U.S.
Energy corp.


 


amended
and restated 2012 equity and performance incentive plan


 


INCENTIVE
STOCK OPTION AGREEMENT


 


THIS
OPTION AGREEMENT (this “Agreement”) is made and entered into as of [___________] by and between U.S. Energy
Corp., a Wyoming corporation (the “Company”) and [______] (the “Participant”).


 


	 	Grant
    Date:	 	 
	 	 	 	 
	 	Exercise
    Price Per Share:	 	 
	 	 	 	 
	 	Number
    of Option Shares:	 	 
	 	 	 	 
	 	Expiration
    Date:	 	 


 


ARTICLE
I



Grant of Option


 


Section
1.01. Grant; Type of Option. The Company hereby grants to the Participant an option (the “Option”) to purchase
the total number of shares of Common Stock of the Company set forth above, at the Exercise Price set forth above. The Option is
being granted pursuant to the terms of the Company’s Amended and Restated 2012 Equity and Performance Incentive Plan (the
“Plan”). The Option is intended to be an Incentive Stock Option within the meaning of Section 422 of the Code, although
the Company makes no representation or guarantee that the Option will qualify as an Incentive Stock Option. To the extent that
the aggregate fair market value (determined on the date of grant) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and
its affiliates) exceeds $100,000, the Options or portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as non-qualified stock options.


 


Section
1.02. Consideration; Subject to Plan. The grant of the Option is made in consideration of the services to be rendered by the
Participant to the Company and is subject to the terms and conditions of the Plan. Capitalized terms used but not defined herein
will have the meanings ascribed to them in the Plan.


 




    	 	 	 



     


    


 


ARTICLE
II



Exercise Period; Vesting


 


Section
2.01. Vesting Schedule. The Option will become vested and exercisable in accordance with the following Vesting Schedule until
the Option is 100% vested:


 


	Dates	 	Percentage
    Vested
	 	 	 


 


A
Participant shall vest according to the above schedule as of each anniversary provided the Participant is in Continuous Service
(as defined below) on that Date. The unvested portion of the Option will not be exercisable on or after the Participant’s
termination of Continuous Service. Continuous Service means that the Participant’s service with the Company, whether as
an employee, officer or Director, is not interrupted or terminated.


 


Section
2.02. Expiration. The Option will expire on the Expiration Date set forth above, or earlier as provided in this Agreement
or the Plan.


 


ARTICLE
III



Termination of Continuous Service


 


Section
3.01. Termination for Reasons Other Than Cause, Death, Disability. If the Participant’s Continuous Service is terminated
for any reason other than Cause (as defined below), death or Disability, the Participant may exercise the vested portion of the
Option, but only within such period of time ending on the earlier of (a) the date three months following the termination of the
Participant’s Continuous Service, or (b) the Expiration Date.


 


Section
3.02. Termination for Cause. If the Participant’s Continuous Service is terminated for cause, the Option (whether vested
or unvested) shall immediately terminate and cease to be exercisable. Cause means, with respect to any employee, consultant or
Director: (a) if the employee or consultant is a party to an employment or service agreement with the Company and such agreement
provides for a definition of Cause, the definition contained therein, or (b) if no such agreement exists, or if such agreement
does not define Cause: (i) the commission of, or plea of guilty or no contest to, a felony or a crime involving moral turpitude
or the commission of any other act involving willful malfeasance or material fiduciary breach with respect to the Company; (ii)
gross negligence or willful misconduct with respect to the Company; or (iii) material violation of state or federal securities
laws.


 


Section
3.03. Termination Due to Disability. If the Participant’s Continuous Service terminates as a result of the Participant’s
Disability (as defined below), the Participant may exercise the vested portion of the Option, but only within such period of time
ending on the earlier of (a) the date 12 months following the Participant’s termination of Continuous Service, or (b) the
Expiration Date. Disability means that the Participant is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment.


 


Section
3.04. Termination Due to Death. If the Participant’s Continuous Service terminates as a result of the Participant’s
death, or the Participant dies within a period following termination of the Participant’s Continuous Service during which
the vested portion of the Option remains exercisable, the vested portion of the Option may be exercised by the Participant’s
estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by the person designated to exercise
the Option upon the Participant’s death, but only within the time period ending on the earlier of (a) the date 12 months
following the Participant’s death, or (b) the Expiration Date.


 




    	 	2	 



     


    

 


Section
3.05. Extension of Termination Date. Generally, the exercise period may not be extended. However, if following the Participant’s
termination of Continuous Service the exercise of the Option would violate applicable law or jeopardize the ability of the Company
to continue as a going concern, then the Option shall terminate on the earlier of (a) the Expiration Date, or (b) not more than
30 days following the end of the period during which the exercise of the Option would be in violation of applicable law or jeopardize
the ability of the Company to continue as a going concern. The exercise period may also be extended in compliance with Section
409A of the Code when the Option Price equals or exceeds the Market Value per Share of the Common Stock.


 


ARTICLE
IV



Manner of Exercise


 


Section
4.01. Election To Exercise. To exercise the Option, the Participant (or in the case of exercise after the Participant’s
death or incapacity, the Participant’s executor, administrator, heir or legatee, as the case may be) must deliver to the
Company an executed exercise election in the form attached to this Agreement as Exhibit A.


 


Section
4.02. Payment of Exercise Price. The entire Exercise Price of the Option shall be payable in full at the time of exercise
in the manner designated by the Board. A cash payment by certified or bank check at the time the Option is exercised is always
acceptable.


 


Section
4.03. Withholding. If the Company, in its discretion, determines that it is obligated to withhold any tax in connection with
the exercise of the Option, or any Disqualifying Disposition (as defined below), prior to the issuance of Common Stock upon the
exercise of the Option, the Participant must make arrangements satisfactory to the Company to pay or provide for any applicable
federal, state and local withholding obligations of the Company. The Participant may satisfy any federal, state or local tax withholding
obligation relating to the exercise of the Option by any of the following means:


 


(a)
tendering a cash payment;


 


(b)
authorizing the Company to withhold Common Stock from the Common Stock otherwise issuable to the Participant as a result of the
exercise of the Option; provided, however, that no Common Stock is withheld with a value exceeding the minimum amount of tax required
to be withheld by law; or


 


(c)
delivering to the Company previously owned and unencumbered Common Stock.


 


The
Company also has the right to withhold from any compensation paid to a Participant.


 




    	 	3	 



     


    

 


Section
4.04. Issuance of Shares. Provided that the exercise election and payment are in form and substance satisfactory to the Company,
the Company shall issue the Common Stock registered in the name of the Participant, the Participant’s authorized assignee,
or the Participant’s legal representative.


 


ARTICLE
V



No Right to Continued service;

No Rights as shareholder


 


Neither
the Plan nor this Agreement shall confer upon the Participant any right to be retained in any position, as an employee, consultant
or director of the Company. Further, nothing in the Plan or this Agreement shall be construed to limit the discretion of the Company
to terminate the Participant’s service at any time, with or without cause. The Participant shall not have any rights as
a shareholder with respect to any Common Stock subject to the Option prior to the date of exercise of the Option.


 


ARTICLE
VI



Transferability


 


Except
as otherwise provided in the Plan, the Option is not transferable by the Participant other than to a designated beneficiary upon
the Participant’s death or by will or the laws of descent and distribution, and is exercisable during the Participant’s
lifetime only by him or her. No assignment or transfer of the Option, or the rights represented thereby, whether voluntary or
involuntary, by operation of law or otherwise (except to a designated beneficiary upon death by will or the laws of descent or
distribution) will vest in the assignee or transferee any interest or right herein whatsoever, but immediately upon such assignment
or transfer the Option will terminate and become of no further effect.


 


ARTICLE
VII



Change in Control.


 


Section
7.01. Reserved.


 


Section
7.02. Cash-out. In the event of a Change in Control, the Board may, in its discretion and upon at least 10 days’ advance
notice to the Participant, cancel the Option and pay to the Participant the value of the Option based upon the price per Common
Stock received or to be received by other shareholders of the Company in the event. Notwithstanding the foregoing, if at the time
of a Change in Control the Exercise Price of the Option equals or exceeds the price paid for a share of Common Stock in connection
with the Change in Control, the Board may cancel the Option without the payment of consideration therefor.


 




    	 	4	 



     


    

 


ARTICLE
VIII



Adjustments; Clawback


 


The
Common Stock subject to the Option may be adjusted or terminated in any manner as contemplated by Section 15 of the Plan. In addition,
if the Participant receives any amount (or number of Common Stock) in excess of what the Participant should have received under
the terms of this Option for any reason (including, but not limited to, by reason of a financial restatement, mistake in calculations
or other administrative error), then the Participant shall be required to repay any such excess amount (or transfer such excess
Common Stock) to the Company.


 


ARTICLE
IX



Tax Liability and Withholding


 


Notwithstanding
any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding
(“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Participant’s responsibility
and the Company (a) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with
the grant, vesting, or exercise of the Option or the subsequent sale of any shares acquired on exercise; and (b) does not commit
to structure the Option to reduce or eliminate the Participant’s liability for Tax-Related Items.


 


ARTICLE
X


 


QUALIFICATION
AS AN INCENTIVE STOCK OPTION


 


It
is understood that this Option is intended to qualify as an incentive stock option as defined in Section 422 of the Code to the
extent permitted under applicable law. Accordingly, the Participant understands that in order to obtain the benefits of an incentive
stock option, no sale or other disposition may be made of shares for which incentive stock option treatment is desired within
one (1) year following the date of exercise of the Option or within two (2) years from the date of grant. The Participant understands
and agrees that the Company shall not be liable or responsible for any additional tax liability the Participant incurs in the
event that the Internal Revenue Service for any reason determines that this Option does not qualify as an incentive stock option
within the meaning of the Code.


 


ARTICLE
XI


 


DISQUALIFYING
DISPOSITION


 


If
the Participant disposes of the shares of Common Stock prior to the expiration of either two (2) years from the date of grant
or one (1) year from the date the shares are transferred to the Participant pursuant to the exercise of the Option (a “Disqualifying
Disposition”), the Participant shall notify the Company in writing within thirty (30) days after such disposition of the
date and terms of such disposition. The Participant also agrees to provide the Company with any information concerning any such
dispositions as the Company requires for tax purposes.


 




    	 	5	 



     


    

 


ARTICLE
XII



Compliance with Law


 


The
exercise of the Option and the issuance and transfer of Common Stock shall be subject to compliance by the Company and the Participant
with applicable law, all applicable requirements of federal and state securities laws and with all applicable requirements of
any stock exchange on which the Company’s equity securities may be listed. No Common Stock shall be issued pursuant to this
Option unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied
with to the satisfaction of the Company and its counsel. The Participant understands that the Company is under no obligation to
register the Common Stock with the Securities and Exchange Commission, any state securities commission or any stock exchange to
effect such compliance. Further, the Company shall have no obligation to indemnify any Person against any taxes, interest, or
penalties attributable to the transfer, exercise, ownership, disposition of, or any transaction involving the Options or the Common
Stock.


 


ARTICLE
XIII



Notices


 


Any
notice required to be delivered to the Company under this Agreement shall be in writing and addressed to the Secretary of the
Company at the Company’s principal corporate offices. Any notice required to be delivered to the Participant under this
Agreement shall be in writing and addressed to the Participant at the Participant’s address as shown in the records of the
Company. Either party may designate another address in writing (or by such other method approved by the Company) from time to
time.


 


ARTICLE
XIV



Governing Law


 


This
Agreement will be construed and interpreted in accordance with the laws of the State of Wyoming without regard to conflict of
law principles.


 


ARTICLE
XV



Interpretation


 


Any
dispute regarding the interpretation of this Agreement shall be submitted by the Participant or the Company to the Board of Directors
of the Company for review. The resolution of such dispute by the Board of Directors of the Company shall be final and binding
on the Participant and the Company.


 




    	 	6	 



     


    

 


ARTICLE
XVI



Options Subject to Plan


 


This
Agreement is subject to the Plan. The terms and provisions of the Plan as it may be amended from time to time are hereby incorporated
herein by reference. In the event of a conflict between any term or provision contained herein and a term or provision of the
Plan, the applicable terms and provisions of the Plan will govern and prevail.


 


ARTICLE
XVII



Successors and Assigns


 


The
Company may assign any of its rights under this Agreement. This Agreement will be binding upon and inure to the benefit of the
successors and assigns of the Company. Subject to the restrictions on transfer set forth herein, this Agreement will be binding
upon the Participant and the Participant’s beneficiaries, executors, administrators and the person(s) to whom the Option
may be transferred by will or the laws of descent or distribution.


 


ARTICLE
XVIII



Severability


 


The
invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability
of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and
enforceable to the extent permitted by law.


 


ARTICLE
XIX



Discretionary Nature of Plan


 


The
Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of
the Option in this Agreement does not create any contractual right or other right to receive any Options or other Awards in the
future. Future Awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the
Plan shall not constitute a change or impairment of the terms and conditions of the Participant’s employment with the Company.


 


ARTICLE
XX



Amendment


 


Subject
to the terms of the Plan, the Board has the right to amend, alter, suspend, discontinue or cancel the Option, prospectively or
retroactively; provided, that, no such amendment shall adversely affect the Participant’s material rights under this Agreement
without the Participant’s consent. However, in no event shall the Participant be able to defer or accelerate payment under
the Plan.


 




    	 	7	 



     


    

 


ARTICLE
XXI



No Impact on Other Benefits


 


The
value of the Participant’s Option is not part of his or her normal or expected compensation for purposes of calculating
any severance, retirement, welfare, insurance or similar employee benefit.


 


ARTICLE
XXII



Counterparts


 


This
Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute
one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic
mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial
appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.


 


ARTICLE
XXIII



Acceptance


 


The
Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. The Participant has read and understands the
terms and provisions thereof, and accepts the Option subject to all of the terms and conditions of the Plan and this Agreement.
The Participant acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the underlying
Common Stock and that the Participant should consult a tax advisor prior to such exercise or disposition.


 


[signature
page follows]


 




    	 	8	 



     


    

 


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


 


	 	U.S.
    ENERGY CORP.
	 	 	 
	 	By:
    	             
	 	Name:
    	 
	 	Title:
    	 
	 	 	 
	 	PARTICIPANT
	 	 	 
	 	By:
    	 
	 	Name:
    	 
	 	Title:
    	 


 




    	 	 	 



     


    


 


EXHIBIT
A



U.S. Energy corp.

OPTION EXERCISE FORM


 


THIS
OPTION EXERCISE FORM (this “Exercise Form”) is made and entered into as of ___________, 20__ by and between U.S.
ENERGY CORP., a Wyoming corporation (the “Company”) and the PARTICIPANT NAMED BELOW. Capitalized terms
used but not defined herein shall have the meanings ascribed to them in the Company’s Amended and Restated 2012 Equity and
Performance Incentive Plan (the “Plan”).


 


	 	Participant
    Name:	 	 
	 	 	 	 
	 	Address:	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	Social
    Security Number:	 	 


 


Section
1. Option. The Participant was granted an option (the “Option”) to purchase Common Stock pursuant to the terms
of the Plan and the Option Agreement between the Company and the Participant dated ____________, 20___, as follows:


 


	 	Grant
    Date:	 	 
	 	Number
    of Common Stock:	 	 
	 	Exercise
    Price Per Share:	 	 
	 	Expiration
    Date: 	10th
    anniversary of the Grant Date	 


 


Section
2. Exercise of Option. The Participant hereby elects to exercise the Option to purchase ________ Common Stock (“Shares”),
all of which are vested pursuant to the terms of the Option Agreement.


 


The
total Exercise Price for all of the Shares is _____________ (total Shares times Exercise Price per Share).


 


Section
3. Payment of the Exercise Price; Delivery of Required Documents. The Participant encloses payment in full of the total Exercise
Price for the Shares in the following form(s), as authorized by the Option Agreement (check and complete as appropriate):


 


____
In cash (by certified or bank check) in the amount of $_________, receipt of which is acknowledged by the Company.


 


____
By such other method of payment as may be designated by the Board.


 


Section
4. Acknowledgement. The Participant understands that he or she is purchasing the Shares pursuant to the terms and conditions
of the Plan and the Option Agreement, copies of which the Participant has read and understands.


 


	 	PARTICIPANT
	 	 	 
	 	By
    	            
	 	Name
    	 
	 	Title
    	 





 




    	 	A-1