Document:

September 3, 2013

 

 

 

Mr. Charles Costenbader

39 North Heritage Hill Circle

The Woodlands, Texas 77381

 

Re: Employment with Synthesis Energy Systems,
Inc. (the “Company”)

 

Dear Charlie,

 

This letter agreement
confirms the terms of your employment to you effective September 3, 2013 (the “Effective Date”).

 

Title/Reporting Relationship

 

Your title is Chief Financial Officer and
you report to the Company’s chief executive officer (the “CEO”).

 

Responsibilities

 

Your duties and responsibilities will be
such as are reasonably assigned to you by the CEO. While employed by the Company, you will devote full time and attention
during normal business hours to the affairs of the Company and use your best efforts to perform faithfully and efficiently
your duties and responsibilities. You shall perform the services required by this letter agreement at the Company’s present
principal place of business or at such other location(s) as may be mutually agreed by you and the Company; provided, however, that
your responsibilities for the Company will require you to conduct temporary travel to other domestic and international locations
(including without limitation countries in Asia and Europe) on business for the Company consistent with the business needs of the
Company.

 

Compensation

 

Your base compensation will be $300,000
per year (the “Base Compensation”), $200,000 of which (the “Base Salary”) shall be payable
in cash in equal semi-monthly installments of $8,333.33 or in accordance with the Company’s established policy, subject such
payroll and withholding deductions as may be required by law and other deductions (consistent with the Company’s policy for
all employees) relating to your election to participate in the Company’s incentive, savings, retirement and other employee
benefit plans.

 

    	 

    	 

    

 

 

During the first twelve
months of your employment (the “Initial Year”), the Company will grant you nonstatutory stock options subject
to an agreement (an “Option Agreement”) to be entered into between the Company and you (with the approval of
the Compensation Committee of the Company’s Board of the Directors (the “Board”)). The Company’s
grant to you of nonstatutory stock options will be options to acquire whole shares of the Company’s common stock having a
fair market value of $100,000 on the date of grant as determined under the Company’s Amended and Restated 2005 Incentive
Plan, as amended (the “Plan”), vesting as to 25% on the date of grant and the remainder vesting in equal amounts
quarterly over the subsequent twelve months. The nonstatutory stock options will be subject to the terms and conditions of the
NSOA and the Plan.

 

For each twelve month period subsequent
to the Initial Year, $100,000 of your Base Compensation shall either be paid in cash (and increasing the bi-monthly Base Salary
from $8,333.33 to $12,500.00) or in lieu thereof shall be in the form of nonstatutory stock options, and subject to the terms and
conditions, of an Option Agreement to be entered into between the Company and you (with the approval of the Compensation Committee
of the Board), which shall reflect a number of shares of common stock of the Company with a fair market value of $100,000 on the
date of grant as determined under the Plan. The determination of whether such amount shall be paid in cash or nonstatutory stock
options shall be determined by the mutual agreement of you and the Compensation Committee of the Board fifteen (15) days prior
to the expiration of the Initial Year and each succeeding twelve month period thereafter.

 

In addition, the Company will conduct an
annual review of your compensation and may, in its sole discretion, increase the Base Compensation based upon relevant circumstances.

 

Vacation

 

During the term of your employment, you
shall be entitled to annual paid vacation equal to twenty days during each one-year period commencing on the Effective Date. The
use of any vacation time not taken during the applicable one-year period will be subject to the Company’s vacation policy
as in effect from time to time.

 

Bonus Program

 

You will be eligible, as to each fiscal year
until the termination of your employment, for an annual performance bonus (the “Annual Bonus”), with the amount
and payment of such bonus to be determined by, and to be at the sole discretion of, the CEO, with approval of the Compensation
Committee of the Board. The bonus amount will be based on achievement of certain annual Company and individual goals and objectives.
Such bonus will be paid by no later than the later of 2 1⁄2 months after the end of the calendar year in which it is earned
or 2 1⁄2 months after the end of the Company’s tax year in which it is earned. For the purposes of this Agreement, the
term “Annual Bonus” will refer only to the cash bonus, and not to long-term equity incentives to be paid pursuant to
any compensation plan then in effect.

 

    	 

    	 

    

 

 

Incentive Award

 

Subject to the terms
and conditions of a Nonstatutory Stock Option Agreement to be entered into between the Company and you (with the approval of the
Compensation Committee of the Board), the Company shall grant to you nonstatutory stock options to acquire 200,000 shares of the
Company’s common stock at the fair market value of such shares on the date of grant as determined under the Plan, vesting
as to 25% on the date of grant and the remainder vesting 25% annually over three years from the effective date of the grant.

 

Plans

 

You shall be eligible
to participate in and shall receive all benefits under all incentive, savings and retirement plans and programs maintained
or established by the Company for the benefit of our employees. Further, you and/or your family, as the case may be,
shall be eligible to participate in and shall receive all benefits under each welfare benefit plan of the Company maintained
or established by the Company for the benefit of its employees. The Company shall not be obligated to institute, maintain,
or refrain from changing, amending, or discontinuing, any such program or plan.

 

Reimbursement of Business Expenses

 

You may from time to time during the term
of your employment incur various business expenses customarily incurred by persons holding positions of like responsibility,
including, without limitation, travel expenses incurred for the benefit of the Company. Subject to complying with the Company’s
policy regarding the reimbursement of such expenses as in effect from time to time during the term of your employment,
which does not necessarily allow reimbursement of all such expenses, the Company shall reimburse you for such expenses from
time to time, at your request, and you shall account to the Company for all such expenses. Such expenses will be reimbursed no
later than the later of 21⁄2 months after the end of the calendar year in which it is incurred or the 21⁄2 months after
the end of the Company’s tax year in which it is incurred.

 

In addition, the Company shall reimburse
you up to $150 per month for expenses associated with a cellular phone to the extent used for business of the Company. Subject
to complying with the Company’s policy regarding the reimbursement of expenses as in effect from time to time
during the term of your employment and your accounting to the Company for such expenses, the Company shall provide such reimbursement
on a monthly basis through the bi-weekly cash payments of Base Salary.

 

Indemnification Agreement

 

The Company has entered
into an Indemnification Agreement with you regarding your indemnification in the form of such agreements entered into with the
Company’s other executive officers. The Company will also cause you to be covered by its director and officer insurance policies
as they are in effect from time to time for its directors and executive officers.

 

    	 

    	 

    

 

 

Clawback Provisions

 

Notwithstanding any other
provisions in this letter agreement to the contrary, any incentive-based compensation, or any other compensation, paid to you pursuant
to this letter agreement or any other agreement or arrangement with the Company which is subject to recovery under any law, government
regulation or stock exchange listing requirement, will be subject to such deductions and clawback as may be required to be made
pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant
to any such law, government regulation or stock exchange listing requirement).

 

Severance

 

Subject to the provisions of “Conditions
to Payment” below, the Company shall provide you the following severance should your employment be terminated (i) by you
for Good Reason (as defined below), (ii) by the Company Without Cause (as defined below) or (iii) for any reason, other than by the Company
for Cause (as defined below), within sixty days after a Change in Control (as defined below) which occurs while you are employed
by the Company:

 

(a) The Company shall pay to
you in a lump sum in cash, if not theretofore paid, your Base Salary (as in effect on the date of termination) through the date
of termination, and in the case of compensation previously deferred and bonuses previously earned by you, all amounts
of such compensation previously deferred and earned and not yet paid by the Company.

 

(b) The Company shall, promptly
upon submission by you of supporting documentation, pay or reimburse to you any costs and expenses paid or incurred by you which
would have been payable under the “Reimbursement of Business Expenses” provision hereof if your employment had not
terminated.

 

(c) The Company shall pay to
you, in equal semi-monthly installments, your Base Salary (as in effect on the date of your termination) through (a) the six month
anniversary of your termination or (ii) until you are hired by another employer, whichever is sooner. You accept the obligation
to notify the Company upon securing employment outside the Company and to communicate to the Company the effective start date of
such employment at which time the payments pursuant to this subsection (c) will cease. Failure to do so may result in a claim by
the Company to return excess payments paid to you.

 

(d) All unvested
Company stock options will be fully vested and thereafter, all such fully vested stock options will be exercisable by you until
the earlier to occur of the expiration of the term of each stock option or one year after the date they become fully vested.

 

    	 

    	 

    

 

 

For purposes of this letter agreement:

 

“Cause”
means (i) the conviction (or plea of nolo contendere or equivalent plea) of you of a felony (which, through lapse of time or otherwise,
is not subject to appeal), (ii) your having engaged in misconduct causing a violation by the Company of any state
or federal laws which results in an injury to the business, condition (financial or otherwise), results of operations or prospects
of the Company as determined in good faith by the Board or a committee thereof, (iii) your having engaged in a theft
of corporate funds or corporate assets of the Company or in an act of fraud upon the Company, (iv) an act of personal dishonesty
taken by you that was intended to result in your personal enrichment at the expense of the Company, (v) your refusal, without
proper legal cause, to perform the duties and responsibilities of your position or any other breach by you of this letter
agreement, (vi) your engaging in activities which would constitute a breach of the policies, rules or regulations
of the Company or (vii) you fail to adequately perform the scope of the duties and responsibilities assigned to you, as determined
in good faith by the CEO.

 

“Change in
Control” of the Company shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs
shall occur:

 

(a)any “person”
(as defined in section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such
term is modified in sections 13(d) and 14(d) of the Exchange Act), excluding the Company or any of its subsidiaries, a trustee
or any fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, an underwriter temporarily
holding securities pursuant to an offering of such securities or a corporation owned, directly or indirectly, by stockholders of
the Company in substantially the same proportions as their ownership of the Company, is or becomes the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more
of the combined voting power of the Company’s then outstanding securities; or

 

(b)during any period
of not more than two consecutive years, individuals who at the beginning of such period constitute the Board and any new director
(other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described
in clause (a), (c) or (d) of this definition) whose election by the Board or nomination for election by the Company’s stockholders
was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority
thereof; or

 

(c)the stockholders
of the Company approve a merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership
of any trustee or other fiduciary holder of securities under an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no
person acquires more than 50% of the combined voting power of the Company’s then outstanding securities; or

 

    	 

    	 

    

 

 

(d)the stockholders
of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company
of all or substantially all of the Company’s assets.

 

Notwithstanding the
foregoing, no Change in Control shall be deemed to have occurred if there is consummated any transaction or series of integrated
transactions immediately following which, in the judgment of the Compensation Committee of the Board, the holders of the Company’s
common stock, immediately prior to such transaction or series of transactions, continue to have the same proportionate ownership
in an entity which owns all or substantially all of the assets of the Company immediately prior to such transaction or series of
transactions. The Board may (i) deem any other corporate event affecting the Company (other than those described in clauses (a)-(d)
of this definition) to be a “Change in Control,” and (ii) may amend this definition of “Change in Control”
in connection with an identical amendment being made to employment agreements entered into by the Company and all of its executive
officers.

 

“Disability”
means either (i) an illness or other disability that prevents you from discharging your responsibilities under this letter
agreement for a period of 180 consecutive calendar days, or an aggregate of 180 calendar days in any calendar year, during
the term of your employment, all as determined in good faith by the Board (or a committee thereof) or (ii) you are
receiving long-term disability benefits under any of the Company’s plans, policies or programs. Notwithstanding anything
to the contrary, in the event the Company temporarily replaces you, or transfers your duties or responsibilities to another individual
on account of your inability to perform such duties due to a mental or physical incapacity which is, or is reasonably expected
to become, a Disability, then your employment shall not be deemed terminated by the Company and you shall not be able to resign
with Good Reason as a result thereof. Any question as to the existence of a Disability as to which you and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually acceptable to you and the Company. If you and the
Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall
select a third who shall make such determination in writing. The determination of a Disability made in writing to the Company and
you by such physician shall be final and conclusive for all purposes of this letter agreement.

 

“Good Reason”
means: (i) the assignment to you of any duties materially inconsistent in any respect with you duties or responsibilities as contemplated
in this letter agreement, provided that you specifically terminate your employment for Good Reason hereunder within 60 days from
the date that you have actual notice of such assignment; (ii) requiring you to relocate to any office or location more than 50
miles outside of the Houston, Texas metropolitan area without your consent; (iii) any other action by the Company which results
in a material diminishment in your position, authority, duties or responsibilities; provided, that, any change in
your reporting relationship shall not constitute a material diminishment for purposes of determining whether you have a Good Reason;
provided, further that you specifically terminate your employment for Good Reason hereunder within 60 days from the
date that you have actual notice of such diminishment; (iv) any material breach by the Company of any of the provisions of this
letter agreement, provided that you specifically terminate your employment for Good Reason hereunder within 60 days from the date
that you have actual notice of such material breach; (v) a reduction, or attempted reduction, at any time during the term of your
employment, of the Base Compensation unless such reduction is also applied to other executive officers of the Company; or (vi)
the taking of any action by the Company which would adversely affect your participation in or materially reduce your benefits provided
under “Plans” above, unless (A) there is substituted a comparable benefit that is at least economically equivalent
(in terms of the benefit offered to you) to the benefit in which your participation is being adversely affected or to your benefits
that are being materially reduced, or (B) the taking of such action affects all executive officers of the Company.

 

    	 

    	 

    

 

 

“Without Cause”
means a termination for any reason other than for Cause or Disability or on account of your death.

 

Continuation of Benefits

 

Subject to the provisions
of “Conditions to Payment” below, during the twelve-month period commencing within 60 days of the date of a termination
as described under “Severance” above, the Company shall pay an amount equal to the group health care premiums
for you and/or your dependents and/or beneficiaries equal to those which would be required for continuation coverage in accordance
with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”). Such payments shall be paid by the
Company according to a fixed schedule consisting of monthly installment payments. The foregoing payments by the Company shall not
extend the applicable COBRA continuation period and the COBRA continuation period shall commence as required under COBRA on account
of your termination of employment.

 

Benefits otherwise receivable
by you pursuant to this section shall be reduced to the extent substantially similar benefits are actually received by or made
available to you by any other employer during the same time period for which such benefits would be provided pursuant to this section
at a cost to you that is commensurate with the cost incurred by you immediately prior to the date of termination; provided,
however, that if you become employed by a new employer which maintains a medical plan that either (i) does not cover you
or a family member or dependent with respect to a preexisting condition which was covered under the applicable Company medical
plan, or (ii) does not cover you or a family member or dependent for a designated waiting period, your coverage under the
applicable Company medical plan shall continue (but shall be limited in the event of noncoverage due to a preexisting condition,
to such preexisting condition) until the earlier of the end of the applicable period of noncoverage under the new employer’s
plan or the six-month anniversary of the date of termination. You agree to report to the Company any coverage and benefits actually
received by you or made available to you from such other employer(s). You shall be entitled to elect to change your level of coverage
and/or your choice of coverage options (such as for you only or family medical coverage) with respect to the benefits to be provided
by the Company to you to the same extent that active employees of the Company are permitted to make such changes; provided,
however, that in the event of any such changes you shall pay the amount of any cost increase that would actually be paid
by an active employees of the Company by reason of making the same change in his level of coverage or coverage options.

 

    	 

    	 

    

 

 

Conditions to Payment

 

Notwithstanding any of the above to the
contrary, you will not be entitled to any of the payments provided in this letter agreement under “Severance” or “Continuation
of Benefits” if (i) you breach this letter agreement including the provisions of Annex A or (ii) you fail
to execute and return an effective release from liability and waiver of right to sue the Company or its affiliates in a form reasonably
acceptable to the Company waiving all claims you may have against the Company, its affiliates, and their predecessors, successors,
assigns, employees, officers and directors and such other parties and in such form as determined by the Company in its sole discretion
within sixty (60) days after the date of termination of your employment (or such shorter period as may be required to be provided
by law or as determined by the Company and provided in the release), and the release becoming effective. To the extent any amount
payable under “Severance” or “Continuation of Benefits” is deferred compensation subject to Section 409A
of Internal Revenue Code of 1986, as amended (the “Code”), if the period during which you have discretion to
execute or revoke the general release of claims straddles two of your taxable years, then the Company shall make the severance
payments starting in the second of such taxable years, regardless of which taxable year you actually deliver the executed general
release of claims to the Company. You may not, directly or indirectly, designate the calendar year or timing of payments.

 

Specified Employee

 

If you are a “specified employee”
as such term is defined under Section 409A of the Code, on the date of your termination of employment and if the benefits to be
provided under this letter agreement are subject to Section 409A of the Code and are payable on account of a termination of employment,
payment in respect of such benefits shall not commence until the first business day that is six months after your termination date
and shall otherwise be paid as provided in this letter agreement.

 

At-Will Employment

 

You will be employed as an at-will-employee,
which means that, except as set forth under “Severance” or “Continuation of Benefits” above, your employment
may be terminated with no further obligation at any time, at the election of either you or the Company, for any reason or no reason,
with or without any advance notice.

 

Upon termination of your employment for
any reason, you shall be deemed to have resigned from all positions that you hold as an officer, manager or member of the board
of directors (or a committee thereof) of the Company or any of its affiliates.

 

    	 

    	 

    

 

 

Withholdings

 

The Company may withhold and deduct from
any benefits and payments made or to be made pursuant to this letter agreement (a) all federal, state, local and other taxes as
may be required pursuant to any law or governmental regulation or ruling, and (b) all other employee deductions made with respect
to the Company’s employees generally.

 

Compliance with Company Policies

 

You agree to comply with all applicable
policies, rules and regulations of the Company, including, but not limited to, the Company’s Code of Business and Ethical
Conduct and policies regarding compliance with the U.S. Foreign Corrupt Practices Act, each as in effect from time to time.

 

Restrictive Covenants

 

You acknowledge, understand and agree that
as a condition to the Company’s execution of this letter agreement, you are bound by, and shall be obligated to comply with,
the covenants set forth on Annex A to the letter regarding (i) Confidential Information, (ii) Disclosure of Information,
Ideas, Concepts, Improvements, Discoveries and Inventions, (iii) Ownership of Information, Ideas, Concepts, Improvements, Discoveries
and Inventions, and all Original Works of Authorship, (iv) Non-Disparagement and (v) Non-Competition; Non-Solicitation. It is further
acknowledged, understood and agreed by that the covenants made by you as set forth on Annex A are essential elements of
your employment and that, but for your agreement to comply with such covenants, the Company would not have hired you.

 

Internal Revenue Code
Section 409A Compliance.

 

(a)                     
This letter agreement is intended to comply with Section 409A of the Code to the extent any payment hereunder constitutes
nonqualified deferred compensation under Section 409A of the Code.

 

(b)                    
The Company shall undertake to administer, interpret, and construe this letter agreement in a manner that does not result
in the imposition on you of any additional tax, penalty, or interest under Section 409A of the Code and to comply with Code Section
409A to the extent applicable.

 

(c)                     
If the Company determines in good faith that any provision of this letter agreement would cause you to incur an additional
tax, penalty, or interest under Section 409A of the Code, the Board (or its delegate) and you shall use reasonable efforts to reform
such provision, if possible, in a mutually agreeable fashion to maintain to the maximum extent practicable the original intent
of the applicable provision without violating the provisions of Section 409A of the Code or causing the imposition of such additional
tax, penalty, or interest under Section 409A of the Code.

 

    	 

    	 

    

 

 

(d)                    
The preceding provisions, however, shall not be construed as a guarantee by the Company of any particular tax effect to
you under this letter agreement. The Company shall not be liable to you for any payment made under this letter agreement that is
determined to result in an additional tax, penalty, or interest under Section 409A of the Code, nor for reporting in good faith
any payment made under this letter agreement as an amount includible in gross income under Section 409A of the Code.

 

(e)                     
With respect to any reimbursement of expenses, as specified under this letter agreement, such reimbursement of expenses
shall be subject to the following conditions: (1) the expenses eligible for reimbursement in one taxable year shall not affect
the expenses eligible for reimbursement in any other taxable year; (2) the reimbursement of an eligible expense shall be made no
later than the end of the year after the year in which such expense was incurred; and (3) the right to reimbursement shall not
be subject to liquidation or exchange for another benefit.

 

(f)                     
“Termination of employment,” “resignation,” or words of similar import, as used in this letter agreement
means, for purposes of any payments under this letter agreement that are payments of nonqualified deferred compensation subject
to Section 409A of the Code, your “separation from service” as defined in Section 409A of the Code.

 

Entire Agreement; No Oral Amendments

 

This letter agreement, together with any
document, policy, rule or regulation referred to herein, replaces all previous agreements and discussions relating to the same
or similar subject matter between you and the Company and constitutes the entire agreement between you and the Company with respect
to the subject matter of this letter agreement. This letter agreement may not be modified in any respect by any verbal statement,
representation or agreement made by any executive, officer, or representative of the Company or by any written agreement unless
signed by an officer of the Company who is expressly authorized by the Company to execute such document.

 

 

[Signature Page Follows]

 

    	 

    	 

    

 

Please feel free to contact me if you have
any questions.

 

Sincerely yours,

 

Synthesis Energy Systems, Inc.

 

 

 

Robert Rigdon

President and Chief Executive Officer

 

 

I hereby accept these terms of employment.

 

 

	 	 	 
	Charles Costenbader	 	Date

 

    	 

    	 

    

 

ANNEX A

 

COVENANTS AS TO CONFIDENTIALITY, DISCLOSURE
AND OWNERSHIP OF INFORMATION, NON-DISPARAGEMENT, NON-COMPETITION AND NON-SOLICITATION

 

Confidential Information

 

In connection with your position as Chief
Financial Officer of the Company, the Company will from time to time provide you with Confidential Information, as defined below,
so that you may perform the duties and responsibilities of your position. You acknowledge, understand and agree that all such Confidential
Information, whether developed by you or others employed by or in any way associated with you or the Company, is the exclusive
and confidential property of the Company and shall be regarded, treated and protected as such in accordance with this letter agreement.
You acknowledge that all such Confidential Information is in the nature of a trade secret. Failure to mark any writing confidential
shall not affect the confidential nature of such writing or the information contained therein.

 

“Confidential Information”
means information, which is used in the business of the Company and (i) is proprietary to, about or created by the Company, (ii)
gives the Company some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which
could be detrimental to the interests of the Company, (iii) is designated as Confidential Information by the Company, is known
by you to be considered confidential by the Company, or from all the relevant circumstances should reasonably be assumed by you
to be confidential and proprietary to the Company, or (iv) is not generally known by non-Company personnel. Confidential Information
excludes, however, any information that is lawfully in the public domain or has been publicly disclosed by the Company. Such Confidential
Information includes, without limitation, the following types of information and other information of a similar nature (whether
or not reduced to writing or designated as confidential):

 

(a) Information related to all
proprietary information developed, licensed or otherwise acquired by the Company, including, but not limited to, relating to the
U-GAS® coal gasification technology, the manufacture of synthesis gas and other energy products in a proprietary process (the
“Technology”);

 

(b) Internal personnel and financial
information of the Company, vendor information (including vendor characteristics, services, prices, lists and agreements), purchasing
and internal cost information, internal service and operational manuals, and the manner and methods of conducting the business
of the Company;

 

(c) Information regarding proposed
projects, joint ventures or other similar business activities;

 

    	 

    	 

    

 

 

(d) Marketing and development
plans, price and cost data, price and fee amounts, pricing and billing policies, quoting procedures, marketing techniques, forecasts
and forecast assumptions and volumes, and future plans and potential strategies (including, without limitation, all information
relating to any acquisition prospect and the identity of any key contact within the organization of any acquisition prospect) of
the Company which have been or are being discussed;

 

(e) Names and contact information
for customers, suppliers and their representatives, contracts (including their contents and parties), customer services, and the
type, quantity, specifications and content of products and services purchased, leased, licensed or received by customers or suppliers
of the Company;

 

(f) Confidential and proprietary
information provided to the Company by any actual or potential customer, supplier, government agency or other third party (including
businesses, consultants and other entities and individuals); and

 

(g) Work product resulting from
or related to the research or development of the Technology.

 

You further agree that you shall not make
any statement or disclosure to third parties that (i) would be prohibited by applicable Federal or state laws, or (ii) is intended
or reasonably likely to be detrimental to the Company or any of its subsidiaries or affiliates.

 

As a consequence of the Company providing
you with its Confidential Information, you shall occupy a position of trust and confidence with respect to the affairs and business
of the Company. In view of the foregoing and of the consideration to be provided to you, you agree that it is reasonable and necessary
that you make each of the following covenants:

 

(a) During your employment and
thereafter, you shall not disclose Confidential Information to any person or entity, either inside or outside of the Company, other
than as necessary in carrying out your duties and responsibilities to the Company, without first obtaining the Company’s
prior written consent (unless such disclosure is compelled pursuant to court orders or subpoena, and at which time you shall give
prior written notice of such proceedings to the Company).

 

(b) During your employment and
thereafter, you shall not use, copy or transfer Confidential Information other than as necessary in carrying out your duties and
responsibilities, without first obtaining the Company’s prior written consent.

 

(c) On the termination of your
employment, you shall promptly deliver to the Company (or its designee) all written materials, records and documents made by you
or which came into your possession during your employment concerning the business or affairs of the Company, including, without
limitation, all materials containing Confidential Information.

 

    	 

    	 

    

 

 

Disclosure of Information, Ideas, Concepts,
Improvements, Discoveries and Inventions

 

As part of your fiduciary duties to the
Company and its affiliates, you agree that during your employment by the Company, you shall promptly disclose in writing to the
Company all information, ideas, concepts, improvements, discoveries and inventions, whether patentable or not, and whether or not
reduced to practice, which are conceived, developed, made or acquired by you, either individually or jointly with others, and which
relate to the business, products or services of the Company or its affiliates, irrespective of whether you used the Company’s
time or facilities and irrespective of whether such information, idea, concept, improvement, discovery or invention was conceived,
developed, discovered or acquired by you on the job, at home, or elsewhere. This obligation extends to all types of information,
ideas and concepts, including, without limitation, information, ideas and concepts relating to the Technology, the development
of coal gasification and syngas production and the provision of distributed power, utility services and coal gasification plant
development, operations and maintenance based on the Technology, new types of services, other corporate opportunities, acquisition
prospects, prospective names or service marks for the Company’s business activities, and the like.

 

Ownership of Information, Ideas, Concepts,
Improvements, Discoveries and Inventions, and all Original Works of Authorship

 

All information, ideas, concepts, improvements,
discoveries and inventions, whether patentable or not, which are conceived, made, developed or acquired by you or which are disclosed
or made known to you, individually or in conjunction with others, during your employment and which relate to the business, products
or services of the Company (including, without limitation, all such information relating to corporate opportunities, research,
financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity
of customers or their requirements, the identity of key contacts within the customers’ organizations, marketing and merchandising
techniques, and prospective names and service marks) are and shall be the sole and exclusive property of the Company. Furthermore,
all drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, maps and all
other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries and inventions
are and shall be the sole and exclusive property of the Company.

 

In particular, you hereby specifically
sell, assign, transfer and convey to the Company all of your worldwide right, title and interest in and to all such information,
ideas, concepts, improvements, discoveries or inventions, and any United States or foreign applications for patents, inventor’s
certificates or other industrial rights which may be filed in respect thereof, including divisions, continuations, continuations-in-part,
reissues and/or extensions thereof, and applications for registration of such names and service marks. You shall assist the Company
at all times, during your employment and thereafter, in the protection of such information, ideas, concepts, improvements, discoveries
or inventions, in the United States and all foreign countries, which assistance shall include, but shall not be limited to, the
execution of all lawful oaths and all assignment documents requested by the Company or its nominee in connection with the preparation,
prosecution, issuance or enforcement of any applications for United States or foreign patents, including divisions, continuations,
continuations in part, reissues and/or extensions thereof, and any application for the registration of such names and service marks.

 

    	 

    	 

    

 

 

In the event you create, during your employment,
any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as, videotapes,
written presentations on acquisitions, computer programs, drawings, maps, architectural renditions, models, manuals, brochures
or the like) relating to the Company’s business, products or services, whether such work is created solely by you or jointly
with others, the Company shall be deemed the author of such work if the work is prepared by you in the scope of your employment;
or, if the work is not prepared by you within the scope of your employment but is specially ordered by the Company as a contribution
to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a
compilation or as an instructional text, then the work shall be considered to be work made for hire, and the Company shall be the
author of such work. If such work is neither prepared by you within the scope of your employment nor a work specially ordered and
deemed to be a work made for hire, then you hereby agree to sell, transfer, assign and convey, and by these presents, do sell,
transfer, assign and convey, to the Company all of your worldwide right, title and interest in and to such work and all rights
of copyright therein. You agree to assist the Company and its affiliates, at all times, during your employment and thereafter,
in the protection of the Company’s worldwide right, title and interest in and to such work and all rights of copyright therein,
which assistance shall include, but shall not be limited to, the execution of all documents requested by the Company or its nominee
and the execution of all lawful oaths and applications for registration of copyright in the United States and foreign countries.

 

Non-Disparagement

 

During the term of your employment and
thereafter, you shall not defame or disparage the Company, its affiliates and their officers, directors, members or executives.
You agree to cooperate with the Company in refuting any defamatory or disparaging remarks by any third party made in respect of
the Company or its affiliates or their directors, members, officers or executives. The Company further agrees not to defame or
disparage you and agrees to cooperate with you in refuting any defamatory or disparaging remarks by any third party made with respect
to your employment with the Company.

 

Non-Competition; Non-Solicitation

 

During your employment and for the twenty-four
month period following the date of termination of your employment, you shall not, acting alone or in conjunction with others, directly
or indirectly, in any area in which you have worked for the Company or as to which you have received Confidential Information relating
to the Company, including, but not limited to, the People’s Republic of China, the Republic of India and the United States,
invest or engage, directly or indirectly, in any Competing Business (as defined below) or accept employment with or render services
to such a Competing Business as a director, officer, agent, executive or consultant or in any other capacity. Notwithstanding the
above, you may serve as an officer, director, agent, employee or consultant to a Competing Business whose business is diversified
and which is, as to the part of its business to which you are providing services, not a Competing Business; provided, that prior
to accepting employment or providing services to such a Competing Business, you and the Competing Business will provide written
assurances satisfactory to the Company that you will not render services directly or indirectly for a twenty-four month period
to any portion of the Competing Business which competes directly or indirectly with the Company.

 

    	 

    	 

    

 

 

For purposes of this
letter agreement, “Competing Business” means any individual, business, firm, company, partnership, joint venture,
organization, or other entity that is engaged in the actual or intended business of the Company and/or its affiliates during the
term of your employment including, but not limited to, the development of coal gasification coal and biomass mixture gasification
and syngas production and the provision of distributed power, utility services and coal gasification coal and biomass mixture gasification
plant development, operations and maintenance based on coal gasification and coal and biomass mixture gasification technology.

 

In addition to the other obligations agreed
to by you in this letter agreement, you agree that for twenty-four months following the date of termination of your employment,
you shall not directly or indirectly, (i) hire or attempt to hire any employee of the Company, or induce, entice, encourage or
solicit any employee of the Company to leave his or her employment, or (ii) contact, communicate with or solicit any distributor,
customer or acquisition or business prospect or business opportunity of the Company for the purpose of causing them to terminate,
alter or amend their business relationship with the Company.

 

You hereby specifically acknowledge and
agree that:

 

		(a)	The Company expended and will continue to expend substantial time, money and effort in developing
its business;

 

		(b)	You will, in the course of your employment, be personally entrusted with and exposed to Confidential
Information;

 

		(c)	The Company, during your employment and thereafter, will be engaged in its highly competitive business
in which many firms compete;

 

		(d)	You could, after having access to the Company’s financial records, contracts, and other Confidential
Information and know-how and, after receiving training by and experience with the Company, become a competitor;

 

    	 

    	 

    

 

		(e)	The Company will suffer great loss and irreparable harm if you terminate your employment and enter,
directly or indirectly, into competition with the Company;

 

		(f)	The temporal and other restrictions contained in this “Non-Competition; Non-Solicitation”
provision are in all respects reasonable and necessary to protect the business goodwill, trade secrets, prospects and other reasonable
business interests of the Company;

 

		(g)	The enforcement of this “Non-Competition; Non-Solicitation” provision will not work
an undue or unfair hardship on you or otherwise be oppressive to you; it being specifically acknowledged and agreed by you that
you have activities and other business interests and opportunities which will provide you adequate means of support if the provisions
of this “Non-Competition; Non-Solicitation” provision are enforced after your termination; and

 

		(h)	The enforcement of this “Non-Competition; Non-Solicitation” provision will neither
deprive the public of needed goods or services nor otherwise be injurious to the public.

 

The parties hereto further agree that if
a court of competent jurisdiction determines that the length of time or any other restriction, or portion thereof, set forth in
this “Non-Competition; Non-Solicitation” provision is overly restrictive and unenforceable, the court shall reduce
or modify such restrictions to those which it deems reasonable and enforceable under the circumstances, and as so reduced or modified,
the parties hereto agree that the restrictions of this “Non-Competition; Non-Solicitation” provision shall remain in
full force and effect. The parties hereto further agree that if a court of competent jurisdiction determines that any provision
of this “Non-Competition; Non-Solicitation” provision is invalid or against public policy, the remainder of this “Non-Competition;
Non-Solicitation” provision shall not be affected thereby, and shall remain in full force and effect.Fourth
Amendment to Credit Agreement

 

This FOURTH AMENDMENT
TO CREDIT AGREEMENT (this “Amendment”) is made and entered into as of August 30, 2013 by and among Bacterin
International, Inc., a Nevada corporation (the “Borrower”),
BACTERIN INTERNATIONAL HOLDINGS, INC., a Delaware corporation (“Holdings”), and ROS
Acquisition Offshore LP, a Cayman Islands Exempted Limited Partnership (the “Lender”).

 

WHEREAS, the Borrower
and the Lender are party to that certain Credit Agreement, dated as of August 24, 2012 (as amended by that certain First Amendment
to Credit Agreement, dated as of May 16, 2013, as further amended by that certain Waiver and Second Amendment to Credit Agreement,
dated as of August 12, 2013, and as further amended by that certain Waiver and Third Amendment to Credit Agreement, dated as of
August 12, 2013, the “Credit Agreement”), pursuant to which the Lenders have extended credit to the Borrower
on the terms set forth therein;

 

WHEREAS, the Borrower
has requested that the Lender amend the Credit Agreement, as more fully described herein; and

 

WHEREAS, the Lender
is willing to agree to such amendment, but only upon the terms and subject to the conditions set forth herein.

 

NOW, THEREFORE,
in consideration of the mutual agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

 

1.          Definitions;
Loan Document. Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Credit
Agreement. This Amendment shall constitute a Loan Document for all purposes of the Credit Agreement and the other Loan Documents.

 

2.          Amendment
to Section 7.16(a). Section 7.16(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

 

    	 

    	 

    

 

(a)          Holdings
and the Borrower shall permit one (1) person representing the Lender (the “Observer”) to attend and observe
(but not vote) at all meetings of Holdings’ (or the Borrower’s or any Subsidiary’s, as applicable) board of directors
or any committee thereof, whether in person, by telephone or otherwise as requested by the Observer. Holdings and the Borrower
shall notify the Observer in writing at least five (5) Business Days in advance (or, if a shorter notice period is reasonably necessary
given the circumstances, as soon as possible and in all circumstances at least twenty-four (24) hours in advance) of (i) the date
and time for each general or special meeting of any such board of directors or any committee thereof and (ii) the adoption of any
resolutions or actions by any such board of directors or any committee thereof by written consent (describing, in reasonable detail,
the nature and substance of such action). The general meetings of Holdings’ board of directors shall take place no less than
three times per year. Holdings and the Borrower shall concurrently deliver to the Observer all notices and any materials delivered
to any such board of directors or any committee thereof in connection with a meeting or action to be taken by written consent,
including a draft of any material resolutions or actions proposed to be adopted by written consent. The Observer shall be free
prior to such meeting or adoption by written consent to contact the applicable board of directors and/or committee and discuss
the pending actions to be taken. As long as Holdings is listed on the NYSE MKT, New York Stock Exchange or any other stock exchange
which requires that such board of directors or committees have the ability to exclude the Observer in order to be in compliance
with applicable stock exchange rules and policies, any such board of directors or committee thereof may meet in executive session
without the Observer present at any time. In the event that Holdings ceases to be listed on a stock exchange which requires, or
the stock exchange on which Holdings is listed no longer requires, that such board of directors or committees have the ability
to exclude the Observer in order to be in compliance with applicable stock exchange rules and policies, any such board of directors
or committee thereof may meet in executive session without the Observer present to the extent such board of directors or committee
determines in good faith that each of the issues to be discussed at such session is not appropriate to be discussed with the Observer
because (i) such issue directly involves the Loan Documents and discussion thereof would result in a conflict of interest with
the Lender with respect thereto or (ii) the discussion of such issue in the presence of the Observer would result in the disclosure
of trade secrets or the loss of attorney-client privilege. In the event Holdings or the Borrower excludes the Observer from any
meeting or portion thereof or withholds any information or materials related thereto, Holdings and the Borrower shall promptly
provide to the Observer a general description, which shall be true and correct in all material respects, of the matters discussed
during such meeting or portion thereof at which the Observer was excluded and any such withheld information or materials.

 

3.          Effective
Date. This Amendment shall become effective on the date on which the Lender, the Borrower and Holdings each duly executes
a counterpart of this Amendment.

 

4.          Expenses.
The Borrower agrees to pay on demand all expenses of the Lender (including, without limitation, the fees and out-of-pocket expenses
of Covington & Burling LLP, counsel to the Lender, and of local counsel, if any, who may be retained by or on behalf of the
Lender) incurred in connection with the negotiation, preparation, execution and delivery of this Amendment.

 

5.          Representations
and Warranties. Holdings and the Borrower each represents and warrants to the Lender as follows:

 

(a)         After
giving effect to this Amendment, the representations and warranties of the Borrower and the Guarantors contained in the Credit
Agreement or any other Loan Document shall, (i) with respect to representations and warranties that contain a materiality qualification,
be true and correct in all respects on and as of the date hereof, and (ii) with respect to representations and warranties that
do not contain a materiality qualification, be true and correct in all material respects on and as of the date hereof, and except
that the representations and warranties limited by their terms to a specific date shall be true and correct as of such date.

 

(b)         After
giving effect to this Amendment, no Default or Event of Default under the Credit Agreement will occur or be continuing.

 

    	-2-

    	 

    

 

6.          No
Implied Amendment or Waiver. Except as expressly set forth in this Amendment, this Amendment shall not, by implication
or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of the Lender under the Credit Agreement
or the other Loan Documents, or alter, modify, amend or in any way affect any of the terms, obligations or covenants contained
in the Credit Agreement or the other Loan Documents, all of which shall continue in full force and effect. Nothing in this Amendment
shall be construed to imply any willingness on the part of the Lender to agree to or grant any similar or future amendment, consent
or waiver of any of the terms and conditions of the Credit Agreement or the other Loan Documents.

 

7.          Waiver
and Release. TO INDUCE THE LENDER TO AGREE TO THE TERMS OF THIS AMENDMENT, HOLDINGS AND THE BORROWER EACH REPRESENTS AND
WARRANTS THAT AS OF THE DATE HEREOF THERE ARE NO CLAIMS OR OFFSETS AGAINST OR RIGHTS OF RECOUPMENT WITH RESPECT TO OR DEFENSES
OR COUNTERCLAIMS TO ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AND IN ACCORDANCE THEREWITH IT:

 

(a)         WAIVES
ANY AND ALL SUCH CLAIMS, OFFSETS, RIGHTS OF RECOUPMENT, DEFENSES OR COUNTERCLAIMS, WHETHER KNOWN OR UNKNOWN, ARISING PRIOR TO THE
DATE HEREOF; AND

 

(b)         RELEASES
AND DISCHARGES THE LENDER, ITS AFFILIATES AND ITS AND THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, SHAREHOLDERS AND ATTORNEYS
(COLLECTIVELY THE “RELEASED PARTIES”) FROM ANY AND ALL OBLIGATIONS, INDEBTEDNESS, LIABILITIES, CLAIMS, RIGHTS,
CAUSES OF ACTION OR DEMANDS WHATSOEVER, WHETHER KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, IN LAW OR EQUITY, WHICH THE BORROWER
EVER HAD, NOW HAS, CLAIMS TO HAVE OR MAY HAVE AGAINST ANY RELEASED PARTY ARISING PRIOR TO THE DATE HEREOF AND FROM OR IN CONNECTION
WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.

 

8.          Counterparts;
Governing Law. This Amendment may be executed in any number of counterparts and by different parties hereto on separate
counterparts, each of such when so executed and delivered shall be an original, but all of such counterparts shall together constitute
but one and the same agreement. Delivery of an executed counterpart of a signature page of this Amendment by fax transmission or
other electronic mail transmission (e.g., “pdf” or “tif”) shall be effective as delivery of a manually
executed counterpart of this Amendment. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS
OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK).

 

[Remainder
of Page Intentionally Left Blank]

 

    	-3-

    	 

    

 

IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above
written.

 

	 	BACTERIN INTERNATIONAL, INC.,	 
	 	as the Borrower	 
	 	 	 	 
	 	By:	/s/ John P. Gandolfo	 
	 	Name:  John P. Gandolfo	 
	 	Title:    Chief Financial Officer	 
	 	 	 
	 	BACTERIN INTERNATIONAL HOLDINGS, INC.,	 
	 	as Holdings and a Guarantor	 
	 	 	 	 
	 	By:	/s/ John P. Gandolfo	 
	 	Name:  John P. Gandolfo	 
	 	Title:    Chief Financial Officer	 
	 	 	 
	 	ROS Acquisition Offshore LP,	 
	 	as the Lender	 
	 	By ROS Acquisition Offshore GP Ltd.,	 
	 	its General Partner	 
	 	By OrbiMed Advisors LLC,	 
	 	its investment manager	 
	 	 	 	 
	 	By:	/s/ Samuel D. Isaly	 
	 	Name:  Samuel D. Isaly	 
	 	Title:    Managing Member	 

 

Signature Page to Fourth Amendment to
Credit Agreement

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