PROSPECTUS SUPPLEMENT NO. 1 FILED PURSUANT TO RULE 424(B)(3)AND (C)
(TO THE PROSPECTUS DATED JUNE 21, 2004) REGISTRATION NO. 333-115477
U.S. ENERGY CORP.
5,552,283 SHARES OF COMMON STOCK
This prospectus supplement supplements the prospectus dated June 21, 2004
of U.S. Energy Corp. ("USE") relating to the public offer and sale by the
selling shareholders of up to 2,113,573 shares of common stock by shareholders;
up to 1,472,689 shares of common stock by holders of warrants and options on
exercise thereof; up to 1,720,030 shares which may be issued on exchange of
outstanding common stock, and preferred stock, in Rocky Mountain Gas, Inc.
("RMG," a majority-owned subsidiary of USE) for common stock of USE; and up to
245,991 shares which may be issued on conversion of principal and interest on
debt.
This prospectus supplement should be read in conjunction with the
prospectus, and this prospectus supplement is qualified by reference to the
prospectus, except to the extent that the information provided by this
prospectus supplement supersedes the information contained in the prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THE PROSPECTUS AND THE TABLE OF
CONTENTS ON PAGE 2 OF THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is August 18, 2004
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On July 30, 2004, USE entered into a credit agreement with Geddes and
Company (the "lender"), based in Phoenix, Arizona, to borrow up to $3 million,
of which $1.5 million was loaned on August 18, 2004. Proceeds will be used to
acquire and develop gas properties, and for general corporate purposes of the
company and its subsidiary RMG.
Terms of the transaction are:
X The total amount available under the credit agreement is $3.0 million.
Amounts in addition to the initial $1.5 million loan will be available
to us until August 1, 2006. Out of the initial loan proceeds, we paid
the lender a commitment fee of $90,000 (3% of the $3 million
commitment).
X All amounts loaned under the agreement are secured by security
interests in the following collateral: (1) a first position in (a) the
promissory note and mortgage received in 2003 from the buyer of our
commercial properties in Ticaboo, Utah ($3,081,014 outstanding at
June 30, 2004; (b) the coalbed methane leases in the Castle Rock
property (located in the Montana portion of the Powder River Basin)
held by RMG; and (c) 4 million shares of common stock which we hold in
RMG; and (2) a second position on our corporate airplane. However, all
proceeds of sale of any of this collateral by the lender in the event
of foreclosure will be applied to amounts owed the lender; we will be
entitled to any surplus proceeds or collateral remaining after the
lender has been paid in full.
X All loans mature on the sooner to occur of August 1, 2006 or the date
when RMG has a class of stock registered with the Securities and
Exchange Commission. Annual interest at 10% on amounts loaned under
the credit agreement is payable on the first business day after each
quarter, beginning October 1, 2004.
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X Prepayment of loans is permitted without penalty. Payment before
maturity is mandatory from money received from settlement or
enforcement of any judgment entered upon our claims against Nukem,
Inc., and from proceeds from sale or disposition of any collateral
securing the loans. Upon receipt of our notice of prepayment, the
lender may convert some or all of the prepayment amount to restricted
shares of common stock of RMG, at a price equal to the exercise price
of the warrants (see below).
X At any time, in connection with an intended prepayment of the loans or
otherwise, the lender has the right to convert some or all of the
outstanding loans to restricted shares of common stock at a price
equal to the exercise price of the warrants.
X Outstanding interest and principal on the loans will become
immediately due and payable in the event we fail to pay interest or
principal when due, or there is a default in performance of any other
agreement contained in the transaction documents which is uncured for
20 days, or we become insolvent or bankrupt.
X In connection with the credit agreement, RMG agreed to issue warrants
to the lender to purchase up to 600,000 restricted shares of common
stock of RMG:
* All warrants will expire on the fifth anniversary of the date
when RMG has sold $20 million of its securities in a future
offering; however, the warrants will not be exercisable after
July 30, 2019 in any event.
* Warrants to purchase 450,000 shares of RMG common stock have been
issued to the lender in connection with the initial $1.5 million
loan, at initial exercise prices of $3.00 per share on 225,000
shares; $3.25 per share on 75,000 shares; $3.50 per share on
75,000 shares; and $3.75 on 75,000 shares. No additional warrants
will be issued until we borrow more than $2 million.
- At such time as we borrow more than $2 million, RMG will
issue warrants to purchase an additional 150,000 shares of
RMG common stock, at initial exercise prices of $3.00 per
share on 75,000 shares; $3.25 per share on 25,000 shares;
$3.50 per share on 25,000 shares; and $3.75 on 25,000
shares. This number of additional warrants will not be pro
rated down if we borrow more than $2 million but less than
the full $3 million available under the credit agreement.
- The initial exercise price of the outstanding warrants to
purchase 225,000 shares which have been issued, and the
initial exercise price of 75,000 of the additional warrants
which may be issued to the lender in the future, will be
adjusted down to equal to the lowest purchase price per
share actually paid to and received by RMG from investors in
a future offering. In addition, in that event, the initial
exercise prices of $3.25 to $3.75 for the balance of the
outstanding warrants on 225,000 shares (and the same
exercise prices for the warrants on 75,000 shares which may
be issued if we borrow more than $2 million), all will be
adjusted down proportionately.
- Terms of a future RMG financing(s) which would set the
expiration date of the warrants, and possibly cause
adjustments to initial exercise prices) have not been
determined.
* Neither the company or RMG is required by the lender to maintain
or achieve any ratios of financial liquidity or quantities of gas
reserves or production, or similar matters.
End of Prospectus Supplement
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