Document:

Second Amendment to SEDA

    
      

    

     

     

    

      C
        O R N E
        L L                    
101
        Hudson Street

      CAPITAL
        PARTNERS                   Suite
        3700

                                   
Jersey
        City, NJ
        07302    

      

      

      

       

       

       

      June
        5,
        2006

      

      

      VIA
        FEDERAL EXPRESS 

      AND
        FAX (307) 857-3050

      

      
        	
                U.S.
                  Energy Corp.

              
	
                877
                  North 8th
                  West

              
	
                Glen
                  L. Larsen Building

              
	
                Riverton,
                  WY 82501

              
	
                Attention:
                  Mark J. Larsen

              

      

      

      

      
        	 	
                Re:

              	
                Second
                  Amendment to Standby Equity Distribution
                  Agreement

              

      

      

      Dear
        Mr.
        Larsen:

      

      This
        letter will memorialize the agreement by and between U.S. Energy Corp. (the
        “Company”)
        and
        Cornell Capital Partners, LP (the “Investor”),
        to
        make this second amendment to the Standby Equity Distribution Agreement dated
        May 5, 2006 (the “SEDA”)
        between the Company and the Investor. All capitalized terms herein, unless
        otherwise indicated, shall have the meaning ascribed to them in the SEDA.
        

      

      The
        parties hereby amend the SEDA as follows: 

      

      	1.  	
              Section
                1.7. of the SEDA shall be deleted in its entirety and replaced with
                the
                following:

            

      

      Section
        1.7. “Commitment
        Amount”
shall
        mean the aggregate amount of up to Fifty Million Dollars ($50,000,000) which
        the
        Investor has agreed to provide to the Company in order to purchase the Company’s
        Common Stock pursuant to the terms and conditions of this Agreement,
provided
        that,
        the Company shall not effect any sale under this Agreement and the Investor
        shall not have the right or the obligation to purchase shares of Common Stock
        under this Agreement to the extent that the Total Transaction Shares shall
        be
        greater than 3,726,400 shares, unless or until the Company obtains any necessary
        shareholder approval or consent in accordance with Nasdaq MarketPlace Rule
        4350(i)(1)(D) prior to such issuance (without the vote of any shares acquired
        in
        this Agreement and in all related transactions). The “Total
        Transaction Shares”
        (3,726,400) means the sum of (i) 3,556,470 shares issuable under this Agreement;
        (ii) the shares issuable under the May 5, 2006 Warrant issued to the Investor;
        (iii) the 68,531 shares issued to the Investor under this Agreement (the
        “Investor’s
        Shares”);
        (iv)
        the 1,399 shares issued to Newbridge Securities Corporation under the Placement
        Agent Agreement of May 5, 2006 (the “Placement
        Agent’s Shares”);
        and
        (v) all shares issuable under any Milestone Warrants (defined in Section
        12.4(c)(iii) of this Agreement), which 3,726,400 shares is less than 20%
        more
        than the 18,632,022 shares of Common Stock outstanding as of April 11, 2006
        (after subtracting the 888,408 

       

       

      
        
           

        

        
           

          
            

          

        

        
          
            U.S.
              Energy Corp.

            Jue 6, 2006

            Page 2 of 2

          

        

      

       

       

      

        shares
          held by subsidiaries of the Company, from the
          19,520,430 shares issued and outstanding at that date). 

        

        This
          letter agreement shall solely have the effect specifically described above
          and
          shall have no effect on any other terms or conditions of the SEDA or related
          documents. 

        

        Cornell
          Capital Partners, LP

        

        By:
          Yorkville Advisors, LLC

        Its:
          General Partner

        

        By:
          /s/
          Mark Angelo     

        Name: Mark
          Angelo

        Title:
           Portfolio
          Manager

        

        Agreed
          and acknowledged by: 

        

        U.S.
          Energy Corp.

        

        By:
          /s/
          Keith G. Larsen   

        Name:
          Keith G. Larsen

        Title: CEO
          

        Date: June
          6,
          2006Amended and Restated Warrant

    
      

    

     

     

    

       

       

      AMENDED
        AND RESTATED

       

       

      WARRANT

       

      THE
        SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
        THE
        SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
        SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
        STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
        OR
        APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
        SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
        OR
        APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
        SAID
        ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
        WITH A BONA FIDE MARGIN ACCOUNT.

       

       

      U.S.
        ENERGY CORP.

       

       

      Warrant
        To Purchase Common Stock

       

      Warrant
        No.: CCP-001                                                                                                            Number
        of
        Shares: 100,000

      

      Date
        of
        Issuance: June 5, 2006 

      

      This
        Amended and Restated Warrant To Purchase Common Stock (this “Warrant”) replaces
        that Warrant To Purchase Common Stock dated May 5, 2006. 

      

      

      U.S.
        Energy Corp., a Wyoming corporation (the “Company”),
        hereby certifies that, for good and valuable consideration, the receipt and
        sufficiency of which are hereby acknowledged, Cornell
        Capital Partners, LP
        (the
“Holder”),
        the
        registered holder hereof or its permitted assigns, is entitled, subject to
        the
        terms set forth below, to purchase from the Company upon surrender of this
        Warrant, at any time or times on or after the date hereof, but not after
        11:59 P.M. Eastern Time on the Expiration Date (as defined herein) One
        Hundred Thousand (100,000) fully paid and nonassessable shares of Common
        Stock
        (as defined herein) of the Company (the “Warrant
        Shares”)
        at the
        exercise price per share provided in Section 1(b) below or as subsequently
        adjusted; provided, however, that in no event shall the holder be entitled
        to
        exercise this Warrant for a number of Warrant Shares in excess of that number
        of
        Warrant Shares which, upon giving effect to such exercise, would cause the
        aggregate number of shares of Common Stock beneficially owned by the holder
        and
        its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
        following such exercise, except within sixty (60) days of the Expiration
        Date
        (however, such restriction may be waived by Holder (but only as to itself
        and
        not to any other holder) upon not less than 65 days prior notice to the
        Company). For purposes of the foregoing proviso, the aggregate number of
        shares
        of Common Stock beneficially owned by the holder and its affiliates shall
        include the number of shares of Common Stock issuable upon exercise of this
        Warrant with respect to which the determination of such proviso is being
        made,
        but shall exclude shares of Common Stock which would be issuable upon
        (i) exercise of the remaining, unexercised Warrants beneficially owned by
        the holder and its affiliates and (ii) exercise or conversion of the
        unexercised or unconverted portion of any other securities of the Company
        beneficially owned by the holder and its affiliates (including, without
        limitation, any convertible notes or preferred stock) subject to a limitation
        on
        conversion or exercise analogous to the 

       

       

      
        
           

        

        
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      limitation
        contained herein. Except as set forth in the preceding sentence, for purposes
        of
        this paragraph, beneficial ownership shall be calculated in accordance with
        Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes
        of this Warrant, in determining the number of outstanding shares of Common
        Stock
        a holder may rely on the number of outstanding shares of Common Stock as
        reflected in (1) the Company’s most recent Form 10-QSB or Form 10-KSB, as the
        case may be, (2) a more recent public announcement by the Company or (3)
        any
        other notice by the Company or its transfer agent setting forth the number
        of
        shares of Common Stock outstanding. Upon the written request of any holder,
        the
        Company shall promptly, but in no event later than one (1) Business Day
        following the receipt of such notice, confirm in writing to any such holder
        the
        number of shares of Common Stock then outstanding. In any case, the number
        of
        outstanding shares of Common Stock shall be determined after giving effect
        to
        the exercise of Warrants (as defined below) by such holder and its affiliates
        since the date as of which such number of outstanding shares of Common Stock
        was
        reported.

       

      Section
        1.  

       

      (a)  This
        Warrant is the common stock purchase warrant (the “Warrant”)
        issued
        pursuant to the Standby Equity Distribution Agreement (“Standby
        equity Distribution Agreement”)
        the
        dated May 5, 2006 between the Company and Cornell.

       

      (b)  Definitions.
        The
        following words and terms as used in this Warrant shall have the following
        meanings:

       

      (i)  “Approved
        Stock Plan”
means
        any employee benefit plan which has been approved by the Board of Directors
        of
        the Company, pursuant to which the Company’s securities may be issued to any
        employee, officer or director for services provided to the Company.

       

      (ii)  “Business
        Day”
means
        any day other than Saturday, Sunday or other day on which commercial banks
        in
        the City of New York are authorized or required by law to remain
        closed.

       

      (iii)  “Closing
        Bid Price”
means
        the closing bid price of Common Stock as quoted on the Principal Market (as
        reported by Bloomberg Financial Markets (“Bloomberg”)
        through its “Volume at Price” function).

       

      (iv)  “Common
        Stock”
means
        (i) the Company’s common stock, par value $0.01 per share, and
        (ii) any capital stock into which such Common Stock shall have been changed
        or any capital stock resulting from a reclassification of such Common
        Stock.

       

      (v)  “Excluded
        Securities”
means,
        provided such security is issued at a price which is greater than or equal
        to
        the arithmetic average of the Closing Bid Prices of the Common Stock for
        the ten
        (10) consecutive trading days immediately preceding the date of issuance,
        any of
        the following: (a) any issuance by the Company of securities in connection
        with
        a strategic partnership or a joint venture (the primary purpose of which
        is not
        to raise equity capital), (b) any issuance by the Company of securities as
        consideration for a merger or consolidation or the acquisition of a business,
        product, license, or other assets of another person or entity, (c) options
        to
        purchase shares of Common Stock, provided the exercise price of such options
        is
        not less than the Closing Bid Price of the Common Stock on the date of issuance
        of such option and (d) issuances of shares of the Company’s Common Stock
        pursuant to the Standby Equity Distribution Agreement, regardless of the
        per
        share price.

       

      (vi)  “Expiration
        Date”
means
        the date three (3) years from the Issuance Date of this Warrant or, if such
        date
        falls on a Saturday, Sunday or other day on which banks are required or
        authorized to be closed in the City of New York or the State of New York
        or on
        which trading does not 

       

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

       

       

      take
        place on the Principal Exchange or automated quotation system on which the
        Common Stock is traded (a “Holiday”),
        the
        next date that is not a Holiday.

       

      (vii)  “Issuance
        Date”
means
        the date hereof.

       

      (viii)  “Options”
means
        any rights, warrants or options to subscribe for or purchase Common Stock
        or
        Convertible Securities. 

       

      (ix)  “Other
        Securities”
means
        (i) those options and warrants of the Company issued prior to, and
        outstanding on, the Issuance Date of this Warrant, (ii) the shares of Common
        Stock issuable on exercise of such options and warrants, provided such options
        and warrants are not amended after the Issuance Date of this Warrant (provided
        that an extension of the exercise period of shall be allowed without taking
        such
        options and warrants out of this definition of “Other Securities”) and
        (iii) the shares of Common Stock issuable upon exercise of this Warrant.

       

      (x)  “Person”
means
        an individual, a limited liability company, a partnership, a joint venture,
        a
        corporation, a trust, an unincorporated organization and a government or
        any
        department or agency thereof.

       

      (xi)  “Principal
        Market”
means
        the New York Stock Exchange, the American Stock Exchange, the Nasdaq National
        Market, the Nasdaq SmallCap Market, whichever is at the time the principal
        trading exchange or market for such security, or the over-the-counter market
        on
        the electronic bulletin board for such security as reported by Bloomberg
        or, if
        no bid or sale information is reported for such security by Bloomberg, then
        the
        average of the bid prices of each of the market makers for such security
        as
        reported in the “pink sheets” by the National Quotation Bureau,
        Inc.

       

      (xii)  “Securities
        Act”
means
        the Securities Act of 1933, as amended. 

       

      (xiii)  “Warrant”
means
        this Warrant and all Warrants issued in exchange, transfer or replacement
        thereof. 

       

      (xiv)  “Warrant
        Exercise Price”
shall
        be $7.15 or as subsequently adjusted as provided in Section 8 hereof.

       

      (xv)  “Warrant
        Shares”
means
        the shares of Common Stock issuable at any time upon exercise of this Warrant.
        

       

      (c)  Other
        Definitional Provisions. 

       

      (i)  Except
        as
        otherwise specified herein, all references herein (A) to the Company shall
        be deemed to include the Company’s successors and (B) to any applicable law
        defined or referred to herein shall be deemed references to such applicable
        law
        as the same may have been or may be amended or supplemented from time to
        time.

       

      (ii)  When
        used
        in this Warrant, the words “herein”,
        “hereof”,
        and
“hereunder”
        and
        words of similar import, shall refer to this Warrant as a whole and not to
        any
        provision of this Warrant, and the words “Section”,
        “Schedule”,
        and
“Exhibit”
shall
        refer to Sections of, and Schedules and Exhibits to, this Warrant unless
        otherwise specified. 

       

      (iii)  Whenever
        the context so requires, the neuter gender includes the masculine or feminine,
        and the singular number includes the plural, and vice versa. 

       

      
        
           

        

        
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      Section
        2.  Exercise
        of Warrant.
        

       

      Subject
        to the terms and conditions hereof, this Warrant may be exercised by the
        holder
        hereof then registered on the books of the Company, pro rata as hereinafter
        provided, at any time on any Business Day on or after the opening of business
        on
        such Business Day, commencing with the first day after the date hereof, and
        prior to 11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of
        a written notice, in the form of the subscription notice attached as
Exhibit
        A
        hereto
        (the “Exercise
        Notice”),
        of
        such holder’s election to exercise this Warrant, which notice shall specify the
        number of Warrant Shares to be purchased, payment to the Company of an
        amount equal to the Warrant Exercise Price(s) applicable to the Warrant Shares
        being purchased, multiplied by the number of Warrant Shares (at the
        applicable Warrant Exercise Price) as to which this Warrant is being
        exercised (plus any applicable issue or transfer taxes) (the “Aggregate
        Exercise Price”)
        in
        cash or wire transfer of immediately available funds and the surrender of
        this
        Warrant (or an indemnification undertaking with respect to this Warrant in
        the
        case of its loss, theft or destruction) to a common carrier for overnight
        delivery to the Company as soon as practicable following such date
        (“Cash
        Basis”)
        

      

      In
        the
        event of any exercise of the rights represented by this Warrant in compliance
        with this Section 2, the Company shall on or before the fifth (5th)
        Business Day following the date of receipt of the Exercise Notice, the Aggregate
        Exercise Price and this Warrant (or an indemnification undertaking with respect
        to this Warrant in the case of its loss, theft or destruction) and the receipt
        of the representations of the holder specified in Section 6 hereof, if requested
        by the Company (the “Exercise
        Delivery Documents”),
        and
        if the Common Stock is DTC eligible, credit such aggregate number of shares
        of
        Common Stock to which the holder shall be entitled to the holder’s or its
        designee’s balance account with The Depository Trust Company; provided, however,
        if the holder who submitted the Exercise Notice requested physical delivery
        of
        any or all of the Warrant Shares, or, if the Common Stock is not DTC eligible
        then the Company shall, on or before the fifth (5th)
        Business Day following receipt of the Exercise Delivery Documents, issue
        and
        surrender to a common carrier for overnight delivery to the address specified
        in
        the Exercise Notice, a certificate, registered in the name of the holder,
        for
        the number of shares of Common Stock to which the holder shall be entitled
        pursuant to such request. Upon delivery of the Exercise Notice and Aggregate
        Exercise Price referred to in clause (i) or (ii) above the holder of this
        Warrant shall be deemed for all corporate purposes to have become the holder
        of
        record of the Warrant Shares with respect to which this Warrant has been
        exercised. In the case of a dispute as to the determination of the Warrant
        Exercise Price, the Closing Bid Price or the arithmetic calculation of the
        Warrant Shares, the Company shall promptly issue to the holder the number
        of
        Warrant Shares that is not disputed and shall submit the disputed determinations
        or arithmetic calculations to the holder via facsimile within one (1) Business
        Day of receipt of the holder’s Exercise Notice. 

       

      (a)  If
        the
        holder and the Company are unable to agree upon the determination of the
        Warrant
        Exercise Price or arithmetic calculation of the Warrant Shares within one
        (1)
        day of such disputed determination or arithmetic calculation being submitted
        to
        the holder, then the Company shall immediately submit via facsimile (i) the
        disputed determination of the Warrant Exercise Price or the Closing Bid Price
        to
        an independent, reputable investment banking firm or (ii) the disputed
        arithmetic calculation of the Warrant Shares to its independent, outside
        accountant. The Company shall use its best efforts to cause the investment
        banking firm or the accountant, as the case may be, to perform the
        determinations or calculations and notify the Company and the holder of the
        results no later than forty-eight (48) hours from the time it receives the
        disputed determinations or calculations. Such investment banking firm’s or
        accountant’s determination or calculation, as the case may be, shall be deemed
        conclusive absent manifest error.

       

      (b)  Unless
        the rights represented by this Warrant shall have expired or shall have been
        fully exercised, the Company shall, but only if requested by the Holder,
        as soon
        as practicable and in no 

       

       

      
        
           

        

        
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      event
        later than ten (10) Business Days after any exercise and at its own expense,
        issue a new Warrant identical in all respects to this Warrant exercised except
        it shall represent rights to purchase the number of Warrant Shares purchasable
        immediately prior to such exercise under this Warrant exercised, less the
        number
        of Warrant Shares with respect to which such Warrant is exercised.

       

      (c)  No
        fractional Warrant Shares are to be issued upon any pro rata exercise of
        this
        Warrant, but rather the number of Warrant Shares issued upon such exercise
        of
        this Warrant shall be rounded up or down to the nearest whole
        number.

       

      (d)  If
        the
        Company or its Transfer Agent shall fail for any reason or for no reason
        to
        issue to the holder within ten (10) days of receipt of the Exercise
        Delivery Documents, a certificate for the number of Warrant Shares to which
        the
        holder is entitled or to credit the holder’s balance account with The Depository
        Trust Company for such number of Warrant Shares to which the holder is entitled
        upon the holder’s exercise of this Warrant, the Company shall, in addition to
        any other remedies under this Warrant or the Placement Agent Agreement or
        otherwise available to such holder, pay as additional damages in cash to
        such
        holder on each day the issuance of such certificate for Warrant Shares is
        not
        timely effected an amount equal to 0.025% of the product of (A) the sum of
        the
        number of Warrant Shares not issued to the holder on a timely basis and to
        which
        the holder is entitled, and (B) the Closing Bid Price of the Common Stock
        for
        the trading day immediately preceding the last possible date which the Company
        could have issued such Common Stock to the holder without violating this
        Section 2.

       

      (e)  If
        within
        ten (10) days after the Company’s receipt of the Exercise Delivery Documents,
        the Company has been requested to, but fails to deliver a new Warrant to
        the
        holder for the number of Warrant Shares to which such holder is entitled
        pursuant to Section 2 hereof, then, in addition to any other available remedies
        under this Warrant, or otherwise available to such holder, the Company shall
        pay
        as additional damages in cash to such holder on each day after such tenth
        (10th)
        day
        that such delivery of such new Warrant is not timely effected in an amount
        equal
        to 0.25% of the product of (A) the number of Warrant Shares represented by
        the portion of this Warrant which is not being exercised and (B) the
        Closing Bid Price of the Common Stock for the trading day immediately preceding
        the last possible date which the Company could have issued such Warrant to
        the
        holder without violating this Section 2.

       

      (f)  Forced
        Exercise.Provided
        that the shares issuable upon exercise this Warrant are registered pursuant
        to
        an effective registration statement, in the event that the Company’s
Closing
        Bid Price
        as
        quoted by Bloomberg, LP is equal to or greater than one hundred fifty percent
        (150%) of the then applicable Warrant Exercise Price for ten (10) consecutive
        Trading Days, the Holder shall, commencing on such first (1st)
        Trading
        day after such tenth (10th)
        consecutive Trading Day, exercise this Warrant in whole at the then applicable
        Exercise Price within the next twenty (20) consecutive Trading Days
        (“Forced
        Exercise Period”).
        During the Forced Exercise Period if the Holder does not exercise this Warrant
        or exercises only a portion of this Warrant the Holder shall forfeit this
        Warrant, either in whole or such unexercised portion of this Warrant, as
        the
        case may be, at the end of the Forced Exercise Period, unless otherwise agreed
        to by the Company. Provided however in the event that the Closing Bid Price
        of
        the Company’s Common Stock during the Forced Exercise Period is equal to or
        lower than the applicable Warrant Exercise Price the Holder shall not be
        forced
        to exercise this Warrant, in whole or in part, as provided for herein and
        shall
        therefore not forfeit such portion of this Warrant which was not exercised
        during the Forced Exercise Period. . 

       

      Section
        3.  Covenants
        as to Common Stock.
        The
        Company hereby covenants and agrees as follows:

       

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

       

      (a)  This
        Warrant is, and any Warrants issued in substitution for or replacement of
        this
        Warrant will upon issuance be, duly authorized and validly issued.

       

      (b)  All
        Warrant Shares which may be issued upon the exercise of the rights represented
        by this Warrant will, upon issuance, be validly issued, fully paid and
        nonassessable and free from all taxes, liens and charges with respect to
        the
        issue thereof.

       

      (c)  During
        the period within which the rights represented by this Warrant may be exercised,
        the Company will at all times have authorized and reserved at least one hundred
        percent (100%) of the number of shares of Common Stock needed to provide
        for the
        exercise of the rights then represented by this Warrant and the par value
        of
        said shares will at all times be less than or equal to the applicable Warrant
        Exercise Price. If at any time the Company does not have a sufficient number
        of
        shares of Common Stock authorized and available, then the Company shall call
        and
        hold a special meeting of its stockholders within sixty (60) days of that
        time for the sole purpose of increasing the number of authorized shares of
        Common Stock.

       

      (d)  If
        at any
        time after the date hereof the Company shall file a registration statement,
        the
        Company shall include the Warrant Shares issuable to the holder, pursuant
        to the
        terms of this Warrant and shall maintain, so long as any other shares of
        Common
        Stock shall be so listed, such listing of all Warrant Shares from time to
        time
        issuable upon the exercise of this Warrant; and the Company shall so list
        on
        each national securities exchange or automated quotation system, as the case
        may
        be, and shall maintain such listing of, any other shares of capital stock
        of the
        Company issuable upon the exercise of this Warrant if and so long as any
        shares
        of the same class shall be listed on such national securities exchange or
        automated quotation system.

       

      (e)  The
        Company will not, by amendment of its Articles of Incorporation or through
        any
        reorganization, transfer of assets, consolidation, merger, 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
        by it
        hereunder, but will at all times in good faith assist in the carrying out
        of all
        the provisions of this Warrant and in the taking of all such action as may
        reasonably be requested by the holder of this Warrant in order to protect
        the
        exercise privilege of the holder of this Warrant against dilution or other
        impairment, consistent with the tenor and purpose of this Warrant. The Company
        will not increase the par value of any shares of Common Stock receivable
        upon
        the exercise of this Warrant above the Warrant Exercise Price then in effect,
        and (ii) will take all such actions as may be necessary or appropriate in
        order that the Company may validly and legally issue fully paid and
        nonassessable shares of Common Stock upon the exercise of this
        Warrant.

       

      (f)  This
        Warrant will be binding upon any entity succeeding to the Company by merger,
        consolidation or acquisition of all or substantially all of the Company’s
        assets.

       

      Section
        4.  Taxes.
        The
        Company shall pay any and all taxes, except any applicable withholding, which
        may be payable with respect to the issuance and delivery of Warrant Shares
        upon
        exercise of this Warrant.

       

      Section
        5.  Warrant
        Holder Not Deemed a Stockholder.
        Except
        as otherwise specifically provided herein, no holder, as such, of this Warrant
        shall be entitled to vote or receive dividends or be deemed the holder of
        shares
        of capital stock of the Company for any purpose, nor shall anything contained
        in
        this Warrant be construed to confer upon the holder hereof, as such, any
        of the
        rights of a stockholder of the Company or any right to vote, give or withhold
        consent to any corporate action (whether any reorganization, issue of stock,
        reclassification of stock, consolidation, merger, conveyance or otherwise),
        receive notice of meetings, receive dividends or subscription rights, or
        otherwise, prior to 

       

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

       

      the
        issuance to the holder of this Warrant of the Warrant Shares which he or
        she is
        then entitled to receive upon the due exercise of this Warrant. In addition,
        nothing contained in this Warrant shall be construed as imposing any liabilities
        on such holder to purchase any securities (upon exercise of this Warrant
        or
        otherwise) or as a stockholder of the Company, whether such liabilities are
        asserted by the Company or by creditors of the Company. Notwithstanding this
        Section 5, the Company will provide the holder of this Warrant with copies
        of
        the same notices and other information given to the stockholders of the Company
        generally, contemporaneously with the giving thereof to the
        stockholders.

       

      Section
        6.  Representations
        of Holder.
        The
        holder of this Warrant, by the acceptance hereof, represents that it is
        acquiring this Warrant and the Warrant Shares for its own account for investment
        only and not with a view towards, or for resale in connection with, the public
        sale or distribution of this Warrant or the Warrant Shares, except pursuant
        to
        sales registered or exempted under the Securities Act; provided, however,
        that
        by making the representations herein, the holder does not agree to hold this
        Warrant or any of the Warrant Shares for any minimum or other specific term
        and
        reserves the right to dispose of this Warrant and the Warrant Shares at any
        time
        in accordance with or pursuant to a registration statement or an exemption
        under
        the Securities Act. The holder of this Warrant further represents, by acceptance
        hereof, that, as of this date, such holder is an “accredited investor” as such
        term is defined in Rule 501(a)(1) of Regulation D promulgated by the
        Securities and Exchange Commission under the Securities Act (an “Accredited
        Investor”).
        Upon
        exercise of this Warrant the holder shall, if requested by the Company, confirm
        in writing, in a form satisfactory to the Company, that the Warrant Shares
        so
        purchased are being acquired solely for the holder’s own account and not as a
        nominee for any other party, for investment, and not with a view toward
        distribution or resale and that such holder is an Accredited Investor. If
        such
        holder cannot make such representations because they would be factually
        incorrect, it shall be a condition to such holder’s exercise of this Warrant
        that the Company receive such other representations as the Company considers
        reasonably necessary to assure the Company that the issuance of its securities
        upon exercise of this Warrant shall not violate any United States or state
        securities laws.

       

      Section
        7.  Ownership
        and Transfer.

       

      (a)  The
        Company shall maintain at its principal executive offices (or such other
        office
        or agency of the Company as it may designate by notice to the holder hereof),
        a
        register for this Warrant, in which the Company shall record the name and
        address of the person in whose name this Warrant has been issued, as well
        as the
        name and address of each transferee. The Company may treat the person in
        whose
        name any Warrant is registered on the register as the owner and holder thereof
        for all purposes, notwithstanding any notice to the contrary, but in all
        events
        recognizing any transfers made in accordance with the terms of this
        Warrant.

       

      Section
        8.  Adjustment
        of Warrant Exercise Price and Number of Shares.
        The
        Warrant Exercise Price and the number of shares of Common Stock issuable
        upon
        exercise of this Warrant shall be adjusted from time to time as
        follows:

       

      (a)  Adjustment
        of Warrant Exercise Price and Number of Shares upon Issuance of Common
        Stock.
        If and
        whenever on or after the Issuance Date of this Warrant, the Company issues
        or
        sells, or is deemed to have issued or sold, any shares of Common
        Stock (other than (i) Excluded Securities, (ii) shares of Common Stock
        which are issued or deemed to have been issued by the Company in connection
        with
        an Approved Stock Plan, or (iii) the Other Securities) for a consideration
        per
        share less than a price (the “Applicable
        Price”)
        equal
        to the Warrant Exercise Price in effect immediately prior to such issuance
        or
        sale, then immediately after such issue or sale the Warrant Exercise Price
        then
        in effect shall be reduced to an amount equal to such consideration per share.
        For purposes of the preceding sentence the extension of the exercise period
        for
        any options (employee or otherwise) of for any warrants, 

       

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

       

      shall
        not
        be deemed to be the issuance of new options or warrants. Upon each such
        adjustment of the Warrant Exercise Price hereunder, the number of Warrant
        Shares
        issuable upon exercise of this Warrant shall be adjusted to the number of
        shares
        determined by multiplying the Warrant Exercise Price in effect immediately
        prior
        to such adjustment by the number of Warrant Shares issuable upon exercise
        of
        this Warrant immediately prior to such adjustment and dividing the product
        thereof by the Warrant Exercise Price resulting from such
        adjustment.

       

      (b)  Effect
        on Warrant Exercise Price of Certain Events.
        For
        purposes of determining the adjusted Warrant Exercise Price under Section
        8(a)
        above, the following shall be applicable:

       

      (i)  Issuance
        of Options.
        If
        after the date hereof, the Company in any manner grants any Options and the
        lowest price per share for which one share of Common Stock is issuable upon
        the
        exercise of any such Option or upon conversion or exchange of any convertible
        securities issuable upon exercise of any such Option is less than the Applicable
        Price, then such share of Common Stock shall be deemed to be outstanding
        and to
        have been issued and sold by the Company at the time of the granting or sale
        of
        such Option for such price per share. For purposes of this Section 8(b)(i),
        the
        lowest price per share for which one share of Common Stock is issuable upon
        exercise of such Options or upon conversion or exchange of such Convertible
        Securities shall be equal to the sum of the lowest amounts of consideration
        (if
        any) received or receivable by the Company with respect to any one share
        of
        Common Stock upon the granting or sale of the Option, upon exercise of the
        Option or upon conversion or exchange of any convertible security issuable
        upon
        exercise of such Option. No further adjustment of the Warrant Exercise Price
        shall be made upon the actual issuance of such Common Stock or of such
        convertible securities upon the exercise of such Options or upon the actual
        issuance of such Common Stock upon conversion or exchange of such convertible
        securities.

       

      (ii)  Issuance
        of Convertible Securities.
        If the
        Company in any manner issues or sells any convertible securities and the
        lowest
        price per share for which one share of Common Stock is issuable upon the
        conversion or exchange thereof is less than the Applicable Price, then such
        share of Common Stock shall be deemed to be outstanding and to have been
        issued
        and sold by the Company at the time of the issuance or sale of such convertible
        securities for such price per share. For the purposes of this
        Section 8(b)(ii), the lowest price per share for which one share of Common
        Stock is issuable upon such conversion or exchange shall be equal to the
        sum of
        the lowest amounts of consideration (if any) received or receivable by the
        Company with respect to one share of Common Stock upon the issuance or sale
        of
        the convertible security and upon conversion or exchange of such convertible
        security. No further adjustment of the Warrant Exercise Price shall be made
        upon
        the actual issuance of such Common Stock upon conversion or exchange of such
        convertible securities, and if any such issue or sale of such convertible
        securities is made upon exercise of any Options for which adjustment of the
        Warrant Exercise Price had been or are to be made pursuant to other provisions
        of this Section 8(b), no further adjustment of the Warrant Exercise Price
        shall
        be made by reason of such issue or sale. 

       

      (iii)  Change
        in Option Price or Rate of Conversion.
        If the
        purchase price provided for in any Options, the additional consideration,
        if
        any, payable upon the issue, conversion or exchange of any convertible
        securities, or the rate at which any convertible securities are convertible
        into
        or exchangeable for Common Stock changes at any time, the Warrant Exercise
        Price
        in effect at the time of such change shall be adjusted to the Warrant Exercise
        Price which would have been in effect at such time had such Options or
        convertible securities provided for such changed purchase price, additional
        consideration or changed conversion rate, as the case may be, at the time
        initially granted, issued or sold and the number of Warrant Shares issuable
        upon
        exercise of this Warrant shall be correspondingly readjusted. For purposes
        of
        this Section 8(b)(iii), if the terms of any Option or convertible security
        that
        was outstanding as of the Issuance Date of this Warrant are changed in the
        manner described in the immediately preceding sentence, then such Option
        or
        convertible security and the Common Stock deemed 

       

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

       

      issuable
        upon exercise, conversion or exchange thereof shall be deemed to have been
        issued as of the date of such change. No adjustment pursuant to this
        Section 8(b) shall be made if such adjustment would result in an increase
        of the Warrant Exercise Price then in effect.

       

      (c)  Effect
        on Warrant Exercise Price of Certain Events.
        For
        purposes of determining the adjusted Warrant Exercise Price under
        Sections 8(a) and 8(b), the following shall be applicable:

       

      (i)  Calculation
        of Consideration Received.
        If any
        Common Stock, Options or convertible securities are issued or sold or deemed
        to
        have been issued or sold for cash, the consideration received therefore will
        be
        deemed to be the net amount received by the Company therefore. If any Common
        Stock, Options or convertible securities are issued or sold for a consideration
        other than cash, the amount of such consideration received by the Company
        will
        be the fair value of such consideration, except where such consideration
        consists of marketable securities, in which case the amount of consideration
        received by the Company will be the market price of such securities on the
        date
        of receipt of such securities. If any Common Stock, Options or convertible
        securities are issued to the owners of the non-surviving entity in connection
        with any merger in which the Company is the surviving entity, the amount
        of
        consideration therefore will be deemed to be the fair value of such portion
        of
        the net assets and business of the non-surviving entity as is attributable
        to
        such Common Stock, Options or convertible securities, as the case may be.
        The
        fair value of any consideration other than cash or securities will be determined
        jointly by the Company and the holders of Warrants representing at least
        two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
        then
        outstanding. If such parties are unable to reach agreement within ten (10)
        days after the occurrence of an event requiring valuation (the “Valuation
        Event”),
        the
        fair value of such consideration will be determined within five (5) Business
        Days after the tenth (10th)
        day
        following the Valuation Event by an independent, reputable appraiser jointly
        selected by the Company and the holders of Warrants representing at least
        two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants
        then
        outstanding. The determination of such appraiser shall be final and binding
        upon
        all parties and the fees and expenses of such appraiser shall be borne jointly
        by the Company and the holders of Warrants.

       

      (ii)  Integrated
        Transactions.
        In case
        any Option is issued in connection with the issue or sale of other securities
        of
        the Company, together comprising one integrated transaction in which no specific
        consideration is allocated to such Options by the parties thereto, the Options
        will be deemed to have been issued for a consideration of $.01.

       

      (iii)  Treasury
        Shares.
        The
        number of shares of Common Stock outstanding at any given time does not include
        shares owned or held by or for the account of the Company, and the disposition
        of any shares so owned or held will be considered an issue or sale of Common
        Stock.

       

      (iv)  Record
        Date.
        If the
        Company takes a record of the holders of Common Stock for the purpose of
        entitling them (1) to receive a dividend or other distribution payable in
        Common Stock, Options or in convertible securities or (2) to subscribe for
        or purchase Common Stock, Options or convertible securities, then such record
        date will be deemed to be the date of the issue or sale of the shares of
        Common
        Stock deemed to have been issued or sold upon the declaration of such dividend
        or the making of such other distribution or the date of the granting of such
        right of subscription or purchase, as the case may be.

       

      (d)  Adjustment
        of Warrant Exercise Price upon Subdivision or Combination of Common
        Stock.
        If the
        Company at any time after the date of issuance of this Warrant subdivides
        (by
        any stock split, stock dividend, recapitalization or otherwise) one or more
        classes of its outstanding shares of Common Stock into a greater number of
        shares, any Warrant Exercise Price in effect immediately prior to such
        subdivision will be proportionately reduced and the number of shares of Common
        Stock obtainable 

       

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

       

      upon
        exercise of this Warrant will be proportionately increased. If the Company
        at
        any time after the date of issuance of this Warrant combines (by combination,
        reverse stock split or otherwise) one or more classes of its outstanding
        shares
        of Common Stock into a smaller number of shares, any Warrant Exercise Price
        in
        effect immediately prior to such combination will be proportionately increased
        and the number of Warrant Shares issuable upon exercise of this Warrant will
        be
        proportionately decreased. Any adjustment under this Section 8(d) shall
        become effective at the close of business on the date the subdivision or
        combination becomes effective.

       

      (e)  Distribution
        of Assets.
        If the
        Company shall declare or make any dividend or other distribution of its assets
        (or rights to acquire its assets) to holders of Common Stock, by way of return
        of capital or otherwise (including, without limitation, any distribution
        of
        cash, stock or other securities, property or options by way of a dividend,
        spin
        off, reclassification, corporate rearrangement or other similar transaction)
        (a
“Distribution”),
        at
        any time after the issuance of this Warrant, then, in each such
        case:

       

      (i)  any
        Warrant Exercise Price in effect immediately prior to the close of business
        on
        the record date fixed for the determination of holders of Common Stock
        entitled to
        receive the Distribution shall be reduced, effective as of the close of business
        on such record date, to a price determined by multiplying such Warrant Exercise
        Price by a fraction of which (A) the numerator shall be the Closing Sale
        Price
        of the Common Stock on the trading day immediately preceding such record
        date
        minus the value of the Distribution (as determined in good faith by the
        Company’s Board of Directors) applicable to one share of Common Stock, and (B)
        the denominator shall be the Closing Sale Price of the Common Stock on the
        trading day immediately preceding such record date; and

       

      (ii)  either
        (A) the number of Warrant Shares obtainable upon exercise of this Warrant
        shall
        be increased to a number of shares equal to the number of shares of Common
        Stock
        obtainable immediately prior to the close of business on the record date
        fixed
        for the determination of holders of Common Stock entitled to receive the
        Distribution multiplied by the reciprocal of the fraction set forth in the
        immediately preceding clause (i), or (B) in the event that the Distribution
        is
        of common stock of a company whose common stock is traded on a national
        securities exchange or a national automated quotation system, then the holder
        of
        this Warrant shall receive an additional warrant to purchase Common Stock,
        the
        terms of which shall be identical to those of this Warrant, except that such
        warrant shall be exercisable into the amount of the assets that would have
        been
        payable to the holder of this Warrant pursuant to the Distribution had the
        holder exercised this Warrant immediately prior to such record date and with
        an
        exercise price equal to the amount by which the exercise price of this Warrant
        was decreased with respect to the Distribution pursuant to the terms of the
        immediately preceding clause (i).

       

      (f)  Certain
        Events.
        If any
        event occurs of the type contemplated by the provisions of this Section 8
        but not expressly provided for by such provisions (including, without
        limitation, the granting of stock appreciation rights, phantom stock rights
        or
        other rights with equity features), then the Company’s Board of Directors will
        make an appropriate adjustment in the Warrant Exercise Price and the number
        of
        shares of Common Stock obtainable upon exercise of this Warrant so as to
        protect
        the rights of the holders of the Warrants; provided, except as set forth
        in
        section 8(d),that no such adjustment pursuant to this Section 8(f) will increase
        the Warrant Exercise Price or decrease the number of shares of Common Stock
        obtainable as otherwise determined pursuant to this Section 8.

       

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

       

      (g)  Notices.

       

      (i)  Immediately
        upon any adjustment of the Warrant Exercise Price, the Company will give
        written
        notice thereof to the holder of this Warrant, setting forth in reasonable
        detail, and certifying, the calculation of such adjustment.

       

      (ii)  The
        Company will give written notice to the holder of this Warrant at least ten
        (10)
        days prior to the date on which the Company closes its books or takes a record
        (A) with respect to any dividend or distribution upon the Common Stock,
        (B) with respect to any pro rata subscription offer to holders of Common
        Stock or (C) for determining rights to vote with respect to any Organic
        Change (as defined below), dissolution or liquidation, provided that such
        information shall be made known to the public prior to or in conjunction
        with
        such notice being provided to such holder.

       

      (iii)  The
        Company will also give written notice to the holder of this Warrant at least
        ten
        (10) days prior to the date on which any Organic Change, dissolution or
        liquidation will take place, provided that such information shall be made
        known
        to the public prior to or in conjunction with such notice being provided
        to such
        holder.

       

      (h)  
          Limitations.
        Notwithstanding the above provisions of this Section 8, the number of shares
        of
        Common Stock issuable upon exercise of this Warrant shall in no event be
        increased to an amount such that the Total Transaction Shares shall be greater
        than 3,726,400 shares, unless or until the Company obtains any necessary
        shareholder approval or consent in accordance with Nasdaq Market Place Rule
        4350(i)(1)(D) prior to such issuance (without the vote of any shares acquired
        in
        the Standby Equity Distribution Agreement of May 5, 2006 (the “SEDA”), this
        Warrant, and all related transactions). The “Total
        Transaction Shares”
        (3,726,400) means the sum of (i) 3,556,470 shares issuable under the SEDA;
        (ii)
        the shares acquired under the Warrant issued to Cornell Capital Partners,
        LP on
        May 5, 2006; (iii) the 68,531 shares issued under Cornell Capital Partners,
        LP
        (the “Investor’s Shares”) under the SEDA; (iv) the 1,399 shares issued to
        Newbridge Securities Corporation under the Placement Agent Agreement of May
        5,
        2006 (the “Placement Agent’s Shares”); and (v) all shares issuable under any
        Milestone Warrant, which 3,726,400 shares is less than 20% more than the
        18,632,022 shares of Common Stock outstanding as of April 11, 2006 (after
        subtracting the 888,408 shares held by subsidiaries of the Company, from
        the
        19,520,430 shares issued and outstanding at that date).

      

      Section
        9.  Purchase
        Rights; Reorganization, Reclassification, Consolidation, Merger or
        Sale.

       

      (a)  In
        addition to any adjustments pursuant to Section 8 above, if at any time the
        Company grants, issues or sells any Options, Convertible Securities or rights
        to
        purchase stock, warrants, securities or other property pro rata to the record
        holders of any class of Common Stock (the “Purchase
        Rights”),
        then
        the holder of this Warrant will be entitled to acquire, upon the terms
        applicable to such Purchase Rights, the aggregate Purchase Rights which such
        holder could have acquired if such holder had held the number of shares of
        Common Stock acquirable upon complete exercise of this Warrant immediately
        before the date on which a record is taken for the grant, issuance or sale
        of
        such Purchase Rights, or, if no such record is taken, the date as of which
        the
        record holders of Common Stock are to be determined for the grant, issue
        or sale
        of such Purchase Rights.

       

      (b)  Any
        recapitalization, reorganization, reclassification, consolidation, merger,
        sale
        of all or substantially all of the Company’s assets to another Person or other
        transaction in each case which is effected in such a way that holders of
        Common
        Stock are entitled to receive (either directly or upon subsequent liquidation)
        stock, securities or assets with respect to or in exchange for Common Stock
        is
        referred to herein as an “Organic
        Change.”
Prior
        to the consummation of any (i) sale of all or 

       

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

       

      substantially
        all of the Company’s assets to an acquiring Person or (ii) other Organic Change
        following which the Company is not a surviving entity, the Company will secure
        from the Person purchasing such assets or the successor resulting from such
        Organic Change (in each case, the “Acquiring
        Entity”)
        a
        written agreement (in form and substance satisfactory to the holders of Warrants
        representing at least two-thirds (iii) of the Warrant Shares issuable upon
        exercise of the Warrants then outstanding) to deliver to each holder of Warrants
        in exchange for such Warrants, a security of the Acquiring Entity evidenced
        by a
        written instrument substantially similar in form and substance to this Warrant
        and satisfactory to the holders of the Warrants (including an adjusted warrant
        exercise price equal to the value for the Common Stock reflected by the terms
        of
        such consolidation, merger or sale, and exercisable for a corresponding number
        of shares of Common Stock acquirable and receivable upon exercise of the
        Warrants without regard to any limitations on exercise, if the value so
        reflected is less than any Applicable Warrant Exercise Price immediately
        prior
        to such consolidation, merger or sale). Prior to the consummation of any
        other
        Organic Change, the Company shall make appropriate provision (in form and
        substance satisfactory to the holders of Warrants representing a
        majority of
        the
        Warrant Shares issuable upon exercise of the Warrants then outstanding) to
        insure that each of the holders of the Warrants will thereafter have the
        right
        to acquire and receive in lieu of or in addition to (as the case may be)
        the
        Warrant Shares immediately theretofore issuable and receivable upon the exercise
        of such holder’s Warrants (without regard to any limitations on exercise),
        such shares of stock, securities or assets that would have been issued or
        payable in such Organic Change with respect to or in exchange for the number
        of
        Warrant Shares which would have been issuable and receivable upon the exercise
        of such holder’s Warrant as of the date of such Organic Change (without taking
        into account any limitations or restrictions on the exercisability of this
        Warrant).

       

      Section
        10.  Lost,
        Stolen, Mutilated or Destroyed Warrant.
        If this
        Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly,
        on
        receipt of an indemnification undertaking (or, in the case of a mutilated
        Warrant, the Warrant), issue a new Warrant of like denomination and tenor
        as
        this Warrant so lost, stolen, mutilated or destroyed.

       

      Section
        11.  Notice.
        Any
        notices, consents, waivers or other communications required or permitted
        to be
        given under the terms of this Warrant must be in writing and will be deemed
        to
        have been delivered: (i) upon receipt, when delivered personally;
        (ii) upon receipt, when sent by facsimile (provided confirmation of receipt
        is received by the sending party transmission is mechanically or electronically
        generated and kept on file by the sending party); or (iii) one Business Day
        after deposit with a nationally recognized overnight delivery service, in
        each
        case properly addressed to the party to receive the same. The addresses and
        facsimile numbers for such communications shall be:

       

      
        
          	
                  If
                    to Holder:

                	
                  Cornell
                    Capital Partners, LP

                
	 	
                  101
                    Hudson Street - Suite 3700

                
	 	
                  Jersey
                    City, NJ 07302

                
	 	
                  Attention: Mark
                    A. Angelo

                
	 	
                  Telephone: (201)
                    985-8300

                
	 	
                  Facsimile: (201)
                    985-8266

                
	 	 
	
                  With
                    Copy to:

                	
                  David
                    Gonzalez, Esq.

                
	 	
                  101
                    Hudson Street - Suite 3700

                
	 	
                  Jersey
                    City, NJ 07302

                
	 	
                  Telephone: (201)
                    985-8300

                
	 	
                  Facsimile: (201)
                    985-8266

                
	 	 

        

      

       

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

       

       

      

        
          	
                  If
                    to the Company, to:

                	
                  U.S.
                    Energy Corp.

                
	 	
                  877
                    North 8th
                    West

                
	 	
                  Glen
                    L. Larsen Building

                
	 	
                  Riverton,
                    WY 82501

                
	 	
                  Attention:
                    Mark J. Larsen

                
	 	
                  Telephone:
                    (307) 856-9271

                
	 	
                  Facsimile:
                    (307) 857-3050

                
	 	 
	
                  With
                    a copy to:

                	
                  The
                    Law Office of Stephen E. Rounds

                
	 	
                  1544
                    York Street, Suite 110

                
	 	
                  Denver,
                    CO 80206

                
	 	
                  Attention
                    : Stephen E. Rounds

                
	 	
                  Telephone:
                    (303) 377-6997

                
	 	
                  Facsimile:
                    (303) 377-0231

                

        

      

       

      If
        to a
        holder of this Warrant, to it at the address and facsimile number set forth
        on
Exhibit C
        hereto,
        with copies to such holder’s representatives as set forth on Exhibit C,
        or at
        such other address and facsimile as shall be delivered to the Company upon
        the
        issuance or transfer of this Warrant. Each party shall provide five days’ prior
        written notice to the other party of any change in address or facsimile number.
        Written confirmation of receipt (A) given by the recipient of such notice,
        consent, facsimile, waiver or other communication, (or (B) provided by a
        nationally recognized overnight delivery service shall be rebuttable evidence
        of
        personal service, receipt by facsimile or receipt from a nationally recognized
        overnight delivery service in accordance with clause (i), (ii) or (iii) above,
        respectively.

       

      Section
        12.  Date.
        The
        date of this Warrant is set forth on page 1 hereof. This Warrant, in all
        events, shall be wholly void and of no effect after the close of business
        on the
        Expiration Date, except that notwithstanding any other provisions hereof,
        the
        provisions of Section 8(b) shall continue in full force and effect after
        such date as to any Warrant Shares or other securities issued upon the exercise
        of this Warrant.

       

      Section
        13.  Amendment
        and Waiver.
        Except
        as otherwise provided herein, the provisions of the Warrants may be amended
        and
        the Company may take any action herein prohibited, or omit to perform any
        act
        herein required to be performed by it, only if the Company has obtained the
        written consent of the holders of Warrants representing at least two-thirds
        of
        the Warrant Shares issuable upon exercise of the Warrants then outstanding;
        provided that, except for Section 8(d), no such action may increase the Warrant
        Exercise Price or decrease the number of shares or class of stock obtainable
        upon exercise of any Warrant without the written consent of the holder of
        such
        Warrant.

       

      Section
        14.  Descriptive
        Headings; Governing Law.
        The
        descriptive headings of the several sections and paragraphs of this Warrant
        are
        inserted for convenience only and do not constitute a part of this Warrant.
        The
        corporate laws of the State of New Jersey shall govern all issues concerning
        the
        relative rights of the Company and its stockholders. All other questions
        concerning the construction, validity, enforcement and interpretation of
        this
        Agreement shall be governed by the internal laws of the State of New Jersey,
        without giving effect to any choice of law or conflict of law provision or
        rule
        (whether of the State of New Jersey or any other jurisdictions) that would
        cause
        the application of the laws of any jurisdictions other than the State of
        New
        Jersey. Each party hereby irrevocably submits to the exclusive jurisdiction
        of
        the state and federal courts sitting in Hudson County and the United States
        District Court for the District of New Jersey, for the adjudication of any
        dispute hereunder or in connection herewith or therewith, or with any
        transaction contemplated hereby or discussed herein, and hereby irrevocably
        waives, and agrees not to assert in any suit, action or proceeding, any claim
        that it is not personally subject to the jurisdiction of any such court,
        that
        such suit, action or proceeding is brought

       

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

       

       

       in
        an inconvenient forum or that the venue of such suit, action or proceeding
        is
        improper. Each party hereby irrevocably waives personal service of process
        and
        consents to process being served in any such suit, action or proceeding by
        mailing a copy thereof to such party at the address for such notices to it
        under
        this Agreement and agrees that such service shall constitute good and sufficient
        service of process and notice thereof. Nothing contained herein shall be
        deemed
        to limit in any way any right to serve process in any manner permitted by
        law.

       

      Section
        15.  Waiver
        of Jury Trial.
        AS
        A MATERIAL INDUCEMENT FOR EACH PARTY HERETO TO ENTER INTO THIS WARRANT, THE
        PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
        RELATED IN ANY WAY TO THIS WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS
        ASSOCIATED WITH THIS TRANSACTION.

       

      

      REMAINDER
        OF PAGE INTENTIONALLY LEFT BLANK

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF,
        the
        Company has caused this Warrant to be signed as of the date first set forth
        above.

       

      
        	 	
                U.S.
                  ENERGY CORP.

              
	 	 
	 	
                By:/s/Keith
                  G. Larsen

              
	 	
                Name: 
                  Keith G. Larsen

              
	 	
                Title: 
                  CEO

              

      

       

      

       

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

       

      EXHIBIT
        A TO WARRANT

       

       

      EXERCISE
        NOTICE

       

       

      TO
        BE EXECUTED 

       

       

      BY
        THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

       

       

      U.S.
        ENERGY CORP.

       

      The
        undersigned holder hereby exercises the right to purchase ______________
        of the
        shares of Common Stock (“Warrant
        Shares”)
        of
        U.S. Energy Corp. (the “Company”),
        evidenced by the attached Warrant (the “Warrant”).
        Capitalized terms used herein and not otherwise defined shall have the
        respective meanings set forth in the Warrant.

       

      (a)
        Payment
        of Warrant Exercise Price.
        The
        holder shall pay the Aggregate Exercise Price of $______________ to the Company
        in accordance with the terms of the Warrant. 

       

      (b)
        Delivery
        of Warrant Shares.
        The
        Company shall deliver to the holder _________
        Warrant
        Shares in accordance with the terms of the Warrant. 

       

      

       

       

       

      

      Date:
        _______________ __, ______

      

      Name
        of
        Registered Holder

      

      By:__________________________     

      Name:________________________     

      Title:_________________________     

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      

       

      EXHIBIT
        B TO WARRANT

       

       

      FORM
        OF WARRANT POWER

       

      FOR
        VALUE RECEIVED,
        the
        undersigned does hereby assign and transfer to ________________, Federal
        Identification No. __________, a warrant to purchase ____________ shares of
        the capital stock of U.S. Energy Corp. represented by warrant certificate
        no. _____, standing in the name of the undersigned on the books of said
        corporation. The undersigned does hereby irrevocably constitute and appoint
        ______________, attorney to transfer the warrants of said corporation, with
        full
        power of substitution in the premises.

       

      
        	
                Dated:__________________________________________________      

              	 
	 	 
	 	
                By:      

              
	 	
                Name:      

              
	 	
                Title:      

              
	 	 

      

      

      

      
        
          B-1

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