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Item
1.01
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Entry
into a Material Definitive Agreement
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On
September 28, 2017, U.S. Energy Corp. (the “Company”), the Company’s wholly owned subsidiary Energy One LLC
and APEG Energy II, L.P., (“APEG”), an entity controlled by Angelus Private Equity Group, LLC entered into an
exchange agreement (the “Exchange Agreement”), pursuant to which, on the terms and subject to the conditions of
the Exchange Agreement, APEG will exchange $4,463,380 of outstanding borrowings under the Company’s Credit Facility,
for 5,819,270 new shares of common stock of the Company, par value $0.01 per share, representing an exchange price of $0.767
or 1.3% premium calculated pursuant to the 30 day volume weighted average price of the Company’s common stock on
September 20, 2017 (the “Exchange Shares”). Accrued, unpaid interest on the Credit Facility held by APEG will be
paid in cash at the closing of the transaction. Immediately following the close of the transaction, APEG will hold
approximately 49.9% of the outstanding Common Stock of U.S. Energy.
Exchange
Agreement
The
consummation of the Exchange Agreement is subject to the satisfaction or waiver of certain conditions, including (i) the affirmative
vote of the holders of a majority of stockholders present or represented by proxy at the special stockholders meeting called for
the purpose of approving a proposal to approve the issuance of the Exchange Shares in the Exchange Agreement for purposes of NASDAQ
Listing Rules 5635(b) (the “NASDAQ Approvals”); and (ii) the listing of the share issuance by NASDAQ. In addition,
each of the Company’s and APEG’s obligations to complete the Exchange Agreement is subject to certain other conditions,
including (a) subject to the standards set forth in the Exchange Agreement, the accuracy of the representations and warranties
of the other party and (b) compliance of the other party with its covenants in all material respects. The parties expect the Exchange
Agreement to close in the fourth quarter of 2017.
The
Exchange Agreement requires the Company to use its commercially reasonable efforts to file a registration statement on Form S-1
by December 31, 2017, providing for the registration of the Exchange Shares issuable pursuant to the Exchange Agreement.
The
foregoing description of the Exchange Agreement is only a summary of, and is qualified in its entirety by reference to, the full
text of the Exchange Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated
into this Item 1.01 by reference.
The
Exchange Agreement and the above description thereof have been included to provide investors and stockholders with information
regarding the terms of the Exchange Agreement. They are not intended to provide any other factual information about the Company
or their respective subsidiaries or affiliates or stockholders. The representations, warranties and covenants contained in the
Exchange Agreement were made only for purposes of the Exchange Agreement as of the specific dates therein, were solely for the
benefit of the parties to the Exchange Agreement. Investors should not rely on the representations, warranties and covenants or
any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their
respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may
change after the date of the Exchange Agreement, which subsequent information may or may not be fully reflected in public disclosures
by the Company. Accordingly, investors should read the representations and warranties in the Exchange Agreement not in isolation
but only in conjunction with the other information about the Company and its business that the Company includes in reports, statements
and other filings they make with the U.S. Securities and Exchange Commission.
Standstill
Agreement
In
connection with the Exchange Agreement, the Company also entered into a Standstill Agreement with APEG (the “Standstill
Agreement”) which will be in effect for one year from the closing of the transaction. Pursuant to the Standstill Agreement,
APEG has agreed to vote its shares in proportion with the non-APEG shareholders on all matters. The Standstill Agreement also
contains certain restrictions on APEG’s ability to acquire additional shares of common stock of the Company in excess of
the amount they hold immediately following the transaction or to take certain other actions regarding the Company’s common
stock. APEG will be restricted from seeking representation on the board of directors of U.S. Energy or otherwise seeking to control
the management, board of directors or policies of the Company throughout the duration of the Standstill Agreement.
The
foregoing description of the Standstill Agreement is only a summary of, and is qualified in its entirety by reference to, the
full text of the Standstill Agreement, a copy of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated
into this Item 1.01 by reference.
Letter
Agreement
On
October 2, 2017, the Company and APEG entered into a letter agreement (the “Letter Agreement”) delaying the effectiveness
of the Exchange Agreement and the Standstill Agreement until approved by the Company’s board of directors, and conditioning
the closing of the transaction on receipt of NASDAQ and shareholder approval. On October 3, 2017 the Company’s board of
directors unanimously approved the Exchange Agreement and the Standstill Agreement.
The
foregoing description of the Letter Agreement is only a summary of, and is qualified in its entirety by reference to, the full
text of the Letter Agreement, a copy of which is filed as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated
into this Item 1.01 by reference