EXHIBIT "A"
SECURED CONVERTIBLE NOTE
NEITHER THIS NOTE NOR THE SHARES OF ROCKY MOUNTAIN GAS, INC. ("RMG") COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IF RMG BECOMES A PUBLIC
COMPANY, THE SHARES MAY NEITHER BE OFFERED, SOLD NOR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE
HOLDER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE MAKER THAT SUCH REGISTRATION IS NOT REQUIRED.
$3,000,000 July 30, 2004
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, U.S. Energy Corp. (the "Maker") a Wyoming corporation,
having its principal place of business at ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, hereby promises to pay to the order of Geddes and Company ("Payee") an
Arizona corporation, having its address at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, the sum of Three Million Dollars ($3,000,000), or such
lesser amount which represents the actual principal amount borrowed in
accordance with that certain Credit Agreement ( the "Credit Agreement") between
Maker as Borrower and Payee as Lender of even date with this Note. This Secured
Convertible Note (this "Note") is issued pursuant to the Credit Agreement. All
capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement.
1. Maturity. The amount outstanding under this Note will be due and
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payable at the address of Payee or such other place as Payee may
designate on the earlier of: (a) August 1, 2006, or (b) the date upon
which Maker's subsidiary, Rocky Mountain Gas, Inc., becomes a public
company (the "Maturity Date"). No advances shall be made by ▇▇▇▇▇▇
after the Maturity Date.
2. Payment of Interest. Interest on the borrowed outstanding principal
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balance under this Note 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 this Note is paid in full.
3. Interest Rate. The outstanding principal balance of this Note shall
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bear interest at a rate per annum equal to Ten Percent (10%).
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4. Optional Prepayment.
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A. Subject to paragraph B below, from and after the date hereof,
Maker shall have the privilege at any time and from time to time
of prepaying this Note in whole or in part (each, a
"Prepayment"), provided that Maker shall send a notice (each, a
"Prepayment Notice") to Payee at least five (5) days prior to the
date of each such prepayment (each, a "Prepayment Date"). There
shall be no premium or penalty in connection with any Prepayment.
Each Prepayment shall be applied first against accrued interest,
if any, and then against principal outstanding. Each Prepayment
Notice shall set forth the Prepayment Date and the amount of the
Prepayment, specifying the amount thereof being applied against
accrued interest and the amount thereof being applied against
principal. The amount of principal repaid by any Prepayment may
not be re-borrowed.
B. In the event that Maker sends a Prepayment Notice to Payee, Payee
may elect prior to the Prepayment Date to convert into common
stock of Rocky Mountain Gas, Inc. ("RMG Common Stock") pursuant
to Section 5 hereof, all or part of the amount of principal to be
repaid by the proposed Prepayment instead of receiving such
prepayment.
5. Optional Conversion. At any time prior to repayment of all amounts due
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under the Note, all or any portion of the principal amount of the Note
shall be convertible at the option of the Payee into fully paid and
non-assessable shares of RMG Common Stock. The number of shares of RMG
Common Stock that Payee shall be entitled to receive upon conversion
shall be equal to the number attained by dividing the 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.
A. In order to exercise the conversion privilege, shall give written
notice of conversion to Maker stating ▇▇▇▇▇'s election to convert
this Note or the portion thereof in a minimum of $100,000
increments specified in said notice. As promptly as practicable
after receipt of the notice, Maker shall issue and shall deliver
to Payee a certificate or certificates for the number of full
shares of RMG Common Stock issuable upon the conversion of this
Note or portion thereof registered in the name of Payee in
accordance with the provisions of this Section 5.
B. Each conversion shall be deemed to have been effected on the date
the conversion notice shall have been received by Maker, as
aforesaid, and Payee shall be deemed to have become on said date
the holder of record of the shares of Common Stock issuable upon
such conversion. No fractional shares of Common Stock shall be
issued upon
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conversion of this Note. Any amounts so converted shall not be
reborrowed.
6. Security. As security for the repayment of all liabilities arising
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under this Note, the Maker hereby grants to Payee a security interest
in and a lien on all of the Collateral (as that term is defined in the
Pledge and Security Agreement). Payee shall have all rights provided
to a secured party under the Pledge and Security Agreement and under
the Uniform Commercial Code of the State of Arizona. The Maker shall
execute and deliver such documentation as Payee may reasonably request
to evidence and perfect ▇▇▇▇▇'s security interest granted in this
Section 6.
7. Use of Proceeds. Funds advanced under this Note shall be used for the
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Maker's and RMG's acquisition and development of natural gas
properties and general corporate purposes consistent with the Maker's
business and that of RMG.
8. Covenants. Maker covenants and agrees that, so long as any
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indebtedness is outstanding hereunder, it will comply with each of the
following covenants (except in any case where ▇▇▇▇▇ has specifically
consented otherwise in writing):
A. Financial Reporting. Maker shall furnish to Payee a copy of each
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financial report submitted on Form 10-K or 10-Q filed with the
Securities and Exchange Commission within seven (7) days of such
filing.
B. Notice of Event of Default. Maker shall furnish to Payee notice
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of the occurrence of any Event of Default (as defined herein)
within five (5) days after it becomes known to an executive
officer of Maker. -
C. Financial Statements. Maker shall furnish to Payee quarterly
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financial statements, including balance sheets and statements of
income, for each of Maker and RMG, which statements shall be
annually audited, as soon as practicable after they are prepared
for internal use.
9. Event of Default. For purposes of this Note, the Maker shall be in
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default hereunder (and an "Event of Default" shall have occurred
hereunder) if:
A. Maker shall fail to pay when due any payment of principal,
interest, fees, costs, expenses or any other sum payable to Payee
hereunder or otherwise;
B. Maker shall default in the performance of any other agreement or
covenant contained herein (other than as provided in subparagraph
A above), and such default shall continue uncured for twenty (20)
days
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after notice thereof to Maker given by ▇▇▇▇▇, or if an Event of
Default shall occur under any other Loan Document;
C. Maker: becomes insolvent, bankrupt or generally fails to pay its
debts as such debts become due; is adjudicated insolvent or
bankrupt; admits in writing its inability to pay its debts; or
shall suffer a custodian, receiver or trustee for it or
substantially all of its property to be appointed and if
appointed without its consent, not be discharged within thirty
(30) days; makes an assignment for the benefit of creditors; or
suffers proceedings under any law related to bankruptcy,
insolvency, liquidation or the reorganization, readjustment or
the release of debtors to be instituted against it and if
contested by it not dismissed or stayed within ten (10) days; if
proceedings under any law related to bankruptcy, insolvency,
liquidation, or the reorganization, readjustment or the release
of debtors is instituted or commenced by Maker; if any order for
relief is entered relating to any of the foregoing proceedings;
if Maker shall call a meeting of its creditors with a view to
arranging a composition or adjustment of its debts; or if Maker
shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing;
10. Consequences of Default. Upon the occurrence of an Event of Default
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and at any time thereafter, the entire unpaid principal balance of this
Note, together with interest accrued thereon and with all other sums due or
owed by Maker hereunder, shall become immediately due and payable. In
addition, the principal balance and all past-due interest shall thereafter
bear interest at the rate of 18% per annum until paid.
11. Remedies not Exclusive. The remedies of Payee provided herein or
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otherwise available to Payee at law or in equity shall be cumulative and
concurrent, and may be pursued singly, successively and together at the
sole discretion of Payee, and may be exercised as often as occasion
therefore shall occur; and the failure to exercise any such right or remedy
shall in no event be construed as a waiver or release of the same.
12. Notice. All notices required to be given to any of the parties
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hereunder shall be in writing and shall he deemed to have been sufficiently
given for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, to such party at
its address set forth below:
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If to the Maker: U.S. Energy Corp.
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877 North 8th West
Riverton, Wyoming 82501
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to the Payee: Geddes and Company.
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▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Such notice shall be deemed to be given when received if delivered
personally or five (5) business days after the date mailed. Any notice mailed
shall be sent by certified or registered mail. Any notice of any change in such
address shall also be given in the manner set forth above. Whenever the giving
of notice is required, the giving of such notice may be waived in writing by the
party entitled to receive such notice.
13. Severability. In the event that any provision of this Note is held to
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be invalid, illegal or unenforceable in any respect or to any extent, such
provision shall nevertheless remain valid, legal and enforceable in all
such other respects and to such extent as may be permissible. Any such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if such
invalid, illegal or unenforceable provision had never been contained
herein.
14. Successors and Assigns. This Note inures to the benefit of the Payee
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and binds the Maker, and its respective successors and assigns, and the
words "Payee" and "Maker" whenever occurring herein shall be deemed and
construed to include such respective successors and assigns.
15. Entire Agreement. This Note embodies the entire understanding and
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agreement between the parties hereto and thereto with respect to the
subject matter hereof and thereof and supersedes all prior agreements,
understandings and inducements, whether express or implied, oral and
written.
16. Modification of Agreement. This Note may not be modified, altered or
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amended, except by an agreement in writing signed by both the Maker and the
Payee.
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17. Governing Law. This instrument shall be construed according to and
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governed by the laws of the State of Arizona.
18. Consent to Jurisdiction and Service of Process. Maker irrevocably
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appoints each and every officer of Maker as its attorney upon whom may be
served any notice, process or pleading in any action or proceeding against
it arising out of or in connection with this Note; and Maker hereby
consents that any action or proceeding against it be commenced and
maintained in any court within the State of Arizona by service of process
on any such, officer; and Maker agrees that the courts of the State of
Arizona shall have jurisdiction with respect to the subject matter hereof
and the person of Maker and the collateral securing Maker's obligations
hereunder. Notwithstanding the foregoing, Payee, in its absolute discretion
may also initiate proceedings in the courts of any other jurisdiction in
which Maker may be found or in which any of its properties or any such
collateral may be located.
19. Mandatory Prepayments. Maker shall apply, as Prepayments to the Loan
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until paid in full, (a) all amounts received by Maker from settlement or
enforcement of any judgment entered upon its claims against Nukem, Inc.,
and (b) all payments or proceeds received by Maker with respect to the
disposition or sale of any of the Collateral (whether or not such sale or
disposition is permitted by the terms of the Pledge and Security
Agreement). Lender shall be required to make no further advances under this
Note following a sale or disposition of any of the Collateral (whether or
not such sale or disposition is permitted by the terms of the Pledge and
Security Agreement).
IN WITNESS WHEREOF, ▇▇▇▇▇ has duly executed this Note as of the date first
written above.
MAKER
U.S. ENERGY CORP.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
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