Exhibit 10.1

 

EXECUTION VERSION

 

 

 

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

by and between

 

U.S. ENERGY CORP.

 

and

 

MT. EMMONS MINING COMPANY

 

Dated as of February 11, 2016

 

 

 

 

 

 

Table of Contents

 

    Page       ARTICLE I DEFINITIONS 2 Section 1.1 Definitions 2 Section 1.2
Other Defined Terms 3 Section 1.3 Interpretative Provisions 4       ARTICLE II
PURCHASE AND SALE 4 Section 2.1 Authorization of Shares 4 Section 2.2 Purchase
and Sale 4 Section 2.3 Closing 4 Section 2.4 Deliveries 5       ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY 6 Section 3.1 Subsidiaries 6
Section 3.2 Organization and Qualification 6 Section 3.3 Authorization;
Enforcement 6 Section 3.4 No Conflicts 7 Section 3.5 Filings, Consents and
Approvals 7 Section 3.6 Issuance of the Securities 7 Section 3.7 Capitalization
7 Section 3.8 SEC Reports; Financial Statements 8 Section 3.9 Material Changes;
Undisclosed Events, Liabilities or Developments 9 Section 3.10 Litigation 9
Section 3.11 Labor 10 Section 3.12 Compliance with Laws; Permits 10 Section 3.13
Title to Assets; Properties 11 Section 3.14 Reserve Reports 11 Section 3.15
Transactions with Affiliates and Employees 11 Section 3.16 Sarbanes-Oxley;
Internal Accounting Controls 12 Section 3.17 No Brokers 12 Section 3.18 Private
Placement 12 Section 3.19 Investment Company 12 Section 3.20 Registration Rights
13 Section 3.21 Listing and Maintenance Requirements 13 Section 3.22 Application
of Takeover Protections 13 Section 3.23 Full Disclosure 13 Section 3.24 No
Integrated Offering 13 Section 3.25 Accountants 14 Section 3.26 Company Stock
Plans 14 Section 3.27 Tax Status 14

 

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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER 14 Section 4.1
Organization; Authority 14 Section 4.2 Absence of Conflicts 15 Section 4.3 Own
Account 15 Section 4.4 Purchaser Status 15 Section 4.5 General Solicitation 15  
    ARTICLE V RESTRICTIONS ON TRANSFERS 15 Section 5.1 Resales 15 Section 5.2
Rule 144 15 Section 5.3 Legends 15 Section 5.4 Legend Removal 16       ARTICLE
VI OTHER AGREEMENTS 16 Section 6.1 Acknowledgement of No Set Off 16 Section 6.2
Survival 16 Section 6.3 Integration 17 Section 6.4 Reservation and Listing of
Securities 17 Section 6.5 Securities Laws Disclosure; Publicity 17 Section 6.6
Integrated Agreements 17 Section 6.7 Confidentiality 18       ARTICLE VII
MISCELLANEOUS 18 Section 7.1 Fees and Expenses 18 Section 7.2 Entire Agreement
18 Section 7.3 Notices 18 Section 7.4 Amendments; Waivers 19 Section 7.5
Headings; Gender 19 Section 7.6 Successors and Assigns 19 Section 7.7 No
Third-Party Beneficiaries 20 Section 7.8 Governing Law 20 Section 7.9
Severability 20 Section 7.10 Remedies Cumulative 20 Section 7.11 Mutual Drafting
20 Section 7.12 Legal Fees and Costs 20 Section 7.13 Enforcement of Agreement 20
Section 7.14 Execution; Counterparts 20

 

Disclosure Schedules

 

Exhibit A – Certificate of Designations of Series A Convertible Preferred Stock

 

Exhibit B – Form of Investor Rights Agreement

 

ii 

 

 

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

THIS SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this “Agreement”),
dated and effective as of February 11, 2016 (the “Effective Date”), is entered
into by and between U.S. Energy Corp., a Wyoming corporation (the “Company”),
and Mt. Emmons Mining Company, a Delaware corporation (“Purchaser”). The Company
and Purchaser are hereinafter at times referred to individually as a “Party” and
collectively as the “Parties.”

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the
“Securities Act”), the Company desires to issue and sell to Purchaser, and
Purchaser desires to purchase from the Company, 50,000 shares (the “Shares”) of
the Series A Convertible Preferred Stock, par value $0.01 per share, of the
Company (the “Preferred Stock”).

 

WHEREAS, contemporaneous with the execution of this Agreement, the Parties have
entered into an Acquisition Agreement (the “Acquisition Agreement”) pursuant to
which, among other things and subject to the terms and conditions therein and
herein, Purchaser has agreed (at the Company’s request) to accept the transfer
of the property and rights specified therein, including the Project (as defined
therein), and to replace the Company as the permittee and operator of the WTP
(as defined therein).

 

WHEREAS, the Company has offered the Preferred Stock to Purchaser in order to
induce Purchaser to enter into the Acquisition Agreement and, subject to the
terms and conditions set forth therein and herein, accept the transfer from the
Company of the property and rights specified therein, including the Project, and
replace the Company as the permittee and operator of the WTP.

 

WHEREAS, subject to the terms and conditions set forth in this Agreement and in
the Acquisition Agreement, the sale of the Shares by the Company to Purchaser
shall be made in exchange for Purchaser’s payment of $500 to the Company and
Purchaser’s acceptance of the transfer of the property and rights specified in
the Acquisition Agreement, including the Mine, and Purchaser’s replacement of
the Company as the permittee and operator of the WTP.

 

WHEREAS, the board of directors of the Company (the “Board of Directors”) has
determined that the transactions contemplated by this Agreement and the other
Transaction Documents (defined below) are in the best interests of the Company
and its shareholders and creditors and that the consideration to be received for
the Shares is adequate, has approved the transactions contemplated by this
Agreement and the other Transaction Documents, and has approved the issuance of
the Shares and Conversion Shares (defined below) for purposes of
Section 17-18-104 of the Wyoming Management Stability Act.

 

WHEREAS, the sole director of Purchaser has determined that the transactions
contemplated by this Agreement and the other Transaction Documents are in the
best interests of Purchaser and its shareholder and has approved the
transactions contemplated by this Agreement.

 

NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Purchaser agree as follows:

 

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ARTICLE I
DEFINITIONS

 

Section 1.1           Definitions. Initially capitalized terms used in this
Agreement shall have the meanings assigned to them in this Section 1.1 or the
applicable Section referenced in Section 1.2, unless the context otherwise
indicates:

 

“Affiliate” shall have the meaning set forth in the Acquisition Agreement.

 

“Commission” means the United States Securities and Exchange Commission.

 

“Common Stock” means the common stock of the Company, par value $0.01 per share,
and any other class of securities into which such securities may hereafter be
reclassified or changed.

 

“Confidentiality Agreement” means that certain Confidentiality Agreement, dated
June 24, 2015, by and among the Company, Purchaser, Freeport Minerals
Corporation and Cyprus Amax Minerals Company.

 

“Contracts” shall have the meaning set forth in the Acquisition Agreement.

 

“Disclosure Schedules” means the Disclosure Schedules attached hereto.

 

“Environmental Laws” shall have the meaning set forth in the Acquisition
Agreement.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Governmental Entity” shall have the meaning set forth in the Acquisition
Agreement.

 

“Hazardous Materials” shall have the meaning set forth in the Acquisition
Agreement.

 

“Investor Rights Agreement” means the Investor Rights Agreement by and between
the Company and Purchaser, a form of which is attached as Exhibit B hereto.

 

“Knowledge of the Company” shall have the meaning set forth in the Acquisition
Agreement.

 

“Laws” shall have the meaning set forth in the Acquisition Agreement.

 

“Lien” shall have the meaning set forth in the Acquisition Agreement.

 

“NASDAQ” means the NASDAQ Capital Market.

 

“Order” shall have the meaning set forth in the Acquisition Agreement.

 

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“Permits” shall have the meaning set forth in the Acquisition Agreement.

 

“Permitted Lien” shall have the meaning set forth in the Acquisition Agreement.

 

“Person” shall have the meaning set forth in the Acquisition Agreement.

 

“Proceeding” shall have the meaning set forth in the Acquisition Agreement.

 

“Purchased Assets” shall have the meaning set forth in the Acquisition
Agreement.

 

“Securities” means the Shares and the Conversion Shares.

 

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1
and shall, where applicable, also include any direct or indirect subsidiary of
the Company formed or acquired after the date hereof.

 

“Transaction Documents” means this Agreement, the Investor Rights Agreement, the
Certificate of Designations, the Acquisition Agreement, all exhibits and
schedules to such documents and any other documents or agreements executed in
connection with the transactions contemplated by such documents.

 

“Transfer Agent” means Computershare Trust Company, Inc., the current transfer
agent of the Company, with a mailing address 350 Indiana Street, Suite 800,
Golden, Colorado 80401, and any successor transfer agent of the Company.

 

Section 1.2           Other Defined Terms. In addition, each of the following
terms is defined in the Section set forth opposite such term:

 

Term   Section Acquisition Agreement   Preamble Agreement   Preamble Action  
3.10 Board of Directors   Preamble Certificate of Designations   2.1 Company  
Preamble Company Reserve Reports   3.14 Company Stock Plan   3.26 Conversion
Shares   2.1 Closing   2.3 Effective Date   Preamble Evaluation Date   3.16 GAAP
  3.8 Material Adverse Effect   3.2 Parties   Preamble Party   Preamble
Preferred Stock   Preamble Purchaser   Preamble Report Preparer   3.14 Required
Approvals   3.5 Rule 144   5.2 SEC Reports   3.8 Securities Act   Preamble
Shares   Preamble Stock Award   3.26

 

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Section 1.3           Interpretative Provisions. The words “hereof”, “herein”
and “hereunder” and words of like import used in this Agreement shall refer to
this Agreement as a whole and not to any particular provision of this Agreement.
Any initially capitalized terms used in any exhibit, annex or schedule but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
Whenever the words “include”, “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without
limitation”, whether or not they are in fact followed by those words or words of
like import. “Writing”, “written” and comparable terms refer to printing, typing
and other means of reproducing words (including electronic media) in a visible
form. References to any agreement or contract are to that agreement or contract
as amended, modified or supplemented from time to time in accordance with the
terms hereof and thereof. References to any Person include the successors and
permitted assigns of that Person.

 

ARTICLE II
PURCHASE AND SALE

 

Section 2.1           Authorization of Shares. The Company has authorized
(a) the sale and issuance to Purchaser of the Shares, and (b) the issuance of
shares of Common Stock to be issued upon conversion of the Shares (the
“Conversion Shares”). Upon issuance of the Preferred Stock, the Preferred Stock
and the Common Stock shall have the rights, preferences, privileges and
restrictions set forth in the Restated Articles of Incorporation of the Company,
as amended by the Certificate of Designations in the form attached hereto as
Exhibit A (the “Certificate of Designations”), which the Company shall file with
the Secretary of State of Wyoming prior to the Closing.

 

Section 2.2           Purchase and Sale. Upon the terms and subject to the
conditions set forth herein, at the Closing, the Company hereby agrees to issue
and sell to Purchaser, and Purchaser agrees to purchase from the Company, the
Shares in exchange for $500 and Purchaser’s performance of its obligations under
the Acquisition Agreement, including accepting the Purchased Assets and
replacing the Company as the permittee and operator of the WTP.

 

Section 2.3           Closing. The closing of the sale and purchase of the
Shares (the “Closing”) shall occur at the offices of Hogan Lovells US LLP in
Denver, Colorado on the date hereof contemporaneously with the execution and
delivery of this Agreement and the Acquisition Agreement.

 

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Section 2.4           Deliveries.

 

(a)          At the Closing, the Company shall deliver or cause to be delivered
to Purchaser the following:

 

(i)          the Investor Rights Agreement duly executed by the Company;

 

(ii)         a certificate representing the Shares (in the form approved by the
Board of Directors and prepared and executed in compliance with the Wyoming
Business Corporation Act and the Corporation’s Restated Articles of
Incorporation and Bylaws), registered in the name of Purchaser;

 

(iii)        a certified copy of evidence of filing of the Certificate of
Designations with the Secretary of State of Wyoming;

 

(iv)        written evidence of the approval by NASDAQ of the Listing of
Additional Shares Notification Form related to the Conversion Shares; and

 

(v)         a certificate of the Secretary of the Company certifying as complete
and accurate as of the Closing and having attached thereto (A) the Company’s
Restated Articles of Incorporation (including the Certificate of Designations)
as in effect on the Effective Date, (B) the Company’s bylaws as in effect on the
Effective Date, (C) resolutions approved by the Board of Directors authorizing
the transactions contemplated hereby and the other Transaction Documents and
duly authorizing and reserving for issuance the Conversion Shares, and (D) good
standing certificates with respect to the Company from the applicable
authority(ies) in Wyoming and any other jurisdiction in which the Company is
qualified to do business, dated as of the Effective Date or a recent date before
the Effective Date, and certifying to the incumbency and signatures of the
Company’s officers executing the Transaction Documents.

 

(b)          At the Closing, Purchaser shall deliver or cause to be delivered to
the Company, as applicable, the following:

 

(i)          the Investor Rights Agreement duly executed by Purchaser;

 

(ii)         $500 in immediately available funds; and

 

(iii)        a certificate of the Secretary of Purchaser certifying all
requisite resolutions or actions of Purchaser’s board of directors approving the
execution and delivery of this Agreement and the Acquisition Agreement and the
transactions contemplated hereby and thereby, and certifying to the incumbency
and signatures of the officers of Purchaser executing this Agreement and the
Acquisition Agreement and any other document relating to the transactions
contemplated hereby and thereby.

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Disclosure Schedules, which Disclosure Schedules
shall be deemed a part hereof and shall qualify any representation made herein
to the extent of the disclosure contained in the corresponding section of the
Disclosure Schedules, the Company represents and warrants as of the date hereof
and as of the Closing to Purchaser as follows (unless as of a specific date
therein):

 

Section 3.1           Subsidiaries. All of the direct and indirect subsidiaries
of the Company are set forth on Schedule 3.1. The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all of the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for
or purchase securities.

 

Section 3.2           Organization and Qualification. The Company and each of
the Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with the requisite power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. Neither the Company nor any Subsidiary is in violation nor default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, has not resulted in and could not reasonably be
expected to result in: (i) a material adverse effect on the legality, validity
or enforceability of any Transaction Document; (ii) a material adverse effect on
the results of operations, cash flow, assets, business, prospects or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole;
or (iii) a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.

 

Section 3.3           Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and each of the other Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company and no further action is required by the Company, the Board of Directors
or the Company’s shareholders in connection herewith or therewith other than the
Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the
Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

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Section 3.4           No Conflicts. The execution, delivery and performance by
the Company of this Agreement and the other Transaction Documents to which it is
a party, the issuance and sale of the Securities and the consummation by it of
the transactions contemplated hereby and thereby do not and will not:
(i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents; (ii) conflict with, or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, result in
the creation of any Lien upon any of the properties or assets of the Company or
any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected; or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as has not resulted in and could not reasonably be
expected to result in a Material Adverse Effect.

 

Section 3.5           Filings, Consents and Approvals. The Company is not
required to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or other
Governmental Entity or other Person in connection with the execution, delivery
and performance by the Company of this Agreement, the Investor Rights Agreement
and the Certificate of Designations, other than: (i) the listing application to
be filed with NASDAQ pursuant to Section 2.4(a)(iv), (ii) disclosures required
to be made under the Exchange Act as contemplated by Section 6.5, and (iii) the
filing of the Certificate of Designations with the Secretary of State of Wyoming
(collectively, the “Required Approvals”).

 

Section 3.6           Issuance of the Securities. The Shares are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens other than any restrictions on transfer under federal or
state securities laws and as set forth in Article V. The Conversion Shares, when
issued in accordance with the terms of the Certificate of Designations, will be
validly issued, fully paid and nonassessable, free and clear of all Liens other
than any restrictions on transfer under federal or state securities laws and as
set forth in Article V.

 

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Section 3.7           Capitalization.

 

(a)          The authorized capital stock of the Company consists of an
unlimited number of shares of Common Stock and 100,000 shares of preferred
stock, par value $0.01 per share, of which 50,000 have been designated as Series
P Preferred Stock. As of the date of this Agreement, there were 28,233,068
shares of Common Stock issued and outstanding, and no shares of preferred stock
issued and outstanding. Since the date of this Agreement until the Closing, no
additional shares of Common Stock or other securities will have been issued
other than the issuance of shares of Common Stock upon the exercise or
settlement of Stock Awards under a Company Stock Plan as disclosed herein. All
of the outstanding shares of capital stock of the Company are, and all
Securities which may be issued as contemplated or permitted by the Transaction
Documents will be, when issued, duly authorized and validly issued, fully paid
and non-assessable and not subject to any pre-emptive rights. No Subsidiary of
the Company owns any shares of capital stock of the Company.

 

(b)          As of the date of this Agreement, 66,667 shares of restricted stock
had been granted to an officer of the Company and such shares are excluded from
issued and outstanding shares of Common Stock, and 2,343,022 shares of Common
Stock were authorized for and subject to issuance upon exercise of outstanding
stock options (of which 2,227,355 were exercisable). There are no Contracts to
which the Company is a party obligating the Company to accelerate the vesting of
any Stock Award as a result of the transactions contemplated by the Transaction
Documents. Other than the Stock Awards, there are no outstanding (i) securities
of the Company or any Subsidiary convertible into or exchangeable for shares of
capital stock of the Company or any Subsidiary, (ii) options, warrants or other
agreements or commitments to acquire from the Company or any of its
Subsidiaries, or obligations of the Company or any of its Subsidiaries to issue,
any shares of capital stock of (or securities convertible into or exchangeable
for shares of capital stock of) the Company or any Subsidiary or
(iii) restricted shares, restricted stock units, stock appreciation rights,
performance shares, profit participation rights, contingent value rights,
"phantom" stock or similar securities or rights that are derivative of, or
provide economic benefits based, directly or indirectly, on the value or price
of, any shares of capital stock of the Company or any Subsidiary, in each case
that have been issued by the Company or any Subsidiary. All outstanding shares
of Common Stock, all outstanding Stock Awards, and all outstanding shares of
capital stock, voting securities or other ownership interests in any Subsidiary
of the Company, have been issued or granted, as applicable, in compliance in all
material respects with all applicable securities Laws.

 

(c)          There are no outstanding Contracts requiring the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any capital stock of the
Company or any Subsidiary. Neither the Company nor any Subsidiary is a party to
any voting agreement or shareholders agreement with respect to any capital stock
of the Company or any Subsidiary and to the Knowledge of the Company there are
no such agreements between or among any of the Company’s shareholders.

 

(d)          No bonds, debentures, notes or other indebtedness issued by the
Company or any Subsidiary (i) having the right to vote on any matters on which
shareholders, members or equityholders of the Company or any Subsidiary may vote
(or which is convertible into, or exchangeable for, securities having such
right), or (ii) the value of which is directly based upon or derived from the
capital stock, voting securities or other ownership interests of the Company or
any Subsidiary, are issued or outstanding.

 

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Section 3.8           SEC Reports; Financial Statements. The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed by the Company under the Securities Act and the Exchange Act for the two
years preceding the date of this Agreement, and will file such documents through
the Closing (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received or will receive a
valid extension of such time of filing and has filed or will file any such SEC
Reports prior to the expiration of any such extension. As of their respective
dates, the SEC Reports complied or will comply in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and none
of the SEC Reports, when filed, contained or will contain any untrue statement
of a material fact or omitted or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (except to
the extent superseded by subsequently filed SEC Reports filed prior to
January 1, 2016). The financial statements of the Company included in the SEC
Reports comply or will comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been or will be prepared in accordance with United States generally
accepted accounting principles (“GAAP”) applied on a consistent basis during the
periods involved, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present or will
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

Section 3.9           Material Changes; Undisclosed Events, Liabilities or
Developments. Since December 31, 2014, except as specifically disclosed in an
SEC Report filed after December 31, 2014 and prior to January 1, 2016: (i) there
has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect; and (ii) the
Company and its Subsidiaries have not incurred any liabilities (contingent or
otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company’s consolidated financial statements
pursuant to GAAP or disclosed in filings made with the Commission.

 

Section 3.10         Litigation. Except as disclosed in Schedule 3.10, there is
no Proceeding pending or, to the Knowledge of the Company, threatened against,
related to or affecting the Company, any Subsidiary or any of their respective
properties before or by any court, arbitrator, or Governmental Entity
(collectively, an “Action”) which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents or the
Securities or (ii) could, if there were an unfavorable decision, have or
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any Subsidiary, nor any director or officer thereof, is or has been
the subject of any Action involving a claim of violation of or liability under
federal or state securities laws or a claim of breach of fiduciary duty. There
has not been, and, to the Knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company. The Commission has not
issued any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the Exchange
Act or the Securities Act. Neither the Company nor any of its Subsidiaries is
subject to any proceeding or action under any applicable Law relating to
bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or
preferential transfers, or similar Law relating to or affecting creditors’
rights generally. There is no Proceeding pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of their Affiliates,
directors, officers or employees, involving any challenge to or seeking damages
or other relief in connection with any of the transactions contemplated by this
Agreement, the Acquisition Agreement or the other Transaction Documents or that
may, to the Knowledge of the Company, have the effect of preventing, delaying,
making illegal or otherwise interfering with the transactions contemplated by
this Agreement, the Acquisition Agreement or the other Transaction Documents.

 

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Section 3.11         Labor. Schedule 3.11 sets forth the names and titles of all
of the Company’s executive officers as of the Effective Date. To the Knowledge
of the Company, no current or former executive officer of the Company or any
Subsidiary, is, or is now expected to be, in violation of any material term of
any employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the continued
employment of each such currently employed executive officer does not subject
the Company or any of its Subsidiaries to any liability with respect to any of
the foregoing matters. The Company and its Subsidiaries are in compliance with
all Laws relating to employment and employment practices, terms and conditions
of employment and wages and hours, except where the failure to be in compliance
has not had and could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

Section 3.12         Compliance with Laws; Permits. Except as set forth in the
SEC Reports filed prior to January 1, 2016, or in each case as has not resulted
in and could not reasonably be expected to result in a Material Adverse Effect,
since December 31, 2014:

 

(a)          To the Knowledge of the Company, the operations and activities of
the Company comply and have complied, in all material respects, with all
applicable Laws and Permits;

 

(b)          To the Knowledge of the Company, the Company possesses all Permits
that are required by Law to permit the operations and activities of the Company
as currently conducted or operated; all such Permits are valid and are in full
force and effect; all applications or notices required to have been filed for
the renewal or extensions of such Permits have been duly filed on a timely basis
with the appropriate Governmental Entity, and the Company has not been notified
in writing that such renewals or extensions will be withheld or delayed.

 

(c)          To the Knowledge of the Company, except as set forth on
Schedule 3.12(c), the Company has not received any written notice from any
Governmental Entity or Third Party regarding (i) any violation of or failure to
comply with, in any material respect, any Law or Permit, (ii) any withdrawal,
suspension, cancellation, termination of, or modification to any Permit held by
the Company or any employee of the Company, or (iii) any obligation on the part
of the Company to undertake, or to bear all or any portion of the cost of, any
remedial action; and

 

 10

 

 

(d)          To the Knowledge of the Company, no event has occurred that, with
or without notice or lapse of time or both, could reasonably be expected to
result in the revocation, suspension, lapse or limitation of any Permit.

 

Section 3.13         Title to Assets; Properties. The Company and the
Subsidiaries have good and marketable title in fee simple to all real property
owned by them except for unpatented mining claims and good and marketable title
in all personal property owned by them that is material to the business of the
Company and the Subsidiaries, in each case free and clear of all Liens, except
for Permitted Liens. Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries, and to the
Knowledge of the Company the lessor(s), are in compliance.

 

Section 3.14         Reserve Reports. The Company has delivered or otherwise
made available to Purchaser true and correct copies of all material written
reports requested or commissioned by the Company or any Subsidiary and delivered
to the Company or any Subsidiary in writing on or before the date of this
Agreement estimating the Company’s and such Subsidiaries’ proved oil and gas
reserves prepared by any unaffiliated person (each, a “Report Preparer”)
concerning the oil and gas interests of the Company and such Subsidiaries as of
December 31, 2014 (the “Company Reserve Reports”). The factual, non-interpretive
data provided by the Company and the Subsidiaries to each Report Preparer in
connection with the preparation of the Company Reserve Reports that was material
to such Report Preparer’s estimates of the proved oil and gas reserves set forth
in the Company Reserve Reports was, to the Knowledge of the Company, as of the
time provided (or as modified or amended prior to the issuance of the Company
Reserve Reports) accurate, and to the Knowledge of the Company there were no
material errors in the assumptions and estimates provided by the Company and its
Subsidiaries to any Report Preparer in connection with their preparation of the
Company Reserve Reports. The Company’s internal proved reserve estimates
prepared by management prior to the date of this Agreement and prior to the
Closing, copies of which have been provided to Purchaser were not, taken as a
whole, materially lower than the conclusions in such Company Reserve Reports.
Except for changes generally affecting the oil and gas exploration, development
and production industry (including changes in commodity prices) and normal
depletion by production, there has been no change in respect of the matters
addressed in the Company Reserve Reports that has resulted in and could
reasonably be expected to result in a Material Adverse Effect.

 

Section 3.15         Transactions with Affiliates and Employees. Except as set
forth in the SEC Reports filed prior to January 1, 2016, none of the officers or
directors of the Company or any Subsidiary and, to the Knowledge of the Company,
none of the employees of the Company or any Subsidiary is presently a party to
any transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or providing for the borrowing
of money from or lending of money to, or otherwise requiring payments to or from
any officer, director or such employee or, to the Knowledge of the Company, any
entity in which any officer, director, or any such employee has a substantial
interest or is an officer, director, trustee, shareholder, member or partner, in
each case involving an amount in excess of $120,000 other than for: (i) payment
of salary for services rendered; (ii) reimbursement for expenses incurred on
behalf of the Company; and (iii) other employee benefits, including Stock Awards
under a Company Stock Plan.

 

 11

 

 

Section 3.16         Sarbanes-Oxley; Internal Accounting Controls. The Company
and the Subsidiaries are in compliance with any and all applicable requirements
of the Sarbanes-Oxley Act of 2002 that are applicable to the Company and are
effective as of the date of this Agreement and as of the Effective Date, and any
and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of the Effective
Date. The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management’s general or specific authorizations;
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management’s general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company and the Subsidiaries have
established disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) promulgated under the Exchange Act) for the Company and the
Subsidiaries and designed such disclosure controls and procedures to provide
reasonable assurance that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the disclosure controls and procedures of the Company and the
Subsidiaries as of the end of the period covered by the most recently filed
periodic report under the Exchange Act (such date, the “Evaluation Date”). The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, there have been no changes in the
internal control over financial reporting (as such term is defined in the
Exchange Act) that have materially affected, or are reasonably likely to
materially affect, the internal control over financial reporting of the Company
and its Subsidiaries.

 

Section 3.17         No Brokers. No broker, finder, investment banker, financial
advisor or other person is entitled to any brokerage, finder’s, or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.

 

Section 3.18         Private Placement. Assuming the accuracy of Purchaser’s
representations and warranties set forth in Article IV of this Agreement, no
registration under the Securities Act is required for the offer and sale of the
Securities by the Company to Purchaser as contemplated hereby. The issuance and
sale of the Securities does not contravene the rules and regulations of NASDAQ.

 

Section 3.19         Investment Company. The Company is not, and is not an
Affiliate of, and immediately after receipt of payment for the Securities, will
not be or be an Affiliate of, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become an “investment company” subject
to registration under the Investment Company Act of 1940, as amended.

 

 12

 

 

Section 3.20         Registration Rights. Except for any rights granted to
Purchaser in the Transaction Documents, no Person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company or any Subsidiaries.

 

Section 3.21         Listing and Maintenance Requirements. The Common Stock is
registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the
Company has taken no action designed to, or which to its knowledge is likely to
have the effect of, terminating the registration of the Common Stock under the
Exchange Act nor has the Company received any notification that the Commission
is contemplating terminating such registration. Except as disclosed in the
Company’s Current Report on Form 8-K filed with the Commission on July 14, 2015,
the Company has not, in the twelve (12) months preceding the date hereof,
received notice from NASDAQ to the effect that the Company is not in compliance
with NASDAQ’s listing or maintenance requirements.

 

Section 3.22         Application of Takeover Protections. No poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision or arrangement is in effect, and no shares of the
Company’s Series P Preferred Stock are issued and outstanding. The Company and
the Board of Directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other
anti-takeover provision under the Company’s Restated Articles of Incorporation,
Bylaws, and the laws of the State of Wyoming including but not limited to the
Wyoming Management Stability Act, that is or could become applicable to
Purchaser as a result of Purchaser and the Company fulfilling their obligations
or exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Securities and
Purchaser’s ownership of the Securities.

 

Section 3.23         Full Disclosure. No representation or warranty by the
Company in this Agreement and no statement contained in the Disclosure Schedules
to this Agreement or any certificate or other document furnished or to be
furnished to Purchaser pursuant to this Agreement contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company has disclosed to Purchaser, in the SEC
Reports filed prior to filed prior to January 1, 2016, and in this Agreement and
the Acquisition Agreement (including the Disclosure Schedules), all information
regarding the Company and its Subsidiaries material to Purchaser’s decision to
purchase the Shares.

 

Section 3.24         No Integrated Offering. Assuming the accuracy of
Purchaser’s representations and warranties set forth in Article IV of this
Agreement, neither the Company, nor any of its Affiliates, nor any Person acting
on its or their behalf has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under circumstances
that would cause this offering of the Securities to be integrated with other
offerings by the Company for purposes of the exemption of the offer and sale of
the Securities to Purchaser from registration under the Securities Act and state
securities laws, and any applicable shareholder approval provisions of NASDAQ.

 

 13

 

 

Section 3.25         Accountants. Hein & Associates LLP, who have audited
certain consolidated financial statements of the Company and its Subsidiaries
are independent public accountants with respect to the Company and its
Subsidiaries within the applicable rules and regulations adopted by the
Commission and the Public Company Accounting Oversight Board (United States) and
as required by the Securities Act.

 

Section 3.26         Company Stock Plans. All benefit, compensation and award
plans administered by the Company that provide for the award of rights of any
kind to receive shares of Common Stock or benefits measured in whole or in part
by reference to shares of Common Stock (each a “Company Stock Plan”) are listed
on Schedule 3.26 of the Disclosure Schedules. Each award granted by the Company
under a Company Stock Plan (each a “Stock Award”) was granted (i) in accordance
with the terms of the applicable Company Stock Plan and (ii) if applicable, with
an exercise price at least equal to the fair market value of the Common Stock on
the date such Stock Award would be considered granted under GAAP and applicable
law. No Stock Award granted under a Company Stock Plan has been backdated. The
Company has not knowingly granted, and there is no and has been no Company
policy or practice to knowingly grant, Stock Awards prior to, or otherwise
knowingly coordinate the grant or vesting of Stock Awards with, the release or
other public announcement of material information regarding the Company or its
Subsidiaries or their financial results or prospects.

 

Section 3.27         Tax Status. Except for matters that could not, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company (i) has made or filed all United States federal,
state and local income and all foreign income and franchise tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations and (iii) has set aside on its books provision reasonably adequate
for the payment of all material taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes in
any material amount claimed to be due by the taxing authority of any
jurisdiction, and to the Knowledge of the Company no basis for any such claim
exists.

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants as of the date hereof and as of the Closing to
the Company as follows:

 

Section 4.1           Organization; Authority. Purchaser is an entity duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware with full right, corporate power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of the Transaction Documents and performance by Purchaser of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action, as applicable, on the part of Purchaser, and
no further action is required by Purchaser, its board of directors or its
stockholder in connection herewith or therewith. Each Transaction Document to
which it is a party has been (or upon delivery will have been) duly executed by
Purchaser, and when delivered by Purchaser in accordance with the terms hereof,
will constitute the valid and legally binding obligation of Purchaser,
enforceable against it in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally; and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.

 

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Section 4.2           Absence of Conflicts. The execution and delivery of this
Agreement by Purchaser does not, and the consummation of the transactions
contemplated hereby will not, (i) conflict with or violate the articles of
incorporation or bylaws of Purchaser or (ii) conflict with or violate in any
material respect any Law or Governmental Order applicable to Purchaser.

 

Section 4.3           Own Account. Purchaser understands that the Shares are
“restricted securities” and have not been registered under the Securities Act or
any applicable state securities law and is acquiring the Shares as principal for
its own account and not with a view to or for distributing or reselling the
Securities or any part thereof in violation of the Securities Act or any
applicable state securities law, has no present intention of distributing any of
such Securities in violation of the Securities Act or any applicable state
securities law and has no direct or indirect arrangement or understandings with
any other persons to distribute or regarding the distribution of such Securities
in violation of the Securities Act or any applicable state securities law (this
representation and warranty not limiting Purchaser’s right to sell the
Securities in compliance with applicable federal and state securities laws).

 

Section 4.4           Purchaser Status. At the time Purchaser was offered the
Shares, it was, and as of the date hereof it is an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) promulgated under
the Securities Act.

 

Section 4.5           General Solicitation. Purchaser is not purchasing the
Shares as a result of any advertisement, article, notice or other communication
regarding the Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.

 

ARTICLE V
RESTRICTIONS ON TRANSFERS

 

Section 5.1           Resales. Purchaser agrees that the Securities may only be
sold or transferred (i) pursuant to an effective registration statement under
the Securities Act (including the Registration Statement (as defined in the
Investor Rights Agreement)); (ii) pursuant to an exemption from registration
under the Securities Act; or (iii) in a transaction not subject to the
registration requirements of the Securities Act.

 

Section 5.2           Rule 144. Purchaser is aware of Rule 144 promulgated under
the Securities Act (as such rule may be amended or interpreted from time to
time, or any similar rule or regulation hereafter adopted by the Commission
having substantially the same purpose and effect as such rule, “Rule 144”) and
the restrictions imposed thereby.

 

Section 5.3           Legends. Purchaser agrees to the imprinting, so long as is
required by this Article V, of a legend on any of the certificates representing
the Securities in substantially the following form:

 

 15

 

 

“THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY.”

 

Section 5.4           Legend Removal. The Company shall instruct the Transfer
Agent, and shall cause its counsel to promptly issue a legal opinion to the
Transfer Agent, to remove the legend set forth in Section 5.3, (i) following any
sale of such Securities pursuant to an effective registration statement;
(ii) following any sale of such Securities pursuant to Rule 144; and (iii) upon
request by the holder of such Securities and upon delivery to the Company of
appropriate representations as to the non-affiliate status of holder under Rule
144 when such Securities may be sold under Rule 144, without the requirement for
the Company to be in compliance with the current public information required
under Rule 144 as to such Securities and without volume or manner-of-sale
restrictions.

 

ARTICLE VI
OTHER AGREEMENTS

 

Section 6.1           Acknowledgement of No Set Off. The Company acknowledges
that its obligations under the Transaction Documents to issue the Conversion
Shares pursuant to the Certificate of Designations are unconditional and
absolute and not subject to any right of set off, counterclaim, delay or
reduction, regardless of or any claim the Company may have against Purchaser and
regardless of the dilutive effect that such issuance may have on the ownership
of the other shareholders of the Company.

 

Section 6.2           Survival.

 

(a)          All representations, warranties, covenants and obligations in this
Agreement, the Disclosure Schedules, and any other document, certificate or
instrument delivered pursuant to this Agreement shall survive the Closing and
the consummation of the transactions contemplated by this Agreement, subject to
Section 6.2(b).

 

(b)          The Company will have liability pursuant to this Agreement with
respect to any breach of a representation or warranty in this Agreement only if
Purchaser notifies the Company of a claim in writing, specifying the factual
basis of the claim in reasonable detail to the extent then known by Purchaser,
on or before August 10, 2017, except for claims of breaches of the
representations and warranties set forth in Sections 3.2, 3.3, 3.4, and 3.7,
which shall survive indefinitely and as to which Purchaser may notify the
Company at any time after the Effective Date.

 

Section 6.3           Integration. The Company shall not sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of NASDAQ such that it would require shareholder approval prior
to the closing of such other transaction unless shareholder approval is obtained
before the closing of such subsequent transaction.

 

Section 6.4           Reservation and Listing of Securities.

 

(a)          The Company shall maintain a reserve from its duly authorized
shares of Common Stock for issuance upon conversion of the Shares pursuant to
the Certificate of Designations in such amount as may then be required to
fulfill its obligations in full under the Certificate of Designations.

 

(b)          The Company shall take all steps necessary to (i) cause the
Conversion Shares to be approved for listing or quotation on NASDAQ;
(ii) provide to Purchaser at the Closing evidence of such approval for listing
or quotation; and (iii) use its reasonable best efforts to maintain the listing
or quotation of such Conversion Shares on NASDAQ or another national securities
exchange.

 

Section 6.5           Securities Laws Disclosure; Publicity. The Company shall
file all required Current Reports on Form 8-K relating to the transactions
contemplated by the Transaction Documents, including all required exhibits
thereto, with the Commission within the time required by the Exchange Act;
provided that the Company shall submit a draft of such Form 8-K(s) to Purchaser
and provide Purchaser with reasonable time to review and comment on such
Form 8-K(s). The Parties shall consult with each other prior to issuing any
press releases with respect to the transactions contemplated by the Transaction
Documents, and neither Party shall issue any press release nor otherwise make
any public statement with respect to the transactions contemplated by the
Transaction Documents without the prior consent of the other Party, which
consent shall not unreasonably be withheld or delayed, except if such disclosure
is required by Law or NASDAQ, in which case the disclosing Party shall provide
the other Party with notice of such press release or public statement as
promptly as possible. Notwithstanding anything else contained in this Section
6.5, except for any press releases or public statements regarding the
transactions contemplated by the Transaction Documents made in connection with
and immediately following the Closing, Purchaser shall not be required to
consult with the Company regarding any press release or other public statement
after the Closing.

 

Section 6.6           Integrated Agreements. The Parties acknowledge and agree
that although this Agreement, the Acquisition Agreement and the other
Transaction Documents are separate documents, they form an integrated contract
and the closing of one is contingent upon and subject to the closing of all
others. The Company will not issue, and Purchaser will not accept, the Shares if
the Company is subject to any proceeding or action under any applicable Law
relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance or preferential transfers, or similar Law relating to or affecting
creditors’ rights generally, and if Purchaser does not accept the Shares,
Purchaser shall not be obligated to close the Acquisition Agreement or the other
Transaction Documents.

 

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Section 6.7           Confidentiality    The Parties acknowledge and agree that
the Confidentiality Agreement shall terminate at the Closing. From and after the
Closing, the Company shall, and shall cause its Affiliates to, hold, and shall
use its reasonable best efforts to cause its or their respective representatives
to hold, in confidence any and all information, whether written or oral, related
to the Project and the Transaction Documents, except to the extent that the
Company can show that such information (a) is generally available to and known
by the public through no fault of the Company, any of its Affiliates or their
respective representatives; or (b) is lawfully acquired by the Company, any of
its Affiliates or their respective representatives from and after the Closing
from sources which are not prohibited from disclosing such information by a
legal, contractual or fiduciary obligation. If the Company or any of its
Affiliates or their respective representatives are compelled to disclose any
such information by judicial or administrative process or by other requirements
of Law, the Company shall promptly notify Purchaser in writing and shall
disclose only that portion of such information which the Company is advised by
its counsel in writing is legally required to be disclosed; provided, that the
Company shall use reasonable best efforts to obtain an appropriate protective
order or other reasonable assurance that confidential treatment will be accorded
such information.

 

ARTICLE VII
MISCELLANEOUS

 

Section 7.1           Fees and Expenses. Each Party shall pay the fees and
expenses of its own advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by such Party incident to the negotiation,
preparation, execution, delivery and performance of this Agreement. The Company
shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied
in connection with the delivery of the Shares to Purchaser.

 

Section 7.2           Entire Agreement. The Transaction Documents, together with
the exhibits and schedules thereto, and the Confidentiality Agreement, taken
together, are expressly intended by the Parties to be, shall be and constitute
the Parties’ single, entire, non-severable, indivisible and integrated
agreement, and none of the Parties would have entered into any of the
Transaction Documents but for the totality of terms and provisions of the
Transaction Documents and the Confidentiality Agreement. The Transaction
Documents, together with the exhibits and schedules thereto, and the
Confidentiality Agreement contain the entire understanding of the Parties with
respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the Parties acknowledge have been merged into such documents, exhibits and
schedules.

 

Section 7.3           Notices. All notices, demands, and other communications
hereunder shall be in writing, and shall be deemed to have been duly given if
delivered personally, or if mailed by certified mail, return receipt requested,
postage prepaid, or sent by nationally recognized overnight carrier, as follows:

 

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If to Purchaser: Mt. Emmons Mining Company   Attention:  Scott Statham, Deputy
General Counsel   333 North Central Avenue   Phoenix, Arizona  85004-2189    
with a copy to: Jones Walker, L.L.P.   Attention:  Dionne Rousseau   8555 United
Plaza Boulevard, Suite 500   Baton Rouge, Louisiana  70809     If to the
Company: U.S. Energy Corp.   Attention:  David Veltri   4643 S. Ulster Street,
Suite 970   Denver, Colorado  80237     with a copy to: Davis Graham & Stubbs
LLP   Attention:  John Elofson   1550 Seventeenth Street, Suite 500   Denver,
Colorado 80202

 

or to such other address and with such other copies as such Party may hereafter
reasonably specify for the purpose by notice to the other Party. Each such
notice, demand or other communication shall be effective upon delivery or
refusal of delivery at the address specified in this Section 7.3.

 

Section 7.4           Amendments; Waivers. No provision of this Agreement may be
waived, modified, supplemented or amended except in a written instrument signed
by the Company and Purchaser. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of any Party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

Section 7.5           Headings; Gender. When a reference is made in this
Agreement to a section, exhibit or schedule, such reference shall be to a
section, exhibit or schedule of this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. All personal pronouns used in this Agreement shall include the
other genders, whether used in the masculine, feminine or neuter gender, and the
singular shall include the plural and vice versa, whenever and as often as may
be appropriate.

 

Section 7.6           Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of Purchaser. Purchaser may assign
any or all of its rights under this Agreement to any Person to whom Purchaser
assigns or transfers any Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to “Purchaser.”

 

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Section 7.7           No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective successors and
permitted assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person or entity.

 

Section 7.8           Governing Law. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of Wyoming, United States of America, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Wyoming or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of Wyoming.

 

Section 7.9           Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the Parties
shall use their commercially reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction.

 

Section 7.10         Remedies Cumulative. The rights and remedies of the Parties
are cumulative and not alternative.

 

Section 7.11         Mutual Drafting. This Agreement is the mutual product of
the Parties and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of each of the Parties, and shall not be
construed for or against any Party hereto.

 

Section 7.12         Legal Fees and Costs. In the event a Party elects to incur
legal expenses to enforce or interpret any provision of this Agreement by
judicial proceedings, the prevailing Party shall be entitled to recover such
legal expenses, including reasonable attorneys’ fees, costs, and necessary
disbursements at all court levels, in addition to any other relief to which such
Party shall be entitled.

 

Section 7.13         Enforcement of Agreement. The Parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the Parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.

 

Section 7.14         Execution; Counterparts. This Agreement may be executed in
two or more counterparts, all of which when taken together shall be considered
one and the same agreement and shall become effective when counterparts have
been signed by each Party and delivered to the other Party, it being understood
that the Parties need not sign the same counterpart. In the event that any
signature is delivered by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the Party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such “.pdf” signature page were an original thereof.

 

* * * * * * * * * *

 

 19

 

 

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the day and year first written above.

 

  COMPANY:         U.S. ENERGY CORP.         By: /s/ David Veltri   Name: David
Veltri   Title: Chief Executive Officer and President         PURCHASER:        
MT. EMMONS MINING COMPANY         By: /s/ William E. Cobb   Name: William E.
Cobb   Title: Vice President

 

[Signature Page to Series A Convertible Preferred Stock Purchase Agreement]