Item
5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers.
(e)
Ryan
Smith Employment Agreement
On
May 5, 2022, U.S. Energy Corp. (“U.S. Energy”, the “Company”,
“we” and “us”) entered into an Employment Agreement with Mr. Ryan L. Smith, our Chief Executive
Officer. Mr. Smith had been party to an employment agreement with the Company after his prior employment agreement dated March 5, 2020
expired pursuant to its terms on January 1, 2022.
The
agreement, which provides for Mr. Smith to continue to serve as our Chief Executive Officer and
“principal financial officer” (as defined under Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended),
has an initial term expiring January 1, 2024, subject to automatic one-year renewals thereafter in the event neither party provides the
other at least 60 days prior written notice of their intention not to renew the terms of the agreement.
Pursuant
to the terms of the agreement, Mr. Smith’s annual compensation package includes (1) an
annual base salary of $300,000 and (2) an annual cash bonus based on individual and Company performance. The annual cash bonus is based
on the Compensation Committee’s evaluation of the condition of the Company’s business, the results of operations, Mr. Smith’s
individual performance for the performance period, the satisfaction by Mr. Smith or the Company of goals and milestones, including goals
based on performance objectives, as may be established by compensation committee, or any combination of the foregoing. The agreement
sets a “Target Cash Bonus” in the amount of 100% of Mr. Smith’s annual base salary; provided, however, that
the annual cash bonus in any year may vary substantially from the Target Cash Bonus amount, and no annual cash bonus is guaranteed.
Mr.
Smith is also eligible to receive long-term equity incentive grants pursuant to our equity
compensation plans. Such grants, which may be in the form of restricted stock, restricted stock units, options or other equity consideration
as allowed pursuant to the terms of such equity incentive plan(s), shall be made at the timing and discretion of our compensation committee
and shall contain such terms, vesting provisions and performance criteria as our compensation committee, in its sole discretion, may
determine. Mr. Smith is also entitled to participate in health insurance, retirement plans, directors’ and officers’ insurance
coverage and other benefit programs provided to other senior executives of the Company.
Separate
from the above, the Board of Directors or Compensation Committee of the Board of Directors may award Mr. Smith discretionary bonuses
in cash, common stock, or other forms of equity consideration, in their discretion. Mr. Smith’s salary under the agreement may
also be increased from time to time, in the discretion of the Compensation Committee or Board of Directors (with the recommendation of
the Compensation Committee), which increases in salary are not required to be reflected in an amendment to the agreement.
We
may terminate Mr. Smith’s employment (a) for “cause”
(which is defined to include a material breach of the terms and conditions of the agreement,
Mr. Smith’s act(s) of gross negligence or willful misconduct in the course of his
employment that is injurious to the Company or its affiliates and subsidiaries, willful failure or refusal to perform in any material
respect Mr. Smith’s duties or responsibilities, misappropriation of any assets of
the Company or its affiliates and subsidiaries, embezzlement or fraud committed by or at the direction of Mr. Smith, or Mr. Smith’s
conviction of, or pleading “guilty” or “no contest” to a felony under state or federal law); provided,
however, prior to any such termination by us for “cause” due to a material breach of the terms and conditions of the
agreement or Mr. Smith’s act(s) of gross negligence or willful misconduct in
the course of his employment, we must first advise Mr. Smith in writing and provide him 60 days to cure; (b) in the event Mr. Smith suffers
a physical or mental disability which renders him unable to perform his duties and obligations for either 90 consecutive days or 120
days in any six-month period; (c) for any reason without “cause”; or (d) upon expiration of the initial term of the
agreement (or any renewal) upon notice as provided above. The agreement also automatically terminates upon the death of Mr. Smith.
Mr.
Smith may terminate his employment (a) for “good reason” (meaning, without Mr. Smith’s consent, the failure
of the Company to pay any compensation pursuant to the agreement when due or to perform any other obligation of the Company under the
agreement or the relocation of the Company’s principal corporate offices by more than fifty (50) miles from Houston, Texas); provided,
however, prior to any such termination by Mr. Smith for “good reason”, Mr. Smith must first advise us in writing (within
90 days of the occurrence of such event) and provide us 30 days to cure; (b) for any reason without “good reason”;
and (c) upon expiration of the initial term of the agreement (or any renewal) upon notice as provided above.
If
Mr. Smith’s employment is terminated pursuant to his death or disability, Mr. Smith or his estate or his beneficiaries, as the
case may be, will be entitled to receive (i) any accrued but unpaid base salary through the date of termination, any unpaid or unreimbursed
expenses incurred in accordance with the terms of the agreement, any benefits provided under the Company’s employee benefit plans
upon a termination of employment, in accordance with the terms contained therein, and reasonable relocation costs, to the extent unpaid
or unreimbursed) within 30 days after termination (collectively, the “Accrued Liabilities”); (ii) any unpaid annual
cash bonus in respect of any completed fiscal year that has ended prior to the date of such termination, with such amount determined
based on actual performance during such fiscal year as determined by our board’s compensation committee on the sixtieth day following
termination; (iii) a lump sum payment of any non-discretionary annual cash bonus that would have been payable based on actual performance
with respect to the year of termination in the absence of Mr. Smith’s death or disability, pro-rated for the period that Mr. Smith
worked prior to his death or disability, and payable at the same time as the bonus would have been paid in the absence of Mr. Smith’s
death or disability; and (iv) immediate vesting of any and all equity or equity-related awards previously awarded to Mr. Smith, irrespective
of the type of award.
If
Mr. Smith’s employment is terminated without “good reason” by Mr. Smith, or by us for “cause”,
Mr. Smith is entitled to all Accrued Obligations, which amount must be paid within thirty days from the date of such termination, and
any equity awards or equity-related awards that are not vested as of the date of termination will be cancelled.
If
Mr. Smith’s employment is terminated by Mr. Smith for “good reason”, or by us without “cause”
(other than due to death or disability), Mr. Smith will be paid, in lump sum on the sixtieth day following such termination, (i) the
Accrued Obligations; (ii) any unpaid annual cash bonus in respect of any completed fiscal year that has ended prior to the date of such
termination with such amount determined based on actual performance during such fiscal year as determined by the compensation committee;
(iii) a lump sum cash payment equal to twelve months’ compensation at the sum of Mr. Smith’s base salary and Target Cash
Bonus; (iv) a lump sum cash payment equal to the value of any non-discretionary annual cash bonus that would have been payable based
on actual performance, pro-rated for the period Mr. Smith worked prior to termination; (v) for up to twelve (12) months, a monthly cash
payment equal to the percentage of Mr. Smith’s health care premium costs covered by the Company as of the date of termination (provided
that the Company is obligated to provide only such continuation of insurance benefits as it is required and can legally provide under
its health insurance contract) of the monthly COBRA premium cost applicable to Mr. Smith, if Mr. Smith or his dependents is eligible,
elects and continues COBRA coverage, or similar coverage as provided by similar state law; and (vi) immediate vesting of any and all
equity or equity-related awards previously awarded to Mr. Smith that vest solely on the service of Mr. Smith. Any equity awards that
vest based on various performance metrics will be vested only if such performance metrics have been met at the time of termination of
service.
As
a condition precedent to payment of any severance payments under the agreement (other than payment of any Accrued Obligations) (the “Severance
Benefits”), Mr. Smith or his estate, as applicable, shall execute and shall not rescind, a release in favor of the Company
and its affiliates and all related companies, individuals, and entities, in a form satisfactory to the Company, and any revocation period
applicable to such release must have expired as of the sixtieth (60th) day following his termination of employment.
In
the event that Mr. Smith’s employment is terminated by us without “cause” or by Mr. Smith for “good
reason” upon a Change of Control or during the 24-month period following a Change of Control, we are required to pay Mr. Smith
(i) the same payments and benefits which Mr. Smith is entitled to receive in connection with a termination without “cause”
(as discussed above), plus (ii) a lump-sum cash payment equal to 2.0 times the sum of Mr. Smith’s base salary and Target Cash Bonus
in effect on the date of the Change of Control. In addition, our compensation committee, in its sole discretion, may award an additional
cash bonus related to the Change of Control transaction, if the terms of the transaction are deemed to be significantly favorable to
the Company. “Change of Control” for the purposes of the agreement means (i) a “change of control event”
with respect to the Company, within the meaning of Treas. Reg. §1.409A-3(i)(5), or (ii) a merger, consolidation, or reorganization
of the Company with or involving any other entity, other than a merger, consolidation, or reorganization that would result in the voting
securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50% of the combined voting power of the securities of the Company
(or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. The Change of Control payment
obligations will continue to apply for the 24-month period following a Change of Control, without regard to whether the agreement is
renewed following such Change of Control.
The
agreement contains standard assignment of inventions, indemnification and confidentiality provisions and prohibits
Mr. Smith from competing against us during the term of the agreement and for a period of six months after the termination of the agreement
in any county in the United States where the Company holds mineral lease interests. In addition, for
a period of twelve months after the termination of the agreement, Mr. Smith is prohibited from directly or indirectly (i) inducing
any employee of the Company and its affiliates to leave the employ of the Company or its affiliates, (ii) hiring any employee or consultant
of the Company or its affiliates within six months after the termination of such individual’s employment or consulting relationship
with the Company or its affiliates, or (iii) inducing or attempting to induce any customer, supplier, subcontractor, licensee or other
business relation of the Company or any affiliate to cease doing business with the Company or such affiliate.
The
foregoing summary of the agreement does not purport to be complete and is qualified in its entirety by reference to the Employment Agreement
attached hereto as Exhibit 10.1, which agreement is incorporated herein by reference in its entirety.