committee shall not delegate such responsibilities to any such officer for awards granted to an employee who is an officer, Director,
or more than 10% beneficial owner of any class of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, as determined by the Board in accordance with Section 16 of the Exchange Act; (B) the resolution providing for
such authorization sets forth the total number of shares of Common Stock such officer(s) may grant; and (C) the officer(s) shall
report periodically to the Board or the Committee, as the case may be, regarding the nature and scope of the awards granted pursuant
to the authority delegated.
15.
Clawback.
Any benefits the Optionee or Participant may receive under this Plan shall be subject to repayment or forfeiture as may be required
to comply with (i) any applicable listing standards of a national securities exchange adopted in accordance with Section 954
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any
implementing rules and regulations of the U.S. Securities and Exchange Commission adopted thereunder, (ii) similar rules under
the laws of any other jurisdiction and (iii) any policies adopted by the Company to implement such requirements, all to the
extent determined by the Company in its discretion to be applicable to the Optionee or Participant.
16.
Recapture
Provisions.
Any Evidence of Award may provide for the cancellation or forfeiture of an award or the forfeiture and repayment
to the Company of any gain related to an award, or other provisions intended to have a similar effect, upon such terms and conditions
as may be determined from time to time by the Board.
17.
Non
U.S. Participants.
In order to facilitate the making of any grant or combination of grants under this Plan, the Board may provide
for such special terms for awards to Participants who are foreign nationals or who are employed by the Company or any Subsidiary
outside of the United States of America or who provide services to the Company under an agreement with a foreign nation or agency,
as the Board may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the
Board may approve such supplements to or amendments, restatements or alternative versions of this Plan (including without limitation,
sub-plans) as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in
effect for any other purpose, and the Secretary or other appropriate officer of the Company may certify any such document as having
been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however,
will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been
amended to eliminate such inconsistency without further approval by the stockholders of the Company.
18.
Withholding
Taxes.
To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this Plan, and the amounts available to the Company for
such withholding are insufficient, it will be a condition to the receipt of such payment or the realization of such benefit that
the Participant or such other person make arrangements satisfactory to the Company for payment of the balance of such taxes required
to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. If
a Participant fails to make arrangements for the payment of tax, the Company may withhold such tax from any other form of remuneration
payable to the Participant, including, if it determines in its sole and absolute discretion, from shares of Common Stock payable
pursuant to the Award having a value equal to the amount required to be withheld. When a Participant is required to pay the Company
an amount required to be withheld under applicable income and employment tax laws, the Participant may elect to satisfy the obligation,
in whole or in part, by electing to have withheld, from the shares required to be delivered to the Participant, shares of Common
Stock having a value equal to the amount required to be withheld, or by delivering to the Company other shares of Common Stock
held by such Participant. The shares used for tax withholding will be valued at an amount equal to the Market Value per Share of
such Common Stock on the date the benefit is to be included in Participant's income. In no event shall the Market Value per Share
of the Common Stock to be withheld and delivered pursuant to this Section 18 to satisfy applicable withholding taxes in connection
with the benefit exceed the minimum amount of taxes required to be withheld. Participants shall also make such arrangements as
the Company may require for the payment of any withholding tax obligation that may arise in connection with the disposition of
shares of Common Stock acquired upon the exercise of Options.
19.
Amendments,
Termination Etc.
(a) The
Board may at any time and from time to time amend the Plan in whole or in part; provided, however, that if an amendment to the
Plan (i) would materially increase the benefits accruing to participants under the Plan, (ii) would materially increase the number
of securities which may be issued under the Plan, (iii) would materially modify the requirements for participation in the Plan
or (iv) must otherwise be approved by the stockholders of the Company in order to comply with applicable law or the rules of the
principal national securities exchange upon which the Common Stock is traded or quoted, then, such amendment will be subject to
stockholder approval and will not be effective unless and until such approval has been obtained.
(b) Except
in connection with a corporate transaction or event described in Section 13 of this Plan, the terms of outstanding awards may not
be amended to reduce the Option Price of outstanding Options or the Base Price of outstanding Stock Appreciation Rights, or cancel
outstanding Options or Stock Appreciation Rights in exchange for cash, other awards or Options or Stock Appreciation Rights with
an Option Price or Base Price, as applicable, that is less than the Option Price of the original Options or Base Price of the original
Stock Appreciation Rights, as applicable, without stockholder approval.
(c) If
permitted by Section 409A of the Code, but subject to Section 20d) hereof, in case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of unforeseeable emergency or other special circumstances, of a Participant
who holds an Option or Stock Appreciation Right not immediately exercisable in full, or any shares of Restricted Stock as to which
the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units
as to which the Restriction Period has not been completed, or any Performance Shares or Performance Units which have not been fully
earned, or any other awards made pursuant to Section 9 subject to any vesting schedule or transfer restriction, or who holds Common
Stock subject to any transfer restriction imposed pursuant to Section 10(b) of this Plan, or in the case of a change of control,
the Board may, in its sole discretion, accelerate the time at which such Option, Stock Appreciation Right or other award may be
exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the
time when such Restriction Period will end or the time at which such Performance Shares or Performance Units will be deemed to
have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement
under any such award.
(d) Subject
to Section 20(b) hereof, the Board may amend the terms of any award theretofore granted under this Plan prospectively or retroactively.
Subject to Section 13 above, no such amendment shall impair any material right of any Participant without his or her consent. The
Board may, in its discretion, terminate this Plan at any time. Termination of this Plan will not affect the rights of Participants
or their successors under any awards outstanding hereunder and not exercised in full on the date of termination.
20.
Compliance
with Section 409A of the Code.
(a) To
the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of
the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to the Participants. This Plan
and any grants made hereunder shall be administered in a manner consistent with this intent. Any reference in this Plan to Section
409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the
U.S. Department of the Treasury or the Internal Revenue Service.
(b) Neither
a Participant nor any of a Participant's creditors or beneficiaries shall have the right to subject any deferred compensation (within
the meaning of Section 409A of the Code) payable under this Plan and grants hereunder to any anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation
(within the meaning of Section 409A of the Code) payable to a Participant or for a Participant's benefit under this Plan and grants
hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its affiliates.
(c) If,
at the time of a Participant's separation from service (within the meaning of Section 409A of the Code), (i) the Participant shall
be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the
Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes
deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant
to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the
Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest,
on the earlier of the tenth business day following (i) the seventh month after such Separation of Service, (ii) the Participant's
death, (iii) or such earlier date or event on which such amount may be paid without violating the provisions of Code Section 409A.
(d) Notwithstanding
any provision of this Plan and grants hereunder to the contrary, in light of the uncertainty with respect to the proper application
of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and grants hereunder as the Company
deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant
shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or
for a Participant's account in connection with this Plan and grants hereunder (including any taxes and penalties under Section
409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a
Participant harmless from any or all of such taxes or penalties.
21.
Code
Section 162(m) Provisions.
(a)
Covered
Employees.
(i) Notwithstanding
any other provision of the Plan, if the Committee determines that any Award is being granted to a Participant who is, or is likely
to be, as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a "covered
employee" (within the meaning of 162(m) (3) of the Code), then the Committee may provide that this Section 21 is applicable
to such Award.
(b)
Performance
Goals.
(i) If
an Award is subject to this Section 18, then the lapsing of restrictions thereon and the distribution of Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or more specified levels of Performance Criteria as
defined in Appendix A. Such Performance Criteria may be based solely by reference to the Company's performance or the performance
of a division or business unit of the Company, or based upon the relative performance of other companies or upon comparisons of
any of the indicators of performance relative to other companies. The Committee may also exclude the impact of an event or occurrence
which the Committee determines should appropriately be excluded, including (a) restructurings, discontinued operations, extraordinary
items, and other unusual or non-recurring charges, (b) an event either not directly related to the operations of the Company or
not within the reasonable control of the Company's management, or (c) a change in accounting standards required by generally accepted
accounting principles; provided that the Committee may not make any adjustment to the extent it would adversely affect the qualification
of any compensation payable under such Performance Criteria as "performance-based compensation" under Section 162(m).
Such Performance Criteria shall be set by the
Committee within the time period prescribed
by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the
regulations thereunder. Before any payments are made with respect to any Awards subject to this Section 21, the Committee shall
certify in writing whether and to what extent the Performance Criteria relating to such payment have been met.
(c)
Other
Restrictions.
(i) The
Committee shall have the power to impose such other restrictions on Awards subject to this Section 21 as it may deem necessary
or appropriate to ensure that such Awards satisfy all requirements for "performance-based compensation" within the meaning
of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
22.
Code
Section 280G Reduction in Awards.
(a) Notwithstanding
anything to the contrary contained in this Plan, in the event the Company determines, in its sole discretion, that any payment
or distribution by the Company to or for the benefit of any Participant (whether paid or payable or distributed or distributable
pursuant to the terms of this Plan or otherwise) (collectively, "Payments") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the Participant with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then there shall be made a calculation under which such Payments provided to the Participant are reduced to the extent necessary
so that no portion thereof shall be subject to the Excise Tax (the "
4999 Limit
"). A comparison shall then
be made between (A) Participant's Net After-Tax Benefit (as defined below) assuming application of the 4999 Limit; and (B) Participant's
Net After-Tax Benefit without application of the 4999 Limit. If (B) exceeds (A), then no limit on the Payments received by
Participant under this Agreement shall be imposed by this Section 22. Otherwise, the amount payable to Executive pursuant
to this Agreement shall be reduced so that no such Payment is subject to the Excise Tax. "
Net After-Tax Benefit
"
shall mean the sum of (x) all payments that Participant receives or is entitled to receive that are in the nature of compensation
and contingent on a change in the ownership or effective control of the Company or in the ownership of a substantial portion of
the assets of the Company within the meaning of Code Section 280G(b)(2) (either, a "
Section 280G Transaction
"),
less (y) the amount of federal, state, local and employment taxes and Excise Tax (if any) imposed with respect to such payments.
(b) In
the event that a reduction in Payments is required pursuant to the immediately preceding paragraph, then, except as provided below
with respect to Payments that consist of health and welfare benefits, the reduction in Payments shall be implemented by determining
the "Parachute Payment Ratio" (as defined below) for each Payment and then reducing the Payments in order beginning with
the Payment with the highest Parachute Payment Ratio. For Payments with the same Parachute Payment Ratio, such Payments shall
be reduced based on the time of payment of such Payments, with amounts being paid furthest in the future being reduced first.
For Payments with the same Parachute Payment Ratio and the same time of payment, such Payments shall be reduced on a pro-rata basis
(but not below zero) prior to reducing Payments next in order for reduction. For purposes of this Section, "Parachute
Payment Ratio" shall mean a fraction, the numerator of which is the value of the applicable Payment as determined for purposes
of Code Section 280G, and the denominator of which is the financial present value of such Parachute Payment, determined at the
date such payment is treated as made for purposes of Code Section 280G (the "Valuation Date"). In determining the
denominator for purposes of the preceding sentence (1) present values shall be determined using the same discount rate that applies
for purposes of discounting payments under Code Section 280G; (2) the financial value of payments shall be determined generally
under Q&A 12, 13 and 14 of Treasury Regulation 1.280G-1; and (3) other reasonable valuation assumptions as determined by Company
shall be used. Notwithstanding the foregoing, Payments that consist of health and welfare benefits shall be reduced after
all other Payments, with health and welfare Payments being made furthest in the future being reduced first.
Notwithstanding the
foregoing, if a Participant is a party to an employment or other agreement with the Company or participates in a severance program
sponsored by the Company or one of its affiliates that contains express provisions regarding Section 280G or Section 4999 of the
Code (or any similar successor provision), the Section 280G or Section 4999 provisions of such employment or other agreement or
plan, as applicable, shall control as to any Payments due that Participant.
23.
Governing
Law.
The Plan and all grants and awards and actions taken thereunder shall be governed by and construed in accordance with
the internal substantive laws of the State of Wyoming.
24. Effective
Date/Expiration. This Plan will be effective as of the Effective Date, which is the date on which the Plan is adopted by the Board.
The Plan shall be submitted to the Company's stockholders for approval. Unless the Plan is approved by the Company's stockholders
within twelve (12) months before or after the Effective Date, the Plan and all Awards made under it shall be void and of no force
and effect. No grant will be made under this Plan more than ten (10) years from the date the Plan is adopted, or the date the Plan
is approved by the Company's shareholders, whichever is earlier but all grants made on or prior to such date will continue in effect
thereafter subject to the terms thereof and of this Plan.
The provisions of this Section 24 shall be applied to the Plan,
as amended and restated, as if the Plan were originally established on the date that the Amended and Restated 2012 Equity and Performance
Incentive Plan is adopted, and accordingly, the Plan will not expire until ten (10) years following the date the Amended and Restated
2012 Equity and Performance Incentive Plan is adopted.
25.
Miscellaneous.
(a) The
Company will not be required to issue any fractional shares of Common Stock pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
(b) This
Plan will not confer upon any Participant any right with respect to continuance of employment or other service with the Company
or any Subsidiary, nor will it interfere in any way with any right the Company or any Subsidiary would otherwise have to terminate
such Participant's employment or other service at any time.
(c) To
the extent that any provision of this Plan would prevent any Option that was intended to qualify as an Incentive Stock Option from
qualifying as such, that provision will be null and void with respect to such Option. Such provision, however, will remain in effect
for other Options and there will be no further effect on any provision of this Plan.
(d) No
award under this Plan may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would
be, in the opinion of counsel selected by the Board, contrary to law or the regulations of any duly constituted authority having
jurisdiction over this Plan.
(e) Absence
or leave approved by a duly constituted officer of the Company or any of its Subsidiaries shall not be considered interruption
or termination of service of any employee for any purposes of this Plan or awards granted hereunder.
(f) No
Participant shall have any rights as a stockholder with respect to any shares subject to awards granted to him or her under this
Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Company.
(g) The
Board may, to the extent compliant with applicable law, condition the grant of any award or combination of awards authorized under
this Plan on the surrender or deferral by the Participant of his or her right to receive a cash bonus or other compensation otherwise
payable by the Company or a Subsidiary to the Participant.
(h) If
any provision of the Plan is or becomes invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any award under any law deemed applicable by the Board, such provision shall be construed or deemed amended or limited in scope
to conform to applicable laws or, in the discretion of the Board, it shall be stricken and the remainder of the Plan shall remain
in full force and effect.
Exhibit A
Section 162(m) Performance Criteria
Pursuant to Section 18(b)(i), performance
goals established for purposes of conditioning the grant of an Award shall be based on one or more of the following performance
criteria ("Performance Criteria") and need not be the same for each Participant: (i) the attainment of certain target
levels of, or a specified percentage increase in, revenues, operating earnings, income before income taxes and extraordinary items,
net income, earnings before income tax, earnings before interest, taxes, depreciation and amortization, or a combination of any
or all of the foregoing; (ii) the attainment of certain target levels of, or a percentage increase in, after-tax or pre-tax profits
including that attributable to continuing and/or other operations; (iii) the attainment of certain target levels of, or a specified
increase in, operational cash flow; (iv) the achievement of a certain level of, reduction of, or other specified objectives with
regard to limiting the level of increase in, all or a portion of, the Company's bank debt or other long-term or short-term public
or private debt or other similar financial obligations of the Company, which may be calculated net of such cash balances and/or
other offsets and adjustments as may be established by the Committee; (v) the attainment of a specified level of, or specified
percentage increase in, earnings per share or earnings per share from continuing operations; (vi) the attainment of certain target
levels of, or a specified increase in, return on capital employed or return on invested capital; (vii) the attainment of certain
target levels of, or a percentage increase in, after-tax or pre-tax return on stockholders' equity; (viii) the attainment of certain
target levels of, or a specified increase in, economic value added targets based on a cash flow return on investment formula; (ix)
the attainment of certain target levels in the fair market value of the Company's shares; (x) the growth in the value of an investment
in the Company's shares assuming the reinvestment of dividends; (xi) the attainment of certain target levels of, or a percentage
increase in, oil and gas proved developed and proved undeveloped reserves; (xii) the attainment of certain target levels
of, or a percentage increase in, average daily oil and gas production, (xiii) the attainment of certain target levels of mineral
reserve and resource replacement, and (xiv) the attainment of certain target levels of mineral production. For purposes of
item (i) above, "extraordinary items" shall mean all items of gain, loss or expense for the fiscal year determined to
be extraordinary or unusual in nature or infrequent in occurrence or related to a corporate transaction (including a disposition
or acquisition) or related to a change in accounting principle, all as determined in accordance with standards established by Opinion
No. 30 of the Accounting Principles Board.
In addition, such Performance Criteria
may be based upon the attainment of specified levels of Company (or Subsidiary, division or other operational unit of the Company)
performance under one or more of the measures described above relative to the performance of other peer companies. To the extent
permitted under Code Section 162(m) (including compliance with any requirements for stockholder approval) and Code Section 409A,
the Committee may: (i) designate additional business criteria on which the Performance Criteria may be based or (ii) adjust, modify
or amend the aforementioned business criteria.
U.S. Energy Corp.
4643 S. Ulster Street
Suite 970
Denver, CO 80237
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VOTE VIA THE INTERNET –
www.proxyvote.com
Use the Internet to transmit your voting
instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have
your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic
voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS
If you would like to reduce the costs incurred
by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using
the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE – 1-800-690-6903
Use any touch-tone telephone to transmit
your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you
call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and
return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood,
NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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011189-678324
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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U.S. ENERGY CORP.
The Board of Directors recommends
that you vote FOR the following:
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For
All
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Withhold
All
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For All
Except
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To withhold authority to vote for any individual nominee(s),
mark “For All Except” and write the number(s) of the nominee(s) on the line below.
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1. Election of Directors
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Nominee:
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01) Javier F. Pico
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The Board of Directors recommends you vote FOR the following proposal No. 2:
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For
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Against
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Abstain
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2. To ratify the appointment of Hein & Associates LLP as our independent auditor for fiscal year 2017.
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The Board of Directors recommends that you vote FOR the following proposal No. 3:
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3. To approve, on an advisory basis, the 2016 compensation of the Company’s named executive officers.
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The Board of Directors recommends you vote 2 Years FOR the following proposal No. 4:
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4. To consider and make an advisory vote on the frequency of a vote on the approval of the compensation of our named executive officers.
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year
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2 years
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3 Years
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4 Years
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The Board of Directors recommends you vote FOR the following proposal No. 5:
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5. To approve the issuance of shares of common stock pursuant to a Securities Purchase Agreement and Warrants.
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The Board of Directors recommends you vote FOR the following proposal No. 6:
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6. To
approve the amendments to the U.S. Energy Corp. Amended and Restated 2012 Equity and Performance Incentive Plan.
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In their discretion, the appointed proxies are authorized to vote upon such other business as may properly come before the meeting and at any and all adjournments or postponements thereof.
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To cumulate votes as to a particular nominee as explained in the Proxy Statement, check the box to the right then indicate the name(s) and the number of votes to be cast for such nominee(s) on the reverse side of this card.
Please do not check the box unless you want to exercise cumulative voting.
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Please indicate if you plan to attend this
meeting.
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Yes
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No
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please provide your full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature (PLEASE SIGN WITHIN BOX)
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Date
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Signature (Joint Owners)
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Date
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U.S. ENERGY CORP.
This proxy is solicited by the Board
of Directors
for the Annual Meeting of Shareholders
to be held JULY 17, 2017 8:30 AM, MDT
The shareholder(s)
hereby appoint(s) David A. Veltri as proxy the power to appoint his substitute, and hereby authorize(s) him to represent and to
vote, as designated on the reverse side of this ballot, all of the shares of common stock of U.S. ENERGY CORP. that the shareholder(s)
is/are entitled to vote at the Annual Meeting of Shareholders to be held at 8:30 AM, MDT on July 17, 2017, at the Company’s
Offices at Regency Plaza, 4643 S. Ulster Street, Suite 970, Denver, Colorado 80237 and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED
AND RETURNED, WILL BE VOTED AS DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS INDICATED, IT WILL
BE VOTED
FOR
EACH OF THE DIRECTORS SPECIFIED IN PROPOSAL 1 AND
FOR
EACH OF PROPOSAL 2, PROPOSAL 3,
PROPOSAL 4 (TWO YEARS), PROPOSAL 5, AND PROPOSAL 6.
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CUMULATE
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(If you noted cumulative voting instructions above, please check the corresponding box on the reverse side.)
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Continued and to be signed on reverse side
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