2008 Stock Option Plan for U. S. Energy Corp. Indpendent Directors and Advisory Board Members

This Stock Option Plan (hereafter the "Plan") of U. S. Energy Corp. (the "Company") for Independent Directors and Advisory Board members, is intended to advance the Company by providing an  to obtain a proprietary interest to those persons who serve as Independent Directors or Advisory Board members for the Company.

a.           For purposes of this Plan, "Board” or “Committee" shall mean the Company's Board of Director members who are not Independent Directors or Advisory Board members as defined by NASDAQ.  The Committee shall be composed of not less than three persons.  No Independent Board or Advisory Board members are allowed to vote on the issuance of options under this Plan.

b.           "Code" shall mean the Internal Revenue Code of 1986 as amended from time to time, and the rules and regulations promulgated thereunder.

c.           "Common Shares" shall mean shares of the Company's Common Stock, or, in the event that the outstanding Common Shares are hereafter changed into or exchanged for different shares or securities of the Company, such other shares or securities.

d.           "Company" shall mean U. S. Energy Corp., a Wyoming Corporation, and any parent or subsidiary of such corporation, as the terms "parent" and "subsidiary" are defined in Sections 425(e) and (f) of the Code.

e.           "Fair Market Value" shall mean, with respect to the date a given stock option is granted or exercised, the average of the highest and lowest reported sales prices of the Common Shares as reported in any trading market where the Company then is listed, or if there were no transactions in the Common Shares on such day, then the last preceding day on which transactions took place. If the Common Shares of the Company are not traded in any public market, then fair value may be established by reference to sales of Common Shares by the Company, or to sales by shareholders of outstanding Common Shares held by them, or to sales by third parties of outstanding Common Shares which had been owned by shareholders of record (for example, sales by a trustee in bankruptcy or a secured creditor or by order of court in domestic relations or probate proceedings). The above notwithstanding, the Committee may determine the Fair Market Value in such other manner as it may deem more equitable for Plan purposes or as is required by applicable laws or regulations. The Committee always shall take into account and duly consider developments in the Company since the date of the sale or sales being used to determine Fair Market Value, including without limitation material changes in earnings per Common Share, contracts for new business, and other factors.

f.           " Stock Option" or "Option" shall mean a non-qualified stock option issued under the Plan which is not intended to meet the terms of Code Section 422A for qualified options (i.e., a "Non-Qualified Stock Option").

h.           "Stock Option Agreement" shall mean the agreement between the Company and the Optionee under which the Optionee may purchase Common Shares.

i.           "Vesting" and "vested" shall mean the times(s) when options are exercisable as determined by the Committee (or the Board if no Committee has been established), subject to the provisions of this Plan.

3.1           The Committee  shall administer the Plan with full power to grant Stock Options, and construe and interpret the Plan, establish rules and regulations and perform all other acts it believes reasonable and proper.

3.2           The determination of those eligible to receive Options, and the amount and terms and conditions of such Options shall rest in the sole discretion of the Committee, subject to the provisions of this Plan. Eligibility and vesting shall be determined under Article V.

3.3           The Committee may cancel any Options if an Optionee conducts herself or himself in a manner which the Committee in good faith determines to be not in the best interests of the Company, as set forth in Section 11.7.

3.4           The Committee, may correct any defect, supply any omission, or reconcile any inconsistency in the Plan, or in any granted Stock Option, in the manner and to the extent it shall deem necessary to carry it into effect.

3.5           Any decision made, or action taken, by the Committee arising out of or in connection with the interpretation and administration of the Plan shall be final and conclusive.

3.6           Meetings of the Committee shall be held at such times and places as shall be determined by the Committee. Notice of meetings shall be made in the same manner as required for Board meetings under the Bylaws. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present shall decide any question brought before that meeting. In addition, the Committee may take any action otherwise proper under the Plan by the signed affirmative vote, taken without an actual meeting, of all members. All proceedings of the Committee shall be evidenced by complete and detailed minutes, signed by the Committee members.

3.7           No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on her or his own part, including, but not limited to, the exercise of any power or discretion given to her or him under the Plan, except those resulting from her or his own bad faith, gross negligence, or willful misconduct.

3.8           It is understood that the options granted hereunder shall be non-qualified options, i.e., options that do not qualify as "incentive stock options" under Section 422A of the Code.

3.9           Management of the Company shall supply full and timely information to the Committee on all matters relating to eligible Independent Directors and Advisory Board members, their duties and performance, and current information on death, retirement and disability or other termination of service of Optionees, and such other pertinent information as the Committee may require. The Company shall furnish the Committee with clerical and other assistance as necessary in performance of its duties hereunder.

4.1            Reserved Shares. The total number of Common Shares of the Company available for issuance under the Plan shall always be equal to one percent (1%) of the Company’s total issued and outstanding shares of Common Shares.  The reserved shares may be either authorized but unissued, or previously issued and subsequently reacquired.

4.2            Shares Under Expired or Terminated Options. If an Stock Option or portion thereof shall expire or terminate for any reason without having been exercised in full, the unpurchased shares shall be available for future grants of Stock Options.

5.1            Eligibility. Stock Options may be granted to Independent Directors and Advisory Board members of the Company as determined by the Committee.

The Committee shall determine the length of service required for each Optionee to be eligible to participate in this Plan.

5.2            Vesting. Subject to Section 6.8, Stock Options generally shall be exercisable at the rates established by the Committee.

5.3            Allocation. The number of Stock Options to be issued in any calendar year shall be in the discretion of the Committee.

6.1            Form of Option Agreement. All Stock Options shall be evidenced by agreements in the form of Attachment A hereto, or in such other form as may be duly approved pursuant to this Plan. Any such other form shall be subject to applicable provisions of the Plan, and such other provisions as the Committee may adopt, but always shall include the provisions set forth in Sections 6.2 through 6.10 below.

6.2            Price. The option price per share for Stock Options shall be equal to or more than 100% of the Fair Market Value of a Common Share on the grant date.

6.3            Time of Grant. All Stock Options must be granted within 10 years from the date this Plan is adopted by shareholders. An Stock Option will remain exercisable until termination of the Option, even if the Plan itself has been terminated.

6.4            Time of Exercise. No Stock Option  shall be exercisable after the expiration of ten years from the date such is granted. Subject to Article V, the Committee may establish installment exercise terms for an Stock Option, such that the Option becomes fully exercisable over a series of cumulating portions.

If an Optionee shall not, in any given installment period, purchase all the Common Shares available within such period, such Optionee's right to purchase any Common Shares not purchased in such installment period shall continue until the expiration or sooner termination of such Option, unless there is a contrary provision in the Stock Option Agreement.

6.5            Exercise. An Stock Option shall be exercised by delivery of (a) a written notice of exercise (in the form of Attachment B hereto) to the Company specifying the number of Common Shares to be purchased, and (b) payment of the full price of