NOTE

–

OPTIONS

AND

WARRANTS

PURCHASE

COMMON

STOCK

Derivative

Instruments

Warrants

The Company issued 5,000,000 warrants (“Samlyn Warrants”) in connection with the December 22, 2011 private placement of 10,000,000 shares of common stock. The strike price of these warrants was $2.00 per share at the date of grant. These warrants were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. In addition to the customary anti-dilution provisions the notes contain a down-round provision whereby the exercise price would be adjusted downward in the event that additional shares of the Company's common stock or securities exercisable, convertible or exchangeable for the Company's common stock were issued at a price less than the exercise price. Therefore, the fair value of these warrants (based on observable inputs) was recorded as a liability in the balance sheet until they were canceled.

During the first quarter of 2013, the Company issued 3,756,757 shares of its common stock for gross proceeds of $5,560,000, which triggered a down-round adjustment of $0.03 from $2.00 to $1.97 in the strike price of the Samlyn Warrants at that time. As discussed in Note 8, during August 2013, the Company issued $10,500,000 of 10% mandatorily convertible Series 2023 Notes in a private placement, which triggered a down-round adjustment of $0.04 from $1.97 to $1.93 in the strike price of the Samlyn Warrants. On November 3, 2014, the Company cancelled the warrant arrangement, resulting in a $120,000 credit to equity.

During 2014 and 2013, the Company recorded other income of $830,000 and $995,000, respectively, resulting from the changes in the fair value of the warrant liability, mainly due to a lower stock price and a change in the volatility utilized by the Company.

Outstanding

Stock

Warrants

A summary of the status of the warrants outstanding and exercisable at December 31, 2015 is presented below:

		Warrants Outstanding and Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	0.78		213,402		0.09	$	0.78
$	1.15		461,340		5.33	$	1.15
$	2.00		54,367		0.59	$	2.00
			729,109		3.44	$	1.11

During 2015, warrants to acquire 443,821 shares of common stock expired. No warrants were issued during 2013, 2014 and 2015.

Outstanding

Stock

Options

On November 20, 2012, the shareholders of the Company approved the adoption of the Applied Minerals, Inc. 2012 Long-Term Incentive Plan (“LTIP”) and the Short-Term Incentive Plan (“STIP”) and the performance criteria used in setting performance goals for awards intended to be performance-based. Under the LTIP, 8,900,000 shares are authorized for issuance. The STIP does not refer to a particular number of shares under the LTIP, but would use the shares authorized in the LTIP for issuance under the STIP. The CEO, the CFO, and named executive officers, and directors, among others are eligible to participate in the LTIP and STIP. Prior to the adoption of the LTIP and STIP, stock options were granted under individual arrangements between the Company and the grantees, and approved by the Board of Directors.

The fair value of each of the Company's stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted in the table below. Expected volatility is based on an average of historical volatility of the Company's common stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury Bond on the date the award is granted with a maturity equal to the expected term of the award.

The significant assumptions relating to the valuation of the Company's options issued for 2015 and 2014 were as follows on a weighted average basis:

	2015			2014
Dividend Yield		0	%		0	%
Expected Life (in years)		7.00			5.5
Expected Volatility		72.9	%		56.1	%
Risk Free Interest Rate		2.00	%		1.79	%

A summary of the status and changes of the options granted under stock option plans and other agreements for 2015 and 2014 is as follows:

	December 31, 2015					December 31, 2014
				Weighted				Weighted
				Average				Average
	Shares			Exercise Price		Shares		Exercise Price

Outstanding at beginning of period		17,053,116		$	1.02		15,878,116	$	1.03
Issued		1,138,356			0.63		1,175,000		0.84
Exercised		--			--		--		--
Forfeited		(235,000	)	$	0.77		--		--
Outstanding at end of period		17,956,472		$	1.00		17,053,116	$	1.02

During the year ended December 31, 2015, the Company granted 1,138,356 options to purchase the Company’s common stock with a weighted average exercise price of $0.63. Of the 1,138,356 options granted, the options vest as follows:

	Vesting Information
Shares	Frequency	Begin Date	End Date
200,000	Immediately	2/12/2015	2/12/2015
38,356	Immediately	4/15/2015	4/15/2015
100,000	Monthly	4/7/2015	4/7/2016
100,000	Monthly	9/16/2015	9/16/2016
200,000	Annually	2/5/2015	2/5/2018
350,000	Annually	6/1/2015	6/1/2018
150,000	Annually	11/10/2015	11/10/2018

A summary of the status of the options outstanding at December 31, 2015 is presented below:

Options Outstanding					Options Exercisable


	Weighted
	Average		Weighted				Weighted
	Remaining		Average				Average
	Contractual		Exercise		Number		Exercise
Number Outstanding	Life (years)		Price		Exercisable		Price

100,000		4.72	$	0.22		25,002	$	0.22
150,000		4.87	$	0.50		-0-	$	N/A
200,000		9.13	$	0.66		200,000	$	0.66
150,000		9.11	$	0.68		-0-	$	N/A
7,233,277		2.99	$	0.70		7,233,277	$	0.70
488,356		9.38	$	0.73		94,178	$	0.73
3,405,134		5.69	$	0.83		3,405,134	$	0.83
975,000		8.45	$	0.84		691,667	$	0.84
300,000		7.64	$	1.10		200,000	$	1.10
300,000		7.48	$	1.15		233,333	$	1.15
100,000		2.09	$	1.24		100,000	$	1.24
115,000		5.24	$	1.35		115,000	$	1.35
125,000		2.09	$	1.45		125,000	$	1.45
330,000		5.95	$	1.55		330,000	$	1.55
7,645		2.09	$	1.58		7,645	$	1.58
3,077,060		6.89	$	1.66		3,077,060	$	1.66
900,000		5.64	$	1.90		900,000	$	1.90
17,956,472		5.12	$	1.00		16,737,296	$	1.01

Compensation expense of $397,417, $865,716, and $4,707,381 has been recognized for the vested options for the years ended December 31, 2015, 2014 and 2013, respectively. The aggregate intrinsic value of the outstanding options at December 31, 2015 was $6,500. At December 31, 2015, $354,284 of unamortized compensation expense for unvested options will be recognized over the next 5.12 years on a weighted average basis.