UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (date of earliest event reported): February 12, 2016 (February 11, 2016)

 

U.S. ENERGY CORP.
(Exact Name of Company as Specified in its Charter)

 

Wyoming 0-6814 83-0205516
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation or organization)   Identification No.)

 

4643 S. Ulster Street, Suite 970, Denver, CO   80237
(Address of principal executive offices)   (Zip Code)

 

Registrant's telephone number, including area code: (303) 993-3200

 

877 North 8 th West, Riverton, WY 82501
(Former Name, Former Address or Former Fiscal Year,
If Changed From Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2):

 

¨ Written communications pursuant to Rule 425 under the Securities Act
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 

 

 

 

Item 1.01. Entry into a Material Definitive Agreement.

 

Acquisition Agreement

 

On February 11, 2016, U.S. Energy Corp., a Wyoming corporation (the “ Company ”), entered into an Acquisition Agreement (the “ Acquisition Agreement ”) with Mt. Emmons Mining Company, a subsidiary of Freeport-McMoRan Inc. (“ MEM ”), whereby MEM acquired the Company’s Mt. Emmons mine site located in Gunnison County, Colorado, including the Keystone Mine, a related water treatment plant (the “ WTP ”) and other related properties (collectively, the “ Purchased Assets ”). Under the Acquisition Agreement, MEM will replace the Company as the permittee and owner of the WTP and will discharge the obligation of the Company to operate the WTP from and after the closing in accordance with the applicable permits issued by the Colorado Department of Public Health and Environment.

 

Series A Convertible Preferred Stock Purchase Agreement and Series A Preferred Stock

 

Concurrent with entry into the Acquisition Agreement, and as additional consideration for MEM to accept transfer of the Purchased Assets, including related obligations, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement (the “ Series A Purchase Agreement ”) with MEM, whereby the Company issued 50,000 shares of newly designated Series A Convertible Preferred Stock (the “ Preferred Stock ”) in exchange for (a) MEM accepting the transfer of the Purchased Assets and replacing the Company as the permittee and owner of the WTP, and (b) the payment of $500 to the Company. The Series A Purchase Agreement contained customary representations and warranties on the part of the Company. As contemplated by the Acquisition Agreement and the Series A Purchase Agreement and as approved by the Company’s Board of Directors, the Company filed with the Secretary of State of the State of Wyoming Articles of Amendment containing a Certificate of Designations with respect to the Preferred Stock (the “ Certificate of Designations ”) on February 11, 2016. Pursuant to the Certificate of Designations, the Company designated 50,000 shares of its blank check preferred stock as Series A Convertible Preferred Stock. The Preferred Stock will accrue dividends at a rate of 12.250% per annum of the Adjusted Liquidation Preference (as defined), which are not payable in cash but are accrued and compounded quarterly in arrears. The “ Adjusted Liquidation Preference ” is initially $40 per share of Preferred Stock, increased each quarter by the accrued quarterly dividend. The Preferred Stock is senior to other classes or series of shares of the Company with respect to dividend rights and rights upon liquidation. No dividend or distribution will be declared or paid on junior stock, including the Company’s common stock, (1) unless approved by the holders of Preferred Stock, voting as a group and (2) unless and until a like dividend has been declared and paid on the Preferred Stock on an as-converted basis, unless waived by the holders of Preferred Stock.

 

Each share of Preferred Stock may initially be converted into 80 shares of the common stock of the Company, $0.01 par value, of the Company (the “ Common Stock ”), subject to applicable anti-dilution adjustments (the “ Conversion Rate ”), at the option of the holder at any time. The conversion rate is subject to anti-dilution adjustments for stock splits, stock dividends and certain reorganization events and to price-based anti-dilution protections. Each share of Preferred Stock will be convertible into a number of shares of Common Stock equal to the product of (1) the conversion value as adjusted for accumulated dividends divided by the initial conversion value, multiplied by (2) the Conversion Rate (plus cash in lieu of fractional shares and dividends accrued since the last accrual date). In no event will the aggregate number of shares of Common Stock issued upon conversion be greater than 4,760,095 shares (which equals 16.86% of the number of shares of Common Stock outstanding on the issue date) or 95.20 shares of Common Stock for each share of Preferred Stock. The Preferred Stock will generally not vote with the Common Stock on an as-converted basis on matters put before the Company’s shareholders. The holders of the Preferred Stock have the right to approve specified matters as set forth in the Certificate of Designations and have the right to require the Company to repurchase the Preferred Stock in connection with a change of control.

 

 

 

  

Investor Rights Agreement

 

Concurrent with entry into the Acquisition Agreement and Series A Purchase Agreement, the Company and MEM entered into an Investor Rights Agreement (the “ Investor Rights Agreement ”), which provides MEM (so long as it beneficially owns the Preferred Stock or at least 5% of the Common Stock then outstanding) rights to certain information and Board observer rights. MEM has agreed that it, along with its affiliates, will not acquire more than 16.86% of the issued and outstanding shares of Common Stock. In addition, MEM has the right to demand registration of the shares of Common Stock issuable upon conversion of the Preferred Stock under the Securities Act of 1933, as amended.

 

The above descriptions do not purport to be complete and are qualified in their entirety by the Acquisition Agreement, the Certificate of Designations, the Series A Purchase Agreement, and the Investor Rights Agreement, which are filed as Exhibits 2.1, 3.1, 10.1, and 10.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.

 

Item 2.01 Completion of Acquisition or Disposition of Assets

 

Reference is made to the disclosure set forth under Item 1.01 and to the unaudited pro forma financial information included in Exhibit 99.1 to this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

 

Item 2.05. Costs Associated with Exit or Disposal Activities.

 

The Company expects to recognize a charge of $2.0 million related to the issuance of Preferred Stock discussed under Item 1.01 above. Reference is made to the disclosure set forth under Item 1.01, which disclosure is incorporated herein by reference. 

 

Additionally, as discussed in a Current Report on Form 8-K dated February 11, 2016, the Company reported that it expects to recognize an aggregate impairment charge of $22.8 million during the fourth quarter of 2016 related to the decision to dispose of the Purchased Assets discussed under item 1.01 hereof. Reference is made to the unaudited pro forma financial information included in Exhibit 99.1 to this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

 

 

 

  

Item 3.02 Unregistered Sales of Equity Securities

 

Reference is made to the disclosure set forth under Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference. The sale of Preferred Stock to MEM is exempt from registration pursuant to Section 4(a)(2) of the Securities Act.

 

Item 3.03 Material Modification to Rights of Security Holders

 

Reference is made to the description of the Preferred Stock and the Certificate of Designations filed with the Secretary of State of Wyoming above under Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

 

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

Reference is made to the description of the Preferred Stock and the Certificate of Designations filed with the Secretary of State of Wyoming above under Item 1.01 of this Current Report on Form 8-K, which disclosure is incorporated herein by reference.

 

Item 8.01. Other Events.

 

As previously reported in a Current Report on Form 8-K filed by the Company on July 14, 2015, the Company received a letter from The Nasdaq Stock Market (“ Nasdaq ”) dated July 10, 2015 (the “ Nasdaq Notice ”) indicating that for 30 consecutive business days the Common Stock had not maintained a minimum closing bid price of $1.00 (the “ Minimum Bid Price Requirement ”) per share as required by Nasdaq Listing Rule 5550(a)(2).  The Nasdaq Notice provided that if by January 6, 2016, the Company did not achieve compliance with the Minimum Bid Price Requirement but (a) is in compliance with all other listing standards for the Common Stock on the Nasdaq Capital Market (other than the Minimum Bid Price Requirement), and the (b) Company provides written notice of its intention to cure the Minimum Bid Price Requirement deficiency during a second compliance period, Nasdaq may grant the Company an additional Compliance Period extending until July 5, 2016. On December 22, 2015, the Company provided written notice of its intent to cure the Minimum Bid Price Requirement deficiency during a second compliance period. On January 8, 2016, Nasdaq issued a notice indicating that the Company’s compliance period has been formally extended until July 5, 2016.

 

The Company’s ability to regain compliance with the Minimum Bid Price Requirement and satisfy other Nasdaq Listing Rules is subject to numerous risks and uncertainties, including but not limited to risks associated with the possibility of an extended period of low commodity prices, operational and regulatory issues, the failure to obtain shareholder approval of a reverse stock split if requested to cure the deficiency, and general economic conditions.

 

On February 12, 2016, the Company issued a press release announcing the transfer of the Project discussed in Item 1.01 and the notice from Nasdaq discussed above. That press release is not incorporated by reference into this Item 8.01.

 

 

 

 

Item 9.01 Financial Statements and Exhibits

 

(b) Pro Forma Financial Information

 

Unaudited pro forma information giving effect to the events reported in Items 1.01, 2.01 and 2.05 is incorporated herein as Exhibit 99.1.

 

(d) Exhibits

 

Exhibit No.   Description
2.1   Acquisition Agreement
3.1   Certificate of Designation for Series A Convertible Preferred Stock
10.1   Series A Convertible Preferred Stock Purchase Agreement
10.2   Investor Rights Agreement
99.1   Unaudited pro forma financial information
99.2   Press Release

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  U.S. ENERGY CORP.
     
Dated:  February 12, 2016 By: /s/ David A. Veltri
    David A. Veltri, CEO

 

 

 

 

Exhibit 2.1

 

EXECUTION VERSION

 

 

 

ACQUISITION AGREEMENT

 

by and between

 

U.S. ENERGY CORP.

 

and

 

MT. EMMONS MINING COMPANY

 

Dated as of February 11, 2016

 

 

 

 

 

 

Table of Contents

 

    Page
     
Article I DEFINITIONS 2
Section 1.1 Definitions 2
Section 1.2 Other Defined Terms 4
Section 1.3 Interpretative Provisions 6
     
Article II SALE AND PURCHASE OF ASSETS; CLOSING 6
Section 2.1 Sale and Purchase of Purchased Assets 6
Section 2.2 Excluded Assets 8
Section 2.3 Assumed Liability 8
Section 2.4 Excluded Liabilities 8
Section 2.5 Purchase Price/Consideration 9
Section 2.6 Closing 10
Section 2.7 Deliveries 10
     
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY 11
Section 3.1 Organization; Qualification 12
Section 3.2 Authorization; Enforcement 12
Section 3.3 Absence of Conflicts 12
Section 3.4 No Undisclosed Liabilities 13
Section 3.5 Absence of Certain Changes 13
Section 3.6 Material Contracts 14
Section 3.7 Absence of Litigation; Orders 15
Section 3.8 Insurance 15
Section 3.9 Compliance with Laws; Permits 15
Section 3.10 Tangible Personal Property 16
Section 3.11 Real Property 16
Section 3.12 Inventory 18
Section 3.13 Intellectual Property 19
Section 3.14 Credits 19
Section 3.15 Warranties 19
Section 3.16 Taxes 19
Section 3.17 Sole Ownership of Purchased Assets 19
Section 3.18 No Liens 19
Section 3.19 No Material Adverse Change 19
Section 3.20 Full Disclosure 19
Section 3.21 Brokers; Fees and Expenses 19
Section 3.22 Fair Value; Solvency 20
Section 3.23 Marketing Efforts 20
Section 3.24 Good Faith; Arm’s Length 20

 

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Article IV REPRESENTATIONS AND WARRANTIES OF PURCHASER 21
Section 4.1 Organization; Authority; Enforcement 21
Section 4.2 Absence of Conflicts 21
Section 4.3 Expertise 21
Section 4.4 Absence of Litigation 21
Section 4.5 Brokers; Fees and Expenses 22
     
Article V ADDITIONAL AGREEMENTS 22
Section 5.1 Post-Closing Access to Information 22
Section 5.2 Permits 22
Section 5.3 Environmental Matters 22
Section 5.4 Further Assignments and Assurances 22
Section 5.5 Mail; Written Communication; Funds 23
Section 5.6 Transfer Taxes 23
Section 5.7 Integrated Agreements 23
Section 5.8 Insurance 23
Section 5.9 Survival 23
     
Article VI MISCELLANEOUS 24
Section 6.1 Fees and Expenses 24
Section 6.2 Entire Agreement 24
Section 6.3 Notices 24
Section 6.4 Amendments; Waivers 25
Section 6.5 Headings; Gender 25
Section 6.6 Successors; Assigns 25
Section 6.7 No Third Party Beneficiaries 25
Section 6.8 Governing Law 25
Section 6.9 Severability 25
Section 6.10 Remedies Cumulative 26
Section 6.11 Mutual Drafting 26
Section 6.12 Enforcement of Agreement 26
Section 6.13 Execution; Counterparts 26

 

Disclosure Schedules  
     
Exhibit A – Form of Ranch Deed  
     
Exhibit B – Form of Patented Claims Deed  
     
Exhibit C – Form of 2006 Unpatented Claims Deed  
     
Exhibit D – Form of Post-2006 Unpatented Claims Deed  
     
Exhibit E – Form of Bill of Sale  
     
Exhibit F – Form of Assumption Agreement  
     
Exhibit G – Form of Conflict Waiver  

 

ii  

 

 

ACQUISITION AGREEMENT

 

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

 

WHEREAS, the Company is the owner of certain property related to the Mt. Emmons mine site located in Gunnison County, Colorado and referred to by the Company as the “Mt. Emmons Project,” including the historic Keystone Mine (the “ Mine ”), a related water treatment plant (the “ WTP ”), and other property as described hereinbelow, and is responsible for the operation of some or all of the property (the “ Project ”).

 

WHEREAS, the Company is the owner and operator of the WTP pursuant to permits issued to the Company by the Colorado Department of Public Health and Environment (“ CDPHE ”).

 

WHEREAS, the Company has requested that Purchaser accept the transfer of the Project and other Purchased Assets (defined below), including the WTP and the CDPHE permits, and thus incur the obligations relating thereto from and after the Effective Date.

 

WHEREAS, contemporaneous with the execution of this Agreement, the Parties have entered into a Series A Convertible Preferred Stock Purchase Agreement (the “ Stock Purchase Agreement ”), pursuant to which, subject to the terms and conditions set forth in the Stock Purchase Agreement, the Company agrees to issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, 50,000 shares of the Series A Convertible Preferred Stock, par value $0.01 per share, of the Company (the “ Preferred Stock ”).

 

WHEREAS, the board of directors of the Company (the “ Board of Directors ”) has determined that the transactions contemplated by this Agreement and the other Transaction Documents (defined below) are in the best interests of the Company and its shareholders and creditors, and has approved the transactions contemplated by this Agreement and the other Transaction Documents.

 

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

 

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

 

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Article I
DEFINITIONS

 

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

 

Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 promulgated under the Securities Act of 1933, as amended.

 

Confidentiality Agreement ” shall have the meaning set forth in the Stock Purchase Agreement.

 

Contracts ” means any contracts, agreements, licenses, notes, bonds, mortgages, indentures, leases or other binding instruments or binding commitments, whether written or oral.

 

Environmental Laws ” means any applicable Law, and any Order or binding agreement with any Governmental Entity: (a) relating to pollution (or the cleanup thereof) or the protection of natural resources, endangered or threatened species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata); or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation, reuse, treatment, generation, discharge, transportation, processing, production, disposal or remediation of any Hazardous Materials. The term “ Environmental Law ” includes the following (including their implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.§ 9601 et seq.; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; the Federal Land Policy and Management Act of 1976, as amended, 43 U.S.C. §§ 1701, et seq.; the Endangered Species Act of 1973, as amended, 16 U.S.C. §§1531, et seq.; and the Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. §§651 et seq., and any rules or regulations corresponding to, issued pursuant to or promulgated under any of the foregoing statutes. For avoidance of doubt, the term “Environmental Laws” also includes all applicable environmental laws (including implementing rules and regulations) of the State of Colorado that relate to and regulate the Project.

 

Environmental Permit ” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under or issued, granted, given, authorized by or made pursuant to Environmental Law.

 

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Governmental Entity ” means any supranational, national, state, municipal, local or foreign government, any instrumentality, subdivision, court, administrative agency or commission or other governmental authority, or any quasi-governmental or private body exercising any regulatory or other governmental or quasi-governmental authority.

 

Hazardous Materials ” means (a) any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each case, whether naturally occurring or man-made, that is described or defined as hazardous, acutely hazardous, toxic, a waste, or words of similar import or regulatory effect under Environmental Laws, or is otherwise regulated under any Environmental Laws, and (b) any petroleum or petroleum-derived products, radon, radioactive materials or wastes, asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.

 

Knowledge of the Company ” means when used in reference to any matter or representation, the actual knowledge of David Veltri, including the knowledge of matters, developments or trends that David Veltri should reasonably infer from any matters discovered or reviewed as part of his due inquiry. For purposes of this definition, “due inquiry” means that level of due diligence that a reasonable person would undertake in order to give reasonable assurance that the representation and warranties contained herein, and the Schedules attached hereto, are accurate and complete.

 

Laws ” means any domestic or foreign laws, including any Environmental Laws, common law, statutes, ordinances, rules, regulations, codes, Orders or legally enforceable requirements enacted, issued, adopted, promulgated, enforced, ordered or applied by any Governmental Entity.

 

Lien ” means any lien, charge, pledge, security interest, mortgage, encumbrance, claim, right of first refusal, transfer restriction, preemptive right, right of way, servitude, restrictive covenant or other restriction.

 

Losses ” means any actions, suits, claims, assessments, interest, penalties, proceedings, investigations, audits, demands, losses, liabilities, damages, deficiencies, fines, judgments, costs and expenses (including reasonable attorneys’ fees).

 

Order ” means any order, writ, assessment, decision, injunction, decree, stipulation, determination, award, ruling or judgment of, or entered by or with, a Governmental Entity.

 

Person ” means any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, Governmental Entity or any other entity.

 

Permits ” means licenses, permits, approvals, registrations, certificates and other authorizations issued, granted, given or provided by a Governmental Entity, including Environmental Permits.

 

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Permitted Lien ” means (a) liens for Taxes not yet due and payable; (b) mechanics’, carriers’, workmen’s, repairmen’s or other like liens arising or incurred in the ordinary course of business consistent with past practice or amounts that are not delinquent; (c) other than with respect to Real Property, liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business consistent with past practice which are not, individually or in the aggregate, material to the Project or the Purchased Assets; (d) the liens, encumbrances, easements, rights-of-way, exceptions, limitations, qualifications, covenants and requirements set forth in that Limited Original Title Opinion prepared by Davis Graham & Stubbs LLP dated March 23, 2007; and (e) production royalties of record burdening the Real Property.

 

Phelps Dodge Corporation Quitclaim Deed ” means that certain Quitclaim Deed dated August  22, 2006 between Phelps Dodge Corporation (successor in interest to Cyprus Amax Minerals Company and Amax, Inc.), as Grantor, and the Company and Crested Corp., as co-equal tenants in common, pursuant to which Grantor transferred certain real property, together with improvements and appurtenant water rights in the County of Gunnison, State of Colorado, as specified therein.

 

Proceeding ” means an action, claim, suit, notice of violation, investigation or proceeding (including an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Shares ” shall have the meaning set forth in the Stock Purchase Agreement.

 

Taxes ” means any income, corporation, gross receipts, gross margins, profits, gains, capital stock, capital duty, franchise, commercial or business activity, withholding, social security, unemployment, disability, property, wealth, welfare, stamp, excise, occupation, sales, use, lease, consumption, transfer, intangible, value added, alternative minimum, estimated or other similar tax (including any fee, assessment or other charge of any kind or nature) imposed by any Governmental Entity, and any interest, penalties, additions or additional amounts of any kind or nature in respect of the foregoing, and including any transferee or secondary liability in respect of any Tax (whether imposed by Law, contractual agreement or otherwise) and any liability in respect of any Tax as a result of being a member of any affiliated, consolidated, combined, unitary or similar group.

 

Tax Returns ” means all returns, reports, estimates, declarations, statements, certificates and any other documents of any nature relating to, or required to be filed in connection with, any Taxes, including information returns or reports with respect to backup withholding and other payments to Third Parties.

 

Third Party ” means any Person that is not a Party to this Agreement and that is not an Affiliate of any Party to this Agreement or the other Transaction Documents.

 

Transaction Documents ” shall have the meaning set forth in the Stock Purchase Agreement.

 

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

 

Term   Section
2006 Unpatented Claims   2.1(c)
2006 Unpatented Claims Deed   2.1(a)(iv)
Agreement   Preamble
Assumed Liability   2.3
Bill of Sale   2.7(a)(vi)
Board of Directors   Preamble
Books and Records   2.1(n)
CDPHE   Preamble
Claims   2.1(o)
Closing   2.6
Company   Preamble
Conflict Waiver   2.7(a)(xi)
Credits   2.1(l)
Effective Date   Preamble
Excluded Assets   2.2
Excluded Liabilities   2.4
Insolvency Laws   3.22
Insolvent   3.22
Insurance   3.8
Intellectual Property   3.14
Inventory   2.1(f)
Leased Real Property   3.11(c)
Leases   3.11(c)
Material Contracts   3.6(a)
Mine   Preamble
Owned Real Property   3.11(a)
Parties   Preamble
Party   Preamble
Patented Claims   2.1(b)
Patented Claims Deed   2.7(a)(iii)
Post-2006 Unpatented Claims   2.1(d)
Post-2006 Unpatented Claims Deed   2.7(a)(v)
Preferred Stock   Preamble
Project   Preamble
Purchased Assets   2.1
Purchaser   Preamble
Ranch   2.1(a)
Ranch Deed   2.7(a)(ii)
Real Property   3.11(c)
Stock Purchase Agreement   Preamble
Tangible Personal Property   2.1(g)
Unpatented Claims   2.1(d)
Warranties   2.1(l)
Water Rights   2.1(h)
WTP   Preamble

 

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

 

Article II
SALE AND PURCHASE OF ASSETS; CLOSING

 

Section 2.1            Sale and Purchase of Purchased Assets . Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, the Company shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase from the Company, free and clear of all Liens except for any Permitted Liens, all of the Company’s right, title, interest, claim and demand in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill, if any), which relate to, or are used or held for use in connection with, the Project (collectively, the “ Purchased Assets ”), including the following:

 

(a)          the real property, together with all improvements and appurtenant water rights, described on Schedule 2.1(a) attached hereto and made a part hereof (the “ Ranch ”);

 

(b)          the real property, together with all improvements and appurtenant water rights described as the patented mining claims transferred pursuant to the Phelps Dodge Corporation Quitclaim Deed and listed on Schedule 2.1(b) attached hereto and made a part hereof (the “ Patented Claims ”);

 

(c)          the real property, together with all improvements and appurtenant water rights described as the unpatented mining claims including unpatented load and placer mining and millsite claims transferred pursuant to the Phelps Dodge Corporation Quitclaim Deed and listed on Schedule 2.1(c) attached hereto and made a part hereof (the “ 2006 Unpatented Claims ”);

 

(d)          the real property, together with all improvements and appurtenant water rights described as the unpatented mining claims including unpatented load and placer mining and millsite claims, related to the Project that were acquired by the Company after the date of the Phelps Dodge Corporation Quitclaim Deed, and listed on Schedule 2.1(d) attached hereto and made a part hereof (the “ Post-2006 Unpatented Claims ” and together with the 2006 Unpatented Claims, the “ Unpatented Claims ”);

 

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(e)          all additional real property, patented or unpatented mining claims including unpatented load and placer mining and millsite claims, together with all improvements and appurtenant water rights, related to the Project or the Purchased Assets, if any;

 

(f)          all inventory, finished goods, raw materials, work in progress, packaging, supplies or parts related to the Project or the Purchased Assets (the “ Inventory ”);

 

(g)          all furniture, fixtures, equipment, machinery, tools, vehicles, office equipment, supplies, computers, telephones and other tangible personal property related to the Project or the Purchased Assets, including those listed on Schedule 2.1(g) attached hereto and made a part hereof (the “ Tangible Personal Property ”);

 

(h)          all water rights described in the Findings of Fact, Conclusions of Law, Judgment and Decree by the Water Court for Water Division No. 4, State of Colorado in Case No. 96CW311, a copy of which is attached hereto and made a part hereof as Schedule 2.1(h) (the “ Water Rights ”);

 

(i)           all intellectual property, agreements with respect to intellectual property, business names and domain names related to the Project or the Purchased Assets;

 

(j)           all Permits, including all Environmental Permits, related to, used, held for use or required in connection with the ownership or operation of the Project (including the WTP) or the Purchased Assets, including the Permits listed on Schedule 3.9(b) , but only to the extent such Permits may be transferred to Purchaser under applicable Law;

 

(k)          all accounts or notes receivable, prepaid expenses, bonds (other than security bonds), credits, advance payments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment, deposits, charges, sums and fees related to the Permits, the Project or the Purchased Assets (the “ Credits ”);

 

(l)           all rights under warranties, indemnities and all similar rights against any Third Party to the extent related to the Project or the Purchased Assets, including those listed on Schedule 2.1(l) (the “ Warranties ”);

 

(m)          originals, or where not available, copies, of all books and records, including books of account, ledgers and general, financial and accounting records, internal financial statements, machinery and equipment maintenance files, supplier lists, quality control records and procedures, complaints and inquiry files, research and development files, records and data (including all correspondence with any Governmental Entity), strategic plans, pre-feasibility or feasibility studies, in each case relating to the Project or the Purchased Assets (“ Books and Records ”);

 

(n)          all goodwill, if any, and the going concern value of or related to the Project or the Purchased Assets; and

 

(o)          all (i) contractual claims against any Third Party related to the Purchased Assets, and (ii) all claims against any Third Party arising from damage to the Purchased Assets on or before the Effective Date, except in each case for any such claims arising under Environmental Laws (the “ Claims ”); provided, however, that the Company reserves the right to assert defenses, cross-claims and counterclaims against any Third Party.

 

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Section 2.2            Excluded Assets . Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the “ Excluded Assets ”):

 

(a)          all cash, cash equivalents and bank accounts of the Company;

 

(b)          the security bonds described on Schedule 2.2(b) , which shall be cancelled by the Company following the Closing with all funds due thereunder paid to the Company;

 

(c)          the corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to do with the corporate organization of the Company, or any operations or business of the Company other than that related to the Project or the Purchased Assets;

 

(d)          all employee plans and benefit arrangements and assets held in trust or in support thereof;

 

(e)          the rights which accrue or will accrue to the Company under the Transaction Documents;

 

(f)          all Tax assets (including Tax refunds) of the Company; and

 

(g)          the Company’s 100% membership interest in its wholly-owned subsidiary, Energy One LLC.

 

Section 2.3            Assumed Liability . Upon the terms and subject to the conditions of this Agreement, Purchaser hereby assumes and agrees to pay, perform and discharge the obligation of the Company to operate the WTP from and after the Effective Date in accordance with the applicable Permits issued by CDPHE (the “ Assumed Liability ”). The obligation to operate the WTP in accordance with the applicable Permits is an obligation to CDPHE and not to the Company.

 

Section 2.4            Excluded Liabilities . The Parties acknowledge that Purchaser shall have all rights associated with and be responsible for the obligations associated with the ownership and operation of the Purchased Assets from and after the Effective Date. Purchaser shall not, however, assume and shall not be responsible for the payment, performance or discharge of any other liabilities or obligations of the Company or any of its Affiliates of any kind or nature whatsoever (the “ Excluded Liabilities ”). The Company shall, and shall cause each of its Affiliates to, pay and satisfy in due course all Excluded Liabilities which it or they are obligated to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include the following:

 

(a)          any liability for (i) Taxes of the Company relating to the Project, the Purchased Assets or the Assumed Liability for any period ending on or before the Effective Date; or (ii) other Taxes of the Company (or any stockholder or Affiliate of the Company) of any kind or description;

 

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(b)          any liabilities relating to or arising out of the Excluded Assets;

 

(c)          any liabilities of the Company or its Affiliates arising under or in connection with any employee plan or benefit arrangement providing benefits to any present or former employee of the Company or its Affiliates;

 

(d)          any liabilities of the Company or its Affiliates for any present or former employees, officers, directors, retirees, independent contractors or consultants of the Company or its Affiliates, including any liabilities associated with any claims for wages or other benefits, bonuses, accrued vacation, workers’ compensation, disability, severance, retention, termination or other payments;

 

(e)          any liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent of the Company (including with respect to any breach of fiduciary obligations by same); and

 

(f)          any liabilities arising out of, in respect of or in connection with the failure by the Company or any of its Affiliates to comply with any Law, Order or Permit applicable to the Purchased Assets prior to the Effective Date.

 

Section 2.5             Purchase Price/Consideration .

 

(a)          The Parties have agreed that the Company will be relieved of the Assumed Liability, and the other obligations associated with the ownership and operation of the Purchased Assets, from and after the Effective Date, as a result of this Agreement, and accordingly, the Company has offered the Preferred Stock to Purchaser in order to induce Purchaser to enter into this Agreement and, subject to the terms and conditions set forth in this Agreement, accept the transfer from the Company of the Purchased Assets, including the Project, and replace the Company as the permittee and operator of the WTP. The closing of this Agreement is subject to and conditioned upon the simultaneous closing of the Stock Purchase Agreement and the other Transaction Documents.

 

(b)          The Parties shall execute such returns, questionnaires and other documents as shall be required with regard to all applicable real property transaction taxes imposed by applicable Federal, state or local law or ordinance.

 

(c)          The Company shall pay:

 

(i)          the fees of counsel representing the Company in connection with this transaction;

 

(ii)         any realty transfer tax, sales tax, documentary stamp tax or similar tax which becomes payable by reason of the transfer of the Purchased Assets; and

 

(iii)        the fees for any consultants which have been hired or retained by the Company in connection with the transactions contemplated by this Agreement.

 

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(d)          Purchaser shall pay:

 

(i)          the fees of counsel representing Purchaser in connection with this transaction;

 

(ii)         the fees for any title examination or title commitment and the premium for any title policy to be issued to the Company by the title company at Closing, and all endorsements thereto;

 

(iii)        the cost of any survey and any appraisals and environmental assessments of the Purchased Assets prepared on Purchaser’s behalf or at Purchaser’s direction; and

 

(iv)        the fees for recording any recordable transfer documents.

 

(e)          All costs and expenses incident to the transaction contemplated hereby and the closing thereof, and not specifically described above, shall be paid by the Party incurring same.

 

Section 2.6            Closing . The closing of the sale and purchase of the Purchased Assets (the “ Closing ”) shall occur at the offices of Hogan Lovells US LLP in Denver, Colorado on the date hereof contemporaneously with the execution and delivery of this Agreement and the Stock Purchase Agreement.

 

Section 2.7            Deliveries .

 

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

 

(i)          the certificate of the Secretary of the Company required pursuant to Section 2.4(a)(v) of the Stock Purchase Agreement;

 

(ii)         a Special Warranty Deed in the form attached hereto as Exhibit A (the “ Ranch Deed ”) pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser the Ranch, duly executed by the Company;

 

(iii)        a Special Warranty Deed in the form attached hereto as Exhibit B (the “ Patented Claims Deed ”) pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser the Patented Claims, together with all improvements and appurtenant water rights, related to the Project or any of the Purchased Assets, duly executed by the Company;

 

(iv)        a Bargain and Sale Deed in the form attached hereto as Exhibit C (the “ 2006 Unpatented Claims Deed ”) pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser all Unpatented Claims acquired by the Company pursuant to the Phelps Dodge Corporation Quitclaim Deed and owned by the Company, together with all improvements and appurtenant water rights, related to the Project or any of the Purchased Assets, and the Water Rights, duly executed by the Company;

 

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(v)         a Bargain and Sale Deed in the form attached hereto as Exhibit D (the “ Post-2006 Unpatented Claims Deed ”) pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser all Unpatented Claims acquired by the Company after the date of the Phelps Dodge Corporation Quitclaim Deed and owned by the Company, together with all improvements and appurtenant water rights, related to the Project or any of the Purchased Assets, duly executed by the Company;

 

(vi)        a General Assignment and Bill of Sale in the form attached hereto as Exhibit E (the “ Bill of Sale ”) pursuant to which the Company shall sell, assign, transfer, convey and deliver to Purchaser the Inventory, the Tangible Personal Property, the intellectual property, the Credits, the Warranties and the Claims, duly executed by the Company;

 

(vii)       all documents required to transfer and assign to Purchaser all Permits, including all Environmental Permits, related to, used, held for use or required in connection with the ownership or operation of the Project (including the WTP) or the Purchased Assets, that may be transferred to Purchaser under applicable Law, in the form required by applicable Law and duly executed by the Company;

 

(viii)      all Books and Records;

 

(ix)         written evidence of release of all Liens, other than Permitted Liens (but including all Liens securing indebtedness which shall be paid and cancelled by the Company on or before the Effective Date), in and upon any of the Purchased Assets;

 

(x)          such other customary instruments of transfer, assumption, filings or documents, in form and substance reasonably satisfactory to Purchaser, as may be required to give effect to this Agreement;

 

(xi)         a conflict waiver in the form attached hereto as Exhibit G (the “ Conflict Waiver ”) permitting Purchaser to retain the services of the identified consultants (and their former owners, employees or contractors) used by the Company prior to the Closing with respect to the Purchased Assets; and

 

(xii)        One Thousand Five Hundred Eighty-Three U.S. dollars ($1583.00), which amount represents the property taxes owed as of the Effective Date for ownership of the Purchased Assets during the year ended December 31, 2015.

 

(b)          At the Closing, Purchaser shall deliver or caused to be delivered to the Company an Assignment and Assumption of Liabilities Agreement in the form attached hereto as Exhibit F (the “ Assumption Agreement ”), pursuant to which Purchaser shall assume the obligation to operate the WTP in accordance with the applicable Permits issued by CDPHE.

 

Article III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

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

 

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Section 3.1            Organization; Qualification . The Company is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Wyoming, has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by it or the ownership or leasing of its properties makes such qualification necessary, except where the failure to be so licensed, qualified or in good standing is, or could reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document; (ii) a material adverse effect on the results of operations, cash flow, assets, business, prospects or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole; or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document. The Company has made available to Purchaser accurate and complete copies of its Restated Articles of Incorporation and Bylaws, each as currently in effect.

 

Section 3.2            Authorization; Enforcement . The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally; and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

Section 3.3            Absence of Conflicts . The execution and delivery of this Agreement by the Company does not, and the consummation of the transactions contemplated hereby will not, (i) conflict with or violate the Restated Articles of Incorporation or Bylaws of the Company, (ii) conflict with or violate in any material respect any Law or Order applicable to the Company, the Project or the Purchased Assets, (iii) except as set forth on Schedule 3.3 , require the consent, notice or other action by an Person under, conflict with, result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract or Permit to which the Company is a party or by which the Company is bound or subject or to which any of the Purchased Assets are subject, or (iv) result in the creation or imposition of any Liens other than Permitted Liens on the Purchased Assets.

 

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Section 3.4            No Undisclosed Liabilities . The Company has no liabilities or obligations (whether accrued, absolute, contingent, liquidated or unliquidated, actual or contingent, unasserted or otherwise) with respect to the Purchased Assets, except (a) as disclosed in the Disclosure Schedules to this Agreement and (b) those incurred in the ordinary course of holding, owning and operating the Purchased Assets and immaterial in nature and amount in the aggregate.

 

Section 3.5            Absence of Certain Changes . From and after January 1, 2015, except as expressly contemplated in this Agreement or the Stock Purchase Agreement or as disclosed on Schedule 3.5 , the Company has held, owned and operated the Purchased Assets only in the ordinary course of business and has not (and has not agreed to):

 

(a)          entered into any Contract or engaged in any transaction outside of the ordinary course of business related to the Purchased Assets;

 

(b)          made any material change in the conduct of holding, owning or operating the Purchased Assets;

 

(c)          subjected any of the Purchased Assets to any Lien other than Permitted Liens or those released on or prior to the Effective Date;

 

(d)          waived or released any debts, claims or rights of value other than in the ordinary course of holding, owning or operating the Purchased Assets;

 

(e)          transferred any asset, right or interest to any Third Party relating to the Purchased Assets other than transfers of de minimus amounts of assets in the ordinary course of holding, owning or operating Purchased Assets;

 

(f)           made capital commitments in excess of $10,000 for any single expenditure or commitment related to the Purchased Assets that will be enforceable against the Purchased Assets or Purchaser on or after the Effective Date;

 

(g)          suffered any extraordinary losses or any material damage, destruction or casualty with respect to the Purchased Assets, or written down the value of any of the Purchased Assets;

 

(h)          experienced any events, conditions, losses or casualties which have resulted in or are reasonably likely to result in one or more claims under its insurance policies of an aggregate of $5,000 or more relating to the Purchased Assets;

 

(i)           been notified that it is in default of any material term of any Contract, or terminated or amended or suffered the termination or amendment of any Contract to which it is or was a party, relating to the Purchased Assets;

 

(j)           received any notification or had any communication from any Governmental Entity with respect to any proposed remedial action for any violation or alleged or possible violation of any Law relating to or affecting the Purchased Assets;

 

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(k)          suffered the termination, suspension or revocation of any Permit;

 

(l)           settled any Proceedings relating to the Purchased Assets;

 

(m)         delayed or postponed the payment of any accounts payable or other debt, obligation or liability relating to the Purchased Assets or deferred ordinarily scheduled maintenance of any of the Purchased Assets; or

 

(n)          made any agreement or commitment (whether or not in writing) to do any of the foregoing.

 

Section 3.6            Material Contracts .

 

(a)           Schedule 3.6(a) contains a complete and accurate list of each of the following Contracts related to the Purchased Assets to which the Company is a party or by which any of the Purchased Assets are bound as of the date hereof (collectively with the Leases, the “ Material Contracts ”):

 

(i)          all such Contracts involving aggregate consideration in excess of $10,000;

 

(ii)         all confidentiality, environmental consulting, operating, maintenance, security, utilities, communications, broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, market consulting, public relations and advertising Contracts;

 

(iii)        all such Contracts under which the Company has borrowed or loaned money, or any note, bond, indenture, mortgage, installment obligation or other evidence of indebtedness for borrowed or loaned money or any guarantee of such indebtedness, in each case, relating to amounts in excess of $10,000;

 

(iv)        all such Contracts involving a Governmental Entity;

 

(v)         all such Contracts involving any joint venture, partnership, or limited liability company agreement involving a sharing of profits, losses, costs, Taxes, or other liabilities by the Company with any other Person;

 

(vi)        all such Contracts to which any Affiliate of the Company or any officer, director or employee of the Company or any Affiliate of the Company is a party; and

 

(vii)       any other such Contract that is material to the Purchased Assets or the operation of the Project, or not entered into in the ordinary course of business related to the Purchased Assets and not previously disclosed pursuant to this Section 3.6 .

 

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(b)          Each Material Contract is valid and binding on the Company in accordance with its terms and is in full force and effect. None of the Company or, to the Knowledge of the Company, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under) in any material respect or has provided or received any written notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Accurate and complete copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been provided to Purchaser. There are no material disputes pending or, to the Knowledge of the Company, threatened under any Material Contract.

 

Section 3.7           Absence of Litigation; Orders . Except as set forth on Schedule 3.7 , there are no Proceedings pending or, to the Knowledge of the Company, threatened against, related to or affecting the Company with respect to the Purchased Assets or the Project, nor is there any judgment, decree, writ, injunction, rule, assessment or order of any Governmental Entity outstanding with respect to the Purchased Assets or the Project. Neither the Company nor any of its Subsidiaries is subject to any proceeding or action under any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfers, or similar Law relating to or affecting creditors’ rights generally. There is no Proceeding pending or, to the Knowledge of the Company, threatened against or affecting the Company or any of their Affiliates, directors, officers or employees, involving any challenge to or seeking damages or other relief in connection with any of the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents or that may, to the Knowledge of the Company, have the effect of preventing, delaying, making illegal or otherwise interfering with the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents.

 

Section 3.8            Insurance . Schedule 3.8 contains a complete and accurate list and summary description (including the name of the insurer, coverage, policy limits, and expiration date) of all primary, excess, and umbrella policies, bonds and other forms of insurance, and renewals thereof, owned or held by or on behalf of or providing insurance coverage to or for the benefit of the Company related to the Project or the Purchased Assets (the “Insurance”). All such policies of Insurance are in full force and effect, all premiums currently payable or previously due have been paid, no notice of cancellation or termination has been received by the Company with respect to any such policy and no assignment of proceeds or encumbrance exists with respect to the proceeds of any such policy.

 

Section 3.9            Compliance with Laws; Permits .

 

(a)          To the Knowledge of the Company, the operations and activities of the Company related to the Purchased Assets comply and have complied, in all material respects, with all applicable Laws and Permits.

 

(b)          To the Knowledge of the Company, the Company possesses all Permits that are required by Law for the ownership, use and operation of the Purchased Assets or otherwise necessary to permit the conduct or operation of the Purchased Assets as currently conducted or operated. To the Knowledge of the Company, all such Permits are valid and are in full force and effect. Schedule 3.9(b) contains a complete and accurate list of each such Permit and of the Governmental Entity issuing the same. To the Knowledge of the Company, all applications or notices required to have been filed for the renewal or extensions of such Permits have been duly filed on a timely basis with the appropriate Governmental Entity, and the Company has not been notified in writing that such renewals or extensions will be withheld or delayed.

 

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(c)          Except as set forth on Schedule 3.9(c), the Company has not received any written notice from any Governmental Entity or Third Party regarding (i) any violation of or failure to comply with, in any material respect, any Law or Permit, (ii) any withdrawal, suspension, cancellation, termination of, or modification to any Permit held by the Company or any employee of the Company, or (iii) any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action, excluding those that have been resolved and routine incidental or other minor actions involving de minimus costs.

 

(d)          To the Knowledge of the Company, no event has occurred that, with or without notice or lapse of time or both, could reasonably be expected to result in the revocation, suspension, lapse or limitation of any Permit set forth on Schedule 3.9(b) .

 

Section 3.10          Tangible Personal Property . Schedule 2.1(g) contains a complete and accurate list of all Tangible Personal Property owned or leased by the Company related to the Purchased Assets, which schedule indicates whether such property is owned or leased. The Company has good and valid title to, or a valid leasehold interest in, all of the Tangible Personal Property. All such Tangible Personal Property (including leasehold interests) is free and clear of Liens except for any Permitted Liens. Except as set forth on Schedule 2.1(g) , such Tangible Personal Property has been maintained in accordance with normal industry practice, is sufficient for the continued conduct of the Project after the Closing in substantially the same manner as conducted prior to the Closing and together with the other Purchased Assets constitutes all rights, property and assets necessary to conduct the Project as currently conducted.

 

Section 3.11          Real Property .

 

(a)           Schedule 2.1(a) contains the complete and accurate legal description of the Ranch. Schedule 2.1(b) contains the complete and accurate list of all Patented Claims owned by the Company. The Company has not acquired any additional patented mining claims since the date of the Phelps Dodge Corporation Quitclaim Deed. Schedule 2.1(c) contains a complete and accurate list of all unpatented mining claims including unpatented load and placer mining and millsite claims transferred to the Company pursuant to the Phelps Dodge Corporation Quitclaim Deed. Schedule 2.1(d) contains a complete and accurate list of all unpatented mining claims including unpatented load and placer mining and millsite claims acquired by the Company since the date of the Phelps Dodge Corporation Quitclaim Deed. Schedule 2.1(c) and Schedule 2.1(d) together contain a complete and accurate list of all Unpatented Claims owned by the Company. Immediately prior to the date of the Phelps Dodge Corporation Quitclaim Deed, there was no real property (including patented and unpatented mining claims including unpatented load and placer mining and millsite claims) owned by the Company, or in which the Company owned any claim, related to, used or held for use in connection with the Project. The Ranch, the Patented Claims, and the Unpatented Claims are hereinafter at times collectively referred to as the “ Owned Real Property ”. The Owned Real Property is integral and necessary to the Project, and comprises all the real property owned by the Company or in which the Company owns any claim related to or used or held for use in connection with the Project. Except as set forth on Schedule 3.11(a) , with respect to each parcel or claim of Owned Real Property:

 

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(i)          the Company has fee simple title to its Owned Real Property (except for the Unpatented Claims )free and clear of any Liens, except for any Permitted Liens;

 

(ii)         no portion of the Owned Real Property is subject to a lease or right of use or possession, other than, with respect to the Unpatented Claims, statutory rights of third parties to use and occupy the lands covered by the Unpatented Claims pursuant to the Multiple Mineral Development Act of 1954, the Surface Resources and Multiple Use Act of 1955, and the Federal Land Policy and Management Act of 1976, each as amended;

 

(iii)        there are no outstanding options, rights of first offer or rights of first refusal to purchase or acquire the Owned Real Property or any portion thereof or interest therein;

 

(iv)        none of the improvements located on the Owned Real Property constitutes a legal non-conforming use or other required special dispensation, variance or special permit under any laws, or encroach across a property line onto property owned by a Third Party;

 

(v)         the Real Property has adequate utilities of a capacity and condition to serve such Real Property to operate the Project for the use to which such Real Property is currently being put, and in the case of the Leased Real Property, subject to the terms and conditions of the Leases and the rights and interests of the owners of such properties;

 

(vi)        no assessments or special assessments have been levied, or, to the Knowledge of the Company, are contemplated or pending against the Real Property; and

 

(vii)       no portion of the Real Property is subject to any pending, or to the Knowledge of the Company, threatened, suit for appropriation, condemnation or other taking by any public authority or other suit or proceeding that may affect the value of the Real Property and, to the Knowledge of the Company, nor has the Company received any notice of any such suit or proceeding.

 

(b)          With respect to the Unpatented Claims, except as set forth on Schedule 3.11(b) :

 

(i)          the Unpatented Claims were properly located in accordance with applicable federal and state laws and regulations;

 

(ii)         all assessment work requirements for the Unpatented Claims have been performed and all filings and recordings of proof of performance have been made properly and all federal annual unpatented mining claim maintenance and rental fees have been paid properly and timely;

 

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(iii)        the Unpatented Claims are in good standing and the Company has record title to and owns the entire undivided legal and equitable interest in the Unpatented Claims, subject to the paramount title of the United States provided, however, that no representation or warranty is made with respect to (A) a discovery of valuable minerals on or within any or all of the unpatented mining claims comprising a portion of the Unpatented Claims, and (B) no representation or warranty is made as to the validity of any or all of the millsites comprising a portion of the Unpatented Claims; and

 

(iv)        the Company has the right and full power to convey its interests in the Unpatented Claims.

 

(c)           Schedule 3.11(c) sets forth an accurate and complete list of all leases or subleases (the “ Leases ”) pursuant to which the Company holds an interest in or the right to use or occupy any land, buildings, structures, improvements, fixtures or other real property related to the Project (the “ Leased Real Property ” and, collectively with the Owned Real Property, the “ Real Property ”), including all amendments, extensions and renewals with respect thereto, and the address or legal property description of each Leased Real Property. The Leased Real Property comprises all the real property leased by the Company and related to or used or held for use in connection with the Project and the Company has a valid leasehold interest in its Leased Real Property free and clear of any Liens, except any Permitted Liens. With respect to each of the Leases:

 

(i)          such Lease is in full force and effect and the Company has a valid leasehold estate in all Leased Property free and clear of all Liens, other than Permitted Liens;

 

(ii)         the Company’s possession and quiet enjoyment of the Leased Real Property held under such Lease is undisturbed as of the date hereof, and, to the Knowledge of the Company, there are no disputes with respect to such Lease, defaults or breaches of such Lease by the landlord thereunder, with or without the delivery of notice, passage of time or both;

 

(iii)        the Company is not in breach or default under any Lease and no event has occurred which, with the delivery of notice, passage of time or both, would constitute a breach or default, and the Company has paid all rent and other amounts due and payable pursuant to the Leases;

 

(iv)        the Company has not granted any Person the right to use or occupy such Leased Real Property or any portion thereof.

 

(v)         all Leases of Leased Real Property are assignable to Purchaser or all necessary consents to assignment have been or will be obtained prior to the Effective Date; and

 

(vi)        none of the Leases constituting the Leased Real Property require the Company to return the premises to its prior condition or any other standard of repair and maintenance upon expiration or termination of such Lease.

 

Section 3.12         Inventory . All Inventory consists of a quality and quantity as used in the ordinary course of business related to the Purchased Assets consistent with past practice. All Inventory is owned by the Company free and clear of all Liens, except for any Permitted Liens, and no Inventory is held on a consignment basis. The quantities of each item of Inventory to be transferred to Purchaser at the Closing shall be of a quantity and quality as kept by the Company in connection with the Project consistent with past practice.

 

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Section 3.13          Intellectual Property . Schedule 3.14 contains a complete and accurate list of all patents, trademarks, service marks, trade names, copyrights, business names and domain names (collectively, the “ Intellectual Property ”) owned, possessed, licensed, used or held for use by the Company or any Subsidiary related to or used or held for use in connection with the Project, and of any Contracts relating to such Intellectual Property to which the Company or any Subsidiary is a party.

 

Section 3.14          Credits . All Credits involving an amount in excess of $1,000 or material to the Purchased Assets are listed on Schedule 3.15 .

 

Section 3.15          Warranties . All Warranties material to the Purchased Assets are listed on Schedule 3.16 .

 

Section 3.16          Taxes . The Company (i) has made or filed all Tax Returns related to the Purchased Assets required by any jurisdiction to which it is subject, and (ii) has paid all Taxes related to the Purchased Assets that are material in amount, shown or determined to be due on Tax Returns. There are no unpaid Taxes related to the Purchased Assets in any material amount claimed to be due by the Taxing authority of any jurisdiction, and to the Knowledge of the Company no basis for any such claim exists.

 

Section 3.17          Sole Ownership of Purchased Assets . None of the Company’s subsidiaries or Affiliates have any ownership, leasehold or other legal interest in any of the Purchased Assets.

 

Section 3.18          No Liens . The Purchased Assets are not subject to any Liens other than Permitted Liens and the Company warrants to Purchaser that as of the Closing, all of the Purchased Assets shall be free and clear of any Liens other than Permitted Liens.

 

Section 3.19          No Material Adverse Change . Since January 1, 2015, other than changes in commodities prices, there has not been any material adverse change in the ownership, operation, prospects or condition of the Purchased Assets and no event has occurred or circumstance exists that could reasonably be expected to results in such a material adverse change.

 

Section 3.20          Full Disclosure . No representation or warranty by the Company in this Agreement and no statement contained in the Schedules to this Agreement or any certificate or other document furnished or to be furnished to Purchaser pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.

 

Section 3.21           Brokers; Fees and Expenses . No broker, finder, investment banker, financial advisor or other person is entitled to any brokerage, finder’s, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company.

 

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Section 3.22         Fair Value; Solvency . The fair market value of the property and rights to be transferred by the Company to Purchaser pursuant to this Agreement is less than the amount or value of the obligations and liabilities (including the Assumed Liability) that the Company will be relieved of from and after the Effective Date as a result of this Agreement. The transaction between the Parties, taken as a whole, represents an exchange of reasonably equivalent value for the Purchased Assets. The Company has received not less than a fair market value, reasonably equivalent value, fair value, or fair saleable value (as those terms, standards, and concepts of value are used in the law of Title 11 of the United States Code or other applicable Federal and State law (such laws, collectively, the “ Insolvency Laws ”)), in exchange for the transfer of the Purchased Assets to Purchaser pursuant to this Agreement. On the Effective Date, and after giving effect to this Agreement under the Insolvency Laws, the Company and its subsidiaries, (a) are not Insolvent or rendered Insolvent as a result of such transfer, (b) are not engaged in a business or transaction for which any property remaining with it is an unreasonably small capital or unreasonably small assets, (c) does not intend to incur or believe that it would incur, debts that would be beyond its ability to pay as such debts matured, and (d) has not and does not intend to impair, hinder, delay, or defraud any entity (as defined in 11 U.S.C. section 101 (15)). As used herein, the term “ Insolvent ” means a financial condition such that (z) the sum of an entity’s debts is greater than all of such entity’s  property at a fair valuation exclusive of any property of such entity that has been transferred, concealed or removed with intent to hinder, delay or defraud any of such entity’s creditors, (y) such entity  is generally not paying its debts as they become due; or (x) such entity is unable to pay its debts as they become due.

 

Section 3.23          Marketing Efforts . The Company has conducted a diligent, thorough, and good faith marketing and sale process. The value to be received by the Company under this Agreement and the other Transaction Documents represents that highest and best offer obtained for the transfer of the Purchased Assets as a result of such process and represents not less than a fair market value, reasonably equivalent value, fair value, or fair saleable value (as those terms, standards, and concepts of value are used in the Insolvency Laws) for the transfer of the Purchased Assets. No other person has made a binding offer to purchase all or any portion of the Purchased Assets for an amount that equals or exceeds the value to be received by the Company under this Agreement and the other Transaction Documents.

 

Section 3.24         Good Faith; Arm’s Length . This Agreement and the other Transaction Documents have been proposed, negotiated, and entered into by the Company and Purchaser in good faith and on an arm’s length basis and the Company has not been in a disparate bargaining position with respect to the negotiation or such agreements. The Company acknowledges that except as set forth in this Agreement, Purchaser has no obligation to accept the transfer of the WTP, the Purchased Assets, the Assumed Liability or any related obligations. Except for the Transaction Documents and Confidentiality Agreement, as of the date of this Agreement, there are no contractual obligations between the Company and its Affiliates on the one hand and Purchaser and its Affiliates on the other hand relating to the Purchased Assets or the transactions contemplated by this Agreement. Purchaser is not an Affiliate of the Company, Purchaser has no control or undue influence over the Company, and this Agreement and the transfer of the Purchased Assets contemplated hereunder have been negotiated and consummated with procedural and substantive fairness as to all decision making processes and requirements, as well as the value obtained and received by Company under this Agreement and the other Transaction Documents.

 

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Article IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

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

 

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

 

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

 

Section 4.3            Expertise . Purchaser has knowledge and experience in financial and business matters that enable it to evaluate the merits and risks of the transactions under this Agreement. This Agreement and the other Transaction Documents have been proposed, negotiated, and entered into by Purchaser in good faith and on an arm’s length basis and Purchaser has not been in a disparate bargaining position with respect to the negotiation or such agreements.

 

Section 4.4           Absence of Litigation . There is no Proceeding pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser or any of its Affiliates, directors, officers or employees, involving any challenge to or seeking damages or other relief in connection with any of the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents or that may, to the knowledge of Purchaser, have the effect of preventing, delaying, making illegal or otherwise interfering with the transactions contemplated by this Agreement, the Stock Purchase Agreement or the other Transaction Documents.

 

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Section 4.5            Brokers; Fees and Expenses . No broker, finder, investment banker, financial advisor or other person is entitled to any brokerage, finder’s, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.

 

Article V
ADDITIONAL AGREEMENTS

 

Section 5.1            Post-Closing Access to Information . The Parties acknowledge that subsequent to Closing each Party may need access to information or documents in the control or possession of the other Party for the purposes of concluding the transactions herein contemplated, audits, compliance with Laws, and the prosecution or defense of Third Party claims. Accordingly, the Parties agree that for a period of five years after Closing each will make reasonably available to the other’s agents, independent auditors, counsel, and/or Governmental Entities upon written request and at the expense of the requesting party such documents and information as may be available relating to its ownership and use of the Purchased Assets for periods prior and subsequent to Closing to the extent reasonably necessary to facilitate concluding the transactions herein contemplated, audits, compliance with Laws, and the prosecution or defense of Third Party claims.

 

Section 5.2            Permits . To the extent any Permit, including any Environmental Permit related to, used, held for use or required in connection with the ownership or operation of the Project (including the WTP) or the Purchased Assets may not be transferred to Purchaser under applicable Law by the Effective Date, the Company agrees to cooperate with and reasonably assist Purchaser, at Purchaser’s sole expense, in obtaining the transfer of such Permit (and to execute, acknowledge and deliver any assignment or other documents or instruments of transfer after) the Effective Date or in obtaining a new Permit conferring similar rights, privileges and benefits.

 

Section 5.3            Environmental Matters . The Parties acknowledge that (i) each Party may have a claim against the other Party relating to or arising from that other Party’s prior ownership or operation of all or some portion of the Purchased Assets, as well as potential claims against Third Parties arising from or relating to the Purchased Assets, and (ii) this Agreement does not and shall not be construed to transfer, alter or allocate, as between the Parties, any obligations or liabilities resulting from or arising under Environmental Laws or Environmental Permits as applied to the Purchased Assets, other than with respect to Purchaser’s obligation to assume and discharge the Assumed Liability. Neither Party admits or acknowledges any liability to the other Party or any Third Party. Except as set forth in Section 2.1(o) , each Party hereby preserves and retains all such claims existing or accrued as of the Effective Date. Nonetheless, the Company acknowledges and agrees that, notwithstanding anything contained in this Agreement from and after the Effective Date Purchaser shall have the right, in its sole discretion, to request or obtain any modification or termination of any existing Permit issued by CDPHE, or any renewal or new Permit from CDPHE.

 

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Section 5.4           Further Assignments and Assurances . If at any time after the Closing the Parties shall deem it necessary, advisable or appropriate to take further or additional steps for the purpose of assigning, assuming, transferring, conveying, perfecting and/or confirming or reducing to possession the Purchased Assets or for the purpose of fully consummating the transactions contemplated by the Transaction Documents, the other Party shall execute, acknowledge and deliver any such assignments, assumptions, conveyances, certificates or other documents or instruments of transfer consistent with the terms of this Agreement as may reasonably be requested. To the extent that any consultants covered by the Conflict Waiver require their own form of such waiver, the Company hereby agrees to execute any such waiver in form and substance reasonably satisfactory to the Company and Purchaser. The Company also agrees to execute a conflict waiver in the form of the Conflict Waiver for any consultant identified by Purchaser following the Closing that was used by the Company prior to the Closing with respect to the Purchased Assets.

 

Section 5.5           Mail; Written Communication; Funds . From and after the Closing, if the Company receives or collects mail, invoices, written communications or any funds relating to Purchased Assets, the Company or its Affiliate shall remit such mail, invoices, written communications or funds to Purchaser within five business days after its receipt thereof.

 

Section 5.6           Transfer Taxes . All transfer, documentary, sales, use, lease, consumption, stamp, registration, property, value added and other such Taxes and fees (including any penalties and interest related thereto) incurred in connection with this Agreement and the other Transaction Documents (including any real property transfer Taxes and any other similar Taxes) shall be borne and paid by the Company when due. The Company shall, at its own expense, timely file any return for Taxes or other document with respect to such Taxes or fees (and Purchaser shall cooperate with respect thereto as necessary).

 

Section 5.7            Integrated Agreements . The Parties acknowledge and agree that although this Agreement, the Stock Purchase Agreement and the other Transaction Documents are separate documents, they form an integrated contract and the closing of one is contingent upon and subject to the closing of the other Transaction Documents. The Company will not issue, and Purchaser will not have an obligation to accept, the Shares if the Company is subject to any proceeding or action under any applicable Law relating to bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or preferential transfer, or similar Law relating to or affecting creditors’ rights generally, and if Purchaser does not accept the Shares, Purchaser shall not be obligated to close this Agreement or the other Transaction Documents.

 

Section 5.8            Insurance . The Company shall have Purchaser endorsed as a Named Insured, effective as of the Effective Date, under that certain insurance policy (No. FEI-EIL-21724-00) issued by Admiral Insurance Company, as insurer, to the Company, as the insured, having a policy period from June 28, 2015 to June 28, 2018.

 

Section 5.9            Survival .

 

(a)          All representations, warranties, covenants and obligations in this Agreement, the Disclosure Schedules, and any other document, certificate or instrument delivered pursuant to this Agreement shall survive the Closing and the consummation of the transactions contemplated by this Agreement, subject to Section 5.9(b) .

 

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(b)          The Company will have liability pursuant to this Agreement with respect to any breach of a representation or warranty in this Agreement only if Purchaser notifies the Company of a claim in writing, specifying the factual basis of the claim in reasonable detail to the extent then known by Purchaser, on or before August 10, 2017, except for claims of breaches of (i) the representations and warranties set forth in Sections 3.1 , 3.2 , 3.3 , 3.22 , 3.23 , and 3.24 , which shall survive indefinitely and as to which Purchaser may notify the Company at any time after the Effective Date, and (ii) the representations and warranties set forth in Sections 3.11 and 3.16 as to which Purchaser shall notify the Company on or before February 10, 2019.

 

Article VI
MISCELLANEOUS

 

Section 6.1            Fees and Expenses . Each Party shall pay the fees and expenses of its own advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such Party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.

 

Section 6.2            Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, and the Confidentiality Agreement, taken together, are expressly intended by the Parties to be, shall be and constitute the Parties’ single, entire, non-severable, indivisible and integrated agreement, and none of the Parties would have entered into any of the Transaction Documents but for the totality of terms and provisions of the Transaction Documents and the Confidentiality Agreement. The Transaction Documents, together with the exhibits and schedules thereto, and the Confidentiality Agreement contain the entire understanding of the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.

 

Section 6.3            Notices . All notices, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered personally, or if mailed by certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight carrier, as follows:

 

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

 

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with a copy to: Davis Graham & Stubbs LLP
  Attention:  John Elofson
  1550 Seventeenth Street, Suite 500
  Denver, Colorado 80202

 

or to such other address and with such other copies as such Party may hereafter reasonably specify for the purpose by notice to the other Party. Each such notice, demand or other communication shall be effective upon delivery or refusal of delivery at the address specified in this Section 6.3 .

 

Section 6.4            Amendments; Waivers . No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and Purchaser. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.

 

Section 6.5            Headings; Gender . When a reference is made in this Agreement to a section, exhibit or schedule, such reference shall be to a section, exhibit or schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural and vice versa, whenever and as often as may be appropriate.

 

Section 6.6            Successors; Assigns . This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns. Neither Party may assign this Agreement or any rights or obligations hereunder without the prior written consent of the other Party; provided, however, that Purchaser shall only be required to notify the Company of any assignment to an Affiliate of Purchaser prior to Closing.

 

Section 6.7            No Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.

 

Section 6.8            Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Colorado, United States of America, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Colorado or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Colorado.

 

Section 6.9            Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.

 

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Section 6.10          Remedies Cumulative . The rights and remedies of the Parties are cumulative and not alternative.

 

Section 6.11          Mutual Drafting . This Agreement is the mutual product of the Parties and each provision hereof has been subject to the mutual consultation, negotiation and agreement of each of the Parties, and shall not be construed for or against any Party hereto.

 

Section 6.12          Enforcement of Agreement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

 

Section 6.13          Execution; Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Party, it being understood that the Parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

* * * * * * * * * *

 

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

 

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

 

[Signature Page to Acquisition Agreement]

 

 

 

Exhibit 3.1

 

CERTIFICATE OF DESIGNATIONS OF

SERIES A CONVERTIBLE PREFERRED STOCK,

PAR VALUE $0.01 PER SHARE,

OF

U.S. ENERGY CORP.

 

Pursuant to Section 17-16-602 of the

Wyoming Business Corporation Act

 

The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the “ Board ”) of U.S. Energy Corp., a Wyoming corporation (hereinafter called the “ Corporation ”), with the designations, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, having been fixed by the Board pursuant to authority granted to it under Article IV of the Corporation’s Restated Articles of Incorporation and in accordance with the provisions of Section 17-16-602 of the Wyoming Business Corporation Act:

 

RESOLVED: That, pursuant to authority conferred upon the Board by the Corporation’s Restated Articles of Incorporation, the Board hereby authorizes 50,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share, of the Corporation and hereby fixes the designations, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such shares, in addition to those set forth in the Restated Articles of Incorporation of the Corporation, as follows:

 

Section 1.      Designation   . The shares of such Series shall be designated “Series A Convertible Preferred Stock,” and the number of shares constituting such Series shall be 50,000 (the “ Series A Preferred Stock ”). The number of shares of Series A Preferred Stock may be increased or decreased by resolution of the Board and approval by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares of such Series then outstanding.

 

Section 2.      Currency   . All Series A Preferred Stock shall be denominated in United States currency, and all payments and distributions thereon or with respect thereto shall be made in United States currency. All references herein to “$” or “dollars” refer to United States currency.

 

Section 3.      Ranking  . The Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank senior to each other class or series of shares of the Corporation that is issued at the time of issuance of the Series A Preferred Stock and that the Corporation may issue thereafter, including, without limitation, the common stock of the Corporation, par value $0.01 per share (the “ Common Stock ”) (such junior stock, including the Common Stock, being referred to hereinafter collectively as “ Junior Stock ”).

 

Section 4.      Dividends  

 

(a)           The holders of Series A Preferred Stock shall be entitled to receive, in the manner described in Section 4(b), regular quarterly dividends per share of Series A Preferred Stock of an amount equal to 12.250% per annum of the Adjusted Liquidation Preference (as herein defined) then in effect of each share of such Series A Preferred Stock (the “ Regular Dividends ”), before any dividends shall be declared, set apart for or paid upon Junior Stock. For purposes hereof, the term “ Adjusted Liquidation Preference ” shall mean $40.00 per share of Series A Preferred Stock as of the Issue Date, which shall be increased as described in Section 4(c).

 

(b)           Regular Dividends shall not be distributed to the holders of Series A Preferred Stock in cash or any other form of shares or property but rather shall be added to the Adjusted Liquidation Preference as provided in Section 4(c). Regular Dividends shall be accrued quarterly in arrears on January 1, April 1, July 1 and October 1 of each year (unless any such day is not a Business Day, in which event such Regular Dividends shall be accrued on the next succeeding Business Day), commencing on April 1, 2016 (each such accrual date being a “ Regular Dividend Payment Date ,” and the period from the date of issuance of the Series A Preferred Stock to the first Regular Dividend Payment Date and each such quarterly period thereafter being a “ Regular Dividend Period ”). The amount of Regular Dividends payable on the Series A Preferred Stock for any period shall be computed on the basis of a 360-day year and the actual number of days elapsed.

 

 

 

  

(c)           Regular Dividends, whether or not declared, shall begin to accrue and be cumulative from the Issue Date and shall compound quarterly on each subsequent Regular Dividend Payment Date initially at 3.0625% of the Adjusted Liquidation Preference as of the Issue Date and thereafter at 3.0625% of the Adjusted Liquidation Preference as of the immediately preceding Regular Dividend Payment Date. The amount accrued each Regular Dividend Period shall be added on each Regular Dividend Payment Date to the Adjusted Liquidation Preference as of the immediately preceding Regular Dividend Payment Date (or in the case of the first Regular Dividend Period, to the Adjusted Liquidation Preference as of the Issue Date), and such resulting amount shall become the new Adjusted Liquidation Preference with respect to which the Regular Dividend shall be calculated for the next Regular Dividend Period. The cumulative amount of Regular Dividends accrued pursuant to this Section 4(c) on each Regular Dividend Payment Date are referred to herein as the “ Accumulated Regular Dividends ”. For the avoidance of doubt, dividends shall accumulate whether or not in any Regular Dividend Period there have been funds of the Corporation legally available for the payment of such dividends.

 

(d)           Except for Permitted Distributions, no dividend or distribution of any kind shall be declared or paid on Junior Stock unless (1) approved by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group and (2) the holders of Series A Preferred Stock shall receive dividends or distributions per share of Series A Preferred Stock of an amount equal to the aggregate amount of any dividends or other distributions, whether cash, in kind or other property, paid on outstanding shares of Common Stock on a per share basis based on the number of shares of Common Stock into which such share of Series A Preferred Stock could be converted on the applicable record date for such dividends or other distributions, assuming such shares of Common Stock were outstanding on the applicable record date for such dividend or other distributions (the “ Participating Dividends ”), unless such right to Participating Dividends is waived by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group. “ Permitted Distributions ” shall mean dividends or distributions of Common Stock or other securities for which anti-dilution adjustments are made as provided in (x) Sections 9(a)(1) and 9(a)(3), and (y) Sections 9(a)(2) and 9(a)(4); provided , however , that with respect to clause (y) no such dividends or distributions shall be Permitted Distributions on or after the time the Conversion Rate equals the Conversion Cap, or if such dividend or distribution would cause the Conversion Rate to equal or exceed the Conversion Cap. For avoidance of doubt, Permitted Distributions shall not include cash, a Spin-Off Transaction, or evidences of indebtedness, assets, or other property.

 

(e)           For so long as there shall be any shares of Series A Preferred Stock outstanding, without the approval of holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group, no Junior Stock shall be redeemed, purchased or otherwise acquired for any consideration (nor shall any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such Junior Stock) by the Corporation or any Subsidiary; provided , however , that the foregoing limitation shall not apply to:

 

(1)          purchases, redemptions or other acquisitions of shares of Junior Stock from employees or former employees in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees of the Corporation or any of its Subsidiaries (or from permitted family member transferees pursuant to such arrangements), up to a maximum of an aggregate of 50,000 shares from the Issue Date until such date as no shares of Series A Preferred Stock are issued and outstanding; or

 

(2)          an exchange, redemption, reclassification or conversion of any class or series of Junior Stock exclusively for any class or series of Junior Stock.

 

(f)           If applicable as provided in Section 4(d), Participating Dividends shall be payable as and when paid to the holders of shares of Common Stock. Each Participating Dividend shall be payable to the holders of record of shares of Series A Preferred Stock as they appear on the stock records of the Corporation at the Close of Business on the relevant record date, which with respect to Participating Dividends shall be the same day as the record date for the payment of dividends or distributions to the holders of shares of Common Stock.

 

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Section 5.      Liquidation, Dissolution or Winding Up  

 

(a)           Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity (each, a “ Liquidation ”), after satisfaction (or proper provision made for the satisfaction) of all liabilities and obligations to creditors of the Corporation and before any distribution or payment shall be made to holders of any Junior Stock, each holder of Series A Preferred Stock shall be entitled to receive, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) legally available therefor, an amount per share of Series A Preferred Stock equal to the greater of:

 

(1)          the Adjusted Liquidation Preference per share as of the date of payment of the Liquidation Preference, plus the amount of the Regular Dividend that would be accrued on such share from the Regular Dividend Payment Date immediately preceding the date of payment of the Liquidation Preference through but excluding the date of payment of the Liquidation Preference, plus any declared but unpaid Participating Dividends through the date of payment of the Liquidation Preference; and

 

(2)          the payment such holders would have received had such holders, immediately prior to such Liquidation, converted their shares of Series A Preferred Stock into shares of Common Stock (at the then applicable Conversion Rate) pursuant to Section 7 immediately prior to such Liquidation, plus any declared but unpaid Participating Dividends through the date of Liquidation

 

(the greater of (1) and (2) is referred to herein as the “ Liquidation Preference ”). Holders of Series A Preferred Stock will not be entitled to any other amounts from the Corporation after they have received the full amounts provided for in this Section 5(a) and will have no right or claim to any of the Corporation’s remaining assets.

 

(b)           If, in connection with any distribution described in Section 5(a) above, the assets of the Corporation or proceeds thereof are not sufficient to pay in full the Liquidation Preference payable on the Series A Preferred Stock, then such assets, or the proceeds thereof, shall be paid to the holders of Series A Preferred Stock pro rata per share of Series A Preferred Stock in accordance with the full respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

 

(c)           For purposes of this Section 5, the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity, shall constitute a Liquidation, such Liquidation shall be deemed to occur as of the closing of such transaction, and payment of the Liquidation Preference shall occur as promptly as practicable after such Liquidation event. For purposes of this Section 5, the merger or consolidation of the Corporation with or into any other corporation or other entity shall not constitute a liquidation, dissolution or winding up of the Corporation.

 

Section 6.       Voting Rights  

 

(a)           The holders of the shares of Series A Preferred Stock shall be entitled to notice of all shareholders’ meetings (or any action by written consent) in accordance with the Corporation’s Restated Articles of Incorporation and Bylaws, and applicable law, as if the holders of Series A Preferred Stock were holders of Common Stock (and whether or not the holders of Series A Preferred Stock are entitled to vote at the meeting or on the action taken by written consent).

 

(b)           In addition to the voting rights provided for by law or expressly provided elsewhere herein, for so long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not and shall not permit any direct or indirect Subsidiary of the Corporation to, without first obtaining the written consent, or affirmative vote at a meeting called for that purpose, of holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate voting group, take any of the following actions:

 

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(1)          Any change, amendment, alteration or repeal (directly or indirectly and including in connection with or as a result of a merger, consolidation, share exchange or other transaction) of any provisions of the Corporation’s Restated Articles of Incorporation or Bylaws that amends, modifies or adversely affects the rights, preferences, privileges or voting powers of the Series A Preferred Stock, or any amendment that would effect any of the actions or changes described in Section 17-16-1004 of the Wyoming Business Corporation Act or any successor provision;

 

(2)          Effect a conversion to a different type of legal entity, effect a transfer of the Corporation to incorporation under the laws of another jurisdiction, or voluntarily change the tax status of the entity;

 

(3)          Any creation, authorization, issuance or reclassification of Capital Stock that would rank equal or senior to the Series A Preferred Stock with respect to redemption, Liquidation rights or with respect to dividend rights or rights on a Change of Control;

 

(4)          The issuance or reclassification of shares of the Corporation’s Series P Preferred Stock;

 

(5)          A sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation or Subsidiary without a significant continuing business activity, a merger, consolidation, share exchange, or similar business combination or extraordinary transaction involving the Corporation or any Subsidiary, that (v) converts the shares of Series A Preferred Stock into cash, other securities, interests, obligations, rights to acquire shares, other securities or interests, other property, or any combination of the foregoing; (w) contains one or more provisions that would entitle the holders of Series A Preferred Stock to vote as a separate voting group on such provision or provisions if they were contained in a proposed amendment to the Restated Articles of Incorporation, pursuant to such articles or pursuant to Section 17-16-1004 of the Wyoming Business Corporation Act or any successor provision; (x) if share exchange, if the Series A Preferred Stock is included in the exchange; (y) results in a Change of Control; or (z) impairs in any way other than in a de minimus way, the value or rights of the Series A Preferred Stock;

 

(6)          Any repurchase or redemption of Series A Preferred Stock, other than pro rata or in whole;

 

(7)          Any issuance or sale of capital stock of a Subsidiary, repurchase or redemption of capital stock of a Subsidiary or dividend or distribution with respect to capital stock of a Subsidiary, other than such transactions exclusively involving the Corporation and one or more of its wholly-owned Subsidiaries;

 

(8)          From and after the time that the Conversion Rate equals the Conversion Cap, and including an issuance that would cause the Conversion Rate to equal or exceed the Conversion Cap, the issuance of Common Stock or securities convertible into, exercisable or exchangeable for Common Stock (including by means of a distribution of rights, options or warrants subject to Sections 9(a)(2), or by means of an issuance described in Section 9(a)(4)) at a price per share that is less than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the Record Date for the issuance of rights, options or warrants, or that is less than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed.

 

(c)           The shares of Series A Preferred Stock shall not have voting rights in the election, removal, or replacement of directors, or filling a vacancy in the office of a director, of the Corporation.

 

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(d)           At a meeting of holders of Series A Preferred Stock, a majority of the outstanding shares of Series A Preferred Stock shall constitute a quorum. The rules and procedures for calling and conducting any meeting of the holders of Series A Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by any reasonable rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Articles of Incorporation and Bylaws of the Corporation; provided , that the Corporation may not restrict or prohibit the use of proxies, or restrict access to shareholder’s lists, by holders of Series A Preferred Stock pursuant to the Wyoming Management Stability Act Sections 17-18-116 and 17-18-118. Any vote of holders of Series A Preferred Stock that may be taken at a meeting of such holders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding Series A Preferred Stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Each holder of Series A Preferred Stock shall have one vote per share of Series A Preferred Stock.

 

Section 7.       Conversion  

 

(a)           Mandatory Conversion by the Corporation . If at any time the Closing Price of the Common Stock equals or exceeds $5.00 per share (adjusted as described in and consistent with the provisions of Section 9 by multiplying such price by the quotient of the Conversion Rate in effect prior to such adjustment divided by the Conversion Rate in effect after such adjustment) for a period of 30 consecutive Trading Days (the Business Day immediately following such 30th Trading Day, the “ Mandatory Conversion Date ”), at the Corporation’s election effected by written notice to the holders of Series A Preferred Stock within 30 days after the Mandatory Conversion Date, all and not less than all of the shares of Series A Preferred Stock shall be converted such that each share of Series A Preferred Stock is converted into a number of shares of Common Stock (subject to the Conversion Cap) equal to the product of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied by (2) the Conversion Rate then in effect, plus cash in lieu of fractional shares as set out in Section 9(h), plus an amount of cash per share of Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share from and including the immediately preceding Regular Dividend Payment Date to but excluding the Mandatory Conversion Date, out of funds legally available therefor (the “ Mandatory Conversion ”). This Section 7(a) shall not apply ( i.e. there shall be no Mandatory Conversion) if the Common Stock is not traded on a U.S. national securities exchange.

 

(b)           Optional Conversion . At any time, each holder of Series A Preferred Stock shall have the right, at such holder’s option, to convert any or all of such holder’s shares of Series A Preferred Stock, and each share of Series A Preferred Stock to be converted shall be converted into a number of shares of Common Stock (subject to the Conversion Cap) equal to the product of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied by (2) the Conversion Rate then in effect, plus cash in lieu of fractional shares as set out in Section 9(h), plus an amount of cash per share of Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share from and including the immediately preceding Regular Dividend Payment Date to but excluding the applicable Conversion Date, out of funds legally available therefor.

 

(c)           Conversion Definitions .

 

(1)          Adjusted Conversion Value ” per share means the Initial Conversion Value per share plus Accumulated Regular Dividends per share;

 

(2)          Conversion Rate ” means 80 shares, subject to adjustment in accordance with the provisions of Section 9 of this Certificate of Designations;

 

(3)          Initial Conversion Value ” per share means $40 per share of Series A Preferred Stock; and

 

(4)          Total Conversion Shares ” means the aggregate number of shares of Common Stock issuable upon conversion (mandatory or optional) of Series A Preferred Stock.

 

(d)           Conversion Cap . The Total Conversion Shares shall not exceed 4,760,095 shares of Common Stock ( i.e. 16.86% of the number of shares of Common Stock outstanding on the Issue Date), and the “ Conversion Cap ” shall mean 95.20 shares of Common Stock per share of Preferred Stock, adjusted as described in and consistent with the provisions of Section 9, other than Sections 9(a)(2) and 9(a)(4), by multiplying such number by the quotient of the Conversion Rate in effect after such adjustment divided by the Conversion Rate in effect prior to such adjustment).

 

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(e)           Conversion Procedures . A holder must do each of the following in order to convert its shares of Series A Preferred Stock:

 

(1)          in the case of a conversion pursuant to Section 7(b), give written notice to the Corporation (or any conversion agent appointed pursuant to Section 16) that such holder elects to convert such shares;

 

(2)          deliver to the Corporation or such conversion agent the certificate or certificates representing the shares of Series A Preferred Stock to be converted (or, if such certificate or certificates have been lost, stolen or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation);

 

(3)          if required, furnish appropriate endorsements and transfer documents in form and substance reasonably acceptable to the Corporation; and

 

(4)          if required, pay any stock transfer, documentary, stamp or similar taxes not payable by the Corporation pursuant to Section 7(i).

 

If the conversion is in connection with a Reorganization Event, the conversion may, at the option of the holder, be conditioned upon the closing of the Reorganization Event, in which case the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall not be deemed to have converted the Series A Preferred Stock until immediately prior to the closing of such Reorganization Event. If the conversion is in connection with a tender offer for the Common Stock, the conversion may, at the option of the holder, be conditioned upon the closing of the tender offer and acceptance of tendered shares, in which case the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall not be deemed to have converted the Series A Preferred Stock until immediately prior to the closing of such tender offer; provided , that in the event less than all of the Common Stock (including the Conversion Shares) tendered is accepted for purchase in the tender offer, the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall only be deemed to have converted such portion of the Series A Preferred Stock for which the related Conversion Shares were accepted for purchase pursuant to the tender offer. “ Conversion Date ” means, as applicable, either (x) if the Corporation elects Mandatory Conversion as provided in Section 7(a), the Mandatory Conversion Date; (y) in the case of a conditional conversion, the date such conversion is deemed to occur; or (z) in any other case, the date on which a holder complies in all respects with the procedures set forth in this Section 7(e).

 

(f)           Effect of Conversion . Effective immediately prior to the Close of Business on the Conversion Date applicable to any shares of Series A Preferred Stock, dividends shall no longer accrue or be declared on any such shares of Series A Preferred Stock and such shares of Series A Preferred Stock shall cease to be outstanding.

 

(g)           Record Holder of Underlying Securities as of Conversion Date . The Person or Persons entitled to receive the Common Stock and, to the extent applicable, cash or other property, issuable upon conversion of Series A Preferred Stock on a Conversion Date shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or cash or other property as of the Close of Business on such Conversion Date. As promptly as practicable on or after the Conversion Date and compliance by the applicable holder with the relevant conversion procedures contained in Section 7(e) (and in any event no later than three Trading Days thereafter), the Corporation shall issue the number of whole shares of Common Stock issuable upon conversion (and deliver payment of cash in lieu of fractional shares, and other property due). Upon Mandatory Conversion, the outstanding shares of Series A Preferred Stock shall be converted automatically without further action by the holders and whether or not the certificates representing such shares are surrendered; provided , that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or deliver other securities, cash or property due upon such conversion unless the certificates evidencing the shares of Series A Preferred Stock are delivered to the Corporation or the conversion agent (or, if such certificate or certificates have been lost, stolen or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation). Such delivery of shares of Common Stock, and if applicable other securities, shall be made, at the option of the applicable holder, in certificated form or by book-entry. Any such certificate or certificates shall be delivered by the Corporation to the appropriate holder on a book-entry basis or by mailing certificates evidencing the shares to the holders at their respective addresses as set forth in the conversion notice. If fewer than all of the shares of Series A Preferred Stock held by any holder are converted pursuant to Section 7(b), then a new certificate representing the unconverted shares of Series A Preferred Stock shall be issued to such holder concurrently with the issuance of the certificates (or book-entry shares) representing the applicable shares of Common Stock. In the event that a holder shall not by written notice designate the name in which shares of Common Stock, and to the extent applicable cash or other property to be delivered upon conversion of shares of Series A Preferred Stock, should be registered or paid, or the manner in which such shares, and if applicable cash or other property, should be delivered, the Corporation shall be entitled to register and deliver such shares, and if applicable cash and other property, in the name of the holder and in the manner shown on the records of the Corporation.

 

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(h)           Status of Converted or Acquired Shares . Shares of Series A Preferred Stock duly converted in accordance with this Certificate of Designations, or otherwise acquired by the Corporation in any manner whatsoever, shall be retired promptly after the conversion or acquisition thereof. All such shares shall upon their retirement and any filing required by the Wyoming Business Corporation Act become authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board pursuant to the provisions of the Restated Articles of Incorporation.

 

(i)           Taxes . (1)   The Corporation and its paying agent shall be entitled to withhold taxes on all payments on the Series A Preferred Stock or Common Stock or other securities issued upon conversion of the Series A Preferred Stock to the extent required by law. Prior to the date of any such payment, each holder of Series A Preferred Stock shall deliver to the Corporation or its paying agent a duly executed, valid, accurate and properly completed Internal Revenue Service Form W-9 or an appropriate Internal Revenue Service Form W-8, as applicable.

 

(2)          Absent a change in law or Internal Revenue Service practice, or a contrary determination (as defined in Section 1313(a) of the United States Internal Revenue Code of 1986, as amended (the “ Code ”)), each holder of Series A Preferred Stock and the Corporation agree not to treat the Series A Preferred Stock (based on their terms as set forth in this Certificate of Designations) as “preferred stock” within the meaning of Section 305 of the Code, and Treasury Regulation Section 1.305-5 for United States federal income tax and withholding tax purposes and shall not take any position inconsistent with such treatment.

 

(3)          The Corporation shall pay any and all documentary, stamp and similar issue or transfer tax due on (x) the issue of the Series A Preferred Stock and (y) the issue of shares of Common Stock upon conversion of the Series A Preferred Stock. However, in the case of conversion of Series A Preferred Stock, the Corporation shall not be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Series A Preferred Stock in a name other than that of the holder of the shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or duty, or has established to the satisfaction of the Corporation that such tax or duty has been paid.

 

(4)          Each holder of Series A Preferred Stock and the Corporation agree to cooperate with each other in connection with any redemption of part of the shares of Series A Preferred Stock and to use good faith efforts to structure such redemption so that such redemption may be treated as a sale or exchange pursuant to Section 302 of the Code; provided that nothing in this Section 7(i) shall require the Corporation to purchase any shares of Series A Preferred Stock, and provided further that the Corporation makes no representation or warranty in this Section 7(i) regarding the tax treatment of any redemption of Series A Preferred Stock.

 

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Section 8.      Redemption and Repurchase  

 

(a)           Repurchase at the Option of the Holders Upon a Change of Control . Upon a Change of Control, the holders of shares of Series A Preferred Stock, by the vote or written consent of holders of a majority of the outstanding shares of the Series A Preferred Stock, voting or acting as a separate voting group, shall have the right to require the Corporation (or its successor) to repurchase, by irrevocable, written notice to the Corporation (or its successor), all and not less than all of the outstanding shares of Series A Preferred Stock, at a purchase price per share equal to the Adjusted Liquidation Preference per share as of the date of payment of the purchase price, plus the amount of the Regular Dividend that would be accrued on such share from the Regular Dividend Payment Date immediately preceding the date of the payment of the purchase price through but excluding the date of the payment of the purchase price, plus any declared but unpaid Participating Dividends through the date of the payment of the purchase price. The shares of Series A Preferred Stock shall be repurchased from the holders thereof no later than 10 Business Days after the Corporation (or its successor) receives notice from the Series A Preferred Shareholders of the election to exercise the repurchase rights under this Section 8.

 

(b)           Procedures for Repurchase Upon a Change of Control . Within 30 days of the occurrence of a Change of Control, the Corporation shall send notice by first class mail, postage prepaid, addressed to the holders of record of the shares of Series A Preferred Stock at their respective last addresses appearing on the books of the Corporation stating (1) that a Change of Control has occurred, describing it in reasonable detail (2) that if the Corporation receives evidence to its reasonable satisfaction no later than 60 days after the Corporation’s notice of the Change of Control that the holders of outstanding shares of Series A Preferred Stock, by the vote or written consent of holders of a majority of the outstanding shares of Series A Preferred Stock voting or acting as a separate voting group, have elected to exercise the repurchase right hereunder, then all shares of Series A Preferred Stock shall be repurchased as provided in this Section 8, and (3) the procedures that holders of the Series A Preferred Stock must follow in order for their shares of Series A Preferred Stock to be repurchased, including the place or places where certificates for such shares are to be surrendered for payment of the repurchase price.

 

Section 9.       Anti-Dilution Provisions  

 

(a)           Adjustments . The Conversion Rate will be subject to adjustment, without duplication, under the following circumstances:

 

(1)          the issuance of Common Stock as a dividend or distribution to all or substantially all holders of Common Stock, or a subdivision or combination of Common Stock or a reclassification of Common Stock into a greater or lesser number of shares of Common Stock, in which event the Conversion Rate will be adjusted based on the following formula:

 

 

where,

 

CR 0 = the Conversion Rate in effect immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the effective date of such subdivision, combination or reclassification;

 

CR 1 = the new Conversion Rate in effect immediately after the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the effective date of such subdivision, combination or reclassification;

 

OS 0 = the number of shares of Common Stock outstanding immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution or (ii) the effective date of such subdivision, combination or reclassification; and

 

OS 1 = the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, the completion of such event.

 

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Any adjustment made pursuant to this clause (1) shall be effective immediately prior to the Open of Business on the Trading Day immediately following the Record Date, in the case of a dividend or distribution, or the effective date in the case of a subdivision, combination or reclassification. If any such event is declared but does not occur, the Conversion Rate shall be readjusted, effective as of the date the Board announces that such event shall not occur, to the Conversion Rate that would then be in effect if such event had not been declared.

 

(2)          the dividend, distribution or other issuance to all or substantially all holders of Common Stock of rights (other than a distribution of rights issued pursuant to a shareholders rights plan, to the extent such rights are attached to shares of Common Stock (in which event the provisions of Section 9(a)(3) shall apply)), options or warrants entitling them to subscribe for or purchase shares of Common Stock for a period expiring 60 days or less from the date of issuance thereof, at a price per share that is less than the Closing Price on the Trading Day immediately preceding the Record Date for such issuance, in which event the Conversion Rate will be increased based on the following formula:

 

 

where,

 

CR 0 = the Conversion Rate in effect immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;

 

CR 1 = the new Conversion Rate in effect immediately following the Close of Business on the Record Date for such dividend, distribution or issuance;

 

OS 0 = the number of shares of Common Stock outstanding immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;

 

X = the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and

 

Y = the number of shares of Common Stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the Closing Price on the Trading Day immediately preceding the Record Date for such dividend, distribution or issuance.

 

For purposes of this clause (2), in determining whether any rights, options or warrants entitle the holders to purchase the Common Stock at a price per share that is less than the Closing Price on the Trading Day immediately preceding the Record Date for such dividend, distribution or issuance, there shall be taken into account any consideration the Corporation receives for such rights, options or warrants, and any amount payable on exercise thereof, with the value of such consideration, if other than cash, to be the fair market value thereof as determined in good faith by the Board of Directors.

 

Any adjustment made pursuant to this clause (2) shall become effective immediately prior to the Open of Business on the Trading Day immediately following the Record Date for such dividend, distribution or issuance. In the event that such rights, options or warrants are not so issued, the Conversion Rate shall be readjusted, effective as of the date the Board publicly announces its decision not to issue such rights, options or warrants, to the Conversion Rate that would then be in effect if such dividend, distribution or issuance had not been declared. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights, options or warrants upon the exercise of such rights, options or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the dividend, distribution or issuance of such rights, options or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered.

 

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(3)          If the Corporation has a shareholder rights plan in effect with respect to the Common Stock on the Conversion Date, upon conversion of any shares of the Series A Preferred Stock, holders of such shares will receive, in addition to the shares of Common Stock, the rights under such rights plan relating to such Common Stock, unless, prior to the Conversion Date, the rights have (i) become exercisable or (ii) separated from the shares of Common Stock (the first of such events to occur being the “ Trigger Event ”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Section 9(a)(2) (without giving effect to the 60-day limit on the exercisability of rights, options and warrants ordinarily subject to such Section 9(a)(2)), subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise, deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such shareholder rights are exchanged by the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such shareholder rights had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Section 9(a)(1). Notwithstanding the preceding provisions of this paragraph, no adjustment shall be required to be made to the Conversion Rate with respect to any holder of Series A Preferred Stock which is, or is an “affiliate” or “associate” of, an “acquiring person” under such shareholder rights plan or with respect to any direct or indirect transferee of such holder who receives Series A Preferred Stock in such transfer after the time such holder becomes, or its affiliate or associate becomes, an “acquiring person.” The Corporation shall not adopt a shareholder rights plan pursuant to which the holders of the Series A Preferred Stock on the Issue Date or their affiliates could be deemed an “acquiring person” or an “affiliate” or “associate” of an “acquiring person.”

 

(4)          If the Corporation, at any time or from time to time while any of the Series A Preferred Stock is outstanding, shall issue shares of Common Stock or any other security convertible into, exercisable or exchangeable for Common Stock (such Common Stock or other security, “ Equity-Linked Securities ”) (other than (i) an Excluded Issuance, (ii) Common Stock issued upon conversion of the Series A Preferred Stock and (iii) rights, options, warrants or other distributions referred to in Section 9(a)(2)), the Conversion Rate shall be increased based on the following formula:

 

 

where,

 

CR 0 = the Conversion Rate in effect immediately prior to the issuance of such Equity-Linked Securities;

 

CR 1 = the new Conversion Rate in effect immediately after the issuance of such Equity-Linked Securities;

 

AC = the aggregate consideration paid or payable for such Equity-Linked Securities;

 

OS 0 = the number of shares of Common Stock outstanding immediately before the issuance of Equity-Linked Securities;

 

OS 1 = the number of shares of Common Stock outstanding immediately after the issuance of Equity-Linked Securities and giving effect to any shares of Common Stock issuable upon conversion, exercise or exchange of such Equity-Linked Securities; and

 

SP = the Closing Price on the date of issuance of such Equity-Linked Securities.

 

The adjustment shall become effective immediately after such issuance.

 

(b)           Calculation of Adjustments . All adjustments to the Conversion Rate shall be calculated by the Corporation to the nearest 1/10,000th of one share of Common Stock (or if there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment to the Conversion Rate will be required unless such adjustment would require an increase or decrease of at least one percent of the Conversion Rate; provided , however , that any such adjustment that is not required to be made will be carried forward and taken into account in any subsequent adjustment; provided , further that any such adjustment of less than one percent that has not been made will be made upon any Conversion Date.

 

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(c)           When No Adjustment Required . Notwithstanding the foregoing, no adjustment to the Conversion Rate shall be made upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding as of the Issue Date.

 

(d)           Successive and Multiple Adjustments . After an adjustment to the Conversion Rate under this Section 9, any subsequent event requiring an adjustment under this Section 9 shall cause an adjustment to each such Conversion Rate as so adjusted. For the avoidance of doubt, if an event occurs that would trigger an adjustment to the Conversion Rate pursuant to this Section 9 under more than one subsection hereof (other than where holders of Series A Preferred Stock are entitled to elect the applicable adjustment, in which case such election shall control), such event, to the extent fully taken into account in a single adjustment, shall not result in multiple adjustments hereunder; provided , however , that if more than one subsection of this Section 9 is applicable to a single event, the subsection shall be applied that produces the largest adjustment.

 

(e)           Other Adjustments .

 

(1)          The Corporation will not, by amendment of its Restated Articles of Incorporation, Bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Section 9 by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 9 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment; and

 

(2)          The Corporation may, but shall not be required to, make such increases in the Conversion Rate, in addition to those required by this Section 9, as the Board considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reason.

 

(f)           Notice of Adjustments . Whenever the Conversion Rate is adjusted as provided under this Section 9, the Corporation shall as soon as reasonably practicable following the occurrence of an event that requires such adjustment (or if the Corporation is not aware of such occurrence, as soon as reasonably practicable after becoming so aware) or the date the Corporation makes an adjustment pursuant to Section 9(e)(2):

 

(1)          compute the adjusted applicable Conversion Rate in accordance with this Section 9 and prepare and transmit to the conversion agent (if other than the Corporation) an officer’s certificate setting forth the applicable Conversion Rate, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and

 

(2)          provide a written notice to the holders of the Series A Preferred Stock of the occurrence of such event and a statement in reasonable detail setting forth the method by which the adjustment to the applicable Conversion Rate was determined and setting forth the adjusted applicable Conversion Rate.

 

(g)           Conversion Agent other than the Corporation . A conversion agent other than the Corporation shall not at any time be under any duty or responsibility to any holder of Series A Preferred Stock to determine whether any facts exist that may require any adjustment of the applicable Conversion Rate or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed in making the same. Such conversion agent shall be fully authorized and protected in relying on any officer’s certificate delivered pursuant to Section 9(f) and any adjustment contained therein and such conversion agent shall not be deemed to have knowledge of any adjustment unless and until it has received such certificate. Such conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at the time be issued or delivered with respect to any Series A Preferred Stock; and such conversion agent makes no representation with respect thereto. The Conversion Agent, if other than the Corporation, shall not be responsible for any failure of the Corporation to issue, transfer or deliver any shares of Common Stock pursuant to the conversion of Series A Preferred Stock or to comply with any of the duties, responsibilities or covenants of the Corporation contained in this Section 9.

 

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(h)           Fractional Shares . No fractional shares of Common Stock will be delivered to the holders of Series A Preferred Stock upon conversion. In lieu of fractional shares otherwise issuable, holders of Series A Preferred Stock will be entitled to receive an amount in cash equal to the fraction of a share of Common Stock, multiplied by the Closing Price of the Common Stock on the Trading Day immediately preceding the applicable Conversion Date. In order to determine whether the number of shares of Common Stock to be delivered to a holder of Series A Preferred Stock upon the conversion of such holder’s shares of Series A Preferred Stock will include a fractional share (in lieu of which cash would be paid hereunder), such determination shall be based on the aggregate number of shares of Series A Preferred Stock of such holder that are being converted on any single Conversion Date.

 

(i)           Reorganization Events . In the event of (each, a “ Reorganization Event ”):

 

(1)          any recapitalization, reclassification or change of the Common Stock (other than a change in par value or from par value to no par value or from no par value to par value, or as a result of a subdivision or a combination);

 

(2)          consolidation, merger or other similar business combination of the Corporation with or into another Person;

 

(3)          the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity; or

 

(4)          any statutory share exchange of securities of the Corporation with another Person,

 

in each case as a result of which holders of Common Stock are entitled to receive stock, other securities, other property or assets (including cash or any combination thereof) with respect to or in exchange for Common Stock, each share of Series A Preferred Stock outstanding immediately prior to such Reorganization Event shall become convertible into the number, kind and amount of stock, securities, other property or assets (including cash or any combination thereof) (the “ Exchange Property ”) that the holder of such share of Series A Preferred Stock would have received in such Reorganization Event had such holder converted its share of Series A Preferred Stock into the applicable number of shares of Common Stock immediately prior to the effective date of the Reorganization Event.

 

(j)           Exchange Property Election . In the event that the holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the Exchange Property that the holders of Series A Preferred Stock shall be entitled to receive shall be determined by the holders of a majority of the outstanding shares of Series A Preferred Stock on or before the earlier of (1) the deadline for elections by holders of Common Stock and (2) two Business Days before the anticipated effective date of such Reorganization Event; provided , if no such election is made, they shall receive upon conversion the weighted average of the types and amounts of consideration received by the holders of Common Stock that affirmatively make such an election. The number of units of Exchange Property for each share of Series A Preferred Stock converted following the effective date of such Reorganization Event shall be determined from among the choices made available to the holders of the Common Stock and based on the per share amount as of the effective date of the Reorganization Event, determined as if the references to “share of Common Stock” in this Certificate of Designations were to “units of Exchange Property.”

 

(k)           Successive Reorganization Events . The above provisions of Section 9(i) and Section 9(j) shall similarly apply to successive Reorganization Events and the provisions of Section 9 shall apply to any shares of Capital Stock (or capital stock of any other issuer) received by the holders of the Common Stock in any such Reorganization Event.

 

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(l)           Reorganization Event Notice . The Corporation (or any successor) shall, no less than 20 Business Days prior to the occurrence of any Reorganization Event, provide written notice to the holders of Series A Preferred Stock of such occurrence of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 9.

 

(m)           Reorganization Requirements . The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless (1) such agreement provides for or does not interfere with or prevent (as applicable) conversion of the Series A Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Section 9, and (2) to the extent that the Corporation is not the surviving corporation in such Reorganization Event or will be dissolved in connection with such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion of the Series A Preferred Stock into stock of the Person surviving such Reorganization Event or such other continuing entity in such Reorganization Event, or in the case of a Reorganization Event described in Section 9(i)(3), an exchange of Series A Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, having voting powers, preferences, and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Designations.

 

Section 10.      Reservation of Shares   . The Corporation shall at all times when the Series A Preferred Stock shall be outstanding reserve and keep available, free from preemptive rights, for issuance upon the conversion of Series A Preferred Stock, such number of its authorized but unissued Common Stock as will from time to time be sufficient to permit the conversion of all outstanding Series A Preferred Stock. Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series A Preferred Stock, the Corporation shall comply with all applicable laws and regulations which require action to be taken by the Corporation.

 

Section 11.       Certain Definitions   . As used in this Certificate of Designations, the following terms shall have the following meanings, unless the context otherwise requires:

 

Accumulated Regular Dividends ” shall have the meaning ascribed to it in Section 4(c).

 

Adjusted Conversion Value ” shall have the meaning ascribed to it in Section 7(c).

 

Adjusted Liquidation Preference ” shall have the meaning ascribed to it in Section 4(a).

 

Beneficially Own ” shall mean “beneficially own” as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto.

 

Board ” shall have the meaning ascribed to it in the recitals.

 

Business Day ” shall mean a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is not a day on which banking institutions in New York, New York generally are authorized or obligated by law, regulation or executive order to close.

 

Capital Stock ” shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by the Corporation.

 

Certificate of Designations ” shall mean this Certificate of Designations relating to the Series A Preferred Stock, as it may be amended from time to time.

 

Change of Control ” shall mean the occurrence of any of the following:

 

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(1)          any Person acquires after the date hereof Beneficial Ownership, directly or indirectly, through a purchase, merger, share exchange, or other acquisition transaction or series of transactions, of shares of the Corporation’s Capital Stock entitling such Person to exercise more than 50% of the total voting power of all classes of Voting Stock of the Corporation, other than an acquisition by the Corporation, any of the Corporation’s Subsidiaries or any of the Corporation’s employee benefit plans (for purposes of this clause (1), “Person” shall include any syndicate or group that would be deemed to be a “person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended); or

 

(2)          the Corporation’s consummation of a reorganization, share exchange, merger or consolidation, or of the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity, unless immediately following such transaction (x) the Voting Stock of the Corporation outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) or (y) the transaction does not result in a reclassification, conversion, exchange or cancellation of any of the Corporation’s outstanding Common Stock.

 

Close of Business ” shall mean 5:00 p.m., New York City time, on any Business Day.

 

Closing Price ” shall mean the price per share of the final trade of the Common Stock on the applicable Trading Day on the principal U.S. national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not traded on a U.S. national securities exchange, Closing Price shall mean the fair market value per share of the Common Stock on the applicable Business Day, as determined by the Corporation’s Board of Directors in good faith, with written notice of such determination and supporting analysis in reasonable detail to be provided by the Corporation to the holders of Series A Preferred Stock.

 

Code ” shall have the meaning ascribed to it in Section 7(i).

 

Common Stock ” shall have the meaning ascribed to it in Section 3.

 

Conversion Cap ” shall have the meaning ascribed to it in Section 7(d).

 

Conversion Date ” shall have the meaning ascribed to it in Section 7(e).

 

Conversion Rate ” shall have the meaning ascribed to it in Section 7(c).

 

Corporation ” shall have the meaning ascribed to it in the recitals.

 

Equity-Linked Securities ” shall have the meaning ascribed to it in Section 9(a)(4).

 

Exchange Property ” shall have the meaning ascribed to it in Section 9(i).

 

Excluded Issuance ” shall mean, any issuances of (1) Capital Stock or options to purchase shares of Capital Stock to employees, directors, managers, officers or consultants of or to the Corporation or any of its Subsidiaries pursuant to a stock option or incentive compensation or similar plan outstanding as of the Issue Date or, subsequent to the Issue Date, approved by the Board or a duly authorized committee of the Board, (2) securities pursuant to any bona fide merger, joint venture, partnership, consolidation, share exchange, business combination or any other direct or indirect acquisition by the Corporation, whereby the Corporation’s securities comprise, in whole or in part, the consideration paid by the Corporation in such transaction, (3) shares of Common Stock issued at a price equal to or greater than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed, and (4) securities convertible into, exercisable or exchangeable for shares of Common Stock issued with an exercise or conversion price equal to or greater than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed.

 

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Initial Conversion Value ” shall have the meaning ascribed to it in Section 7(c).

 

Issue Date ” shall mean February 11, 2016.

 

Junior Stock ” shall have the meaning ascribed to it in Section 3.

 

Liquidation ” shall have the meaning ascribed to it in Section 5(a).

 

Liquidation Preference ” shall have the meaning ascribed to it in Section 5(a).

 

Mandatory Conversion ” shall have the meaning ascribed to it in Section 7(a).

 

Mandatory Conversion Date ” shall have the meaning ascribed to it in Section 7(a).

 

Open of Business ” shall mean 9:00 a.m., New York City time, on any Business Day.

 

Participating Dividends ” shall have the meaning ascribed to it in Section 4(d).

 

Permitted Distributions ” shall have the meaning ascribed to it in Section 4(d).

 

Person ” shall mean any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof or any other entity.

 

Record Date ” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board or by statute, contract, this Certificate of Designations or otherwise).

 

Regular Dividend ” shall have the meaning ascribed to it in Section 4(a).

 

Regular Dividend Payment Date ” shall have the meaning ascribed to it in Section 4(b).

 

Regular Dividend Period ” shall have the meaning ascribed to it in Section 4(b).

 

Reorganization Event ” shall have the meaning ascribed to it in Section 9(i).

 

Series A Preferred Stock ” shall have the meaning ascribed to it in Section 1.

 

Spin-Off Transaction ” means any transaction by which a Subsidiary of the Corporation ceases to be a Subsidiary of the Corporation by reason of the distribution of such Subsidiary’s equity securities to holders of Common Stock, whether by means of a spin-off, split-off, redemption, reclassification, exchange, stock dividend, share distribution, rights offering or similar transaction.

 

Subsidiary ” means any company or corporate entity for which the Corporation owns, directly or indirectly, an amount of the voting securities, other voting rights or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of such company or corporate entity).

 

Total Conversion Shares ” shall have the meaning ascribed to it in Section 7(c).

 

Trading Day ” shall mean any Business Day on which the Common Stock is traded, or able to be traded, on the principal national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not traded on a U.S. national securities exchange, Trading Day shall mean the relevant Business Day.

 

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Trigger Event ” shall have the meaning ascribed to it in Section 9(a)(3).

 

Voting Stock ” shall mean Capital Stock of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances (determined without regard to any classification of directors) to elect one or more members of the Board of Directors of the Corporation (without regard to whether or not, at the relevant time, Capital Stock of any other class or classes (other than Common Stock) shall have or might have voting power by reason of the happening of any contingency).

 

Section 12.      Headings   . The headings of the paragraphs of this Certificate of Designations are for convenience of reference only and shall not define, limit or affect any of the provisions hereof.

 

Section 13.      Record Holders   . To the fullest extent permitted by applicable law, the Corporation may deem and treat the record holder of any share of the Series A Preferred Stock as the true and lawful owner thereof for all purposes, and the Corporation shall not be affected by any notice to the contrary.

 

Section 14.      Notices   . All notices or communications in respect of the Series A Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Restated Articles of Incorporation or Bylaws or by applicable law or regulation. Notwithstanding the foregoing, if the Series A Preferred Stock is issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of the Series A Preferred Stock in any manner permitted by such facility.

 

Section 15.      Replacement Certificates   . The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.

 

Section 16.      Transfer Agent, Conversion Agent, Registrar and Paying Agent   . The duly appointed transfer agent, conversion agent, registrar and paying agent for the Series A Preferred Stock shall be the Corporation. The Corporation may, in its sole discretion, resign from such positions or remove such agents or registrar in accordance with the agreement between the Corporation and such agent or registrar; provided that the Corporation shall appoint a successor who shall accept such appointment prior to the effectiveness of such resignation or removal. Upon any such resignation, removal or appointment, the Corporation shall send notice thereof by first-class mail, postage prepaid, to the holders of the Series A Preferred Stock.

 

Section 17.       Severability   . If any term of the Series A Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other terms set forth herein which can be given effect without the invalid, unlawful or unenforceable term will, nevertheless, remain in full force and effect, and no term herein set forth will be deemed dependent upon any other such term unless so expressed herein.

 

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Section 18.       Information Rights   . In addition to reports required by law, regulation, or the rules of any national securities exchange on which the Common Stock is listed or admitted to trading, the Corporation shall furnish to each of the holders of Series A Preferred Stock (1) within 45 days after the end of the first, second and third quarterly accounting periods in each fiscal year of the Corporation, a consolidated balance sheet of the Corporation and its subsidiaries as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Corporation and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with United States generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the prior fiscal year (subject to changes resulting from normal year-end audit adjustments and except that such financial statements need not contain the notes required by generally accepted accounting principles), and (2) within 120 days after the end of each fiscal year of the Corporation, an audited consolidated balance sheet of the Corporation and its subsidiaries as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Corporation and its subsidiaries for such year, prepared in accordance with United States generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year and certified by independent public accountants of recognized national or regional standing selected by the Corporation (in each case in clauses (1) and (2), whether or not such financial statements are then required to be filed with or furnished to the United States Securities and Exchange Commission).

 

[Remainder of Page Left Intentionally Blank.]

 

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IN WITNESS WHEREOF, U.S. Energy Corp. has caused this Certificate of Designations to be duly executed by its authorized corporate officer this 11th day of February, 2016.

 

  U.S. ENERGY CORP.
     
  By: /s/ David Veltri
  Name: David Veltri
  Title: Chief Executive Officer and President

 

 

 

 

Exhibit 10.1

 

EXECUTION VERSION

 

 

 

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

by and between

 

U.S. ENERGY CORP.

 

and

 

MT. EMMONS MINING COMPANY

 

Dated as of February 11, 2016

 

 

 

 

 

 

Table of Contents

 

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

 

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

 

Disclosure Schedules

 

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

 

Exhibit B – Form of Investor Rights Agreement

 

ii  

 

 

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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ARTICLE I
DEFINITIONS

 

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

 

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

 

Commission ” means the United States Securities and Exchange Commission.

 

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

 

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

 

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

 

Disclosure Schedules ” means the Disclosure Schedules attached hereto.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

NASDAQ ” means the NASDAQ Capital Market.

 

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

 

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

 

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

 

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

 

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

 

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

 

Securities ” means the Shares and the Conversion Shares.

 

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

 

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

 

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

 

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

 

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

 

  3

 

 

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

 

ARTICLE II
PURCHASE AND SALE

 

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

 

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

 

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

 

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Section 2.4            Deliveries .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii)         $500 in immediately available funds; and

 

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

 

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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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Section 3.7            Capitalization .

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

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

 

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

 

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

 

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

 

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

 

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

 

ARTICLE V
RESTRICTIONS ON TRANSFERS

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VI
OTHER AGREEMENTS

 

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

 

Section 6.2            Survival .

 

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

 

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

 

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

 

Section 6.4            Reservation and Listing of Securities .

 

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

 

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

 

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

 

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

 

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

 

ARTICLE VII
MISCELLANEOUS

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

* * * * * * * * * *

 

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

 

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

 

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

 

 

 

 

Exhibit 10.2

 

EXECUTION VERSION

 

 

INVESTOR RIGHTS AGREEMENT

 

by and between

 

U.S. ENERGY CORP.

 

and

 

MT. EMMONS MINING COMPANY

 

Dated as of February 11, 2016

 

 

 

 

 

  

Table of Contents

 

      Page
       
ARTICLE I DEFINITIONS   1
Section 1.1 Definitions   1
Section 1.2 Other Defined Terms   3
Section 1.3 Interpretative Provisions   3
       
ARTICLE II COVENANTS   4
Section 2.1 Information Access Rights   4
Section 2.2 Observer Rights   4
Section 2.3 Standstill   4
Section 2.4 Termination and Non-transferability of Covenants   5
       
ARTICLE III REGISTRATION RIGHTS   5
Section 3.1 Demand Registration   5
Section 3.2 Registration Procedures   8
Section 3.3 Expenses   12
Section 3.4 Indemnification   13
Section 3.5 Participation in Underwritten Registrations   15
Section 3.6 Rule 144 Compliance   15
Section 3.7 Preservation of Rights   16
       
ARTICLE IV MISCELLANEOUS   16
Section 4.1 Entire Agreement   16
Section 4.2 Notices   16
Section 4.3 Amendments; Waivers   17
Section 4.4 Headings; Gender   17
Section 4.5 Successors and Assigns; Transfer of Registration Rights   17
Section 4.6 No Third-Party Beneficiaries   17
Section 4.7 Governing Law   18
Section 4.8 Severability   18
Section 4.9 Remedies Cumulative   18
Section 4.10 Mutual Drafting   18
Section 4.11 Legal Fees and Costs   18
Section 4.12 Enforcement of Agreement   18
Section 4.13 Execution; Counterparts   18
Section 4.14 Further Assurances   18

 

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INVESTOR RIGHTS AGREEMENT

 

THIS INVESTOR RIGHTS AGREEMENT (this “ Agreement ”) is entered into by and between U.S. Energy Corp., a Wyoming corporation (the “ Company ”), and Mt. Emmons Mining Company, a Delaware corporation (“ Investor ”), to be effective as of the Closing of the Purchase Agreement defined below. The Company and Investor are hereinafter at times referred to individually as a “ Party ” and collectively as the “ Parties ”.

 

WHEREAS, the Company and Investor are parties to the Series A Convertible Preferred Stock Purchase Agreement, dated as of February 11, 2016 (the “ Purchase Agreement ”), pursuant to which the Company has agreed to sell, and Investor has agreed to purchase, 50,000 shares of Series A Convertible Preferred Stock of the Company, par value $0.01 per shares (the “ Preferred Stock ”), subject to certain conditions, including the execution and delivery of this Agreement.

 

WHEREAS, the Company and Investor desire, for their mutual benefit and protection, to set forth in this Agreement certain of their respective rights and obligations with respect to the capital stock of the Company (whether the Preferred Stock or the Company’s common stock, $.01 par value (the “ Common Stock ,” into which the Preferred Stock is convertible), whether outstanding or issued or acquired hereafter).

 

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

 

ARTICLE I
DEFINITIONS

 

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

 

Affiliate ” of a Person means any other Person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlling”, “controlled by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

 

Board of Directors ” means the board of directors of the Company.

 

Business Day ” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Commission ” means the United States Securities and Exchange Commission.

 

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

 

Conversion Shares ” means the shares of Common Stock and any other securities issued or issuable upon conversion of the shares of Preferred Stock, and any other shares of Common Stock and other securities issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations or similar events).

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

Person ” means any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof or any other entity.

 

Prospectus ” means the prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including pre- and post-effective amendments to such Registration Statement, and all other material incorporated by reference in such prospectus.

 

Registrable Securities ” means the Conversion Shares; provided, that such Registrable Securities shall cease to be Registrable Securities (i) upon any sale of such Registrable Shares pursuant to a Registration Statement or Rule 144 under the Securities Act,(ii) upon any sale of such Registrable Shares in any manner to a person or entity which is not entitled, pursuant to Section 4.5 , to the registration rights under Article III of this Agreement or (iii) when such Registrable Securities become eligible for resale without restriction and without the need for current public information pursuant to Rule 144 under the Securities Act, provided, that if counsel to the holder of Conversion Shares opines that such securities may not be so eligible for resale, whether because such holder may be deemed an Affiliate of the Company or otherwise, such Registrable Securities shall remain Registrable Securities. A Person shall be deemed a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Securities, the determination of such percentage shall include the Conversion Shares issuable upon conversion of the shares of Preferred Stock even if such conversion has not been effected.

 

Registration Statement ” means any registration statement of the Company that covers Registrable Securities pursuant to the provisions of this Agreement filed with, or to be filed with, the Commission under the rules and regulations promulgated under the Securities Act, including the related Prospectus, amendments and supplements to such registration statement, including pre- and post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.

 

Rule 144 ” means Rule 144 under the Securities Act or any successor rule thereto.

 

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Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Selling Expenses ” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to Section 3.3 .

 

Transaction Documents ” shall have the meaning set forth in the Purchase Agreement.

 

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

 

Term   Section
Agreement   Preamble
Common Stock   Preamble
Company   Preamble
Controlling Person   3.2(p)
Demand Registration   3.1(b)
DTCDRS   3.2(q)
Initial Registrable Securities   3.2
Initial Registration Statement   3.2
Inspectors   3.2(h)
Investor   Preamble
Long-Form Registration   3.1(a)
New Registration Statement   3.2
Observer   2.2
Preferred Stock   Preamble
Purchase Agreement   Preamble
Records   3.2(h)
Shelf Registration   3.1(c)
Shelf Registration Statement   3.1(c)
Shelf Supplement   3.1(d)
Shelf Takedown   3.1(d)
Shelf Takedown Notice   3.1(d)
Short-Form Registration   3.1(b)
Suspension Period   3.1(i)

 

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

 

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ARTICLE II
COVENANTS

 

Section 2.1            Information Access Rights . Investor and any of its Affiliates holding Preferred Stock or Conversion Shares, along with their agents, attorneys and representatives, shall have the right to access, inspect and copy, at their own expense, the books and records, including shareholder’s lists or record of shareholders, of the Company and its subsidiaries at any time during normal business hours and for any reason with seven (7) Business Days’ written notice to the Company. This provision shall not be in limitation of any other rights that any holder of Preferred Stock or Conversion Shares may have to inspect and copy the books and records, including shareholder’s lists or record of shareholders, of the Company and its subsidiaries pursuant to applicable law.

 

Section 2.2            Observer Rights . Investor and any of its Affiliates holding Preferred Stock or Conversion Shares collectively shall have the right to appoint, and to remove and replace, at any time with written notice to the Company, one individual as an observer of the Board of Directors (the “ Observer ”). The Company shall invite the Observer to attend all meetings, regular and special, of the Board of Directors (including all meetings of any committee thereof) in a nonvoting observer capacity and shall give the Observer copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, that the Observer, Investor and its Affiliates holding Preferred Stock or Conversion Shares shall agree to hold in confidence all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude the Observer from any meeting or portion thereof to the extent the Observer’s access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest; and provided further, that the audit, nominating and compensation committees may exclude the Observer from the proceedings of such committees at the discretion of the respective committee. For avoidance of doubt, no Observer shall have voting rights or any fiduciary obligations to the Company or its shareholders.

 

Section 2.3            Standstill .

 

(a)           Unless approved by the Board of Directors, neither Investor nor any of its Affiliates shall purchase or acquire any additional shares of Common Stock, if, after such purchase, the aggregate beneficial ownership (as determined in accordance with Rule 13d-3 under the Exchange Act) of Common Stock of Investor and its Affiliates would exceed 16.86% of the then-issued and outstanding shares of Common Stock.

 

(b)           Nothing in this Section 2.3 shall affect the conversion privileges or prevent the application of the anti-dilution protections afforded the Preferred Stock as set forth in the Company’s Restated Articles of Incorporation, as amended.

 

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Section 2.4            Termination and Non-transferability of Covenants .

 

(a)           The covenants contained in this Article II shall terminate at such time as Investor and its Affiliates (i) no longer own any shares of Preferred Stock; and (ii) no longer own Common Stock representing at least five percent (5%) of the then-issued and outstanding shares of Common Stock as a result of the sale of shares of the Common Stock by Investor and/or its Affiliates and not as a result of dilution from the issuance of shares by the Company; provided, that the covenants in Section 2.3 shall terminate no later than the tenth anniversary of the issuance of the Preferred Stock.

 

(b)           Except for transfers between or among Investor and its Affiliates, the covenants in this Article II are not transferable by Investor or its Affiliates and do not transfer with the Preferred Stock or Conversion Shares.

 

ARTICLE III
REGISTRATION RIGHTS

 

Section 3.1            Demand Registration .

 

(a)           At any time after the effective date of this Agreement, holders of a majority of the Registrable Securities (whether or not then outstanding) may request registration under the Securities Act of all or any portion of their Registrable Securities pursuant to a Registration Statement on Form S-1 or any successor form thereto (each, a “ Long-Form Registration ”). Each request for a Long-Form Registration shall specify the number of Registrable Securities requested to be included in the Long-Form Registration. Upon receipt of any such request, the Company shall promptly (but in no event later than five (5) days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall prepare and file with the Commission a Registration Statement on Form S-1 or any successor form thereto covering all of the Registrable Securities that the holders thereof have requested to be included in such Long-Form Registration within sixty (60) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

 

(b)           If the Company is qualified for the use of a Registration Statement on Form S-3 or any successor form thereto, the holders of Registrable Securities shall have the right to request registration under the Securities Act of all or any portion of their Registrable Securities pursuant to a Registration Statement on Form S-3 or any similar short-form Registration Statement (each, a “ Short-Form Registration ” and, collectively with each Long-Form Registration and Shelf Registration (as defined below), a “ Demand Registration ”). Each request for a Short-Form Registration shall specify the number of Registrable Securities requested to be included in the Short-Form Registration. Upon receipt of any such request, the Company shall promptly (but in no event later than five (5) days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall prepare and file with the Commission a Registration Statement on Form S-3 or any successor form thereto covering all of the Registrable Securities that the holders thereof have requested to be included in such Short-Form Registration within sixty (60) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

 

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(c)           If the Company is qualified for the use of a Registration Statement on Form S-3 or the then appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “ Shelf Registration Statement ”), the holders of Registrable Securities shall have the right to request registration under the Securities Act of all or any portion of their Registrable Securities for an offering on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “ Shelf Registration ”). Each request for a Shelf Registration shall specify the number of Registrable Securities requested to be included in the Shelf Registration. Upon receipt of any such request, the Company shall promptly (but in no event later than five (5) days following receipt thereof) deliver notice of such request to all other holders of Registrable Securities who shall then have ten (10) days from the date such notice is given to notify the Company in writing of their desire to be included in such registration. The Company shall prepare and file with the Commission a Shelf Registration Statement covering all of the Registrable Securities that the holders thereof have requested to be included in such Shelf Registration within sixty (60) days after the date on which the initial request is given and shall use its reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission as soon as practicable thereafter.

 

(d)           At any time that a Shelf Registration Statement is effective, if a holder of Registrable Securities covered by such Shelf Registration Statement delivers a notice to the Company (a “ Shelf Takedown Notice ”) stating that the holder intends to effect an offering of all or part of its Registrable Securities included in such Shelf Registration Statement (a “ Shelf Takedown ”) and the Company is eligible to use such Shelf Registration Statement for such Shelf Takedown, then the Company shall take all actions reasonably required, including amending or supplementing (a “ Shelf Supplement ”) such Shelf Registration Statement, to enable such Registrable Securities to be offered and sold as contemplated by such Shelf Takedown Notice. Each Shelf Takedown Notice shall specify the number of Registrable Securities to be offered and sold under the Shelf Takedown.

 

(e)           The Company shall not be obligated to effect any Long-Form Registration within one hundred twenty (120) days after the effective date of a previous Long-Form Registration or Shelf Takedown. The Company may postpone for up to forty-five (45) days the filing or effectiveness of a Registration Statement for a Demand Registration or the filing of a Shelf Supplement for a Shelf Takedown if the Board of Directors determines in its reasonable good faith judgment that such Demand Registration or Shelf Takedown would (i) materially interfere with a significant acquisition, corporate organization, financing, securities offering or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, provided that, in no event shall any such period exceed an aggregate of ninety (90) days in any period of twelve (12) consecutive months.

 

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(f)           If the holders of the Registrable Securities initially requesting a Demand Registration or Shelf Takedown elect to distribute the Registrable Securities covered by their request in an underwritten offering, they shall so advise the Company as a part of their request, and the Company shall include such information in its notice to the other holders of Registrable Securities. The holders of a majority of the Registrable Securities initially requesting the Demand Registration or Shelf Takedown shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering.

 

(g)           The Company shall not include in any Demand Registration or Shelf Takedown any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities initially requesting such Demand Registration or Shelf Takedown, which consent shall not be unreasonably withheld or delayed. If a Demand Registration or Shelf Takedown involves an underwritten offering and the managing underwriter of the requested Demand Registration or Shelf Takedown advises the Company and the holders of Registrable Securities in writing that in its reasonable and good faith opinion the number of shares of Registrable Securities proposed to be included in the Demand Registration or Shelf Takedown, including all Registrable Securities and all other securities proposed to be included in such underwritten offering, exceeds the number of Registrable Securities which can be sold in such underwritten offering and/or the number of shares of Registrable Securities proposed to be included in such Demand Registration or Shelf Takedown would adversely affect the price per share of the Registrable Securities proposed to be sold in such underwritten offering, the Company shall include in such Demand Registration or Shelf Takedown (i) first, the shares of Registrable Securities that the holders of Registrable Securities propose to sell, and (ii) second, the securities proposed to be included therein by any other Persons (including shares of securities to be sold for the account of the Company and/or other holders) allocated among such Persons in such manner as they may agree. If the managing underwriter determines that less than all of the Registrable Securities proposed to be sold can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder.

 

(h)           The Company shall not effect any sale registered under the Securities Act or distribution of its equity securities, or any securities convertible into, exercisable for or exchangeable for shares of such securities, during the sixty (60) days prior to and during the 90-day period beginning on the effective date of any underwritten Demand Registration (other than a registration (i) pursuant to a Registration Statement on Form S-8 (or other registration solely relating to an offering or sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit arrangement), (ii) pursuant to a Registration Statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or any successor rule thereto), or (iii) in connection with any dividend or distribution reinvestment or similar plan), unless the managing underwriter of any such underwritten registration otherwise agrees.

 

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(i)           The holders of Registrable Securities agree that the Company may impose a Suspension Period due to, and each holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section Section 3.2( g), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such holder’s receipt of the copies of the supplemental prospectus or amended Registration Statement as contemplated by Section 3.2(g) or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such prospectus or Registration Statement (a “ Suspension Period ”); provided, that the Company shall use its reasonable best efforts to eliminate or cure the cause of the Suspension Period. The Company may provide appropriate stop orders to enforce the provisions of this Section 3.1(i).

 

(j)           At any time prior to the effective date of a Registration Statement, the holders of a majority of the Registrable Securities participating in the registration may withdraw such request by written notice of such withdrawal to the Company.

 

(k)           Subject to the other limitations contained in this Agreement, the Company is not obligated hereunder to effect (A) more than two Demand Registrations in any 12 month period, (B) more than a total of three Demand Registrations pursuant to this Agreement or (C) a subsequent Demand Registration if a Registration Statement covering all of the Registrable Securities held by the holders requesting the registration shall have become effective under the Securities Act and remains effective under the Securities Act and is sufficient to permit offers and sales of the number and type of Registrable Securities on substantially the terms and conditions specified in the request for Demand Registration. In addition, the Company will not be required to file a Registration Statement at a time when filing a Registration Statement would be prohibited by the terms of a customary “lock-up” or “market stand-off” provision included in an underwriting agreement relating to an underwritten offering.

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Section 3.2            Registration Procedures . If and whenever the holders of Registrable Securities request that the offer and sale of any Registrable Securities be registered under the Securities Act or any Registrable Securities be distributed in a Shelf Takedown pursuant to the provisions of this Agreement, the Company shall use its reasonable best efforts to effect the registration of the offer and sale of such Registrable Securities under the Securities Act in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as practicable and as applicable:

 

(a)           subject to Sections 3.1(a) , (b) , (c) , (d) and (e) , prepare and file with the Commission a Registration Statement covering such Registrable Securities and use its reasonable best efforts to cause such Registration Statement to be declared effective;

 

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(b)           (i) in the case of a Long-Form Registration or a Short-Form Registration, prepare and file with the Commission such amendments, post-effective amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of not less than one hundred eighty (180) days, or if earlier, until all of such Registrable Securities have been disposed of, and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration Statement; and (ii) in the case of a Shelf Registration, prepare and file with the Commission such amendments, post-effective amendments and supplements, including Shelf Supplements, to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities subject thereto for a period ending on the earlier of (A) thirty-six (36) months after the effective date of such Registration Statement and (B) the date on which all the Registrable Securities subject thereto have been sold pursuant to such Registration Statement or have ceased to be Registrable Securities;

 

(c)           within a reasonable time before filing such Registration Statement, Prospectus or amendments or supplements thereto with the Commission, furnish to one counsel selected by holders of a majority of such selling holders of Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel;

 

(d)           notify each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective, or a supplement, including a Shelf Supplement, to any Prospectus forming a part of such Registration Statement has been filed with the Commission;

 

(e)           furnish to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto, including a Shelf Supplement (in each case including all exhibits and documents incorporated by reference therein), and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;

 

(f)           use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or “blue sky” laws of such jurisdictions as any selling holder reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders; provided , that the Company shall not be required to qualify generally to do business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required to do so but for this Section 3.2(f) ;

 

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(g)           notify each selling holder of Registrable Securities, if known, as promptly as reasonably practicable: (i) of any request by the SEC or any other federal or state governmental authority for amendments or supplements to such Registration Statement or Prospectus or for additional information that pertains to such holders as sellers of Registrable Securities; (ii) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (iv) of the occurrence of any event or passage of time that makes any statement made in such Registration Statement or prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any 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; provided, however , that no notice by the Company shall be required pursuant to this clause (iv) in the event that the Company either promptly files a prospectus supplement to update the Prospectus or a Form 8-K or other appropriate Exchange Act report that is incorporated by reference into the Registration Statement, which in either case, contains the requisite information that results in such Registration Statement no longer containing any untrue statement of material fact or omitting to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading);

 

(h)           make available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively, the “ Inspectors ”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “ Records ”), and cause the Company’s officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement;

 

(i)           provide a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective date of such registration;

 

(j)           use its reasonable best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed;

 

(k)           in connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter of such offering reasonably request in order to expedite or facilitate the disposition of such Registrable Securities, including, without limitation, all commercially reasonable efforts to procure customary legal opinions and auditor “comfort letters”, making appropriate officers of the Company available to participate in “road show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities);

 

(l)           otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Commission and make available to its shareholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act or any successor rule thereto) no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company’s first full fiscal quarter after the effective date of such Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-K, 10-Q and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act or any successor rule thereto;

 

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(m)           without limiting Section 3.2(f) , use its reasonable best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof;

 

(n)           notify the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information;

 

(o)           advise the holders of Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued;

 

(p)           permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a “controlling person” (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) (a “ Controlling Person ) of the Company, to participate in the preparation of such Registration Statement and to require the insertion therein of language, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included;

 

(q)           cooperate with the holders of the Registrable Securities to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold pursuant to such Registration Statement or Rule 144 free of any restrictive legends and representing such number of shares of Registrable Securities and registered in such names as the holders of the Registrable Securities may reasonably request a reasonable period of time prior to sales of Registrable Securities pursuant to such Registration Statement or Rule 144; provided , that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System (the “ DTCDRS ”);

 

(r)           not later than the effective date of such Registration Statement, provide a CUSIP number for all Registrable Securities and provide the applicable transfer agent with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company; provided , that the Company may satisfy its obligations hereunder without issuing physical stock certificates through the use of the DTCDRS;

 

(s)           take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided , that, to the extent that any prohibition is applicable to the Company, the Company will take all reasonable action to make any such prohibition inapplicable; and

 

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(t)           otherwise use its reasonable best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby. If (i) the Company has filed a Registration Statement (the “ Initial Registration Statement ”) with the Commission that covers Registrable Securities (the “ Initial Registrable Securities ”), (ii) pursuant to Rule 415(a)(5) under the Securities Act or any successor rule thereto, the Initial Registration Statement may no longer be used for offers and sales of any of the Initial Registrable Securities, and (iii) any of the Initial Registrable Securities are Registrable Securities at the time that (ii) above occurs, the Company shall prepare and file with the Commission within the time limits required by Rule 415 under the Securities Act or any successor rule thereto a new Registration Statement covering any Initial Registrable Securities that have not ceased to be Registrable Securities for an offering to be made on a delayed on continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a “ New Registration Statement ”) and shall use its reasonable best efforts to cause such New Registration Statement to be declared effective by the Commission as soon as practicable thereafter; provided, that, if at the time it is required to file a New Registration Statement with the Commission pursuant to this provision the Company is not qualified to use a Registration Statement on Form S-3 or the then appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto, the Company shall not be required to file a New Registration Statement with the Commission and the holders of Registrable Securities shall be permitted to request registration under the Securities Act of all or any portion of their Initial Registrable Securities that have not ceased to be Registrable Securities pursuant to a Long-Form Registration.

 

Section 3.3            Expenses . All expenses (other than Selling Expenses) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities shall be paid by the Company, including, without limitation, all (i) registration and filing fees (including, without limitation, any fees relating to filings required to be made with, or the listing of any Registrable Securities on, any securities exchange or over-the-counter trading market on which the Registrable Securities are listed or quoted); (ii) underwriting expenses (other than fees, commissions or discounts); (iii) expenses of any audits incident to or required by any such registration; (iv) fees and expenses of complying with securities and “blue sky” laws (including, without limitation, fees and disbursements of counsel for the Company in connection with “blue sky” qualifications or exemptions of the Registrable Securities); (v) printing expenses; (vi) messenger, telephone and delivery expenses; (vii) fees and expenses of the Company’s counsel and accountants; (viii) Financial Industry Regulatory Authority, Inc. filing fees (if any); and (ix) fees and expenses of one counsel for the holders of Registrable Securities participating in such registration as a group (selected by, in the case of a registration under Section 3.1(a) , the holders of a majority of the Registrable Securities initially requesting such registration, and, in the case of all other registrations hereunder, the holders of a majority of the Registrable Securities included in the registration). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties) and the expense of any annual audits. All Selling Expenses relating to the offer and sale of Registrable Securities registered under the Securities Act pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities included in such registration for each such holder.

 

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Section 3.4            Indemnification .

 

(a)           The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such holder’s officers, directors, managers, members, partners, shareholders and Affiliates, each underwriter, broker or any other Person acting on behalf of such holder of Registrable Securities and each other Controlling Person, if any, who controls any of the foregoing Persons, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or free writing prospectus, in light of the circumstances under which they were made) not misleading, or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and shall reimburse such Persons promptly for any legal or other expenses reasonably incurred by any of them, as incurred, in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder’s failure to deliver a copy of the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto) or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities. This indemnity shall be in addition to any liability the Company may otherwise have. The indemnification provided for under this Section 3.4 shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or Controlling Person of such indemnified party and shall survive the transfer of the Registrable Securities pursuant to Section 4.5 .

 

(b)           In connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the holders of Registrable Securities and each Controlling Person who controls any of the foregoing Persons against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of material fact contained in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 under the Securities Act or any successor rule thereto) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or free writing prospectus, in light of the circumstances under which they were made) not misleading, but only to the extent that such untrue statement or omission is contained in any information so furnished in writing by such holder; provided , that the obligation to indemnify shall be several, not joint and several, for each holder and shall not exceed an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement. This indemnity shall be in addition to any liability the selling holder may otherwise have.

 

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(c)           Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in this Section 3.4 , such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action. The failure of any indemnified party to notify an indemnifying party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying party) relieve the indemnifying party from any liability in respect of such action that it may have to such indemnified party hereunder. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after written notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided , that, if (i) any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified party or involves actual or alleged criminal activity, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party without such indemnified party’s prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying party shall reimburse such indemnified party and any Controlling Person of such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it shall 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 such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party. Without the consent of the indemnified party, the indemnifying party shall not consent to a judgment or settlement that does not contain a full and unconditional release of the indemnified party from all liability concerning the matter; that includes a statement about or an admission of fault, culpability or a failure to act by or on behalf of the indemnified party; or that commits the indemnified party to take, or not take, any action. An indemnifying party shall not be liable for any settlement of any action or claim referred to in this Section 3.4 effected without its written consent, which may not be unreasonably withheld or delayed.

 

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(d)           If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided , that the maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party, whether the violation of the Securities Act or any other similar federal or state securities laws or rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any applicable registration, qualification or compliance was perpetrated by the indemnifying party or the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

Section 3.5            Participation in Underwritten Registrations . No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided , that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder’s ownership of its shares of Common Stock to be sold in the offering and such holder’s intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 3.4 .

 

Section 3.6            Rule 144 Compliance . With a view to making available to the holders of Registrable Securities the benefits of Rule 144 and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration, the Company shall:

 

15  

 

  

(a)           make and keep current public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of this Agreement;

 

(b)           use reasonable best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, at any time after the effective date of this Agreement; and

 

(c)           furnish to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the current public information requirements of Rule 144, a copy of the most recent annual and quarterly report of the Company, and such other reports and documents as such holder may reasonably request in connection with the sale of Registrable Securities without registration.

 

Section 3.7            Preservation of Rights . The Company shall not (a) grant any registration rights to third parties which are inconsistent with the rights granted hereunder or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement. The Company represents and warrants that it has not, prior to the effective date of this Agreement, granted any registration rights to third parties that remain in force and effect as of the effective date of this Agreement.

 

ARTICLE IV
MISCELLANEOUS

 

Section 4.1            Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, and the Confidentiality Agreement contain the entire understanding of the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.

 

Section 4.2            Notices . All notices, demands, and other communications hereunder shall be in writing, and shall be deemed to have been duly given if delivered personally, or if mailed by certified mail, return receipt requested, postage prepaid, or sent by nationally recognized overnight carrier, as follows:

 

  If to Investor: Mt. Emmons Mining Company  
    Attention: Scott Statham, Deputy General Counsel  
    333 North Central Avenue  
    Phoenix, Arizona  85004-2189  
       
  with a copy to: Jones Walker, L.L.P.  
    Attention:  Dionne Rousseau  
    8555 United Plaza Boulevard, Suite 500  
    Baton Rouge, Louisiana  70809  

 

16  

 

  

  If to the Company: U.S. Energy Corp.  
    Attention:  David Veltri  
    4643 S. Ulster Street, Suite 970  
    Denver, Colorado  80237  
       
  with a copy to: Davis Graham & Stubbs LLP  
    Attention:  John Elofson  
    1550 Seventeenth Street, Suite 500  
    Denver, Colorado 80202  

 

or to such other address and with such other copies as such Party may hereafter reasonably specify for the purpose by notice to the other Party. Each such notice, demand or other communication shall be effective upon delivery or refusal of delivery at the address specified in this Section 4.2 .

 

Section 4.3            Amendments; Waivers . No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and Investor (or with respect to Article III the holders at the time of a majority of the Registrable Securities). No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.

 

Section 4.4            Headings; Gender . When a reference is made in this Agreement to a section, exhibit or schedule, such reference shall be to a section, exhibit or schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender, and the singular shall include the plural and vice versa, whenever and as often as may be appropriate.

 

Section 4.5            Successors and Assigns; Transfer of Registration Rights . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Investor. The rights contained in Article III of Investor and its Affiliates owning Preferred Stock or Conversion Shares may be assigned by them and any subsequent holder in connection with any transfer or assignment by a holder of Registrable Securities provided that: (i) such transfer may otherwise be effected in accordance with applicable securities laws, and (ii) such other party agrees in writing with the Company to be bound by all of the provisions relating to Article III of this Agreement.

 

Section 4.6            No Third-Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person or entity.

 

17  

 

  

Section 4.7            Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Wyoming, United States of America, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Wyoming or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Wyoming.

 

Section 4.8            Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the Parties shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.

 

Section 4.9            Remedies Cumulative . The rights and remedies of the Parties are cumulative and not alternative.

 

Section 4.10          Mutual Drafting . This Agreement is the mutual product of the Parties and each provision hereof has been subject to the mutual consultation, negotiation and agreement of each of the Parties, and shall not be construed for or against any Party hereto.

 

Section 4.11          Legal Fees and Costs . In the event a Party elects to incur legal expenses to enforce or interpret any provision of this Agreement by judicial proceedings, the prevailing Party shall be entitled to recover such legal expenses, including reasonable attorneys’ fees, costs, and necessary disbursements at all court levels, in addition to any other relief to which such Party shall be entitled.

 

Section 4.12          Enforcement of Agreement . The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.

 

Section 4.13          Execution; Counterparts . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.

 

Section 4.14          Further Assurances . Each of the parties to this Agreement shall, and shall cause their Affiliates to, execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be reasonably required to carry out the provisions hereof and to give effect to the transactions contemplated hereby.

 

* * * * * * * * *

 

18  

 

 

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

 

  COMPANY :
   
  U.S. ENERGY CORP.
     
  By: /s/ David Veltri
  Name: David Veltri
  Title: Chief Executive Officer and President

 

  INVESTOR :
   
  MT. EMMONS MINING COMPANY
     
  By: /s/ William E. Cobb
  Name: William E. Cobb
  Title: Vice President

 

Signature Page to Investor Rights Agreement

 

 

 

   

Exhibit 99.1

 

U.S. ENERGY CORP.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

  

As discussed in its 2014 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 12, 2015, in February 2006 U.S. Energy Corp. (the “Company”) reacquired the Mt. Emmons molybdenum mining project (the “Project”) located in Gunnison County, Colorado. The Company’s net capitalized costs related to the Project currently amount to approximately $22.8 million. The Company has not conducted any extractive mining operations at the Project but for each of the three years in the period ended December 31, 2015, aggregate annual expenses of approximately $3.0 million have been incurred related to operation of the related water treatment plant and holding costs associated with the mining properties.

 

The market price for molybdenum oxide decreased significantly from approximately $11 per pound during 2013 and 2014 to approximately $5 per pound by the fourth quarter of 2015. During 2015 oil and gas commodity prices have also remained at depressed levels which has significantly impacted the Company’s oil and gas segment and has resulted in an erosion of the Company’s liquidity whereby operating cash flow may not be sufficient to fund the ongoing annual expenses of the Project indefinitely.

 

In light of the deteriorating market for molybdenum and the considerable ongoing costs related to the Project, during 2015 the Company began to consider the viability of alternative structures to the development of the Project that could result in a sharing or elimination of the ongoing costs and liabilities of the Project.

 

In a meeting of the Company’s Board of Directors on February 5, 2016, the decision was made to change from a long-term development strategy for the Project to the authorization for the disposal of the Project, which triggered an evaluation for impairment of the net carrying value. Accordingly, in connection with the disposition of assets discussed under Item 1.01 of the Company’s Current Report on Form 8-K (the “Form 8-K”), the Company expects to record an aggregate impairment charge of approximately $22.8 million in the fourth quarter of 2015. Additionally, the Company expects to recognize a charge of $2.0 million related to the issuance of the Preferred Stock discussed under Item 3.02 of the Form 8-K.

 

The accompanying pro forma balance sheet gives effect to these transactions as if they occurred on September 30, 2015. The pro forma statements of operations for the nine months ended September 30, 2015 and for the year ended December 31, 2014, are prepared to give effect to the impairment and termination costs, and the elimination of operating losses associated with the Project, as if these transactions occurred on January 1, 2014.

 

The Company's unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical financial statements and related notes thereto included in the Company’s quarterly and annual reports filed with the Securities and Exchange Commission. The adjustments to the Company's unaudited pro forma condensed consolidated financial statements are based on available information and assumptions that the Company considers reasonable. The Company's unaudited pro forma condensed consolidated financial statements do not purport to (i) represent the Company's financial position had these transactions occurred on September 30, 2015; (ii) represent the Company's results of operations that would have actually occurred if these transactions had occurred on January 1, 2014, or (iii) project the Company's financial position or results of operations as of any future date or for any future period, as applicable.

 

F- 1  

 

   

U.S. ENERGY CORP.

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS

September 30, 2015

(In Thousands, Except Share and Per Share Amounts)

 

          Pro Forma          
ASSETS   Historical (A)     Adjustments       Pro Forma  
Current assets:                          
Cash and cash equivalents   $ 3,877     $ -       $ 3,877  
Accounts receivable trade     1,085       -         1,085  
Commodity risk management asset     1,002       -         1,002  
Other current assets     485       -         485  
Total current assets     6,449       -         6,449  
                           
Oil and gas properties under full cost method:                          
Proved oil and gas properties     109,054       -         109,054  
Unproved oil and gas properties     8,196       -         8,196  
Less accumulated depletion, depreciation and amortization     (78,867 )     -         (78,867 )
Net oil and gas properties     38,383       -         38,383  
                           
Other assets:                          
Undeveloped mining claims     21,942       (21,942 ) (B)     -  
Property, plant and equipment, net     3,666       (905 ) (B)     2,761  
Other assets     1,062       -         1,062  
                           
Total assets   $ 71,502     $ (22,847 )     $ 48,655  
                           
LIABILITIES AND SHAREHOLDERS' EQUITY                          
Current liabilities:                          
Accounts payable   $ 8,334     $ -       $ 8,334  
Accrued compensation     1,194       -         1,194  
Current portion of debt     6,000       -         6,000  
Other current liabilities     72       -         72  
Total current liabilities     15,600       -         15,600  
                           
Noncurrent liabilities:                          
Asset retirement obligations     1,230       (199 ) (B)     1,031  
Other accrued liabilities     551       -         551  
Total noncurrent liabilities     1,781       (199 )       1,582  
                           
Shareholders' equity:                          
Common stock, $0.01 par value; unlimited shares authorized; 28,110,311 shares issued and outstanding     281       -         281  
Preferred stock, par value $0.01 per share. Authorized 100,000 shares; historical none issued; pro forma 50,000 shares of Series A Convertible Preferred Stock issued and outstanding with a liquidiation preference of $2,000     -       2,000   (C)      2,000
Additional paid-in capital     124,344       -         124,344  
Accumulated deficit     (70,443 )     (24,648 ) (D)     (95,091 )
Other comprehensive loss     (61 )     -         (61 )
Total shareholders' equity     54,121       (22,648 )       31,473  
                           
Total liabilities and shareholders' equity   $ 71,502     $ (22,847 )     $ 48,655  

 

F- 2  

 

  

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2015

(In Thousands, Except Share and Per Share Amounts)

 

          Pro Forma              
    Historical     Adjustments           Pro Forma  
Revenues:                                
Oil, natural gas and NGL sales   $ 8,586     $ -             $ 8,586  
                                 
Operating expenses:                                
Oil and gas production:                                
Lease operating expenses     5,438       -               5,438  
Depreciation, depletion & amortization     7,013       -               7,013  
Impairment expense     43,894       -               43,894  
General and administrative:     4,524       -               4,524  
Mining properties:                                
Water treatment plant     1,383       (1,383 )     (AA)       -  
Property holding costs and other     912       (912 )     (AA)       -  
Depreciation     92       (92 )     (AA)       -  
Total operating expenses     63,256       (2,295 )             60,869  
Loss from operations     (54,670 )     2,295               (52,283 )
                                 
Other income and (expenses):                                
Net realized and unrealized gain on risk management activities     896       -               896  
Gain on the sale of assets     57       -               57  
Miscellaneous income     279       -               279  
Interest expense     (196 )     -               (196 )
Net loss   $ (53,634 )   $ 2,295             $ (51,247 )
                                 
Net Loss Applicable to Common Shareholders (Basic and Diluted):                                
Net Loss   $ (53,634 )   $ 2,295             $ (51,247 )
Accrued dividends related to Series A Convertible Preferred Stock     -       (186 )     (BB)       (186 )
Net Loss Applicable to Common Shareholders   $ (53,634 )   $ 2,109             $ (51,433 )
                                 
Loss Per Share (Basic and Diluted)   $ (1.91 )                   $ (1.83 )
Weighted Average Shares Outstanding (Basic and Diluted)     28,049,000                       28,049,000  

 

F- 3  

 

  

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(In Thousands, Except Share and Per Share Amounts)

 

          Pro Forma              
    Historical     Adjustments           Pro Forma  
Revenues:                                
Oil, natural gas and NGL sales   $ 32,379     $ -             $ 32,379  
                                 
Operating expenses:                                
Oil and gas production:                                
Lease operating expenses     10,638       -               10,638  
Depreciation, depletion & amortization     14,562       -               14,562  
General and administrative:     6,559       -               6,559  
Mining properties:                                
Water treatment plant     1,875       (1,875 )     (AA)       -  
Property holding costs and other     1,110       (1,110 )     (AA)       -  
Depreciation     123       (123 )     (AA)       -  
Impairment expense     -       22,648       (CC)       22,648  
Termination costs     -       2,000       (DD)       2,000  
                                 
Total operating expenses     34,867       21,540               56,407  
Loss from operations     (2,488 )     (21,540 )             (24,028 )
                                 
Other income and (expenses):                                
Realized and unrealized gains on risk management activities     582       -               582  
Gain on the sale of assets     112       -               112  
Miscellaneous income     88       -               88  
Interest expense     (385 )     -               (385 )
Net loss   $ (2,091 )   $ (21,540 )           $ (23,631 )
                                 
Net Loss Applicable to Common Shareholders (Basic and Diluted):                                
Net Loss   $ (2,091 )   $ (21,540 )           $ (23,631 )
Accrued dividends related to Series A Convertible Preferred Stock     -       (248 )     (BB)       (245 )
Net Loss Applicable to Common Shareholders   $ (2,091 )   $ (21,788 )           $ (23,876 )
                                 
Loss Per Share (Basic and Diluted)   $ (0.08 )                   $ (0.86 )
Weighted Average Shares Outstanding (Basic and Diluted)     27,833,000                       27,833,000  

 

F- 4  

 

  

U.S. ENERGY CORP.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. ADJUSTMENTS TO PRO FORMA BALANCE SHEET

 

(A) Historical Balance Sheet. Represents the historical consolidated balance sheet of the Company as of September 30, 2015.
(B) Disposition of Assets. In connection with the Acquisition Agreement described in Item 1.01, the Company transferred ownership of the project to Mt. Emmons Mining Company (“MEM”) and MEM assume all future liabilities for the operation of the Project. Accordingly, a pro forma adjustment is recorded to reflect the transfer of ownership of the undeveloped mining claims and related mining equipment, and to eliminate the related asset retirement obligations assumed by MEM.
(C) Issuance of Preferred Stock. As discussed in Item 1.01, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement whereby 50,000 shares of newly designated Series A Convertible Preferred Stock (the “Preferred Stock”) in exchange for MEM’s assumption of the future liabilities of the WTP and the payment of $500 to the Company. The initial liquidation preference of the Preferred Stock was equal to $40 per share for an aggregate of $2,000,000.
(D) Accumulated Deficit. Consists of immediate charges for impairment of $21,648 as discussed under Pro Forma Adjustment ( CC) and termination costs of $2,000 as discussed under Pro Forma Adjustment ( DD) .

 

2. ADJUSTMENTS TO PRO FORMA STATEMENTS OF OPERATIONS

 

(AA) Operating Expenses. Pro forma adjustment to give effect to the elimination of operating expenses for the water treatment plant, property holding costs and other, and depreciation assuming that the Project was disposed of on January 1, 2014.
(BB) Accrued Dividends. Pro forma adjustment for purposes of computing earnings per share to give effect to accrued dividends on the Preferred Stock at the annual rate of 12.25%, assuming the Preferred Stock was issued on January 1, 2014.
(CC) Impairment of Mining Properties. Pro forma adjustment to give effect to the disposition of the mining properties on January 1, 2014, resulting in an impairment loss for the entire carrying value.
(DD) Termination Costs. Pro forma adjustment to give effect to the issuance of the Preferred Stock discussed under Adjustment (C) as consideration for the termination of the Company’s obligations under permits to operate the water treatment plant and related mining properties.

 

F- 5  

 

Exhibit 99.2

 

For Immediate Release

 

U.S. ENERGY CORP. PROVIDES CORPORATE UPDATE

 

 

U.S. ENERGY CORP. CONTINUES TO EXECUTE ON ITS PREVIOUSLY STATED BUSINESS PLAN TO TRANSFORM THE COMPANY AND FOCUS ON OIL AND GAS AS THE PRIMARY BUSINESS.

DENVER, CO – February 12, 2016 - U.S. Energy Corp. (NASDAQ: USEG) a Wyoming corporation, entered into an Acquisition Agreement with Mt. Emmons Mining Company (MEM), a subsidiary of Freeport-McMoRan Inc., whereby MEM acquired the Company’s Mt. Emmons mine site located in Gunnison County, Colorado, including the Keystone Mine, a related water treatment plant and other related properties. Under the Acquisition Agreement, MEM will replace the Company as the owner and permittee of the water treatment plant, the associated mining assets and will discharge the obligation of the Company to operate the water treatment plant upon closing. Concurrent with entry into the Acquisition Agreement, and as additional consideration for MEM to accept transfer of the properties, including the water treatment plant, the Company entered into a Series A Convertible Preferred Stock Purchase Agreement, pursuant to which the Company issued 50,000 shares of newly designated convertible preferred stock with a cumulative noncash dividend to MEM.

The transaction is a continuation of the transformation of U.S. Energy Corp. to solely focus on its ongoing oil and gas business. Previously, U.S. Energy Corp. announced a restructuring of the company by reducing its overhead costs significantly, moving the corporate headquarters to Denver for better access to financial services and to improve access to oil and gas deal flow. U.S. Energy Corp. intends to migrate from a traditionally non-operator of oil and gas assets to an oil and gas operating company going forward.

With the divestiture of the Mount Emmons Mining operations, U.S. Energy Corp. will have eliminated its mining related operating costs of approximately $3 million per year, a portion of which relates to operation of the water treatment plant. Coupled with the overhead reduction of $4 million at year end 2015, approximately $7 million savings can be realized on an annualized basis. The reductions have been implemented to support the ongoing business plan of U.S. Energy Corp. during this industry downturn and low commodity price environment.

 
 

The company intends to focus on securing appropriate financial funding to replace its current Reserve Based Lender along with adding growth capital for potential oil and gas asset acquisitions. U.S. Energy Corp. primarily owns interests in oil and gas assets in the Williston Basin of North Dakota and South Texas Eagle Ford Trend. The Company intends to evaluate properties in a variety of basins where it has operating expertise.

Further, to address the stock listing compliance issue the Company has entered into a continued listing agreement with NASDAQ through June 2016.

Mr. David Veltri, Chief Executive Officer, stated “This transaction will end our mining activities and together with the earlier reductions and savings will position U.S. Energy Corp.to execute our strategy to transform the company to profitability and to grow our oil and gas assets during 2016 and beyond.”

 

Disclosure Regarding Forward- Looking Statement

 

This news release includes statements which may constitute "forward-looking" statements, usually containing the words "will," "anticipates," "believe," "estimate," "project," "expect," "target," "goal," or similar expressions. Forward looking statements in this release relate to, among other things, U.S. Energy's expected future plans, including plans to reduce costs, transition to an operating model and execute on its strategic plan, potential future financing transactions and future growth. There is no assurance that any additional financing or other opportunities will be available. The forward-looking statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, dry holes and other unsuccessful development activities, higher than expected expenses or decline rates from production wells, future trends in commodity and/or mineral prices, the availability of capital, competitive factors, and other risks described in the Company's filings with the SEC (including, without limitation, the Form 10-K for the year ended December 31, 2014) all of which are incorporated herein by reference. By making these forward-looking statements, the Company undertakes no obligation to update these statements for revision or changes after the date of this release.

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For Further Information, please contact:

 

David Veltri

CEO and President

U.S. Energy Corp.

303 993 3200

David@usnrg.com