UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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U.S. ENERGY CORP.
675 Bering, Suite 100
Houston, TX 77057
950 S. Cherry Street, Suite 1515
Denver, Colorado 80246
Notice of SpecialAnnual Meeting of Shareholders
October 31, 2017[ ], 2019
Dear Shareholders:
We are pleased to provide you with notice of Specialour 2019 Annual Meeting of Shareholders (the “Annual Meeting”), and we invite you to attend the meeting in person, if possible. The timing, location and summary of each of the proposals to be voted upon are as follows:
| Date: | Time: | 8: | |
| Place: | 675 Bering, Suite Houston, TX 77057 |
| Purposes: | 1. | To |
| 2. | To ratify the appointment of Plante & Moran PLLC as our independent auditor; | |
| 3. | To approve, on an advisory basis, the 2018 compensation of the Company’s named executive officers; | |
| 4. | To approve amendments to the Company’s Articles of Incorporation related to corporate governance and other technical amendments; | |
| 5. | To approve an amendment, at the discretion of the Board of Directors, to the Company’s |
| To approve |
We are submitting the Exchange Proposal to our shareholders to facilitate a proposed recapitalization of the Company to reduce our debt, leverage and cash interest expense, increase our financial flexibility and better position ourselves to return to growth in the event of a potential recovery in commodity prices. We intend to accomplish this through:
The Exchange is conditioned upon, among other things, shareholder approvalformal Proxy Statement that follows this letter provides extensive background information about each of the Exchange Proposal.
The Company’s boardproposals, along with the recommendations of directors (the “Board”) considered the effects that the Exchange is expected to have on the Company, and unanimously determined that the substantial debt reduction, cash interest expense savings and decreased leverage contemplated by the Exchange is critical to unlocking shareholder value in the Company and position the Company to take advantage of a potential recovery in commodity prices. Although the Company is currently operating substantially within its cash flow, its business is one of natural production declines. We believe that to enhance shareholder value over the long term, we will need to deploy capital to maintain and grow our asset base. To do that, the Company must reduce its debt and leverage and put itself in a position to access additional capital if commodity prices rise.
If the Company is unable to complete the proposed Exchange, and substantially reduce its debt, it would need to pursue alternative strategies, which may include discounted equity issuances, asset sales, alternative debt for equity exchanges or other debt reduction or restructuring transactions. In the Board’s view, none of these alternatives are as actionable, or are as likely to result in a significant reduction of leverage and preserve value for existing shareholders, as the Exchange.
Our Board unanimously believes that the Exchange Proposal, is in the best interests of the Company and its shareholders and, therefore, recommends that you vote “FOR” the Exchange Proposal.
We are submitting the Reverse Stock Split to our shareholders to maintain the listing of the Company’s Common Stock on The NASDAQ Capital Market. In order to maintain our NASDAQ Capital Market listing, our Common Stock must achieve a closing bid price of $1.00 per share or more for 10 consecutive trading days. The Reverse Stock Split is one method for achieving this result. The Company values its listing on The NASDAQ Capital Market and, conditioned on shareholder approval, will, in the discretion of the Board of Directors implement the Reverse Stock Split by the filingto vote in favor of articles of amendment to our Restated Articles of Incorporation with the Secretaryeach of the State of Wyoming.
If the Company is unable to complete the Reverse Stock Split, the Company’s Common Stock may be delisted from The NASDAQ Capital Market and, as a result, shareholders would likely find it more difficult to obtain accurate quotations as to the price of our Common Stock, and the liquidity of our Common Stock would likely be reduced, making it difficult for shareholders to buy or sell our Common Stock at competitive market prices, or at all. In addition, support from institutional investors and/or market makers that currently buy and sell the Company’s stock may decline, possibly resulting in a decrease in the trading price of our Common Stock.
Our Board unanimously believe that the Reverse Stock Split is in the best interests of the Company and its shareholders and, therefore, recommends that you vote “FOR” the Reverse Stock Split.
Details of the business to be conducted as the Special Meeting are provided in the attached Notice of Special Meeting and Proxy Statement.proposals.
Only shareholders of record at the close of business on November 1, 2017October 14, 2019 are entitled to receive notice of and to vote at the SpecialAnnual Meeting. A copy of our Annual Report for the fiscal year ended December 31, 2018 is available at www.usnrg.com. Please read this information carefully before voting your proxy.
The Securities and Exchange Commission (“SEC”) allowshas adopted rules regarding how companies to furnishmust provide proxy materials overto their shareholders. These rules are often referred to as “notice and access,” under which a company may select either of the Internet,following options for making proxy materials available to its shareholders:
| ● | the full set delivery option; or | |
| ● | the notice only option. |
A company may use a single method for all of its shareholders, or use full set delivery for some while adopting the notice only option for others.
Under the full set delivery option, a company delivers all proxy materials to its shareholders by mail. In addition to delivery of proxy materials to shareholders, the company must post all proxy materials on a publicly-accessible website and provide information to shareholders about how to access the website.
In connection with the Annual Meeting, we have elected to use the full set delivery option. Accordingly, you should have received our proxy materials by mail. These proxy materials include the Notice of Annual Meeting of Shareholders, Proxy Statement, proxy card and Annual Report on Form 10-K. Additionally, these materials are available on our website www.usnrg.com.
Under the notice only option, which reduces environmental impact as well as printing and mailing costs. Unless otherwise requested bywe have electedNOT to use for the shareholder, we are mailingAnnual Meeting, a company must post all proxy materials on a publicly-accessible website. Instead of delivering proxy materials to each shareholderits shareholders, the company instead delivers a Notice“Notice of Internet Availability of Proxy Materials (the “Notice of Availability”) instead of mailingMaterials.” The notice includes, among other matters:
| ● | information regarding the date and time of the annual meeting of shareholders as well as the items to be considered at the meeting; | |
| ● | information regarding the website where the proxy materials are posted; and | |
| ● | various means by which a shareholder can request paper or e-mail copies of the proxy materials. |
If a shareholder requests paper copies of the proxy materials. The Noticematerials, these materials must be sent to the shareholder within three business days and by first class mail or other reasonably prompt means.
Although we have elected to use the full set delivery option in connection with the Annual Meeting, we have used in the past, and may choose to use again in the future, the notice only option. By reducing the amount of Availability contains instructions on howmaterials that a company needs to accessprint and mail, the proxy materials on the Internet, and also on how to request anotice only option provides an opportunity for cost savings as well as conservation of paper copy of the proxy materials. All shareholders who do not receive a Notice of Availability will receive a paper copy of the proxy materials by mail.products.
Whether or not you plan to attend the meeting, please take the time to vote:
| Via the internet – Go to the website shown on your proxy |
| Via telephone – Call the toll free number shown on |
| Via mail – Complete, sign and date your proxy card and mail it in the postage paid envelope. |
If you arewere a shareholder of record of the Company at the close of business on November 1, 2017,October 14, 2019 you may attend and vote at the meeting.Annual Meeting. The names of shareholders of record entitled to vote at the SpecialAnnual Meeting will be available for review at the Special Meeting and during regular business hours at our headquarters in Denver, Colorado.Annual Meeting.
If you wish to attend the SpecialAnnual Meeting and vote in person, but you hold your shares through a broker or other nominee (i.e., your shares are held in “street name”), contact your broker or nominee promptly to obtain a “legal proxy”proxy,” which you must bring to the Special Meetingmeeting in order to vote in person at the Special Meeting.meeting. Thank you for your support for the recommendationrecommendations of our Board of Directors.
| By | Order of the Board of Directors | |
| /s/ Ryan Smith | ||
Chief |
IMPORTANT NOTICE REGARDING THE INTERNET AVAILABILITY
TABLE OF PROXY MATERIALS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 27, 2017CONTENTS
This Notice of Special Meeting of Shareholders, and the accompanying Proxy Statement are available on our website www.usnrg.com and www.proxyvote.com.
Table of Contents
i
U.S. ENERGY CORP.
950 S. Cherry Street,675 Bering, Suite 1515100
Denver, Colorado 80246Houston, TX 77057
PROXY STATEMENT
FOR SPECIAL2019 ANNUAL MEETING OF SHAREHOLDERS
ON
WEDNESDAY, TUESDAY, DECEMBER 27, 201710, 2019
This proxy statement (“Proxy Statement”) is provided in connection with a solicitation of proxies by the Board of Directors (the “Board”) of U.S. Energy Corp. (“U.S. Energy”, the “Company”, “we”, “our”, or “us”) for the Special Meetingannual meeting of shareholders to be held on Wednesday,Tuesday, December 27, 2017,10, 2019, at 8:30 am MST00 a.m., Central Time, at the corporateHouston offices of U.S. Energy, 950 S. Cherry Street,675 Bering, Suite 1515, Denver, Colorado 80246100, Houston, TX 77057 (the “Special“Annual Meeting”), and at any adjournments of the meeting. On or about November 17, 2017,[ ], 2019, we beganare first mailing the Notice of Availability and a full set of proxy materials to shareholders who requested delivery of the materials in paper form.shareholders.
Q.Why am I receiving these proxy materials?
A.On October 3, 2017, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with 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, 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 (the “Exchange”), at an exchange price of $0.767 representing a 1.3% premium over the 30-day volume weighted average price of the Company’s Common Stock on September 20, 2017 (the “Exchange Shares”). In addition, at the closing of the Exchange, the Company will pre-pay, in cash, $600,000 of the outstanding principal under the Credit Facility, leaving approximately $937,000 outstanding. Also, 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 49.3% of the outstanding Common Stock of U.S. Energy. The terms of the Exchange Agreement are more fully described below under the caption “The Exchange Agreement.”
The Exchange requires shareholder approval of the issuance of shares of Common Stock under NASDAQ Stock Market Rule 5635(b) (the “Exchange Proposal”). The Exchange is expected to occur following satisfaction of the closing conditions in the Exchange Agreement, including shareholder approval of the Exchange Proposal.
The Exchange is being pursued to reduce the Company’s debt, leverage and cash interest expense, and increase the Company’s financial flexibility during the current period of volatile commodity prices in the oil and gas industry, which has had a significant, adverse effect on the Company.
On the completion of the Exchange the Company will have significantly reduced interest expense as a result of the decrease in its outstanding debt, and we intend to use cash that we previously used for interest expense to increase our capital budget and resume growing our production base. In addition, the reduction of our debt will increase the Company’s ability to access additional capital and grow its asset base.
A.Our Common Stock is listed on The NASDAQ Capital Market, and in order for us to maintain the listing, our Common Stock must maintain a minimum bid price of $1.00 as set forth in NASDAQ Stock Market Rule 5550(a)(2) (the “Rule”). If the closing bid price of the Common Stock is below $1.00 for 30 consecutive trading days, then the closing bid price of the Common Stock must be $1.00 or more for 10 consecutive trading days during a 180-day grace period to regain compliance with the rule. On March 23, 2017, NASDAQ notified the Company that the bid price of its listed security had closed at less than $1 per share over the previous 30 consecutive business days, and, as a result, did not comply with the Rule. In accordance with Listing Rule 5810(c)(3)(A), the Company was provided 180 calendar days, or until September 19, 2017, to regain compliance with the Rule.
The Company has not regained compliance with the Rule and is not eligible for a second 180-day period. Specifically, the Company does not meet the minimum $5 million shareholders’ equity, $50 million Market Value of Listed Securities, or $750,000 net income from continuing operations initial listing requirements for The NASDAQ Capital Market. Accordingly, unless the Company had requested an appeal of this determination as described in further detail below, the Company’s securities would have been scheduled for delisting from The NASDAQ Capital Market and would have been suspended at the opening of business on September 29, 2017. A Form 25-NSE would have been filed with the Securities and Exchange Commission (the “SEC”) to remove the Company’s securities from listing and registration on The NASDAQ Stock Market.
The Company timely requested an appeal, which delayed the delisting of the Company’s securities from NASDAQ until resolution of the appeal or meeting the listing standard of $1.00/share price for 10 (ten) consecutive days prior to the hearing. A hearing on the appeal was held on October 26, 2017. In connection with the appeal, the Company submitted a business plan to NASDAQ and will continue to work with NASDAQ to attempt to comply with all continued listing standards. The appeal may result in an award of additional time up to 180 days to comply with the listing standards as requested in the appeal. A Reverse Stock Split will increase the trading price of the Company’s Commons Stock above $1.00 per share and, accordingly, should allow the Company to maintain its listing on The NASDAQ Capital Market. However, if the Company meets NASDAQ’s listing requirements prior to the Special Meeting, the Board, in its discretion, may elect not to effect the Reverse Stock Split.
To permit the Company to complete the Exchange and the Reverse Stock Split, it is providing these proxy materials in connection with the solicitation by our Board of proxies to be voted at the Special Meeting on the Exchange Proposal and Reverse Stock Split. If the Exchange Proposal is approved by the Company’s shareholders, it will complete the Exchange, subject to satisfaction or waiver of other closing conditions. If the Reverse Stock Split is approved by the Company’s shareholders, and if the Board, in its discretion elects to effect the Reverse Stock Split, the Company will file articles of amendment to its Amended and Restated Articles of Incorporation with the Secretary of the State of Wyoming.
Q. Who is APEG and why is it interested in an investment in U.S. Energy Corp.?
A. APEG (APEG Energy II, L.P.) was formed by Angelus Private Equity Group, LLC (“Angelus”), a private equity firm headquartered in Austin, TX, to make energy investments across the capital structure through multiple platforms. Angelus specializes in investments primarily in development stage real estate properties and growth oriented domestic energy assets. On May 2, 2017, the Amended and Restated Credit Agreement dated July 30, 2010, as amended (the “Credit Agreement”), between Energy One and Wells Fargo Bank, N.A. (“WFB”), was sold, assigned and transferred to APEG. APEG purchased and assumed all of WFB’s rights and obligations as the lender to Energy One in the Credit Agreement. Angelus has stated that it is extremely excited about the opportunity to strategically partner with the shareholders and management of the Company. Angelus further stated, with a transformed and deleveraged balance sheet and an experienced management team like the Company’s, Angelus sees tremendous opportunities for growth and value expansion for both the Company and Angelus investors.
Q. What is the purpose of the Exchange and why is it important?
A. The Exchange is conditioned on, among other things, shareholder approval of the Exchange Proposal.
If completed in its entirety, the Exchange would reduce the principal amount of the Company’s long-term debt by approximately $5.1 million, or 84%, as of September 30, 2017, and total cash interest expense would decrease by up to $0.9 million over the remaining life of the Credit Facility. Moreover, our annual cash interest expense would decline by approximately $0.6 million.
Reducing the Company’s debt and cash interest expense will allow it to increase its capital investment using cash freed up by interest savings, enabling it to return to growth. A de-levered balance sheet also will allow the Company access to additional capital that could be used to grow the business or otherwise enhance shareholder value through mergers or acquisitions.
If the Exchange is completed, the Company would reduce its leverage from $6.0 million at September 30, 2017 to approximately $0.9 million, at July 30, 2019, the maturity date of the Credit Facility.
If the Company is unable to complete the proposed Exchange and substantially reduce its debt, the Company will need to pursue alternative strategies, which may include discounted equity issuances, asset sales, alternative debt for equity exchanges or other debt reduction or restructuring transactions. Each of these alternatives involves uncertainties, potential delays and litigation risks. In such an event, the Company expects that the end result would be more dilutive or less value-enhancing to existing shareholders than the Exchange, and leave the Company less well positioned to resume growth and take advantage of a recovery in commodity prices.
Q. What is the purpose of the Reverse Stock Split and why is it important?
A.The Reverse Stock Split would allow the Company to maintain its listing on The NASDAQ Capital Market. If the shareholders do not approve the Reverse Stock Split, the Company will be delisted from The NASDAQ Capital Market and the Company’s shareholders may experience decreased liquidity and/or increased volatility in the Company’s Common Stock, and a diminution of institutional investor interest. The Board also believes that such delisting could cause a loss of confidence of industry partners, customers, lenders and potential employees, which could harm our business and its future prospects.
Q. What will happen to the Company if the Exchange is completed?
A.If the Exchange is completed, the Company’s leverage, cash flow and liquidity will be improved, which the Company believes will provide it with more time to realize the benefits of any commodity price recovery. The Company will be able to use cash previously dedicated to interest expense on its capital expenditures budget for future growth, or for further debt reduction.
If the Exchange is completed, 5,819,270 shares of Common Stock will be issued to APEG.
Q. What will happen if the Reverse Stock Split is approved?
A.If the Reverse Stock Split is approved, and if the Board, in its discretion, elects to effect the Reverse Stock Split, the Company will file articles of amendment to its Amended and Restated Articles of Incorporation with the Secretary of State of Wyoming.
As a result of the Reverse Stock Split, every five shares of existing Common Stock will be combined into one share of Common Stock. As of October 31, 2017, the approximate number of outstanding shares of Common Stock that would result from the 1-for-5 reverse stock split ratio, based on 5,983,510 shares of Common Stock issued and outstanding as of October 31, 2017, would be 1,196,702. If the Exchange Proposal is approved, based on 11,802,780 shares of Common Stock issued and outstanding, the approximate number of outstanding shares of Common Stock that would result from the 1-for-5 reverse stock split ratio would be 2,360,556.
Q. What are the recommendations of the Board?
A. The Board unanimously recommends that you vote FOR the approval of the Exchange Proposal. The reasons for this recommendation are more fully described below under the caption “Reasons for the Exchange Agreement.”
The Board unanimously recommends that you vote FOR the approval of the Reverse Stock Split. The reasons for this recommendation are more fully described below under the caption “Reasons for the Reverse Stock Split.”
The Board unanimously recommends that you vote FOR the adjournment proposal.
Q. When and where is the Special Meeting?
A. The Special Meeting will be held at 950 S. Cherry Street, Suite 1515, in Denver, Colorado, on December 27, 2017, at 8:30 a.m. Mountain Time.
Q. Who Can Vote
Only holders of our common stock (“Common Stock”) and our Series A. Only Convertible Preferred Stock at the close of business on the record date of October 14, 2019 are entitled to receive notice of the Annual Meeting, and only holders of our Common Stock at the close of business on the record date of November 1, 2017 are entitled to receive notice of andhave the right to vote their shares at the SpecialAnnual Meeting. As of October 31, 2017,21, 2019 there were 5,983,51013,405,838 shares of our Common Stock issued and outstanding.
You may hold your shares “of record” or in “street name.” The difference between shareholders of record and street name holders is:
| ● | Shareholder of Record. If your shares are registered directly in your own name with our transfer agent, Computershare Trust Company, Inc., you are considered to be the holder of record of those shares, and you may vote directly via internet, by telephone, by mail or in person. |
| ● | Street Name Shareholder. If your shares are held in a stock brokerage account or by a broker or other nominee, you are considered the “street name” holder and the beneficial owner of those shares, and you have the right to direct your broker or nominee how to vote. However, since you are not the shareholder of record, you may not vote those shares in person at the Annual Meeting unless you obtain a “legal proxy,” which you must bring to the |
Q. What is a Quorum and what are my Voting Rights?Rights
A. A quorum for the meetingAnnual Meeting will exist if a majority of the voting power of the shareholders is present at the meeting, in person or represented by properly executed proxies delivered to us prior to the meeting. Shares of Common Stock present at the meeting that abstain/withhold from voting, or that are the subject of “broker non-votes,” will be counted as present for the purposes of determining a quorum.
New York Stock Exchange (“NYSE”) Rule 452 governs discretionary voting by brokers of shares held in street name when beneficial owners have not instructed how such shares should be voted. Because the rule governs all brokers whothat are members of the NYSE, it affects all public companies that have shares held in street name, not just companies listed on the NYSE. Under the rule, such brokers have discretionary authority to vote street name shares on “routine” items such as the ratification of the Company’s appointment of auditors, but not on other matters, including the election of directors. Of the matters to be presented at the Annual Meeting, Proposal 2 (ratification of auditors) will be considered a routine matter for purposes of the rule. Accordingly, if your broker does not receive instructions from you, your broker will not be able to vote your shares on any of the Exchange Proposal or the Reverse Stock Split,other matters, and a “broker non-vote” will occur with respect to that matter.those matters.
You are entitled to one vote for each share of U.S. Energy Common Stock you hold.hold, except that for the election of directors you may cumulate your votes. Cumulative voting generally allows each holder of shares of Common Stock to multiply the number of shares owned by the number of directors nominated for election, and to distribute the resulting number of votes among nominees in any proportion that the holder chooses.
Q. How Many Votes are Needed?Needed
A. The ExchangeOn Proposal 1, Election of Directors, nominees in a number equal to the seats to be filled on the Board who receive a plurality of votes cast will be elected as directors. If you withhold your shares from voting, your shares will not be counted for any director. Withheld votes and broker non-votes will have no effect on the election of directors.
Each of the other proposals, and any other matter which properly comes before the meeting in accordance with the Amended and Restated Bylaws of the Company (the “Bylaws”), will be approved or ratified, as the case may be, if the number of votes cast in favor of the Exchange Proposal exceeds the number of votes cast against the Exchange Proposal. Abstentions and broker non-votes are not considered votes cast and they will have no effect on the Exchange Proposal.
The Reverse Stock Split will be approved if the number of votes cast in favor of the Reverse Stock Split exceeds the number of votes cast against the Reverse Stock Split. Abstentions and broker non-votes are not considered votes cast and they will have no effect on the Reverse Stock Split.
The adjournment proposal will be approved if the number of votes cast in favor of the adjournment proposal exceeds the number of votes cast against the adjournment proposal. Abstentions and broker non-votes are not considered votes cast, and they will have no effect on the adjournment proposal
Q. How Will My Proxy Be Votedsuch proposals.
AHow Your Proxy Will Be Voted; Recommendation of the Board.
The Board is soliciting a proxy to provide you with the opportunity to vote on all matters scheduled to come before the meeting (as stated in the Notice of SpecialAnnual Meeting which accompanies this Proxy Statement), whether or not you attend in person.
The Board recommends you vote as follows on the five proposals stated in the Proxy Statement:
| ● | For each nominee in Proposal 1 – election of two nominees for Class Two directors (James W. Denny III and Patrick E. Duke) to serve until the second succeeding annual meeting of shareholders (to be held in 2021) and until their successors have been duly elected or appointed and qualified, and election of two nominees for Class One directors (Randall D. Keys and D. Stephen Slack) to serve until the third succeeding annual meeting of shareholders (to be held in 2022) and until their successors have been duly elected or appointed and qualified; | |
| ● | For Proposal 2 – the ratification of appointment of Plante & Moran PLLC as the independent auditor of the Company; | |
| ● | For Proposal 3 – to approve, on an advisory basis, the 2018 compensation of the Company’s Named Executive Officers; | |
| ● | For Proposal 4 – to approve amendments to the Company’s Articles of Incorporation related to corporate governance and other technical amendments; and | |
| ● | For Proposal 5 – to approve an amendment, at the discretion of the Board of Directors, to the Company’s Articles of Incorporation to implement a reverse stock split of the Company’s outstanding Common Stock at a reverse split ratio of 1-for-10. |
Your shares will be voted as you specify if you properly complete and return the appropriate form of proxy. If you make no specifications, your proxy will be voted in favor of the Exchange Proposal, the Reverse Stock Split, and the adjournmenteach proposal as listed above.
We do not expect any matters to be presented for action at the meeting other than the matters stated in the Notice of Annual Meeting accompanying this Proxy Statement. However, as permitted by Securities and Exchange Commission (“SEC”) Rule 14a-4(c), the proxy will confer discretionary authority with respect to any other matter that may properly come before the meeting. The persons named as proxies intend to vote in accordance with their judgment on any such matters.
Q. Can I Revoke MyRevoking Your Proxy
A. If you are a shareholder of record and submit a proxy, you may revoke it later or submit a revised proxy at any time before it is voted. You also may attend the meeting in person and vote by ballot, which would cancel any proxy you previously submitted. If you are a street name shareholder and you vote by proxy, you may change your vote prior to the meeting by submitting new voting instructions to your broker or other nominee in accordance with that entity’s procedures.
Q. What happens if I do not respond or if I respond and fail to indicate my voting preference or if I abstain from voting?Proxy Solicitation
A. If you fail to sign, date and return your proxy card or fail to vote by telephone or Internet as provided on your proxy card, your shares will not be counted toward establishing a quorum for the Special Meeting.
If you submit your proxy but abstain from voting on the Exchange Proposal, the Reverse Stock Split and / or the adjournment proposal, your shares will be counted as present at the meeting for the purpose of determining if a quorum exists.
If your shares are held in street name and you do not provide voting instructions to your broker as described above, your broker does not have the discretionary authority to vote your shares regarding the Exchange Proposal or the Reverse Stock Split.
Q. What will happen if the Exchange Proposal is not approved?
A. If the Exchange Proposal is not approved, the proposed Exchange will not be completed. If the Company is unable to complete the proposed Exchange and substantially reduce its debt, it will need to pursue alternative strategies, which may include equity issuances, asset sales, alternative debt for equity exchanges or other debt reduction or restructuring transactions, with each alternative potentially resulting in significantly less value to existing shareholders.
Q. What will happen if the Reverse Stock Split is not approved?
A. If the Reverse Stock Split is not approved the Company may be be delisted from The NASDAQ Capital Market and the Company’s shareholders may experience decreased liquidity and/or increased volatility in the Company’s Common Stock, and a diminution of institutional investor interest. The Board also believes that such delisting could cause a loss of confidence of industry partners, customers, lenders and potential employees, which could harm our business and its future prospects
Q. Who is Soliciting my Proxy and what are the Costs?
A. The CompanyWe will pay all expenses of itsour solicitation of proxies for the SpecialAnnual Meeting. In addition to solicitations by mail, arrangements have been made for brokers and other nominees to send proxy materials to beneficial owners, and we will reimburse those brokers and other nominees for their reasonable expenses. We have not hired a solicitation firm for the meeting. Our employees and directors willmay solicit proxies by telephone or other means, if necessary; they will not receive additional compensation for these services.
The SEC has adopted rules that permit companies and intermediaries (e.g. brokers) to satisfy the delivery requirements for proxy materials with respect to two or more shareholders sharing the same address by delivering a single set of proxy materials. This process, which is commonly referred to as “householding,” potentially results in extra convenience for shareholders, cost savings for companies and conservation of paper products. We have adopted this “householding” procedure.
If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate set of proxy materials, you may:
| ● | send a written request to U.S. Energy Corp., Attn: Ryan Smith, Chief Financial Officer, 675 Bering, Suite 100, Houston, TX 77057 or call (303) 993-3200, if you are a shareholder of record; or | |
| ● | notify your broker, if you hold your shares in street name. |
Upon receipt of your request, we will promptly deliver a separate set of proxy materials to you. You may also contact us as described above if you are receiving multiple copies of our proxy materials and would like to receive only one copy in the future.
Q. Am I Entitled To Requirementsand Deadlines for Shareholders to Submit Proposals
The Annual Meeting was delayed from its previously anticipated schedule. We plan to return to our regular annual meeting schedule in 2020, including with respect to the deadlines for shareholder proposals and director nominations. We expect that our 2020 annual meeting of shareholders (the “2020 Annual Meeting”) will be held on or about July 5, 2020.
A shareholder may submit proposals for consideration at future shareholder meetings in accordance with SEC regulations under Rule 14a-8 regarding the inclusion of shareholder proposals in Company-sponsored proxy materials. Based on the expected date of the 2020 Annual Meeting, and because the date of the 2020 Annual Meeting will be changed by more than 30 days from the date of the Annual Meeting, the date by which the Company must receive shareholder proposals to be considered for inclusion in the proxy materials for the 2020 Annual Meeting is February 5, 2020, which we believe is a reasonable time before we begin to print and send the proxy materials for the 2020 Annual Meeting. In addition, shareholder proposals must otherwise comply with the requirements of Rule 14a-8 promulgated under the Exchange Act and any other applicable laws and regulations. Such proposals should be addressed to U.S. Energy Corp., Attn: Ryan Smith, Chief Financial Officer, 675 Bering, Suite 100, Houston, TX 77057.
For a shareholder proposal to be considered at our next annual meeting that will not be included in our proxy statement for that meeting (including director nominations), written notice of the proposal must be delivered to the Company’s Secretary, in accordance with the Company’s Bylaws, at least 90 calendar days, but no earlier than 120 calendar days, before the date of such meeting.
Promptly upon receiving a written request from any shareholder, we will send to the shareholder without charge a copy of our Annual Report on Form 10-K for the year ended December 31, 2018, with exhibits, as filed with the SEC. Please address your request to Ryan Smith, Chief Financial Officer, at U.S. Energy Corp., 675 Bering, Suite 100, Houston, TX 77057.
A. No action is proposed at the SpecialAnnual Meeting for which the laws of the State of Wyoming or our charter documents provide a right of our shareholders to dissent and obtain appraisal of or payment for theirsuch shareholders’ Common Stock.
Q. Can I vote on other matters?
ACORPORATE GOVERNANCE. The Company does not expect any other matter to come before the meeting. If any other matter is properly presented at the Special Meeting, the signed proxy gives the individuals named as proxies authority to vote the shares on that matter at their discretion.
Q. Can I obtain an electronic copyBoard of the proxy material?Directors, Audit, Compensation and Nominating Committees
A. Yes,We are committed to sound corporate governance principles. As evidence of this Proxy Statement,commitment, the accompanying noticeBoard has adopted charters for its committees and a Code of Special MeetingEthics. These documents, along with the Company’s Restated Articles of Incorporation (as amended, the “Articles of Incorporation”) and Bylaws, provide the framework for our corporate governance. The charters of the Audit Committee, the Compensation Committee, and the proxy cardNominating Committee may be viewed at our website (www.usnrg.com), at the tab “About Us,” then go to “Corporate Governance.” The Code of Ethics also may be viewed at that location. If these documents are amended (or if the Code of Ethics is waived in a manner requiring disclosure under SEC rules), the amendments (and the occurrence of the waiver of the Code of Ethics) will be disclosed on the website as required by the SEC. Copies of each of these documents are available on the Internet atwww.proxyvote.com.without charge to any person who requests them, by sending a request to U.S. Energy Corp., Attn: Ryan Smith, Chief Financial Officer, 675 Bering, Suite 100, Houston, TX 77057.
Board and Committee Independence
Q. What happens if the Special MeetingThe Board is adjourned or postponed?
A. Although it is not expected, the Special Meeting may be adjourned or postponed for the purpose of soliciting additional proxies. Any adjournment or postponement may be made without notice, other than by an announcement made at the Special Meeting, by approval of the holderscurrently comprised of a majority of independent directors. Specifically, the Board has determined that Catherine J. Boggs, J. Weldon Chitwood and Javier F. Pico are independent under applicable Nasdaq rules. In addition, the Audit Committee, the Compensation Committee, and the Nominating Committee are each comprised solely of independent directors as required under the applicable requirements of Nasdaq and the SEC. The Board has also determined that director nominees James W. Denny III, Randall D. Keys and D. Stephen Slack are independent under applicable Nasdaq rules.
Historically under our Bylaws, the Chief Executive Officer has served as the Chairman of the Board, responsible for setting the agenda for and presiding over Board meetings. On August 5, 2019, the Board amended and restated our Bylaws to provide that the Chairman of the Board may not be the Chief Executive Officer and shall be appointed by the affirmative vote of at least a majority of the members of the Board, unless otherwise determined by the Board. We believe the separation of the Chairman and Chief Executive Officer roles to be a best practice as it relates to strong corporate governance.
The Board currently consists of five members and it has primary responsibility for directing management of the business. During 2018, the Board consisted of four members with one vacancy. The Board held six formal meetings during 2018, which were attended, in person or by telephone, by all four of the directors serving on the Board.
Attendance at Annual Meetings by Directors
Directors are encouraged, but not required, to attend annual meetings. At the Company’s last annual meeting held on September 11, 2018, three of the four directors were in attendance.
Communications from Shareholders to the Board
The independent directors have established a process for collecting and organizing communications from shareholders. Shareholders may send communications to the Board by addressing their communications to Ryan Smith, Chief Financial Officer, at 675 Bering, Suite 100, Houston, TX 77057. Pursuant to this process, the Chief Executive Officer then reviews the communications and determines which of the communications address matters of substance that should be considered by all directors, and sends those communications to all the directors for their consideration.
To provide effective direction and review of fiscal matters, the Board has established an Audit Committee. The Audit Committee has the responsibility of reviewing our financial statements, exercising general oversight of the integrity and reliability of our accounting and financial reporting practices, and monitoring the effectiveness of our internal control systems. The Audit Committee also retains our independent outside audit firm and recommends selection of the internal audit firm. It also exercises general oversight of the activities of our independent auditors, principal financial officer, principal accounting officer, accounting employees and related matters. The current Chairman of the Audit Committee is Javier F. Pico. The Board has determined that Mr. Pico is an “audit committee financial expert” as defined in Item 407(d) of SEC Regulation S-K. The other members of the Audit Committee are J. Weldon Chitwood, who has served since May 2017, and Catherine J. Boggs, who has served since June 2019. During 2018 and until his resignation in May 2019, John Hoffman was a member of the Audit Committee. All members of the Audit Committee are independent directors under applicable Nasdaq and SEC rules.
The Audit Committee met four times in 2018. All Audit Committee members attended each meeting in person or by telephone. The Committee reviewed our financial statements for each quarter in 2018 and the year as a whole and discussed the financial statements with management and our independent audit firm. Based on the foregoing, the Audit Committee recommended to the Board at the Audit Committee meeting held on September 12, 2019 that the audited financial statements be included in our annual report on Form 10-K for the year ended December 31, 2018. The Audit Committee also reviews and reassesses the adequacy of the Audit Committee Charter on an annual basis, and the Board approved amendments to the Audit Committee Charter on August 5, 2019.
We have a Compensation Committee, the current members of which are J. Weldon Chitwood and Javier F. Pico. These members are independent under applicable criteria established by Nasdaq. During 2018 and until his resignation in May 2019, John Hoffman was a member of the Compensation Committee. The Compensation Committee met formally on one occasion in 2018 and discussed compensation matters informally several times during the year. All Compensation Committee members attended all meetings of the Committee during 2018 either in person or by telephone.
The Compensation Committee reviews and recommends to the Board compensation packages for the executive officers of the Company. The Compensation Committee may delegate to a subcommittee or to our Chief Executive Officer or other officer such of its duties and responsibilities as the Compensation Committee deems to be in the best interests of the Company, provided such delegation is not prohibited by law or Nasdaq rule.
We have a Nominating Committee, the current members of which are J. Weldon Chitwood and Javier F. Pico. These members are independent directors under Nasdaq rules. During 2018 and until his resignation in May 2019, John Hoffman was a member of the Nominating Committee. The Nominating Committee is responsible for identifying and recommending to the Board nominees for election to the Board. This process involves consulting with our Chief Executive Officer to identify qualified candidates with expertise in one of our business areas, including financial, oil and natural gas, and investment banking expertise. Once identified, the Nominating Committee reviews the qualifications (including capability, availability to serve, conflicts of interest, and other relevant factors) of any identified potential director candidate and, where necessary, assists in interviewing such candidate. It recommends to the Board appropriate nominees for election to be included in the proxy statement for the annual shareholders meeting. The Nominating Committee did not hold any meetings during 2018.
The Nominating Committee (which is comprised solely of independent directors) considers and recommends to the Board individuals who may be suitable to be nominated to serve as directors. All director candidates recommended by a shareholder, or a director or officer, will be evaluated by the Nominating Committee in good faith. The Nominating Committee considers diversity in identifying nominees for director, but has not adopted a formal, written diversity policy. The charter of the Nominating Committee sets forth a procedure for shareholders to follow in recommending director candidates to the Committee. Pursuant to the charter, a nominating shareholder should provide a written request that the Committee consider a particular candidate at least 90 days prior to the meeting at which the candidate would be elected. The request must include specified information about the candidate, including a discussion of his or her background and experience, and related matters, and the candidate must have certain attributes and experience, in each case as described in the charter.
For the Annual Meeting, the Nominating Committee did not receive a request from any shareholder for consideration of a director nominee candidate.
The Executive Committee helps implement the Board’s overall directives as necessary. Members include C. Randel Lewis and Javier F. Pico. The Executive Committee does not regularly conduct formal meetings. The Executive Committee did not hold any meetings during 2018.
The Company has a Hedging Committee to review and approve the use of all swap agreements. The current members are C. Randel Lewis and J. Weldon Chitwood. The Hedging Committee did not formally meet in 2018 but discussed hedging matters informally several times during the year.
We face various risks in our business, including liquidity and operational risks. Liquidity risk is encountered in the context of balancing contractual commitments to spend capital and also is involved in our hedging commitments for oil and natural gas price protection. Any change in our hedging strategy will require the approval of the Board and the Hedging Committee.
General business operations are managed by our Chief Executive Officer, who reports to the Board. An annual budget is approved by the Board, with appropriate modifications as needed throughout the year by the Board. However, material budget variations are subject to prior approval by the Board, even if the category and fund allocation generally had been previously approved by the Board. In these situations, the Chairman will call a Board meeting to discuss specific terms, costs and variables, and associated risks, before committing the Company. We believe this process provides the Board with a continuing and key role in risk oversight.
We do not believe that our compensation programs encourage excessive risk taking. Risk mitigating factors of our compensation program and Board governance include:
| ● | A mix of short-term and long-term incentives designed to incentivize creation of long-term shareholder value; and | |
| ● | Caps on awards under our bonus programs, along with the use of targeted performance goals designed to emphasize metrics that lead to long-term shareholder value creation. |
Principal Holders of Voting Securities and Ownership by Officers and Directors
The following table sets forth certain information regarding the beneficial ownership of our Common Stock as of October 21, 2019 by (a) each shareholder who is known to us to own beneficially 5.0% or more of our outstanding Common Stock; (b) each of our directors and director nominees; (c) each of our executive officers, and (d) all directors and executive officers as a group. This information is based on SEC reports or as otherwise known by us. Except as otherwise indicated, and except for shares subject to forfeiture, all persons listed below have (i) sole voting power and investment power with respect to their shares of Common Stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of Common Stock.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of Common Stock that such person has the right to acquire within 60 days of October 21, 2019. For purposes of computing the percentage of outstanding shares of our Common Stock present inheld by each person or represented by proxy atgroup of persons named above, any shares that such person or persons has the Special Meeting, whether orright to acquire within 60 days of October 21, 2019 is deemed to be outstanding but is not a quorum exists. Any adjournment or postponement of the Special Meetingdeemed to be outstanding for the purpose of soliciting additional proxies will allow shareholders who have already sentcomputing the percentage ownership of any other person. Such options are assumed to be exercised for purposes of these calculations, even though such exercise prices are currently in their proxies to revoke them atexcess of the closing price of our Common Stock of $0.48 per share as of October 21, 2019. The inclusion herein of any time before their use.shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors, director nominees and officers is c/o 675 Bering, Suite 100, Houston, TX 77057.
| Title of Class | Name of Beneficial Owner | Position with Company | Beneficial Ownership | Percent of Class | ||||||||
| Directors, Director Nominees and Executive Officers | ||||||||||||
| Common | C. Randel Lewis | Custodian, Interim Chief Executive Officer, Director | — | * | ||||||||
| Common | Ryan L. Smith | Chief Financial Officer | 216,817 | (2) | 1.6 | % | ||||||
| Common | Catherine J. Boggs | Director | — | (3) | * | |||||||
| Common | J. Weldon Chitwood | Director | 20,000 | (3) | * | |||||||
| Common | Javier F. Pico | Director | 20,000 | (3) | * | |||||||
| Common | David A. Veltri | Director, Former Chairman and Chief Executive Officer | 273,665 | (1) | 2.0 | % | ||||||
| Common | Directors and executive officers as a group (6 people) | 530,482 | 3.9 | % | ||||||||
| Common | James W. Denny III | Director Nominee | — | * | ||||||||
| Common | Patrick E. Duke(6) | Director Nominee | 5,819,270 | (7) | 43.4 | % | ||||||
| Common | Randall D. Keys | Director Nominee | — | * | ||||||||
| Common | D. Stephen Slack | Director Nominee | — | * | ||||||||
| Shareholders in Excess of 5% | ||||||||||||
| Common | APEG Energy II, L.P.(6) | Shareholder | 5,819,270 | (4) | 43.4 | % | ||||||
| Series A Convertible Preferred | Mt. Emmons Mining Company 333 N. Central Avenue Phoenix, AZ 85004 | Series A Convertible Preferred | 793,349 | (5) | 5.6 | %** | ||||||
* Less than one percent
**Represents percent of outstanding Common Stock assuming full conversion of Series A Convertible Preferred shares into Common Stock. Mt. Emmons Mining Company owns 100% of outstanding Series A Convertible Preferred shares.
| (1) | Mr. Veltri’s beneficial ownership consists of (i) ownership of 256,998 shares of our Common Stock, and (ii) 16,667 shares underlying stock options that are presently exercisable. | |
| (2) | Mr. Smith owns 94,500 shares of our Common Stock, vested stock options to purchase 50,000 shares, which are presently exercisable, and stock options to purchase 50,000 shares that vest in November 2019. Mr. Smith’s beneficial ownership also includes 22,317 shares currently owned by the ESOP that Mr. Smith has dispositive power over as an ESOP Trustee. | |
| (3) | Independent directors were issued 20,000 options to purchase shares of our Common Stock on August 16, 2017 for their service on the board of directors. Ms. Boggs was not a director on August 16, 2017. | |
| (4) | APEG Energy II, L.P. beneficial ownership based on information disclosed in the Form 3 filed with the Securities and Exchange Commission on April 24, 2019. | |
| (5) | On February 11, 2016, Mt. Emmons Mining Company, a subsidiary of Freeport-McMoRan Inc., acquired 50,000 shares of our Series A Convertible Preferred Stock (“Series A Preferred Stock”) with an initial liquidation preference of $2,000,000 ($40.00 per share). The Series A Preferred Stock accrues dividends at a rate of 12.25% per annum and such dividends are not payable in cash but are accrued and compounded quarterly in arrears and added to the initial liquidation preference. As of December 31, 2018, the adjusted liquidation preference was approximately $2.9 million. In no event will the aggregate number of shares of Common Stock issued upon conversion be greater than 793,349 shares. The Series A Preferred Stock will generally not vote with the Company’s Common Stock on an as-converted basis on matters put before the Company’s shareholders. | |
| (6) | Address is 2808 Flintrock Trace Suite 373, Austin, Texas 78738. | |
| (7) | Mr. Duke may be deemed to indirectly beneficially own these shares, which are beneficially owned by APEG Energy II, L.P. Mr. Duke has shared voting power and shared investment power over these shares. |
PROPOSAL 1: ELECTION OF DIRECTORS
Q. What do I needOur Board currently consists of five directors, Catherine J. Boggs, J. Weldon Chitwood, C. Randel Lewis, Javier F. Pico and David A. Veltri. However, during the year ended December 31, 2018 our Board consisted of only four directors, J. Weldon Chitwood, John Hoffman, Javier F. Pico and David A. Veltri, and we had one vacancy on the Board. The four-person Board ended up in deadlock on important votes. John Hoffman resigned as a director on May 22, 2019. On May 30, 2019, the Colorado Federal Court issued an order appointing Randel Lewis as our Custodian pursuant to do now?the Wyoming Business Corporation Act, interim Chief Executive Officer and Chairman of the Board. The order noted that the primary purpose of having Mr. Lewis serve as Custodian was to allow for resolution of the aforementioned Board deadlock. Pursuant to the order, Mr. Lewis, as Custodian, was ordered to act in place of the Board to appoint one independent director to replace Mr. Hoffman. On June 13, 2019, Mr. Lewis appointed Catherine J. Boggs to serve as an independent director until the next annual meeting of our shareholders. Following the Annual Meeting, our directors are to vote on a new Chief Executive Officer to replace Mr. Lewis in that role, and Mr. Lewis will be discharged from serving as our Custodian, interim Chief Executive Officer and as a member of our Board. For more information regarding the Board deadlock and the appointment of Mr. Lewis as Custodian, see “Litigation – Litigation with Former Chief Executive Officer” below.
Our Articles of Incorporation provide for the division of our Board into three classes as equal in number as the total number of members of the Board provided in our Bylaws permit. Our Bylaws limit service of the independent directors to two three-year terms. If recommended by the Chairman of the Board and approved by the Board, an independent director may serve one additional three-year term.
The Board seats currently held by Mr. Veltri, our former Chief Executive Officer, President and Chairman, and Mr. Chitwood expire in 2019 and are up for election at the Annual Meeting. Neither Mr. Veltri nor Mr. Chitwood will stand for re-election. Additionally, Mr. Lewis, our court-appointed Custodian and interim Chief Executive Officer and Chairman of the Board, and Ms. Boggs, the independent director appointed by Mr. Lewis pursuant to a court order, will only serve through the Annual Meeting and will not stand for re-election. We will have a total of four Board seats up for election at the Annual Meeting. The Board has nominated James W. Denny III and Patrick E. Duke to fill the Class Two director seats that will expire in 2021 and Randall D. Keys and D. Stephen Slack to fill the Class One director seats that will expire in 2022. Mr. Pico currently holds the sole Class Three board seat, which expires in 2020, and therefore Mr. Pico’s seat is not up for election at the Annual Meeting. Each of James W. Denny III, Patrick E. Duke, Randall D. Keys and D. Stephen Slack was recommended for nomination by the Nominating Committee and confirmed for nomination by the Board.
Our executive officers, unless otherwise subject to an employment agreement, are selected by the Board at the annual directors’ meeting that follows each annual shareholders’ meeting, to serve until the officer’s successor has been duly elected and qualified, or until earlier death, retirement, resignation or removal. Following the Annual Meeting, our Board will appoint a new Chief Executive Officer to replace Randel Lewis, our court-appointed Custodian and interim Chief Executive Officer and Chairman. Please see biographical information for our sole executive officer below, under the heading“Business Experience of Current Directors and Officers and Director Nominees.”
APEG Energy II, L.P. (“APEG II”) and its general partner, APEG Energy II, GP (together with APEG II, “APEG”) are involved in litigation with the Company and our former Chief Executive Officer, David Veltri, as described below. APEG II holds approximately 43% of our outstanding Common Stock and was our secured lender prior to read this Proxy Statement carefully. Thenthe maturity on July 30, 2019 of a credit facility the Company had with APEG II. The costs associated with the ongoing litigation have been a significant use of our existing cash. While we have historically funded all litigation costs out of operating cash flow, continued excessive legal fees associated with litigation could impair our liquidity profile and ability to fund significant drilling obligations.
| 8 |
APEG II Litigation
On February 14, 2019, our Board received a letter from APEG II, our largest shareholder and, at that time, our secured lender under the credit facility, urging the Company to work with APEG II and other shareholders to establish a seven-person, independent board of directors, establish a corporate business plan and reduce our corporate general and administrative expenses.
On February 25, 2019, APEG II provided an access termination notice to our bank under our collateral documents, and the bank confirmed to the Company that access to our collateral accounts was terminated. On February 26, 2019, APEG II provided account disposition instructions to our operating subsidiary’s bank instructing the bank to deliver to APEG II all of the funds held in the collateral accounts, which totaled $1,794,294. The funds were wired by the bank to APEG II on March 1, 2019.
On March 1, 2019, David Veltri, our former Chief Executive Officer and President, filed a lawsuit against APEG II in the Company’s name (the “Texas Litigation”) by filing an Original Petition and Application for Temporary Restraining Order, Temporary Injunction, Permanent Injunction, and Appointment of Receiver, Case No. 2019-15528 (the “Action”), in the District Court of Harris County Texas, 190th Judicial District (the “State Court”), naming APEG II and its general partner as defendants. The State Court granted the motion for a temporary restraining order (“TRO”) and ordered APEG to return your completed, datedimmediately the $1,794,294 in cash previously wired to APEG II.
On March 4, 2019, APEG II filed a Notice of Removal and signed proxy card as soon as possible so that your shares can be votedan Emergency Motion to Stay or Modify State Court Temporary Restraining Order in the United States District Court for the Sothern District of Texas, Houston Division, Case No. 4:19-cv-00754 (the “Texas Federal Court”), in order to remove the Texas Litigation from the State Court to the Federal District Court and to stay or modify the TRO. Following a hearing on March 4, 2019, the Texas Federal Court vacated the TRO. On March 7, 2019, at the Special Meeting. Holderscontinued hearing on emergency motions, the Court ordered APEG to return our funds, less the outstanding balance due to APEG II under the credit facility of record also$936,620, and we received back $857,674.
On February 25, 2019, the Board held a meeting at which it voted to terminate for cause Mr. Veltri from his position as Chief Executive Officer and President as a result of using Company funds in excess of, and inconsistent with, certain authority granted by the Board and other reasons. Mr. Veltri, along with John Hoffman, a member of the Board, called into question whether or not such action was properly taken at the Board meeting. On March 8, 2019, our Audit Committee, as an official committee of the Board, represented by independent counsel retained by the Audit Committee, intervened by filing in the Texas Litigation an Emergency Motion of the Official Audit Committee of the Board of U.S. Energy Requesting Company Protections Necessary for Releasing Funds Pending Internal Investigation (the “AC Motion”). The AC Motion requested that the Texas Federal Court order that all of the Company’s funds, financial, and monetary matters be placed under the control of our Chief Financial Officer and that control of these functions be removed from our Chief Executive Officer, who the Audit Committee believed had been properly terminated by the Board on February 25, 2019.
On March 12, 2019, the Texas Federal Court granted the AC Motion and issued an additional Management Order, ordering that any disbursement made by us must be approved in writing by the Audit Committee in advance. Additionally, the Management Order stated that our Chief Financial Officer must be appointed as the sole signatory on all of our bank accounts.
Litigation with Former Chief Executive Officer
In connection with the above described litigation with APEG II, APEG II then initiated a second lawsuit on March 18, 2019 as a shareholder derivative action in Colorado against Mr. Veltri, our former Chief Executive Officer, Chairman of the Board, and President, as a result of his refusal to recognize the Board’s decision to terminate him for cause (the “Colorado Litigation”). The Company was named as a nominal defendant in the Colorado Litigation, Civil Action No. 1:19-cv-00801 before the United States District Court for the District of Colorado (the “Colorado Federal Court”), filed on March 18, 2019.
The APEG II complaint in the Colorado Litigation alleged that Mr. Veltri’s employment was terminated by the Board of Directors and sought an injunction and temporary restraining order against Mr. Veltri to prevent him from continuing to act as Chief Executive Officer, President and Chairman, which he claimed he was entitled to continue doing. Mr. Veltri currently remains a member of the Board but will not stand for re-election.
Meanwhile, APEG II asserted claims against the Company directly in the Texas Litigation, while in roughly the same period, counsel for Mr. Veltri withdrew from the Texas Litigation, leaving the Company without counsel with respect to the claims asserted in the Company’s name and the APEG II claims asserted against the Company in the Texas Litigation. The Texas Federal Court ordered the Audit Committee to identify counsel to represent or act in the name of the Company in the Texas Litigation on or by April 30, 2019. On that date, the Audit Committee took over the control of the defense of the Company, prosecution of its claims against APEG II, and filed third-party claims on our behalf against Mr. Veltri and John Hoffman, asserting that Mr. Veltri was responsible for any damages that APEG II claims, including attorneys’ fees, and that Mr. Veltri and Mr. Hoffman should be removed from the Board of Directors in accordance with the laws of the State of Wyoming. On May 22, 2019, the Company and APEG II entered into a settlement agreement with Mr. Hoffman pursuant to which Mr. Hoffman agreed to resign from the Board of Directors and committees thereof, and we agreed to pay up to $50,000 of Mr. Hoffman’s legal fees incurred with respect to the Texas Litigation. Further, we released Mr. Hoffman from any claims related to the Texas Litigation, APEG II released the Company from any claims that may votehave been caused by telephoneMr. Hoffman, and Mr. Hoffman released the Company and two of our current directors from any and all claims Mr. Hoffman may have.
In the Colorado Litigation, the Colorado Federal Court entered an order on May 16, 2019 (the “Order”) granting interim preliminary injunctive relief to APEG II against Mr. Veltri, holding that Mr. Veltri, without authorization, continued to hold himself out to be and continued to act as our President and Chief Executive Officer. Pursuant to the Order, Mr. Veltri was preliminarily enjoined from acting as, or Internetholding himself out to be, our President and/or Chief Executive Officer. Ryan Smith, our Chief Financial Officer, was appointed temporary Custodian of the Company with the charge to act as our interim Chief Executive Officer.
On May 30, 2019, and following briefing by following the instructionsparties to the Colorado Litigation, the Colorado Federal Court issued a subsequent order (the “Second Order”) appointing C. Randel Lewis as Custodian of the Company pursuant to the Wyoming Business Corporation Act and to take over for Mr. Smith in acting as our interim Chief Executive Officer and to serve on the proxy card.Board of Directors as Chairman. As noted in the Second Order, two of our Board members had moved in the Board meeting on February 25, 2019 to terminate Mr. Veltri as President and Chief Executive Officer for cause by a vote of two to one. However, there was a dispute among the Board members as to whether the Board meeting was properly called and whether Mr. Veltri should have been allowed to vote on his own termination. The outcome of the vote on Mr. Veltri’s termination was in dispute as Mr. Veltri contended that he should have voted on his termination, and had he voted, Mr. Veltri would have voted against his own termination, thus creating a board deadlock preventing his termination. Specifically, Mr. Veltri contended the Board, which consisted of four members at that time, remained deadlocked on the issue, which prompted APEG II to file the above-mentioned suit against Mr. Veltri to have him removed as President and Chief Executive Officer. The Second Order noted that the primary purpose of having Mr. Lewis serve as Custodian was to resolve the aforementioned Board deadlock. Pursuant to the Second Order, Mr. Lewis, as Custodian, was ordered to act in place of the Board to appoint one independent director to replace Mr. Hoffman. On June 13, 2019, Mr. Lewis appointed Catherine J. Boggs to serve as an independent director until the next annual meeting of our shareholders. Following the Annual Meeting, the Board is to vote on a new Chief Executive Officer to replace Mr. Lewis in that role, and Mr. Lewis will be discharged from serving as the Company’s Custodian, interim Chief Executive Officer and as a member of the Board.
Q. WhoFollowing the issuance of the Second Order, the Audit Committee, which had been continuing its investigation into Mr. Veltri’s actions while he served as President and Chief Executive Officer, engaged an independent accounting firm to conduct a forensic accounting of our books and records in an effort to determine whether certain of Mr. Veltri’s actions regarding his use of Company funds was appropriate and authorized. See “Audit Committee Investigation” below. Following the completion of such investigation, the Audit Committee met on June 21, 2019 and voted unanimously to recommend to the Board to reaffirm its termination of Mr. Veltri for cause by ratifying its prior actions at the Board meeting on February 25, 2019. The Board, which following the issuance of the Second Order was reconstituted with all five members as required by our Bylaws and the Second Order, met on August 5, 2019 and received a report from the Audit Committee. Following such report, the Board approved and ratified the termination of Mr. Veltri as President and Chief Executive Officer for cause.
Both the Texas Litigation and the Colorado Litigation remain pending. On September 18, 2019, APEG II filed a motion for voluntary dismissal with the Colorado Federal Court seeking to dismiss the Colorado Litigation, to discharge Randel Lewis as Custodian and interim Chief Executive Officer and a director, and reimbursement of its expenses and attorneys’ fees that it incurred in connection with the Colorado Litigation. In its motion for dismissal, APEG II stated that its claims (i) to request a declaratory judgment that Mr. Veltri was validly terminated as Chief Executive Officer and President of the Company by the Board on February 25, 2019 and (ii) to request an injunction enjoining Mr. Veltri from acting as the Chief Executive Officer and President of the Company have both been addressed and are now moot. On October 16, 2019, Mr. Veltri filed his response to the motion for dismissal. In his response, Mr. Veltri argued that APEG II’s motion for dismissal should be denied by the Federal Court because (i) the Company should continue to operate under the guidance of the independent Custodian pending the outcome of a trial on the merits of the action, (ii) until the Custodian provides the Company with all of the relief set forth in the Second Order, the claims in the Colorado Litigation are not moot and the action should not be dismissed, (iii) the other Company shareholders’ interests will otherwise be negatively impacted if the Custodian is prematurely dismissed as the Company would be left without a Chief Executive Officer to run the Company’s business, the Board would again become a four-member Board subject to deadlock, and there would be no one to ensure the Annual Meeting occurs, and (iv) APEG II should not be entitled to any attorneys’ fees. As of October 22, 2019, the Colorado Federal Court had not yet ruled on APEG II’s motion for dismissal or Mr. Veltri’s response.
Audit Committee Investigation
Following the termination of our former Chief Executive Officer, President and Chairman of the Board on February 25, 2019, the Company’s independent auditors, Plante & Moran PLLC, informed the Audit Committee that the auditors had found at least one instance of irregularities in the submission and payment of expense reports with respect to the former Chief Executive Officer. Our Audit Committee engaged independent legal counsel, which engaged an independent accounting firm to conduct a forensic accounting investigation of our expense reporting system in relation to issues raised by our independent auditors regarding potential financial improprieties related to expense reports, including examining expense reports and third-party expenditures made by or through the former Chief Executive Officer or his staff. The investigation was expanded into a forensic investigation of the integrity of our computer-based record keeping after Mr. Veltri and Mr. Hoffman managed to reset the security codes to give them complete control of our books and records temporarily and exclude our other officers and directors from accessing those records during that period, which further raised concerns with respect to material weaknesses in our internal control over financial reporting. The scope of the forensic accounting and investigation covered the period from January 1, 2017 through March 31, 2019. The Audit Committee has taken certain steps in response to the forensic accounting investigation.
The forensic accounting investigation was completed on June 13, 2019 and resulted in the finding of a number of irregularities and reimbursements for personal expenses or expenses that were unrelated to furthering the Company’s business. An expense report was submitted in October 2018 that included $1,537 for the registration of a vehicle owned by an affiliated entity of Mr. Hoffman, as well as insurance premiums for the vehicle totaling $813. Mr. Hoffman repaid the Company in full for such amounts in connection with his resignation and settlement agreement with the Company in May 2019. It is possible that these payments by the Company on behalf of Mr. Hoffman could be deemed to be in violation of Section 402 of the Sarbanes-Oxley Act of 2002. However, we have not made a determination as of the date hereof if such payments resulted in a violation of that provision. If, however, it is determined these payments violated the prohibitions of Section 402, we could be subject to investigation and/or litigation that could involve significant time and costs and may not be resolved favorably. We are unable to predict the extent of its ultimate liability with respect to these payments. The costs and other effects of any future litigation, government investigations, legal and administrative cases and proceedings, settlements, judgments and investigations, claims and changes in this matter could have a material adverse effect on our financial condition and operating results.
In addition, the investigation found that our former Chief Executive Officer and President, David Veltri, had expense reports that consistently lacked detailed receipts and descriptions of the business purpose of each expense. The expense reimbursements did not go through a review process or require Board approval or approval from any other employee, as we did not have in place any expense report policy or other process for pre-approving expenses prior to incurring such expense. Mr. Veltri was the sole signatory on our bank accounts and effectively had sole authority to approve his own expense reports when he provided reimbursement checks to himself and controlled all funds of the Company.
The forensic accounting investigation and our internal investigation also identified numerous expense items on Mr. Veltri’s expense reports that appeared to be personal in nature, or lacked adequate documentation showing that such expense was for legitimate business purposes. These expense items totaled at least $81,014, of which $32,194 was incurred during the year ended December 31, 2017, $34,203 was incurred during the year ended December 31, 2018 and $14,617 was incurred during 2019 prior to Mr. Veltri’s termination. We have reclassified the entire $81,014 reimbursed to Mr. Veltri as additional compensation and taxable income. In addition, we have accrued payroll taxes payable on the additional compensation, however, we have not accrued penalties and interest that may be assessed because the amount of such penalties and interest cannot be reasonably determined.
The report also indicated that Mr. Veltri used the Company’s vendors for his own personal benefit. Mr. Veltri bypassed our accounts payable process by paying third-party vendors personally through expense reports and then approved his own expense reports, which limited the visibility of the payments and review by our accounting personnel. Mr. Veltri personally obtained reimbursements for several charges incurred by a consultant hired by the Company, which consultant potentially had a conflict of interest with the Company. The reimbursements totaled $2,710, and such reimbursements were highly unusual since the consultant included its expenses directly on its own invoices. The independent accounting firm conducting the forensic accounting investigation called into question other payments made to the consultant because of the vagueness of the work descriptions and project details provided by the consultant, and the independent accounting firm questioned Mr. Veltri’s judgment and the legitimacy of the services provided by the consultant for which we paid a total of $38,774. The forensic investigation revealed that Mr. Veltri may have made personal loans to the owners of the consulting firm, which indicates that a conflict of interest existed between Mr. Veltri’s personal interests and the Company’s best interests.
Mr. Veltri also incurred $47,156 in third-party professional fees in connection with a potential transaction with a company controlled by a former Board member, which transaction and related expenses in evaluating the potential transaction were not approved by the Board. The professional fees when incurred were treated as unevaluated prospect cost and included in unproved oil and gas properties. At December 31, 2018, the total amount of the fees was impaired and transferred to the full cost pool.
Mr. Veltri also entered into an agreement to acquire some oil and natural gas properties for which the Board authorized $250,000, which amount was fully refundable, subject to the funds being held in escrow pending the closing of the acquisition. Mr. Veltri wired the funds directly into the seller’s account, rather than escrowing such funds, and also paid the seller an additional amount of $124,328, which amount was not authorized by the Board, as well as $40,578 for professional services. The transaction never closed. We are currently seeking a refund of such funds from the seller, who made a partial payment of $50,000 in September 2019. While we are pursuing collection of the deposit, we have established an allowance for the remaining $324,328 due from the seller due to the uncertainty of collection of the deposit.
Business Experience of Current Directors and Officers and Director Nominees
Set forth below is certain biographical information for each director and executive officer as of the date of this filing. The Nominating Committee selects director nominees based on their skills, achievements, and experience, and believes that each nominee should have experience in positions of responsibility and leadership and an understanding of our oil and natural gas exploration and production business. Our overall objective is to identify a group of directors that can help answer mybest contribute to our long-term success. All of the directors and the nominees discussed below are seasoned leaders who collectively bring to the Board a vast array of oil and natural gas industry, public company and private company and other questions?business experience, all at the senior executive officer level, and who meet our director qualification standards. Among other attributes, the members of our Board possess a wide breadth of varied skills, experience and leadership in the natural resources and energy industries, finance and accounting, risk management, operations management, strategic planning, business development, regulatory and government affairs, corporate governance, human resources and compensation, and public policy—qualities that led the Nominating Committee and the Board to conclude that these individuals should serve as our directors at this time, in light of our business and structure, overall industry environment, and our long-term strategy. The specific experiences, qualifications, attributes, and skills of each director and nominee are briefly described below. In addition, the directors and nominees represent diverse backgrounds, skill sets, and viewpoints, with a blend of historical and fresh perspectives, and have a demonstrated ability to work collaboratively with candid discussion.
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Catherine J. Boggs(65) - Independent Director.Ms. Boggs was appointed to the Board by our court-appointed Custodian and interim Chief Executive Officer on June 13, 2019. Ms. Boggs will serve on our Board until the Annual Meeting. Ms. Boggs was appointed to the Board of Directors of Hecla Mining Company, a publicly traded company, in January 2017 and continues to serve on this board. Ms. Boggs served as General Counsel at Resource Capital Funds from January 2011 until her retirement in February 2019. Prior to that, she served as Senior Vice President, Corporate Development at Barrick Gold Corporation from January 2009 to December 2010 and Vice President from July 2005 to 2008. Ms. Boggs was also an international partner at the law firm of Baker & McKenzie from July 2001 to July 2005. She has 37 years of experience as a mining and natural resources lawyer with experience in domestic and international mining projects.
AJ. Weldon Chitwood(54) - Independent Director. Mr. Chitwood was appointed to the Board on May 8, 2017 and will continue to serve as a director until the Annual Meeting. If you haveMr. Chitwood served as President, Director, and Regional Vice President of Shaw Industries Subsidiaries, Spectra Flooring and Carpets International in Seattle, San Francisco and London from 1988 to 2005. Since that time he has served in various executive and board of director roles for Brand Partners from 2003 to 2004, Beaulieu Group from 2005 to 2013, Mohawk Industries from 2014 to 2016, Vice President, Real Estate Operations for Angelus Private Equity Group from 2016 to 2018, and is currently Regional Vice President with Happy Feet International. With the exception of Angelus Private Equity Group, the parent organization of APEG Energy II, L.P., which is an affiliate of the Company, none of the entities with which Mr. Chitwood has been employed is a parent, subsidiary, or affiliate of the Company. The Board has concluded that Mr. Chitwood’s experience qualifies him for service as an independent director and as a member of the Compensation, Audit, Hedging and Nominating Committees.
James W. Denny III (72) – Independent Director Nominee (Class Two). Mr. Denny possesses more questions aboutthan 45 years of industry related experience. Mr. Denny previously served as Executive Vice President of Operations for Lilis Energy during 2018 and 2019. Mr. Denny served as Vice President at Siltstone from 2016 to 2018 and as Magnum Hunter Resource Corporation’s Executive Vice President of Operations and as President of the Exchange Proposal,Appalachian Division from 2007 to 2016. Mr. Denny also served as President and Chief Executive Officer of Gulf Energy Management Company, a wholly-owned subsidiary of Harken Energy Corporation from 2002 to 2007. In his capacity as President and Chief Executive Officer of Gulf Energy Management, Mr. Denny was responsible for all facets of Gulf Energy Management’s North American operations. He is a registered professional engineer in the Reverse Stock Split, or voting, you should contact Ryan Smith,state of Louisiana and is a certified earth scientist. He is also a member of various industry associations, including the American Petroleum Institute, the National Society of Professional Engineers, the Society of Petroleum Engineers and the Society of Petroleum Evaluation Engineers. He is a graduate of the University of Louisiana-Lafayette with a Bachelor of Science in Petroleum Engineering. The Board has concluded that Mr. Denny’s experience qualifies him for service as an independent director and as a member of the Audit, Compensation and Nominating Committees.
Patrick E. Duke (54) –Director Nominee (Class Two). Mr. Duke is the managing partner of The Angelus Group, which he co-founded in 2014, and also is the founder, president, and managing director of Duke Capital, which has been operating for approximately 17 years, and was president of Lone Star Builders. Before that, as CEO of Ameracall and National Wireless, Mr. Duke revolutionized the marketing of wireless services for Southwestern Bell, Century, Cellunet, and Bell South. As their largest agent, he delivered more than 10,000 customers per month. He also has extensive experience in negotiating public-switched telephone (PSTN) agreements. As an investment banker for Sun Technologies, Mr. Duke was responsible for developing and managing market targeted acquisitions totaling more than $200 million in various technology sectors. Mr. Duke’s professional experience includes high levels of success in multiple industries: energy, real estate, investing, and technology. To date, Mr. Duke has been involved in predominantly onshore oil and gas transactions exceeding a total of $150 million. In addition, he co-founded an oil and gas exploration company that was eventually sold to Placid Oil Company, which is owned by the Hunt Family in Dallas, Texas. As president of Lone Star Building and Remodeling, Mr. Duke used his Certified Real Estate Appraiser background to value, purchase, refurbish, and sell over $300 million in value-added real estate properties in Texas, particularly in and around strategic locations in Austin, Houston, and Dallas.
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Randall D. Keys (60) – IndependentDirector Nominee (Class One). Mr. Keys served as Chief Executive Officer of Evolution Petroleum Corporation, a NYSE-listed exploration and production company, prior to his retirement in 2018. He joined Evolution in 2014 as Chief Financial Officer. Mr. Keys has over 35 years of experience in the oil and gas industry, including positions as Chief Financial Officer of public energy companies. He earned a B.B.A. in Accounting from the Company, by calling 303-993-3200. If your shares are heldUniversity of Texas at Austin and began his career with the accounting firm of KPMG. The Board has concluded that Mr. Keys’ broad experience in the energy industry qualifies him for service as an account atindependent director. Further, his experience as a broker, dealer, commercial bank, trust company or other nominee, you also should call that broker or other nominee for additional information.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTSfinancial officer in public energy companies, experience with SEC reporting requirements and his education and prior certification as a CPA qualifies him to serve as an Audit Committee Financial Expert.
Certain statements containedC. Randel Lewis(60) – Custodian/Interim Chief Executive Officer/Director.Mr. Lewis was appointed to the Board as chairman on May 30, 2019 per court order. Mr. Lewis will serve as a director, interim Chief Executive Officer and court-appointed Custodian through the Annual Meeting. Mr. Lewis has extensive experience in or incorporateddeveloping and managing successful business solutions in highly contested environments. He serves regularly as a court-appointed receiver, liquidating trustee, turnaround advisor, expert witness and mediator in distressed business situations. Mr. Lewis is a fellow of the College of Law Practice Management and a founding fellow of the Redwood Think Tank (an invitation-only management forum assembled to study and formulate solutions to significant professional service firm management issues). He is a regular contributor to the professional education programs of the Turnaround Management Association and the Urban Land Institute. He is a member of the National Association of Corporate Directors and the Society of Corporate Governance Professionals. He was a co-instructor of mediation and negotiation at the Stanford Law School and is a guest lecturer on Receivership and Creditors’ Rights issues.
Javier F. Pico(60) - Independent Director (Class Three). Mr. Pico was appointed to the Board on May 8, 2017 and elected by reference intothe shareholders on July 17, 2017. Mr. Pico has practiced law for 27 years and has been the Managing Partner of Javier F. Pico, P.C. Law Offices in Boston, Massachusetts since 1992 where he practices business, real estate and immigration law. He received his Juris Doctor from the Boston University School of Law and is licensed to practice law in New York and Massachusetts. The Board has concluded that Mr. Pico’s experience qualifies him for service as an independent director and as a member of the Audit, Compensation and Nominating Committees.
D. Stephen Slack (70) – IndependentDirector Nominee (Class One). Mr. Slack is the former President and Chief Executive Officer of South Bay Resources, L.L.C., a privately held oil and gas exploration and production company, and of its subsidiary South Bay Resources Canada, Inc. Prior to founding South Bay in 2001, Mr. Slack served as Senior Vice President and Chief Financial Officer of Pogo Producing Company, Inc. (formerly NYSE: PPP), an independent oil and gas producer, from 1988 to 1998, and as a director from 1990 to 1998. From March 2003 to August 2010, Mr. Slack served as a director of The Cornell Companies, Inc. (formerly NYSE: CRN). During his tenure, Mr. Slack served as chair of the Audit Committee, the Committee’s designated financial expert and as a member of the Compensation Committee. Mr. Slack received his bachelor’s degree from the University of Southern California and his Master of Business Administration (M.B.A.) from Columbia University.The Board has concluded that Mr. Slack’s experience qualifies him for service as an independent director and as a member of the Audit, Compensation and Nominating Committees.
Ryan L. Smith(36) – Chief Financial Officer. Mr. Smith has served as our Chief Financial Officer since May 2017 and consulted for us from January 2017 to May 2017. Prior to this Proxy Statement, or filings withposition, Mr. Smith served as the SecuritiesChief Financial Officer of Emerald Oil Inc. from September 2014 to January 2017 and Exchange Commission (the “SEC”)its Vice President of Capital Markets and our public releases contain forward looking statements intendedStrategy from July 2013 to qualifySeptember 2014. Prior to joining Emerald Oil, Mr. Smith was a Vice President in the Investment Banking Group of Canaccord Genuity and focused solely on the energy sector. Mr. Smith joined Canaccord Genuity in 2008 and was responsible for the safe harborsexecution of public and private financing engagements along with mergers and acquisitions advisory services. Prior to joining Canaccord Genuity, Mr. Smith was an Analyst in the Energy Group of Wells Fargo, working solely with upstream and midstream oil and gas companies. Mr. Smith holds a Bachelor of Business Administration degree in Finance from liability established byTexas A&M University.
David A. Veltri(61) – Director.Mr. Veltri served as the Securities ActCompany’s President and Chief Executive Officer from September 2015 until his termination in February 2019, and he previously served as the Company’s President and Chief Operating Officer beginning in December 2014. Since December 2015, Mr. Veltri has served as a director of 1933,the Company and will continue to serve as amended (the “Securities Act”)a director until the Annual Meeting. Mr. Veltri served as Chief Operating Officer of Emerald Oil, Inc. from November 2012 until December 2014. Mr. Veltri served as an independent petroleum engineering consultant from October 2011 through November 2012. From August 2008 through September 2011, Mr. Veltri served as Vice President/General Manager of Baytex Energy USA Ltd., where he managed business unit operations, capital drilling programs, lease maintenance and producing properties in the Williston Basin in North Dakota. From September 2006 to July 2008, Mr. Veltri was Production Manager at El Paso Exploration and Production Company, where he managed producing oil and natural gas properties located in northern New Mexico. Mr. Veltri received a Bachelor of Science in Mining and Engineering from West Virginia University.
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Delinquent Section 16(a) Reports
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include information concerning the Exchange, the Reverse Stock Split, future financial results, future production, directors, executive officers, and reserves, schedules, plans, timing of development, contributions from oil and natural gas properties and marketing and midstream activities, and also include those statements accompanied by or that otherwise include the words “will,” “may,” “could,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “predicts,” “target,” “goal,” “plans,” “objective,” “potential,” “should,” or similar expressions or variations on such expressions that convey the uncertainty of future events or outcomes. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, including Section 27A of the Securities Act and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and assumptions about future events. These statements are based on certain assumptions and analyses made by us because of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
These forward-looking statements involve risk and uncertainties. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risk and uncertainties:
Any of these factors and other factors in this Proxy Statement or any documents incorporated by reference could cause our actual results to differ materially from the results implied by these or any other forward-looking statements made by us. Although we believe our plans, intentions and expectations reflected in the forward-looking statements we make are reasonable, we can give no assurance that we will achieve these plans, intentions or expectations. Our assumptions about future events may prove to be inaccurate. We caution you that the forward-looking statements contained in this Proxy Statement are not guarantees of future performance, and we cannot assure you that those statements will be realized or the forward-looking events and circumstances will occur. All forward-looking statements speak only as of the date of this Proxy Statement.
We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Background of the Exchange Agreement
On May 2, 2017, APEG purchased and assumed all of Wells Fargo Bank N.A.’s rights and obligations as the lender to Energy One under the Credit Facility. Concurrently with the purchase of the Credit Facility by APEG, the Company, Energy One and APEG entered into a limited forbearance agreement (the “Forbearance Agreement”), pursuant to which APEG agreed not to exercise its rights and remedies arising as a result of certain existing and prospective events of default under the Credit Facility until July 30, 2017. Commencing on May 2, 2017, interest accrued on the outstanding principal balance of the loans under the Credit Agreement at a rate of 8.75% per annum;
The Company’s management met with APEG on June 2, 2017 and June 13, 2017 at both the Company’s offices and APEG’s offices, respectively, to discuss potential transactions to extend the maturity of the Credit Facility and amend the financial covenant ratios. During these meetings, both parties discussed the possibility of exploring a deleveraging transaction through a refinance of the existing Credit Facility or a debt for equity exchange. During both meetings APEG representatives requested additional information to perform due diligence.
After a period of due diligence on the part of APEG and negotiations between the Company and APEG, on June 29, 2017 the Company announced a two-year extension of the Credit Facility through July 30, 2019, along with an amendment of the financial covenant ratios governing the Credit Facility.
The Board held a meeting on July 17, 2017, at which Mr. Veltri updated the Board on the status of discussions with APEG, and other potential acquisition and divestiture opportunities for the Company. The Board discussed strategic options with management, including the status of negotiations with APEG, and instructed management to continue such discussions and report results back to the Board, if appropriate.
On August 2, 2017, Company representatives met with APEG to further discuss the economic terms of a proposed debt for equity exchange and the terms of a proposed standstill agreement. The Company and APEG exchanged drafts of documents although no agreement was reached on an exchange ratio or the details of the standstill agreement.
On August 4, 2017 the Company exchanged financial terms of a potential transaction with APEG, however no agreement was reached on the terms presented.
During August 2017 the Company and its outside legal counsel, Kutak Rock LLP, further negotiated with APEG and its counsel and revised the terms of the proposed debt for equity exchange and discussed the economic and legal terms of the potential transaction.
The Company and APEG continued to negotiate and exchange revised drafts of definitive transaction documents throughout September. During this time, management worked closely with the Company’s outside legal counsel to negotiate terms with APEG and keep the Board apprised of their progress.
On September 28, 2017, Company representatives met with APEG in Austin, Texas, and reached an agreement, subject to the Board’s approval, on the economic terms of a transaction, for an exchange of $4,463,380 of the outstanding indebtedness under the Credit Facility for 5,819,270 new shares of Common Stock of the Company, at an exchange price of $0.767, representing a 1.3% premium over the 30-day volume weighted average price of the Company’s Common Stock on September 20, 2017. In addition, at the Closing of the Exchange, the Company will pre-pay, in cash, $600,000 of the outstanding principal under the Credit Facility, leaving approximately $937,000 outstanding. Also, accrued, unpaid interest on the Credit Facility held by APEG will be paid in cash at the closing of the transaction.
On October 3, 2017, the Board held a meeting, at which Mr. Veltri updated the Board on the status of the Exchange Agreement and the other definitive agreements, copies of which were provided to the Board in advance of the meeting, which, subject to Board approval, had been finalized on September 28, 2017. Mr. Veltri informed the Board that based on the exchange price, the financial position of the Company and other matters, the terms of the Exchange Agreement and the transactions contemplated by the Exchange Agreement, taken in the aggregate, were fair from a financial point of view to the Company and to its shareholders. Following discussion among the Board, the Board (i) unanimously resolved that the Exchange Agreement and the transactions contemplated by the Exchange Agreement were fair to, and in the best interests of, the Company and its shareholders, and (ii) authorized and approved the execution, delivery and performance of the Exchange Agreement by the Company and the transactions contemplated by the Exchange Agreement.
On October 5, 2017, the Company issued a press release and filed a Form 8-K announcing the Exchange Agreement.
Reasons for the Exchange Agreement
The Board, in evaluating the Exchange Agreement and the transactions contemplated by the Exchange Agreement, consulted with the Company’s management and legal counsel. In reaching its unanimous resolution (i) that entering into the Exchange Agreement is in the best interests of the Company and its shareholders; (ii) to submit the Exchange Proposal to the Company’s shareholders; and (iii) recommending that the Company’s shareholders adopt the Exchange Proposal, the Board considered and evaluated a number of factors.
In the course of its deliberations, the Board considered the following substantive factors as being generally positive or favorable, each of which the Board believed supported a decision to proceed with the Exchange Agreement, including, but not limited to, the following:
In the course of its deliberations, the Board also considered a variety of material risks and other countervailing factors related to entering into the Exchange Agreement, including, but not limited to, the following:
The above discussion of the information and factors considered by the Board is not intended to be exhaustive and may not include all of the information and factors considered by the Board. The Board, in making its determination regarding the Exchange Agreement, did not find it useful to and did not quantify or assign any relative or specific weights to the various factors that it considered. Rather, the Board views its determination and recommendation as being based on an overall analysis and on the totality of the information presented to, and factors considered by, the Board. In addition, in considering the factors described above, individual members of the Board may have given differing weights to different factors, and may have viewed some factors relativelybeneficially holding more positively or negatively than others.
Effects of the Exchange on the Company’s Capital Structure and Capital Stock:
The following table shows the pro forma impact the Exchange would have on the Company’s outstanding debt as of September 30, 2017.
| 9/30/2017 | Transaction Adjustment | Pro-Forma 9/30/2017 | ||||||||||
| Outstanding Borrowings under Credit Facility | $ | 6,000,000 | $ | (4,463,380 | ) | $ | 1,536,620 | |||||
| Cash Payment* | — | (600,000 | ) | (600,000 | ) | |||||||
| Total Outstanding Borrowings under Credit Facility | $ | 6,000,000 | — | $ | 936,620 | |||||||
*Represents a cash paydown to outstanding borrowings under the Credit Facility which is contingent on the successful completion of the Exchange.
The Following table show the pro forma impact the Exchange would have on the ownership of the Company’s Common Stock as of September 30, 2017.
Shares Outstanding | Transaction Adjustment | Pro-Forma Shares Outstanding | Pro-Forma Ownership | |||||||||||||
| Common Stock Outstanding | 5,983,510 | — | 5,983,510 | 50.7 | % | |||||||||||
| APEG Energy II, L.P. Shares Owned | — | 5,819,270 | 5,819,270 | 49.3 | % | |||||||||||
| Total Shares Outstanding | 5,983,510 | — | 11,802,780 | 100.0 | % | |||||||||||
Effective October 3, 2017, the Company, the Company’s wholly owned subsidiary Energy One and APEG entered into 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, at an exchange price of $0.767, representing a 1.3% premium over the 30-day volume weighted average price of the Company’s Common Stock on September 20, 2017. In addition, at the Closing of the Exchange, the Company will pre-pay, in cash, $600,000 of the outstanding principal under the Credit Facility, leaving approximately $937,000 outstanding. Also, 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 49.3% of the outstanding Common Stock of the Company.
In connection with the Exchange Agreement, APEG agreed to certain lock-up provisions limiting APEG’s ability to (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly any shares of Common Stock of the Company; or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Common Stock, whether an such transaction described in (a) or (b) is to be settled by delivery of Commons Stock or other securities, in cash or otherwise for a period of twelve (12) months following the closing of the Exchange.
The closing of the Exchange is subject to the satisfaction of certain conditions, including: (i) the affirmative vote of the holders of a majority of Common Stock present or represented by proxy at the Special Meeting for the purpose of approving the Exchange Proposal; 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 is subject to certain other conditions, including (a) subject to the standards described 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 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.
In connection with the Exchange Agreement the Company and APEG entered into a Standstill Agreement pursuant to which APEG agreed to vote its shares received pursuant to the Exchange in the same proportion as shares of Common Stock that are not held by APEG or over which APEG does not have voting control with respect to (i) any board of directors approved motions, objectives, directives, proposals or proxy initiatives, and (ii) each nominee for the Company’s board of directors who is nominated and approved by the board of directors’ nominating committee.
In addition, the Standstill Agreement contains certain restrictions on APEG’s ability to acquire additional shares of Common Stock in excess of the amount they hold immediately following the Exchange. APEG is restricted from acquiring additional loans, debt securities, equity securities or assets of the Company.
APEG is also restricted from proposing or offering to the Board or any shareholder: (i) any business combination, asset acquisition, merger, tender offer, exchange offer or similar transaction involving the Company or any of its subsidiaries; (ii) any restructuring, recapitalization, liquidation or similar transaction involving the Company or any of its subsidiaries; (iii) any acquisition of any of the Company’s loans, debt securities, equity securities or assets, or rights or options to acquire interests in any of the Company’s loans, debt securities, equity securities or assets not currently owned; or (iv) any proposal to seek representation on the board of directors of the Company or otherwise seek to control the management, board of directors or policies of the Company.
Further, APEG cannot call a special meeting of the shareholders of the Company during the term of the Standstill Agreement.
The Standstill Agreement restrictions are effective for a period of one (1) year following closing of the Exchange.
THIS SUMMARY OF THE TERMS OF THE EXCHANGE AGREEMENT AND THE STANDSTILL AGREEMENT IS INTENDED TO PROVIDE YOU WITH BASIC INFORMATION CONCERNING THE EXCHANGE; HOWEVER, IT IS NOT INTENDED AS A SUBSTITUTE FOR REVIEWING THE EXCHANGE AGREEMENT, THE STANDSTILL AND THE LETTER AGREEMENT IN THEIR ENTIRETY. THE EXCHANGE AGREEMENT, THE STANDSTILL AGREEMENT, AND THE LETTER AGREEMENT ARE INCLUDED ASAPPENDIX A,APPENDIX B ANDAPPENDIX C, RESPECTIVELY, TO THIS PROXY STATEMENT. YOU SHOULD READ THIS SUMMARY TOGETHER WITH THESE DOCUMENTS.
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Time, Place, and Purpose of the Special Meeting
This Proxy Statement is being furnished to our shareholders for the solicitation of proxies by our Board for use at our Special Meeting of shareholders to be held at 950 S. Cherry Street, Suite 1515 in Denver, Colorado, on December 27, 2017, at 8:30 a.m. Mountain Time, and at any adjournments or postponements of the meeting.
The Special Meeting is being called to request approval by our shareholders of:
Recommendation of the Board of Directors
Our Board unanimously recommends that you vote “FOR” the Exchange Proposal.
Our Board unanimously recommend that you vote “FOR” the Reverse Stock Split.
Our Board unanimously recommends that you vote “FOR” the adjournment proposal.
Shareholders as of the close of business on November 1, 2017 are entitled to attend and vote at the Special Meeting.
There must be a quorum for the Special Meeting to be held. A quorum is the presence at the Special Meeting, in person or by proxy, of the holders of a majority of the shares of Common Stock issued and outstanding and entitled to vote at the Special Meeting. Proxies that are voted “FOR,” “AGAINST” or “ABSTAIN” on a matter are treated as being present at the Special Meeting for purposes of establishing a quorum and also treated as shares “represented and voting” at the Special Meeting with respect to such matter.
Any abstentions will be counted in determining whether a quorum is present at the Special Meeting.
As of the close of business on October 31, 2017 there were 5,983,510 shares10% of our Common Stock outstanding and entitled to vote at the Special Meeting.
The approval of the Exchange Proposal, the Reverse Stock Split, and the adjournment proposal, requires the affirmative vote of a majority of the shares of Common Stock present at the Special Meeting, in person or represented by proxy. Abstentions will have the same effect as a vote against the Exchange Proposal, the Reverse Stock Split, and the adjournment proposal.
Shares Held by Company Directors and Executive Officers
As of the close of business on October 31, 2017, the Company’s directors and executive officers held and are entitled to vote, in the aggregate, 77,872 shares of Common Stock, representing approximately 1.3% of the total number of shares of Common Stock outstanding as of October 31, 2017.
The directors and executive officers of the Company intend to votemust report their shares “FOR” the Exchange Proposal.
The directors and executive officers of the Company intend to vote their shares “FOR” the Reverse Stock Split.
The directors and executive officers of the Company intend to vote their shares “FOR” the adjournment proposal.
If your shares are held in your name, you may vote your shares or submit a proxy to have your shares voted by one of the following methods:
If you vote by granting a proxy, the proxy holders will vote the shares according to your instructions. If you submit a proxy without giving specific voting instructions, the proxy holders will vote those shares as recommended by our Board. If you plan to vote in person at the Special Meeting and your shares are held in your name, please bring proof of identification. Even if you currently plan to attend the Special Meeting, we recommend that you also submit your proxy as described above so that your vote will be counted if you later decide not to attend the Special Meeting.
If your shares are held in “street name” by your broker, bank or other nominee, you will receive instructions from your broker, bank or other nominee that you must follow for your shares to be voted. We expect Internet and telephone voting to be offered to street name shareholders. You also may vote in person at the Special Meeting if you obtain a legal proxy from your broker, bank or other nominee. Please consult the voting instruction form or other information sent to you by your broker, bank or other nominee to determine how to obtain a legal proxy in order to vote in person at the Special Meeting. If you plan to vote in person at the Special Meeting and you have obtained a legal proxy from your broker, bank or other nominee, please bring proof of identification. If your shares are held in street name in a brokerage account or by a bank or other nominee, you must provide your broker with instructions on how to vote your shares on Proposals 1, 2, and 3. If you do not instruct your broker on how to vote these proposals, your shares will not be voted.
You have the right to change or revoke your proxy at any time before the vote taken at the special meeting by:
Please note that if you hold your shares in “street name” through a broker, bank or other nominee and you have instructed your broker, bank or other nominee to vote your shares, the above-described options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.
Adjournments and Postponements
Although we do not expect this, we may adjourn or postpone the Special Meeting for the purpose of soliciting additional proxies. Any adjournment or postponement may be made without notice, other than by an announcement made at the Special Meeting, by the Chairman of the meeting, or by approval of the holders of a majority of the outstanding shares of our Common Stock present in person or represented by proxy at the Special Meeting, whether or not a quorum exists. Any adjournment or postponement of the Special Meeting to solicit additional proxies will allow shareholders who already have sent in their proxies to revoke them at any time before their use.
Rights of Dissenting Stockholders
Stockholders have no right under Wyoming law to seek appraisal of their Common Stock in connection with Proposals 1, 2, and 3.
The Board knows of no other matters to be brought before the Special Meeting. If any other matters are properly brought before the Special Meeting, the persons appointed in the accompanying proxy intend to vote the shares represented by the proxy in accordance with their best judgment on such matters, under applicable laws.
Questions and Additional Information
If you have more questions about the Proposals or Exchange Transaction, need assistance in submitting your proxy or voting your shares or need additional copies of this Proxy Statement or the enclosed proxy card, you should contact us in writing at:
U.S. Energy Corp.
Attn: Chief Financial Officer
950 S. Cherry Street, Suite 1515
Denver, Colorado 80246
(303)-993-3200
ryan@usnrg.com
11
PROPOSAL 1: APPROVAL OF ISSUANCE THATMAY RESULT IN A CHANGE OF CONTROLUNDER NASDAQ LISTING RULE 5635(b)
Our Common Stock is listed on NASDAQ and we are subject to NASDAQ’s rules and regulations. NASDAQ Listing Rule 5635(b) requires us to obtain shareholder approval before certain issuances of Common Stock or securities convertible into Common Stock.
Purpose and Effect of Approving the Exchange Proposal
NASDAQ Listing Rule 5635(b) requires shareholder approval before the issuance of securities when the issuance or potential issuance of securities will result in a change of control of the Company. NASDAQ defines a change of control as occurring when, as a result of an issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of Common Stock or voting power of a company, and suchinitial ownership or voting power would be the largest ownership position. The Exchange will result in APEG owning in excess of 20% of our Common Stock and APEG havingany changes in that ownership in reports that must be filed with the largest ownership positionSEC and us. The SEC has designated specific deadlines for these reports and we must identify in the Company.this Proxy Statement those persons who did not file these reports when due.
Based solely on a review of reports furnished to us and written representations from the filing persons, all directors, executive officers, and 10% owners timely filed all reports regarding transactions in our securities required to be filed in 2018 under Section 16(a) of the Exchange Act, other than (i) APEG Energy II, L.P., which did not timely file its Form 3, (ii) David A. Veltri did not timely file one Form 4, and (iii) Ryan Smith did not timely file one Form 4.
The Board recommends you vote for“FOR” each director nominee contained in Proposal 1. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED,, that the shareholders approve the issuanceelection of (i) James W. Denny III and Patrick E. Duke as Class Two directors of the Company to serve until the second succeeding annual meeting of shareholders to be held in 2021 and until their successors have been duly elected or appointed and qualified, and (ii) Randall D. Keys and D. Stephen Slack as Class One directors of the Company to serve until the third succeeding annual meeting of shareholders to be held in 2022 and until their successors have been duly elected or appointed and qualified.”
PROPOSAL 2: RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board seeks shareholder ratification of the Audit Committee’s engagement and appointment of Plante & Moran PLLC (“Plante Moran”), certified public accountants, to act as the independent registered public accounting firm for our financial statements for the year ending December 31, 2019. The Audit Committee has not determined what action, if any, would be taken should the appointment of Plante Moran not be ratified at the meeting. A representative from Plante Moran will be present at the Annual Meeting in person or by telephone to respond to appropriate questions and will be provided the opportunity to make a statement at the meeting.
Principal Accounting Fees and Services
The Audit Committee approves the terms of engagement before we engage the audit firm for audit and non-audit services, except as to engagements for services outside the scope of the original terms, in which instances the services are provided pursuant to pre-approval policies and procedures established by the Audit Committee. These pre-approval policies and procedures are detailed as to the category of service and the Audit Committee is kept informed of each service provided. These policies and procedures, and the work performed pursuant thereto, do not include any delegation to management of the Audit Committee’s responsibilities under the Exchange Act.
Plante Moran, the Company’s independent registered accounting firm for the fiscal year ended December 31, 2018, charged the following fees related to our 2018 financial statements through September 10, 2019, all of which were approved by the Audit Committee:
| Audit fees | $ | 380,483 | ||
| Audit-related fees(1) | $ | 19,141 | ||
| Tax fees(2) | $ | 2,900 | ||
| All other fees | $ | - |
(1) Audit-related fees represent fees associated with the review of a potential acquisition transaction and additional work related to governance issues.
(2) Tax fees represent fees associated with filing extensions for the Company’s 2018 income tax returns.
On May 31, 2018, our audit committee engaged EKS&H, LLP (“EKS&H”), which, in October 2018, merged with Plante Moran and took the name Plante & Moran PLLC, to serve as our independent registered public accounting firm.
Moss Adams LLP (“Moss Adams”) audited our financial statements for the year ended December 31, 2017. Hein & Associates LLP (“Hein”), which audited our financial statements for the year ended December 31, 2016, combined with Moss Adams in November 2017. On April 30, 2018, our Audit Committee Chairman and Chief Financial Officer received notice that Moss Adams declined to stand for re-election as our independent registered public accounting firm. Moss Adams charged the following fees related to our 2017 and 2018 financial statements, all of which were approved by the Audit Committee:
| 2017 | 2018 | |||||||
| Audit fees | $ | 99,750 | $ | 25,000 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
Relationship with Independent Accountants
The audit report of Moss Adams on the Company’s financial statements for the year ended December 31, 2017 did not contain an adverse opinion or a disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles.
During the two most recent fiscal years ended December 31, 2018, there were no disagreements between the Company, Moss Adams or Hein on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Moss Adams, would have caused them to make reference thereto in their reports on the Company’s financial statements for such years, except as described in the following sentence. A disagreement occurred with Hein during the quarter ended June 30, 2017, which pertained to the Company’s liquidity profile and its ability to continue as a going concern. The disagreement was resolved between the Company and its independent auditor with no misstatements or related adjustments to the Company’s financial statements.
During the two most recent fiscal years ended December 31, 2018, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K concerning Moss Adams or Hein, except that for the year ended December 31, 2017, a material weakness existed in our internal control over financial reporting, as described in Item 9A to our annual report on Form 10-K for the year ended December 31, 2017.
The Board recommends you vote “FOR” Proposal 2. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED, that the shareholders ratify the Audit Committee’s appointment of Plante & Moran PLLC, certified public accountants, to act as the auditors of the Company’s financial statements for the year ending December 31, 2019.”
| 16 |
PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION
In accordance with the requirements of Section 14A of the Exchange Act, our shareholders are entitled to cast an advisory “say-on-pay” vote at the Annual Meeting to approve the compensation of the Company’s executive officers named in the Summary Compensation Table below, as disclosed in this Proxy Statement. We will hold an advisory vote on executive compensation every year until the next required advisory vote with respect to the frequency of advisory votes on executive compensation. At the 2018 annual shareholders’ meeting, the say-on-pay vote was 6,903,532 votes for, 474,490 votes against, and 16,807 shares abstaining.
As an advisory vote, the result of the vote on this Proposal 3 is not binding on the Board or the Compensation Committee. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by shareholders in their vote on this proposal and will continue to consider the outcome of the vote when making future compensation decisions for Named Executive Officers referenced in the Summary Compensation Table below.
Our executive compensation programs are designed to provide a competitive level of compensation to attract, motivate and retain talented and experienced executives and to motivate them to achieve short-term and long-term corporate goals that enhance shareholder value.
The table below sets forth information regarding compensation for the individuals who served as our Chief Executive Officer and Chief Financial Officer during 2018, who are referred to as our “Named Executive Officers”, for the years indicated:
| Name and Position | Year | Salary | Bonus | Stock Awards | Option Awards | All Other Compensation | Total | |||||||||||||||||||||
| David A. Veltri | 2018 | $ | 366,602 | $ | 359,000 | $ | 424,425 | $ | - | $ | 42,596 | (3) | $ | 1,192,614 | ||||||||||||||
| Former Chief Executive Officer | 2017 | $ | 359,008 | $ | - | $ | 34,999 | (2) | $ | - | $ | 32,194 | (3) | $ | 426,201 | |||||||||||||
| Ryan L. Smith | 2018 | $ | 245,077 | $ | 192,000 | $ | 181,500 | $ | - | $ | 8,250 | (4) | $ | 626,827 | ||||||||||||||
| Chief Financial Officer(1) | 2017 | $ | 150,658 | $ | - | $ | - | $ | 94,757 | $ | 80,400 | (4) | $ | 325,815 | ||||||||||||||
| (1) | Mr. Smith was appointed Chief Financial Officer on May 23, 2017. Mr. Smith previously consulted for the Company from January 16, 2017 until his appointment as Chief Financial Officer. | |
| (2) | On September 23, 2016, the Board of Directors granted 58,500 shares of restricted stock to each member of the Board. In connection with the resignations of four members of the Company’s Board, the restricted stock grants were amended and all members of the Board subsequently agreed to accept 33,332 fully-vested shares each, in lieu of the 58,500 share grants. | |
| (3) | All Other Compensation for Mr. Veltri in 2018 is comprised of $34,203 paid to Mr. Veltri on expense reports for items that may have been personal in nature, employer 401(k) matching contributions of $8,250 and life insurance of $143. All other compensation in 2017 represents amounts paid to Mr. Veltri on expense reports that may have been personal in nature. | |
| (4) | All Other Compensation for Mr. Smith in 2017 is primarily comprised of consulting fees. All Other Compensation in 2018 is comprised of the employer 401(k) matching contributions. |
The following table provides information relating to the unexercised stock options and the unvested stock awards for the Named Executive Officers as of December 31, 2018. Each award to each Named Executive Officer is shown separately, with a footnote describing the award’s vesting schedule.
| Stock Option Awards | Restricted Stock Awards | |||||||||||||||||||||
| Number of Securities Underlying | Option | Option | Shares of Restricted Stock | |||||||||||||||||||
| Unexercised Options | Exercise | Expiration | That Have Not Vested | |||||||||||||||||||
| Name | Exercisable | Unvested | Price | Date | Number | Market Value | ||||||||||||||||
| David A. Veltri | 16,667 | - | $ | 9.00 | 1/1/2025 | - | $ | 0 | ||||||||||||||
| Ryan L. Smith | 50,000 | (1) | 50,000 | $ | 1.16 | 11/10/2027 | - | $ | 0 | |||||||||||||
| (1) | In November 2017, Mr. Smith was granted a stock option award for 100,000 shares of Common Stock, of which one-half of the shares vest on the anniversary dates of the grant in November 2018 and 2019. |
| 17 |
Potential Payments Upon Termination or Change in Control
Our Named Executive Officers are eligible to receive certain severance benefits and change in control benefits pursuant to their employment agreement. The potential severance and change in control benefits that our Named Executive Officers, other than Mr. Veltri, whose employment agreement has been terminated by the Company, could have received as of December 31, 2018 are described below.
The Company entered into an agreement with Mr. Smith on November 21, 2018. Mr. Smith’s agreement has a term continuing until January 1, 2020, following which Mr. Smith’s employment will be on at “at-will” basis.
Mr. Smith’s employment agreement provides for base salary, bonus and entitles him to participate in the Company’s Amended and Restated 2012 Equity and Performance Incentive Plan under such terms and conditions as the Company may determine for any applicable calendar year.
In the event that Mr. Smith incurs a termination from employment by the Company without Cause (defined below) outside of a Change of Control (defined below) event, Mr. Smith would be entitled to receive the following benefits: (a) all accrued but unpaid base salary through the date of termination; (b) unpaid or unreimbursed expenses; (c) any benefits provided under the Company’s employee benefits plans in accordance with the terms contained in such plans; (d) reasonable relocation costs in accordance with written Company policy; (e) unpaid bonus; (f) cash payment equal to twelve (12) months of the employee’s base salary; (g) cash payment equal to 12 months of COBRA; and (h) immediate vesting of any and all equity or equity-related award previously awarded to the employee irrespective of the type of award.
In the event that Mr. Smith terminates his employment for Good Reason (defined below) outside of a Change of Control event, Mr. Smith would be entitled to receive the following: (i) the payments identified in (a) through (e) of the preceding paragraph; and (ii) a cash payment equal to twelve months of COBRA.
In the event that Mr. Smith incurs a termination from employment by the Company without Cause or for Good Reason in connection with a Change of Control during the Exchange Agreementtwelve (12) month period following such Change of Control, Mr. Smith would be entitled to receive the following: (a) all accrued but unpaid base salary through the date of termination; (b) unpaid or unreimbursed expenses; (c) any benefits provided under the Company’s employee benefits plans in accordance with the terms contained in such plans; (d) reasonable relocation costs in accordance with written company policy; (e) unpaid bonus; (f) cash payment equal to 12 months of COBRA; (g) immediate vesting of any and all equity or equity-related award previously awarded to the employee irrespective of the type of award; (h) cash payment equal to 1x the total base salary plus an amount equal to the total value of the annual bonus amount paid during the preceding fiscal year.
Mr. Smith’s employment agreement defines Cause as: (i) a material breach of the terms and conditions of employee’s employment agreement with the Company, (ii) employee’s act(s) of gross negligence or willful misconduct in the course of employee’s employment hereunder that mayis injurious to the Company, (iii) willful failure or refusal by employee to perform in any material respect employee’s duties or responsibilities, (iv) misappropriation by employee of any assets of the Company, (v) embezzlement or fraud committed by employee, or at employee’s direction, (vi) employee’s conviction of, or pleading “guilty” or “no contest” to, a felony under state or federal law.
Mr. Smith’s employment agreement defines Change of Control as the first to occur of any of the following: (i) “change of control event” with respect to the Company, within the meaning of Treas. Reg. §1.409A-3(i)(5); (ii) during any period of two years, individuals who at the beginning of such period constitute the Board (and any new director whose election by the Company’s shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was so approved) cease for any reason to constitute a majority thereof; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other entity, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization.
Mr. Smith’s employment agreement defines Good Reason as: without employee’s consent, (i) a changematerial diminution in employee’s title, duties, or responsibilities, (ii) the failure of controlthe Company to pay any compensation pursuant to the employment agreement when due or to perform any other obligation of the Company under NASDAQthe employment agreement, or (iii) the relocation of employee’s principal place of employment by more than fifty (50) miles.
Non-Employee Director Compensation
We generally use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. Additionally, our directors are reimbursed for reasonable travel expenses incurred in attending meetings. In setting director compensation, we consider the significant amount of time that directors expend fulfilling their duties to us as well as the skill level required of such directors. Mr. Veltri, as an employee of the Company during 2018, did not receive additional compensation for service on the Board. For the year ended December 31, 2018, all non-employee director compensation was paid in cash as shown below:
| Nature of Director Fees | ||||||||||||||||
| Director Name | Director | Committee | Stock Awards | Total | ||||||||||||
| J. Weldon Chitwood | $ | 7,500 | $ | - | $ | - | $ | 7,500 | ||||||||
| John G. Hoffman(1) | 7,500 | - | - | 7,500 | ||||||||||||
| Javier F. Pico | 11,250 | - | - | 11,250 | ||||||||||||
| All directors as a group | $ | 26,250 | $ | - | $ | - | $ | 26,250 | ||||||||
| (1) | Mr. Hoffman resigned from the Board on May 22, 2019. |
We have a Compensation Committee, the members of which are J. Weldon Chitwood and Javier F. Pico. These members are independent under applicable criteria established by Nasdaq. The Compensation Committee met formally on one occasion in 2018 and discussed compensation matters informally several times during the year. All Compensation Committee members attended all meetings of the Committee during 2018 either in person or by telephone.
The Compensation Committee reviews and recommends to the Board compensation packages for our officers. The Compensation Committee may delegate to a subcommittee or to our Chief Executive Officer or other officer such of its duties and responsibilities as the Compensation Committee deems to be in the best interests of the Company, provided such delegation is not prohibited by law or Nasdaq rule.
We do not believe that our compensation programs encourage excessive risk taking. Risk mitigating factors of our compensation program and Board governance include:
| ● | A mix of short-term and long-term incentives designed to incentivize creation of long-term shareholder value; and | |
| ● | Caps on awards under our bonus programs, along with the use of targeted performance goals designed to emphasize metrics that lead to long-term shareholder value creation. |
Equity Compensation Plan Information
A summary of the combined activity in each of our equity incentive plans for the year ended December 31, 2018, is as follows:
| Number of Shares to be Issued Upon: | ||||||||||||||||||||
| Exercise of Outstanding Options | Vesting of Restricted Stock | |||||||||||||||||||
| Number of Shares | Weighted Average Exercise Price of Shares | Number of Shares | Weighted Average Grant Date Price | Securities Available for Future Issuance | ||||||||||||||||
| Plans Approved by Shareholders | ||||||||||||||||||||
| 2001 Incentive Stock Option Plan | 67,558 | $ | 15.12 | - | - | - | ||||||||||||||
| 2008 Stock Option Plan for Independent Directors and Advisory Board Members | 29,779 | $ | 19.66 | - | - | - | ||||||||||||||
| 2012 Equity and Performance Incentive Plan | 292,350 | $ | 5.23 | 205,547 | $ | 1.26 | 981,008 | |||||||||||||
| Total | 389,687 | $ | 8.05 | 205,547 | $ | 1.26 | 981,008 | |||||||||||||
Certain Relationships and Related Transactions
We have adopted a nepotism policy pursuant to which family members of any employee, which include fathers, mothers, siblings, sons, daughters, nieces, nephews or grandchildren, may not be hired or terminated by a direct family member. Additionally, family members are not allowed to participate in any discussion relating to the setting of compensation rates for other family members. An immediate relative of any employee can only be hired after the Compensation Committee has reviewed the application of the direct family member and has satisfied itself that (a) the position is necessary, (b) the position has been adequately advertised, (c) other applicants have been interviewed by non-family managers of the Company and (d) the family member is the most qualified candidate for the position. Further, written approval from the Chairman of the Compensation Committee must be received along with an approved rate of pay before any family members of any employees, officers or directors can be employed and paid by us.
Related Person Transaction Policy
From time to time, we have entered into transactions with certain “related persons,” a category that generally includes executive officers, directors, and beneficial owners of 5% or more of our Common Stock, Market Rule 5635(b).and immediate family members of these persons and entities in which one of these persons has a direct or indirect material interest. We refer to transactions with these related persons as “related party transactions.” The Audit Committee is responsible for the review and approval of each related party transaction exceeding $120,000, although, as a matter of practice, the Audit Committee reviews, and, if appropriate, approves, all related party transactions regardless of the amount involved.
The Audit Committee considers all relevant factors when determining whether to approve a proposed related party transaction, including (without limitation):
| ● | the size of the transaction and the amount of consideration that might be paid to a related person; | |
| ● | the nature of the interest of the applicable related person; and | |
| ● | whether the transaction involves the provision of goods or services to us that are available from unaffiliated third parties. |
In determining whether to approve a proposed related party transaction, the Audit Committee must be reasonably satisfied that:
| ● | the transaction likely will significantly benefit all shareholders, even though it will provide a benefit to the related parties; and | |
| ● | goods or services of comparable quality either cannot be obtained from third parties in time to meet the Company’s needs or can be obtained but at a significantly higher cost. |
In appropriate circumstances, the Audit Committee may enlist outside sources to obtain information about the possibility of using third-party vendors’ goods and/or services.
Compensation of certain related persons other than executive officers is determined by the Compensation Committee rather than the Audit Committee as discussed in “Family Employment.” The policy has been followed by the Committee since 2004.
Since January 1, 2018, there were no related party transactions that would require disclosure under SEC rules.
The Board recommends you vote for Proposal 3. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED, that the shareholders approve, on an advisory basis, the compensation philosophy, policies and procedures and the compensation of our Named Executive Officers for 2018 as disclosed in the Proxy Statement for U.S. Energy’s 2019 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the SEC, the compensation tables and the narrative disclosures that accompany the compensation tables.”
PROPOSAL 4: APPROVAL OF AMENDMENTS TO THE ARTICLES OF INCORPORATION RELATED TO CORPORATE GOVERNANCE AND OTHER TECHNICAL AMENDMENTS
We are asking our shareholders to approve certain amendments (the “Amendments”) to our Articles of Incorporation, which we believe will contribute to strong corporate governance. The following description of the Amendments is a summary only and is qualified in its entirety by reference to the complete text of the Amendments as shown in the Amended and Restated Articles of Incorporation appended to this Proxy Statement as Appendix A, which we encourage our shareholders to read in its entirety.
The Amendments would amend our Articles of Incorporation by:
| ● | removing the list of specific purposes of the Company and instead simply stating that the purpose for which the Company is organized is to engage in any activity or business not in conflict with the laws of the State of Wyoming or of the United States; | |
| ● | providing the Board with broader discretion in issuing shares of blank check preferred stock; | |
| ● | eliminating the requirement that the Board consist of between three to seven directors and instead providing that the number of directors shall be the number fixed from time to time in accordance with our Bylaws; | |
| ● | providing that any vacancy in the Board occurring as a result of an increase in the number of directors may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board, instead of requiring that such a vacancy be filled by election at an annual or special meeting of shareholders; | |
| ● | providing that shareholders may remove a director with or without cause; | |
| ● | providing the shareholders with the power to alter, amend, or repeal our Bylaws, or to adopt new bylaws, through the vote of the holders of a majority of the total votes of the shares entitled to vote generally in the election of directors (considered for this purpose as one class); | |
| ● | prohibiting a director who is a party to, or pecuniarily or otherwise interested in, a contract or transaction with the Company from voting to authorize such contract or transaction; | |
| ● | authorizing shareholders to act by written consent without a meeting by delivering a consent or consents setting forth the action to be so taken and signed by the holders of at least two-thirds of the total votes of the outstanding shares entitled to vote on such action (considered for this purpose as one class); | |
| ● | changing our registered agent to CT Corporation System and the registered office to CT Corporation System, 1908 Thomes Ave., Cheyenne, Wyoming 82001; and | |
| ● | deleting the specific reference to our principal office and instead providing that our principal office shall be as determined by the Board from time to time. |
The Amendments also include other non-substantive technical edits, corrections and updates to our Articles of Incorporation.
Because we believe that the Amendments will collectively contribute to strong corporate governance, or are otherwise non-substantive technical edits, corrections and updates, we are asking our shareholders to approve all of the Amendments through a vote on a single proposal.
The Board recommends you vote for Proposal 4. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED, that the shareholders approve the amendments related to corporate governance, and other non-substantive technical edits, corrections and updates, to our Restated Articles of Incorporation, as disclosed in the Proxy Statement for U.S. Energy’s 2019 Annual Meeting of Shareholders.”
| 22 |
PROPOSAL 2:5:ApprovALAPPROVAL OF the amendment,AN AMENDMENT, AT THE DISCRETION OF THE BOARD OF DIRECTORS, to theTO THE ARTICLES of incorporation to implement a reverse stock split of the Company’s outstanding Common Stock at a reverse split ratio of one-for-five, without reducing the authorized number of shares of our Common StockOF INCORPORATION TO IMPLEMENT A REVERSE STOCK SPLIT OF THE COMPANY’S OUTSTANDING COMMON STOCK AT A REVERSE SPLIT RATIO OF ONE-FOR-TEN
IntroductionBackground and Purpose
Our Board of Directors has unanimously approved and recommended to our shareholders an amendment, subject to the Board’s discretion as explained below, to our Amended and Restated Articles of Incorporation through the filing of Articles of Amendment to the Amended and Restated Articles of Incorporation (the “Articles of Amendment”) to effect a reverse stock split of our Common Stock at a reverse split ratio of 1-for-51-for-10 (the “Reverse Stock Split”). The amendment effecting the Reverse Stock Split would be in addition to the Amendments described under Proposal 4. If this Proposal is approved, our Board will cause the filing of the Articles of Amendment with the Secretary of State of the State of Wyoming promptly following the SpecialAnnual Meeting, provided that if the Company meets NASDAQ’swe meet Nasdaq’s listing requirements prior to the SpecialAnnual Meeting, the Board, in its discretion, may elect not to effect the Reverse Stock Split.
The Reverse Stock Split will have no effect on the par value per share of our Common Stock and will not reduce the number of authorized shares of Common Stock, which is currently unlimited, but will have the effect of reducing the number of issued and outstanding shares of Common Stock by the chosen ratio. Other than as described below, the Companywe will pay cash in lieu of fractional shares resulting from the Reverse Stock Split. The Articles of Amendment in substantially the form expected to be filed by the Board to implement the Reverse Stock Split are attached to this proxy statementProxy Statement as Appendix D.B. If Proposal 4 is approved by the shareholders, the Company may include the Amendments described under Proposal 4 in the filed Articles of Amendment.
Reasons for the Reverse Stock Split
Our Common Stock is listed on The NASDAQNasdaq Capital Market, and in order for us to maintain the listing, our Common Stock must maintain a minimum bid price of $1.00 as set forth in NASDAQ Stock MarketNasdaq Listing Rule 5550(a)(2) (the “Rule”). If the closing bid price of the Common Stock is below $1.00 for 30 consecutive trading days, then the closing bid price of the Common Stock must be $1.00 or more for 10 consecutive trading days during a 180-day grace period to regain compliance with the rule. Rule.
On March 23, 2017, NASDAQ notified the CompanyDecember 19, 2018, we received a notification letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the bid price of its listed security had closed at less than $1 per share over the previousfor 30 consecutive business days and, as a result,our Common Stock did not complymaintain a minimum closing bid price of $1.00 per share as required by the Rule. Consistent with the Rule. In accordance with Listing Rule, 5810(c)(3)(A),Nasdaq initially provided the Company was providedwith a compliance period of 180 calendar days, or until September 19, 2017,June 17, 2019, to regain compliance with the Rule.
The Company has To regain compliance with the Rule, the closing bid price of our Common Stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180-day period. On June 19, 2019, Nasdaq notified us that, although we had not regained compliance with the Rule and is notminimum $1.00 closing bid price per share requirement, Nasdaq had determined that we were eligible for a second 180 day period. Specifically, the Company does not meet the minimum $5 million shareholders’ equity, $50 million Market Value of Listed Securities,an additional 180-day period, or $750,000 net income from continuing operations initial listing requirements for The NASDAQ Capital Market. Accordingly, unless the Company had requested an appeal of this determination as described in further detail below, the Company’s securities would have been scheduled for delisting from The NASDAQ Capital Market and would have been suspended at the opening of business on September 29, 2017. A Form 25-NSE would have been required to be filed with the Securities and Exchange Commission (the “SEC”) to remove the Company’s securities from listing and registration on The NASDAQ Stock Market.
In accordance with NASDAQ procedures, the Company appealed the determination and submitted a business plan to NASDAQ demonstrating how it intendsuntil December 16, 2019, to regain compliance with the continued listing standards set forth in in Listing Rule 5550(a)(2).minimum bid price requirement. The hearing request will staysecond 180-day period relates exclusively to the suspension of$1.00 closing bid price deficiency, and we may be delisted during the Company’s securities and the filing of the Form 25-NSE pending the NASDAQ’s decision. The hearing was held on October 26, 2017. The Company submitted a business plan (including the Reverse Stock Split) within the required time frame and will continue180-day period for failure to work with NASDAQ to attempt to comply with all continued listing standards. Assuming that NASDAQ accepts the plan, the Company will be subject to quarterly monitoring formaintain compliance with any other Nasdaq listing requirements for which we are currently on notice or which occurs during the business plan and the Company’s Common Stock will continue to trade on the NASDAQ Capital Market, subject to the Company’s compliance with other NASDAQ continued listing requirements.180-day period.
In order to maintain our NASDAQNasdaq Capital Market listing, our Common Stock must achieve a closing bid price of $1.00 per share or more for 10 consecutive trading days. The Reverse Stock Split is one method for achieving this result. We value our listing on The NASDAQNasdaq Capital Market and, upon obtaining shareholder approval, we intend to implement the Reverse Stock Split promptly following the SpecialAnnual Meeting in order to assist in maintaining such listing. We do not intend to effect a going private transaction as a result of the Reverse Stock Split. However, if the Company meets NASDAQ’swe meet Nasdaq’s listing requirements prior to the SpecialAnnual Meeting, the Board, in its discretions,discretion, may elect not to effect the Reverse Stock Split.
OurThe Board believes that the delisting of our Common Stock from The NASDAQNasdaq Capital Market would likely result in decreased liquidity and/or increased volatility in our Common Stock and a diminution of institutional investor interest. The Board also believes that such delisting could cause a loss of confidence of industry partners, customers, lenders and potential employees, which could harm our business and its future prospects.
If our Common Stock is delisted from The NASDAQNasdaq Capital Market, it would likely qualify for quotation on the OTC Bulletin Board or on the “pink sheets,” a price discovery platform maintained by the National Quotation Bureau, Inc. The Board believes that, in this event, shareholders would likely find it more difficult to obtain accurate quotations as to the price of our Common Stock, and the liquidity of our Common Stock would likely be reduced, making it difficult for shareholders to buy or sell our Common Stock at competitive market prices, or at all. In addition, support from institutional investors and/or market makers that currently buy and sell the Company’sour stock may decline, possibly resulting in a decrease in the trading price of our Common Stock.
In evaluating whether or not to recommend that shareholders authorize a reverse stock split,the Reverse Stock Split, in addition to the considerations described above, the Board took into account various negative factors associated with a reverse stock split. These factors include: the negative perception of reverse stock splits held by some investors, analysts, and other stock market participants; the fact that the stock price of some companies that have effected reverse stock splits has subsequently declined, with a corresponding decline in market capitalization; the adverse effect on liquidity that might be caused by a reduced number of shares outstanding; and the costs associated with implementing a reverse stock split.
Conversely, we believe the current low market price of our Common Stock impairs its acceptability to important segments of the institutional investor community and the investing public. Many investors look upon low-priced stock as unduly speculative in nature and, as a matter of policy, avoid investment in such stocks. We believe that the low market price of our Common Stock has reduced the effective marketability of our shares because of the reluctance of many brokerage firms to recommend low-priced stock to their clients. Further, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stocks. Some of those policies and practices pertain to the payment of brokers’ commissions and to time-consuming procedures that function to make the handling of low-priced stocks unattractive to brokers from an economic standpoint. In addition, the structure of trading commissions also tends to have an adverse impact upon holders of low-priced stock because the brokerage commission on a sale of low-priced stock generally represents a higher percentage of the sales price than the commission on a relatively higher-priced issue.
Our Board has determined that, based upon current business and market factors, continued listing on The NASDAQNasdaq Capital Market is in the best interests of the Company and itsour shareholders, and that the Reverse Stock Split is likely necessary to maintain the listing of the Company’sour Common Stock on The NASDAQNasdaq Capital Market.
The Board believes that the reverse split ratio of 1-for-51-for-10 maximizes the anticipated benefits for our shareholders. In determining whether to recommend and approve the Reverse Stock Split and selecting the reverse split ratio, the Board considered several factors, such as:
| ● | The total number of shares of Common Stock outstanding; |
| ● | The status of our Common Stock listing on The |
| ● | The historical trading price and trading volume of our Common Stock; |
| ● | The then prevailing trading price and trading volume for our Common Stock; |
| ● | The anticipated impact of the Reverse Stock Split on the trading price of and market for ourCommon Stock; and |
| ● | The outlook for oil price volatility and other prevailing general market and economic conditions. |
Reducing the number of outstanding shares of our Common Stock through a reverse stock split is intended, absent other factors, to increase the per share market price of our Common Stock. However, other factors, such as our financial results, market conditions, and the market perception of our business may adversely affect the market price of our Common Stock. As a result, there can be no assurance that the Reverse Stock Split, if approved and implemented, will result in the intended benefits described above, or that the market price of our Common Stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our Common Stock after a reverse stock split will increase in proportion to the reduction in the number of shares of our Common Stock outstanding before the Reverse Stock Split. Accordingly, the total market capitalization of our Common Stock after the Reverse Stock Split may be lower than the total market capitalization before the Reverse Stock Split.
However, as noted above, if the Company meets NASDAQ’swe meet Nasdaq’s listing requirements prior to the SpecialAnnual Meeting, the Board, in its discretion, may elect not to effect the Reverse Stock Split.
Effect of the Reverse Stock Split on Our Common Stock
As a result of the Reverse Stock Split, every fiveten outstanding shares of existing Common Stock will be combined into one outstanding share of Common Stock. As of October 31, 2017,21, 2019, the approximate number of outstanding shares of Common Stock that would result from the 1-for-51-for-10 reverse stock split ratio (without giving effect to the treatment of fractional shares), based on 5,983,51013,405,838 shares of Common Stock issued and outstanding as of October 31, 2017,21, 2019, would be 1,196,702.1,340,584.
If the Exchange is approved, based on approximately 11,802,780 shares of Common Stock issued and outstanding, the approximate number of outstanding shares of Common Stock that would result from the 1-for-5 reverse stock split ratio (without giving effect to the treatment of fractional shares) would be 2,360,556. The actual number of shares outstanding after giving effect to the Reverse Stock Split, if approved and implemented, will depend on the actual number of shares of Common Stock outstanding on the date the Reverse Stock Split takes effect.
The Reverse Stock Split will affect all holders of our Common Stock uniformly and will not change any shareholder’s percentage ownership interest in the Company, except that, as described below under “Fractional Shares,” our intent is that record holders of Common Stock otherwise entitled to a fractional share as a result of the Reverse Stock Split will receive cash in lieu of such fractional share. In addition, our current expectation is that the Reverse Stock Split will not affect any shareholder’s proportionate voting power, subject to the treatment of fractional shares and the matters discussed below under “Fractional Shares.”
The Reverse Stock Split may result in some shareholders owning “odd lots” of less than 100 shares of Common Stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
We currently have an unlimited number of common shares authorized for issuance and 100,000 shares of Preferred Stock are authorized for issuance, of which 50,000 shares are issued and outstanding. The Reverse Stock Split will not affect the number of authorized shares of capital stock. Authorized but unissued shares of our Common Stock and preferred stockPreferred Stock are available for future issuance as may be determined by our Board without further action by our shareholders, unless shareholder approval is required by applicable law or securities exchange listing requirements in connection with a particular transaction. These additional shares may be issued in the future for a variety of corporate purposes, including, but not limited to, raising additional capital, corporate acquisitions, and equity incentive plans. Except for a stock split or stock dividend, future issuances of common shares will dilute the voting power and ownership of our existing shareholders and, depending on the amount of consideration received in connection with the issuance, could also reduce shareholders’ equity on a per share basis.
Procedure for Implementing the Reverse Stock Split
We expect that the Reverse Stock Split, if approved by our shareholders and implemented by our Board of Directors, would become effective promptly following the filing of the Articles of Amendment to the Amended and Restated Articles of Incorporation with the Secretary of State of the State of Wyoming (the “Effective Time”). If this proposal is approved by the shareholders at the SpecialAnnual Meeting, the Board will cause the filing the Articles of Amendment promptly following the SpecialAnnual Meeting, provided that if the Company meets NASDAQNasdaq listing requirements prior to the SpecialAnnual Meeting, the Board, in its discretion, may elect not to effect the Reverse Stock Split.
After the Effective Time, our Common Stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for stock certificates with the new CUSIP number by following the procedures described below.
Beneficial Holders of Common Stock (i.e., shareholders who hold in street name)
Upon the implementation of the Reverse Stock Split, and other than as described under “Fractional Shares” below, we intend to treat shares held by shareholders through a bank, broker, custodian, or other nominee in the same manner as registered shareholders whose shares are registered in their names. Banks, brokers, custodians, or other nominees will be instructed to effect the Reverse Stock Split for their beneficial holders holding our Common Stock in street name. However, these banks, brokers, custodians, or other nominees may have different procedures than registered shareholders for processing the Reverse Stock Split. Shareholders who hold shares of our Common Stock with a bank, broker, custodian, or other nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians, or other nominees.
Registered “Book-Entry” Holders of Common Stock (i.e., shareholders that are registered on the transfer agent’s books and records but do not hold stock certificates)
Certain of our registered holders of Common Stock may hold some or all of their shares electronically in book-entry form with the transfer agent. These shareholders do not have stock certificates evidencing their ownership of the Common Stock. They are, however, provided with a statement reflecting the number of shares registered in their accounts. Shareholders who hold shares electronically in book-entry form with the transfer agent will not need to take action (the exchange will be automatic) to receive whole shares of post-Reverse Stock Split Common Stock, subject to adjustment for treatment of fractional shares.
Exchange of Stock Certificates and Elimination of Fractional Share Interests
As soon as practicable after filing the Articles of Amendment to the Amended and Restated Articles of Incorporation effecting the Reverse Stock Split with the Secretary of State of the State of Wyoming, shareholders will receive instructions for the exchange of their Common Stock certificates for new certificates representing the appropriate number of shares of Common Stock after the Reverse Stock Split. However, if permitted, the Companywe may elect to effect the exchange in the ordinary course of trading as certificates are returned for transfer. In either event, each current certificate representing shares of Common Stock will, until so exchanged, be deemed for all corporate purposes after the filing date to evidence ownership of our Common Stock in the proportionately reduced number. An exchange agent may be appointed to act for shareholders in effecting the exchange of their certificates.
SHAREHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATES OR SUBMIT THEIR STOCK CERTIFICATES NOW. YOU SHOULD SUBMIT THEM ONLY AFTER YOU RECEIVE INSTRUCTIONS FROM US OR OUR EXCHANGE AGENT.
No service charges, brokerage commissions, or transfer taxes will be payable by any shareholder, except that if any new stock certificates are to be issued in a name other than that in which the surrendered certificate(s) are registered it will be a condition of such issuance that (i) the person requesting such issuance pays all applicable transfer taxes resulting from the transfer (or prior to transfer of such certificate, if any) or establishes to our satisfaction that such taxes have been paid or are not payable, (ii) the transfer complies with all applicable federal and state securities laws, and (iii) the surrendered certificate is properly endorsed and otherwise in proper form for transfer.
We do not intend to issue fractional shares in connection with the Reverse Stock Split. In lieu of issuing fractions of shares, we intend to pay cash as follows:
| ● | If a shareholder’s shares are held in street name, payment for the fractional shares will be deposited directly into the shareholder’s account with the organization holding the shareholder’s shares. |
| ● | If the shareholder’s shares are registered directly in the shareholder’s name, payment for the fractional shares will be made by check, sent to the shareholder directly from our transfer agent upon receipt of the properly completed and executed transmittal letter and original stock certificates. |
| ● | The amount of cash to be paid for fractional shares will be equal to the product obtained by multiplying (i) the average closing price of our Common Stock as reported by The |
We currently expect that those shareholders who hold less than fiveten shares would be eliminated as a result of the payment of cash in lieu of any fractional share interest in connection with the Reverse Stock Split. The Board reserves the right, however, to issue fractional shares to some or all registered holders who would otherwise be eliminated as a result of the Reverse Stock Split, or alternatively, to round up fractional shares to the nearest whole share of Common Stock for some or all of such registered holders, if the Board shall determine that doing so would be in the Company’s best interests, including in order to avoid effecting a going private transaction as described in Rule 13e-3 of the Securities Exchange Act of 1934.Act. The Board also reserves the right to aggregate fractional shares for cash and arrange for their sale, with the aggregate proceeds from such sale being distributed to the holders of fractional shares on a pro rata basis.
Effect of the Reverse Stock Split on our Equity Compensation Plans, Options, and Restricted Stock Awards
In connection with certain adjustment to our Common Stock, including adjustment resulting from a reverse stock split, proportionate adjustments are generally required to be made to the number of shares reserved for future issuance under the Company’sour Amended and Restated 2012 Equity and Performance Incentive Plan (the “Plan”), as well as the per share exercise price and the number of shares issuable upon the exercise of all outstanding options (including outstanding option grants under the Plan and our prior 2001 Incentive Stock Option Plan and 2008 Stock Option Plan for Independent Directors and Advisory Board Members). This would result in approximately the same aggregate price being required to be paid under such options upon exercise, and approximately the same value of shares of Common Stock being delivered upon such exercise, immediately following the Reverse Stock Split as was the case immediately preceding the Reverse Stock Split. The number of shares deliverable upon settlement or vesting of restricted stock awards will be similarly adjusted, subject to our treatment of fractional shares. The number of shares reserved forissuance pursuant to these securities will be proportionately adjusted based upon the 1-for-51-for-10 reverse stock split ratio, subject to our treatment of fractional shares.
Effects of the Reverse Stock Split on our Preferred Stock
In connection with the Reverse Stock Split, we also will make any necessary adjustment to the Series A Convertible Preferred Stock to reflect the Reverse Stock Split of our Common Stock at a reverse split ratio of 1-for-5.1-for-10. The current certificate of designations for our Series A Convertible Preferred Stock contains a provision whereby the conversion price for the conversion of shares of Series A Convertible Preferred Stock into shares of Common Stock is automatically proportionately adjusted in the event of a reverse split of the outstanding shares of Common Stock. Each share of Series A Convertible Preferred Stock will continue to have one vote on those matters subject to the vote of the Series A Convertible Preferred Stock as set forth in the Certificate of Designation. The Series A Convertible Preferred Stock is not permitted to vote on the election of directors and in general does not vote with the Common Stock as a class. Accordingly, the voting power of the outstanding shares of Series A Convertible Preferred Stock will not change as a result of the Reverse Stock Split. The amendment will not change the number of authorized shares of Series A Convertible Preferred Stock.
The proposed amendment to our Amended and Restated Articles of Incorporation will not affect the per share par value of our Common Stock, which will remain at the current par value of $0.01 per share. As a result, the stated capital on our balance sheet attributable to the Common Stock will be reduced proportionately based on the 1-for-51-for-10 reverse stock split ratio, and capital in excess of par value on our balance sheet will be increased by the amount by which stated capital is reduced. Reported per share net income or loss will be higher because there will be fewer shares of Common Stock outstanding. In future financial statements, net income or loss per share and other per share amounts for periods ending before the Reverse Stock Split would be recast to give retroactive effect to the Reverse Stock Split. As described above under “Effects of the Reverse Stock Split on our Equity Compensation Plans, Options, and Restricted Stock Awards,” the per share exercise price of outstanding options would increase proportionately, and the number of shares of our Common Stock issuable upon the exercise of outstanding options would decrease proportionately, in each case based on the 1-for-51-for-10 reverse stock split ratio. We do not anticipate that any other accounting consequences would arise as a result of the Reverse Stock Split.
Certain Federal Income Tax Consequences
The following summary describes certain material U.S. federal income tax consequences of the Reverse Stock Split to holders of our Common Stock.
Unless otherwise specifically indicated herein, this summary addresses the tax consequences only to a beneficial owner of our Common Stock that is a citizen or individual resident of the United States, or a corporation organized in or under the laws of the United States or any state thereof or the District of Columbia (a “U.S. holder”). A trust may also be a U.S. holder if (i) a U.S. court is able to exercise primary supervision over administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in place to be treated as a U.S. person. An estate whose income is subject to U.S. federal income taxation regardless of its source may also be a U.S. holder.
This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. This summary also does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates, persons subject to the alternative minimum tax, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons that hold our Common Stock as part of a position in a “straddle” or as part of a “hedging,” “conversion,” or other integrated investment transaction for federal income tax purposes, (iii) persons that do not hold our Common Stock as “capital assets” (generally, property held for investment), or (iv) foreign entities and nonresident alien individuals. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our Common Stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our Common Stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the Reverse Stock Split. This summary does not address the tax consequences of transactions occurring prior to or after the Reverse Stock Split, including, without limitation, the exercise of options or rights to purchase Common Stock in anticipation of the Reverse Stock Split.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement.Proxy Statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the Reverse Stock Split.
PLEASE CONSULT YOUR OWN TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT IN YOUR PARTICULAR CIRCUMSTANCES UNDER THE INTERNAL REVENUE CODE AND THE LAWS OF ANY OTHER TAXING JURISDICTION.
The Reverse Stock Split should be treated as a recapitalization for U.S. federal income tax purposes. In certain circumstances, we may elect to issue some or all of our shareholders fractional shares, or alternatively to round up fractional shares to the nearest whole share, rather than paying cash in lieu of fractional shares. Although there is limited authority on the matter, we do not believe that the issuance of fractional shares or rounding up to whole shares should cause the Reverse Stock Split to fail to be treated as a tax-free recapitalization, except to the extent described below. Therefore, a shareholder generally will not recognize gain or loss on the Reverse Stock Split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-Reverse Stock Split shares. The aggregate tax basis of the post-split shares received will be equal to the aggregate tax basis of the pre-split shares exchanged therefor (excluding any portion of the holder’s basis allocated to fractional shares or for which an additional fraction of a share is rounded up to a whole share), and the holding period of the post-split shares received generally will include the holding period of the pre-split shares exchanged.
A holder of the pre-split shares who receives cash will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-split shares were held for one year or less and long-term if held more than one year. The deductibility of net capital losses by individuals and corporations is subject to limitations.
Although the treatment of a shareholder who receives an additional fraction of a share to round up to a whole share is not clear, a holder who receives round-up shares in lieu of a fractional share of our Common Stock pursuant to the Reverse Stock Split should recognize capital gain or loss in an amount equal to the difference between the amount of additional shares received and the shareholder’s tax basis in the shares of our Common Stock surrendered that is allocated to such fractional share of our Common Stock. Such gain or loss will be a capital gain or loss and will be short-term if the pre-split shares were held for one year or less and long-term if held more than one year. The deductibility of net capital losses by individuals and corporations is subject to limitations. Some round-up shares may have a new holding period.
Information returns may be required to be filed with the Internal Revenue Service with respect to the receipt of cash or round-up shares in lieu of a fractional share of our Common Stock pursuant to the Reverse Stock Split in the case of certain shareholders.
No gain or loss will be recognized by us as a result of the Reverse Stock Split.
Shareholders have no rights under Wyoming law or under our charter documents to exercise appraisal rights with respect to the Reverse Stock Split.
The Board recommends you vote for Proposal 2. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED, that the shareholders approve the amendment to the articles of incorporation to implement a reverse stock split of the Company’s outstanding Common Stock at a reverse stock split ratio of 1-for-5, provided that if the Company meets NASDAQ’s listing requirements prior to the Special Meeting, the Board, in its discretion, may elect not to effect the Reverse Stock Split.”
PROPOSAL 3: ADJOURNMENT PROPOSAL
At the Special Meeting, we may adjourn, or ask shareholders to vote to adjourn, the Special Meeting to solicit additional proxies in favor of the approval of the Exchange Proposal and the Reverse Stock Split if we have not obtained sufficient votes to approve the proposals. Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast on the matter. Because this vote is a non-routine matter under applicable rules, your bank, broker or other nominee cannot vote without instructions from you.
The Board recommends you vote for Proposal 3.5. For the reasons provided in this Proxy Statement, we are asking shareholders to vote “FOR” the following resolution:
“RESOLVED, that the shareholders approve the adjournmentamendment to our Restated Articles of Incorporation to implement a reverse stock split of the SpecialCompany’s outstanding Common Stock at a reverse stock split ratio of 1-for-10, provided that if the Company meets Nasdaq’s listing requirements prior to the Annual Meeting, if necessary,the Board, in its discretion, may elect not to solicit additional proxies for the Exchange Proposal and / oreffect the Reverse Stock Split.”
Principal Holders of Voting Securities and Ownership by Officers and Directors
The following table sets forth certain information regarding the beneficial ownership of our common stock as of October 31, 2017, by (a) each stockholder who is known to us to own beneficially 5.0% or more of our outstanding common stock; (b) each of our directors; (c) our sole executive officer, and (d) all directors and our executive officer as a group. This information is based on SEC reports or as otherwise known by us. Except as otherwise indicated, and for shares subject to forfeiture, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of common stock. David A. Veltri, as Trustee of our 1989 Employee Stock Ownership Plan (the “ESOP”) exercises voting powers over any non-allocated shares owned by the ESOP and dispositive powers over all ESOP shares.
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of October 31, 2017. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of October 31, 2017 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Such options are assumed to be exercised for purposes of these calculations. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership. Unless otherwise identified, the address of our directors and officer is c/o U.S. Energy Corp., 950 S. Cherry Street, Suite 1515, Denver, Colorado 80246.
| Title of Class | Name of Beneficial Owner | Position with Company | Beneficial Ownership | Percent of Class | ||||||||
Directors and Executive Officers: | ||||||||||||
| Common | David A. Veltri | Chairman of Board and Chief Executive Officer | 103,038 | (1) | 1.7 | % | ||||||
| Common | Ryan L. Smith | Chief Financial Officer | — | (2) | * | |||||||
| Common | J. Weldon Chitwood | Director | 20,000 | (3) | .33 | % | ||||||
| Common | John G. Hoffman | Director | 20,000 | (4) | .33 | % | ||||||
| Common | Javier F. Pico | Director | 20,000 | (5) | .33 | % | ||||||
| Common | Directors and executive officer as a group (5 people) | 163,038 | 2.7 | % | ||||||||
| Stockholders in Excess of 5%: | ||||||||||||
| Common | CVI Investments, Inc. | Shareholder | 370,200 | (6) | 6.0 | % | ||||||
| Preferred | Mt. Emmons Mining Company 333 N. Central Avenue Phoenix, AZ 85004 | Convertible Preferred Shareholder | 729,006 | (7) | 10.6 | % | ||||||
* Less than one percent
| 29 |
OTHER MATTERSReport of the Audit Committee
Our Board does not knowManagement is responsible for the preparation of any other matters that are to be presented for action atour financial statements, and the Special Meeting. However, if any other matters properly come beforereporting process, as well as maintaining effective internal control over financial reporting and assessing the Special Meeting or any adjournment(s) thereof, it is intended that the enclosed proxy will be voted in accordance with the judgmenteffectiveness of the persons votingcontrols. For the proxy.fiscal year ended December 31, 2018 Plante & Moran PLLC was responsible for auditing the annual financial statements and expressing an opinion as to whether they are presented fairly, in all material respects, in conformity with accounting principles generally accepted in the United States. The Audit Committee is responsible for, among other things, reviewing and selecting the independent registered public accounting firm, reviewing our annual and interim financial statements, and pre-approving all engagement letters and fees for audit and non-audit services provided by our independent accountant.
ADDITIONAL INFORMATION ABOUT THE COMPANY
If you would like to receive further information about U.S. Energy Corp., please visit the Company’s website atwww.usnrg.com. The “Investors” sectionIn performing its oversight functions in connection with our financial statements as of our website contains management presentations, financial information, stock quotes and links to our filings with the SEC.
INCORPORATION BY REFERENCE
We are incorporating by reference specified documents that we file with the SEC, which means that incorporated documents are considered part of this Proxy Statement. We are disclosing important information to you by referring you to those documents and information we subsequently file with the SEC will automatically update and supersede information contained in this Proxy Statement and in our other filings with the SEC. This document incorporates by reference the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2016, filed2018, the Audit Committee has:
| ● | Reviewed and discussed the audited financial statements with management and our independent registered accounting firm, including the quality of the accounting principles, and the reasonableness of significant judgments made in the preparation of the financial statements; | |
| ● | Discussed with our independent registered accounting firm those matters required to be discussed by the statement on Auditing Standards No. 61, as amended and as adopted by the Public Accounting Oversight Board (“PCAOB”) in Rule 3200T; | |
| ● | Received written disclosures from our independent registered accounting firm regarding its independence as required by the PCAOB and discussed with the independent registered accounting firm its independence; and | |
| ● | Reviewed and approved the services provided by the independent registered accounting firm. |
Based upon the foregoing reports and discussions, and subject to the limitations on April 28, 2017, the Company’s quarterly reportroles and responsibilities of the Audit Committee referred to in its charter, the Audit Committee recommended to the Board, and the Board has approved, that our audited financial statements be included in our Annual Report on Form 10-Q10-K for the quarteryear ended June 30, 2017,December 31, 2018, as filed with the SEC on August 14, 2017, and the Company’s current reports on Form 8-K filed on March 28, 2017, May 8, 2017, September 22, 2017, and October 5, 2017.16, 2019.
Privileged and ConfidentialRespectfully submitted by the Audit Committee of the Board,
| /s/ Javier F. Pico, Chairman | |
| /s/ Catherine J. Boggs | |
| /s/ J. Weldon Chitwood |
APPENDIX A
EXCHANGE AGREEMENTAMENDED ANDRESTATED
ARTICLES OF INCORPORATION
OF
U.S. ENERGY CORP.
AS AMENDED
This Exchange Agreement (this “Agreement”Pursuant to the provisions ofSectionSections 17-16-1003 and17-16-2021007of the Wyoming Business Corporation Actand, througha Resolution adopted by itsboard of directors (the “Board of Directors”) and the approval of its shareholders, U.S. Energy Corp.(the “Corporation”)hereby adopts the followingAmended andRestated Articles of Incorporation, which sets forth all of the operative provisions of the Articles of Incorporation and supersedes the original Articles of Incorporation, all Restated Articles of Incorporation and all amendments theretothat are in effect to date, as further amended by these Amended and Restated Articles of Incorporation as hereinafter set forth, and contain no other changes in any provisions thereof.
Article I
Name
The name of the Corporation shall be U.S. ENERGY CORP.
Article II
Duration
The period of duration of the Corporation shall be perpetual.
Article III
Objects, Purposes and Powers
Thepurposespurposefor which the Corporation is organizedareisto engage in any activity or business not in conflict with the laws of the State of Wyoming or of the United Statesand, without limiting the generality of the foregoing, specifically:
The several clauses contained in this statement of purposes shall be construed as both purposes and powers; and the statement contained in each clause shall be in nowise limited or restricted, by reference to or inference form the terms of any other clause, but shall be regarded as independent purposes and powers. No recitation, expression, or declaration of specific purposes or special powers herein enumerated shall be deemed to be exclusive; but it is hereby expressly declared that all other lawful powers not inconsistent herewith are hereby included.
Article IV
Capital Stock
1. Authorized Classes of Stock.The total number of shares of each class of capital stock which thecorporationCorporationshall have to authority to issue shall be divided into two classes as follows:
100,000 shares of preferred stock with a par value of $.010.01per share(“Preferred Stock”), and
An unlimited number of shares of common stock with a par value of $.010.01per share(“Common Stock”).
Any stock of the Corporation may be issued for money, property, services rendered, labor done, cash advances to the Corporation or for any other assets of value in accordance with the action of the Board of Directors whose judgment as to value received in return therefor shall be conclusive and said stock,when issued,shall be fully paid and nonassessable.
Thepreferred stockPreferred Stockshall be classified, divided and issued in series. Each series ofpreferred stockPreferred Stockmay be issued as determined from time to time by the Board of Directors and stated in the resolution or resolutions providing for the issuance of such stock adopted by the Board of Directors pursuant to authority vested initthe Board of Directors. Each series is to be appropriately designated prior to the issue of any shares thereof by some distinguishable letter, number or title.All shares of preferred stock shall be of equal rank and have the same powers,The Board of Directors is hereby authorized to provide, out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares of such series, and thepreferences andrelative, participating, optional, or other specialrights,if any,andshall be subject to the sameanyqualifications,limitation andlimitations, orrestrictionsthereof,without distinction betweenofthe shares ofdifferentsuchseriesthereof,except in regard toas shall be stated in theresolution or resolutionsproviding for the issuance of such seriesadopted by the Board of Directors.The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination ofthe followingparticulars, which may be different in different series:
1. The rate of Dividends.
2. The price at the terms and conditions on which shares may be redeemed.
a.The designation of the series.
b.The number of shares of the series.
c.The dividend rate or rates on the shares of that series, whether dividends will be cumulative, and if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series.
d.Whether the series will have voting rights in addition to the voting rights provided by law, and, if so, the terms of such voting rights.
e.Whether the series will have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine.
f.Whether or not the shares of that series shall be redeemable, in whole or in part, at the option of the Corporation or the holder thereof, and if made subject to such redemption, the terms and enteredconditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemptions, which amount may vary under different conditions and at different redemption rates.
g.3.Theterms andamountpayable uponof any sinking fund provided for the purchase or redemption of thesharesof such series.
h.The rights of the shares of that seriesin the event of voluntary or involuntary liquidation.
i.The restrictions, if any, on the issue or reissue of any additional Preferred Stock.
j.Any other relative rights, preferences, and limitations of that series.
The Board of Directors may, from time to time, increase the number of shares of any series ofpreferred stockPreferred Stockalready created by providing that any unissued shares ofpreferred stockPreferred Stockshall constitute part of such series, or may decrease (but not below the number of shares thereof then outstanding) the number of shares of any series of anypreferred stockPreferred Stockalready created providing that any unissued shares previously assigned to such series shall no longer constitute a part thereof. The Board of Directors is hereby empowered to classify or reclassify any unissuedpreferred stockPreferred Stockby fixing or altering the terms thereofinwithrespect to the above-mentioned particulars and by assigning the same to an existing or newly-created series from time to time before the issuance of such stock.
The Certificate of Designations of Series A Convertible Preferred Stock is attached to these Articles of Incorporation as Exhibit A.
2.Series P Preferred Stock.There is established theseriesSeriesP Preferred Stock. The number of shares in the series, its designation thereof, and the rights, preferences, privileges and restrictions of the shares of such series, all are fixed and established asfollowfollows:
| I. | Designation and Amount |
The series is designated the “Series P Preferred Stock.” The number of shares constituting the Series P Preferred Stock is fifty thousand (50,000)shares. Such number of shares may be increased or decreased by resolution of theboardBoardofdirectorsDirectors, but no decrease shall reduce the number of shares of Series P Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series P Preferred Stock.
| II. | Dividends and Distributions |
(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series P Preferred Stock with respect to dividends, the holders of shares of Series P Preferred Stock, in preference to the holders of Common Stock of the Corporation, shall be entitled to receive, when, as and if declared by theboardBoardofdirectorsDirectorsout of funds legally available for the purposethereof, quarterly dividends payable in cash on the first day of March, June, September 28, 2017,and December in each year (a “Quarterly Dividend Payment Date”), starting on the first Quarterly Dividend Payment Date after the first issuance of a share of Series P Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share of Series P Preferred Stock. If the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series P Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series P Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); PROVIDED that, if no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series P Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series P Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series P Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series P Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. TheboardBoardofdirectorsDirectorsmay fix a record date for the determination of holders of shares of Series P Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
| III. | Voting Rights |
The holders of shares of Series P Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each share of Series P Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of thestockholdersshareholdersof the Corporation.
(B) Except as otherwise provided herein, or in any other resolutions of theboardBoardofdirectorsDirectorscreating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series P Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote ofstockholdersshareholdersof the Corporation.
(C) Except as set forthherein,inthe Corporation’s articles of incorporationthese Articles of Incorporationor as otherwise provided by law, holders of Series P Preferred Stock shall have no voting rights.
| IV. | Certain Restrictions |
(A) Whenever quarterly dividends or other dividends or distributions payable on the Series P Preferred Stock as provided in Section II are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series P Preferred Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series P Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series P Preferred Stock, except dividends paid ratably on the Series P Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series P Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series P Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series P Preferred Stock, or any shares of stock ranking on a parity with the Series P Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by theboardBoardofdirectorsDirectors) to all holders of such shares upon such terms as theboardBoardofdirectorsDirectors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section IV purchase or otherwise acquire such shares at such time and in such manner.
| V. | Reacquired Shares |
Any shares of Series PPreferredStock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forthherein,inthe articles of incorporationthese Articles of Incorporation, anyotherCertificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law.
| VI. | Liquidation, Dissolution, or Winding Up |
Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series P Preferred Stock unless, prior thereto, the holders of shares of Series P Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series P Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series P Preferred Stock, except distributions made ratably on the Series P Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. If the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series P Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
| VII. | Consolidation, Merger, Etc. |
In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series P Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. If the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series P Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
| VIII. | Redemption |
The shares of Series P Preferred Stock shall not be redeemable.
| IX. | Rank |
The Series P Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation’s Preferred Stock.
| X. | Amendment |
ThearticlesArticlesofincorporationIncorporationof the Corporation shall not be amended in any manner which would alter or change the powers, preferences or special rights of the Series P Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series P Preferred Stock, voting together as a single class.
3.Dividends. Dividendsshall be payable upon thepreferred or common stockPreferred Stock or Common Stockat the discretion of the Board of Directorsof the Corporationat such times and in such amounts as it deems advisable, subject, however, to the provisions of any applicable law; providedfurther,however, that any dividends which may be declared by the Board of Directors of the Corporation shall be paid in cash or property only out of the unreserved and unrestricted earned surplus of the Corporation, except as otherwise provided by the applicable laws of the State of Wyoming and except that the Board of Directors of the Corporation , from time to time, may distribute to its shareholders in partial liquidation, out of capital surplus of the Corporation, a portion of its assets, in cash or property, subject to the following provisions:
(i)1.No such distribution shall be made at a time when thecorporationCorporationis insolvent or when such distribution would render the Corporation insolvent; and
(ii)2.Each such distribution when made shall be identified as a distribution in partial liquidation and the amount per share disclosed to the shareholders receiving the same concurrently with the distribution thereof.
4.Voting of Shares.Each outstanding share ofcommon stock, $.01 par value,Common Stockshall be entitled to one vote at shareholders’ meetings, either by person or by proxy.
In all elections for directors, every holder of thecommon stockCommon Stockshall have the right to vote in person, by proxy or by voting trustee under any voting trust, the number of shares of stock owned by him for as many persons as there are directors to be elected, or to cumulate such shares and to give one candidate as many votes as shall be equal to the number of directors multiplied by the number of his shares of stock or to distribute them on the same principle among as many candidates as he shall think fit; and directors shall not be elected in any other manner. Holders ofpreferred stockPreferred Stockshall have such voting rights as are established by the Board of Directors in accordance with the terms hereof.
5.NoPreemptive Rights. Noholder of shares ofcommonCommon Stockorpreferred stockPreferred Stockor any other securities which the Corporation may now or hereafter be authorized to issue shall be entitled to any preemptive or preferential right to subscribe to any unissuedcommonCommon Stockorpreferred stockPreferred Stockor any other securities which the Corporation may now or hereafter be authorized to issue. The Board of Directorsof the Corporation, however, in its discretion by resolution, may determine that any unissued securities of the Corporation shall be offered for subscription solely to the holders of itscommonCommon Stockorpreferred stockPreferred Stockor solely to the holders of any class orclassedclassesof such stock, which thecorporationCorporationmay now or hereafter be authorized to issue, in such proportions based on stock ownership as the Board of Directors in its discretion may determine.
6.Restrictions on Transfer.The Board of Directors may restrict the transfer of any of the Corporation’scommonCommon Stockorpreferred stockPreferred Stockor any other securities which the Corporation may now or hereafter authorize to issue by giving the Corporation or any shareholder “first right of refusal to purchase” the stock, by making the stock redeemable or by restricting the transfer of the stock under such terms and in such manner as the directors may deem necessary and as are not inconsistent with the laws of the State of Wyoming. Any stock so restricted must carry a conspicuous legend noting the restriction and the place where such restriction may be found in the records of the Corporation.
Article V
Registered Office;Place of Business
Theaddress of theCorporation’s registered office is c/o CT Corporation System, 1908 Thomes Ave., Cheyenne, Wyoming 82001, and the name of the registered agent is CT Corporation System.
TheCorporation’s principal officeis 877 North 8th West, Riverton, WY. The agent for service of process at that address will be Keith G. Larsenshall be as determined by the Board of Directors from time to time.
Article VI
Directors
The affairs of the Corporation shall be governed byatheBoard of Directors. The numberofnot less than three (3) nor more than seven (7)directorswhoof the Corporation which shall constitute the entire Board of Directors shall be the number of directors as fixed from time to time in accordance with the by-laws of the Corporation (the “By-Laws”). The directorsshall be elected in accordance with the By-Lawsof the Corporationand the statutes of the State of Wyoming now or hereafter in effect. The number of directors shall be increasedtoordecreased in accordance with the By-Lawsof the Corporationand the laws of the State of Wyoming as now or hereafter in effect.
Directors of the Corporation need not be residents of the State of Wyoming and need not own shares of the Corporation’s stock.
Meetings of the Board of Directors, regular or special, may be held within or without the State of Wyoming upon such notice as may be prescribed by the By-Lawsof the Corporation. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends such meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the Board of Directors needs to be specified in the noticeoforwaiver of notice of any such meeting unless the By-Lawsof the Corporationotherwise require.
A majority of the number of directors at any time constituting the Board of Directors shall constitute a quorum for the transaction of business; and the action of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
Any vacancy occurring in the Board of Directors, including and vacancy occurring as a result of anincrease in the number of directors,may be filled by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office.Any directorship to be filled by reason of anyincrease in the number of directorsshall be filled by election at an annual meeting of shareholders of the Corporation or a special meeting of such shareholders called for that purpose.
Pursuant to section 17-16-808(a) of the Wyoming Business Corporation Act, a director of theCompany shallCorporation maybe removed by the shareholdersonly forwith or withoutcause.
The Board of Directors shall have the power to designate, by resolution passed by a majority of the whole board, not less than two (2) of its members to constitute an Executive Committee which, to the extent provided in said resolution or in the By-Lawsof the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business, affairs, and property of the Corporation during the intervals between the meetings of the directors, including the power to authorize the seal of the Corporation to be affixed to all papers that may require it; and when the seal has been so affixed pursuant to such authority, it shall be deemed to have been affixed by order of the Board of Directors.
The Board of Director of the Corporation may, from time to time, distribute to its shareholders in partial liquidation, out of capital surplus of the Corporation, a portion of its assets, in cash or property, subject to the following provisions:
| 1. | No such distribution shall be made at a time when the Corporation is insolvent or when such distribution would render the Corporation insolvent. |
| 2. | Each such distribution, when made, shall be identified as a distribution in partial liquidation and the amount per share disclosed to the shareholders receiving the same concurrently with the distribution thereof. |
Article VII
By-Laws
The By-Laws of the Corporation shall be adopted byitstheBoard of Directors. The power to alter, amend, or repeal the By-Laws, or to adopt new By-Laws, shall be vested in the Board of Directorsand in the shareholders through the vote of the holders of a majority of the total votes of the shares entitled to vote generally in the election of directors (considered for this purpose as one class), except as may otherwise be specifically provided in the By-Laws.
Article VIII
Transactions with Directors and other Interested Parties
No contract or other transaction between the Corporation and any other corporation, whether or not a majority of the shares of the capital stock of such other corporation is owned by this Corporation, and no act of this Corporation shall in any way be affected or invalidated by the fact that any of the directors of this Corporation are pecuniarily or otherwise interested in, or are directors or officers of, such other corporation. Any director of this Corporation, individually, or any firm of which such director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Corporation; provided, however, that the fact thathethe directoror such firm is so interested shall be disclosed or shall have beenmadeknown to the Board of Directors of this Corporation or a majority thereof; and any director of this Corporation who is also a director or officer of such other corporation, or who is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of this Corporation that shall authorize such a contract or transactionand maybut shall not be allowed tovotethere atto authorize such contract or transactionwith like force and effect as if he were not such director or officer of such other corporation or not so interested.
Article IX
Classes of Directors
1.Section 1. Upon the adoption of this provision to the Articles of Incorporation, theClassified Board. TheBoard of Directors shall be divided into three classes, as equal in number as the total number of members of the Board of Directors provided in the By-Laws permits. The Board of Directors shall be separated into three classes which shall be denominated as ClassoneOne, Class Two and Class Three.
2.Section 2.Class Terms.In the voting upon the election of members of the Corporation’s Board of Directors which first occurs after the filing of an amendment to the Corporation’s Articles of Incorporation containing these provisions for a classified Board of Directors, the persons nominated as Class One directors shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their successors have been duly elected or appointed and qualified or until death, resignation or removal. Persons nominated for election as Class Two directors shall be elected to hold office for a term expiring at the second succeeding annual meeting and until their successors have been duly elected or appointed and qualified or until death, resignation or removal. Persons nominated for election as Class Three directors shall be elected to hold office for a term expiring at the next succeeding annual meeting and until their successors have been duly electedor appointed and qualifiedor until death, resignation or removal. At allannualmeetings thereafter, directors then being elected shall be elected to hold office for a term expiring at the third succeeding annual meetingof shareholdersand until their successors have been duly elected or appointed and qualified or until death, resignation or removal, except for directors being elected solely by a series ofpreferred stockPreferred Stock, if the resolution defining the rights of such seriesof Preferred Stockspecificallystatestatesthat the directors being elected by the holders of that series ofpreferred stockPreferred Stockshall be elected to serve only until the next annual meeting of shareholders and until their successors have been duly electedand qualifiedor until death, resignation or removal. Any vacancies in the Board of Directors for any reason and any newly created directorships resulting from any increase in the number of created directorships resulting from any increase in the number of directors may be filled by the Board of Directors acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected or appointed and qualified or until death, resignation or removal. No decrease in the number of directors shall shorten the term of any incumbent director.
3.Section 3.Amendment to Articles of Incorporation.Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the By-Lawsof the Corporation), the affirmative vote of the holders of 75% of the total votes of the shares entitled to vote generally in the election of directors (considered for this purpose as one class) shall berequirerequiredto amend, alter, change or repeal this Article IX of the Articles of Incorporation.
Article X
NoDirectorLiability
No directorshall be personally liable to the Corporation or any shareholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 17-16-833 of the Wyoming Statutes, or any amendment thereto or successor provision thereto, and except for any matter in respect of which such director shall be liable by reason thathethe director(i) has breached his duty of loyalty to thecorporation ofCorporation orits shareholders, (ii) has not acted in good faith or, in failing to act, has not acted in good faith, (iii) has acted in a manner involving intentional misconduct or a knowing violation of lawor, in failing to act,ashasacted in a manner involving intentional misconduct or a knowing violation of law, or (iv) has derived an improper personal benefit. Neither the amendment nor repeal of this Article X, nor the adoption of any provision of the Articles of Incorporation inconsistent withthethisArticle X, shall eliminate or reduce the effect of this Article X in respect of any matter occurring,or any cause of action, suitor claimin respect of any matter occurring,or any cause of action, suit or claim that, but the this Article X would accrue or ariseprior to such amendment, repeal or adoption of an inconsistent provision.
Article XI
Voting ofCompanyCorporationSecurities Held By Majority-Owned Subsidiaries
Notwithstanding Wyoming Statues Section 17-16-721(b) or any successor provision, shares of a voting class of the Corporation’s stock that are owned by a subsidiary of the Corporation may be voted even though the Corporation holds a majority of the shares entitled to vote for the directors of the subsidiary holding such shares; provided, however, that the voting rights held by any single such majority- controlled subsidiary with respect to a class of voting stock shall be limited to 40% of the total outstanding shares of that class.
Article XII
Written Consent of Shareholders Without a Meeting
Any action to be taken at any annual or special meeting of shareholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action to be so taken, shall be signed by the holders of at least two-thirds of the total votes of the outstanding shares entitled to vote on such action (considered for this purpose as one class) and shall be delivered (by hand or by certified or registered mail, return receipt requested) to the Corporation by delivery to its registered office in the State of Wyoming, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Every written consent shall bear the date of signature of each shareholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered in the manner required by this Article XII, written consents signed by a sufficient number of holders to take action are delivered to the Corporation as aforesaid. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by applicable law, be given to those shareholders who have not consented in writing, and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation.
Exhibit A
CERTIFICATE OF DESIGNATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.01 PER SHARE,
OF
U.S. ENERGY CORP.
Pursuant to Section 17-16-601 of the
Wyoming Business Corporation Act
The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the “Board”) of U.S. Energy Corp., a Wyoming corporation (the “Company”(hereinafter called the “Corporation”), Energy One LLC, a Wyoming limited liability company (the “Borrower”)with the designations, powers, preferences and APEG Energy II, L.P. (the “Holder”), the sole Lenderrelative, participating, optional or other special rights, and the Administrative Agentqualifications, limitations or restrictions thereof, having been fixed by the Board pursuant to authority granted to it under Article IV of the Credit Agreement dated asCorporation’s Restated Articles of July 30, 2010, as amended (the “Credit Facility”). Capitalized terms used herein but not defined herein shall haveIncorporation and in accordance with the meanings given to them inprovisions of Section 17-16-601 of the Credit Facility.Wyoming Business Corporation Act:
RECITALS
WHEREAS,RESOLVED: That, pursuant to authority conferred upon the Holder currently holds $6,000,000 in principal amountBoard by the Corporation’s Restated Articles of Loans underIncorporation, the Credit Facility, comprising the entire principal balance outstanding under the Credit Facility (the “Balance”);
WHEREAS, the Holder desires to exchange $5,063,380 of the Balance (the “Exchanged Balance”) forBoard hereby authorizes 50,000 shares of the Company’s CommonSeries A Convertible Preferred Stock, par value $0.01 per share, (“Common Stock”)of the Corporation and for cash, onhereby fixes the termsdesignations, powers, preferences and conditionsrelative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, of such shares, in addition to those set forth in this Agreement (the “Exchange”);the Restated Articles of Incorporation of the Corporation, as follows:
WHEREAS,Section 1. Designation. The shares of such Series shall be designated “Series A Convertible Preferred Stock,” and the Company desires to issue to the Holder thatnumber of shares constituting such Series shall be 50,000 (the “Series A Preferred Stock”). The number of shares of the Company’s CommonSeries A Preferred Stock and to pay to the Holder that amount of cash, determined as set forth in Section 1.1 below, in exchange for the Exchanged Balance;
NOW, THEREFORE, in considerationmay be increased or decreased by resolution of the premisesBoard and approval by the agreements set forth below, and for other good and valuable consideration,holders of a majority of the receipt and sufficiencyoutstanding shares of which are hereby acknowledged, the parties agreeSeries A Preferred Stock, voting as follows:
ARTICLE IExchangea separate voting group; provided that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares of such Series then outstanding.
Section 1.1 Exchange2. Currency. All Series A Preferred Stock shall be denominated in United States currency, and all payments and distributions thereon or with respect thereto shall be made in United States currency. All references herein to “$” or “dollars” refer to United States currency.
Section 3. Ranking. The Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank senior to each other class or series of shares of the Exchanged Balance forCorporation that is issued at the time of issuance of the Series A Preferred Stock and that the Corporation may issue thereafter, including, without limitation, the common stock of the Corporation, par value $0.01 per share (the “Common Stock”) (such junior stock, including the Common Stock, and Cashbeing referred to hereinafter collectively as “Junior Stock”).
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Section 4. Dividends.
(a) UponThe holders of Series A Preferred Stock shall be entitled to receive, in the terms and subjectmanner described in Section 4(b), regular quarterly dividends per share of Series A Preferred Stock of an amount equal to 12.250% per annum of the Adjusted Liquidation Preference (as herein defined) then in effect of each share of such Series A Preferred Stock (the “Regular Dividends”), before any dividends shall be declared, set apart for or paid upon Junior Stock. For purposes hereof, the term “Adjusted Liquidation Preference” shall mean $40.00 per share of Series A Preferred Stock as of the Issue Date, which shall be increased as described in Section 4(c).
(b) Regular Dividends shall not be distributed to the conditionsholders of this Agreement,Series A Preferred Stock in cash or any other form of shares or property but rather shall be added to the Adjusted Liquidation Preference as provided in Section 4(c). Regular Dividends shall be accrued quarterly in arrears on January 1, April 1, July 1 and October 1 of each year (unless any such day is not a Business Day, in which event such Regular Dividends shall be accrued on the Closingnext succeeding Business Day), commencing on April 1, 2016 (each such accrual date being a “Regular Dividend Payment Date (as defined herein),” and the period from the date of issuance of the Series A Preferred Stock to the first Regular Dividend Payment Date and each such quarterly period thereafter being a “Regular Dividend Period”). The amount of Regular Dividends payable on the Series A Preferred Stock for any period shall be computed on the basis of a 360-day year and the actual number of days elapsed.
(c) Regular Dividends, whether or not declared, shall begin to accrue and be cumulative from the Issue Date and shall compound quarterly on each subsequent Regular Dividend Payment Date initially at 3.0625% of the Adjusted Liquidation Preference as of the Issue Date and thereafter at 3.0625% of the Adjusted Liquidation Preference as of the immediately preceding Regular Dividend Payment Date. The amount accrued each Regular Dividend Period shall be added on each Regular Dividend Payment Date to the Adjusted Liquidation Preference as of the immediately preceding Regular Dividend Payment Date (or in the case of the first Regular Dividend Period, to the Adjusted Liquidation Preference as of the Issue Date), and such resulting amount shall become the Companynew Adjusted Liquidation Preference with respect to which the Regular Dividend shall issue, subjectbe calculated for the next Regular Dividend Period. The cumulative amount of Regular Dividends accrued pursuant to this Section 1.14(c) on each Regular Dividend Payment Date are referred to herein as the “Accumulated Regular Dividends”. For the avoidance of doubt, dividends shall accumulate whether or not in any Regular Dividend Period there have been funds of the Corporation legally available for the payment of such dividends.
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(d) Except for Permitted Distributions, no dividend or distribution of any kind shall be declared or paid on Junior Stock unless (1) approved by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group and Section 1.7 hereof,(2) the holders of Series A Preferred Stock shall receive dividends or distributions per share of Series A Preferred Stock of an amount equal to the Holder, and the Holder agrees to accept from the Company,aggregate amount of any dividends or other distributions, whether cash, in kind or other property, paid on outstanding shares of Common Stock on a per share basis based on the number of shares of Common Stock into which such share of Series A Preferred Stock could be converted on the applicable record date for such dividends or other distributions, assuming such shares of Common Stock were outstanding on the applicable record date for such dividend or other distributions (the “Participating Dividends”), unless such right to Participating Dividends is waived by the holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group. “Permitted Distributions” shall mean dividends or distributions of Common Stock or other securities for which anti-dilution adjustments are made as provided in (x) Sections 9(a)(1) and 9(a)(3), and (y) Sections 9(a)(2) and 9(a)(4); provided,however, that with respect to clause (y) no such dividends or distributions shall be Permitted Distributions on or after the time the Conversion Rate equals the Conversion Cap, or if such dividend or distribution would cause the Conversion Rate to equal or exceed the Conversion Cap. For avoidance of doubt, Permitted Distributions shall not include cash, determineda Spin-Off Transaction, or evidences of indebtedness, assets, or other property.
(e) For so long as there shall be any shares of Series A Preferred Stock outstanding, without the approval of holders of a majority of the outstanding shares of the Series A Preferred Stock, voting as a separate voting group, no Junior Stock shall be redeemed, purchased or otherwise acquired for any consideration (nor shall any moneys be paid to or made available for a sinking fund for the redemption of any shares of any such Junior Stock) by the Corporation or any Subsidiary; provided,however, that the foregoing limitation shall not apply to:
(1) purchases, redemptions or other acquisitions of shares of Junior Stock from employees or former employees in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees of the Corporation or any of its Subsidiaries (or from permitted family member transferees pursuant to such arrangements), up to a maximum of an aggregate of 50,000 shares from the Issue Date until such date as no shares of Series A Preferred Stock are issued and outstanding; or
(2) an exchange, redemption, reclassification or conversion of any class or series of Junior Stock exclusively for any class or series of Junior Stock.
(f) If applicable as provided in Section 4(d), Participating Dividends shall be payable as and when paid to the holders of shares of Common Stock. Each Participating Dividend shall be payable to the holders of record of shares of Series A Preferred Stock as they appear on the stock records of the Corporation at the Close of Business on the relevant record date, which with respect to Participating Dividends shall be the same day as the record date for the payment of dividends or distributions to the holders of shares of Common Stock.
Section 5. Liquidation, Dissolution or Winding Up.
(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, or the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity (each, a “Liquidation”), after satisfaction (or proper provision made for the satisfaction) of all liabilities and obligations to creditors of the Corporation and before any distribution or payment shall be made to holders of any Junior Stock, each holder of Series A Preferred Stock shall be entitled to receive, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) legally available therefor, an amount per share of Series A Preferred Stock equal to the greater of:
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(1) the Adjusted Liquidation Preference per share as of the date of payment of the Liquidation Preference, plus the amount of the Regular Dividend that would be accrued on such share from the Regular Dividend Payment Date immediately preceding the date of payment of the Liquidation Preference through but excluding the date of payment of the Liquidation Preference, plus any declared but unpaid Participating Dividends through the date of payment of the Liquidation Preference; and
(2) the payment such holders would have received had such holders, immediately prior to such Liquidation, converted their shares of Series A Preferred Stock into shares of Common Stock (at the then applicable Conversion Rate) pursuant to Section 7 immediately prior to such Liquidation, plus any declared but unpaid Participating Dividends through the date of Liquidation
(the greater of (1) and (2) is referred to herein as the “Liquidation Preference”). Holders of Series A Preferred Stock will not be entitled to any other amounts from the Corporation after they have received the full amounts provided for in this Section 5(a) and will have no right or claim to any of the Corporation’s remaining assets.
(b) If, in connection with any distribution described in Section 5(a) above, the assets of the Corporation or proceeds thereof are not sufficient to pay in full the Liquidation Preference payable on the Series A Preferred Stock, then such assets, or the proceeds thereof, shall be paid to the holders of Series A Preferred Stock pro rata per share of Series A Preferred Stock in accordance with the termsfull respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
(c) For purposes of subsections (b)this Section 5, the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity, shall constitute a Liquidation, such Liquidation shall be deemed to occur as of the closing of such transaction, and (d) hereofpayment of the Liquidation Preference shall occur as promptly as practicable after such Liquidation event. For purposes of this Section 5, the merger or consolidation of the Corporation with or into any other corporation or other entity shall not constitute a liquidation, dissolution or winding up of the Corporation.
Section 6. Voting Rights.
(a) The holders of the shares of Series A Preferred Stock shall be entitled to notice of all shareholders’ meetings (or any action by written consent) in exchange foraccordance with the Exchanged Balance.Corporation’s Restated Articles of Incorporation and Bylaws, and applicable law, as if the holders of Series A Preferred Stock were holders of Common Stock (and whether or not the holders of Series A Preferred Stock are entitled to vote at the meeting or on the action taken by written consent).
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(b) OnIn addition to the voting rights provided for by law or expressly provided elsewhere herein, for so long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not and shall not permit any direct or indirect Subsidiary of the Corporation to, without first obtaining the written consent, or affirmative vote at a meeting called for that purpose, of holders of at least a majority of the then outstanding shares of Series A Preferred Stock, voting as a separate voting group, take any of the following actions:
(1) Any change, amendment, alteration or repeal (directly or indirectly and including in connection with or as a result of a merger, consolidation, share exchange or other transaction) of any provisions of the Corporation’s Restated Articles of Incorporation or Bylaws that amends, modifies or adversely affects the rights, preferences, privileges or voting powers of the Series A Preferred Stock, or any amendment that would effect any of the actions or changes described in Section 17-16-1004 of the Wyoming Business Corporation Act or any successor provision;
(2) Effect a conversion to a different type of legal entity, effect a transfer of the Corporation to incorporation under the laws of another jurisdiction, or voluntarily change the tax status of the entity;
(3) Any creation, authorization, issuance or reclassification of Capital Stock that would rank equal or senior to the Series A Preferred Stock with respect to redemption, Liquidation rights or with respect to dividend rights or rights on a Change of Control;
(4) The issuance or reclassification of shares of the Corporation’s Series P Preferred Stock;
(5) A sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16- 1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation or Subsidiary without a significant continuing business activity, a merger, consolidation, share exchange, or similar business combination or extraordinary transaction involving the Corporation or any Subsidiary, that (v) converts the shares of Series A Preferred Stock into cash, other securities, interests, obligations, rights to acquire shares, other securities or interests, other property, or any combination of the foregoing; (w) contains one or more provisions that would entitle the holders of Series A Preferred Stock to vote as a separate voting group on such provision or provisions if they were contained in a proposed amendment to the Restated Articles of Incorporation, pursuant to such articles or pursuant to Section 17-16-1004 of the Wyoming Business Corporation Act or any successor provision; (x) if share exchange, if the Series A Preferred Stock is included in the exchange; (y) results in a Change of Control; or (z) impairs in any way other than in ade minimusway, the value or rights of the Series A Preferred Stock;
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(6) Any repurchase or redemption of Series A Preferred Stock, other than pro rata or in whole;
(7) Any issuance or sale of capital stock of a Subsidiary, repurchase or redemption of capital stock of a Subsidiary or dividend or distribution with respect to capital stock of a Subsidiary, other than such transactions exclusively involving the Corporation and one or more of its wholly-owned Subsidiaries;
(8) From and after the time that the Conversion Rate equals the Conversion Cap, and including an issuance that would cause the Conversion Rate to equal or exceed the Conversion Cap, the issuance of Common Stock or securities convertible into, exercisable or exchangeable for Common Stock (including by means of a distribution of rights, options or warrants subject to Section 9(a)(2), or by means of an issuance described in Section 9(a)(4)) at a price per share that is less than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the Record Date for the Holder will receiveissuance of rights, options or warrants, or that is less than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed.
(c) The shares of Series A Preferred Stock shall not have voting rights in the election, removal, or replacement of directors, or filling a finalvacancy in the office of a director, of the Corporation.
(d) At a meeting of holders of Series A Preferred Stock, a majority of the outstanding shares of Series A Preferred Stock shall constitute a quorum. The rules and procedures for calling and conducting any meeting of the holders of Series A Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by any reasonable rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Restated Articles of Incorporation and Bylaws of the Corporation; provided, that the Corporation may not restrict or prohibit the use of proxies, or restrict access to shareholder’s lists, by holders of Series A Preferred Stock pursuant to the Wyoming Management Stability Act Sections 17-18-116 and 17-18-118. Any vote of holders of Series A Preferred Stock that may be taken at a meeting of such holders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding Series A Preferred Stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Each holder of Series A Preferred Stock shall have one vote per share of Series A Preferred Stock.
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Section 7. Conversion.
(a)MandatoryConversion by the Corporation. If at any time the Closing Price of the Common Stock equals or exceeds $5.00 per share (adjusted as described in and consistent with the provisions of Section 9 by multiplying such price by the quotient of the Conversion Rate in effect prior to such adjustment divided by the Conversion Rate in effect after such adjustment) for a period of 30 consecutive Trading Days (the Business Day immediately following such 30th Trading Day, the “MandatoryConversion Date”), at the Corporation’s election effected by written notice to the holders of Series A Preferred Stock within 30 days after the Mandatory Conversion Date, all and not less than all of the shares of Series A Preferred Stock shall be converted such that each share of Series A Preferred Stock is converted into a number of shares of Common Stock determined(subject to the Conversion Cap) equal to the product of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied by (2) the Conversion Rate then in effect, plus cash in lieu of fractional shares as set forth belowout in Section 9(h), plus an amount of cash per share of Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share from and including the immediately preceding Regular Dividend Payment Date to but excluding the Mandatory Conversion Date, out of funds legally available therefor (the “MandatoryConversion”). This Section 7(a) shall not apply (i.e.there shall be no Mandatory Conversion) if the Common Stock is not traded on a cash payment in exchange forU.S. national securities exchange.
(b)Optional Conversion. At any time, each holder of Series A Preferred Stock shall have the Exchanged Balance. Theright, at such holder’s option, to convert any or all of such holder’s shares of Series A Preferred Stock, and each share of Series A Preferred Stock to be converted shall be converted into a number of shares of Common Stock issued(subject to the HolderConversion Cap) equal to the product of (1) the Adjusted Conversion Value per share divided by the Initial Conversion Value per share, multiplied by (2) the Conversion Rate then in effect, plus cash in lieu of fractional shares as set out in Section 9(h), plus an amount of cash per share of Series A Preferred Stock equal to the amount of the Regular Dividend that would be accrued on such share from and including the immediately preceding Regular Dividend Payment Date to but excluding the applicable Conversion Date, out of funds legally available therefor.
(c)Conversion Definitions.
(1) “Adjusted Conversion Value” per share means the Initial Conversion Value per share plus Accumulated Regular Dividends per share;
(2) “Conversion Rate” means 80 shares, subject to adjustment in accordance with the provisions of Section 9 of this Certificate of Designations;
(3) “Initial Conversion Value” per share means $40 per share of Series A Preferred Stock; and
(4) “Total Conversion Shares” means the aggregate number of shares of Common Stock issuable upon conversion (mandatory or optional) of Series A Preferred Stock.
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(d)Conversion Cap. The Total Conversion Shares shall not exceed 4,760,095 shares of Common Stock (i.e.16.86% of the number of shares of Common Stock outstanding on the Issue Date), and the “Conversion Cap” shall mean 95.20 shares of Common Stock per share of Preferred Stock, adjusted as described in and consistent with the provisions of Section 9, other than Sections 9(a)(2) and 9(a)(4), by multiplying such number by the quotient of the Conversion Rate in effect after such adjustment divided by the Conversion Rate in effect prior to such adjustment).
(e)Conversion Procedures. A holder must do each of the following in order to convert its shares of Series A Preferred Stock:
(1) in the case of a conversion pursuant to Section 7(b), give written notice to the Corporation (or any conversion agent appointed pursuant to Section 16) that such holder elects to convert such shares;
(2) deliver to the Corporation or such conversion agent the certificate or certificates representing the shares of Series A Preferred Stock to be converted (or, if such certificate or certificates have been lost, stolen or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation);
(3) if required, furnish appropriate endorsements and transfer documents in form and substance reasonably acceptable to the Corporation; and
(4) if required, pay any stock transfer, documentary, stamp or similar taxes not payable by the Corporation pursuant to Section 7(i).
If the conversion is in connection with a Reorganization Event, the conversion may, at the option of the holder, be conditioned upon the closing of the Reorganization Event, in which case the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall not be deemed to have converted the Series A Preferred Stock until immediately prior to the closing of such Reorganization Event. If the conversion is in connection with a tender offer for the Common Stock, the conversion may, at the option of the holder, be conditioned upon the closing of the tender offer and acceptance of tendered shares, in which case the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall not be deemed to have converted the Series A Preferred Stock until immediately prior to the closing of such tender offer; provided, that in the event less than all of the Common Stock (including the Conversion Shares) tendered is accepted for purchase in the tender offer, the Person(s) entitled to receive the Common Stock, cash or other property upon conversion shall only be deemed to have converted such portion of the Series A Preferred Stock for which the related Conversion Shares were accepted for purchase pursuant to the termstender offer. “Conversion Date” means, as applicable, either (x) if the Corporation elects Mandatory Conversion as provided in Section 7(a), the Mandatory Conversion Date; (y) in the case of a conditional conversion, the date such conversion is deemed to occur; or (z) in any other case, the date on which a holder complies in all respects with the procedures set forth in this Agreement is referredSection 7(e).
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(f)Effect of Conversion. Effective immediately prior to hereinthe Close of Business on the Conversion Date applicable to any shares of Series A Preferred Stock, dividends shall no longer accrue or be declared on any such shares of Series A Preferred Stock and such shares of Series A Preferred Stock shall cease to be outstanding.
(g)Record Holder of Underlying Securities as of Conversion Date. The Person or Persons entitled to receive the Common Stock and, to the extent applicable, cash or other property, issuable upon conversion of Series A Preferred Stock on a Conversion Date shall be treated for all purposes as the “Exchange Shares.” The Exchange Shares shall equalrecord holder(s) of such shares of Common Stock and/or cash or other property as of the Balance, less any cash payments receivedClose of Business on such Conversion Date. As promptly as practicable on or after the Conversion Date and compliance by the Holder,applicable holder with the relevant conversion procedures contained in Section 7(e) (and in any event no later than three Trading Days thereafter), the Corporation shall issue the number of whole shares of Common Stock issuable upon conversion (and deliver payment of cash in lieu of fractional shares, and other property due). Upon Mandatory Conversion, the outstanding shares of Series A Preferred Stock shall be converted automatically without further action by the holders and whether or not the certificates representing such shares are surrendered; provided, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock or deliver other securities, cash or property due upon such conversion unless the certificates evidencing the shares of Series A Preferred Stock are delivered to the Corporation or the conversion agent (or, if such certificate or certificates have been lost, stolen or destroyed, a lost certificate affidavit and indemnity in form and substance reasonably acceptable to the Corporation). Such delivery of shares of Common Stock, and if applicable other securities, shall be made, at the option of the applicable holder, in certificated form or by book-entry. Any such certificate or certificates shall be delivered by the Corporation to the appropriate holder on a book-entry basis or by mailing certificates evidencing the shares to the holders at their respective addresses as set forth in the conversion notice. If fewer than all of the shares of Series A Preferred Stock held by any holder are converted pursuant to Section 7(b), then a new certificate representing the unconverted shares of Series A Preferred Stock shall be issued to such holder concurrently with the issuance of the certificates (or book-entry shares) representing the applicable shares of Common Stock. In the event that a holder shall not by written notice designate the name in which shares of Common Stock, and to the extent applicable cash or other property to be delivered upon conversion of shares of Series A Preferred Stock, should be registered or paid, or the manner in which such shares, and if applicable cash or other property, should be delivered, the Corporation shall be entitled to register and deliver such shares, and if applicable cash and other property, in the name of the holder and in the manner shown on the records of the Corporation.
(h)Status of Converted or Acquired Shares. Shares of Series A Preferred Stock duly converted in accordance with this Certificate of Designations, or otherwise acquired by the Corporation in any manner whatsoever, shall be retired promptly after the conversion or acquisition thereof. All such shares shall upon their retirement and any filing required by the Wyoming Business Corporation Act become authorized but unissued shares of preferred stock, without designation as to series until such shares are once more designated as part of a particular series by the Board pursuant to the provisions of the Restated Articles of Incorporation.
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(i)Taxes. (1) The Corporation and its paying agent shall be entitled to withhold taxes on all payments on the Series A Preferred Stock or Common Stock or other securities issued upon conversion of the Series A Preferred Stock to the extent required by law. Prior to the date of any such payment, each holder of Series A Preferred Stock shall deliver to the Corporation or its paying agent a duly executed, valid, accurate and properly completed Internal Revenue Service Form W-9 or an appropriate Internal Revenue Service Form W-8, as applicable.
(2) Absent a change in law or Internal Revenue Service practice, or a contrary determination (as defined in Section 1313(a) of the United States Internal Revenue Code of 1986, as amended (the “Code”)), each holder of Series A Preferred Stock and the Corporation agree not to treat the Series A Preferred Stock (based on their terms as set forth in this Certificate of Designations) as “preferred stock” within the meaning of Section 305 of the Code, and Treasury Regulation Section 1.305-5 for United States federal income tax and withholding tax purposes and shall not take any position inconsistent with such treatment.
(3) The Corporation shall pay any and all documentary, stamp and similar issue or transfer tax due on (x) the issue of the Series A Preferred Stock and (y) the issue of shares of Common Stock upon conversion of the Series A Preferred Stock. However, in the case of conversion of Series A Preferred Stock, the Corporation shall not be required to pay any tax or duty that may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or Series A Preferred Stock in a name other than that of the holder of the shares to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax or duty, or has established to the satisfaction of the Corporation that such tax or duty has been paid.
(4) Each holder of Series A Preferred Stock and the Corporation agree to cooperate with each other in connection with any redemption of part of the shares of Series A Preferred Stock and to use good faith efforts to structure such redemption so that such redemption may be treated as a sale or exchange pursuant to Section 302 of the Code; provided that nothing in this Section 7(i) shall require the Corporation to purchase any shares of Series A Preferred Stock, and provided further that the Corporation makes no representation or warranty in this Section 7(i) regarding the tax treatment of any redemption of Series A Preferred Stock.
Section 8. Redemption and Repurchase.
(a)Repurchase at the Option of the Holders Upon a Change of Control. Upon a Change of Control, the holders of shares of Series A Preferred Stock, by the vote or written consent of holders of a majority of the outstanding shares of the Series A Preferred Stock, voting or acting as a separate voting group, shall have the right to require the Corporation (or its successor) to repurchase, by irrevocable, written notice to the Corporation (or its successor), all and not less than all of the outstanding shares of Series A Preferred Stock, at a purchase price per share equal to the Adjusted Liquidation Preference per share as of the date of payment of the purchase price, plus the amount of the Regular Dividend that would be accrued on such share from the Regular Dividend Payment Date immediately preceding the date of the payment of the purchase price through but excluding the date of the payment of the purchase price, plus any declared but unpaid Participating Dividends through the date of the payment of the purchase price. The shares of Series A Preferred Stock shall be repurchased from the holders thereof no later than 10 Business Days after the Corporation (or its successor) receives notice from the Series A Preferred Shareholders of the election to exercise the repurchase rights under this Section 8.
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(b)Procedures for Repurchase Upon a Change of Control. Within 30 days of the occurrence of a Change of Control, the Corporation shall send notice by first class mail, postage prepaid, addressed to the holders of record of the shares of Series A Preferred Stock at their respective last addresses appearing on the books of the Corporation stating (1) that a Change of Control has occurred, describing it in reasonable detail (2) that if the Corporation receives evidence to its reasonable satisfaction no later than 60 days after the Corporation’s notice of the Change of Control that the holders of outstanding shares of Series A Preferred Stock, by the vote or written consent of holders of a majority of the outstanding shares of Series A Preferred Stock voting or acting as a separate voting group, have elected to exercise the repurchase right hereunder, then all shares of Series A Preferred Stock shall be repurchased as provided in this Section 8, and (3) the procedures that holders of the Series A Preferred Stock must follow in order for their shares of Series A Preferred Stock to be repurchased, including the place or places where certificates for such shares are to be surrendered for payment of the repurchase price.
Section 9. Anti-Dilution Provisions.
(a)Adjustments. The Conversion Rate will be subject to adjustment, without duplication, under the following circumstances:
(1) the issuance of Common Stock as a dividend or distribution to all or substantially all holders of Common Stock, or a subdivision or combination of Common Stock or a reclassification of Common Stock into a greater or lesser number of shares of Common Stock, in which event the Conversion Rate will be adjusted based on the following formula:
where,
CR0= the Conversion Rate in effect immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the effective date of such subdivision, combination or reclassification;
CR1= the new Conversion Rate in effect immediately after the Close of Business on (i) the Record Date for such dividend or distribution, or (ii) the effective date of such subdivision, combination or reclassification;
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OS0= the number of shares of Common Stock outstanding immediately prior to the Close of Business on (i) the Record Date for such dividend or distribution or (ii) the effective date of such subdivision, combination or reclassification; and
OS1= the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, the completion of such event.
Any adjustment made pursuant to this clause (1) shall be effective immediately prior to the Open of Business on the Trading Day immediately following the Record Date, in the case of a dividend or distribution, or the effective date in the case of a subdivision, combination or reclassification. If any such event is declared but does not occur, the Conversion Rate shall be readjusted, effective as of the date the Board announces that such event shall not occur, to the Conversion Rate that would then be in effect if such event had not been declared.
(2) the dividend, distribution or other issuance to all or substantially all holders of Common Stock of rights (other than a distribution of rights issued pursuant to a shareholders rights plan, to the extent such rights are attached to shares of Common Stock (in which event the provisions of Section 9(a)(3) shall apply)), options or warrants entitling them to subscribe for or purchase shares of Common Stock for a period expiring 60 days or less from the date of issuance thereof, at a price per share that is less than the Closing Price on the Trading Day immediately preceding the Record Date for such issuance, in which event the Conversion Rate will be increased based on the following formula:
where,
CR0= the Conversion Rate in effect immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;
CR1= the new Conversion Rate in effect immediately following the Close of Business on the Record Date for such dividend, distribution or issuance;
OS0= the number of shares of Common Stock outstanding immediately prior to the Close of Business on the Record Date for such dividend, distribution or issuance;
X = the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and
Y = the number of shares of Common Stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the “Share Price” (as defined below), rounded down toClosing Price on the nearest whole share.
Privileged and ConfidentialTrading Day immediately preceding the Record Date for such dividend, distribution or issuance.
(c) Definitions.
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For purposes of this Exchange Agreement:clause (2), in determining whether any rights, options or warrants entitle the holders to purchase the Common Stock at a price per share that is less than the Closing Price on the Trading Day immediately preceding the Record Date for such dividend, distribution or issuance, there shall be taken into account any consideration the Corporation receives for such rights, options or warrants, and any amount payable on exercise thereof, with the value of such consideration, if other than cash, to be the fair market value thereof as determined in good faith by the Board of Directors.
Any adjustment made pursuant to this clause (2) shall become effective immediately prior to the Open of Business on the Trading Day immediately following the Record Date for such dividend, distribution or issuance. In the event that such rights, options or warrants are not so issued, the Conversion Rate shall be readjusted, effective as of the date the Board publicly announces its decision not to issue such rights, options or warrants, to the Conversion Rate that would then be in effect if such dividend, distribution or issuance had not been declared. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights, options or warrants upon the exercise of such rights, options or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the dividend, distribution or issuance of such rights, options or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered.
(3) If the Corporation has a shareholder rights plan in effect with respect to the Common Stock on the Conversion Date, upon conversion of any shares of the Series A Preferred Stock, holders of such shares will receive, in addition to the shares of Common Stock, the rights under such rights plan relating to such Common Stock, unless, prior to the Conversion Date, the rights have (i) become exercisable or (ii) separated from the shares of Common Stock (the first of such events to occur being the “Trigger Event”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Section 9(a)(2) (without giving effect to the 60-day limit on the exercisability of rights, options and warrants ordinarily subject to such Section 9(a)(2)), subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise, deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such shareholder rights are exchanged by the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such shareholder rights had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Section 9(a)(1). Notwithstanding the preceding provisions of this paragraph, no adjustment shall be required to be made to the Conversion Rate with respect to any holder of Series A Preferred Stock which is, or is an “affiliate” or “associate” of, an “acquiring person” under such shareholder rights plan or with respect to any direct or indirect transferee of such holder who receives Series A Preferred Stock in such transfer after the time such holder becomes, or its affiliate or associate becomes, an “acquiring person.” The Corporation shall not adopt a shareholder rights plan pursuant to which the holders of the Series A Preferred Stock on the Issue Date or their affiliates could be deemed an “acquiring person” or an “affiliate” or “associate” of an “acquiring person.”
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(4) If the Corporation, at any time or from time to time while any of the Series A Preferred Stock is outstanding, shall issue shares of Common Stock or any other security convertible into, exercisable or exchangeable for Common Stock (such Common Stock or other security, “Equity-Linked Securities”) (other than (i) an Excluded Issuance, (ii) Common Stock issued upon conversion of the Series A Preferred Stock and (iii) rights, options, warrants or other distributions referred to in Section 9(a)(2)), the Conversion Rate shall be increased based on the following formula:
where,
CR0= the Conversion Rate in effect immediately prior to the issuance of such Equity-Linked Securities;
CR1= the new Conversion Rate in effect immediately after the issuance of such Equity-Linked Securities;
AC = the aggregate consideration paid or payable for such Equity-Linked Securities;
OS0= the number of shares of Common Stock outstanding immediately before the issuance of Equity-Linked Securities;
OS1= the number of shares of Common Stock outstanding immediately after the issuance of Equity-Linked Securities and giving effect to any shares of Common Stock issuable upon conversion, exercise or exchange of such Equity- Linked Securities; and
SP = the Closing Price on the date of issuance of such Equity-Linked Securities.
The adjustment shall become effective immediately after such issuance.
(b)Calculation of Adjustments. All adjustments to the Conversion Rate shall be calculated by the Corporation to the nearest 1/10,000th of one share of Common Stock (or if there is not a nearest 1/10,000th of a share, to the next lower 1/10,000th of a share). No adjustment to the Conversion Rate will be required unless such adjustment would require an increase or decrease of at least one percent of the Conversion Rate; provided,however, that any such adjustment that is not required to be made will be carried forward and taken into account in any subsequent adjustment; provided,further that any such adjustment of less than one percent that has not been made will be made upon any Conversion Date.
(c)When No Adjustment Required. Notwithstanding the foregoing, no adjustment to the Conversion Rate shall be made upon the issuance of any shares of Common Stock pursuant to any option, warrant, right, or exercisable, exchangeable or convertible security outstanding as of the Issue Date.
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(d)Successive and Multiple Adjustments. After an adjustment to the Conversion Rate under this Section 9, any subsequent event requiring an adjustment under this Section 9 shall cause an adjustment to each such Conversion Rate as so adjusted. For the avoidance of doubt, if an event occurs that would trigger an adjustment to the Conversion Rate pursuant to this Section 9 under more than one subsection hereof (other than where holders of Series A Preferred Stock are entitled to elect the applicable adjustment, in which case such election shall control), such event, to the extent fully taken into account in a single adjustment, shall not result in multiple adjustments hereunder; provided,however, that if more than one subsection of this Section 9 is applicable to a single event, the subsection shall be applied that produces the largest adjustment.
(e)Other Adjustments.
(1) The Corporation will not, by amendment of its Restated Articles of Incorporation, Bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, share exchange, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Section 9 by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 9 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series A Preferred Stock against impairment; and
(2) The Corporation may, but shall not be required to, make such increases in the Conversion Rate, in addition to those required by this Section 9, as the Board considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reason.
(f)Notice of Adjustments. Whenever the Conversion Rate is adjusted as provided under this Section 9, the Corporation shall as soon as reasonably practicable following the occurrence of an event that requires such adjustment (or if the Corporation is not aware of such occurrence, as soon as reasonably practicable after becoming so aware) or the date the Corporation makes an adjustment pursuant to Section 9(e)(2):
(1) compute the adjusted applicable Conversion Rate in accordance with this Section 9 and prepare and transmit to the conversion agent (if other than the Corporation) an officer’s certificate setting forth the applicable Conversion Rate, the method of calculation thereof in reasonable detail, and the facts requiring such adjustment and upon which such adjustment is based; and
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(2) provide a written notice to the holders of the Series A Preferred Stock of the occurrence of such event and a statement in reasonable detail setting forth the method by which the adjustment to the applicable Conversion Rate was determined and setting forth the adjusted applicable Conversion Rate.
(g)Conversion Agent other than the Corporation. A conversion agent other than the Corporation shall not at any time be under any duty or responsibility to any holder of Series A Preferred Stock to determine whether any facts exist that may require any adjustment of the applicable Conversion Rate or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed in making the same. Such conversion agent shall be fully authorized and protected in relying on any officer’s certificate delivered pursuant to Section 9(f) and any adjustment contained therein and such conversion agent shall not be deemed to have knowledge of any adjustment unless and until it has received such certificate. Such conversion agent shall not be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, that may at the time be issued or delivered with respect to any Series A Preferred Stock; and such conversion agent makes no representation with respect thereto. The Conversion Agent, if other than the Corporation, shall not be responsible for any failure of the Corporation to issue, transfer or deliver any shares of Common Stock pursuant to the conversion of Series A Preferred Stock or to comply with any of the duties, responsibilities or covenants of the Corporation contained in this Section 9.
(h)Fractional Shares. No fractional shares of Common Stock will be delivered to the holders of Series A Preferred Stock upon conversion. In lieu of fractional shares otherwise issuable, holders of Series A Preferred Stock will be entitled to receive an amount in cash equal to the fraction of a share of Common Stock, multiplied by the Closing Price of the Common Stock on the Trading Day immediately preceding the applicable Conversion Date. In order to determine whether the number of shares of Common Stock to be delivered to a holder of Series A Preferred Stock upon the conversion of such holder’s shares of Series A Preferred Stock will include a fractional share (in lieu of which cash would be paid hereunder), such determination shall be based on the aggregate number of shares of Series A Preferred Stock of such holder that are being converted on any single Conversion Date.
(i) “Share Price” means One Hundred One and 3/10ths (101.3%Reorganization Events. In the event of (each, a “Reorganization Event”):
(1) any recapitalization, reclassification or change of the arithmeticCommon Stock (other than a change in par value or from par value to no par value or from no par value to par value, or as a result of a subdivision or a combination);
(2) consolidation, merger or other similar business combination of the Corporation with or into another Person;
(3) the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity; or
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(4) any statutory share exchange of securities of the Corporation with another Person,
in each case as a result of which holders of Common Stock are entitled to receive stock, other securities, other property or assets (including cash or any combination thereof) with respect to or in exchange for Common Stock, each share of Series A Preferred Stock outstanding immediately prior to such Reorganization Event shall become convertible into the number, kind and amount of stock, securities, other property or assets (including cash or any combination thereof) (the “ExchangeProperty”) that the holder of such share of Series A Preferred Stock would have received in such Reorganization Event had such holder converted its share of Series A Preferred Stock into the applicable number of shares of Common Stock immediately prior to the effective date of the Reorganization Event.
(j)Exchange Property Election. In the event that the holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the Exchange Property that the holders of Series A Preferred Stock shall be entitled to receive shall be determined by the holders of a majority of the outstanding shares of Series A Preferred Stock on or before the earlier of (1) the deadline for elections by holders of Common Stock and (2) two Business Days before the anticipated effective date of such Reorganization Event; provided, if no such election is made, they shall receive upon conversion the weighted average of the 30 day VWAPtypes and amounts of consideration received by the holders of Common Stock that affirmatively make such an election. The number of units of Exchange Property for each share of Series A Preferred Stock converted following the effective date of such Reorganization Event shall be determined from among the choices made available to the holders of the Common Stock and based on the per share amount as shownof the effective date of the Reorganization Event, determined as if the references to “share of Common Stock” in Exhibit A.this Certificate of Designations were to “units of Exchange Property.”
(ii) “VWAP”(k)Successive Reorganization Events. The above provisions of Section 9(i) and Section 9(j) shall similarly apply to successive Reorganization Events and the provisions of Section 9 shall apply to any shares of Capital Stock (or capital stock of any other issuer) received by the holders of the Common Stock in any such Reorganization Event.
(l)Reorganization Event Notice. The Corporation (or any successor) shall, no less than 20 Business Days prior to the occurrence of any Reorganization Event, provide written notice to the holders of Series A Preferred Stock of such occurrence of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 9.
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(m)Reorganization Requirements. The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless (1) such agreement provides for or does not interfere with or prevent (as applicable) conversion of the Series A Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Section 9, and (2) to the extent that the Corporation is not the surviving corporation in such Reorganization Event or will be determineddissolved in connection with such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion of the Series A Preferred Stock into stock of the Person surviving such Reorganization Event or such other continuing entity in such Reorganization Event, or in the case of a Reorganization Event described in Section 9(i)(3), an exchange of Series A Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, having voting powers, preferences, and relative, participating, optional or other special rights as shownnearly equal as possible to those provided in Exhibit A.this Certificate of Designations.
(iii) “Trading Day” meansSection 10. Reservation of Shares. The Corporation shall at all times when the Series A Preferred Stock shall be outstanding reserve and keep available, free from preemptive rights, for issuance upon the conversion of Series A Preferred Stock, such number of its authorized but unissued Common Stock as will from time to time be sufficient to permit the conversion of all outstanding Series A Preferred Stock. Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Series A Preferred Stock, the Corporation shall comply with all applicable laws and regulations which require action to be taken by the Corporation.
Section 11. Certain Definitions. As used in this Certificate of Designations, the following terms shall have the following meanings, unless the context otherwise requires:
“Accumulated Regular Dividends” shall have the meaning ascribed to it in Section 4(c).
“Adjusted Conversion Value” shall have the meaning ascribed to it in Section 7(c).
“Adjusted Liquidation Preference” shall have the meaning ascribed to it in Section 4(a).
“BeneficiallyOwn” shall mean “beneficially own” as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor provision thereto.
“Board” shall have the meaning ascribed to it in the recitals.
“Business Day” shall mean a day that is a Monday, Tuesday, Wednesday, Thursday or Friday and is not a day on which (i) there is no Market Disruption Event (as defined below), and (ii) tradingbanking institutions in the Company’s securitiesNew York, New York generally occurs on the NASDAQ Stock Market.
(iv) “Market Disruption Event” means the occurrenceare authorized or existence on any Scheduled Trading Day (as defined below) for the Common Stock of any suspensionobligated by law, regulation or limitation imposed on trading of the Common Stock (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in the Common Stock, and such suspension or limitation occurs or exists throughout the 30 minutes priorexecutive order to the closing time of the relevant exchange on such day.close.
(v) “Scheduled Trading Day” means a day that is regularly scheduled Trading Day“Capital Stock” shall mean any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by the NASDAQ Stock Market.Corporation.
(d) The Company and“Certificate of Designations” shall mean this Certificate of Designations relating to the Holder agree thatSeries A Preferred Stock, as it may be amended from time to time.
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“Change of Control” shall mean the Exchange Shares shall be cappedoccurrence of any of the following:
(1) any Person acquires after the date hereof Beneficial Ownership, directly or indirectly, through a purchase, merger, share exchange, or other acquisition transaction or series of transactions, of shares of the Corporation’s Capital Stock entitling such thatPerson to exercise more than 50% of the Holder (together withtotal voting power of all classes of Voting Stock of the Holder’s affiliatesCorporation, other than an acquisition by the Corporation, any of the Corporation’s Subsidiaries or any other personof the Corporation’s employee benefit plans (for purposes of this clause (1), “Person” shall include any syndicate or group that would be deemed to be a member of a “group”“person” under Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (a “Section 13(d)(3) group”) withamended); or
(2) the Holder with respect to CommonCorporation’s consummation of a reorganization, share exchange, merger or consolidation, or of the Corporation’s sale, lease, exchange or other disposition of assets (other than a disposition described in Section 17-16-1201 of the Wyoming Business Corporation Act) if the disposition would leave the Corporation without a significant continuing business activity, unless immediately following such transaction (x) the Voting Stock of the Company) will beneficially own no more than 49.9%Corporation outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance) or (y) the transaction does not result in a reclassification, conversion, exchange or cancellation of any of the Corporation’s outstanding Common Stock.
“Close of Business” shall mean 5:00 p.m., New York City time, on any Business Day.
“ClosingPrice” shall mean the price per share of the final trade of the Common Stock outstanding immediately after issuanceon the applicable Trading Day on the principal U.S. national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not traded on a U.S. national securities exchange, Closing Price shall mean the fair market value per share of the Exchange Shares. The Holder acknowledges thatCommon Stock on the applicable Business Day, as a resultdetermined by the Corporation’s Board of this restriction,Directors in good faith, with written notice of such determination and supporting analysis in reasonable detail to be provided by the Exchange Shares may change depending upon changes in the outstanding shares of Common Stock. Immediately priorCorporation to the Closing Date, the Holder shall certify in writing the numberholders of shares of Common Stock that it beneficially owns (including through derivative securities) and the shares of Common Stock beneficially owned by the Holder’s affiliates and any other person with whom it may have formed a Section 13(d)(3) group. Any portion of the Exchanged Balance that is not exchanged for Common Stock due to the above limitation will be paid to the Holder in cash (or other mutually agreeable consideration) at the Closing (as defined below).
(c) Upon execution of this Agreement, the Company will promptly make a public announcement regarding the terms hereof.
Privileged and ConfidentialSeries A Preferred Stock.
“Code” shall have the meaning ascribed to it in Section 1.2 Exchange Shares Legend; Registration Rights7(i).
(a) The Exchange Shares may only be disposed of“Common Stock” shall have the meaning ascribed to it in compliance with state and federal securities laws. In connection with any transfer of the Exchange Shares other than pursuant to an effective registration statement or Rule 144 under the Securities Act (as defined below), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Exchange Shares under the Securities Act. Any certificate or certificates representing the Exchange Shares shall bear a legend substantially as follows:
Section 3.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS“Conversion Cap” shall have the meaning ascribed to it in Section 7(d).
(b) Certificates evidencing“Conversion Date” shall have the Exchange Shares shall not contain any legend (including the legend set forthmeaning ascribed to it in Section 1.2(a) hereof): (i) while a registration statement covering the resale of such securities is effective under the Securities Act, or (ii) following any sale of such Exchange Shares pursuant to Rule 144, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission)7(e). In any such event, upon receipt from the Holder of certificates bearing restrictive legends representing the Exchange Shares, together with any documentation reasonably requested by the Company and its counsel, the Company shall promptly cause its counsel to issue a legal opinion to the Transfer Agent, if required by the Transfer Agent, to effect the removal of the legend hereunder. Certificates for Exchange Shares free of restrictive legends shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company System as directed by such Holder.
“Conversion Rate” shall have the meaning ascribed to it in Section 7(c).
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Privileged and Confidential“Corporation” shall have the meaning ascribed to it in the recitals.
(c) No later than December 31, 2017,“Equity-Linked Securities” shall have the Company shall file a registration statement on Form S-1 providing for the resale by the Holder of the Exchange Shares issued and issuable upon exercise of the Warrants. The Company shall use commercially reasonable effortsmeaning ascribed to cause such registration to become effective and to keep such registration statement effective at all times until (a) the Exchange Shares are sold under such registration statement or pursuant to Rule 144 or other exemption under the Securities Act, (b) the Exchange Shares may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 under the Securities Act, and (c) the two (2) year anniversary of the date of the issuance of the Exchange Shares, whichever is the earliest to occur. Subject to the accuracy of the information provided by the Holder to the Company, the Company shall ensure that such registration statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses,it in the light of the circumstances in which they were made) not misleading. After the date hereof and during any period in which a prospectus or prospectus supplement relating to any of the Exchange Shares subject to registration under this Section 1.2(c) is required to be delivered by the Holder pursuant to the Securities Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172 of the Securities Act), (i) the Company will notify the Holder promptly of the time when any subsequent amendment to such registration statement, other than documents incorporated by reference, has been filed with the Commission or has become effective or any subsequent supplement to the prospectus regarding such Securities or the Holder or any subsequent amendment to the prospectus or any supplement or amendment to the prospectus supplement has been filed with the Commission and of any comment letter from the Commission or any request by the Commission for any amendment or supplement to such registration statement, any amendment to the prospectus, any supplement to the prospectus that relates to the Securities subject to such registration statement under this Section or the Holder, or any amendment or supplement to the prospectus supplement, provided that no notification of the Holder shall be required if such amendment, supplement, or comment, or request would not, and would not seek, to limit the rights of the Holder or the Exchange Shares, (ii) the Company will prepare and file with the Commission, promptly upon the Holder’s request, any amendments or supplements to such registration statement, prospectus or prospectus supplement that, in the Company’s reasonable opinion, may be necessary in connection with any resale of the Exchange Shares by the Holder (provided, however, that the failure of the Holder to make such request shall not relieve the Company of any obligation or liability hereunder), (iii) the Company will not file any amendment or supplement to a registration statement, prospectus or prospectus supplement, other than documents incorporated by reference, relating to the Exchange Shares subject to registration under this Section 1.2(c) unless a copy thereof has been submitted or made available to the Holder within a reasonable period of time before the filing and the Holder has not reasonably objected in writing thereto (provided, however, that (A) the failure of the Holder to make such objection shall not relieve the Company of any obligation or liability hereunder, and (B) the Company has no obligation to provide the Holder any advance copy of such filing or to provide the Holder an opportunity to object to such filing if such filing does not name the Holder or specifically discuss the Exchange Shares subject to registration under this Section 1.2(c) as contemplated hereby) and the Company will furnish or make available to the Holder at the time of filing thereof a copy of any document that upon filing is deemed to be incorporated by reference into a registration statement, prospectus or prospectus supplement, except for those documents available via EDGAR, and (iv) the Company will cause each amendment or supplement to the prospectus or prospectus supplement, other than documents incorporated by reference, to be filed with the Commission as required pursuant to the applicable paragraph of Rule 424(b) of the Securities Act. The Holder shall furnish the Company a completed questionnaire in customary form prior to the filing of such registration statement.
9(a)(4).
“Exchange Property” shall have the meaning ascribed to it in Section 1.3 9(i).
“Lock-upExcluded Issuance. The Holder hereby agrees that it will not, without” shall mean, any issuances of (1) Capital Stock or options to purchase shares of Capital Stock to employees, directors, managers, officers or consultants of or to the prior written consentCorporation or any of its Subsidiaries pursuant to a stock option or incentive compensation or similar plan outstanding as of the Company, duringIssue Date or, subsequent to the period commencing onIssue Date, approved by the Closing Date (as defined below) and ending twelve (12) months afterBoard or a duly authorized committee of the Closing Date, (a) lend, offer, pledge, sell, contractBoard, (2) securities pursuant to sell, sell any optionbona fide merger, joint venture, partnership, consolidation, share exchange, business combination or contract to purchase, purchase any optionother direct or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock; or (b) enter into any swap or other arrangement that transfers to another,indirect acquisition by the Corporation, whereby the Corporation’s securities comprise, in whole or in part, anythe consideration paid by the Corporation in such transaction, (3) shares of Common Stock issued at a price equal to or greater than ninety percent (90%) of the economic consequencesClosing Price on the Trading Day immediately preceding the earlier of ownership(x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed, and (4) securities convertible into, exercisable or exchangeable for shares of Common Stock issued with an exercise or conversion price equal to or greater than ninety percent (90%) of the Closing Price on the Trading Day immediately preceding the earlier of (x) the date on which the sale or issuance is publicly announced and (y) the date on which the price for such sale or issuance is agreed or fixed.
“Initial Conversion Value” shall have the meaning ascribed to it in Section 7(c).
“Issue Date” shall mean February 11, 2016.
“Junior Stock” shall have the meaning ascribed to it in Section 3.
“Liquidation” shall have the meaning ascribed to it in Section 5(a).
“Liquidation Preference” shall have the meaning ascribed to it in Section 5(a).
“MandatoryConversion” shall have the meaning ascribed to it in Section 7(a).
“MandatoryConversion Date” shall have the meaning ascribed to it in Section 7(a).
“Open of Business” shall mean 9:00 a.m., New York City time, on any Business Day.
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“Participating Dividends” shall have the meaning ascribed to it in Section 4(d).
“Permitted Distributions” shall have the meaning ascribed to it in Section 4(d).
“Person” shall mean any individual, company, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization, government or agency or political subdivision thereof or any other entity.
“Record Date” shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board or by statute, contract, this Certificate of Designations or otherwise).
“Regular Dividend” shall have the meaning ascribed to it in Section 4(a).
“Regular Dividend Payment Date” shall have the meaning ascribed to it in Section 4(b).
“Regular Dividend Period” shall have the meaning ascribed to it in Section 4(b).
“Reorganization Event” shall have the meaning ascribed to it in Section 9(i).
“Series A Preferred Stock” shall have the meaning ascribed to it in Section 1.
“Spin-Off Transaction” means any transaction by which a Subsidiary of the Corporation ceases to be a Subsidiary of the Corporation by reason of the distribution of such Subsidiary’s equity securities to holders of Common Stock, whether any such transaction described in clause (a)by means of a spin-off, split-off, redemption, reclassification, exchange, stock dividend, share distribution, rights offering or (b) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 1.3 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement. The Holder further agrees to execute such agreements as may be reasonably requested by the Company that are necessary to give effect to this Section 1.3. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the shares of Common Stock of the Holder (and transferees and assignees thereof) until the end of such restricted period.
Privileged and Confidentialsimilar transaction.
Section 1.4 “Prepayment under Credit FacilitySubsidiar.
(a) The parties agree thaty” means any company or corporate entity for which the Credit Facility and any documents and instruments delivered pursuant thereto shall remain in effect and without amendment by reason of this Agreement.
(b) The Holder hereby waives the requirements of prior notice of prepayment and payment of accrued interest as to the Exchange and the Exchanged Balance under Section 3.04Corporation owns, directly or indirectly, an amount of the Credit Agreement, and acknowledges and agrees that no premiumvoting securities, other voting rights or penalty shall be due upon the Exchange.
(c) The parties further agree that, upon the completion of the Closing, the Exchanged Balance shall no longer be due and payable under the Credit Agreement.
Section 1.5 Share Exchange. In consideration of and for the Exchange hereunder, the Company agrees to issue to the Holder the Exchange Shares. The issuance of the Exchange Shares to the Holder will be made pursuant to an exemption from registration under the Securities Act.
Section 1.6 Closing Mechanics. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on 10:00 a.m., Central Standard Time, on October 31, 2017 or at such other time on the same date or such other date as the parties may agree in writing (such time and date, the “Closing Date”). On the Closing Date, upon satisfaction of the Company’s conditions to Closing, the Company will: (i) effect delivery of the Exchange Shares by instructing its transfer agent to credit the account of Holder’s prime broker with DTC through DTC’s Deposit/Withdrawal at Custodian (“DWAC”) program; and (ii) pay to the Holder the amount of cash determined in accordance with Section 1.1(d) by wire transfer to an account designated in writing by the Holder at least two business days in advance of the Closing Date.
Section 1.7 Conditions to Closing.
(a) The obligation of the Holder hereunder to consummate the transactions contemplated hereby at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Holder’s sole benefit and may be waived by the Holder at any time in its sole discretion by providing the Company with prior written notice thereof:
(i) The Company shall have submitted an additional share listing application for the Exchange Shares with the NASDAQ on or prior to the Closing Date and shall cause the Exchange Shares to be approved by the NASDAQ for listing on the Closing Date or as soon as practicable thereafter;
(ii) The Company shall have received all necessary approvals from shareholders, exchanges, and regulatory bodies; and
Privileged and Confidential
(iii) The representations and warranties of the Company in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Company shall have complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date;
(b) The obligation of the Company hereunder to consummate the transactions contemplated hereby at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing the Holder with prior written notice thereof:
(i) The representations and warranties of the Holder in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Holder shall have complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date.
ARTICLE IIRepresentations and Warranties of the Holder
The Holder hereby makes the following representations and warranties, eachvoting partnership interests of which is true and correct on the date hereof and the Closing Date and shall survive the Closing Date and the transactions contemplated herebysufficient to the extent set forth herein:
Section 2.1 Existence and Power.
(a) The Holder is duly organized, validly existing and in good standing under the lawselect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the jurisdiction of its organization and has the power, authority and capacity to execute and deliver this Agreement, to perform its obligations hereunder, and to consummate the transactions contemplated hereby.
(b) The execution of this Agreement by the Holder and the consummation by the Holder of the transactions contemplated hereby do not and will not constitute or result in a breach, violation, conflict or default under any note, bond, mortgage, deed, indenture, lien, instrument, contract, agreement, lease or license to which the Holder is a party, whether written or oral, express or implied, or any statute, law, ordinance, decree, order, injunction, rule, directive, judgment or regulation of any court, administrative or regulatory body, governmental authority, arbitrator, mediator or similar body on the part of the Holder or on the part of any other party thereto or cause the acceleration or termination of any obligation or right of the Holder, except for such breaches, conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the ability of the Holder to perform its obligations hereunder. As used in this Agreement, the term “Material Adverse Effect” shall mean a material adverse effect on the business, condition (financial or otherwise), properties or results of operations of the party, or an event, change or occurrence that would materially adversely affect the ability of the party to perform its obligations under this Agreement or which would limit the Holder’s power to transfer the Exchanged Balance hereunder.
Privileged and Confidential
Section 2.2 Valid and Enforceable Agreement; Authorization. This Agreement has been duly executed and delivered by the Holder and constitutes a legal, valid and binding obligation of the Holder, enforceable against the Holder in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally, and (b) general principles of equity.
Section 2.3 Title. The Holder has good and valid title to the Exchanged Balance in the aggregate principal amount set forth in the recitals to this Agreement, free and clear of any mortgage, lien, pledge, charge, security interest, encumbrance, title retention agreement, option, equity or other adverse claim thereto. The Holder has not, in whole or in part, (i) assigned, transferred, hypothecated, pledged or otherwise disposed of the Exchanged Balance or its rights in the Exchanged Balance, or (ii) given any person or entity any transfer order, power of attorney or other authority of any nature whatsoever with respect to the Exchanged Balance which would limit the Holder’s power to transfer the Exchanged Balance hereunder.
Section 2.4 Investment Decision. The Holder is either a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act or an institutional “accredited investor” with the meaning of Rule 501(a)(1)(2) or (3) of Regulation D under the Securities Act and was not organized for the purpose of acquiring the Exchange Shares. The Holder is acquiring the Exchange Shares solely for its own account, for investment purposes only and not with a view to the resale or distribution thereof, in whole or in part. The Holder is knowledgeable, sophisticated and experienced in business and financial matters and has previously invested in securities similar to the Exchange Shares. The Holder is able to bear the economic risk of its investment in the Exchange Shares and is presently able to afford the complete lossinterests of such investment.
The Holder (or its authorized representative) has had the opportunity to review the Company’s filings with the Securities and Exchange Commission (the “Commission”), including, without limitation, the Company’s Annual Report on Form 10-K for the year ended December 31, 2016; the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2017, March 31, 2017 and September 30, 2016; the Company’s current reports on Form 8-K; and the Company’s 2017 Proxy Statement (all of such filings with the Commission referred to, collectively, as the “SEC Documents”). The Holder has had such opportunity to ask questions of the Company and its representatives and to obtain from representatives of the Company such information as is necessary to permit it to evaluate the merits and risks of its investment in the Company. The Holder has independently, without reliance upon any representatives of the Company and based on such information as the Holder deemed appropriate, made its own analysis and decision to enter into this Agreement. The Holder has had the opportunity to consult with its accounting, tax, financial and legal advisors to be able to evaluate the risks involved in the Exchange pursuant hereto and to make an informed investment decision with respect to the Exchange.
Privileged and Confidential
The Holder acknowledges that the Company is relying on the truth and accuracy of the foregoing representations and warranties in the offering of the Exchange Shares to the Holder without having first registered the Exchange Shares under the Securities Actcompany or corporate entity).
“Total Conversion Shares” shall have the meaning ascribed to it in Section 2.5 7(c).
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“Affiliate StatusTradin. The HoldergDay” shall mean any Business Day on which the Common Stock is traded, or able to be traded, on the principal national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not and has not been duringtraded on a U.S. national securities exchange, Trading Day shall mean the preceding three months, an “affiliate” of the Company as such term is defined in Rule 144 under the Securities Act.relevant Business Day.
“Trigger Event” shall have the meaning ascribed to it in Section 2.6 Professional Advice9(a)(3). With respect to the tax, accounting and other economic considerations involved in the Exchange, the Holder is not relying on the Company or any of its affiliates, and the Holder has carefully considered and has, to the extent the Holder believes such discussion is necessary, discussed with the Holder’s professional legal, tax, accounting and financial advisors the implications of the Exchange for the Holder’s particular tax, accounting and financial situation.
Section 2.7 “No SolicitationVoting Stock. The Holder was not solicited by anyone on behalf” shall mean Capital Stock of the Companyclass or classes pursuant to enter into this transaction.which the holders thereof have the general voting power under ordinary circumstances (determined without regard to any classification of directors) to elect one or more members of the Board of Directors of the Corporation (without regard to whether or not, at the relevant time, Capital Stock of any other class or classes (other than Common Stock) shall have or might have voting power by reason of the happening of any contingency).
ARTICLE IIIRepresentations, Warranties and Covenants of the Company
The Company hereby makes the following representations, warranties, and covenants each of which is true and correct on the date hereof and shall survive the date of the Closing and the transactions contemplated hereby to the extent set forth herein.
Section 3.1 Existence and Power.
(a) The Company is duly incorporated, validly existing and in good standing under the laws of Wyoming, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company has the requisite power and authority to execute and deliver this Agreement, to perform its obligations hereunder and consummate the transactions contemplated hereby.
(b) The execution of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby (i) does not require the consent, approval, authorization, order, registration or qualification of, or filing with, any governmental authority or court, or body or arbitrator having jurisdiction over the Company, other than the Company’s shareholders, NASDAQ, the Commission, relevant state securities authorities and the DTC; and (ii) does not and will not constitute or result in a breach, violation or default under any note, bond, mortgage, deed, indenture, lien, instrument, contract, agreement, lease or license, whether written or oral, express or implied, or with the certificate of incorporation or bylaws of the Company, or any statute, law, ordinance, decree, order, injunction, rule, directive, judgment or regulation of any court, administrative or regulatory body, governmental authority, arbitrator, mediator or similar body on the part of the Company or on the part of any other party thereto or cause the acceleration or termination of any obligation or right of the Company or any other party thereto, except for such breaches, violations or defaults which would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect (as defined above) on the ability of the Company to perform its obligations hereunder.
Privileged and Confidential
Section 3.2 Valid and Enforceable Agreement; Authorization. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforcement may be subject to (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to enforcement of creditors’ rights generally, and (b) general principles of equity.
Section 3.3 Valid Issuance of the Exchange Shares. The Exchange Shares, when issued and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and non-assessable and free of restrictions on transfer other than restrictions on transfer under applicable federal and state securities laws and liens or encumbrances created by or imposed by the Holder. Assuming the accuracy of the representations of the Holder in Article II of this Agreement, the Exchange Shares will be issued in compliance in all material respects with all applicable federal and state securities laws. The Company has a sufficient number of authorized and unissued shares of Common Stock to consummate the Exchange.
ARTICLE IVMiscellaneous Provisions
Section 4.1 Survival of Representations and Warranties. The agreements of the Company, as set forth herein, and the respective representations and warranties of Holder and the Company as set forth herein in Articles II and III, respectively, shall survive the Closing Date.
Section 4.2 Notice. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) with return receipt requested or sent by reputable overnight courier service (charges prepaid):
(a) if to the Holder, at its address as follows:
APEG Energy II, L.P.3305 Northland Drive, Suite 101Austin, Texas 78731Attention: Paul Haarman, Managing Partner
(b) if to the Company, at its address, as follows:
U.S. Energy Corp.4643 S. South Ulster, Suite 970Denver, Colorado 80237Attention: David Veltri, Chief Executive Officer
Each party hereto by notice to the other party may designate additional or different addresses for subsequent notices or communications. All notices and communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Privileged and Confidential
Section 4.3 Entire Agreement. This Agreement and the other documents and agreements executed in connection with the Exchange embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous oral or written agreements, representations, warranties, contracts, correspondence, conversations, memoranda and understandings between or among the parties or any of their agents, representatives or affiliates relative to such subject matter, including, without limitation, any term sheets, emails or draft documents.
Section 4.4 Assignment; Binding Agreement. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns.
Section 4.5 Counterparts. This Agreement may be executed in multiple counterparts, and on separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Any counterpart or other signature hereupon delivered by facsimile shall be deemed for all purposes as constituting good and valid execution and delivery of this Agreement by such party.
Section 4.6 Remedies Cumulative. Except as otherwise provided herein, all rights and remedies of the parties under this Agreement are cumulative and without prejudice to any other rights or remedies available at law.
Section 4.7 Governing Law. This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of Texas, without reference to its conflicts of law rules. Any right to trial by jury with respect to any action or proceeding arising in connection with this Agreement is hereby waived by the parties hereto.
Section 4.8 No Third Party Beneficiaries or Other Rights. Nothing herein shall grant to or create in any person not a party hereto, or any such person’s dependents or heirs, any right to any benefits hereunder, and no such party shall be entitled to sue any party to this Agreement with respect thereto.
Section 4.9 Waiver; Consent. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than in accordance with its terms), in whole or in part, except by a writing executed by the parties hereto. No waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent otherwise agreed in writing, no waiver of any term, condition or other provision of this Agreement, or any breach thereof shall be deemed to be a waiver of any other term, condition or provision or any breach thereof, or any subsequent breach of the same term, condition or provision, nor shall any forbearance to seek a remedy for any noncompliance or breach be deemed to be a waiver of a party’s rights and remedies with respect to such noncompliance or breach.
Privileged and Confidential
Section 4.10 Word Meanings. The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The singular shall include the plural, and vice versa, unless the context otherwise requires. The masculine shall include the feminine and neuter, and vice versa, unless the context otherwise requires.
Section 4.11 No Broker. Neither party has engaged any third party as broker or finder or incurred or become obligated to pay any broker’s commission or finder’s fee in connection with the transactions contemplated by this Agreement other than such fees and expenses for which that particular party shall be solely responsible.
Section 4.12 Further Assurances. The Holder and the Company each hereby agree to execute and deliver, or cause to be executed and delivered, such other documents, instruments and agreements, and take such other actions, as either party may reasonably request in connection with the transactions contemplated by this Agreement.
Section 4.13 Costs and Expenses. The Holder and the Company shall each pay their own respective costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement, including, but not limited to, attorneys’ fees.
Section 4.14 12. Headings. The headings inof the paragraphs of this AgreementCertificate of Designations are for convenience of reference only and shall not define, limit or otherwise affect the meaning hereof.
Section 4.15 Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby.
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Privileged and Confidential
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first above written.
Privileged and Confidential
EXHIBIT A
U.S. Energy Corp. 15 Day Volume Weighted Average Price (as of close at 9/20/17):$0.757
Privileged and Confidential
APPENDIX B
STANDSTILL AGREEMENT
This STANDSTILL AGREEMENT (this “Agreement”) dated as of September 28, 2017, is entered into by and between U.S. Energy Corp., a Wyoming corporation (the “Company”) and APEG Energy II, L.P., a Texas limited partnership (the “Holder”).
RECITALS
WHEREAS, the Company and the Holder are concurrently entering into an Exchange Agreement (the “Exchange Agreement”) providing for the exchange of $5,149,605 of the Company’s outstanding indebtedness to the Holder for shares of the Company’s Common Stock, par value $0.01 per share (“Common Stock”) and for cash, on the terms and conditions set forth in the Exchange Agreement;
WHEREAS, upon the closing of the Exchange Agreement, the Holder will hold approximately 49.9% of the Company’s outstanding Common Stock;
WHEREAS, in light of the Exchange Agreement and the resulting ownership of the Company’s equity securities by the Holder, the Company and the Holder desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Section 1.01. The Holder’s Covenants. Unless approved in advance in writing by the board of directors or is consistent with the directives, actions, approvals or knowledge of the management and board of directors of the Company, the Holder agrees that neither it nor any of its Representatives (defined below) acting on behalf of or in concert with the Holder (or any of its Representatives) will, for a period commencing on the date hereof and ending one (1) year after the date of the closing of the Exchange Agreement (the “Term”), directly or indirectly:
(a) make any statement or proposal to any of the members of the board of directors of the Company, the Company’s Representatives or the Company’s shareholders regarding, or make any public announcement, proposal or offer (including any “solicitation” of “proxies” as such terms are defined or used in Regulation 14A of the Securities Exchange Act of 1934, as amended) with respect to, or otherwise solicit, seek or offer to effect (including, for the avoidance of doubt, indirectly by means of communication with the press or media) (i) any business combination, asset acquisition (other than the potential acquisition of assets from APEG Energy, L.P. ), merger, tender offer, exchange offer or similar transaction involving the Company or any of its subsidiaries, (ii) any restructuring, recapitalization, liquidation or similar transaction involving the Company or any of its subsidiaries, (iii) any acquisition of any of the Company’s loans, debt securities, equity securities or assets, or rights or options to acquire interests in any of the Company’s loans, debt securities, equity securities or assets not currently owned, or (iv) any proposal to seek representation on the board of directors of the Company or otherwise seek to control the management, board of directors or policies of the Company.
Privileged and Confidential
(b) instigate, encourage, advise or assist any third party (including forming a “group” with any such third party) to do, or enter into any discussions or agreements with any third party with respect to, any of the actions set forth in clause (a) above;
(c) take any action which would reasonably be expected to require the Company or any of its affiliates to make a public announcement regarding any of the actions set forth in clause (a) above;
(d) acquire (or propose or agree to acquire), of record or beneficially, by purchase or otherwise, any loans, debt securities, equity securities or assets of the Company or any of its subsidiaries, or rights or options to acquire interests in any of the Company’s loans, debt securities, equity securities or assets or enter into any swaps or similar arrangements as to the Company’s equity securities; or
(e) either alone or in concert with other shareholders, call a special meeting of shareholders of the Company.
(f) For purposes of this Agreement, (i) the term “Representatives” means, as to any person, such person’s Affiliates, and its and their respective directors, officers, employees, managing members, general partners, agents and consultants (including attorneys, financial advisors and accountants) and (ii) the term “Affiliate” means, as to any person, any person who, directly or indirectly, controls, is controlled by, or under common control with that person, and the term “control” (including the terms “controlled”, “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through ownership of voting securities or otherwise.
Section 1.02.Voting. The Holder shall, and shall cause its Affiliates to, during the Term, vote all voting securities of the Company (including all Common Stock) held by the Holder and its Affiliates or over which the Holder or its Affiliates have voting control, and shall take all other necessary or desirable actions within its control (including in a capacity as a shareholder, director, member of a board committee, officer or otherwise) to: (a) vote in the same proportion as shares of Common Stock that are not held by the Holder or its Affiliates or over which the Holder or its Affiliates do not have voting control with respect to (i) any board of directors approved motions, objectives, directives, proposals or proxy initiatives and (ii) each nominee for the Company’s board of directors who is nominated and approved by the board of directors’ nominating committee.
Privileged and Confidential
Section 1.03.Specific Performance. The Holder agrees that any material breach by it of any provision of this Agreement could irreparably injure the Company and that money damages would be an inadequate remedy therefor. Accordingly, the Holder agrees that the Company shall be entitled to seek one or more injunctions enjoining any such breach and requiring specific performance of this Agreement, in addition to any other remedy to which the Company is entitled at law or in equity.
ARTICLE II
Section 2.01. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) with return receipt requested or sent by reputable overnight courier service (charges prepaid):
If to the Company, to
U.S. Energy Corp.950 Cherry Street, Suite 1515Denver, Colorado 80264Attention: David Veltri, President and Chief Executive Officer
If to the Holder, toAPEG Energy II, L.P.3305 Northland Drive, Suite 101Austin, Texas 78731Attention: Paul Haarman
Each party hereto by notice to the other party may designate additional or different addresses for subsequent notices or communications. All notices and communications will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.
Section 2.02. Entire Agreement. This Agreement, the Exchange Agreement and the other documents and agreements executed in connection therewith embody the entire agreement and understanding of the parties hereto with respect to the subject matter hereof and supersede all prior and contemporaneous oral or written agreements, representations, warranties, contracts, correspondence, conversations, memoranda and understandings between or among the parties or any of their agents, representatives or affiliates relative to such subject matter, including, without limitation, any term sheets, emails or draft documents.
Privileged and Confidential
Section 2.03. Assignment; Binding Agreement. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns.
Section 2.04. Counterparts. This Agreement may be executed in multiple counterparts, and on separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. Any counterpart or other signature hereupon delivered by facsimile shall be deemed for all purposes as constituting good and valid execution and delivery of this Agreement by such party.
Section 2.05. Remedies Cumulative. Except as otherwise provided herein, all rights and remedies of the parties under this Agreement are cumulative and without prejudice to any other rights or remedies available at law.
Section 2.06. Governing Law. This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of Texas, without reference to its conflicts of law rules. Any right to trial by jury with respect to any action or proceeding arising in connection with this Agreement is hereby waived by the parties hereto.
Section 2.07. No Third Party Beneficiaries or Other Rights. Nothing herein shall grant to or create in any person not a party hereto, or any such person’s dependents or heirs, any right to any benefits hereunder, and no such party shall be entitled to sue any party to this Agreement with respect thereto.
Section 2.08. Waiver; Consent. This Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than in accordance with its terms), in whole or in part, except by a writing executed by the parties hereto. No waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented thereto. Except to the extent otherwise agreed in writing, no waiver of any term, condition or other provision of this Agreement, or any breach thereof shall be deemed to be a waiver of any other term, condition or provision or any breach thereof, or any subsequent breach of the same term, condition or provision, nor shall any forbearance to seek a remedy for any noncompliance or breach be deemed to be a waiver of a party’s rights and remedies with respect to such noncompliance or breach.
Section 2.09. Word Meanings. The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The singular shall include the plural, and vice versa, unless the context otherwise requires. The masculine shall include the feminine and neuter, and vice versa, unless the context otherwise requires.
Section 2.10. Further Assurances. The Holder and the Company each hereby agree to execute and deliver, or cause to be executed and delivered, such other documents, instruments and agreements, and take such other actions, as either party may reasonably request in connection with the transactions contemplated by this Agreement.
Privileged and Confidential
Section 2.11. Costs and Expenses. The Holder and the Company shall each pay their own respective costs and expenses incurred in connection with the negotiation, preparation, execution and performance of this Agreement, including, but not limited to, attorneys’ fees.
Section 2.12. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 2.13. 13. Record HoldersSeverability. IfTo the fullest extent permitted by applicable law, the Corporation may deem and treat the record holder of any one or moreshare of the provisions contained herein, orSeries A Preferred Stock as the applicationtrue and lawful owner thereof in any circumstance, is held invalid, illegal or unenforceable,for all purposes, and the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained hereinCorporation shall not be affected by any notice to the contrary.
Section 14. Notices. All notices or impaired thereby.communications in respect of the Series A Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Restated Articles of Incorporation or Bylaws or by applicable law or regulation. Notwithstanding the foregoing, if the Series A Preferred Stock is issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of the Series A Preferred Stock in any manner permitted by such facility.
Section 15. Replacement Certificates. The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.
Section 16. Transfer Agent, Conversion Agent, Registrar and Paying Agent. The duly appointed transfer agent, conversion agent, registrar and paying agent for the Series A Preferred Stock shall be the Corporation. The Corporation may, in its sole discretion, resign from such positions or remove such agents or registrar in accordance with the agreement between the Corporation and such agent or registrar; provided that the Corporation shall appoint a successor who shall accept such appointment prior to the effectiveness of such resignation or removal. Upon any such resignation, removal or appointment, the Corporation shall send notice thereof by first-class mail, postage prepaid, to the holders of the Series A Preferred Stock.
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Section 17. Severability. If any term of the Series A Preferred Stock set forth herein is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other terms set forth herein which can be given effect without the invalid, unlawful or unenforceable term will, nevertheless, remain in full force and effect, and no term herein set forth will be deemed dependent upon any other such term unless so expressed herein.
Section 18. Information Rights. In addition to reports required by law, regulation, or the rules of any national securities exchange on which the Common Stock is listed or admitted to trading, the Corporation shall furnish to each of the holders of Series A Preferred Stock (1) within 45 days after the end of the first, second and third quarterly accounting periods in each fiscal year of the Corporation, a consolidated balance sheet of the Corporation and its subsidiaries as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Corporation and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with United States generally accepted accounting principles consistently applied and setting forth in comparative form the figures for the corresponding periods of the prior fiscal year (subject to changes resulting from normal year-end audit adjustments and except that such financial statements need not contain the notes required by generally accepted accounting principles), and (2) within 120 days after the end of each fiscal year of the Corporation, an audited consolidated balance sheet of the Corporation and its subsidiaries as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Corporation and its subsidiaries for such year, prepared in accordance with United States generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year and certified by independent public accountants of recognized national or regional standing selected by the Corporation (in each case in clauses (1) and (2), whether or not such financial statements are then required to be filed with or furnished to the United States Securities and Exchange Commission).
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IN WITNESS WHEREOF, the parties hereto have entered intoU.S. Energy Corp. has caused this Agreement asCertificate of the date first set forth above.Designations to be duly executed by its authorized corporate officer this 11th day of February, 2016.
| U.S. | ||
| By: | ||
APPENDIX C
U.S. Energy Corp.
4643 S. Ulster Street, Suite 970
Denver, Colorado 80237
October 2, 2017
APEG Energy II, L.P.
Attn: Messrs. Haarman and Duke
Re: U.S. Energy Corp. – Debt Equity Swap
Dear Messrs. Haarman and Duke:
Reference is made to that certain Exchange Agreement by and among U.S. Energy Corp. (the “Company”), Energy One LLC (“Energy One”) and APEG Energy II, L.P. (“APEG”) dated September 28, 2017 and that certain Standstill Agreement by and between the Company and APEG dated September 28, 2017.
The Exchange Agreement and the Standstill Agreement are subject to approval by the Company’s Board of Directors and shall not become effective until the Company’s Board provided such approval.
Furthermore, closing of the Exchange Agreement is subject to NASDAQ approval and approval by the shareholders at a special meeting of the Company and such closing shall not take place until those approvals are received.
By executing below APEG acknowledges that the Exchange Agreement and the Standstill Agreement shall not be effective until approved by the Company’s Board of Directors and the closing of the Exchange Agreement shall not take place until the Company receives NASDAQ and shareholder approval.
[signature and acknowledgment follows]
| /s/David Veltri | ||
| Name: | David Veltri | |
| Title: | ||
Agreed and accepted on this 2 day of October, 2017
APEG Energy II, L.P.
APEG Energy II, L.P.
Appendix D
APPENDIX B
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION, AS AMENDED
OF
U.S. ENERGY CORP. AS AMENDED
U.S. Energy Corp., a corporation organized and existing under the laws of the State of Wyoming as set forth in the Wyoming Business Corporation Act, as amended (the “WBCA”), hereby certifies as follows:
1. That the name of the corporation is U.S. Energy Corp. (the “Corporation”).
Not applicable.2. Pursuant to Section 17-16-1003 of the WBCA, these Articles of Amendment (the “Articles of Amendment”) further amend the provisions of the Restated Articles of Incorporation, as amended, of the Corporation (the “Articles of Incorporation”).
3. Article IV of the Articles of Incorporation is hereby amended to create a new paragraph at the end of Article IV to read as follows:
Second Reverse Split of Common Stock. Upon the filing and effectiveness (the “Effective Time”) pursuant to the Wyoming Business Corporation Act, as amended (the “Second Reverse Split Effective Time”), of thisthese Articles of Amendment to the Restated Articles of Incorporation, as amended, of U.S. Energy Corp. (the “Company”),the Corporation, each five (5)ten (10) shares of the Company’s Common Stock,Corporation’s common stock, par value $0.01 per share (“Common Stock”Stock”), issued and outstanding immediately prior to the Second Reverse Split Effective Time shall be combined into one (1) validly issued, fully paid and non-assessable share of Common Stock without any further action by the CompanyCorporation or the holder thereof (the “Reverse“Second Reverse Stock Split”Split”). The CompanyCorporation is authorized to make a cash payment in lieu of any fractional share interestinterests resulting from the Second Reverse Stock Split; provided that the CompanyCorporation is also authorized (i) to issue fractional shares to some or all registered holders who would otherwise be eliminated as a result of the Second Reverse Stock Split or (ii) to round up fractional shares to the nearest whole share of Common Stock for some or all of such registered holders, if the Board of Directors of the CompanyCorporation determines that doing so would be in the best interests of the Company.Corporation. Certificates that immediately prior to the Second Reverse Split Effective Time represented shares of Common Stock (“Second Reverse Split Old Certificates”Certificates”), shall thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Second Reverse Split Old Certificate shall have been combined, subject to the treatment of fractional shares as described above. The authorized shares of Common Stock shall not be reduced or otherwise affected by the Second Reverse Stock Split or thisthese Articles of Amendment, and neither the Second Reverse Stock Split nor thisthese Articles of Amendment will affect the per share par value of ourthe Corporation’s Common Stock, which will remain at the existing par value of $0.01 per share.
4. All other provisions of the Articles of Incorporation shall remain in full force and effect.
5. The amendment to the Articles of Incorporation to effect the Second Reverse Stock Split was adopted on December 27, 201710, 2019 at a duly noticed and duly conducted annual meeting of the shareholders of the Corporation.
6. Approval of the amendment to the Articles of Incorporation to effect the Second Reverse Stock Split:
Shares wereThe Corporation has issued shares and the boardBoard of directors haveDirectors has adopted the amendment with shareholder approval, in compliance with W.S. 17-16-1003.Section 17-16-1003 of the WBCA.
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IN WITNESS WHEREOF, the Corporation has caused these Article of Amendment to be signed and attested by its duly authorized officer this ___ day of December, 2019. |
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Signature Page to
Articles of Amendment to
Restated Articles of Incorporation, as Amended
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