Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into effective
as of May 18, 2017 (the “Effective Date”), by and between U.S. Energy Corp., a
Wyoming corporation (the “Company”), and Ryan Smith (“Employee”).

 

WITNESSETH:

 

WHEREAS, the Company desires to employ Employee and Employee desires to be
employed by the Company in accordance with the terms and conditions set forth
herein; and

 

NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Employee hereby
agree as follows:

 

Section 1.               Definitions.

 

(a)            “2012 Equity Incentive Plan” shall mean the U.S. Energy Corp.
2012 Equity Incentive Plan, including all amendments and restatements, and as
may be amended going forward from time to time.

 

(b)            “Accrued Obligations” shall mean (i) all accrued but unpaid Base
Salary through the date of termination of Employee’s employment, (ii) any unpaid
or unreimbursed expenses incurred in accordance with Section 7 below, (iii) any
benefits provided under the Company’s employee benefit plans upon a termination
of employment, in accordance with the terms contained therein, and (iv)
reasonable relocation costs, to the extent unpaid or unreimbursed, payable to
Employee by the Company, in accordance with written Company policy.

 

(c)            “Affiliate” shall mean any person controlling, controlled by, or
under common control with, another Person.

 

(d)            “Aggregate Change of Control Payments” shall have the meaning set
forth in Section 8(g).

 

(e)            “Annual Bonus” shall mean the aggregate value of the Annual Cash
Bonus and the Annual Equity Bonus.

 

(f)            “Annual Cash Bonus” shall have the meaning set forth in Section
4(b).

 

(g)            “Annual Equity Bonus” shall have the meaning set forth in Section
4(c).

 

(h)            “Agreement” shall have the meaning set forth in the preamble
hereto.

 

(i)            “Base Salary” shall mean the salary provided for in Section 4(a)
or any increased salary granted to Employee pursuant to Section 4(a).

 

(j)            “Board” shall mean the Board of Directors of the Company.

 

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(k)            “Cause” shall mean (i) a material breach of the terms and
conditions of Employee’s employment agreement with the Company, (ii) Employee’s
act(s) of gross negligence or willful misconduct in the course of Employee’s
employment hereunder that is injurious to the Company or any other member of the
Company Group, (iii) willful failure or refusal by Employee to perform in any
material respect Employee’s duties or responsibilities, (iv) misappropriation by
Employee of any assets of the Company or any other member of the Company Group,
(v) embezzlement or fraud committed by Employee, or at Employee’s direction,
(vi) Employee’s conviction of, or pleading “guilty” or “no contest” to a felony
under state or federal law.

 

(l)            “Change of Control” shall mean the first to occur of any of the
following:

 

(i)          “change of control event” with respect to the Company, within the
meaning of Treas. Reg. §1.409A-3(i)(5);

 

(ii)         during any period of two years, individuals who at the beginning of
such period constitute the Board (and any new director whose election by the
Company’s shareholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was so approved) cease for
any reason to constitute a majority thereof; or

 

(iii)        a merger, consolidation, or reorganization of the Company with or
involving any other entity, other than a merger, consolidation, or
reorganization that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting power of the securities of
the Company (or such surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.

 

(iv)        not withstanding the foregoing, Section 1 (l) “Change of Control”
shall exclude the transaction(s) of any conversion(s) of current debt in whole
or part controlled by Angelus Private Equity Group and any acquisition(s) of
assets from Angelus Private Equity Group from the provisions of Section 8.

 

(m)          “COBRA” shall mean the health care continuation provisions of
Section 4980B(f) of the Code.

 

(n)          “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(o)          “Company” shall have the meaning set forth in the preamble hereto,
and shall include any of its successors or assigns.

 

(p)           “Company Business” shall have the meaning in set forth in Section
12(a).

 

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(q)           “Company Group” shall mean the Company together with any direct or
indirect subsidiaries of the Company or any of its Affiliates.

 

(r)            “Compensation Committee” shall mean the committee of the Board
designated to make compensation decisions relating to senior executive officers
of the Company Group.

 

(s)            “Confidential Information” shall have the meaning in set forth in
Section 11(b).

 

(t)            “Disability” shall mean any physical or mental disability or
infirmity of the Employee that has prevented the performance of Employee’s
duties for a period of (i) ninety (90) consecutive days or (ii) one hundred
twenty (120) non-consecutive days during any six (6) month period. Any question
as to the existence, extent, or potentiality of Employee’s Disability upon which
Employee and the Company cannot agree shall be determined by a qualified,
independent physician selected by the Company and approved by Employee (which
approval shall not be unreasonably withheld). The determination of any such
physician shall be final and conclusive for all purposes of this Agreement.

 

(u)          “Dodd-Frank Act” shall have the meaning in set forth in Section 23

 

(v)           “Effective Date” shall have the meaning set forth in the preamble
hereto.

 

(w)          “Employee” shall have the meaning set forth in the preamble hereto.

 

(x)            “Good Reason” shall mean, without Employee’s consent, (i) a
material diminution in Employee’s title, duties, or responsibilities, (ii) the
failure of the Company to pay any compensation hereunder when due or to perform
any other obligation of the Company under this Agreement, or (iii) the
relocation of Employee’s Principal Place of Employment by more than fifty (50)
miles from those cities identified in 1(cc).

 

(y)          “Non-Exempt Deferred Compensation” shall have the meaning set forth
in Section 14(d).

 

(z)          “Original Agreement” shall have the meaning set forth in the
recitals hereto.

 

(aa)         “Performance Criteria” shall have the meaning set forth in Section
4(b).

 

(bb)         “Person” shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint-stock company,
trust (charitable or non-charitable), unincorporated organization, or other form
of business entity.

 

(cc)         “Principal Place of Employment” shall mean, The Principle Corporate
Offices of U.S. Energy Corp, Denver, Colorado, Houston, Texas or any future
geographic location that is mutually agreed upon by the Company and Employee.

 

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(dd)         “Required Delay Period” shall have the meaning in set forth in
Section 13(d)(i).

 

(ee)         “Restricted Territory” shall have the meaning set forth in Section
12(a).

 

(ff)           “Rules” shall have the meaning set forth in Section 24.

 

(gg)          “Specified Employee” shall have the meaning set forth in Section
13(d).

 

(hh)         “Term” shall mean the period specified in Section 2.

 

(ii)            “Work Product” shall have the meaning set forth in Section 11.

 

Section 2.              Acceptance and Term. The Company agrees to employ
Employee, and Employee agrees to serve the Company, on the terms and conditions
set forth herein. The “Term” shall mean the period commencing on the Effective
Date and, unless terminated sooner as provided in Section 8 hereof, continuing
until January 1, 2019. Following the end of the Term, the Employee shall be
employed on an “at-will” basis, and the provisions of this Agreement shall no
longer apply except to the extent that a provision hereunder specifically
continues to apply after the end of the Term, including but not limited to
Sections 10, 11 and 12.

 

Section 3.               Position, Duties, and Responsibilities; Place of
Performance.

 

(a)           During the Term, Employee shall be employed and serve as Chief
Financial Officer of the Company and shall have such duties and responsibilities
as are commensurate with such title. In addition, Employee shall serve as the
“principal accounting officer” of the Company as that term is designated under
Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended, except as may
otherwise be determined by the Board. The Employee shall report to the Board of
Directors and Chief Executive Officer of the Company and shall carry out and
perform all orders, directions and policies given to Employee by the Board of
Directors and Chief Executive Officer of the Company consistent with his
position and title.

 

(b)           Employee shall devote his best efforts to the performance of his
duties under this Agreement and shall not engage in any other business or
occupation during the Term that interferes with Employee’s exercise of judgment
in the Company’s best interests. Notwithstanding the foregoing, nothing herein
shall preclude Employee from (i) serving as a member of the boards of directors
or advisory boards (or their equivalents in the case of a non-corporate entity)
of non-competing businesses, (ii) engaging in charitable activities and
community affairs, and (iii) managing his personal investments and affairs;
provided, however, that the activities set out in clauses (i), (ii), and (iii)
shall be limited by Employee so as not to materially interfere, individually or
in the aggregate, with the performance of his duties and responsibilities
hereunder. Any relevant industry related involvement through ownership, board
representation or investments shall be disclosed by the Employee.

 

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Section 4.              Compensation. During the Term, Employee shall be
entitled to the following compensation:

 

(a)           Base Salary. Employee shall be paid an annualized Base Salary,
payable in United States dollars and less applicable taxes and deductions and in
accordance with the regular payroll practices of the Company, of Two Hundred
Forty Thousand Dollars ($240,000) with increases, if any, as may be approved in
writing by the Compensation Committee.

 

(b)           Annual Cash Bonus. During the Company’s 2017 fiscal year starting
January 1, 2017 and ending December 31, 2017, and subject to the satisfaction of
applicable Performance Criteria (as defined below) and any other conditions
required by the Compensation Committee, the Employee shall be entitled to an
annual bonus cash award (“Annual Cash Bonus”) with a minimum Annual Cash Bonus
equal to one-half (0.5) times the Base Salary and a maximum amount of two and a
half (2.5) times the Base Salary for the 2017 fiscal year of the Company as
determined by the Compensation Committee in its sole discretion; provided,
however, that the Annual Cash Bonus for the 2017 fiscal year will be paid to the
Employee within the period necessary to satisfy the exemption from Code Section
409A (as defined below) for short term deferrals set forth in Treas. Reg.
§1.409A-1(b)(4) (which generally requires that payment be made not later than
2-1/2 months after the end of the year in which the amount becomes vested). A
minimum threshold level of performance predetermined by the Compensation
Committee for such Performance Criteria must be achieved or no Annual Cash Bonus
will be paid during the performance period. The Annual Cash Bonus shall be based
on the Compensation Committee’s evaluation of the condition of Company’s
business, the results of operations, Employee’s individual performance for the
performance period, the satisfaction by Employee or the Company of goals and
milestones, including goals based on Performance Objectives (as that term is
defined in the 2012 Equity Incentive Plan or any applicable successor plan), as
may be established by the Compensation Committee, or any combination thereof
(collectively, “Performance Criteria”). The performance period for the Annual
Cash Bonus shall be the 2017 fiscal year of the Company or such other
performance period as established by the Compensation Committee in its sole
discretion, with the applicable Annual Cash Bonus amounts adjusted for such
performance period in proportion to the annual amounts set above.

 

(c)           Annual Equity Bonus Grants. During the Company’s 2017 fiscal year
starting January 1, 2017 and ending December 31, 2017, and subject to the
satisfaction of applicable Performance Criteria and any other conditions
required by the Compensation Committee, the Employee shall be eligible to
receive an annual equity grant (“Annual Equity Bonus”) pursuant to the 2012
Equity Incentive Plan (or any applicable successor plan subject to applicable
limitations in such plan(s)) with a minimum value equal to one (1.0) times the
Base Salary and a maximum value of three (3.0) times the Base Salary for the
2017 fiscal year of the Company as determined by the Compensation Committee in
its sole discretion. A minimum threshold level of performance predetermined by
the Compensation Committee for such Performance Criteria must be achieved or no
Annual Equity Bonus will be paid during such performance period. For an Annual
Equity Bonus grant that is intended to constitute performance-based compensation
exempt from the deduction limitations of Section 162(m) of the Code (other than
grants of options or stock appreciation rights), the amount of the Annual Equity
Bonus payable shall be contingent upon the achievement of reasonable,
pre-established, and objective performance goals established by the Compensation
Committee in accordance with Treas. Reg. §1.162-27(e) for the taxable year and
communicated to Employee and shall be subject to applicable limitations as
specified in the 2012 Equity Incentive Plan (or any applicable successor plan).

 

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Section 5.              Employee Benefits.

 

(a)           General. During the Term, Employee shall be entitled to
participate in health insurance, retirement plans, directors’ and officers’
insurance coverage and other benefit programs provided to other senior
executives of the Company, as in effect from time to time and subject to
prescribed eligibility waiting periods.

 

(b)           Vacation and Time Off. During each calendar year of the Term,
Employee shall be eligible for fifteen (15) days paid vacation, as well as sick
pay and other paid and unpaid time off in accordance with the policies and
practices of the Company, as in effect from time to time.

 

Section 6.              Key-Man Insurance. At any time during the Term, the
Company shall have the right to insure the life of Employee for the sole benefit
of the Company, in such amounts, and with such terms, as it may determine. All
premiums payable thereon shall be the obligation of the Company. Employee shall
have no interest in any such policy, but agrees to cooperate with the Company in
procuring such insurance by submitting to physical examinations, supplying all
information required by the insurance company, and executing all necessary
documents, provided that no financial obligation is imposed on Employee by any
such documents. Upon the termination of his employment for any reason, Company
will allow Employee to convert the insurance policy to a permanent personal life
insurance policy.

 

Section 7.             Reimbursement of Business Expenses. Employee is
authorized to incur reasonable business expenses in carrying out his duties and
responsibilities under this Agreement, and the Company shall promptly reimburse
Employee for all such reasonable business expenses, subject to documentation in
accordance with written Company policy, as in effect from time to time.

 

Section 8.               Termination of Employment.

 

(a)           General. The Term shall terminate earlier than as provided in
Section 2 hereof upon the earliest to occur of (i) Employee’s death, (ii) a
termination by reason of a Disability, (iii) a termination by the Company with
or without Cause, or (iv) a termination by Employee with or without Good Reason.

 

(b)           Termination Due to Death or Disability. Employee’s employment
shall terminate automatically upon his death. The Company may terminate
Employee’s employment immediately upon the occurrence of a Disability. In the
event Employee’s employment is terminated during the Term due to his death or
Disability, subject to Section 8(h) of this Agreement for a termination due to
Disability, Employee or his estate or his beneficiaries, as the case may be,
shall be entitled to:

 

(i)          The Accrued Obligations, which amount shall be paid within thirty
(30) days from the date of such termination; and

 

(ii)         Any unpaid Annual Bonus in respect of any completed fiscal year
that has ended prior to the date of such termination with such amount determined
based on actual performance during such fiscal year as determined by the
Compensation Committee, which amount shall be paid on the sixtieth (60th) day
following the date of such termination; and

 

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(iii)        Any Annual Bonus that would have been payable based on actual
performance with respect to the year of termination in the absence of the
Employee’s death or Disability, pro-rated for the period the Employee worked
prior to his death or Disability, and payable at the same time as the bonus
would have been paid in the absence of the Employee’s death or Disability; and

 

(iv)        Immediate vesting of any and all equity or equity-related awards
previously awarded to the Employee, irrespective of type of award.

 

Following such termination of Employee’s employment by reason of death or
Disability, except as set forth in this Section 8(b), Employee shall have no
further rights to any compensation or any other benefits under this Agreement.

 

(c)            Termination by the Company for Cause.

 

(i)          The Company may terminate Employee’s employment at any time for
Cause; provided, however, that with respect to any Cause of termination relying
on clause (i) or (ii) of the definition of Cause set forth in Section 1(l)
hereof, to the extent such act or acts are curable, Employee shall be given not
less than sixty (60) days’ written notice by the Board of the Company’s
intention to terminate Employee’s employment for Cause, such notice to state in
detail the particular act or acts or failure or failures to act that constitute
the grounds on which the proposed termination for Cause is based, and such
termination shall be effective at the expiration of such sixty (60) day notice
period, unless Employee has substantially cured, to the Company’s satisfaction,
such act or acts or failure or failures to act that give rise to Cause during
such period.

 

(ii)         In the event the Company terminates Employee’s employment for
Cause, Employee shall be entitled only to the Accrued Obligations, which amount
shall be paid within thirty (30) days from the date of such termination, and any
equity awards or equity-related awards that are not vested as of the date of
termination shall be cancelled. Following such termination of Employee’s
employment for Cause, except as set forth in this Section 8(c)(ii), Employee
shall have no further rights to any compensation or any other benefits under
this Agreement (including, but not limited to, any payment of any bonus that has
not been paid as of the date of Employee’s termination of employment).

 

(d)            Termination by the Company without Cause. The Company may
terminate Employee’s employment at any time without Cause. In the event
Employee’s employment is terminated during the Term by the Company without Cause
(other than due to death or Disability) and subject to the terms of Section
8(h), Employee shall be entitled to:

 

(i)          The Accrued Obligations; and

 

(ii)         Any unpaid Annual Bonus in respect of any completed fiscal year
that has ended prior to the date of such termination with such amount determined
based on actual performance during such fiscal year as determined by the
Compensation Committee; and

 

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(iii)        A lump sum cash payment equal to twelve (12) months the Employee’s
Base Salary; and

 

(iv)        A lump sum cash payment equal to twelve (12) times the “applicable
percentage” of the monthly COBRA premium cost applicable to Employee if Employee
(or his dependents) were to elect COBRA coverage, or similar coverage as
provided by similar state law, in connection with such termination, (for
purposes hereof, the “applicable percentage” shall be the percentage of
Employee’s health care premium costs covered by the Company as of the date of
termination); and

 

(v)         Immediate vesting of any and all equity or equity-related awards
previously awarded to the Employee, irrespective of type of award.

 

Any amounts payable to Employee under clause (i), (ii), or (iii) of this Section
8(d) shall be paid in lump sum on the sixtieth (60th) day following the date of
Employee’s termination of employment, subject to Section 8(h) of this Agreement.
Following such termination of Employee’s employment by the Company without
Cause, except as set forth in this Section 8(d), Employee shall have no further
rights to any compensation or any other benefits under this Agreement.

 

(e)           Termination by Employee with Good Reason. Employee may terminate
Employee’s employment during the Term with Good Reason by providing the Company
thirty (30) days’ written notice setting forth in reasonable specificity the
event that constitutes Good Reason (which notice must be given no later than
ninety (90) days after the initial occurrence of such event). During such thirty
(30) day notice period, the Company shall have a cure right (if curable), and if
not cured within such period, Employee’s termination will be effective upon the
expiration of such cure period, and, subject to the terms of Section 8(h),
Employee shall be entitled to:

 

(i)          The Accrued Obligations; and

 

(ii)         Any unpaid Annual Bonus in respect of any completed fiscal year
that has ended prior to the date of such termination with such amount determined
based on actual performance during such fiscal year as determined by the
Compensation Committee; and

 

(iii)        A lump sum cash payment equal to twelve (12) times the “applicable
percentage” of the monthly COBRA premium cost applicable to Employee if Employee
(or his dependents) were to elect COBRA coverage, or similar coverage as
provided by similar state law, in connection with such termination, (for
purposes hereof, the “applicable percentage” shall be the percentage of
Employee’s health care premium costs covered by the Company as of the date of
termination).

 

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Any amounts payable to Employee under clause (i), (ii), or (iii) of this Section
8(e) shall be paid in lump sum on the sixtieth (60th) day following the date of
Employee’s termination of employment, subject to Section 8(h) of this Agreement.
Following such termination of Employee’s employment by Employee with Good
Reason, except as set forth in this Section 8(e), Employee shall have no further
rights to any compensation or any other benefits under this Agreement.

 

(f)            Termination by Employee without Good Reason. Employee may
terminate Employee’s employment without Good Reason by providing the Company
sixty (60) days’ written notice of such termination. In the event of a
termination of employment by Employee under this Section 8(f), Employee shall be
entitled only to the Accrued Obligations, and any equity awards or
equity-related awards that are not vested as of the date of termination shall be
cancelled. In the event of termination of Employee’s employment under this
Section 8(f), the Company may, in its sole and absolute discretion, by written
notice accelerate such date of termination without changing the characterization
of such termination as a termination by Employee without Good Reason. Following
such termination of Employee’s employment by Employee without Good Reason,
except as set forth in this Section 8(f), Employee shall have no further rights
to any compensation or any other benefits under this Agreement.

 

(g)           Termination Following Change of Control. If, upon a Change of
Control of the Company or during the twelve (12) month period following such
Change of Control, Employee is terminated by the Company without Cause or
Employee terminates Employee’s employment with Good Reason, Employee shall be
entitled to the same payments and benefits as provided in Section 8(d)
(i),(ii),(iv)&(v) above for a termination by the Company without Cause, subject
to the same conditions on payment and benefits as described in Section 8(d)
above, plus a lump-sum cash payment equal to one (1.0) times the total of (i)
Employee’s Base Salary plus (ii) an amount equal to the total value of the
Annual Bonus amounts paid during the fiscal year immediately preceding the year
of such termination pursuant to Section 4 (or the amount of cash bonus and
equity compensation paid employee during fiscal 2016 if a Change of Control
occurs the initial year of this Agreement). Following such termination of
Employee’s employment by the Company without Cause or by Employee with Good
Reason, except as set forth in this Section 8(g), Employee shall have no further
rights to any compensation or any other benefits under this Agreement.

 

(h)           Release. Notwithstanding any provision herein to the contrary, and
as a condition precedent to payment of any amount or provision of any benefit
pursuant to subsection 8(b), (d), (e) or (g) (other than payment of any Accrued
Obligations) (the “Severance Benefits”), Employee or Employee’s estate, as
applicable, shall execute and shall not rescind, a release in favor of the
Company Group and all related companies, individuals, and entities, in a form
satisfactory to the Company, and any revocation period applicable to such
release must have expired as of the sixtieth (60th) day following Employee’s
termination of employment. If Employee fails to execute the release in such a
timely manner so as to permit any revocation period to expire prior to the end
of such sixty (60) day period, or timely revokes his acceptance of such release
following its execution, Employee shall not be entitled to any of the applicable
Severance Benefits. Further, to the extent that (i) such termination of
employment occurs within sixty (60) days of the end of any calendar year, and
(ii) any of the Severance Benefits constitutes “nonqualified deferred
compensation” for purposes of Section 409A, any payment of any amount or
provision of any benefit otherwise scheduled to occur prior to the sixtieth
(60th) day following the date of Employee’s termination of employment hereunder,
but for the condition on executing the release as set forth herein, shall not be
made prior to the first day of the second calendar year, after which any
remaining Severance Benefits shall thereafter be provided to Employee according
to the applicable schedule set forth herein.

 

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Section 9.              Representations and Warranties of Employee. Employee
represents and warrants to the Company that:

 

(a)           Employee is entering into this Agreement voluntarily and that
Employee’s employment hereunder and compliance with the terms and conditions
hereof will not conflict with or result in the breach by Employee of any
agreement to which Employee is a party or by which Employee may be bound;

 

(b)           Employee has not violated, and in connection with Employee’s
employment with the Company will not violate, any non-solicitation,
non-competition, or other similar covenant or agreement of a prior employer by
which Employee is or may be bound; and

 

(c)           in connection with Employee’s employment with the Company,
Employee will not use any confidential or proprietary information Employee may
have obtained in connection with employment with any prior employer.

 

Section 10.             Nondisclosure and Nonuse of Confidential Information.

 

(a)           Employee will not disclose or use at any time, either during the
Term or thereafter, any Confidential Information (as defined below) of which
Employee is or becomes aware, whether or not such information is developed by
him, except to the extent that such disclosure or use is directly related to and
required by Employee’s performance in good faith of duties assigned to Employee
by the Company. Employee will take all appropriate steps to safeguard
Confidential Information and to protect it against disclosure, misuse,
espionage, loss and theft. Employee shall deliver to the Company at the
termination of the Term, or at any time the Company may request, all memoranda,
notes, plans, records, reports, disks, computer tapes and software and other
documents and data (and copies thereof, regardless of the form thereof,
including electronic copies) relating to the Confidential Information or the
Work Product (as defined below) of the business of the Company or any of the
Company’s Affiliates, which Employee may then possess or have under his control.

 

(b)           As used in this Agreement, the term “Confidential Information”
means confidential, proprietary, trade secret, proprietary, scientific,
technical, business or financial information that is not generally known to the
public and that is used, developed or obtained by the Company or any Affiliate,
in connection with their respective businesses, including, but not limited to,
information, observations and data obtained or learned by Employee while
employed by the Company or any of its Affiliates (including those obtained or
learned prior to the date of this Agreement) concerning (i) the business or
affairs of the Company or any Affiliate, (ii) products or services, (iii)
geologic data, (iv) seismic data, (v) analyses, (vi) drawings, photographs and
reports, (vii) computer software, including operating systems, applications and
program listings, (viii) flow charts, manuals and documentation, (ix) data
bases, (x) accounting and business methods, (xi) inventions, devices, new
developments, methods and processes, whether patentable or unpatentable and
whether or not reduced to practice, (xii) customers, clients, suppliers and
subcontractors and customer, client, supplier and subcontractor lists, (xiii)
other copyrightable works, (xiv) all drilling methods, processes, technology and
trade secrets, (xv) business strategies, acquisition plans and target
properties, financial or other performance data and personnel lists and data,
and (xvi) all similar and related information in whatever form. All such
Confidential Information is extremely valuable and is intended to be kept secret
to the Company and its clients and customers, is the sole and exclusive property
of the Company or its clients and customers, and is subject to the restrictive
covenants set forth herein.

 

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Notwithstanding anything to the contrary contained herein, Employee shall not be
required to maintain as confidential any information or material which:

 

(i)          is now, or hereafter becomes, through no act or failure to act on
the part of Employee which would constitute a breach of this Section 11,
generally known or available to the public;

 

(ii)         is furnished to Employee by a third party who, to the knowledge of
Employee, is not under obligations of confidentiality to the Company or any of
its Affiliates, without restriction on disclosure;

 

(iii)        is disclosed with the written approval of the Company;

 

(iv)        is required to be disclosed by law, court order, or similar
compulsion; provided, however, that such disclosure shall be limited to the
extent so required or compelled; and provided, further, that Employee shall give
the Company notice of such disclosure and cooperate (without cost to Employee)
with the Company in seeking suitable protection; or

 

(v)         is disclosed pursuant to or in connection with any legal proceeding
involving Employee and/or the Company or any Affiliate thereof.

 

Section 11.            Inventions, Discoveries and Patents. Employee agrees that
all inventions, discoveries, innovations, improvements, technical information,
systems, software developments, methods, designs, analyses, drawings, reports,
service marks, trademarks, trade names, logos and all similar or related
information (whether patentable or unpatentable) which relate to the Company’s
or any of its Affiliates’ business or research and development and any existing
or future products or services and which are or were discovered, conceived,
developed or made by Employee (whether or not during usual business hours or on
the premises of the Company and whether or not alone or in conjunction with any
other person) while employed by the Company or any Affiliate (including those
conceived, developed or made prior to the date of this Agreement) together with
all patent applications, letters patent, trademark, trade name and service mark
applications or registrations, copyrights and reissues thereof that may be
granted for or upon any of the foregoing (collectively referred to herein as,
the “Work Product”), belong in all instances to the Company or such Affiliate.
Employee will promptly disclose such Work Product to the Board and assign to and
otherwise perform (without cost to Employee) all actions reasonably requested by
the Board (whether during or after the employment period) to establish and
confirm the Company’s or Affiliate’s exclusive ownership of such Work Product
(including, without limitation, the execution and delivery of assignments,
consents, oaths, powers of attorney and other instruments) and to provide
reasonable assistance to the Company or any of its Affiliates in connection with
the prosecution of any applications for patents, trademarks, trade names,
service marks or reissues thereof or in the prosecution or defense of
interferences relating to any Work Product.

 

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Section 12.             Post-Termination Non-Compete, Non-Solicitation.

 

(a)           If Employee’s employment terminates pursuant to Sections 8(c),
8(d), 8(e), 8(f) or 8(g) hereof during the Term or for any reason thereafter,
Employee agrees that, for a period ending six 6 months from the date of his
termination of employment, Employee shall not (except on behalf of the Company
or with the prior written consent of the Company), directly or indirectly, (i)
engage in the business in which the Company is engaged or proposes to be engaged
(the “Company Business”), within the Restricted Territory (as defined below),
(ii) interfere with the Company Business or the business of any Affiliate, or
(iii) own, manage, control, participate in, consult with, render services for or
in any manner engage in or represent any business within the Restricted
Territory that is competitive with the Company Business or the business of any
Affiliate thereof or any product of the Company or any Affiliate, as such
business is conducted or proposed to be conducted from and after the date of
this Agreement. As used in this Agreement, the term “Restricted Territory” means
any county in the United States where the company holds mineral lease interests.
Nothing herein shall prohibit Employee from being a passive owner of not more
than five percent (5%) of the outstanding stock of any class of a corporation
that is competitive with the Company Business and which is publicly traded, so
long as Employee has no active participation in the business of such
corporation.

 

(b)           If Employee’s employment terminates pursuant to Sections 8(c),
8(d), 8(e), 8(f) or 8(g) hereof during the Term or for any reason thereafter,
Employee agrees that, for a period ending one (1) year from the date of his
termination of employment, Employee shall not directly or indirectly through
another person or entity (i) induce or attempt to induce any employee of the
Company or any Affiliate of the Company to leave the employ of the Company or
such Affiliate, or in any way interfere with the relationship between the
Company or any such Affiliate, on the one hand, and any employee or consultant
thereof, on the other hand, (ii) hire or engage as a consultant or otherwise any
person who is or was an employee or consultant of the Company or any Affiliate
thereof until six (6) months after such individual’s employment or consulting
relationship with the Company or such Affiliate has been terminated or (iii)
induce or attempt to induce any customer, supplier, subcontractor, licensee or
other business relation of the Company or any Affiliate to cease doing business
with the Company or such Affiliate, or in any way interfere with the
relationship between any such customer, supplier, subcontractor, licensee or
business relation, on the one hand, and the Company or any Affiliate, on the
other hand.

 

(c)           Employee acknowledges that the covenants contained in this Section
13, including those related to duration, geographic scope, and the scope of
prohibited conduct, are reasonable and necessary to protect the legitimate
interests of the Company. Employee acknowledges that he is an executive and
management level employee as referenced in, and governed by, C.R.S. §
8-2-113(2)(d). Employee further acknowledges that the covenants contained in
this Section 13 are necessary to protect, and reasonably related to the
protection of, the Company’s trade secrets, to which Employee will be exposed
and with which Employee will be entrusted.

 

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(d)           Employee shall inform any prospective or future employer of any
and all restrictions contained in this Agreement and provide such employer with
a copy of such restrictions (but no other terms of this Agreement), prior to the
commencement of that employment.

 

Section 13.             Taxes.

 

(a)           Withholding. The Company may withhold and deduct from any payments
made under this Agreement all applicable taxes, including but not limited to
income, employment, and social security taxes, as shall be required by
applicable law. Employee acknowledges and represents that the Company has not
provided any tax advice to Employee in connection with this Agreement and that
Employee has been advised by the Company to seek tax advice from Employee’s own
tax advisors regarding this Agreement and payments that may be made, and the
benefits to be provided, to Employee pursuant to this Agreement, including
specifically, the application of the provisions of Section 409A of the Code to
such payments.

 

(b)           Section 409A – General. This Agreement shall be interpreted and
administered in a manner so that any amount or benefit payable hereunder shall
be paid or provided in a manner that is either exempt from or compliant with the
requirements Section 409A of the Code and applicable Internal Revenue Service
guidance and Treasury Regulations issued thereunder.

 

(c)           Definitional Restrictions. Notwithstanding anything in this
Agreement to the contrary, no payment that is due upon Employee’s termination of
employment shall be made unless and until Employee has incurred a “separation
from service,” as defined under Treas. Reg. §1.409A-1(h).

 

(d)           Six-Month Delay in Certain Circumstances. Notwithstanding any
other provision of this Agreement, if Employee is a Specified Employee (as
defined below) at the time of termination of employment, then, to the extent
that payments and benefits under this Agreement constitute “deferred
compensation” under Section 409A of the Code and are not eligible for any
exemption thereunder (“Non-Exempt Deferred Compensation”), and payment of cash
or provision of his benefits is pursuant to a termination of employment, then:

 

(i)          the amount of such Non-Exempt Deferred Compensation that would
otherwise be payable during the six-month period immediately following
Employee’s separation from service will be accumulated through and paid or
provided on the first day of the seventh month following Employee’s separation
from service (or, if Employee dies during such period, within 30 days after
Employee’s death) (in either case, the “Required Delay Period”); and

 

(ii)         the normal payment or distribution schedule for any remaining
payments or distributions will resume at the end of the Required Delay Period.

 

For purposes of this Agreement, the term “Specified Employee” has the meaning
given such term in Treas. Reg. §1.409A-1(i).

 

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(e)           Treatment of Installment Payments. Each payment of termination
benefits under Section 8 of this Agreement shall be considered a separate
payment, as described in Treas. Reg. §1.409A-2(b)(2), for purposes of Section
409A of the Code.

 

(f)            Timing of Reimbursements and In-kind Benefits. If Employee is
entitled to be paid or reimbursed for any taxable expenses under Section 7, and
such payments or reimbursements are includible in Employee’s federal gross
taxable income, the amount of such expenses reimbursable in any one calendar
year shall not affect the amount reimbursable in any other calendar year, the
reimbursement of an eligible expense must be made no later than December 31 of
the year after the year in which the expense was incurred, and the right of
Employee to reimbursement of such expenses shall not be subject to exchange or
liquidation for any other benefit or payment.

 

(g)           Permitted Acceleration. The Company shall have the sole authority
to make any accelerated distribution permissible under Treas. Reg. Section
1.409A-3(j)(4) to Employee of deferred amounts, provided that such distribution
meets the requirements of Treas. Reg. §1.409A-3(j)(4).

 

Section 14.            Set Off; Mitigation. The Company’s obligation to pay
Employee the amounts provided and to make the arrangements provided hereunder
shall be subject to set-off, counterclaim, or recoupment of amounts owed by
Employee to the Company or its Affiliates, provided that such amounts owed have
been acknowledged by Employee in writing. To the extent any amount so subject to
set-off, counterclaim, or recoupment is payable in installments hereunder, such
set-off, counterclaim, or recoupment shall not modify the applicable payment
date of any installment, and to the extent an obligation cannot be satisfied by
reduction of a single installment payment, any portion not satisfied shall
remain an outstanding obligation of Employee and shall be applied to the next
installment only at such time the installment is otherwise payable pursuant to
the specified payment schedule.

 

Section 15.             Successors and Assigns; No Third-Party Beneficiaries.

 

(a)            The Company. This Agreement shall inure to the benefit of the
Company and its respective successors and assigns. In the event of change in the
ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company, this Agreement shall, subject
to the provisions hereof, be binding upon and inure to the benefit of such
successor, and such successor shall discharge and perform all the promises,
covenants, duties, and obligations of the Company hereunder.

 

(b)           Employee. Employee’s rights and obligations under this Agreement
shall not be transferable by Employee by assignment or otherwise, without the
prior written consent of the Company; provided, however, that if Employee shall
die, all amounts then payable to Employee hereunder shall be paid in accordance
with the terms of this Agreement to Employee’s devisee, legatee, or other
designee, or if there be no such designee, to Employee’s estate.

 

(c)           No Third-Party Beneficiaries. Except as otherwise set forth in
Section 16(a) or Section 16(b) hereof, nothing expressed or referred to in this
Agreement will be construed to give any Person other than the Company, the other
members of the Company Group, and Employee any legal or equitable right, remedy,
or claim under or with respect to this Agreement or any provision of this
Agreement.

 

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(d)           Enforcement. Because Employee’s services are unique and because
Employee has access to Confidential Information and Work Product, the parties
hereto agree that money damages would be an inadequate remedy for any breach of
Sections 10, 11 and 12 of this Agreement. Therefore, in the event of a breach or
threatened breach of Sections 10, 11 and 12 of this Agreement, all parties
hereto and their respective successors or assigns will be entitled to injunctive
relief, in addition to other rights and remedies existing in their favor at law
or in equity in order to enforce, or prevent any violations of, the provisions
hereof without posting a bond or other security.

 

Section 16.            Waiver and Amendments. Any waiver, alteration, amendment,
or modification of any of the terms of this Agreement shall be valid only if
made in writing and signed by each of the parties hereto. No waiver by either of
the parties hereto of their rights hereunder shall be deemed to constitute a
waiver with respect to any subsequent occurrences or transactions hereunder
unless such waiver specifically states that it is to be construed as a
continuing waiver.

 

Section 17.            Severability. If any covenants or such other provisions
of this Agreement are found to be invalid or unenforceable by a final
determination of a court of competent jurisdiction, (a) the remaining terms and
provisions hereof shall be unimpaired, and (b) the invalid or unenforceable term
or provision hereof shall be deemed replaced by a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision hereof.

 

Section 18.            Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado, without regard
to its conflicts of law or choice of law provisions which would result in the
application of the law of any other jurisdiction.

 

Section 19.           Arbitration. Any controversy or claim arising out of or
relating to this Agreement or any transactions provided for herein, or the
breach thereof, other than a claim for injunctive relief for a breach of
Sections 10, 11 and 12, will be settled by arbitration in accordance with the
commercial Arbitration Rules of the American Arbitration Association (the
“Rules”) in effect at the time demand for arbitration is made by any party. The
evidentiary and procedural rules in such proceedings will be kept to the minimum
level of formality that is consistent with the Rules. The Company and Employee
shall agree on a sole arbitrator of the controversy or claim. The arbitrator
must be experienced in the matters in dispute. If the sole arbitrator cannot be
agreed upon by the Company and the Employee within 10 business days, either the
Company or Employee may request the American Arbitration Association to name a
sole arbitrator. Arbitration will occur in Houston, TX, or such other location
agreed to by the Company and the Employee. The award made by the arbitrator will
be final and binding, and judgment may be entered in any court of law having
competent jurisdiction. The award is subject to confirmation, modification,
correction or vacation only as explicitly provided in Title 9 of the United
States Code. The prevailing party will be entitled to an award of pre- and
post-award interest as well as reasonable attorneys' fees incurred in connection
with the arbitration and any judicial proceedings related thereto and any costs
incurred paying the fees or expenses of the arbitrator.

 

 15 

 

 

Section 20.            Notices.

 

(a)           Every notice or other communication relating to this Agreement
shall be in writing, and shall be mailed to or delivered to the party for whom
or which it is intended at such address as may from time to time be designated
by it in a notice mailed or delivered to the other party as herein provided;
provided, that unless and until some other address be so designated, all notices
and communications by Employee to the Company shall be mailed or delivered to
the Company at its principal executive office at 4643 S. Ulster St., Suite 970
Denver, Colorado 80237, and all notices and communications by the Company to
Employee may be given to Employee personally or may be mailed to Employee at
Employee’s last known address, as reflected in the Company’s records.

 

(b)           Any notice so addressed shall be deemed to be given (i) if
delivered by hand, on the date of such delivery, (ii) if mailed by courier or by
overnight mail, on the first business day following the date of such mailing,
and (iii) if mailed by registered or certified mail, on the third business day
after the date of such mailing.

 

Section 21.             Section Headings; Mutual Drafting.

 

(a)           The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof or affect the meaning or interpretation of this Agreement or of any term
or provision hereof.

 

(b)           The parties are sophisticated and have been represented (or have
had the opportunity to be represented) by their separate attorneys throughout
the transactions contemplated by this Agreement in connection with the
negotiation and drafting of this Agreement and any agreements and instruments
executed in connection herewith. As a consequence, the parties do not intend
that the presumptions of laws or rules relating to the interpretation of
contracts against the drafter of any particular clause should be applied to this
Agreement or any document or instrument executed in connection herewith, and
therefore waive their effects.

 

Section 22.            Entire Agreement. This Agreement, together with any
exhibits attached hereto, constitutes the entire understanding and agreement of
the parties hereto regarding the employment of Employee. This Agreement
supersedes all prior negotiations, discussions, correspondence, communications,
understandings, and agreements between the parties relating to the subject
matter of this Agreement.

 

Section 23.            Dodd-Frank Act and Other Applicable Law Requirements.
Employee agrees (i) to abide by any compensation recovery, recoupment,
anti-hedging or other policy applicable to executives of the Company and its
Affiliates, as may be in effect from time to time, as approved by the Board or a
duly authorized committee thereof or as required by the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) or other
applicable law, and (ii) that the terms and conditions of this Agreement shall
be deemed automatically amended as may be necessary from time to time to ensure
compliance by Employee and this Agreement with such policies, the Dodd-Frank
Act, or other applicable law.

 

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Section 24.            Survival of Operative Sections. Upon any termination of
Employee’s employment, the provisions of this Agreement (together with any
related definitions set forth in Section 1 hereof) shall survive to the extent
necessary to give effect to the provisions thereof, including but not limited to
Sections 10, 11 and 12.

 

Section 25.            Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument. The execution of
this Agreement may be by actual or facsimile signature.

 

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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.

 

  COMPANY:       U.S. ENERGY CORP.         By: /s/ David A. Veltri         Name:
David A. Veltri   Title: CEO & President   Date: May 16, 2017         EMPLOYEE:
        By: /s/ Ryan L. Smith   Name: Ryan L. Smith   Date: May 16, 2017

 

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