Item
1.01. Entry into a Material Definitive Agreement.
On
December 16, 2016, U.S. Energy Corp. (the “Company”) and certain institutional investors (the “Purchasers”)
entered into a securities purchase agreement (the “Purchase Agreement”), pursuant to which the Company agreed to sell,
in a registered direct offering, an aggregate of 1,000,000 shares of its common stock, par value $0.01 (the “Common Stock”),
with gross proceeds of $1.5 million.
In
a concurrent private placement, the Company is also selling to the Purchasers warrants to purchase one share of Common Stock for
each share purchased for cash in the offering, or an aggregate of 1,000,000 shares of Common Stock, pursuant to a Common Stock
Purchase Warrant, by and between the Company and each Purchaser (each a “Warrant” and collectively the “Warrants”).
The Warrants will be exercisable beginning six months after the date of issuance (the “Initial Exercise Date”) at
an exercise price of $2.05 per share and will expire on the fifth year anniversary of the Initial Exercise Date.
The
exercise price and the number of shares of the Company’s Common Stock issuable upon the exercise of the Warrants (the “Warrant
Shares”) will be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization,
reorganization or similar transaction, as described in the Warrants. The Warrants are also subject to “ratchet”
anti-dilution in the event the Company issues additional common stock or common stock equivalents at a price per share less than
the exercise price in effect, subject to a floor as described below. The Warrants will be exercisable on a “cashless”
basis in certain circumstances.
The
Warrants and the Warrant Shares are not being registered under the Securities Act of 1933, as amended (the “Securities Act”),
pursuant to the Company’s Registration Statement (defined below) and are instead being offered pursuant to the exemption
provided in Section 4(a)(2) under the Securities Act. Each Purchaser is an “accredited investor” as
defined in Rule 501(a) under the Securities Act.
The
Company will be required to file a registration statement on Form S-3 within 45 calendar days of the issuance of the Warrants
to provide resale registration for the shares of Common Stock issuable upon exercise of the Warrants
The
anti-dilution clause in the Warrants may result in the downward adjustment of the exercise price of the Warrants in the event
the Company issues common stock or common stock equivalents at a price less than the exercise price of the Warrants, subject to
certain customary exceptions. This anti-dilution provision will not reduce the Warrant exercise price below $1.96 until
the Company obtains shareholder approval of this transaction. The Company will seek such shareholder approval at a special
meeting or its next annual meeting of shareholders. In addition, the Company must obtain shareholder approval of this transaction
prior to the issuance of Common Stock or Common Stock equivalents at a price less than $1.96 per share.
Roth
Capital Partners, LLC acted as the exclusive placement agent (the “Placement Agent”) for the Company, on a “reasonable
best efforts” basis, in connection with the offering. A copy of the Placement Agency Agreement, dated as of December 16,
2016, by and between the Company and the Placement Agent (the “Placement Agency Agreement”). Pursuant to the Placement
Agency Agreement, the Placement Agent will be entitled to a cash fee of 7.0% of the aggregate gross proceeds of the offering for
the Securities and reimbursement of certain out-of-pocket expenses. The Company has also granted a right of first refusal to the
placement agent to act as the book running manager in any underwritten offering, registered direct or private placement of equity
securities or securities convertible into equity securities of more than $3 million, for twelve months from termination of the
Placement Agent’s engagement.
The
net proceeds to the Company from the registered direct public offering, after deducting the Placement Agent’s fees and expenses,
the Company’s estimated offering expenses, and excluding the proceeds, if any, from the exercise of the warrants issued
in the offering, are expected to be approximately $1.28 million. The offering closed on December 21, 2016, and the Company currently
intends to use these net proceeds for working capital and general corporate purposes.
The
shares of common stock will be issued pursuant to a prospectus supplement dated as of December 20, 2016, which was filed with
the Securities and Exchange Commission in connection with a takedown from the Company’s shelf registration statement on
Form S-3, as amended (File No. 333-204350), which became effective on July 29, 2015 (“Registration Statement”), and
the base prospectus filed as of May 21, 2015, as amended, contained in such registration statement.
The
legal opinion of Kutak Rock LLP relating to the legality of the issuance and sale of the shares of common stock, warrants and
shares of common stock issuable upon exercise of the warrants in the offering is attached as Exhibit 5.1 to this Current Report
on Form 8-K.
The
description of terms and conditions of the Placement Agency Agreement, the form of Purchase Agreement and the form of Warrant
set forth herein do not purport to be complete and are qualified in their entirety by the full text of the Placement Agency Agreement,
the form of Warrant and the form of Purchase Agreement, which are attached hereto as Exhibits 1.1, 4.1 and 10.1, respectively,
and incorporated herein by reference.
The
Placement Agency Agreement and the form of the Purchase Agreement contain representations and warranties that the parties made
to, and solely for the benefit of, the other parties in the context of all of the terms and conditions of those agreements and
in the context of the specific relationship between the parties. The provisions of the Placement Agency Agreement and the form
of Purchase Agreement, including the representations and warranties contained therein, are not for the benefit of any party other
than the parties to such agreements and are not intended as documents for investors and the public to obtain factual information
about the current state of affairs of the parties to those documents and agreements. Rather, investors and the public should look
to other disclosures contained in the Company’s filings with the Securities and Exchange Commission.