NOTE

– OPTIONS AND WARRANTS TO 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. On

November

2014,

the Company cancelled the warrant arrangement, resulting in a

$120,000

credit to equity.

During

2014,

the Company recorded other income of

$830,000,

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,

2016

is presented below:

		Warrants Outstanding and Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise Price
$	0.25		3,283,283		4.5	$	0.25
$	1.15		461,340		4.3	$	1.15
			3,744,623		4.5	$	0.36

During

2016,

warrants to acquire

3,283,283

shares of common stock at an exercise price of

$0.25

per share were issued in connection with the private placement of common stock.

warrants were issued in

2015

and

2014.

During

2016,

warrants to acquire

267,769

shares of common stock expired.

Outstanding Stock Options

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

2016

and

2015

were as follows on a weighted average basis:

	2016		2015
Dividend Yield		0%		0%
Expected Life (in years)		5.00		7.00
Expected Volatility		85.2%		72.9%
Risk Free Interest Rate		1.24%		2.00%

A summary of the status and changes of the options granted under stock option plans and other agreements for

2016

and

2015

is as follows:

	December 31, 2016					December 31, 2015
				Weighted					Weighted
				Average					Average
	Shares			Exercise Price		Shares			Exercise Price

Outstanding at beginning of period		17,806,472		$	1.00		17,053,116		$	1.02
Issued		3,771,488			0.24		988,355			0.63
Forfeited		(300,481	)		0.83		(235,000	)		0.77
Outstanding at end of period		21,277,479		$	0.87		17,806,472		$	1.00

During the year ended

December

31,

2016,

the Company granted

3,771,488

options to purchase the Company’s common stock with a weighted average exercise price of

$0.24.

Of the

3,771,488

options granted, the options vest as follows:

	Vesting Information
Shares	Frequency	Begin Date	End Date
250,000	Immediately	01/01/2016	01/01/2016
158,206	Immediately	01/05/2016	01/05/2016
43,885	Immediately	01/06/2016	01/06/2016
32,415	Immediately	01/09/2016	01/09/2016
2,013,655	Immediately	05/11/2016	05/11/2016
350,000	Immediately	08/01/2016	08/01/2016
500,000	Monthly	07/06/2016	08/15/2017
81,522	Annually	01/19/2016	01/19/2018
81,395	Annually	01/27/2016	01/27/2018
80,000	Annually	01/28/2016	01/28/2018
144,815	Annually	01/29/2016	01/29/2018
35,595	Annually	02/01/2016	02/01/2018

A summary of the status of the options outstanding at

December

31,

2016

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

500,000		9.52	$	0.16		166,667	$	0.16
81,395		7.14	$	0.21		- 0 -	$	N/A
100,000		3.71	$	0.22		100,000	$	0.22
1,066,155		4.36	$	0.24		1,066,155	$	0.24
1,297,500		6.75	$	0.25		1,297,500	$	0.25
35,595		6.29	$	0.27		- 0 -	$	N/A
474,815		7.36	$	0.28		250,000	$	0.28
234,506		6.13	$	0.285		234,506	$	0.285
81,522		4.05	$	0.30		- 0 -	$	N/A
200,000		8.12	$	0.66		200,000	$	0.66
150,000		8.10	$	0.68		49,995	$	0.68
7,233,277		1.99	$	0.70		7,233,277	$	0.70
488,356		8.38	$	0.73		255,011	$	0.73
3,104,653		5.15	$	0.83		3,104,653	$	0.83
975,000		7.45	$	0.84		891,667	$	0.84
300,000		6.64	$	1.10		300,000	$	1.10
300,000		6.48	$	1.15		300,000	$	1.15
100,000		1.08	$	1.24		100,000	$	1.24
115,000		4.24	$	1.35		115,000	$	1.35
125,000		1.08	$	1.45		125,000	$	1.45
330,000		4.95	$	1.55		330,000	$	1.55
7,645		1.67	$	1.58		7,645	$	1.58
3,077,060		5.89	$	1.66		3,077,060	$	1.66
900,000		4.63	$	1.90		900,000	$	1.90
21,277,479		4.60	$	0.87		20,104,136	$	0.87

Compensation expense of

$554,288,

$397,417,

and

$865,716

has been recognized for the vested options for the years ended

December

31,

2016,

2015

and

2014,

respectively. The aggregate intrinsic value of the outstanding options at

December

31,

2016

was

$0.

December

31,

2016,

$145,899

of unamortized compensation expense for unvested options will be recognized over the next

4.12

years on a weighted average basis.