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Shareholders' Equity

12 Months Ended

Dec. 31, 2017

Stockholders' Equity Note [Abstract]

Shareholders' Equity

11.

SHAREHOLDERS’ EQUITY

Preferred Stock

The Company’s articles of incorporation authorize the issuance of up to 100,000 shares of preferred stock, $0.01 par value. Shares of preferred stock may be issued with such dividend, liquidation, voting and conversion features as may be determined by the Board of Directors without shareholder approval. The Company is authorized to issue 50,000 shares of Series P preferred stock in connection with a shareholder rights plan that expired in 2011. As discussed in Note 6, in February 2016 the Board of Directors approved the designation of 50,000 shares of Series A Convertible Preferred Stock in connection with the disposition of the Company’s mining segment.

Warrants

On December 21, 2016, the Company completed a registered direct offering of 1,000,000 shares of common stock at a net gross price of $1.50 per share. Concurrently, the investors received warrants to purchase 1,000,000 shares of Common Stock of the Company at an exercise price of $2.05 per share, subject to adjustment, for a period of five years from closing. The total net proceeds received by the Company was approximately $1.32 million. The fair value of the warrants upon issuance was $1.24 million, with the remaining $0.08 million being attributed to common stock. The warrants contain a dilutive issuance and other liability provisions which cause the warrants to be accounted for as a liability. Such warrant instruments are initially recorded as a liability and are accounted for at fair value with changes in fair value reported in earnings. As of December 31, 2017 the Company had a warrant liability of $1.2 million.

Stock Option Plans

Employee Stock Option Plans. In December 2001 the Board of Directors adopted, and the Company’s shareholders subsequently approved, the U.S. Energy Corp. 2001 Incentive Stock Option Plan (the “2001 ISOP”). The 2001 ISOP, as subsequently amended and approved by the Company’s shareholders, reserved for issuance 25% of the Company’s shares of common stock issued and outstanding at any time. The 2001 ISOP had a term of 10 years which expired in December 2011. Accordingly, no options may be granted under the 2001 ISOP; as of December 31, 2017, options for a total of 67,558 shares are outstanding under the 2001 ISOP and expire on various dates through September 2018.

In June 2012 the Board of Directors adopted, and the shareholders subsequently approved, the U.S. Energy Corp. 2012 Equity and Performance Incentive Plan (the “2012 Equity Plan”). The 2012 Equity Plan, as amended and approved by shareholders in June 2015, and as further amended and approved by shareholders in July 2017, reserves for issuance to the Company’s employees and Directors a total of 1,533,333 shares of the Company’s common stock. The 2012 Equity Plan has a term of 10 years which expires in June 2022. As of December 31, 2017, options for a total of 292,350 shares are outstanding under the 2012 Equity Plan and expire on various dates through January 2025.

Director and Advisory Board Members Option Plan. In June 2008 the Board of Directors adopted, and the shareholders subsequently approved, the 2008 Stock Option Plan for U.S. Energy Corp. Independent Directors and Advisory Board Members (the “2008 Director SOP”). The 2008 Director SOP reserved for issuance 1.0% of the Company’s shares of common stock issued and outstanding at any time. The 2008 Director SOP had an original term of 10 years. However, as a result of shareholder approval in June 2015 of an amendment to the 2012 Equity Plan, no additional options may be granted under the 2008 Director SOP. As of December 31, 2017, options for a total of 29,779 shares are outstanding under the 2008 Director SOP and expire on various dates through September 2024.

A summary of the combined activity in the 2001 ISOP, the 2012 Equity Plan, and the 2008 Director SOP for the years ended December 31, 2017, 2016 and 2015 is as follows:

		2017								2016								2015
		Shares				Price ⁽¹⁾				Shares				Price ⁽¹⁾				Shares				Price ⁽¹⁾

Outstanding, beginning of year			390,525			$	20.64				390,525			$	20.64				2,276,079			$	3.78
Granted			170,000				1.00				-				-				340,711				1.50
Forfeited			-				-				-				-				-				-
Expired			(170,838	)			29.82				-				-				(273,768	)			3.86
Exercised			-				-				-				-				-				-

Outstanding, end of year			389,687			$	8.05				390,525			$	20.64				2,343,022			$	3.44
Shares restated after 6 to 1 split			389,687			$	8.05				390,525			$	20.64				390,525			$	20.64

Exercisable, end of year			274,132			$	10.79				376,084			$	20.79				2,194,022			$	3.53
Shares restated after 6 to 1 split			-			$	-				-			$	-				365,693			$	21.17

⁽¹⁾

Represents the weighted average price.

No stock options were exercised during the years ended December 31, 2017, 2016, or 2015.

The following table summarizes information for stock options outstanding and for stock options exercisable at December 31, 2017:

Options Outstanding																		Options Exercisable
Number		Exercise Price												Remaining				Number				Weighted
of		Range								Weighted				Contractual				of				Average
Shares		Low				High				Average				Term (years)				Shares				Exercise Price

56,786		$	9.00			$	9.00			$	9.00				7.0				51,231			$	9.00
49,504			12.48				12.48				12.48				5.5				49,504				12.48
98,396			13.92				17.10				15.01				1.8				98,396				15.01
15,001			22.62				30.24				24.03				5.5				15,001				24.03
60,000			0.72				0.72				0.72				9.6				60,000				0.72
110,000			1.16				1.16				1.16				9.9				-				-

389,687		$	0.72			$	30.24			$	8.05				6.7				274,132			$	10.79

In connection with severance agreements entered into with employees during 2015, an aggregate of 1,617,689 outstanding stock options would have expired upon termination of employment. However, the Company agreed to permit exercise until the original expiration dates specified in the option agreements. Accordingly, the Company determined the fair value of the options at the date of modification and recorded additional compensation expense which amounted to an aggregate of $0.1 million.

For the years ended December 31, 2017, 2016 and 2015, total stock-based compensation expense associated with stock options, including the modification charge discussed above, was $0.3 million, $0.2 million, and $0.9 million, respectively. As of December 31, 2017, there was $0.1 million of unrecognized expense related to unvested stock options, which will be recognized as stock-based compensation expense through November 2019. In estimating the fair value of options, the Company used the Black-Scholes option-pricing model with the following weighted average assumptions:

		2017				2016

Expected lives (in years)			10.0				-
Risk-free interest rate			2.33	%			-
Expected volatility			80.0	%			-
Expected dividend yield			0.00	%			-

On September 23, 2016, the Board of Directors granted restricted stock to each member of the Board for 58,500 shares per Board member for an aggregate grant of 351,000 shares. In connection with the resignations of four members of the Company’s Board of Directors, the restricted stock grants were amended and the members of the Board of Directors subsequently agreed to accept 33,332 fully-vested shares each, in lieu of the 58,500 share grants for a net total of 199,992 shares. The closing price of the Company’s common stock on the grant date was $1.05, resulting in an aggregate compensation charge of $0.2 million. As of December 31, 2017, the Company had expensed the entire aggregate compensation charge over 2017 and there was $0 of unrecognized expense related to the September 23, 2016 grants.

Employee Stock Ownership Plan

The Board of Directors of the Company adopted the U.S. Energy Corp. 1989 Employee Stock Ownership Plan (“ESOP”) in 1989, for the benefit of all the Company’s employees. Employees were not eligible for ESOP contributions to the extent that their annual taxable compensation exceeded $0.3 million for 2015. In September 2016, the Company’s Board of Directors agreed to terminate the ESOP, which resulted in a distribution of the remaining shares held by the ESOP to the vested employees during the first quarter of 2017. For the year ended December 31, 2017, we did not incur any stock-based compensation expense related to the ESOP.