EXHIBIT "A"
SECURED CONVERTIBLE NOTE
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NEITHER THIS NOTE NOR THE SHARES OF ROCKY MOUNTAIN GAS, INC.
("RMG") COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND IF RMG
BECOMES A PUBLIC
COMPANY, THE SHARES MAY NEITHER BE OFFERED, SOLD NOR OTHERWISE
TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE
HOLDER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE MAKER THAT SUCH REGISTRATION IS NOT REQUIRED.
$3,000,000
July 30, 2004
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, U.S. Energy Corp.
(the "Maker") a Wyoming corporation,
having its principal place of business at
877 North 8th West, Riverton, Wyoming
82501, hereby promises to pay to the order of Geddes and
Company ("Payee") an
Arizona corporation, having its address at
2930 East Camelback Road, Suite 110,
Phoenix, Arizona 85016, the sum of Three
Million Dollars ($3,000,000), or such
lesser amount which represents the actual principal amount borrowed in
accordance with that certain Credit Agreement
( the "Credit Agreement") between
Maker as Borrower and Payee as Lender of
even date with this Note. This Secured
Convertible Note (this "Note") is issued pursuant
to the Credit Agreement. All
capitalized terms used herein but not otherwise defined
herein shall have the
meanings ascribed to them in the Credit Agreement.
1. Maturity. The amount outstanding under this Note will be due and
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payable at
the address of Payee or such other place as Payee
may
designate on the
earlier of: (a) August 1, 2006, or (b) the date upon
which Maker's
subsidiary, Rocky
Mountain Gas, Inc., becomes a public
company (the
"Maturity Date"). No advances shall be made by
Lender
after the Maturity Date.
2. Payment of Interest. Interest on the borrowed
outstanding principal
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balance under
this Note shall be payable on the first
business day
following each
quarter ending September, December, March and
June,
commencing October
1, 2004 and continuing
until the entire principal
amount of this Note is paid in full.
3. Interest Rate. The outstanding principal balance of
this Note shall
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bear interest
at a rate per annum equal to Ten Percent (10%).
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4. Optional Prepayment.
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A. Subject
to paragraph B below, from and after the date
hereof,
Maker shall have the
privilege at any time and from time to time
of prepaying
this Note in whole or in part (each, a
"Prepayment"),
provided that Maker
shall send a notice (each, a
"Prepayment Notice") to Payee at least five (5) days prior to
the
date of each such prepayment (each, a
"Prepayment Date"). There
shall be no premium or penalty in connection with any
Prepayment.
Each Prepayment shall
be applied first against accrued interest,
if any, and then against principal
outstanding. Each Prepayment
Notice shall set forth
the Prepayment Date and the amount of the
Prepayment, specifying
the amount thereof
being applied against
accrued interest
and the amount thereof being applied
against
principal. The
amount of principal
repaid by any Prepayment may
not be re-borrowed.
B. In the event
that Maker sends a Prepayment Notice to Payee, Payee
may elect prior to the Prepayment Date to convert
into common
stock of Rocky Mountain Gas, Inc. ("RMG
Common Stock") pursuant
to Section 5 hereof, all or part of the amount of principal to
be
repaid by the proposed Prepayment instead of receiving such
prepayment.
5. Optional Conversion. At any
time prior to repayment of all amounts due
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under the Note, all or any portion of the principal amount of the
Note
shall be convertible at the option of the Payee into
fully paid and
non-assessable shares of RMG Common Stock. The number of shares of
RMG
Common Stock
that Payee shall be
entitled to receive upon conversion
shall be equal to the number attained by dividing the principal
amount
of the Note being converted by the
Conversion Price. The "Conversion
Price" shall be equal to the Exercise Price (as defined in the
Warrant
Agreement) as
of the date of conversion.
A. In order to
exercise the conversion privilege, shall give written
notice of conversion to Maker stating Payee's election to
convert
this Note or the portion thereof in a minimum of $100,000
increments specified
in said notice. As
promptly as practicable
after receipt of the
notice, Maker shall issue and shall deliver
to Payee a certificate or certificates for the number of
full
shares of RMG Common Stock issuable upon the
conversion of this
Note or portion thereof registered in the name of Payee in
accordance with
the provisions of this Section 5.
B. Each
conversion shall be deemed to have been effected on the date
the conversion
notice shall have been received by Maker, as
aforesaid, and Payee
shall be deemed to have become on said date
the holder of record
of the shares of Common Stock issuable upon
such conversion.
No fractional shares of Common Stock
shall be
issued upon
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conversion of
this Note. Any amounts so converted
shall not be
reborrowed.
6. Security. As security for the repayment of all liabilities
arising
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under this Note, the
Maker hereby grants to Payee a security interest
in and a lien on all of the Collateral (as that term is defined in
the
Pledge and
Security Agreement).
Payee shall have all rights provided
to a secured party under the Pledge and
Security Agreement and under
the Uniform
Commercial Code of the
State of Arizona. The Maker shall
