CREDIT AGREEMENT
DATED JULY 30, 2004
BETWEEN
U. S. ENERGY CORP.
AND
GEDDES AND COMPANY
CREDIT AGREEMENT
This CREDIT AGREEMENT entered into at Riverton, Wyoming on the 30th day of
July, 2004, is by and among U.S. Energy Corp., a Wyoming corporation duly formed
and existing under the laws of the State of Wyoming (the "Borrower") and Geddes
and Company, an Arizona corporation, duly formed and existing under the laws of
the State of Arizona (the "Lender").
R E C I T A L S
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A. The Borrower has requested that the Lender provide a Loan of up to
$3,000,000 to the Borrower.
B. The Lender has agreed to make such Loan subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein
contained and of the loans and commitments hereinafter referred to,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Certain Defined Terms. As used in this Agreement, the following
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terms have the meanings specified below:
- "Agreement" means this Credit Agreement, as the same may from time to
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time be amended, modified, supplemented or restated.
- "Collateral" means the Properties of the Borrower described in Section
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4.01 of this Agreement.
- "Commitment" means the commitment of the Lender to make the Loan
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hereunder for an amount up to Three Million Dollars ($3,000,000).
- "Commitment Fee" has the meaning assigned such term in Section
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2.03(a).
- "Default" means any event or condition which constitutes an Event of
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Default or that upon notice, lapse of time or both would, unless cured
or waived, become an Event of Default.
- "Effective Date" means the date first appearing above.
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- "Event of Default" has the meaning assigned to such term in Section
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10.01.
- "Initial Funding" has the meaning assigned such term in Section 2.02.
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- "Loan Documents" means this Credit Agreement, the Note, the Pledge and
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Security Agreement and the Warrant Agreement.
- "Loan" means the loan made by the Lender to the Borrower pursuant to
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this Agreement.
- "Maturity Date" means the date that is two years after the Effective
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Date.
- "Note" means the Secured Convertible Note of the Borrower described in
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Section 2.04 and being substantially in the form of Exhibit "A",
together with all amendments, modifications, replacements, extensions
and rearrangements thereof.
- "Pledge and Security Agreement" means an agreement between the
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Borrower, Rocky Mountain Gas, Inc., a Wyoming corporation ("RMG") and
Lender in the form of Exhibit "B", as the same may be amended,
modified or supplemented from time to time.
- "Warrant Agreement" means that certain Warrant Agreement from RMG to
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the Lender in the form attached hereto as Exhibit "C", as the same may
be amended, modified or supplemented from time to time.
ARTICLE II
COMMITMENT
Section 2.01 Loans. Subject to the terms and conditions of this
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Agreement, the Lender agrees to make Loans to the Borrower in an aggregate
principal amount up to Three Million Dollars ($3,000,000), (the "Commitment").
Any amount of the Commitment which has not been borrowed by the Borrower prior
to August 1, 2006 (the "Commitment Termination Date") shall not be available to
the Borrower for Loans from and after such Commitment Termination Date.
Section 2.02 Borrowings. Subject to the satisfaction of all conditions
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precedent by the date of such funding:
A. Initial Funding. On the Effective Date, the Lender shall make a Loan
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to the Borrower in an amount equal to Borrower's initial Disbursement
Request (the "Initial Funding").
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B. Subsequent Funding. Borrower, if in compliance with the terms of the
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Loan, shall have the right to receive the remaining balance of the
Three Million Dollar ($3,000,000) Loan. Borrower shall submit a
Disbursement Request to Lender as provided for in Exhibit "1" with
respect to each further borrowing. Principal sums repaid or converted
under Article 7 during the loan term may not be reborrowed.
C. Minimum Amounts. All borrowings made pursuant to the notices
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described in B above shall be in amounts of at least $100,000.
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Section 2.03 Commitment Fee. The Borrower shall pay to Lender at closing
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a fee of $90,000, which is equal to 3.0% for all amounts committed to be loaned
to the Borrower hereunder.
Section 2.04 Note. The Loan made by the Lender shall be evidenced
by a Secured Convertible Note of the Borrower in substantially the form of
Exhibit A as of the date of this Agreement._ARTICLE III
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST
Section 3.01 Repayment of Loan. Interest on the borrowed outstanding
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principal shall be payable on the first business day following each quarter
ending September, December, March and June, commencing October 1, 2004 and
continuing until the entire principal amount of the Note is paid in full.
Section 3.02 Interest.
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A. Interest Rates. The Borrower will pay the Lender interest on the
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unpaid principal amount actually borrowed and drawn down from the
$3,000,000 Loan at Ten Percent (10%) per annum
B. Interest Rate Computations. All interest hereunder shall be computed
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on the basis of a year of 365 days (or 366 days in a leap year), and
in each case shall be payable for the actual number of days elapsed
(including the first day but excluding the last day).
Section 3.03 Prepayments. The Borrower may prepay all or any portion of
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the Loan made without premium or penalty.
ARTICLE IV
COLLATERAL
Section 4.01 Collateral Pool. Collateral for the Loan as provided for by
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the Pledge and Security Agreement will consist of the following:
A. The Ticaboo Note and the related mortgage; and
B. A 1981 Citation II 550 jet, S/N #550-0264, FAA # N777WY,; and
C. RMG's working mineral interests in Castle Rock CBM leases; and
D. Four million issued and outstanding shares of Rocky Mountain Gas, Inc.
("RMG") Common Stock.
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ARTICLE V
MANDATORY PREPAYMENT
Section 5.01 Mandatory Prepayment. Borrower agrees to immediately prepay
the balance of the Loan as specified in the Note.
ARTICLE VI
WARRANTS IN RMG, REGISTRATION AND CASHLESS EXERCISE
Section 6.01 Warrants in RMG. Borrower agrees to have issued in Lender's
name or its designee, warrants to purchase RMG Common Stock in accordance with
the Warrant Agreement.
Section 6.02 Registration. Lender shall have full registration rights on
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the shares exercised once RMG goes public.
Section 6.03 Cashless Exercise. There shall be no cashless exercise
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except per Section 7.01 of this Agreement.
ARTICLE VII
OPTIONAL CONVERSION AND CONVERSION PRICE
Section 7.01 Optional Conversion. Lender shall have the option at any
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time prior to payment of all amounts due under the Note, to convert all or any
portion of the unpaid principal amount of the Note into fully paid and
non-assessable shares of common stock of RMG Common Stock.
Section 7.02 Conversion Price. The number of shares of RMG Common Stock
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that Lender shall be entitled to receive upon conversion shall be equal to the
number attained by dividing the unpaid principal amount of the Note being
converted by the Conversion Price. The "Conversion Price" shall be equal to the
Exercise Price (as defined in the Warrant Agreement) as of the date of
conversion. Lender shall receive full registration rights on any such shares
received upon conversion to the same extent as provided in the Warrant
Agreement. If the Lender elects to convert any part of the Note into RMG Common
Stock, the Lender shall refund back to USEG the three points paid to Geddes &
Company at closing on a prorata basis (i.e., if one million dollars out of the
three million dollar loan is converted, only one-third of the three points is to
refunded back to USEG).
ARTICLE VIII
CONDITIONS PRECEDENT
Article 8.01 Initial Funding. The obligations of the Lender to make
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Loans under the Initial Funding shall not become effective until the date on
which each of the following conditions are satisfied.
A. The Lender shall have received all fees and other amounts due and
payable
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on or prior to the Effective Date.
B. The Lender shall have received the duly executed Note payable to the
order of the Lender in a principal amount equal to its Commitment
dated as of the date hereof.
C. The Lender shall have received from Borrower and RMG duly executed
counterparts of the Pledge and Security and Warrant Agreements
described on Exhibits B and C, and delivery of any Collateral required
by the terms thereof.
D. The terms of the Loan Documents have been approved by the Board of
Directors of the Borrower and RMG.
E. Lender shall have received an opinion of counsel, in form reasonably
acceptable to Lender, confirming the authorization, execution and
delivery of the Loan Documents by Borrower and RMG, the enforceability
of the Loan Documents, and the validity, priority and perfection of
the security interests granted to Lender in the Collateral.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
The Borrower and Lender represent and warrant that:
Section 9.01 Organization; Powers.
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A. Each of the Borrower and RMG is duly organized, validly existing and
in good standing under the laws of Wyoming, has all requisite power
and authority, and has all material governmental licenses,
authorizations, consents and approvals necessary, to own its assets
and to carry on its business as now conducted.
B. The Lender is duly organized, validly existing and in good standing
under the laws of Arizona, has all requisite power and authority, and
has all material governmental licenses, authorizations, consents and
approvals necessary, to own its assets and to carry on its business as
now conducted and warrants to the Borrower it has the $3,000,000 to
loan to Borrower.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Event of Default. One or more of the following events
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shall constitute an "Event of Default":
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A. The Borrower shall fail to pay any interest due on the borrowings
under the Loan when and as the same shall become due and payable,
whether at the due date thereof or at a date fixed for prepayment
thereof or otherwise.
B. The Borrower shall fail to pay the principal amount due on the Loan
when the same shall become due and payable.
C. The Borrower or RMG shall default in the performance of any other
agreement or covenant contained herein or in any other Loan Document
(other than as provided in subparagraph A or B above), and such
default shall continue uncured for twenty (20) days after notice
thereof to Borrower given by Secured Party.
Section 10.02 Remedies. In the case of an Event of Default by Borrower,
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Lender shall have the right to declare the Note and the Loan then outstanding to
be due and payable according to the terms of the Note, and shall have all rights
as described in the Note or any other Loan Document.
ARTICLE XI
MISCELLANEOUS
Section 11.01 Notices.
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A. All notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as
follows:
1. If to the Borrower or RMG:
U. S. Energy Corp. / Rocky Mountain Gas, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
(Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇);
2. If to the Lender:
Geddes and Company
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇).
B. Notices and other communications to the other parties hereunder may be
delivered or furnished by electronic communications pursuant to
procedures agreed by the parties.
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Section 11.02 Successors and Assigns. The provisions of this Agreement
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shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns permitted hereby, except that any assignment
must be approved in writing by the other party. Such written consent shall not
be unreasonably withheld by either party.
Section 11.03 Counterparts; Integration; Effectiveness.
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A. This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall
constitute a single contract.
B. This Agreement and the other Loan Documents constitute the entire
contract among the parties relating to the subject matter hereof and
thereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof
and thereof. This Agreement and the other Loan Documents represent the
final agreement among the parties hereto and thereto and may not be
contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties.
Section 11.04 Severability. Any provision of this Agreement or any other
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Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision.
Section 11.05 Governing Law; Jurisdiction.
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A. This Agreement and the Loan Documents (other than the Warrant
Agreement) shall be governed by, and construed in accordance with the
laws of the State of Arizona.
B. Any legal action or proceeding with respect to the Loan Documents
(other than the Warrant Agreement) shall be brought in the Courts of
the State of Arizona, and each party consents to the jurisdiction of
such Courts.
Section 11.06 Headings. Article and Section headings and the Table of
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Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
Section 11.07 Condition to Borrower Obligations. The obligations of
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Borrower and RMG hereunder shall be ineffective until, and are subject to
obtaining the approval of the Boards of Directors of Borrower and RMG of the
transactions contemplated hereby; this Agreement shall automatically terminate
and be of no force and effect unless such approvals are obtained on or before
August 6, 2004.
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The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.
BORROWER: U.S. ENERGY CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
LENDER: GEDDES AND COMPANY
By: /s/ F. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: F. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
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EXHIBIT "1"
DISBURSEMENT REQUEST
DATE: ___________________________
TO: Geddes and Company
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(602) 468- 1793 (facsimile)
FROM: U. S. Energy Corp.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (facsimile)
Pursuant to the July 30, 2004 Credit Agreement and the July 30, 2004
Secured Convertible Note, Borrower hereby requests the following disbursement:
Current Amount Borrowed: $_______________________
Amount Requested: $_______________________
Total Borrowed After Request $_______________________
Date Required: ________________________
U.S. Energy Corp.
By: ____________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
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EXHIBITS AND SCHEDULES
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Exhibit A Secured Convertible Note
Exhibit B Form of Pledge and Security Agreement
Exhibit C Form of Warrant Agreement
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