EXHIBIT C
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE 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
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.
COMMON STOCK PURCHASE WARRANT
To Purchase __________ Shares of Common Stock of
U.S. ENERGY CORP.
THIS COMMON STOCK PURCHASE WARRANT (the "Warrant") CERTIFIES that, for
-------
value received, _____________ (the "Holder"), is entitled, upon the terms and
------
subject to the limitations on exercise and the conditions hereinafter set forth,
from the day beginning three months after the date of the Purchase Agreement
(the "Initial Exercise Date") as to 25% of the Warrant Shares and an additional
---------------------
25% of the Warrant Shares on each of the six month, nine month and twelve month
anniversary dates of the date of the Purchase Agreement, and on or prior to the
third anniversary of the Initial Exercise Date (the "Termination Date") but not
----------------
thereafter, to subscribe for and purchase from U.S. Energy Corp., a Wyoming
corporation (the "Company"), up to ____________ shares (the "Warrant Shares") of
------- --------------
Common Stock, par value $0.01 per share, of the Company (the "Common Stock");
------------
provided that if the Company exercises its right to Call this Warrant pursuant
to Section 13, the Holder shall have the right to immediately exercise this
Warrant for all Warrant Shares. The purchase price of one share of Common Stock
(the "Exercise Price") under this Warrant shall be 90% of the average of the
---------------
five VWAPs immediately preceding the date of exercise, but in no event less than
$1.50 per Warrant Share (subject to adjustment for any stock splits, reverse
stock splits and similar capital events after the issuance date of this
Warrant), and subject to further adjustment hereunder. CAPITALIZED TERMS USED
AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT
CERTAIN SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED FEBRUARY
------------------
___, 2004, AMONG THE COMPANY, ROCKY MOUNTAIN GAS, INC. AND THE PURCHASERS
SIGNATORY THERETO.
1.
- ------
1. Title to Warrant. Prior to the Termination Date and subject to
------------------
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.
2. Authorization of Shares. The Company covenants that all Warrant Shares
------------------------
which may be issued upon the exercise of the purchase rights represented by this
Warrant will, upon exercise of the purchase rights represented by this Warrant,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously with such issue).
3. Exercise of Warrant.
---------------------
(a) Exercise of the purchase rights represented by this Warrant may be
made at any time or times on or after the Initial Exercise Date (as to that
number of Warrant Shares for which this Warrant is then exercisable) and on
or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or
such other office or agency of the Company as it may designate by notice in
writing to the registered Holder at the address of such Holder appearing on
the books of the Company); provided, however, within 5 Trading Days of the
-------- -------
date said Notice of Exercise is delivered to the Company, the Holder shall
have surrendered this Warrant to the Company and the Company shall have
received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier's check drawn on a United States
bank. Certificates for shares purchased hereunder shall be delivered to the
Holder within 3 Trading Days from the delivery to the Company of the Notice
of Exercise Form, surrender of this Warrant and payment of the aggregate
Exercise Price as set forth above ("Warrant Share Delivery Date"). This
---------------------------
Warrant shall be deemed to have been exercised on the date the Exercise
Price is received by the Company. The Warrant Shares shall be deemed to
have been issued, and Holder or any other person so designated to be named
therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment
to the Company of the Exercise Price and all taxes required to be paid by
the Holder, if any, pursuant to Section 5 prior to the issuance of such
shares, have been paid. If the Company fails to deliver to the Holder a
certificate or certificates representing the Warrant Shares pursuant to
this Section 3(a) by the third Trading Day following the Warrant Share
Delivery Date, then the Holder will have the right to rescind such
exercise. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise by the third
Trading Day after the Warrant Share Delivery Date, and if after such day
the Holder is required by its broker to purchase (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by the Holder of the Warrant Shares which the Holder anticipated
receiving upon such exercise (a "Buy-In"), then the Company shall (1) pay
------
in cash to the Holder the amount by which (x) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of Warrant Shares that the Company was required to deliver to the
Holder in connection with the exercise at issue times (B) the price at
which the sell order giving rise to such purchase obligation was executed,
and (2) at the option of the Holder, either reinstate the portion of the
Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock
that would have been issued had the Company timely complied with its
exercise and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted exercise of shares of Common Stock with
an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of
the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Company's failure to timely
deliver certificates representing shares of Common Stock upon exercise of
the Warrant as required pursuant to the terms hereof.
(b) If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical
with this Warrant.
(c) The Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 3(a) or otherwise, to the extent that
after giving effect to such issuance after exercise, the Holder (together
with the Holder's affiliates), as set forth on the applicable Notice of
Exercise, would beneficially own in excess of 9.99% of the number of shares
of the Common Stock outstanding immediately after giving effect to such
issuance. For purposes of the foregoing sentence, the number of shares of
Common Stock beneficially owned by the Holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being
made, but shall exclude the number of shares of Common Stock which would be
issuable upon (A) exercise of the remaining, nonexercised portion of this
Warrant beneficially owned by the Holder or any of its affiliates and (B)
exercise or conversion of the unexercised or nonconverted portion of any
other securities of the Company (including, without limitation, any other
Warrants or the Preferred Stock) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 3(c), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act, it being
acknowledge by Holder that the Company is not representing to Holder that
such calculation is in compliance with Section 13(d) of the Exchange Act
and Holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained in this
Section 3(c) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder) and of
which a portion of this Warrant is exercisable shall be in the sole
discretion of such Holder, and the submission of a Notice of Exercise shall
be deemed to be such Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of
which portion of this Warrant is exercisable, in each case subject to such
aggregate percentage limitation, and the Company shall have no obligation
to verify or confirm the accuracy of such determination. For purposes of
this Section 3(c), in determining the number of outstanding shares of
Common Stock, the Holder may rely on the number of outstanding shares of
Common Stock as reflected in (x) the Company's most recent Form 10-Q or
Form 10-K, as the case may be, (y) a more recent public announcement by the
Company or (z) any other notice by the Company or the Company's Transfer
Agent setting forth the number of shares of Common Stock outstanding. Upon
the written or oral request of the Holder, the Company shall within two
Trading Days confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect
to the conversion or exercise of securities of the Company, including this
Warrant, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The foregoing
limitation may be waived by the Holder upon not less than 61 calendar days'
prior written notice to the Company.
(d) If at any time after one year from the date of issuance of this
Warrant there is no effective Registration Statement registering the resale
of the Warrant Shares by the Holder, this Warrant may also be exercised at
such time by means of a "cashless exercise" in which the Holder shall be
entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = the VWAP on the Trading Day immediately preceding the date of
such election;
(B) = the Exercise Price of this Warrant, as adjusted; and
(X) = the number of Warrant Shares issuable upon exercise of this
Warrant in accordance with the terms of this Warrant by means
Of a cash exercise rather than a cashless exercise.
4. No Fractional Shares or Scrip. No fractional shares or scrip
---------------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.
5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares
---------------------------
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event certificates for
-------- -------
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its stockholder books or
------------------
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.
7. Transfer, Division and Combination.
-------------------------------------
(a) Subject to compliance with any applicable securities laws and the
conditions set forth in Sections 1 and 7(e) hereof and to the provisions of
Section 4.1 of the Purchase Agreement, this Warrant and all rights
hereunder are transferable, in whole or in part, upon surrender of this
Warrant at the principal office of the Company, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, the Company shall execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination or denominations specified in such instrument of
assignment, and shall issue to the assignor a new Warrant evidencing the
portion of this Warrant not so assigned, and this Warrant shall promptly be
cancelled. A Warrant, if properly assigned, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant
issued.
(b) This Warrant may be divided or combined with other Warrants upon
presentation hereof at the aforesaid office of the Company, together with a
written notice specifying the names and denominations in which new Warrants
are to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with Section 7(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
(c) The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section
7.
(d) The Company agrees to maintain, at its aforesaid office, books for
the registration and the registration of transfer of the Warrants.
(e) If, at the time of the surrender of this Warrant in connection
with any transfer of this Warrant, the transfer of this Warrant shall not
be registered pursuant to an effective registration statement under the
Securities Act and under applicable state securities or blue sky laws, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such transfer may be made without
registration under the Securities Act and under applicable state securities
or blue sky laws, (ii) that the holder or transferee execute and deliver to
the Company an investment letter in form and substance acceptable to the
Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated
under the Securities Act or a qualified institutional buyer as defined in
Rule 144A(a) under the Securities Act.
8. No Rights as Shareholder until Exercise. This Warrant does not
--------------------------------------------
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price (or by means of a cashless exercise),
the Warrant Shares so purchased shall be and be deemed to be issued to such
Holder as the record owner of such shares as of the close of business on the
later of the date of such surrender or payment.
9. Loss, Theft, Destruction or Mutilation of Warrant. The Company
------------------------------------------------------
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
---------------------------------
taking of any action or the expiration of any right required or granted herein
shall be a Saturday, Sunday or a legal holiday, then such action may be taken or
such right may be exercised on the next succeeding day not a Saturday, Sunday or
legal holiday.
11. Adjustments of Exercise Price and Number of Warrant Shares.
-------------------------------------------------------------------
(a) Stock Splits, etc. The number and kind of securities purchasable
-------------------
upon the exercise of this Warrant and the Exercise Price shall be subject
to adjustment from time to time upon the happening of any of the following.
In case the Company shall (i) pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock to holders of its outstanding
Common Stock, (ii) subdivide its outstanding shares of Common Stock into a
greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock, then
the number of Warrant Shares purchasable upon exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be
entitled to receive the kind and number of Warrant Shares or other
securities of the Company which it would have owned or have been entitled
to receive had such Warrant been exercised in advance thereof. Upon each
such adjustment of the kind and number of Warrant Shares or other
securities of the Company which are purchasable hereunder, the Holder shall
thereafter be entitled to purchase the number of Warrant Shares or other
securities resulting from such adjustment at an Exercise Price per Warrant
Share or other security obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
that are purchasable pursuant hereto immediately thereafter. An adjustment
made pursuant to this paragraph shall become effective immediately after
the effective date of such event retroactive to the record date, if any,
for such event.
(b) Anti-Dilution Provisions. During the Exercise Period, the Exercise
------------------------
Price shall be subject to adjustment from time to time as provided in this
Section 11(b). In the event that any adjustment of the Exercise Price as
required herein results in a fraction of a cent, such Exercise Price shall
be rounded up or down to the nearest cent.
(i) Adjustment of Exercise Price. If and whenever the Company
-------------------------------
issues or sells, or in accordance with Section 11(b)(ii) hereof is
deemed to have issued or sold, any shares of Common Stock for an
effective consideration per share of less than the then Exercise Price
or for no consideration (such lower price, the "Base Share Price" and
such issuances collectively, a "Dilutive Issuance"), then, (a) from
-----------------
the Initial Exercise Date until the 30th day following the Effective
Date (if the Registration Statement is unavailable for use by the
Holder during such period, such period shall be extended for such
number of unavailable days), the Exercise Price shall be reduced to a
price equal to the Base Share Price and (b) after 30th day following
the Effective Date (as extended in clause (a) above), the Exercise
Price shall be reduced by multiplying the Exercise Price by a
fraction, the numerator of which is the number of shares of
Corporation Common Stock Outstanding immediately prior to the Dilutive
Issuance plus the number of shares of Corporation Common Stock which
the offering price for such Dilutive Issuance would purchase at the
Exercise Price, and the denominator of which shall be the sum of the
number of shares of Corporation Common Stock Outstanding immediately
prior to the Dilutive Issuance plus the number of shares of
Corporation Common Stock so issued or issuable in connection with the
Dilutive Issuance. Such adjustment shall be made whenever shares of
Common Stock or Common Stock Equivalents are issued. In no event shall
the Exercise Price be reduced to a price below $1.00 (as adjusted for
any stock splits, reverse splits and similar capital events after the
issuance date of this Warrant.
(ii) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 11(b) hereof,
the following will be applicable:
(A) Issuance of Rights or Options. If the Company in any
--------------------------------
manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase
Capital Shares or Capital Shares Equivalents (such warrants,
rights and options to purchase Capital Shares or Capital Shares
Equivalents are hereinafter referred to as "Options") and the
-------
effective price per share for which Common Stock is issuable upon
the exercise of such Options is less than the Exercise Price
("Below Base Price Options"), then the maximum total number of
---------------------------
shares of Common Stock issuable upon the exercise of all such
Below Base Price Options (assuming full exercise, conversion or
exchange of Capital Shares Equivalents, if applicable) will, as
of the date of the issuance or grant of such Below Base Price
Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share and the maximum
consideration payable to the Company upon such exercise (assuming
full exercise, conversion or exchange of Capital Shares
Equivalents, if applicable) will be deemed to have been received
by the Company. For purposes of the preceding sentence, the
"effective price per share for which Common Stock is issuable
upon the exercise of such Below Base Price Options" is determined
by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or granting of
all such Below Base Price Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the exercise of all such Below Base Price Options,
plus, in the case of Capital Shares Equivalents issuable upon the
exercise of such Below Base Price Options, the minimum aggregate
amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Capital Shares
Equivalents first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Base
Price Options (assuming full conversion of Capital Shares
Equivalents, if applicable). No further adjustment to the
Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Below Base Price Options
or upon the exercise, conversion or exchange of Capital Shares
Equivalents issuable upon exercise of such Below Base Price
Options.
(B) Issuance of Capital Shares Equivalents. If the Company
---------------------------------------
in any manner issues or sells any Capital Shares Equivalents,
whether or not immediately convertible (other than where the same
are issuable upon the exercise of Options) and the effective
price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is less than the Exercise Price,
then the maximum total number of shares of Common Stock issuable
upon the exercise, conversion or exchange of all such Capital
Shares Equivalents will, as of the date of the issuance of such
Capital Shares Equivalents, be deemed to be outstanding and to
have been issued and sold by the Company for such price per share
and the maximum consideration payable to the Company upon such
exercise (assuming full exercise, conversion or exchange of
Capital Shares Equivalents, if applicable) will be deemed to have
been received by the Company. For the purposes of the preceding
sentence, the "effective price per share for which Common Stock
is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or
sale of all such Capital Shares Equivalents, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Company upon the exercise, conversion or exchange thereof at
the time such Capital Shares Equivalents first become
exercisable, convertible or exchangeable, by (ii) the maximum
total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Capital Shares
Equivalents. No further adjustment to the Exercise Price will be
made upon the actual issuance of such Common Stock upon exercise,
conversion or exchange of such Capital Shares Equivalents.
(C) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the
Company upon the exercise, conversion or exchange of any Capital
Shares Equivalents; or (iii) the rate at which any Capital Shares
Equivalents are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had
such Options or Capital Shares Equivalents still outstanding
provided for such changed additional consideration or changed
conversion rate, as the case may be, at the time initially
granted, issued or sold.
(D) Calculation of Consideration Received. If any Common
----------------------------------------
Stock, Options or Capital Shares Equivalents are issued, granted
or sold for cash, the consideration received therefor for
purposes of this Warrant will be the amount received by the
Company therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance,
grant or sale. In case any Common Stock, Options or Capital
Shares Equivalents are issued or sold for a consideration part or
all of which shall be other than cash, the amount of the
consideration other than cash received by the Company will be the
fair market value of such consideration, except where such
consideration consists of securities, in which case the amount of
consideration received by the Company will be the fair market
value (closing bid price, if traded on any market) thereof as of
the date of receipt. In case any Common Stock, Options or Capital
Shares Equivalents are issued in connection with any merger or
consolidation in which the Company is the surviving corporation,
the amount of consideration therefor will be deemed to be the
fair market value of such portion of the net assets and business
of the non-surviving corporation as is attributable to such
Common Stock, Options or Capital Shares Equivalents, as the case
may be. The fair market value of any consideration other than
cash or securities will be determined in good faith by an
investment banker or other appropriate expert of national
reputation selected by the Company and reasonably acceptable to
the holder hereof, with the costs of such appraisal to be borne
by the Company.
(E) Exceptions to Adjustment of Exercise Price.
-----------------------------------------------
Notwithstanding the foregoing, no adjustment will be made under
this Section 11(b) in respect of (1) the granting of options to
employees, officers or directors of the Company pursuant to any
stock option plan duly adopted by a majority of the non-employee
members of the Board of Directors of the Company or a majority of
the members of a committee of non-employee directors established
for such purpose or (2) upon the exercise of or conversion of any
Capital Shares Equivalents or Options issued and outstanding on
the Initial Exercise Date, provided that the securities have not
been amended since the date of the Purchase Agreement except as a
result of the Purchase Agreement.
(iii) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the
Exercise Price in effect at the time such adjustment is otherwise
required to be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price.
12. Reorganization, Reclassification, Merger, Consolidation or
--------------------------------------------------------------
Disposition of Assets. In case the Company shall reorganize its capital,
- -----------------------
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
--------------
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, at the option of the
Holder upon exercise of this Warrant, the number of shares of Common Stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined in good faith by resolution of the Board of
Directors of the Company) in order to provide for adjustments of Warrant Shares
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 12. For purposes of
this Section 12, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
13. Call Provision. Subject to the provisions of this Section 13, if
---------------
after the Effective Date the volume weighted average price of the Common Stock
as reported by Bloomberg Financial LP ("VWAP") for each of fifteen consecutive
----
Trading Days (the "Measurement Price", which period shall not have commenced
------------------
until after the Effective Date) exceeds $6.00 (subject to adjustment for any
stock splits, reverse stock splits and similar capital events after the issuance
date of this Warrant) (the "Threshold Price"), then the Company may, within ten
---------------
Trading Days of such period, call for cancellation of all or any portion of this
Warrant for which a Notice of Exercise has not yet been delivered (such right, a
"Call"); provided, however, that effective upon delivery of such notice of a
---- -------- -------
Call, the Holder shall have the right to exercise this Warrant for all Warrant
Shares notwithstanding the vesting schedule set forth in the first paragraph of
this Warrant. To exercise this right, the Company must deliver to the Holder an
irrevocable written notice (a "Call Notice"), indicating therein the portion of
-----------
unexercised portion of this Warrant to which such notice applies. If the
conditions set forth below for such Call are satisfied from the period from the
date of the Call Notice through and including the Call Date (as defined below),
then any portion of this Warrant subject to such Call Notice for which a Notice
of Exercise shall not have been received from and after the date of the Call
Notice will be cancelled at 6:30 p.m. (New York City time) on the tenth Trading
Day after the date the Call Notice is received by the Holder (such date, the
"Call Date"). Any unexercised portion of this Warrant to which the Call Notice
----------
does not pertain will be unaffected by such Call Notice. In furtherance
thereof, the Company covenants and agrees that it will honor all Notices of
Exercise with respect to Warrant Shares subject to a Call Notice that are
tendered from the time of delivery of the Call Notice through 6:30 p.m. (New
York City time) on the Call Date, including, without limitation, Notices of
Exercise which otherwise could not be delivered by the Holder because the time
periods set forth in the preamble to this Warrant had not otherwise elapsed. For
clarity, it is agreed that this entire Warrant may be exercised by the Holder
upon receipt of a Call Notice. Notwithstanding anything to the contrary set
forth in this Warrant, the Company may not deliver a Call Notice or require the
cancellation of this Warrant (and any Call Notice will be void), unless, from
the beginning of the 15 consecutive Trading Days used to determine whether the
Common Stock has achieved the Threshold Price through the Call Date, (i) the
Company shall have honored in accordance with the terms of this Warrant all
Notices of Exercise delivered by 6:30 p.m. (New York City time) on the Call
Date, (ii) the Registration Statement shall be effective as to all Warrant
Shares and the prospectus thereunder available for use by the Holder for the
resale of all such Warrant Shares and (iii) the Common Stock shall be listed or
quoted for trading on the Principal Market. The Company's right to Call the
Warrant shall be exercised ratably among the Purchasers based on each
Purchaser's initial purchase of Common Stock pursuant to the Purchase Agreement.
14. Notice of Adjustment. Whenever the number of Warrant Shares or number
----------------------
or kind of securities or other property purchasable upon the exercise of this
Warrant or the Exercise Price is adjusted, as herein provided, the Company shall
give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.
15. Notice of Corporate Action. If at any time:
-----------------------------
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of
its indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or
other disposition of all or substantially all the property, assets or
business of the Company to, another corporation or,
(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).
16. Authorized Shares. The Company covenants that during the period
------------------
the Warrant is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Principal Market
upon which the Common Stock may be listed.
Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number
of Warrant Shares for which this Warrant is exercisable or in the Exercise
Price, the Company shall obtain all such authorizations or exemptions thereof,
or consents thereto, as may be necessary from any public regulatory body or
bodies having jurisdiction thereof.
17. Miscellaneous.
-------------
(a) Jurisdiction. All questions concerning the construction, validity,
------------
enforcement and interpretation of this Warrant shall be determined in
accordance with the provisions of the Purchase Agreement.
(b) Restrictions. The Holder acknowledges that the Warrant Shares
------------
acquired upon the exercise of this Warrant, if not registered, will have
restrictions upon resale imposed by state and federal securities laws.
(c) Nonwaiver and Expenses. No course of dealing or any delay or
------------------------
failure to exercise any right hereunder on the part of Holder shall operate
as a waiver of such right or otherwise prejudice Holder's rights, powers or
remedies, notwithstanding all rights hereunder terminate on the Termination
Date. If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys' fees, including those of appellate proceedings, incurred by
Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
(d) Notices. Any notice, request or other document required or
-------
permitted to be given or delivered to the Holder by the Company shall be
delivered in accordance with the notice provisions of the Purchase
Agreement.
(e) Limitation of Liability. No provision hereof, in the absence of
-------------------------
any affirmative action by Holder to exercise this Warrant or purchase
Warrant Shares, and no enumeration herein of the rights or privileges of
Holder, shall give rise to any liability of Holder for the purchase price
of any Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
(f) Remedies. Holder, in addition to being entitled to exercise all
--------
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(g) Successors and Assigns. Subject to applicable securities laws,
------------------------
this Warrant and the rights and obligations evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and permitted assigns of Holder. The provisions of this Warrant
are intended to be for the benefit of all Holders from time to time of this
Warrant and shall be enforceable by any such Holder or holder of Warrant
Shares.
(h) Amendment. This Warrant may be modified or amended or the
---------
provisions hereof waived with the written consent of the Company and the
Holder.
(i) Severability. Wherever possible, each provision of this Warrant
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provisions or the remaining provisions of this Warrant.
(j) Headings. The headings used in this Warrant are for the
--------
convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant.
********************
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officer thereunto duly authorized.
Dated: February ____, 2004
U.S. Energy Corp.
By: ___________________________________
Name:
Title:
NOTICE OF EXERCISE
To: U.S Energy Corp.
(1) The undersigned hereby elects to purchase ________ Warrant Shares of
the Company pursuant to the terms of the attached Warrant (only if exercised in
full), and tenders herewith payment of the exercise price in full, together with
all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
[ ] in lawful money of the United States; or
[ ] the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 3(d), to
exercise this Warrant with respect to the maximum number of Warrant
Shares purchasable pursuant to the cashless exercise procedure set
forth in subsection 3(d).
(3) Please issue a certificate or certificates representing said Warrant
Shares in the name of the undersigned or in such other name as is specified
below:
----------------------------------
The Warrant Shares shall be delivered to the following:
----------------------------------
----------------------------------
----------------------------------
(4) Accredited Investor. The undersigned is an "accredited investor" as
--------------------
defined in Regulation D under the Securities Act of 1933, as amended.
[PURCHASER]
By: -----------------------------------
Name:
Title:
Dated: --------------------------------
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder's Signature: _____________________________
Holder's Address: _____________________________
_____________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.