Document:

ex_10-1.htm

    Exhibit
10.1

     

     

    STANDBY PURCHASE
AGREEMENT

     

     

    This
STANDBY PURCHASE AGREEMENT (this “Agreement”),
dated as of August 26, 2009, is by and between Community Capital
Corporation, a South Carolina corporation (the “Company”),
and Horwitz & Associates, Inc. (the “Standby
Purchaser”).

     

    W I T N E S S E T
H:

     

    WHEREAS,
the Company proposes pursuant to the Rights Offering Registration Statement (as
defined herein), to commence an offering to holders of its common stock (the
“Common
Stock”) of record as of the close of business on August 7, 2009 (the
“Record
Date”), of non-transferable rights (the “Rights”)
to subscribe for and purchase additional shares of Common Stock (the “New
Shares”) at a subscription price of $2.75 per share for an
aggregate offering amount of up to $20 million (the “Subscription
Price” and, such offering, the “Rights
Offering”); and

     

    WHEREAS,
pursuant to the Rights Offering, the Company will distribute to each of its
shareholders of record, at no charge, one Right for each share of Common Stock
held by them as of the Record Date, and each Right will entitle the holder to
purchase, for each share of Common Stock owned as of the Record Date, New
Shares at the Subscription Price (the “Basic
Subscription Privilege”); and

     

    WHEREAS,
each holder of Rights who exercises in full its Basic Subscription Privilege
will be entitled to subscribe for additional shares of Common Stock of the
Unsubscribed Shares (as defined herein), subject to availability and allocation,
at the Subscription Price, to the extent that other holders of Rights do not
exercise all of their respective Basic Subscription Privileges (the “Over-Subscription
Privilege”); and

     

    WHEREAS,
in order to facilitate the Rights Offering, the Company has requested the
Standby Purchaser to agree, and the Standby Purchaser has agreed, (a) when
applicable, not to exercise its Over-Subscription Privilege, and (b) that,
to the extent any New Shares are not purchased by the Company’s shareholders
pursuant to the exercise of Rights, the Standby Purchaser shall be deemed to
have exercised such Rights immediately prior to the expiration of the Rights
Offering and shall purchase the Unsubscribed Shares from the Company at the
Subscription Price; and

     

    NOW
THEREFORE, in consideration of the foregoing and the mutual covenants herein
contained and other good and valuable consideration, the parties
hereto, intending to be legally bound hereby, agree as
follows:

     

    Section 1.               Certain
Other Definitions. The following terms used herein shall have the
meanings set forth below:

     

    “Affiliate”
shall mean an affiliate (as defined in Rule 12b-2 under the Exchange Act)
of the Standby Purchaser; provided that the
Standby Purchaser or any of its affiliates exercises investment authority,
including, without limitation, with respect to voting and dispositive rights
with respect to such affiliate

    
      
        
        

      

      
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    “Agreement”
shall have the meaning set forth in the preamble hereof.

     

    “Basic
Subscription Privilege” shall have the meaning set forth in the recitals
hereof.

     

    “Board”
shall mean the Board of Directors of the Company.

     

    “Business
Day” shall mean any day that is not a Saturday, a Sunday or a day on
which banks are generally closed in the State of South Carolina.

     

    “Closing”
shall mean the closing of the purchases described in Section 2 hereof,
which shall be held at 10:00 a.m. on the Closing Date at the offices of Alston
& Bird LLP, located at 1201 West Peachtree Street, Atlanta, Georgia 30309,
or such other time and place as may be agreed to by the parties
hereto.

     

    “Closing
Date” shall mean the date that is three (3) Business Days after the
Rights Offering Expiration Date, or such other date as may be agreed to by the
parties hereto.

     

    “Commission”
shall mean the United States Securities and Exchange Commission, or any
successor agency thereto.

     

    “Common
Stock” shall have the meaning set forth in the recitals
hereof.

     

    “Company”
shall have the meaning set forth in the preamble hereof.

     

    “Company
Indemnified Persons” shall have the meaning set forth in Section 9(b)
hereof.

     

    “Company SEC
Documents” shall have the meaning set forth in Section 3(g)
hereof.

     

     “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission thereunder.

     

    “Expenses”
shall have the meaning set forth in Section 6(b) hereof.

     

    “Indemnified
Persons” shall have the meaning set forth in Section 9(b)
hereof.

     

    “Market Adverse
Effect” shall have the meaning set forth in Section 7(a)(iii)
hereof.

     

    “Material Adverse
Effect” shall mean a material adverse effect on the financial condition,
or on the earnings, financial position, operations, assets, results of
operations or business of the Company and its banking subsidiary, CapitalBank,
taken as a whole; provided that the meaning shall exclude any changes from
general economic, financial services industry, market or competitive conditions
or changes in laws, rules or regulations generally affecting Persons in the
Company’s industry.

     

    
      
        
        

      

      
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    “New
Shares” shall have the meaning set forth in the recitals
hereof.

     

    “Non-Terminating
Standby Purchaser” shall have the meaning set forth in Section 8(c)
hereof.

     

    “Over-Subscription
Privilege” shall have the meaning set forth in the recitals
hereof.

     

    “Person”
shall mean an individual, corporation, partnership, association, joint stock
company, limited liability company, limited liability corporation, joint
venture, trust, governmental entity, unincorporated organization or other legal
entity.

     

    “Prospectus”
shall mean a prospectus, as defined in Section 2(10) of the Securities Act,
which meets the requirements of Section 10 of the Securities Act and is
current with respect to the Securities covered thereby.

     

    “Record
Date” shall have the meaning set forth in the recitals
hereof.

     

    “Rights”
shall have the meaning set forth in the recitals hereof.

     

    “Rights
Offering” shall have the meaning set forth in the recitals
hereof.

     

    “Rights Offering
Expiration Date” shall mean September 21, 2009, provided that the Company
shall have the option to extend the Rights Offering for any reason.

     

    “Rights Offering
Prospectus” shall mean the final Prospectus, including any prospectus
supplement relating to the Rights and the underlying shares of Common Stock that
is filed with the Commission and deemed by virtue of Rule 430B of the
Securities Act to be part of such registration statement, each as amended, for
use in connection with the issuance of the Rights, together with the documents
incorporated by reference therein pursuant to Item 12 of Form
S-1.

     

    “Rights Offering
Registration Statement” shall mean the Company’s Registration Statement
on Form S-1 (Commission File No. 333-160430), as amended, filed with the
Commission on July 2, 2009, together with all exhibits thereto and any
prospectus supplement relating to the Rights and the underlying shares of Common
Stock that is filed with the Commission and deemed by virtue of Rule 430B
of the Securities Act to be part of such registration statement, each as
amended, pursuant to which the Rights and underlying shares of Common Stock have
been registered pursuant to the Securities Act.

     

    “Securities”
shall mean those of the New Shares and Unsubscribed Shares that are purchased by
the Standby Purchaser pursuant to Section 2 hereof.

     

    “Securities
Act” shall mean the Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Commission thereunder.

     

    
      
        
        

      

      
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    “Standby
Indemnified Persons” shall have the meaning set forth in Section 9(a)
hereof.

     

    “Standby
Purchaser” shall have the meaning set forth in the preamble
hereof.

     

    “Subscription
Agent” shall have the meaning set forth in Section 6(a)(iv)
hereof.

     

    “Subscription
Price” shall have the meaning set forth in the recitals
hereof.

     

    “Terminating
Standby Purchaser” shall have the meaning set forth in Section 8(c)
hereof.

     

    “Termination
Notice” shall mean a notice from the Company indicating that the Board
has determined to terminate or suspend indefinitely the Rights Offering
contemplated hereby.

     

    “Unsubscribed
Shares” shall have the meaning set forth in Section 2(b)
hereof.

     

    Section
2.              Standby
Purchase Commitment.

     

    (a)           The
Standby Purchaser hereby agrees to purchase from the Company, and the Company
hereby agrees to sell to the Standby Purchaser, at the Subscription Price, all
of the New Shares that will be available for purchase by the Standby Purchaser
pursuant to its Basic Subscription Privilege, if applicable.  The
Standby Purchaser agrees not to exercise, and to cause its Affiliates not to
exercise, the Over-Subscription Privilege to which the Standby Purchaser and its
Affiliates would otherwise be entitled in the Rights Offering, if
applicable.

     

    (b)           If
and to the extent New Shares are not purchased by the Company’s other
shareholders (the “Unsubscribed
Shares”) pursuant to the exercise of Rights (including the Basic
Subscription Privilege and the Over-Subscription Privilege) under the Rights
Offering, the Standby Purchaser shall be deemed to have exercised such Rights
immediately prior to the expiration of the Rights Offering and shall be
obligated and hereby agrees to purchase from the Company, and the Company hereby
agrees to sell to the Standby Purchaser, at the Subscription Price, the number
of Unsubscribed Shares set forth in this Section 2(b)..  It is
understood and agreed that, if and to the extent that there are Unsubscribed
Shares available for purchase pursuant to this Section 2, then the Standby
Purchaser shall, on the Closing Date, purchase Unsubscribed Shares equal to a
total investment of $1,000,001.75 (representing 363,637 Unsubscribed Shares);
provided, that if there is less than 363,637 New Shares available for purchase
by the Standby Purchaser, then the Standby Purchaser shall purchase the maximum
number of available Unsubscribed Shares for purchase in an amount not less than
$499,999.50 (representing 181,818 Unsubscribed Shares) and not greater than
$1,000,001.75 (representing 363,637 Unsubscribed Shares) under this Agreement;
provided, further, that the
Standby Purchaser and the Company hereby acknowledge and agree that the Company
has entered into, or contemplates entering into, one or more other Standby
Purchase Agreements with certain other parties; provided, further, if the
number of Unsubscribed Shares is less than the aggregate number of Unsubscribed
Shares agreed to be purchased by all Standby Purchasers, the Common Stock
available for issuance to Standby Purchasers shall be allocated as nearly as
possible on a pro rata basis among all Standby Purchasers based upon the maximum
number of Common Stock agreed to be purchased by each such Standby Purchaser,
after giving effect to the limitations set forth
herein.  Notwithstanding anything herein to the contrary and
regardless of the availability of Unsubscribed Shares, the Standby Purchaser is
guaranteed, and obligated to make, a minimum investment of $499,999.50, or
181,818 shares the Company’s Common Stock, which shall not be subject to
allocation among all Standby Purchasers.  In no event shall the
Standby Purchaser be entitled to purchase shares of Common Stock in excess of
the number of shares of Common Stock that would result in any of the Standby
Purchasers becoming beneficial owners (within the meaning of Section 13(d)(3) of
the Exchange Act) of 9.9% of the issued and outstanding shares of Common Stock
after giving effect to the Standby Purchaser’s purchase of New Shares under the
Basic Subscription Privilege, Unsubscribed Shares and shares of Common Stock
pursuant to a guaranteed minimum investment provided for in this
Agreement.

     

     (c)           Payment
of the Subscription Price for the Securities shall be made to the Company by
Standby Purchaser, on the Closing Date, against delivery of the Securities to
Standby Purchaser, in United States dollars by means of federal funds checks or
a wire transfer to an account designated by the Company.

     

    Section 3.               Representations
and Warranties of the Company. The Company represents and warrants to
Standby Purchaser as follows:

     

    (a)           The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of South Carolina and has all requisite corporate
power and authority to carry on its business as now conducted.

     

    (b)           This
Agreement has been duly and validly authorized, executed and delivered by the
Company and constitutes a binding obligation of the Company enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors’ rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).

     

    
      
        
        

      

      
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    (c)           As
of the date hereof, the authorized capital of the Company consists of 20,000,000
shares of Common Stock, of which, (A) 4,540,921 shares were issued and
outstanding, and (B) 145,898 shares are reserved for issuance upon exercise
of options and restricted stock awards granted under the Company’s stock and
incentive plans. All of the outstanding shares of Common Stock have been duly
authorized, are validly issued, fully paid and nonassessable and were offered,
sold and issued in compliance with all applicable federal and state securities
laws and without violating any contractual obligation or other preemptive or
similar rights.

     

    (d)           The
Rights Offering Registration Statement has been filed with, and declared
effective by, the Commission. On the effective date, the Rights Offering
Registration Statement complied in all material respects with the requirements
of the Securities Act and did not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading. On the Closing Date, the Rights
Offering Registration Statement and the Rights Offering Prospectus, including
the information incorporated by reference therein, will not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to statements
in or omissions from the Rights Offering Registration Statement or the Rights
Offering Prospectus made in reliance upon and in conformity with the information
furnished to the Company in writing by the Standby Purchasers for use in the
Rights Offering Registration Statement or in the Rights Offering
Prospectus.

     

    (e)           All
of the Securities and New Shares will have been duly authorized for issuance
prior to the Closing, and, when issued and distributed as set forth in the
Rights Offering Prospectus, will be validly issued, fully paid and
non-assessable; and none of the Securities or New Shares will have been issued
in violation of the preemptive rights of any security holders of the Company
arising as a matter of law or under or pursuant to the Company’s articles of
incorporation, as amended, the Company’s bylaws, as amended and restated, or any
material agreement or instrument to which the Company is a party or by which it
is bound.

     

    (f)           The
documents incorporated by reference into the Rights Offering Prospectus pursuant
to Item 12 of Form S-1 under the Securities Act, when they became effective
or at the time they are filed with the Commission, as the case may be, will
comply in all material respects with the applicable provisions of the Exchange
Act.

     

    (g)           Since
June 30, 2008, the Company has filed with the Commission all forms, reports,
schedules, statements and other documents required to be filed by it through the
date hereof under the Exchange Act or the Securities Act (all such documents, as
supplemented and amended since the time of filing, collectively, the “Company SEC
Documents”). The Company SEC Documents, including without limitation all
financial statements and schedules included in the Company SEC Documents, at the
time filed (and, in the case of registration statements and proxy statements, on
the dates of effectiveness and the dates of mailing, respectively, and in the
case of any Company SEC Document amended or superseded by a filing prior to the
date of this Agreement, then on the date of such amending or superseding
filing), (i) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, and (ii) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act, as applicable. The audited consolidated financial statements of Company
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008 comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the
Commission with respect thereto, were prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved, and present fairly in all material respects, the
consolidated financial position of the Company and its consolidated subsidiary
as at the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended.

     

    
      
        
        

      

      
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    (h)           Since
June 30, 2009, there have not been any events, changes, occurrences or state of
facts that, individually or in the aggregate, have had or would reasonably be
expected to have a Material Adverse Effect, except as disclosed in writing by
the Company to the other parties hereto.

     

    Section 4.               Representations
and Warranties of the Standby Purchasers. The Standby Purchaser
represents and warrants to the Company, as follows:

     

    (a)           The
Standby Purchaser is acquiring its Securities for its own account and its
clients’ accounts, with the Standby Purchaser and clients intending to hold the
Securities for investment and with no present intention of participating,
directly or indirectly, in a distribution of the Securities; and the Standby
Purchaser and its clients will not make any sale, transfer or other disposition
of the Securities for a period of ninety (90) days from the Closing Date; provided, however
that shares of Common Stock purchased by the Standby Purchaser or its clients
prior to the Record Date shall not be subject to the limitations set forth in
this Section 4(a).  The Standby Purchaser has full investment and
corporate authority and power to purchase the Securities on its behalf and/or
its clients’ behalf.

     

    (b)           The
Standby Purchaser is familiar with the business in which it is engaged, and
based upon its knowledge and experience in financial and business matters, it is
familiar with the investments of the type that it is undertaking to purchase; it
is fully aware of the problems and risks involved in making an investment of
this type; and it is capable of evaluating the merits and risks of this
investment.  The Standby Purchaser acknowledges that, prior to
executing this Agreement, it has had the opportunity to ask questions of and
receive answers or obtain additional information from a representative of the
Company concerning the financial and other affairs of the Company.

     

    (c)           (i)
If the Standby Purchaser is an individual, he or she has full power and
authority to perform his or her obligations under this Agreement.  The
Standby Purchaser is of the full age of majority and is legally competent to
execute this Agreement.

    

    (ii) If the Standby Purchaser is a
corporation, the Standby Purchaser is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with corporate power and authority to perform its obligations
under this Agreement.

     

    
      
        
        

      

      
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    (iii) If the Standby Purchaser is a
trust, the trustee has been duly appointed as trustee of the Standby Purchaser
with full power and authority to act on behalf of the Standby Purchaser and to
perform the obligations of the Standby Purchaser under this
Agreement.

    

    (iv) If the Standby Purchaser is a
partnership or limited liability company, the Standby Purchaser is a partnership
or limited liability company duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
with full power and authority to perform its obligations under this
Agreement.

    

    (d)           This
Agreement has been duly and validly authorized, executed and delivered by the
Standby Purchaser and constitutes a binding obligation of the Standby Purchaser
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors’ rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). The Standby
Purchaser represents and warrants that it is not insolvent and has sufficient
cash funds on hand to purchase the Securities on the terms and conditions
contained in this Agreement and will have such funds and make such purchase on
the Closing Date.

     

    (e)           The
Standby Purchaser and its clients are not “affiliates”
(within the meaning of Rule 405 of the Securities Act) of one another, are
not acting in concert and are not members of a “group”
(within the meaning of Section 13(d)(3) of the Exchange Act) and have no
current intention to act in the future in a manner that would make them members
of such a group. The Standby Purchaser agrees and acknowledges that it has not
entered into any contracts, arrangements, understanding or relationships (legal
or otherwise) with any Persons or Person with respect to any securities of the
Company, including but not limited to transfer or voting of any of the
securities, finder’s fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies; and the Standby Purchaser does not own any securities of
the Company which are pledged or otherwise subject to a contingency the
occurrence of which would give another Person voting power or investment power
over such securities.

     

    (f)           The
Standby Purchaser acknowledges that it, and its clients, have received or have
had full access to all the information it considers necessary or appropriate for
deciding whether to purchase the Securities and has had an opportunity to ask
questions and receive answers regarding the terms and conditions of the
Securities.  The Standby Purchaser has consulted with Standby
Purchaser’s attorney, financial advisor or tax advisor regarding aspects of the
transaction it deems necessary, including the risks thereof.

     

    Section 5.              Deliveries
at Closing.

     

    (a)           At
the Closing, the Company shall deliver to each of the Standby Purchasers the
following:

     

    
      
        
        

      

      
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    (i)           The
aggregate number of shares of Common Stock issued to the Standby Purchaser
pursuant to Section 2 hereof; and

     

    (ii)           A
certificate of an officer of the Company on its behalf to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct in all material respects on and as of the Closing Date, with
the same effect as if made on the Closing Date.

     

    (b)           At
the Closing, the Standby Purchaser shall deliver to the Company the
following:

     

    (i)         
  Payment in an amount equal to the Subscription Price multiplied by
the number of Securities purchased by the Standby Purchaser, as set forth in
Section 2 hereof; and

     

    (ii)           A
certificate of the Standby Purchaser to the effect that the representations and
warranties of the Standby Purchaser contained in this Agreement are true and
correct in all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date.

     

    Section 6.              Covenants.

     

    (a)           Covenants. The
Company agrees as follows between the date hereof and the earlier of the Closing
Date or the effective date of any termination pursuant to Section 8
hereof:

     

    (i)           To
use commercially reasonable efforts to effectuate the Rights
Offering;

     

    (ii)           As
soon as reasonably practicable after the Company is advised or obtains knowledge
thereof, to advise the Standby Purchasers with a confirmation in writing, of
(A) the time when the Rights Offering Prospectus or any amendment or
supplement thereto has been filed, (B) the issuance by the Commission of
any stop order, or of the initiation or threatening of any proceeding,
suspending the effectiveness of the Rights Offering Registration Statement or
any amendment thereto or any order preventing or suspending the use of any
preliminary prospectus or the Rights Offering Prospectus or any amendment or
supplement thereto, (C) the issuance by any state securities commission of
any notice of any proceedings for the suspension of the qualification of the New
Shares for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for such purpose, (D) the receipt of any
comments from the Commission directed toward the Rights Offering Registration
Statement or any document incorporated therein by reference, and (E) any
request by the Commission for any amendment to the Rights Offering Registration
Statement or any amendment or supplement to the Rights Offering Prospectus or
for additional information. The Company will use its commercially reasonable
efforts to prevent the issuance of any such stop order or the imposition of any
such suspension and, if any such order is issued or suspension is imposed, to
obtain the withdrawal thereof as promptly as possible;

     

    
      
        
        

      

      
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    (iii)           To
operate the Company’s business in the ordinary course of business consistent
with past practice;

     

    (iv)           To
notify, or to cause the subscription agent for the Rights Offering (the “Subscription
Agent”) to notify, on each Friday during the exercise period of the
Rights, or more frequently if reasonably requested by any Standby Purchaser, the
Standby Purchaser of the aggregate number of Rights known by the Company or the
Subscription Agent to have been exercised pursuant to the Rights Offering as of
the close of business on the preceding Business Day or the most recent
practicable time before such request, as the case may be;

     

    (v)           Not
to issue any shares of capital stock of the Company, or options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
securities convertible into or exchangeable for capital stock of the Company, or
other agreements or rights to purchase or otherwise acquire capital stock of the
Company, except for (A) shares of Common Stock issuable upon exercise of
the Company’s presently outstanding stock options, and (B) awards granted
to employees of the Company after the date hereof under the Company’s incentive
or equity plans (including, but not limited to, 401(k) plans, dividend
reinvestment plans, and individual compensation arrangements);

     

    (vi)           Not
to authorize any stock split, stock dividend, stock combination or similar
transaction affecting the number of issued and outstanding shares of Common
Stock;

     

    (vii)          Not
to declare or pay any dividends on its Common Stock or repurchase any shares of
Common Stock, other than ordinary quarterly dividends, regularly declared and
paid in accordance with past practice; and

     

    (viii)        
Not to incur any indebtedness or guarantees thereof, other than borrowings in
the ordinary course of business and consistent with past practice.

     

    (b)           Certain Acquisitions.
Between the date hereof and the Closing Date, neither the Standby Purchaser nor
any of its respective Affiliates shall acquire any shares of Common Stock; provided, however, that the
foregoing shall not restrict the acquisition of shares of Common Stock by the
Standby Purchaser or any of its respective Affiliates from the Company pursuant
to Section 2 of this Agreement.

     

    (c)           Information. The
Standby Purchaser agrees to furnish to the Company all information with respect
to the Standby Purchaser that may be necessary or appropriate and will make any
information furnished to the Company for the Rights Offering Prospectus by the
Standby Purchaser not contain any untrue statement of material fact or omit to
state a material fact required to be stated in the Rights Offering
Prospectus or SEC filing or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

     

    
      
        
        

      

      
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    (d)           Public Statements.
Neither the Company nor the Standby Purchaser shall issue any public
announcement, statement or other disclosure with respect to this Agreement, the
Rights Offering, or the transactions contemplated hereby and thereby without the
prior consent of the other parties hereto, which consent shall not be
unreasonably withheld or delayed, except (i) if such public announcement,
statement or other disclosure is required by applicable law or applicable stock
market regulations, in which case the disclosing party shall consult in advance
with respect to such disclosure with the other parties to the extent reasonably
practicable, or (ii) the filing of any Schedule 13D or
Schedule 13G, to which a copy of this Agreement may be attached as an
exhibit thereto.

     

    (e)           Regulatory Filing. If the
Company or any Standby Purchaser determines a filing is or may be required under
applicable law in connection with the transactions contemplated hereunder, the
Company and the Standby Purchaser shall use commercially reasonable efforts to
promptly prepare and file all necessary documentation and to effect all
applications that are necessary or advisable under applicable law with respect
to the transactions contemplated hereunder so that any applicable waiting period
shall have expired or been terminated as soon as practicable after the date
hereof.

     

    Section 7.             Conditions
to Closing.

     

    (a)           The
obligations of the Standby Purchaser to consummate the transactions contemplated
hereunder are subject to the fulfillment, prior to or on the Closing Date, of
the following conditions:

     

    (i)           The
representations and warranties of the Company in Section 3 shall be true
and correct in all material respects as of the date hereof and at and as of the
Closing Date as if made on such date (except for representations and warranties
made as of a specified date, which shall be true and correct in all material
respects as of such specified date);

     

    (ii)           Subsequent
to the execution and delivery of this Agreement and prior to the Closing Date,
there shall not have been any Material Adverse Effect that is continuing;
and

     

    (iii)           As
of the Closing Date, trading in the Common Stock shall not have been suspended
by the Commission or The NASDAQ Global Market or trading in securities generally
on the New York Stock Exchange or The NASDAQ Global Market shall not have
been suspended or limited or minimum prices shall not have been established on
either exchange (a “Market Adverse
Effect”).

     

    (b)           The
obligations of the Company to consummate the transactions contemplated hereunder
are subject to the fulfillment, prior to or on the Closing Date, of the
condition that the representations and warranties of the Standby Purchaser in
Section 4 shall be true and correct in all material respects as of the date
hereof and at and as of the Closing Date as if made as of such date (except for
representations and warranties made as of a specified date, which shall be true
and correct in all material respects as of such specified date) and the Standby
Purchaser has entered into a lock-up agreement with the Company in the form
attached hereto as Exhibit
A.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (c)           The
obligations of the Company and the Standby Purchaser to consummate the
transactions contemplated hereunder in connection with the Rights Offering are
subject to the fulfillment, prior to or on the Closing Date, of the following
conditions:

     

    (i)           No
judgment, injunction, decree or other legal restraint shall prohibit, or have
the effect of rendering unachievable, the consummation of the Rights Offering or
the material transactions contemplated by this Agreement;

     

    (ii)           No
stop order suspending the effectiveness of the Rights Offering Registration
Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information in the
Registration Statement or otherwise shall have been complied with;

     

    (iii)           The
New Shares and the Securities shall have been authorized for listing on The
NASDAQ Global Market; and

     

    (iv)           The
Standby Purchaser and the Company shall be reasonably satisfied that the
purchase and ownership of New Shares and the other transactions contemplated
hereby will not result in the Standby Purchaser being deemed to “control” the
Company within the meaning of the Bank Holding Company Act of 1956 or the Change
in Bank Control Act, provided that the Standby Purchaser provides customary
“non-control” commitments to the Board of Governors of the Federal Reserve
System and any applicable regulatory waiting period shall have expired or been
terminated thereunder with respect to such purchase.

     

    Section 8.              Termination.

     

    (a)           This
Agreement may be terminated at any time prior to the Closing Date, by all of
the standby purchasers participating in the Rights Offering by written
notice to the other parties hereto if there is (i) a Material Adverse
Effect or (ii) a Market Adverse Effect that is not cured within twenty-one
(21) days after the occurrence thereof.

     

    (b)           This
Agreement may be terminated by the Company on one hand or by the Standby
Purchaser on the other hand, by written notice to the other parties
hereto:

     

    (i)           At
any time prior to the Closing Date, if there is a material breach of this
Agreement by the other party that is not cured within fifteen (15) days
after the non-breaching party has delivered written notice to the breaching
party of such breach;

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (ii)           All
requisite approvals are not obtained prior to the Closing in the event any
required federal or state approvals for the transactions contemplated hereby is
not obtained on conditions reasonably satisfactory despite the Company’s or the
Standby Purchaser’s reasonable best efforts to obtain such approval;
or

     

    (iii)           At
any time after November 30, 2009, unless the Closing has occurred prior to
such date.

     

    (c) If any of
the standby purchasers participating in the Rights Offering (the “Terminating
Standby Purchaser”) shall give written notice of its election to
terminate this Agreement pursuant to this Section 8 at any time prior to
the Closing Date, this Agreement shall remain in effect with respect to the
Company and the other standby purchasers participating in the Rights
Offering (the “Non-Terminating
Standby Purchaser”) (a) to the extent the Non-Terminating Standby
Purchasers shall have agreed in writing, within two (2) Business Days of such
Terminating Standby Purchaser’s delivery of such written notice, to assume all
of the obligations of the Terminating Standby Purchaser hereunder, including,
without limitation, the obligation to purchase the Unsubscribed Shares pursuant
to Section 2(b) hereof, but subject to the limitations of Section 2(b) hereof,
or (b) the Company otherwise agrees to complete the Rights
Offering.

     

    (d) This
Agreement may be terminated upon mutual consent of the parties
hereto.

     

    (e) The
parties hereto agree that any termination of this Agreement in accordance with
the provisions of this Section 8, or the termination of the Rights Offering for
any reason by the Company (other than, in either case, termination in the event
of a breach of this Agreement by the Standby Purchaser or misrepresentation of
any of the statements made herein by the Standby Purchaser) shall be without
liability of the Company or the Standby Purchaser.

     

    Section 9.              Indemnification
and Contribution.

     

    (a)           In
the event the Rights Offering is consummated, the Company shall indemnify and
hold harmless the Standby Purchaser and its respective officers, directors and
employees and each other Person, if any, who controls the Standby Purchaser
within the meaning of the Securities Act (all such Persons being hereinafter
referred to, collectively, as the “Standby
Indemnified Persons”), against any losses, claims, damages or
liabilities, to which any of the Standby Indemnified Persons may become subject
under the Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any alleged untrue statement of any material fact
contained, on the effective date thereof, in the Rights Offering Registration
Statement, the Rights Offering Prospectus or in any amendment or supplement
thereto, or any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and shall reimburse
each such Standby Indemnified Person for any reasonable legal or any other
expenses reasonably incurred by such Standby Indemnified Person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the
Company shall not be liable in any such case to any Standby Indemnified Person
to the extent that any such loss, claim, damage or liability arises out of or is
based upon any actual or alleged untrue statement or actual or alleged omission
made in the Rights Offering Registration Statement, Rights Offering Prospectus
or in any amendment or supplement thereto or in reliance upon and in conformity
with information furnished to the Company by such Standby Indemnified Person
specifically for use therein. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Standby
Indemnified Person, and shall survive the transfer of such Securities or New
Shares by such Standby Indemnified Person.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (b)           The
Standby Purchaser by acceptance hereof, severally, and not jointly, agrees to
indemnify and hold harmless the Company, its officers, directors and employees
and each other Person, if any, who controls the Company within the meaning of
the Securities Act (all such Persons being hereinafter referred to,
collectively, as the “Company
Indemnified Persons,” and together with the
Standby Indemnified Persons, the “Indemnified
Persons”) against any losses, claims, damages or liabilities, joint or
several, to which any of the Company Indemnified Persons may become subject
(i) as a result of any breach by the Standby Purchaser of any of its
representations, warranties or covenants contained herein or in any certificate
delivered hereunder or (ii) under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of, or are based upon, information provided in
writing to the Company by the Standby Purchaser specifically for use in the
Rights Offering Registration Statement or Rights Offering Prospectus or any
amendment or supplement thereto.

     

    (c)           Any
Person entitled to indemnification hereunder will (i) give prompt written
notice to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the
failure to give such notice shall not limit the rights of such Person, except to
the extent the indemnifying party is actually prejudiced thereby) and
(ii) unless, in such indemnified party’s reasonable judgment, a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified party; provided, however, that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless
(A) the indemnifying party has agreed to pay such fees or expenses or
(B) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such Person. If such defense
is not assumed by the indemnifying party as permitted hereunder, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its prior written consent (but such consent
will not be unreasonably withheld or delayed). If such defense is assumed by the
indemnifying party pursuant to the provisions hereof, such indemnifying party
shall not settle or otherwise compromise the applicable claim unless
(i) such settlement or compromise contains a full and unconditional release
of the indemnified party or (ii) the indemnified party otherwise consents
in advance in writing, which consent shall not be unreasonably withheld or
delayed. An indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and expenses of
more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the reasonable fees and
disbursements of such additional counsel or counsels.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (d)           If
the indemnification provided for in this Section 9 is unavailable to an
Indemnified Person hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such Indemnified Person, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the indemnifying party and Indemnified Person in
connection with the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and Indemnified Persons shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, the indemnifying party or the Indemnified Persons, and
their relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.

     

    Section 10.            Survival.
The representations and warranties of the Company and the Standby Purchasers
contained in this Agreement or in any certificate delivered hereunder shall not
survive the Closing hereunder.

     

    Section 11.            Notices.
All notices, communications and deliveries required or permitted by this
Agreement shall be made in writing signed by the party making the same, shall
specify the Section of this Agreement pursuant to which it is given or being
made and shall be deemed given or made (a) on the date delivered if
delivered by telecopy or in person, (b) on the third (3rd) Business Day
after it is mailed if mailed by registered or certified mail (return receipt
requested) (with postage and other fees prepaid) or (c) on the day after it
is delivered, prepaid, to an overnight express delivery service that confirms to
the sender delivery on such day, as follows:

     

    (i) 
if to Standby Purchaser, at:

     

    Horwitz
& Associates, Inc.

    2610 Lake
Cook Road, Suite 190

    Riverwoods,
Illinois 60015

     

    (ii) 
if to the
Company, at:

    Community
Capital Corporation

    Attn:  Ralph
W. Brewer

    Chief
Financial Officer

    1402C
Highway 72 West

    Greenwood,
South Carolina 29649

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    

    or to
such other representative or at such other address of a party as such party
hereto may furnish to the other parties in writing in accordance with this
Section 11.

     

    Section 12.            Binding
Effect. This Agreement will be binding upon, and will inure solely to the
benefit of and be enforceable by, the parties hereto and their respective
successors and permitted, and no other Person shall acquire or have any right
under or by virtue of this Agreement.  The Standby Purchaser may not
assign any of its rights or obligations hereunder to any other Person or entity
without the prior written consent of the Company.

     

    Section 13.            Entire
Agreement. This Agreement embodies the entire agreement and understanding
between the parties hereto in respect of the subject matter contained herein.
There are no restrictions, promises, warranties, or undertakings, other than
those set forth or referred to herein, with respect to the standby purchase
commitments with respect to the Securities and the New Shares. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the subject matter of this Agreement.

     

    Section 14.            Governing
Law. This Agreement shall be governed by and construed in accordance with
the internal laws of the State of South Carolina (other than its rules of
conflict of laws to the extent the application of the laws of another
jurisdiction would be required thereby).

     

    Section 15.            Severability.
If any provision of this Agreement or the application thereof to any person or
circumstances is determined by a court of competent jurisdiction to be invalid,
void or unenforceable, the remaining provisions hereof, or the application of
such provision to persons or circumstances other than those as to which it has
been held invalid, void or unenforceable, shall remain in full force and effect
and shall in no way be affected, impaired or invalidated thereby, so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination, the
parties shall negotiate in good faith in an effort to agree upon a suitable and
equitable substitute provision to effect the original intent of the
parties.

     

    Section 16.            Extension
or Modification of Rights Offering. The Company may (a) waive
irregularities in the manner of exercise of the Rights, and (b) waive
conditions relating to the method (but not the timing) of the exercise of the
Rights to the extent that such waiver does not materially adversely affect the
interests of the Standby Purchasers.

     

    Section 17.            Miscellaneous.

     

    (a)           The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect the meaning of this Agreement.

     

    (b)           This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, but all of which, when taken together, shall
constitute one and the same instrument.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

     

    IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and
delivered as of the date first above written.

     

    
      
        
          
            
              
                
                  
                    	 	 	 	COMPANY:	 
	 	 	 	 	 
	 	 	 	COMMUNITY
      CAPITAL CORPORATION	 
	 	 	 	 	 
	
                             

                          	 	 	
                            /s/
      W.G. Stevens

                          	 
	
                             

                          	 	 	
                            Name:  W.G.
      Stevens

                            Title:  CEO

                          	 

                  

                

              

            

          

        

      

    

     

    
      
        
          
            
              
                
                  
                    
                      	 	 	 	STANDBY
    PURCHASER:	 
	 	 	 	 	 
	 	 	 	HORWITZ
      & ASSOCIATES, INC	 
	 	 	 	 	 
	
                               

                            	 	 	
                              /s/
      Gerald A. Horwitz

                            	 
	
                               

                            	 	 	
                              Name:  Gerald
      A. Horwitz

                              Title:  CEO
      Horwitz
      Associates, Inc

                            	 

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

         

      

    

    SCHEDULE
A

    LOCK-UP
AGREEMENT

    

     

    August
26, 2009

     

    Community
Capital Corporation

     

    Ladies
and Gentlemen:

     

    In
connection with your anticipated issuance to the holders of your issued and
outstanding Common Stock (Common Stock”),
certain non-transferable rights (the “Rights”) to subscribe
for and purchase additional shares of Common Stock (such transaction generally
being herein referred to as the “Rights Offering”) and
sale to us of any unsubscribed-for Common Stock (the “Standby Shares”)
pursuant to the Standby Purchase Agreement, dated as of August 26, 2009, (the
“Standby Purchase
Agreement”), we agree that any transaction in your Common Stock by us
will be subject to this agreement (the “Agreement”).
Capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in the Standby Purchase Agreement.

     

    In
connection with the sale and purchase of the Standby Shares, and for other good
and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the undersigned, on its behalf and on behalf of its clients,
agrees as follows:

     

    Except as
set forth below, it will not, directly or indirectly, without the prior written
consent of the Company, offer, sell, contract to sell, pledge, make any short
sale or otherwise dispose of (or enter into any transaction which is designed
to, or might reasonably be expected to, result in the disposition of, whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise, by the undersigned, any affiliate of the undersigned or any person in
privity with the undersigned) or establish or increase a put equivalent position
or liquidate or decrease a call equivalent position within the meaning of
Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Securities and Exchange Commission promulgated thereunder
with respect to, the Standby Shares. The foregoing restriction is expressly
agreed to preclude the undersigned from engaging in any hedging or other
transaction which is designed to or which reasonably could be expected to lead
to or result in a sale or disposition of the undersigned’s Standby Shares even
if such Standby Shares would be disposed of by someone other than the
undersigned. The provisions in this paragraph shall not restrict the transfer of
Standby Shares to an affiliate as long as the affiliate transferee agrees for
the benefit of the Company to be bound by the terms hereof.

     

    Its
obligations under the paragraph above shall terminate upon termination of the
Standby Purchase Agreement and, with respect the Standby Shares, 90 days after
the Closing Date. In no event will this lock-up agreement be any more
restrictive than any other lock-up or similar agreement agreed to in connection
with Rights Offering and the undersigned and the Company agree to make any
necessary amendments hereto promptly upon execution of any more favorable
agreement.

     

    Notwithstanding
the foregoing, the undersigned may terminate this Agreement and its obligations
hereunder at any time, effective upon the undersigned’s giving you written
notice of termination, in the event any bank regulatory authority, including the
Board of Governors of the Federal Reserve System, the South Carolina Office of
the of the Commissioner of Banking or any of the staffs thereof, (i) initiates,
or notifies the undersigned in writing that it intends to initiate, any
proceeding to determine whether we “control” the Company within the meaning of
the Bank Holding Company Act, or any other federal or state banking laws or (ii)
otherwise notifies us in writing or publicly discloses that such regulatory
authority believes that we may control or have the ability to exert a
controlling influence over the Company within the meaning of such
laws.

     

    You
hereby agree that you may release us from this Agreement with your prior written
consent at any time.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            	 	 	 	HORWITZ
      & ASSOCIATES, INC	 
	 	 	 	 	 
	
                                     

                                  	 	 	
                                    /s/
      Gerald A. Horwitz

                                  	 
	
                                     

                                  	 	 	
                                    Name:  Gerald
      A. Horwitz

                                    Title:  CEO
      Horwitz
      Associates, Incexhibit10_1.htm

 

 

DRILLING PARTICIPATION AGREEMENT

(Fifteen Well Program)

Recitals:

Brigham Oil & Gas, L.P., a Delaware limited partnership (“Brigham”), is active in the exploration and development of oil and gas properties in the domestic United States.

U.S. Energy Corp. (“U.S. Energy”) and Brigham desire to enter into this Participation Agreement (the “Agreement”) to provide for U.S. Energy’s participation with Brigham in the exploration and development of up to fifteen well units within properties owned, in whole or in part, by Brigham, within Brigham’s
Rough Rider Project Area described in Exhibit A attached hereto and incorporated herein, upon and subject to the provisions herein contained.

Agreement:

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, Brigham and U.S. Energy hereby act, agree and covenant as follows:

Section 1.  Defined Terms.  As used herein, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person:  (a) any other Person directly or indirectly owning, controlling or holding with power to vote 25% or more of the outstanding voting securities of such Person, (b) any other Person 25% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by such Person, and (c) any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“Agreement Term” means the period beginning on the date hereof, and ending on December 31, 2010, at 11:59 p.m. Austin, Texas local time, unless extended by mutual written agreement.

“Brigham Properties” means all of Brigham’s undivided right, title and interest in and to oil, gas and other mineral leases owned by Brigham within the Rough Rider Project Area lands described in Exhibit A attached hereto and incorporated herein.  However,
the Parties recognize that during the term of this Agreement Brigham may acquire an interest in the minerals underlying oil, gas and mineral leases and in such event, Brigham Properties shall in no event include Brigham’s ownership interest in such minerals or it’s associated share of the lessor’s royalty due to its ownership in such minerals.

“U.S. Energy Expenditures” means, with respect to any Initial Well, all costs and expenses billed to U.S. Energy pursuant to the governing Operating Agreements and paid by U.S. Energy to Brigham for drilling, completing, equipping, maintaining and operating such
Initial Well, but excluding (whether or not so billed by Brigham) all production taxes and property taxes assessed as a percentage of the value of production or a rate per unit of production with respect to such Initial Well, the production therefrom, or the Well Unit on which such Initial Well is located.

 

L:\Land_leg\AGMT\Rough Rider US Energy\RoughRider USEnergy Drlg JV 8-21-09 Final.Doc

  

-1-

  

“U.S. Energy Net Receipts” means, with respect to any Initial Well, all receipts and revenues of U.S. Energy from or with respect to such Initial Well (whether from the sale of oil and gas production, the sale of surplus equipment, or otherwise), net of all production
taxes and property taxes assessed as a percentage of the value of production or a rate per unit of production with respect to such Initial Well, the production therefrom, or the Well Unit on which such Initial Wells are located.

“Payout” means, with respect to any group of Initial Wells in a Well Calculation Group, such point in time when the cumulative US Energy Net Receipts from the group of Initial Wells equals or exceeds all US Energy Expenditures for such Initial Wells.  With
respect to any Initial Well drilled within the Third Group of Well Units, “Payout” means such point in time when total U.S. Energy Net Receipts for the Initial Well equals the total U.S. Energy Expenditures for such Initial Well.

“Initial Well” means the initial (and only the initial) well to be drilled on each of the fifteen Well Units established and designated by Brigham within the Brigham Properties, or on lands pooled or unitized therewith.

“Parties” means U.S. Energy and Brigham.

“Party” means either U.S. Energy or Brigham.

“Subsequent Well” shall mean any well to be drilled within an applicable Well Unit after the Initial Well has been drilled and completed or plugged and abandoned within such Well Unit.

“Well Unit” means the drilling and production unit established for an Initial Well under applicable laws, rules or regulations of governmental authorities having jurisdiction for the drilling and production of such Initial Well.  The exact configuration
of any such Well Unit shall be designated by Brigham.  It is anticipated that each Well Unit will be two sections in size, but the Parties recognize that in the event that one or both of the sections included in a Well Unit are of an irregular size, a Well Unit may be slightly more or less than 1,280 acres.

“Well Calculation Group” means, with respect to the calculation of Payout, (a) the six Initial Wells drilled within the First Six Well Units, (b) the four Initial Wells drilled within the Second Group of Well Units.  The Parties recognize that there
is no Well Calculation Group for the Third Group of Well Units as Payout is calculated on an individual basis for each Initial Well drilled within the Third Group of Well Units.

“Working Interest” means the mineral interest minus the royalty interest allocable to a lessor under and oil, gas and mineral lease which bears all of the costs and expenses of drilling, completion, maintenance, development and operation of a Well Unit or Units,
allocable to a lessee under an oil, gas and mineral lease and includes the associated revenue interest.

 

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-2-

  

Section 2.  Representations of Brigham.  Brigham represents to U.S. Energy that:

(a)      Brigham is a limited partnership, duly formed and legally existing under the laws of the State of Delaware.  Brigham has full power to enter into and perform its obligations under this Agreement and has taken all appropriate action to authorize entering into this Agreement and performance
of its obligations hereunder.  Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with the terms hereof, will result in any material default under any material agreement or instrument to which Brigham is a party or by which the Brigham Properties are bound, or violate any order, writ, injunction, decree, statute, rule or regulation applicable to Brigham or to the Brigham Properties.  This Agreement constitutes
the legal, valid and binding obligation of Brigham, enforceable in accordance with its terms, except as limited by bankruptcy or other laws applicable generally to creditor’s rights and as limited by general equitable principles.

(b)      There are no suits, actions, claims, investigations, inquiries, proceedings or demands pending (or, to the best of Brigham’s knowledge, threatened) which affect the execution and delivery of this Agreement.

THE EXPRESS REPRESENTATIONS OF BRIGHAM CONTAINED IN THIS SECTION OR IN ANY ASSIGNMENT EXECUTED PURSUANT HERETO ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND BRIGHAM EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES.  BRIGHAM MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF ANY DATA, INTERPRETATIONS, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO U.S. ENERGY IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE TO SEISMIC OR GEOLOGICAL MATTERS, PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE BRIGHAM PROPERTIES OR THE ABILITY OR POTENTIAL
OF THE BRIGHAM PROPERTIES TO PRODUCE HYDROCARBONS OR ANY OTHER MATTERS CONTAINED IN THE PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR MADE AVAILABLE TO U.S. ENERGY BY BRIGHAM OR BY BRIGHAM’S AGENTS OR REPRESENTATIVES.  ANY AND ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED BY BRIGHAM OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO U.S. ENERGY ARE PROVIDED TO U.S. ENERGY AS A CONVENIENCE ONLY AND SHALL NOT CREATE OR GIVE RISE TO ANY
LIABILITY OF OR AGAINST BRIGHAM AND ANY RELIANCE ON OR USE OF THE SAME SHALL BE AT U.S. ENERGY’S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.

(c)      Brigham is a qualified and experienced operator that has the expertise to drill, complete, produce and operate wells in the Bakken formation in the Williston Basin, North Dakota.

 

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Section 3.  Representations of U.S. Energy.  U.S. Energy represents to Brigham that:

(a)      U.S. Energy is a Wyoming corporation, duly formed and legally existing under the laws of the State of Wyoming.  U.S. Energy has full power to enter into and perform its obligations under this Agreement and has taken all appropriate action to authorize entering into this Agreement and performance
of its obligations hereunder.  Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the compliance with the terms hereof, will result in any default under any material agreement or instrument to which U.S. Energy is a party or by which U.S. Energy is bound, or violate any order, writ, injunction, decree, statute, rule or regulation applicable to U.S. Energy.  This Agreement constitutes the legal, valid and binding obligation
of U.S. Energy, enforceable in accordance with its terms, except as limited by bankruptcy or other laws applicable generally to creditor’s rights and as limited by general equitable principles.

(b)      There are no suits, actions, claims, investigations, inquiries, proceedings or demands pending (or, to the best of U.S. Energy’s knowledge, threatened) which affect the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

(c)      U.S. Energy is a knowledgeable purchaser and owner of oil and gas properties, has the ability to evaluate (and in fact has had, and will continue to have, during the term of this Agreement, the opportunity to evaluate) the Brigham Properties for acquisition, and is acquiring its interests in the Brigham
Properties and its rights and interests hereunder for its own account and not with the present intent to make a distribution in violation of the Securities Act of 1933 as amended (and the rules and regulations pertaining thereto) or in violation of any other applicable securities laws, rules, or regulations.

Section 4.  Participation in the Drilling and Completion of the Initial Wells Within the First Six Well Units.

(a)      U.S. Energy shall participate in the drilling and completion of 6 gross (3.5 to 6 net) Initial Wells within six Well Units (the “First Six Well Units”) selected by Brigham within the Rough Rider Project Area.  Brigham will select each of the two section Well Units for each Initial
Well.  However, the two section Well Unit established for the Brad Olson 9-16 1-H Well (the “Brad Olson Well”) located within Sections 9 and 16, Township 154N, Range102W, Williams County, North Dakota, which is currently being drilled and/or completed, shall be one of the First Six Well Units, and the BCD Farms 16-21 #1-H Well (the “BCD Farms Well”) located within Sections 16 and 21, Township 156N, Range 103W, Williams County, North Dakota, shall also be one of the First Six
Well Units.  The Well Unit for the Brad Olson Well shall consist of Sections 9 and 16, Township 154N, Range 102W, Williams County, North Dakota, and the Well Unit for the BCD Farms Well shall consist of Sections 16 and 21, Township 156N, Range 103W, Williams County, North Dakota. Prior to the spudding of each of the Initial Wells within the remaining four of the First Six Well Units, Brigham shall provide U.S. Energy with a written description of the Sections to be included within the applicable Initial
Well’s Well Unit.

(b)      Brigham will be designated as operator of all operations for the First Six Well Units and will participate up front with a 35% Working Interest in the Initial Well drilled and completed or plugged and abandoned within each of the First Six Well Units.  U.S. Energy will participate up front

 

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with a 65% Working Interest in the Initial Well drilled and completed or plugged and abandoned within each of the First Six Well Units.

(c)      Once Payout has been reached for the Initial Wells that are drilled and completed within the First Six Well Units (the Well Calculation Group), U.S. Energy shall assign to Brigham 35% of its 65% interest in each of the Initial Wells located within the First Six Well Units utilizing the form of assignment
attached hereto as Exhibit C.  As such, after Payout is reached for the Well Calculation Group, U.S. Energy will own a 42.25% interest and Brigham will own a 57.75% interest in the Initial Wells that were drilled within the First Six Well Units.

(d)      Except as provided above with respect to the ownership in the Initial Well drilled within each of the First Six Well Units, upon the drilling and completion or plugging and abandonment of the Initial Well within each of the First Six Well Units, the Brigham Properties located within each of such First
Six Well Units shall be owned 36% by U.S. Energy and 64% by Brigham.  As such, U.S. Energy will have the right to participate with a 36% Working Interest and Brigham will have the right to participate with a 64% Working Interest in all subsequent wells drilled within the First Six Well Units.

(e)      The Parties’ interests in the Well Units and the wells drilled within the Well Units will be proportionately reduced for any third-party participation in the applicable Well Units and wells, as dictated by the valid, existing laws, rules and regulations applicable to such third-party leasehold
or mineral positions within the applicable Well Unit.  Any third-party non-consent interest will also be borne by the Parties in proportion to their then current Working Interest in the proposed operation applicable to the non-consent interest.  For example, if it is assumed that in a hypothetical situation for a Well Unit (herein referred to as “Well Unit H”) one third party (hereinafter referred to as “Third Party A”) owned oil and gas leases covering 160 net mineral
acres, another third party (hereinafter referred to as “Third Party B”) owned oil and gas leases covering 80 net mineral acres, and the oil and gas leases owned by Brigham covered the remaining 1,040 net mineral acres, and we assumed that Third Party A elects not to participate in the drilling of the Initial Well and Third Party B elects to participate in the Initial Well to be drilled and completed within Well Unit H, but Third Party B elects not pick up its proportionate part of Third Party A’s
non-consent interest, then in such event, the parties’ starting Working Interests in the Initial Well would be: U.S. Energy 60.9375%, Brigham 32.8125% and Third Party B 6.25%.  Upon Payout of the Initial Wells drilled within the Fist Six Well Units, U.S. Energy’s Working Interest in the Initial Well drilled in Well Unit H would be reduced to 39.609375%, Brigham’s Working Interest would be 54.140625% and Third Party B would still be at a 6.25% Working Interest.  Then upon
the applicable Initial Well reaching 300% payout, Third Party A would come back into the well with a 12.5% Working Interest and U.S. Energy’s Working Interest would be reduced to 34.328125%, Brigham’s Working Interest would be reduced to 46.921875% and Third Party B would still be at 6.25%.

(f)      The Parties’ operations within each Well Unit shall be governed by a separate Operating Agreement in the form attached hereto as Exhibit D, naming Brigham as operator.  Once a Well Unit has been designated by Brigham such Well Unit shall be deemed subject to an Operating Agreement
in the form attached hereto as Exhibit D.  However, following the designation of each Well Unit, Brigham shall prepare and deliver to U.S. Energy the following documentation and pages for the Operating Agreement that governs all drilling, completion, workover and all other operations for such Well Unit: (i) a cover page describing the lands included within such Well Unit as the Contract

 

 

 

 

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Area for the Operating Agreement; (ii) multiple original execution and acknowledgment pages for the Operating Agreement; (iii) the Exhibit A to the Operating Agreement with appropriate insertions reflecting the agreements set forth in this Agreement with respect to the Well Unit and participation percentages; and (iv) the Memorandum
of Operating Agreement for such Operating Agreement in the form attached to the form Operating Agreement which is attached hereto as Exhibit D, completed to describe the lands included in the Well Unit and the participating parties. Prior to the date that preparations for the drilling of the Initial Well are expected to commence, each Party shall execute and return to Brigham fully executed and completed duplicate originals of the execution pages and acknowledgment pages to both the Operating Agreement and the
Memorandum of Operating Agreement and each Party shall incorporate all of the pages and documentation described in (i), (ii) and (iii) above into a copy of the form Operating Agreement which is attached hereto as Exhibit D which it shall retain for its records.  Each Party's completed copy of the Operating Agreement shall constitute a duplicate counterpart original of the Operating Agreement which governs the Party's operations within the applicable Well Unit.  Once Brigham receives the duplicate
original execution and acknowledgment pages from U.S. Energy, Brigham shall provide U.S. Energy with a copy of execution pages for Brigham.  In the event that Brigham fails to timely send or U.S. Energy fails to execute and return its duplicate original execution pages to Brigham (but without a diminution of Brigham’s obligation to timely send or either Party's obligation to so execute and return duplicate original signature pages to Brigham), the Parties shall nonetheless be bound by the terms
of the Operating Agreement for such Well Unit, which terms shall be deemed to apply to the Parties as provided above.  Concurrent with the execution of this Agreement the Parties shall execute duplicate originals of the Operating Agreements and Memorandum of Operating Agreements for both the Brad Olson Well Unit and the BCD Farms Well Unit and each Party shall receive one of such duplicate originals for its records.

(g)      Upon the drilling and completion or plugging and abandonment of the Initial Well for a Well Unit, payment by U.S. Energy of all costs and expenses then due, and compliance by U.S. Energy of all of the terms and provisions of this Agreement and the applicable Operating Agreement, Brigham will assign
to U.S. Energy its interests in the applicable Well Unit utilizing the form of assignment attached hereto as Exhibit B.  The assignment will be made with a by, through and under warranty and will only be subject to existing burdens.  Some of the Brigham Properties that were acquired from third parties may be depth limited to the Bakken and the upper part of the Three Forks formations that were received by Brigham from the applicable third party.  As to all other Brigham Properties
located within the applicable Well Unit, U.S. Energy will be assigned its Working Interest in all depths.

Section 5.  Participation in the Drilling and Completion of the Initial Wells Within the Second Group of 4 Well Units.

(a)      U.S. Energy has an election whether to participate in the Initial Wells that are to be drilled within the second group of four two section Well Units (the “Second Group of Well Units”) selected by Brigham.  U.S. Energy’s election must be for the full interest available
to U.S. Energy as set forth herein.  U.S. Energy may not make a partial interest election.  Within ten (10) days of its receipt of a written notice and the initial 24 hour production report(“IP”) for a minimum of four of the Initial Wells that are drilled within the First Six Well Units and written notice of the amount of the Brigham 2nd4 IWI as set forth in Section 5(b) below, Brigham must receive U.S.
Energy’s written election as to whether it will participate in the drilling and completion of the Initial Wells to be 

 

 

 

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drilled within the Second Group of Well Units; provided, however, that in any event U.S. Energy’s election as to participation in the Second Group of Well Units must be received by Brigham no later than ten (10) days after U.S. Energy receives written notification of an IP, or plug and abandonment proposal, for the fifth Initial
Well that is drilled within the First Six Well Units, regardless of whether or not U.S. Energy has received four total IPs for Initial Wells drilled within the First Six Well Units.  Prior to the end of said ten (10) day time period in which U.S. Energy must make its election as to participation in the Second Group of Well Units, U.S. Energy shall have the right to meet with Brigham in Brigham’s offices to go over with Brigham all of the data and information Brigham has with respect to the lands
and leasehold that may be included within the Second Group of Well Units.  Brigham will select each of the two Section Well Units to be included in the Second Group of Well Units from the Rough Rider Project Area.  In the event that U.S. Energy does not deliver its written notice within said ten (10) day time frame, or notifies Brigham that it is electing not to participate in the Second Group of Well Units, then U.S. Energy will not have any further rights or interests in the Rough Rider
Project outside of its rights in the First Six Well Units, the remaining provisions of this Section 5 shall not apply, and for a period of two years following such election (or deemed election) U.S. Energy will not compete with Brigham by acquiring any other interests of any kind within the Rough Rider Project Area outside of the interests it acquires in the First Six Well Units pursuant to this Agreement.

(b)      Prior to U.S. Energy’s election as to participation in the Second Group of Well Units, Brigham will notify U.S. Energy in writing as to the amount of Brigham’s up-front Working Interest in the Initial Well to be drilled within each the Second Group of Well Units (the “BEXP 2nd4 IWI”);
provided that the BEXP 2nd4 IWI must be no less than 15% and no greater than 50%.  If U.S. Energy elects to participate in the Second Group of Well Units, U.S. Energy shall participate up front with a Working Interest in the Initial Well drilled within each of the Second Group of Well Units in an amount equal to the difference between 100% and the BEXP 2nd4 IWI (herein referred to as the “U.S. Energy 2nd4 IWI”).  Brigham will be designated as operator of all operations for the
Second Group of Well Units.

(c)      Prior to the spudding of each of the Initial Wells within each of the Second Group of Well Units, Brigham shall provide U.S. Energy with a written description of the Sections to be included within the applicable Initial Well’s Well Unit.

(d)      Once Payout has been reached for the Initial Wells that are drilled and completed within the Second Group of Well Units (the Well Calculation Group), U.S. Energy shall assign to Brigham 35% of its U.S. Energy 2nd4 IWI in each of the Initial Wells located within the Second Group of Well Units utilizing
the form of assignment attached hereto as Exhibit C.

(e)      Except as provided above with respect to the ownership in the Initial Well drilled and completed or plugged and abandoned within each of the Second Group of Well Units, upon the drilling and completion or plugging and abandonment of the Initial Well within each of the Second Group of  Well
Units, the Brigham Properties located within each of such Second Group of Well Units shall be owned 36% by U.S. Energy and 64% by Brigham.  As such, U.S. Energy will have the right to participate with a 36% Working Interest and Brigham will have the right to participate with a 64% Working Interest in all subsequent wells drilled within the Second Group of Well Units.

 

 

 

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(f)      The Parties’ interests in the Well Units and the wells drilled within the Second Group of Well Units will be proportionately reduced for any third-party participation in the applicable Well Units and wells, as dictated by valid, existing laws, rules and regulations applicable to such third-party
leasehold or mineral positions within the applicable Well Unit.  Any third-party non-consent interest will also be borne by the Parties in proportion to their then current Working Interest in the proposed operation applicable to the non-consent interest.  For example, if it is assumed that U.S. Energy elected to participate in the Second Group of Well Units and Brigham elected to have a 25% BEXP 2nd4 IWI and thus U.S. Energy 2nd4 IWI is 75%, in a hypothetical situation for a Well Unit (herein
referred to as “Well Unit H2”) one third party (hereinafter referred to as “Third Party A”) owned oil and gas leases covering 320 net mineral acres, another third party (hereinafter referred to as “Third Party B”) owned oil and gas leases covering 40 net mineral acres, and the oil and gas leases owned by Brigham covered the remaining 920 net mineral acres, and we assumed that Third Party A elects not to participate in the drilling of the Initial Well and Third Party B elects
to participate in the Initial Well to be drilled and completed within Well Unit H2, but Third Party B elects not pick up its proportionate part of Third Party A’s non-consent interest, then in such event, the parties’ starting Working Interests in the Initial Well would be: U.S. Energy 72.65625%, Brigham 24.21875% and Third Party B 3.125%.  Upon Payout of the Initial Wells drilled within the Second Group of Well Units, Brigham would be assigned 35% of U.S. Energy 2nd4 IWI and thus the parties’
Working Interests in the Initial Well would be U.S. Energy 47.2265625%, Brigham 49.6484375% and Third Party B 3.125%.  Once the Initial Well reaches 300% payout, Third Party A would then come back into the well with a 25% Working Interest and the parties’ Working Interests would be U.S. Energy 35.0390625%, Brigham 36.8359375%, Third Party A 25% and Third Party B 3.125%.

(g)      Brigham will be designated as operator of all operations for the Second Group of Well Units and the Parties’ operations within each Well Unit shall be governed by a separate operating agreement in the form attached hereto as Exhibit D.  Once a Well Unit has been designated by Brigham
such Well Unit shall be deemed subject to an Operating Agreement in the form attached hereto as Exhibit D.  However, following the designation of each Well Unit, Brigham shall prepare and deliver to U.S. Energy the following documentation and pages for the Operating Agreement that governs all drilling, completion, workover and all other operations for such Well Unit: (i) a cover page describing the lands included within such Well Unit as the Contract Area for the Operating Agreement; (ii) multiple original
execution and acknowledgment pages for the Operating Agreement; (iii) the Exhibit A to the Operating Agreement with appropriate insertions reflecting the agreements set forth in this Agreement with respect to the Well Unit and participation percentages; and (iv) the Memorandum of Operating Agreement for such Operating Agreement in the form attached to the form Operating Agreement which is attached hereto as Exhibit D, completed to describe the lands included in the Well Unit and the participating parties. Prior
to the date that preparations for the drilling of the Initial Well are expected to commence, each Party shall execute and return to Brigham fully executed and completed duplicate originals of the execution pages and acknowledgment pages to both the Operating Agreement and the Memorandum of Operating Agreement and each Party shall incorporate all of the pages and documentation described in (i), (ii) and (iii) above into a copy of the form Operating Agreement which is attached hereto as Exhibit D which it shall
retain for its records.  Each Party's completed copy of the Operating Agreement shall constitute a duplicate counterpart original of the Operating Agreement which governs the Party's operations within the applicable Well Unit.  Once Brigham receives the duplicate original execution and acknowledgment pages from U.S. Energy, Brigham shall provide U.S. Energy with a copy of execution pages for Brigham.  In the event that Brigham fails to timely send or U.S. Energy fails to

 

 

 

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execute and return its duplicate original execution pages to Brigham (but without a diminution of Brigham’s obligation to timely send or either Party's obligation to so execute and return duplicate original signature pages to Brigham), the Parties shall nonetheless be bound by the terms of the Operating Agreement for such Well
Unit, which terms shall be deemed to apply to the Parties as provided above.

(h)      Upon the drilling and completion or plugging and abandonment of the Initial Well for a Well Unit, payment by U.S. Energy of all costs and expenses then due, and compliance by U.S. Energy of all of the terms and provisions of this Agreement and the applicable Operating Agreement, Brigham will assign
to U.S. Energy its interests in the applicable Well Unit utilizing the form of assignment attached hereto as Exhibit B.  The assignment will be made with a by, through and under warranty and will only be subject to existing burdens.  Some of the Brigham Properties that were acquired from third parties may be depth limited to the Bakken and the upper part of the Three Forks formations that were received by Brigham from the applicable third party.  As to all other Brigham Properties
located within the applicable Well Unit, U.S. Energy will be assigned its Working Interest in all depths.

Section 6.  Participation in the Drilling and Completion of the Initial Wells Within the Third Group of 5 Well Units.

(a)      Provided that U.S. Energy elected to participate in the Second Group of Well Units as set forth in Section 5 above, U.S. Energy shall also have an election whether to participate in the Initial Wells that are to be drilled within the third group of five two section Well Units (the “Third Group
of Well Units”) selected by Brigham.  U.S. Energy’s election must be for the full interest available to U.S. Energy as set forth herein.  U.S. Energy may not make a partial interest election.  Within ten (10) days of its receipt of a written notice of the initial 24 hour production report (“IP”) from the sixth Initial Well or written notice of the proposed plugging and abandonment of the sixth Initial Well that is drilled within the First Six Well Units and
written notice of the amount of the Brigham 3rd5 IWI as set forth in Section 5(b) below, Brigham must receive U.S. Energy’s written election as to whether it will participate in the drilling and completion of the Initial Wells to be drilled within the Third Group of Well Units. Prior to the end of the ten (10) day time period in which U.S. Energy must make its election as to participation in the Third Group of Well Units, U.S.
Energy shall have the right to meet with Brigham in Brigham’s offices to go over with Brigham all of the data and information Brigham has with respect to the lands and leasehold that may be included within the Third Group of Well Units.  Brigham will select each of the two Section Well Units to be included in the Third Group of Well Units from the Rough Rider Project Area.  In the event that U.S. Energy does not deliver its written notice within said ten (10) day time frame, or notifies
Brigham that it is electing not to participate in the Third Group of Well Units, then U.S. Energy will not have any further rights or interests in the Rough Rider Project outside of its rights in the First Six Well Units and Second Group of Well Units, the remaining provisions of this Section 6 shall not apply, and for a period of two years following such election (or deemed election) U.S. Energy will not compete with Brigham by acquiring any other interests of any kind within the Rough Rider Project Area outside
of the interests it acquires in the First Six Well Units and the Second Group of Well Units pursuant to this Agreement.

(b)      Prior to U.S. Energy’s election as to participation in the Third Group of Well Units, Brigham will notify U.S. Energy in writing as to the amount of Brigham’s up-front Working Interest

 

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in the Initial Well to be drilled within each of the Third Group of Well Units (the “BEXP 3rd5 IWI”); provided that the BEXP 3rd5 IWI must be no less than 15% and no greater than 50%.  U.S. Energy will participate up front with a Working Interest in the Initial Well drilled within each of the Third Group of Well Units
in an amount equal to the difference between 100% and the BEXP 3rd5 IWI (herein referred to as the “U.S. Energy 3rd5 IWI”).  Brigham will be designated as operator of all operations for the Third Group of Well Units.

(c)      Prior to the spudding of each of the Initial Wells within each of the Third Group of Well Units, Brigham shall provide U.S. Energy with a written description of the Sections to be included within the applicable Initial Well’s Well Unit.

(d)      Once an Initial Well that is drilled and completed within any of the Third Group of Well Units reaches Payout, U.S. Energy shall assign to Brigham 27.7% of its U.S. Energy 3rd5 IWI in the applicable Initial Well utilizing the form of assignment attached hereto as Exhibit C.  The Parties
recognize, acknonwledge and agree that, unlike the Initial Wells drilled within the First Six Well Units and the Second Group of Well Units, Payout will be calculated individually for each of the Initial Wells drilled within the Third Group of Well Units and the 27.7% back-in will be assigned to Brigham within each Initial Well upon Payout of the US Energy Expenditures incurred for such Initial Well.

(e)      Except as provided above with respect to the ownership in the Initial Well drilled and completed or plugged and abandoned within each of the Third Group of Well Units, upon the drilling and completion or plugging and abandonment of the Initial Well within each of the Third Group of Well Units, the
Brigham Properties located within each of such Third Group of Well Units shall be owned 36% by U.S. Energy and 64% by Brigham.  As such, U.S. Energy will have the right to participate with a 36% Working Interest and Brigham will have the right to participate with a 64% Working Interest in all subsequent wells drilled within the Third Group of Well Units.

(f)      The Parties’ interests in the Well Units and the wells drilled within the Third Group of Well Units will be proportionately reduced for any third-party participation in the applicable Well Units and wells, as dictated by valid, existing laws, rules and regulations applicable to such third-party
leasehold or mineral positions within the applicable Well Unit.  Any third-party non-consent interest will also be borne by the Parties in proportion to their then current Working Interest in the proposed operation applicable to the non-consent interest.  For example, if it is assumed that U.S. Energy elected to participate in the Third Group of Well Units and Brigham elected to have a 25% BEXP 3rd5 IWI and thus U.S. Energy 3rd5 IWI is 75%, in a hypothetical situation for a Well Unit (herein
referred to as “Well Unit H3”) one third party (hereinafter referred to as “Third Party A”) owned oil and gas leases covering 320 net mineral acres, another third party (hereinafter referred to as “Third Party B”) owned oil and gas leases covering 40 net mineral acres, and the oil and gas leases owned by Brigham covered the remaining 920 net mineral acres, and we assumed that Third Party A elects not to participate in the drilling of the Initial Well and Third Party B elects
to participate in the Initial Well to be drilled and completed within Well Unit H3, but Third Party B elects not pick up its proportionate part of Third Party A’s non-consent interest, then in such event, the parties’ starting Working Interests in the Initial Well would be: U.S. Energy 72.65625%, Brigham 24.21875% and Third Party B 3.125%.  Upon Payout of the Initial Well drilled within Well Unit H3, Brigham would be assigned 27.7% of U.S. Energy 3rd5 IWI and thus the parties’ Working
Interests in the Initial Well would be U.S. Energy 52.5304687%, Brigham 44.3445313% and Third Party B 3.125%.  Once

 

 

 

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the Initial Well reaches 300% payout, Third Party A would then come back into the well with a 25% Working Interest and the parties’ Working Interests would be U.S. Energy 38.9742187%, Brigham 32.9007813%, Third Party A 25% and Third Party B 3.125%.

(g)      Brigham will be designated as operator of all operations for the Third Group of Well Units and the Parties’ operations within each Well Unit shall be governed by a separate operating agreement in the form attached hereto as Exhibit D.  Once a Well Unit has been designated by Brigham
such Well Unit shall be deemed subject to an Operating Agreement in the form attached hereto as Exhibit D.  However, following the designation of each Well Unit, Brigham shall prepare and deliver to U.S. Energy the following documentation and pages for the Operating Agreement that governs all drilling, completion, workover and all other operations for such Well Unit: (i) a cover page describing the lands included within such Well Unit as the Contract Area for the Operating Agreement; (ii) multiple original
execution and acknowledgment pages for the Operating Agreement; (iii) the Exhibit A to the Operating Agreement with appropriate insertions reflecting the agreements set forth in this Agreement with respect to the Well Unit and participation percentages; and (iv) the Memorandum of Operating Agreement for such Operating Agreement in the form attached to the form Operating Agreement which is attached hereto as Exhibit D, completed to describe the lands included in the Well Unit and the participating parties. Prior
to the date that preparations for the drilling of the Initial Well are expected to commence, each Party shall execute and return to Brigham fully executed and completed duplicate originals of the execution pages and acknowledgment pages to both the Operating Agreement and the Memorandum of Operating Agreement and each Party shall incorporate all of the pages and documentation described in (i), (ii) and (iii) above into a copy of the form Operating Agreement which is attached hereto as Exhibit D which it shall
retain for its records.  Each Party's completed copy of the Operating Agreement shall constitute a duplicate counterpart original of the Operating Agreement which governs the Party's  operations within the applicable Well Unit.  Once Brigham receives the duplicate original execution and acknowledgment pages from U.S. Energy, Brigham shall provide U.S. Energy with a copy of execution pages for Brigham.  In the event that Brigham fails to timely send or U.S. Energy fails
to execute and return its duplicate original execution pages to Brigham (but without a diminution of Brigham’s obligation to timely send or either Party's obligation to so execute and return duplicate original signature pages to Brigham), the Parties shall nonetheless be bound by the terms of the Operating Agreement for such Well Unit, which terms shall be deemed to apply to the Parties as provided above.

(h)      Upon the drilling and completion or plugging and abandonment of the Initial Well for a Well Unit, payment by U.S. Energy of all costs and expenses then due, and compliance by U.S. Energy of all of the terms and provisions of this Agreement and the applicable Operating Agreement, Brigham will assign
to U.S. Energy its interests in the applicable Well Unit utilizing the form of assignment attached hereto as Exhibit B.  The assignment will be made with a by, through and under warranty and will only be subject to existing burdens.  Some of the Brigham Properties that were acquired from third parties may be depth limited to the Bakken and the upper part of the Three Forks formations that were received by Brigham from the applicable third party.  As to all other Brigham Properties
located within the applicable Well Unit, U.S. Energy will be assigned its Working Interest in all depths.

 

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Section 7.  Significant Initial Well Operational Issues, Drilling and Completion Timing and Frac Stage Limitations.

(a)      In the event that prior to the completion of an Initial Well, Brigham encounters well problems that, in Brigham’s discretion, makes it unreasonable to continue drilling and/or completion operations for such well, then Brigham shall either:

(i)      Plug and abandon such well and commence operations in the same Well Unit for a replacement well within 90 days of such plugging; or

(ii)      Plug and abandon such Initial Well and not commence a replacement well.

In the event that Brigham elects 7(a)(i) above, U.S. Energy shall have an election to participate in the replacement well which must be received by Brigham within forty-eight (48) hours of its receipt of Brigham’s written proposal to drill the replacement well; provided however, that in the event that U.S. Energy does not elect to
participate in the replacement well, U.S. Energy shall forfeit all rights to any interests in the Well Unit in which such replacement well is proposed to be drilled but such Initial Well shall still be counted as an Initial Well within the First Six Well Units, Second Group of Well Units or Third Group of Well Units, as applicable, and U.S. Energy shall not be entitled to participate in an additional Initial Well in replacement thereof.  Nonetheless, all of the costs incurred by U.S. Energy in the drilling
and/or attempted completion of the Initial Well that is being replaced shall be considered as U.S. Energy Expenditures for purposes of the Payout calculation.

In the event that U.S. Energy elects to participate in the replacement well, the replacement well shall be considered to be a continuation of the Initial Well and U.S. Energy’s Working Interest share of all of the costs and expenses incurred to attempt to drill and/or complete the original well, together with all of the costs incurred
to plug and abandon such original well and all of the costs and expenses incurred to drill and complete the replacement well shall be considered U.S. Energy Expenditures for the applicable Initial Well for purposes of the Payout calculation for the Initial Well.  In the event that Brigham elects 7(a)(ii) above and plug and abandons the applicable Initial Well, the Initial Well shall be deemed to have been drilled and completed for purposes of this Agreement and U.S. Energy’s Working Interest share
of all of the costs related to the Initial Well, including the costs incurred to plug and abandon the Initial Well, shall be considered US Energy Expenditures for purposes of the Payout calculations.

(b)      With respect to each Initial Well that is commenced pursuant to this Agreement, Brigham shall continue operations for such Initial Well with due diligence as a reasonable prudent operator until such Initial Well is either plugged and abandoned or completed as a producer; provided, however, that Brigham
may cease drilling of the Initial Well in either the vertical portion or the lateral if granite or other practially impenetrable substance, condition in the hole, or mechanical problem renders further drilling impractical.

(c)      The Parties agree that completion operations for each Initial Well shall be commenced within sixty (60) days of the running of the liner to total depth in such Initial Well unless: (i) mutually agreed otherwise, or (ii) such delay is due to events or conditions that are outside of Brigham’s
control.

(d)      The Parties agree that no more than thirty two (32) swell packers shall be run in any of the Initial Wells that are drilled within the First Six Well Units and no more than forty (40) swell 

 

 

 

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packers may be run in any of the Initial Wells that are drilled within either the Second Group of Well Units or Third Group of Well Units, without the mutual agreement of both Parties otherwise.

Section 8.  Subsequent Well Proposals.

Except as may be necessary for lease maintenance purposes, neither U.S. Energy nor Brigham may propose a Subsequent Well within any Well Unit before January 1, 2011, unless mutually agreed to by the Parties.

Section 9.  Well Cost Payment Obligations.

Concurrent with the execution of this Agreement, U.S. Energy shall pay Brigham the estimated costs expected to be incurred in the drilling and completion of the Brad Olson Well as reflected on the invoice provided to U.S. Energy.  In addition, within twenty four hours of the execution of this Agreement, U.S. Energy shall pay
Brigham the estimated costs expected to be incurred in the drilling and completion of the BCD Farms Well, as reflected on the invoice provided to U.S. Energy.  All other costs and expenses incurred under this Agreement shall be paid in accordance with the terms of the governing Operating Agreement.

Section 10.  Calculating Payout and Accounting for Interim Production.

 

Payout for the First Six Well Units and the Second Group of Well Units will be calculated as follows:

 

	
  
	
(a)
	
All U.S. Energy Expenditures for the Initial Wells included in the Well Calculation Group will be treated as negative numbers and all U.S. Energy Net Receipts for the Initial Wells included in the Well Calculation Group will be treated as positive numbers.

 

	
  
	
(b)
	
When cumulative U.S. Energy Net Receipts for the Initial Wells included in the Well Calculation Group equals or exceeds cumulative U.S. Energy Expenditures for the Initial Wells included in the Well Calculation Group, Payout will have been achieved for such Well Calculation Group.

For the Third Group of Well Units, Payout will be calculated separately for each Initial Well, as follows:

 

	
  
	
(a)
	
All U.S. Energy Expenditures for the Initial Well will be treated as negative numbers and all U.S. Energy Net Receipts for such Initial Well will be treated as positive numbers.

 

	
  
	
(b)
	
When cumulative U.S. Energy Net Receipts for the Initial Well equals or exceeds cumulative U.S. Energy Expenditures for the Initial Well, Payout will have been achieved for such Initial Well.

 

For purposes of calculating Payout, the Parties agree that U.S. Energy Expenditures shall not be deemed to have been paid by U.S. Energy to Brigham until they have been received by Brigham in its Austin, Texas offices or in Brigham’s bank account if paid by wire transfer.  Revenues of U.S. Energy paid to U.S. Energy by
check from Brigham shall be deemed to have been received by U.S. Energy three business days after they are mailed to U.S. Energy by Brigham.  Revenues of U.S. Energy paid to U.S. Energy by wire transfer from Brigham shall be deemed to have been received by 

 

 

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U.S. Energy on the date that the wire transfer is received by U.S. Energy.  In the event that U.S. Energy has elected to be paid directly by purchasers of the oil and/or gas produced from the Initial Wells, for purposes of calculating Payout, Brigham will assume that U.S. Energy has received payment at the same time that
Brigham receives its payment from the purchaser for its share of the production and Brigham may assume that U.S. Energy received the same unit price Brigham received for its volumes.

Forward sales, hedges, collars and/or other hedge type arrangements entered into by U.S. Energy shall not be taken into account in calculating Payout.  In the event that U.S. Energy enters into any fixed price sales agreements for its share of production, it will be assumed that U.S. Energy has sold its share of production on
a monthly basis at unit prices equal to the monthly prices received by Brigham for its share of production from the same Initial Well.

The Parties recognize that because Payout is calculated based upon U.S. Energy Expenditures and U.S. Energy Net Receipts, prior to the date that Payout has been reached for the applicable Well Calculation Group or Initial Well, as applicable, production will have been sold from the applicable Initial Well(s) for which U.S. Energy has not
yet received payment (the “Interim Production”).  The Parties agree that, notwithstanding the date that Payout is reached or the effective date of the assignment by U.S. Energy of Brigham’s post Payout interests in the applicable Initial Well(s), the payments for the Interim Production and the expenses associated therewith shall be allocated between the Parties in accordance with their post Payout interests in the applicable Initial Well(s).

Section 11.  Conditions Precedent to Brigham Performance and Termination Rights.

The obligation of Brigham under this Agreement to allow U.S. Energy to participate in the drilling of any particular Initial Well, and to receive assignment of an undivided share of Brigham’s interest in a Well Unit, is subject to the fulfillment of each of the following conditions, unless any one or more of same are waived, in whole
or in part, by Brigham:

(a)      Each and every representation of U.S. Energy under this Agreement shall be true and accurate in all material respects as of the date when made and shall be deemed to have been made again at and as of the time of the proposed drilling of each Initial Well, and shall at and as of the proposed drilling
of each Initial Well be true and accurate in all material respects except as to changes specifically contemplated by this Agreement or consented to by Brigham.

(b)      U.S. Energy shall have performed and complied in all material respects with (or compliance therewith shall have been waived in writing by Brigham) each and every covenant, agreement and condition required by this Agreement to be performed or complied with by U.S. Energy, including without limitation
U.S. Energy shall have timely performed its funding and payment obligations under Section 8 hereof and the governing Operating Agreements.

(c)      No suit, action or other proceedings shall, on the date of the proposed drilling of each Initial Well, be pending or threatened against U.S. Energy or Brigham before any court or governmental agency seeking to restrain, prohibit, or obtain damages or other relief in connection with the consummation
of the transactions contemplated by this Agreement, except to the extent that such suit, action or other proceedings arise, in whole or in part out of any action or inaction of Brigham in breach of or otherwise in derogation of this Agreement.

 

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Notwithstanding any provision hereof to the contrary, in the event U.S. Energy fails at any time or from time to time, within thirty (30) days after receipt of written notice of default from Brigham, to make any payment owing to Brigham hereunder or the governing Operating Agreements or to otherwise satisfy any funding obligation hereunder,
and the amount of such deficiency exceeds $100,000.00 in amount, in addition to and without limitation of any and all other rights and remedies Brigham may have in law or in equity for such breach, Brigham shall have the right, exercisable in its sole and absolute discretion, to terminate this Agreement, and U.S. Energy shall have no further rights under this Agreement of in the Brigham Properties other than those earned prior to such termination.

Section 12.  Conditions Precedent to U.S. Energy Performance.

The obligation of U.S. Energy under this Agreement to fund Initial Well drilling and completion costs as set forth in Sections 4, 5 and 6 above, is subject to the fulfillment of each of the following conditions, unless any one or more of same are waived, in whole or in part, by U.S. Energy:

(a)      Each and every representation of Brigham under this Agreement shall be true and accurate in all material respects as of the date when made and shall be deemed to have been made again at and as of the time of the proposed drilling of each Initial Well, and shall at and as of the proposed drilling
of each Initial Well be true and accurate in all material respects except as to changes specifically contemplated by this Agreement or consented to by U.S. Energy.

(b)      Brigham shall have performed and complied in all material respects with (or compliance therewith shall have been waived by U.S. Energy) each and every material covenant, agreement and condition required by this Agreement to be performed or complied with by Brigham.

(c)      No suit, action or other proceedings shall, on the date for initial funding as set forth in Section 9, be pending or threatened against U.S. Energy or Brigham before any court or governmental agency seeking to restrain, prohibit, or obtain damages or other relief in connection with the consummation
of the transactions contemplated by this Agreement, except to the extent that such suit, action or other proceedings arise, in whole or in part out of any action or inaction of U.S. Energy in breach of or otherwise in derogation of this Agreement.

Notwithstanding any provision hereof to the contrary, in the event Brigham fails at any time or from time to time, within thirty (30) days after receipt of written notice of default from U.S. Energy, to make any payment owing to U.S. Energy hereunder or the governing Operating Agreements or to otherwise satisfy any funding obligation hereunder,
and the amount of such deficiency exceeds $100,000.00 in amount, in addition to and without limitation of any and all other rights and remedies U.S. Energy may have in law or in equity for such breach, U.S. Energy shall have the right, exercisable in its sole and absolute discretion, to terminate this Agreement.

Section 13.  Indemnification for Commissions.

Brigham agrees to indemnify and hold harmless U.S. Energy and it officers, directors, employees, agents, and representatives from and against any and all claims, obligations, actions,

 

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liabilities, damages, or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been made by, or on behalf of, Brigham with any broker or finder in connection with this Agreement or the transactions contemplated hereby.

U.S. Energy agrees to indemnify and hold harmless Brigham and its officers, directors, employees, agents and representatives from and against any and all claims, obligations, actions, liabilities, damages, or expenses of any kind or character arising out of or resulting from any agreement, arrangement or understanding alleged to have been
made by, or on behalf of, any member of U.S. Energy with any broker or finder in connection with this Agreement or the transactions contemplated hereby.

Section 14.  Non-Compete.

During the Agreement Term and continuing for a period of two (2) years thereafter, unless Brigham agrees in writing otherwise, and except as provided in this Agreement, neither U.S. Energy, nor any Affiliate of U.S. Energy, nor any broker or other representative acting on behalf of U.S. Energy shall, own, purchase or otherwise acquire
any interest in the oil, gas and/or other minerals in, under or that may be produced from any lands located within the Rough Rider Project Area other than the interests acquired pursuant to the terms of this Agreement.

Section 15.  Notices.

All notices and other communications required under this Agreement shall (unless otherwise specifically provided herein) be in writing and be delivered personally, by recognized commercial courier or delivery service (which provides a receipt), by telex or telecopier (with receipt acknowledged), or by registered or certified mail (postage
prepaid), at the following addresses:

If to U.S. ENERGY:

U.S. Energy Corp.

877 N. 8th W.

Riverton, WY  82501

Fax:  (307) 857-3050

Phone:  (307) 856-9271

Attention:  Mr. Mark Larsen

If to BRIGHAM:

Brigham Oil & Gas, L.P.

6300 Bridge Point Parkway

Building 2, Suite 500

Austin, Texas  78730

Fax: (512) 427-3400

Phone:  (512) 427-3300

Attention:  Mr. David Brigham

and shall be considered delivered on the date of receipt.  Either U.S. Energy or Brigham may specify as its proper address any other post office address within the continental limits of the United States

 

 

 

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by giving notice to the other party, in the manner provided in this Section, at least two (2) business days prior to the effective date of such change of address.

Section 16.  Survival of Provisions.

All representations, warranties and indemnifications made herein by Brigham or U.S. Energy shall survive in perpetuity the expiration of the Agreement Term and any termination hereof under Section 10 or Section 11.

Section 17. Disclaimer.

The liabilities of the parties hereunder shall be several, not joint or collective.  It is not the intention of the Parties to create, nor shall this Agreement be deemed as creating, a joint venture, or a mining, tax or other partnership or association or to render the parties liable as partners.

Section 18.  Miscellaneous Matters.

a.      Prior to the drilling of an Initial Well within each of the Well Units that are the subject of this Agreement, neither U.S. Energy or Brigham shall assign or otherwise transfer any rights, interests or obligations under this Agreement to any third party without first obtaining the written consent
of the other, which consent may not be unreasonably withheld; provided that either of Brigham or U.S. Energy may freely transfer or otherwise dispose of all of its rights, interests and obligations hereunder (i) by sale or other transfer or disposition of all or substantially all of its assets (whether or not covered hereby) to an Affiliate; (ii) otherwise by merger, reorganization or consolidation; or (iii) to provide a security interest for purposes of obtaining financing.  This Agreement shall be
binding upon and shall inure to the benefit of U.S. Energy and Brigham and their respective permitted successors and assigns.

b.      Each Party shall bear and pay all expenses (including without limitation attorneys’ fees) incurred by it in connection with the transaction contemplated by this Agreement.

c.      This Agreement contains the entire understanding of the Parties hereto with respect to subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions among the Parties with respect to such subject matter.  The descriptive headings contained in this
Agreement are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement.  Within this Agreement words of any gender shall be held and construed to cover any other gender, and words in the singular shall be held and construed to cover the plural, unless the context otherwise requires.  Time is of the essence in this Agreement.

d.      This Agreement may be amended, modified, supplemented, restated or discharged (and provisions hereof may be waived) only by an instrument in writing signed by the Party against whom enforcement of the amendment, modification, supplement, restatement or discharge (or waiver) is sought.

e.      THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO

 

 

 

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PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT THAT, TO THE EXTENT THAT THE LAW OF NORTH DAKOTA, WHERE THE BRIGHAM PROPERTIES ARE LOCATED, NECESSARILY GOVERNS, THE LAW OF NORTH DAKOTA SHALL APPLY.  JURISDICTION AND VENUE SHALL BE IN THE COUNTY WHERE THE AFFECTED BRIGHAM PROPERTIES ARE LOCATED IN NORTH DAKOTA.

f.      This Agreement may be executed in counterparts, all of which are identical and all of which constitute one and the same instrument.  It shall not be necessary for Brigham and U.S. Energy to sign the same counterpart and signature pages from different counterparts may be combined to form
masters of this Agreement.

This Agreement is executed by the parties hereto on the date set forth beneath the signature of each but is effective for reference and all other purposes as of August 24, 2009.

	
BRIGHAM OIL & GAS, L.P.

	
By:  Brigham, Inc.,

	
its Managing General Partner

	  	  
	
By:
	
  /s/ Ben M. Brigham

	
Name:
	
  Ben M Brigham

	
Title:
	
  CEO/President

	
Date:
	
  8/24/09

	  	  
	  	  
	
U.S. ENERGY CORP.

	  	  
	  	  
	
By:
	
  /s/ Mark J. Larsen

	
Name:
	
  Mark J. Larsen

	
Title:
	
  President

	
Date:
	
  8/24/09

 

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