L. SHAREHOLDERS' EQUITY

Stock Option Plans

Employee Stock Option Plans. In December 2001, the Board of Directors adopted (and the shareholders subsequently approved) the U.S. Energy Corp. 2001 Incentive Stock Option Plan (the "2001 ISOP") for the benefit of USE's employees. The 2001 ISOP (amended with the approval of the shareholders in 2004 and 2007) reserved for issuance 25% of USE's shares of common stock issued and outstanding at any time. The 2001 ISOP had a term of 10 years and expired on December 6, 2011. Options issued under the 2001 ISOP remain exercisable until their expiration date under the terms of the 2001 ISOP.

In June 2012, the Board of Directors adopted (and the shareholders approved) the U.S. Energy Corp. 2012 Equity and Performance Incentive Plan (the "2012 Equity Plan") for the benefit of USE's employees. The 2012 Equity Plan reserved for issuance 1,200,000 shares of USE's common stock. The 2012 Equity Plan has a term of 10 years.

A summary of the Employee Stock Option Plans activity in all plans for the years ended December 31, 2014, 2013 and 2012 is as follows:

	Year ended December 31,
	2014					2013					2012
	Employee Options			Weighted Average Exercise Price		Employee Options			Weighted Average Exercise Price		Employee Options			Weighted Average Exercise Price
Outstanding at beginning
of the period		2,500,949		$	3.60		2,259,282		$	3.80		2,318,399		$	3.94
Granted		--		$	--		270,000		$	2.08		150,000		$	2.32
Forfeited		(3,333	)	$	2.08		--		$	--		(10,000	)	$	2.32
Expired		--		$	--		(28,333	)	$	4.68		(194,950	)	$	4.47
Exercised		(400,203	)	$	2.46		-		$	-		(4,167	)	$	2.52
Outstanding at period end		2,097,413		$	3.82		2,500,949		$	3.60		2,259,282		$	3.80
Exercisable at period end		1,949,080		$	3.95		2,137,619		$	3.85		2,119,282		$	3.90

Weighted average fair
value of options
granted during
the period				$	--				$	1.20				$	1.30

During the year ended December 31, 2014, a total of 400,203 options were exercised by employees by the payment of $1,000 in cash and the surrender or withholding of 228,047 shares valued at $982,000. An additional 14,206 shares valued at $63,000 were withheld for the payment of taxes due upon the exercise of non-qualified options. No employee options were exercised during the year ended December 31, 2013. During the year ended December 31, 2012, a total of 4,167 options were exercised by employees by the withholding of 3,097 shares valued at $10,000. The aggregate intrinsic value of options exercised was $743,000 in 2014, $0 in 2013 and $4,000 in 2012.

Option related compensation expense is recognized over the vesting period of the options and is calculated using the Black Scholes option pricing model. USE initially assumed no forfeitures, but has subsequently reduced the cumulative expense based on historical forfeitures. The total expense associated with employee stock options for the years ended December 31, 2014, 2013 and 2012 was $229,000, $120,000 and $33,000, respectively. As of December 31, 2014, there was $124,000 of total unrecognized expense related to unvested stock options, which is being amortized through 2016.

The following table summarizes information about employee stock options outstanding and exercisable at December 31, 2014:

Grant Price Range		Employee Options Outstanding at December 31, 2014		Weighted average remaining contractual life in years		Weighted average exercise price		Employee Options exercisable at December 31, 2014		Weighted average exercise price

$	2.08		270,000		8.74	$	2.08		166,668	$	2.08
$	2.09 - $2.32		123,333		7.53	$	2.32		78,332	$	2.32
$	2.33 - $2.52		405,312		3.73	$	2.52		405,312	$	2.52
$	2.53 - $3.86		273,768		0.79	$	3.86		273,768	$	3.86
$	3.87 - $4.97		1,025,000		2.57	$	4.97		1,025,000	$	4.97
			2,097,413		3.65	$	3.82		1,949,080	$	3.95

The following table sets forth the number of options available for grant as well as the intrinsic value of the options outstanding and exercisable at:

	At December 31,
	2014		2013		2012
Available for future grant		790,000		790,000		1,060,000
Aggregate intrinsic value of options outstanding	$	--	$	1,661,000	$	--
Aggregate intrinsic value of options exercisable	$	--	$	1,073,000	$	--

Director 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 SOP") for the benefit of USE's non-employee directors and advisory board members. The 2008 SOP reserved for issuance 1.0% of USE's shares of common stock issued and outstanding at any time. The 2008 SOP has a term of 10 years and expires on June 27, 2018.

As of December 31, 2014, there were 178,666 director options outstanding to purchase shares of USE's common stock. USE values these options using the Black-Scholes option pricing model and expenses that value over various terms based on the nature of the award. Activity for the years ended December 31, 2014, 2013 and 2012 for director options is presented in the following table:

	Year ended December 31,
	2014					2013					2012
	Director Options			Weighted Average Exercise Price		Director Options			Weighted Average Exercise Price		Director Options			Weighted Average Exercise Price
Outstanding at beginning
of the period		146,000		$	2.93		150,000		$	3.05		210,000		$	3.10
Granted		60,000		$	3.77		36,000		$	2.08		80,000		$	2.78
Forfeited		--		$	--		--		$	--		--		$	--
Expired		--		$	--		(40,000	)	$	2.60		(120,000	)	$	3.05
Exercised		(27,334	)	$	2.53		-		$	-		(20,000	)	$	2.52
Outstanding at period end		178,666		$	3.28		146,000		$	2.93		150,000		$	3.05
Exercisable at period end		82,333		$	3.30		56,668		$	3.46		63,335		$	3.01

Weighted average fair
value of options
granted during
the period				$	2.27				$	1.20				$	1.59

During the year ended December 31, 2014, a total of 27,334 options were exercised by outside directors by the payment of $8,000 in cash and the withholding of 15,000 shares valued at $61,000. No director options were exercised during the year ended December 31, 2013. During the year ended December 31, 2012, a total of 20,000 director options were exercised by the payment of $50,000 in cash. The aggregate intrinsic value of options exercised was $45,000 in 2014, $0 in 2013 and $17,000 in 2012.The total expense associated with director stock options for the years ended December 31, 2014, 2013 and 2012 was $89,000, $64,000 and $69,000, respectively. As of December 31, 2014, there was $147,000 of total unrecognized expense related to unvested stock options, which is being amortized through 2017.

The following table summarizes information about director options outstanding and exercisable at December 31, 2014:

Grant Price Range		Director Options Outstanding at December 31, 2014		Weighted average remaining contractual life in years		Weighted average exercise price		Director Options exercisable at December 31, 2014		Weighted average exercise price

$	2.08		27,000		8.50	$	2.08		9,000	$	2.08
$	2.09 - $2.32		6,666		7.53	$	2.32		3,333	$	2.32
$	2.33 - $2.52		10,000		3.73	$	2.52		10,000	$	2.52
$	2.53 - $2.85		45,000		7.23	$	2.85		30,000	$	2.85
$	2.86 - $4.19		80,000		8.90	$	3.88		20,000	$	4.19
$	4.20 - $5.04		10,000		5.48	$	5.04		10,000	$	5.04

			178,666		7.88	$	3.28		82,333	$	3.30

These options are held by current and former directors of USE.

The following table sets forth the number of options available for grant as well as the intrinsic value of the options outstanding and exercisable at:

	At December 31,
	2014		2013		2012
Available for future grant		101,811		131,359		126,526

Aggregate intrinsic value of options outstanding	$	--	$	142,000	$	--
Aggregate intrinsic value of options exercisable	$	--	$	35,000	$	--

USE has computed the fair values of its employee and director options using the Black Scholes pricing model and the following weighted average assumptions:

	For the years ended December 31,
	2014	2013	2012
Risk-free interest rate	2.06%	1.66%	0.82% to 1.41%
Expected lives (years)	6.0	6.0	5.0 to 6.0
Expected volatility	65.45%	62.59%	61.87% to 63.59%
Expected dividend yield	--	--	--

Employee Stock Ownership Plan

The Board of Directors of USE adopted the U.S. Energy Corp. 1989 Employee Stock Ownership Plan ("ESOP") in 1989, for the benefit of all USE's employees. Employees become eligible to participate in the ESOP after one year of service which must consist of at least 1,000 hours worked. After the employee becomes a participant in the plan, he or she must have a minimum of 1,000 hours of service in each plan year to be considered for allocations of funding from USE. Employees become 20% vested after three years of service and increase their vesting by 20% each year thereafter until such time as they are fully vested after seven years of service.

An employee's total compensation paid, which is subject to federal income tax, up to an annual limit of $260,000 for the year ended December 31, 2014, $255,000 for the year ended December 31, 2013 and $250,000 for the year ended December 31, 2012, is the basis for computing how much of the total annual funding is contributed into his or her personal account. An employee's compensation divided by the total eligible compensation paid to all plan participants is the percentage that each participant receives on an annual basis. USE funds 10% of all eligible compensation annually in the form of common stock and may fund up to an additional 15% to the plan in common stock. As of December 31, 2014, all shares of USE's stock that have been contributed to the ESOP have been allocated and are vested.

During the year ended December 31, 2014, the Board of Directors of USE approved a contribution of 141,721 shares to the ESOP at the price of $1.48 for a total expense of $209,000. This compares to contributions to the ESOP during the years ended December 31, 2013 and 2012 of 53,276 and 161,624 shares to the ESOP at prices of $3.76 and $1.50 per share, respectively. The expense for the contributions during the years ended December 31, 2013 and 2012 were $200,000 and $243,000, respectively.