Unassociated Document

Terms of the Convertible Securities

Initial Holders	Silver Point and its designees.	Kenmont and Credit Suisse Securities	VTEX and its designees	VTEX and its designees
Title of Security:	Series G Warrants (the “Silver Point Warrants”)	Series H Warrants and Series I Warrants	Series D Common Stock Purchase Warrants, Series E Common Stock Purchase Warrants and Series F Common Stock Purchase Warrants	100 Class B Membership Units issued by Overseas
Number of Shares:	4,488,780^{1, 2}	585,220 (Series H Warrants) and 600,000 (Series I Warrants)¹.	166,667 (Series D Warrants), 166,667 (Series E Warrants) and 166,666 (Series F Warrants)³	1,900,000⁴
Exercise Price:	$0.01	$0.01 (Series H Warrants) and $4.37 (Series I Warrants)	$8.00 (Series D Warrants), $9.00 (Series E Warrants) and $10.00 (Series F Warrants)	Delivery of the VTEX Units
Anti-Dilution Protection: ¹⁰	Yes.⁵	Yes.⁶	No.	No.

^{In
the event stockholder approval is not obtained by November
6, 2006,
subject to an additional 59 days in specified circumstances
(the “Approval
Deadline”),
(i) certain of the Warrants will terminate, (ii) the other
Warrants will
be exercisable for a reduced number of Transaction Shares
and (iii) we
will be required to pay liquidated
damages.}

^{Plus
warrants to acquire an additional 3,998,000 shares of our
common stock in
the event that we do not obtain the guaranty by our majority
owned
subsidiary, Biogas, of the Silver Point financing arrangements
by December
31, 2006 (which guaranty requires the consent of Countryside
and of
Cinergy. Inasmuch as we are currently involved in litigation
with
Countryside and Countryside has advised Biogas that Biogas
has not
provided Countryside with certain financial information as
required by the
Countryside financing documents, no assurance can be given
that
Countryside will consent to Biogas providing such
guaranty).}

³	^{In the event stockholder approval is not obtained by the Approval Deadline, the Warrants will terminate.}

⁴	^{In the event stockholder approval is not obtained by the Approval Deadline, the VTEX Units will only be convertible into 900,000 shares.}

⁵

^{The
exercise price is subject to adjustment on a weighted average
basis (i)
for issuances by the Company, with certain exceptions, of
common stock,
options, warrants and other rights to acquire our common
stock, at a price
below the greater of $ 3.00 (subject to adjustment) or fair
market value
(as determined pursuant to the warrant) of a share of our
common stock,
and (ii) for acquisitions of such securities at a price greater
than fair
market value. A reduction of the exercise price generally
results in a
proportionate increase in the number of Transaction Shares
issuable upon
exercise of the these Warrants in their entirety (e.g., if
the exercise
price is halved the number of Transaction Shares is doubled)
.}

Exercise Period:	From the approval of the issuance of the Transaction Shares until February 7, 2014.⁷	From the approval of the issuance of the Transaction Shares until February 7, 2014⁷.	From the approval of the issuance of the Transaction Shares until August 7, 2011⁷.	From the earlier to occur of the third anniversary of the closing or the date on which the average market price of our common stock exceeds $11.00 per share for 20 consecutive trading days. In addition, until August 7, 2012 we have the right to cause the VTEX Units to be converted into our common stock once the average market price, determined as described in the previous sentence, exceeds $14.30^7,⁸
Right to Designate Director:	Yes. ⁹	No	No.	No
Registration Rights:	shelf, demand and/or piggyback registration rights for the resale of the Transaction Shares.	shelf, demand and/or piggyback registration rights for the resale of the Transaction Shares.	demand and/or piggyback registration rights for the resale of the Transaction Shares.	demand and/or piggyback registration rights for the resale of the Transaction Shares.

⁶

^{The
exercise price is subject to adjustment on a weighted average
basis for
our acquisition of our common stock or of rights to acquire
our common
stock, for more than fair market value. A reduction of the
exercise price
generally results in a proportionate increase in the number
of Transaction
Shares issuable upon exercise of these Warrants in their
entirety.}

⁷	^{For the consequence of the failure to obtain our stockholders’ approval of the issuance of the Transaction Shares, see “Consequence of our Stockholders’ Failure to approve the Transaction Shares.”}

⁸	^{Notwithstanding the foregoing, the VTEX Units are not convertible until the issuance of the Transaction Shares is approved by our stockholders.}.

⁹	^{Holders of the Silver Point Warrants are entitled to designate, at their option, one person to either serve as a member of the board of directors or as an observer at board meetings.}

¹⁰	^{^{All the Convertible Securities contain standard anti-dilutions provisions with respect to stock dividends, stock splits and the like.}}

Consequences of our Stockholders’ Failure to approve the Transaction Shares

If stockholder approval is not obtained by November 6, 2006, subject to an additional 59 days in specified circumstances, the following consequences will result:

With respect to Silver Point:

·	the money borrowed pursuant to the Silver Point financing arrangement becomes due and payable,

·	we are obligated to pay Silver Point an additional $40 million; and

Silver Point will be entitled to exercise the Silver Point Warrants to acquire up to (A) the maximum number of shares permitted under Nasdaq’s rules less (B) the number of shares potentially issuable to VTEX under the VTEX Units and the number of shares potentially issuable to Credit Suisse Securities and Kenmont under the Kenmont/CS Warrants, but in no event less than 2,076,712 shares of our common stock.

At Kenmont’s option, Kenmont:

·	receives $6,102,200 from us and returns all of the Series H and Series I Warrants that were issued to it;

·	receives $4,227,200 from us, retains Series H Warrants to acquire up to 306,212 shares and return all of the other Warrants to us; or

·	if, notwithstanding the failure to obtain stockholder approval of all of the Financing Warrants, such stockholder approval is obtained in respect of Kenmont’s Warrants, to retain Kenmont’s Warrants.

At Credit Suisse Securities’ option, Credit Suisse Securities:

·	receives $1,125,000 from us and returns all of the Series H and Series I Warrants that were issued to it;

·	receives $687,500 from us and retain Series H Warrant to acquire up to 88,000 shares and return all of the other Warrants to us; or

·	if, notwithstanding the failure to obtain stockholder approval of all of the Financing Warrants, such stockholder approval is obtained in respect of Credit Suisse Securities’ Warrants, to retain Credit Suisse Securities’ Warrants.

With respect to VTEX:

·	The VTEX Warrants will terminate and

·	the VTEX Units may only be converted into up to 900,000 shares of common stock.

Acquisition of the UK Assets

The Gas Licenses and certain related gas gathering and processing assets were owned (directly and indirectly) by Viking Petroleum UK Limited (“Viking Petroleum”) and by Scottish Power Generation Limited (“Scottish Power Generation”), an affiliate of Scottish Power Energy Management (“Scottish Power”). The Knapton Generating Station and the other related assets were owned by Scottish Power Generation. As part of the UK Transaction, we acquired a 99% interest in the Gas Licenses and the related assets owned by Viking Petroleum by purchasing all of the outstanding equity interests in Viking Petroleum from the owners of those equity interests. All of the equity interests in Viking Petroleum are now owned by UK Energy Systems Limited (“UK Energy”), which is a wholly-owned subsidiary of GBGH, which is 79% owned by our subsidiary, Overseas. (Twenty-one percent of GBGH is owned by Marathon Capital Holdings (UK), L.L.C.). The Knapton Generating Station, the remaining 1% interest in the Gas Licenses and certain related assets owned by Scottish Power Generation were purchased by RGS Energy Limited (“RGS Energy”), an English company which is a wholly-owned subsidiary of UK Energy.

The following table summarizes certain information regarding the acquisition of the UK Assets:

Purchaser	Sellers	Assets Acquired	Purchase Price
UK Energy	Viking, LLC and TCW Global Project Fund II, Ltd.	Approximately 65% of the equity interest in Viking Petroleum	Repayment of approximately $40 million of indebtedness of Viking Petroleum and its affiliates
Overseas	VTEX Energy, Inc.	All of the issued and outstanding shares of common stock of Viking International Petroleum Limited, which held approximately 25% equity interest in Viking Petroleum	Class B Membership Units in Overseas and our warrants convertible or exchangeable into an aggregate of 2.4 million shares of our common stock. See “Transactions with VTEX Energy, Inc.”
UK Energy	Individuals with whom we were unaffiliated	Approximately 10% equity interest in Viking Petroleum	Approximately $400,000.
RGS Energy Limited	Scottish Power Generation	42 MW gas-fired power plant, certain gas gathering and processing assets and a 1% interest in the Gas Licenses	Approximately $29.6 million

As a result of the UK Transaction, GBGH acquired:

·	Four natural gas extraction licenses and two gas exploration licenses with respect to onshore natural gas reserves located in the North Yorkshire region of Northern England and related gas gathering and processing assets (the “Gas Project”):

·	42.8 Bcf (66%) of proved reserves and 21.9 Bcf (34%) of probable natural gas reserves and additional undeveloped gas prospects

·	Six gas fields: four producing (Kirby Misperton, Marishes, Pickering and Malton) and two to be developed (Wykeham, Lockton);

·	An associated 42 MW nameplate capacity gas-fired power generating facility and related gas pipelines and collection system (the “Knapton Plant” and together with the Gas Project, the “Project”).

·	Ancillary equipment, including all gas collection and processing equipment

Gaffney Cline & Associates, an international oil and gas consulting firm, reported that the cumulative production from the currently developed gas fields as of September 30, 2005 was 32.3 Bcf out of an estimated ultimate proved recover of 75.1 Bcf of initial gas in place, with remaining proved reserves of 42.8 Bcf. Management believes there is a likelihood of additional volumes of gas being located through more exploration and work on the undeveloped fields.

The Knapton Plant, which is located on site, is a single cycle, gas- fired GE LM-6000 combustion turbine placed in service in 1994. Its power plant, pipelines, gas collection and processing equipment and well sites have been operated and maintained on behalf of Scottish Power Generation by Viking Gas.

Following the acquisition, we commenced a 36 month project (the “Expansion”) to improve and expand the Project which is scheduled to be completed in two phases, Phase I and Phase II, for an aggregate cost of approximately $46.3 million:

Phase I is scheduled to be completed approximately in March 2007 and includes (i) the installation of compression equipment at the producing gas fields in order to increase the production to approximately 7.0 MMcsf/d, (ii) the resolution of certain operational issues at the Knapton Plant, thereby enabling a continuous operation of the Knapton Plant at near capacity on a basis of 24 hours per day and (iii) new drilling and well work on the producing wells. The estimated cost for Phase I is $12 million.

Phase II will commence upon the completion of Phase I and is scheduled to be completed within approximately 29 months from its commencement. During Phase II, we will fully develop the gas fields with a target production upon completion of approximately 20 MMscf/d and construct a pipeline to connect the Gas Project to the UK National Transmission System (“NTS”) network. The estimated cost for Phase II is $34.3 million.

All the electricity and gas produced by the Project will be sold to Scottish Power pursuant to a Power Purchase Agreement with Scottish Power (the “Power Purchase Agreement”) and a Gas Sales Agreement with Scottish Power (the “Gas Sales Agreement”) with a combined 12-year term. During the Expansion, the Project’s revenues will be derived from power sales under the Power Purchase Agreement. Upon completion of Phase II, it is anticipated that the Project will primarily sell gas pursuant to the Gas Sales Agreement. For three years following connection to the NTS, Scottish Power has the right to call for power to be delivered where it is economically advantageous for both parties to do so whereby the Project will both be paid for the gas under the terms of the Gas Sales Agreement and collect additional payments from Scottish Power relating to the electricity sales.

Natural gas will be

During the period prior to connection to the NTS network, gas will be converted into electricity at the Knapton Plant and sold to Scottish Power under the Power Purchase Agreement. Following connection to the NTS network, all gas will be sold to Scottish Power under the Gas Sales Agreement. For three years following connection to the NTS network, Scottish Power has the option to have the Project generate electricity at the Knapton Plant if it is economically advantageous to both parties to do so. If this option is exercised, the Project will both be paid for the gas in under the terms of the Gas Sales Agreement and collect additional payments from Scottish Power relating to the electricity sales.

·	Excess gas production may be sold to Scottish Power at a price to be agreed, if capacity becomes available.

We also entered into various hedging and similar arrangements with respect to, among other things, gas and electricity prices, interest and currency rates, and carbon emission allowances. Our gas and electric hedges assure us that we will receive not less than specified prices for the sale of electricity from the Knapton Generating Station until August 2009 and for the sale of gas from the facility in 2010 and 2011. Our currency and interest rate hedges ensure that the results of operations with respect to our UK activities will not be adversely impacted, until at least August 2009, as a result of fluctuation in such rates. Our hedge with respect to carbon emission allowances ensures that we will be able to purchase such allowances, if needed, at fixed prices through December 31, 2007.

Financing Arrangements

In order to provide funds for the acquisition of the UK Assets and working capital for the operation and maintenance of the UK Assets and for the Expansion, GBGH borrowed $143,000,000 through financing arranged by Credit Suisse and Overseas borrowed approximately $23.3 million through financing arranged by Silver Point. Overseas contributed the proceeds from the Silver Point financing to GBGH. GBGH used approximately $70.4 million of the proceeds from both financings to purchase the UK Assets. GBGH used or will use the remainder of the proceeds of the financings to fund reserves for debt service, the operation and maintenance of the UK Assets and to pay costs and expenses associated with the UK Acquisition, its financing and the Expansion.

Credit Suisse Financing Arrangements

GBGH borrowed $113,500,000 from certain lenders pursuant to a First Lien Credit Agreement with such lenders and Credit Suisse, and borrowed $29,500,000 from certain lenders pursuant to a Second Lien Credit Agreement with such lenders and Credit Suisse.

The following is a summary of the material terms and conditions of the Credit Suisse financing arrangements:

	First Lien Credit Agreement	Second Lien Credit Agreement
Borrower:	GBGH	GBGH
Amount Borrowed:	$113,500,000	$29,500,000
Stated Maturity:	August 7, 2013	August 7, 2014
Interest Rate:	GBGH is permitted to elect from time to time to have portions of the loan treated as either a base rate advance (which advances generally bear interest at 4.5% plus the higher of (i) Credit Suisse’s prime rate in New York and (ii) ½ of one percent above the federal funds rate) or a Eurodollar rate advance (which advances generally bear interest at the British Bankers’ Association Interest Settlement Rates for deposits in dollars plus 5.5% percent). At present, the loan is a eurodollar rate loan and bears interest, payable quarterly, at 11.25% per annum.	The loan also bears additional interest at 6% per annum which will be capitalized and added to the outstanding principal amount of the loan on a quarterly basis. For calculating the interest that is due on a current basis, GBGH may elect from time to time to have portions of the loan treated as either a base rate advance (which advances generally bear cash interest at 1.5% plus the higher of Credit Suisse’s prime rate in New York and ½ of one percent above the federal funds rate) or a Eurodollar rate advance (which advances generally bear cash interest at the British Bankers’ Association Interest Settlement Rates for deposits in dollars plus 2.5 percent rate). At present, the loan is a eurodollar rate loan and bears interest, payable quarterly, at 14% per annum payable on a current basis at the end of each interest period.
Collateral:	The obligations of GBGH are secured on a first priority basis: (i) by a first priority security interest in substantially all of the assets of GBGH and its subsidiaries, including GBGH’s equity interests in UK Energy, and (ii) by Overseas’ first priority pledge of all of its interest in GBGH. In addition, GBGH and its subsidiaries were required to establish reserve accounts and to maintain in such accounts certain funds for various purposes, such as the Expansion, operating costs and maintenance.	The obligations of GBGH are secured on a second priority basis as follows: (i) GBGH granted Credit Suisse a second priority security interest in substantially all of the assets of GBGH and its subsidiaries, and (ii) Overseas gave a second priority pledge of all of its interest in GBGH. In addition, GBGH and its subsidiaries were required to establish accounts and to maintain in such accounts certain funds for various purposes, such as the Expansion, operating costs and maintenance.

Prepayments:		GBGH, in its discretion, may prepay the loan in whole or in part, together with a prepayment penalty. In addition, until the loan is fully prepaid GBGH is required to prepay the loan at the end of each quarter in an amount equal to (i) prior to completion of the Expansion, 90% of the excess cash flow for such quarter from revenues of GBGH and its subsidiaries generated by the UK Assets, after payment of all operating and maintenance expenses of the UK Assets and debt service for Credit Suisse financings and replenishment of certain required reserves (“Excess Cash Flow”), and (ii) after the completion of the Expansion, 100% of the Excess Cash Flow for such quarter. GBGH is also required to repay the loan in certain other specified circumstances, including a casualty or condemnation with respect to the UK Assets.	GBGH, in its discretion, may, but only after the repayment of the first lien loan, prepay the second lien loan in whole or in part, plus a make whole or prepayment penalty. In addition, after the first lien loan is repaid in full GBGH is required to prepay the second lien loan at the end of each quarter in an amount equal to 100% of the Excess Cash Flow for such quarter until the second lien loan is fully repaid. GBGH is also required to make prepayments in specified circumstances, including a casualty or condemnation with respect to the UK Assets.
Covenants:		These arrangements generally (A) prohibit GBGH and its subsidiaries from (i) incurring or allowing any liens or indebtedness, (ii) selling their assets, (iii) making investments, (iv) making distributions to their equity holders, (v) prepaying indebtedness (other than amounts owing pursuant to the Credit Suisse financing arrangements) and (B) require GBGH to maintain certain debt service coverage ratios, a total leverage ratio, a proven reserve coverage ratio and a net debt to proven reserve ratio.	Generally the same as described under “First Lien Financing - Covenants”.

Equity Support Agreement

In connection with the First and Second Lien Credit Agreements we and GBGH entered into an Equity Support Agreement (the “Equity Support Agreement”) whereby we agreed to provide certain funding in certain circumstances to GBGH as follows:

·	₤2,659,576 (approximately $5,000,000 based on the exchange rate in effect on or about August 7, 2006) no later than September 7, 2007 in one of the collateral accounts to cover certain of GBGH’s major maintenance expenses,

·	to the extent that there are insufficient funds in the reserve account for Expansion, we shall provide the shortfall (any such funding, an “Additional Expansion Cost Contribution”),

·	upon the occurrence of an event of default under the Credit Suisse financing arrangements, $20,000,000 less the Additional Expansion Cost Contribution,

up to $4,000,000 in the aggregate, for certain breaches of warranties under the agreements pursuant to which we acquired the UK Assets or upon the discovery of certain negative information relating to the UK Assets (as determined by Credit Suisse, as agent for the lenders to be the damages to GBGH resulting from such breaches or discoveries of negative information); and

(i) $20 million, if GBGH elects to extend the initial interest rate and currency hedge agreement which is due to expire on August 7, 2009, and (ii) if GBGH enters into one or more replacement interest rate and currency hedge agreements, the amount payable as an upfront fee or premium to the providers thereunder.

Silver Point Financing Arrangements

On August 7, 2006, Overseas borrowed approximately $23.3 million from certain lenders pursuant to a financing arranged by Silver Point (the “Silver Point Credit Agreement”). Set forth below is a summary of the material terms of this financing arrangement:

Borrower:		Overseas is the borrower and we are guaranteeing its obligations under this arrangement.
Amount borrowed:		Approximately $23.3 million
Maturity:		The loan matures on the earlier of (i) February 7, 2014, (ii) the repayment of the loan pursuant to the Second Lien Credit Agreement and (iii) any earlier acceleration of the loan pursuant to the Silver Point Credit Agreement.
Use of Proceeds:		Overseas contributed approximately $ 22.8 million of the proceeds to GBGH, which GBGH used in part to finance the acquisition of the UK Assets and the funding of certain reserves as described above, and Overseas used the balance to pays fees and expenses associated with the acquisition and the transactions contemplated by the Credit Suisse and Silver Point financing arrangements.

Required Payments:		Overseas is generally required to prepay the loan, with certain exceptions (i) in connection with the sale, of any assets by us or our subsidiaries, (ii) if we or our subsidiaries receive insurance proceeds, (iii) if we or our subsidiaries issue equity (provided that only 50% of the net proceeds in excess of the first $3 million from issuances of our equity is to be applied to reduce such loan), (iv) if Overseas receives any cash, and (v) if we receive any cash (other than the amount necessary for our quarterly operating and administrative expenses). The foregoing prepayment require- ments with respect to events involving our majority owned subsidiary, Biogas, apply only to the extent such events occur on or after December 31, 2006.
Interest:		At present, the loan is a LIBOR rate loan and bears interest at 10.5% per annum. Accrued interest is added to the outstanding principal amount of the loan thereby resulting in an increase in the outstanding principal amount. Overseas may elect from time to time to have portions of the loan treated as either a base rate advance (which advances generally bear cash interest at 3.5% plus the higher of JPMorganChase’s prime rate and the federal funds rate plus three percent and which require monthly payments of interest) or a LIBOR rate advance (which advances generally bear cash interest at 5 percent plus (i) the British Bankers’ Association Interest Settlement Rates for deposits in dollars divided by (ii) an amount equal to one minus plus the Applicable Reserve Requirement (as defined in the Silver Point Credit Agreement) and which require payments of interest at the end of the period for such LIBOR rate advance, which period shall be no more than three months.
Collateral:		The obligations of USEY and Overseas under the Silver Point Credit Agreement are secured by: (i) substantially all of our assets (other than the stock of Biogas), (ii) substantially all of Overseas’ assets (other than its interest in GBGH), and (iii) Overseas’ pledge on a subordinated basis of all of its interest in GBGH. Also, the obligations of Overseas under the Silver Point financing arrangements are secured on a third priority basis by a lien on the collateral granted as security under the Credit Suisse financing arrangements.

Covenants:

These arrangements, with specified exceptions, generally: (i) require Overseas to cause GBGH to distribute to Overseas the maximum amount of excess cash flow that GBGH is permitted to distribute to Overseas pursuant to the Second Lien Credit Agreement, (ii) require us to cause Biogas to distribute to us the maximum amount of excess cash flow that Biogas is permitted to distribute to us pursuant to our financing arrangements with the Countryside Power Income Fund and its affiliates, (iii) prohibit us and our subsidiaries from incurring or suffering to exist any indebtedness, or any liens, (iv) prohibit Overseas from making distributions to equity holders and prohibit us from making any distributions to our affiliates, (v) prohibit us and our subsidiaries from making investments, (vi) prohibit us and our subsidiaries from selling our and their assets or changing our or their businesses, (vii) prohibit us and our subsidiaries from prepaying indebtedness (other than amounts owing pursuant to the Credit Suisse and Countryside financing arrangements) and (vii) prohibit us from amending our organizational documents or material contracts without prior approval by Silver Point. In addition, it is an event of default if (i) if Biogas does not grant Silver Point a first priority perfected security interest on all of its assets promptly upon the payment in full of the debt to Countryside Power Income Fund and its affiliates or (ii) we do not obtain, by December 31, 2006, a guaranty from Biogas of the amounts owing pursuant to the Silver Point financing arrangements.

Transactions with VTEX Energy, Inc.

On May 22, 2006, we and VTEX entered into an amended and restated limited liability company agreement (as amended, the “Overseas Operating Agreement”) with respect to Overseas, pursuant to which, at the closing of the UK Transaction:

·	VTEX contributed to Overseas all the outstanding share capital of Viking International Petroleum Limited, an entity that owned approximately 25% of Viking Petroleum;

·	Overseas issued the VTEX Units to VTEX (for a description of these units, see “Terms of the Convertible Securities.”);

·	We issued to VTEX the VTEX Warrants to acquire up to 500,000 shares of our common stock (for a description of these Warrants, see “Terms of the Convertible Securities.”); and

·	We made contributions to Overseas so that our aggregate contributions to Overseas was approximately $ 8.135 million.

Overseas’ Operating Agreement:

Representatives of US Energy constitute Overseas’ Board of Managers. With limited exceptions, we hold all the voting rights with respect to Overseas.

Overseas’ Operating Agreement provides that to the extent Overseas’ Board of Managers determines that net cash flow is to be distributed, it is to be distributed in the following descending order of priority:

·	Pro rata based on VTEX’s and US Energy’s capital contributions until each has received distributions equal to their capital contribution and a preferred return of 12% per year on such contributions;

·	50% to each party until such party has received total distributions of net cash flow equal to $350,000 plus 12% per annum thereon; and thereafter,

·	90% to us and 10% to VTEX.

Gain on a sale of all or substantially all of the assets of Overseas or the liquidation or dissolution of Overseas is to be allocated in the following order of priority:

·	Pro rata, to VTEX and US Energy until both VTEX and US Energy’s capital account is equal to such member’s unrecovered capital and a preferred return thereon of 12% per year ;

·	99% to VTEX and 1% to us, until VTEX has been allocated an amount equal to $20,900,000; and thereafter

·	100% to us.

Generally, income and losses are to be allocated in the same manner as net cash flow is distributed.

Fees paid to Credit Suisse, Silver Point and Kenmont

We paid an aggregate of approximately $ 3.8 million in fees (excluding the fees of their professionals) to Credit Suisse Securities, Silver Point, and Kenmont. We also issued the Silver Point Warrants to Silver Point and the Kenmont/CS Warrants to Credit Suisse Securities and Kenmont. A summary of the material terms of such Warrants is set forth under “Terms of the Convertible Securities.”

Reasons for the Proposal

As indicated above we are required by NASDAQ to obtain stockholder approval because the number of Transaction Shares issuable upon the conversion or exercise of the Convertible Securities is more than 20% of the number of shares of common stock that were outstanding before the issuance of Convertible Securities. As the Convertible Securities are convertible or exercisable for up to 8,074,000 shares of our common stock (or 12,072,000 shares, if we do not obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006), the Transaction Shares represent approximately 46.6% of the number of shares of common stock that were outstanding on August 7, 2006 immediately prior to the completion of the UK Acquisition and the related financing (or 69.6% shares, if we do not obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006).

Our Board held numerous meetings at which it discussed the UK Transaction and its financing. The Board considered and discussed the terms of the financing at length, including the issuances of the Convertible Securities and the fees payable to Silver Point, Kenmont and Credit Suisse Securities. The Board noted that Warrants to purchase an additional 3,998,000 shares of our common stock at $0.01 per share would be issued if we were unable to get Biogas’ guarantee of the Silver Point financing arrangements by December 31, 2006 (which guaranty requires the consent of Countryside and its affiliates and of Cinergy, and that obtaining the necessary consents would be difficult). The Board noted the number of Transaction Shares that were issuable, and the price that would be paid for them. The Board noted that stockholder approval would be required and considered the consequences that would ensue if stockholder approval was not obtained on a timely basis: (i) the money borrowed pursuant to the Silver Point financing arrangement becomes due and payable, (ii) we are obligated to pay Silver Point an additional $40 million, Kenmont, if it so elects, an additional $6,102,200 and Credit Suisse Securities, if it so elects, an additional $1,125,000 and (iii) Silver Point, Kenmont and Credit Suisse Securities will be entitled to exercise their Warrants to acquire up to 2,442,166 shares of our common stock at $0.01 per share. Ultimately the Board determined that completing the UK Transaction was in our and our stockholders’ best interest and that in order to complete the UK Transaction it was necessary to complete the financing, including the issuances of the Convertible Securities and the fees payable to Silver Point, Kenmont and Credit Suisse Securities.

It should also be noted that we do not believe that we would be able to comply with the obligations that we would be required to satisfy if the stockholders do not approve the issuance of the Transaction Shares and suspect that we might be required to seek protection under the Bankruptcy Code. For the consequence of the failure to obtain our stockholders’ approval of the issuance of the Transaction Shares, see “Consequence of our Stockholders’ Failure to approve the Transaction Shares.”

Principal Effects

If the proposal is approved, then the Convertible Securities will be exercisable for 8,074,000 shares of our common stock (or 12,072,000 shares, if we do not obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006). All of the Convertible Securities (except for the VTEX Units which are convertible into 1,900,000 after certain other conditions are satisfied (see “Terms of the Convertible Securities”)) will be immediately exercisable, including Warrants to acquire 5,074,000 shares of Common Stock at $0.01 per share (or 9,072,000 shares, if we do not obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006).

The issuance of the Transaction Shares would dilute your holdings and would permit the holders of the Convertible Securities to become major stockholders. The issuance of the Transaction Shares upon the exercise of the Silver Point Warrants would not provide us with any significant capital although the holders would hold approximately 20.5% of our Common Stock (if no convertible securities are converted and no options, warrants or other rights or awards are exercised and assuming we obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006).

The issuance of the Transaction Shares, or the perception that Transaction Shares may be issued, may adversely affect the market price of our common stock. The possibility that the holders of the Convertible Securities might exercise or convert their securities could further have the effect of rendering more difficult or discouraging an attempt to obtain control of our Company. For example, the issuance of Transaction Shares would increase the number of outstanding shares, thereby diluting the interest of a party attempting to obtain control of our Company. In addition, if Silver Point was to exercise all of the Silver Point Warrants, particularly if the Biogas guarantee is not obtained by December 31, 2006, its Transaction Shares would represent approximately 32.4% of our voting power (assuming no other options, warrants, rights or awards are exercised or converted and that no shares are issued).

VOTE REQUIRED

The holders of our common stock and of our Series C Preferred Stock as of

[ ] are entitled to vote together as one class, with each share of our common stock entitled to one vote and each share of our Series C Preferred Stock entitled to 7.732 votes. The affirmative "FOR" votes of the holders of a majority of the voting power present in person or represented by proxy and entitled to vote are required for approval of the issuances. If you ABSTAIN or do not vote with respect to the issuances, it will be treated neither as a vote AGAINST the issuance nor as a vote FOR the issuances.

The Board believes that approval of the issuances will be in the best interests of the stockholders.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE ISSUANCES.

PROPOSAL 3: AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION THAT WOULD INCREASE THE NUMBER OF SHARES OF COMMON STOCK WHICH THE COMPANY WOULD HAVE AUTHORITY TO ISSUE.

Introduction

The Board is submitting to you an amendment (the “Amendment”) to our Amended and Restated Certificate of Incorporation (as amended, the “Certificate of Incorporation”) that would increase the number of shares of common stock which we would have authority to issue from 50,000,000 shares to 75,000,000 shares. A copy of the proposed Amendment is attached hereto as Exhibit A.

The Board adopted a resolution declaring the advisability of the Amendment. If the Amendment is approved by our stockholders, we intend to file the Amendment with the Delaware Secretary of State promptly following the Annual Meeting and upon the effectiveness of the filing of such Amendment, the changes to be effected by the Amendment, would become effective.

Increasing The Number Of Shares Of Common Stock Which The Company Would Have Authority To Issue

The Amendment would increase the number of shares of Common Stock which we would have authority to issue from 50,000,000 shares to 75,000,000 shares.

Reasons for the Proposal

The Amendment would increase the number of shares of common stock which we would have authority to issue from 50,000,000 shares to 75,000,000 shares. If approved by our stockholders, the increase in authorized common stock would become effective as soon as reasonably practicable after the Annual Meeting by filing the Amendment with the Delaware Secretary of State.

As of September 21, 2006, 17,402,303 shares of our common stock were outstanding and in addition, on such date, we had 445,930 shares of common stock held in our treasury. We note that on such date, 401,009 shares of common stock were reserved for issuance upon the conversion of our Preferred Stock, 1,900,000 shares of common stock were reserved for issuance upon the conversion of the VTEX Units, 14,922,273 shares of common stock were reserved for issuance upon the exercise of our outstanding options, warrants and other rights and awards and an additional 1,944,255 shares were reserved for the issuance of options, warrants and other rights and awards under our outstanding plans. 3,998,000 additional Warrants are issuable if we do not obtain Biogas’ guaranty of the Silver Point financing arrangements by December 31, 2006. In addition, certain of the options, warrants and other rights and awards contain anti-dilution provisions which may require us to additional shares upon the exercise of such options, warrants and other rights and awards.

After taking into consideration our current outstanding equity obligations, the Board has determined that it is desirable to increase the number of shares of common stock authorized for issuance by 25,000,000. The increase of the number of shares of Common Stock is intended to provide us with the ability to issue all of the shares of common stock we are obligated to issue under the options, warrants and other rights and awards and upon the conversion of convertible securities and to provide us with additional authorized common stock for issuance in future transactions. The additional shares of common stock would be available for general corporate purposes, as determined by the Board, without (except as required by applicable law or regulation, our certificate of incorporation or the rules of a stock exchange or the NASDAQ) further authorization from our stockholders. We believe that having sufficient authorized but unissued shares that we can issue without stockholder approval (except as required by applicable law or regulation, our certificate of incorporation or the rules of a stock exchange or the NASDAQ) will be beneficial to us by providing us with flexibility to consider and act promptly when our Board determines that the issuance of shares is advisable. Except for the shares of common stock we are obligated to issue under the options, warrants and other rights and awards and upon the conversion of convertible securities, we have no current plans for the issuance of such shares.

Principal Effects

The increase of the number of shares of Common Stock which we would have authority to issue from 50,000,000 to 75,000,000 would provide us with the ability to issue all of the shares of common stock we are obligated to issue under the options, warrants and other rights and awards and upon the conversion of convertible securities and to provide us with additional authorized common stock for issuance in future transactions. The issuance of additional shares, or the perception that additional shares may be issued, may adversely affect the market price of our common stock. The availability for issuance of additional shares of our common stock could further have the effect of rendering more difficult or discouraging an attempt to obtain control of our Company. For example, the issuance of shares of our common stock in a public or private sale, merger, or similar transaction would increase the number of outstanding shares, thereby diluting the interest of a party attempting to obtain control of our Company. The issuance of additional shares of common stock may be used to render more difficult a similar transaction even if it appears to be desirable to a majority of our stockholders. However, we are not aware of any efforts to obtain control of the Company.

Vote Required

The holders of our common stock and of our Series C Preferred Stock as of

The Board believes that approval of the Amendment is in the best interests of the stockholders.

THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE AMENDMENT.

Independent Auditors

On November 18, 2004, we received a letter from Kostin, Ruffkess& Company, LLC, the firm that had served as our independent registered public accountants since 2001 ( “Kostin Ruffkess”), stating that they intended “to withdraw from audit work in the public company arena.”

Kostin Ruffkess’ reports on our consolidated financial statements for each of the years ended December 31, 2004 and 2003 did not contain an adverse opinion or a disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles. During the years ended December 31, 2004 and 2003 and the subsequent interim period through June 10, 2005, the date Kostin Ruffkess ceased to serve as our principal independent registered public accountant, there were (i) no disagreements with Kostin Ruffkess on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Kostin Ruffkess, would have caused it to make a reference thereto in its reports on our financial statements for such periods and (ii) reportable events.

On April 4, 2005, we engaged Eisner LLP as our independent registered public accountants for the year ending December 31, 2005 and the interim periods prior to such year-end. The decision to retain Eisner was approved by the audit committee of our Board of Directors. During 2003 and 2004 and all subsequent interim periods preceding Eisner’s engagement, we did not consult with Eisner regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor did Eisner provide advice to us, either written or oral, that was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue. Further, during 2003 and 2004 or all subsequent interim periods preceding Eisner’s engagement, we had not consulted with Eisner on any matter that was the subject of a disagreement or a reportable event (as defined in Regulation S-K Item 304(a)(1)(v)).

On June 15, 2006, we dismissed Eisner as our independent registered public accounting firm. This decision was approved by our audit committee. Eisner’s report on our consolidated financial statements for the year ended December 31, 2005 did not contain an adverse opinion or a disclaimer of opinion, nor was such report qualified or modified as to uncertainty, audit scope or accounting principles.

During the year ended December 31, 2005 and through June 15, 2006, there were no (i) disagreements with Eisner on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Eisner, would have caused it to make a reference thereto in its reports on our financial statements for such periods and (ii) reportable events.

On June 15, 2006, we engaged Weiser LLP as our independent registered public accountants for the year ending December 31, 2006 and the interim periods (other than the period ended March 31, 2006) prior to such year-end. The decision to retain Weiser was approved by our audit committee. During our two most recent fiscal years and all subsequent interim periods, we did not consult with Weiser regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, nor did Weiser provide advice to us, either written or oral, that was an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue. Further, during our two most recent fiscal years or subsequent interim periods, we have not consulted with Weiser on any matter that was the subject of a disagreement or a reportable event.

Representatives of Weiser - but not Eisner - will be available at our meeting and will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions from stockholders.

The following table shows the fees billed (after applicable adjustments) for the audit and other services provided by Eisner in 2005 and Kostin Ruffkess in 2004.

	2004		2005¹

Audit fees	$	288,136	$	509,997
Audit-Related fees		16,366		50,000
Tax fees		177,854		240,435
All other fees		--		--
Total	$	422,356	$	810,412

(1) Kostin billed us an aggregate of $365,366 in 2005, consisting of $115,931 in Audit Fees and $240,435 in Tax Fees, which sums are included in this column.

Audit Fees. This category includes fees for the audits of our financial statements included in our Annual Report on Form 10-K, review of financial statements included in our Quarterly Reports on Form 10-Q or services normally provided by our accountant in connection with statutory and regulatory filings.

Audit-Related Fees. This category consists of assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees” above. These services included accounting research and advice with respect to accounting matters.

Tax Fees. This category consists of professional services for tax compliance, tax planning and tax advice. The services for the fees disclosed under this category include tax return preparation, research and technical tax advice.

All Other Fees. This category consists of other professional products and services provided by Kostin, Ruffkess.

The audit committee of the Board determined that Eisner could maintain its independence as our auditor though it was rendering non-audit services to us. The audit committee has not adopted any pre-approval policies and procedures and none of the services reflected above were approved by such committee through any such policy.

Audit Committee Report

The Audit Committee reviewed and discussed with US Energy's management and Eisner, the audited consolidated financial statements of US Energy contained in US Energy's Annual Report on Form 10-K for the year ended December 31, 2005, as amended. The Audit Committee also discussed with Eisner the matters required to be discussed pursuant to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of US Energy's consolidated financial statements.

The Audit Committee received and reviewed the written disclosures and the letter from Eisner required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with Eisner its independence from US Energy.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the US Energy's Annual Report on Form 10-K for the year ended December 31, 2005, as amended. for filing with the Securities and Exchange Commission.

Submitted by the Audit Committee

Jacob Feinstein

Carl Greene

Ronny Strauss

OTHER MATTERS

Stockholders may contact one or more members of the Board by writing to such director(s) at US Energy’s address set forth herein. All such communications will be forwarded to the director(s) to whom such correspondence is addressed.

Under our by-laws, procedures are provided which a stockholder must follow to nominate persons for election as directors or to introduce an item of business at an annual meeting of stockholders. These procedures provide that nominations for director nominees and/or an item of business to be introduced at an annual meeting of stockholders must be submitted in writing to us at: US Energy Systems, Inc., 750 Lexington Avenue, New York, New York 10022, Att: Secretary. We must receive the notice of your intention to introduce a nomination or proposed item of business at our 2007 annual meeting no later than:

60 days in advance of the 2007 annual meeting if it is being held within 30 days preceding the anniversary date of this year's meeting;

90 days in advance of such meeting if it is being held on or after the anniversary date of this year's meeting; or

for any other annual meeting, the nomination or item of business must be received by the tenth day following the date of public disclosure of the date of the meeting.

Nominations must contain the following information about the nominee: (i) name; (ii) age; (iii) business and residence addresses; (iv) principal occupation or employment; (v) the number of shares of our capital stock held by the nominee; (vi) the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of such nominee as a director; and (vii) a signed consent of the nominee to serve as a director of the US Energy, if elected.

Notice of a proposed item of business must include: (i) a brief description of the substance of, and the reasons for, conducting such business at the annual meeting; (ii) the stockholder's name and address; (iii) the number of shares of our capital stock held by the stockholder (with supporting documentation where appropriate); and (iv) any material interest of the stockholder in such business.

In addition to the foregoing, and in addition to the rules of the SEC, in order for a stockholder proposal, relating to a proper subject, to be considered for inclusion in US Energy’s proxy statement and form of proxy relating to the Annual Meeting to be held between October 7, 2007 and December 6, 2007, such proposal must be received by the Secretary of US Energy by July 9, 2007 in the form required under and subject to the other requirements of the applicable rules of the SEC. If the date of the 2006 Annual Meeting is changed to a date on or after December 6, 2007, stockholder proposals must be received within a reasonable time before we begin to print and mail our proxy materials. Any such proposal should be submitted by certified mail, return receipt requested, or other means, that allow the stockholder to prove the date of delivery.

The Board is not aware of any matters that are expected to come before the Annual Meeting other than those referred to in this Proxy Statement. If any other matter should come before the Annual Meeting, the persons named in the accompanying proxy intend to vote the proxies in accordance with their best judgment.

The chairman of the meeting may refuse to allow the transaction of any business not presented beforehand, or to acknowledge the nomination of any person not made in compliance with the foregoing procedures.

A copy of our Annual Report on Form 10-K for the year ended December 31, 2005 (without exhibits which will be made available upon payment of a reasonable fee) together with all amendments thereto is available to stockholders without charge by writing to: U.S. Energy Systems, Inc., 750 Lexington Avenue, New York, New York 10022, Att: Secretary.

By Order of the Board of Directors

Richard J. Augustine, Secretary

New York, New York

October [ ], 2006

U.S. Energy Systems, Inc.

750 Lexington Avenue

New York, New York 10022

-----------------------------

PROXY

For Annual Meeting of Stockholders of U.S. Energy Systems, Inc. to be held

on November 6, 2006

--------------------------------

This Proxy is solicited on behalf of the Board of Directors.

The undersigned hereby appoints [ ] and [ ] as Proxies, each with the power of substitution, and hereby authorizes each of them to represent and to vote, as designated below, all the shares of common stock of U.S. Energy Systems, Inc. held of record by the undersigned on [ ], 2006 at the Annual Meeting of Stockholders to be held on November 6, 2006, or any adjournment or postponement thereof.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.)

[X]	PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE

1.	ELECTION OF DIRECTORS.

[ ] FOR ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED TO THE CONTRARY)

[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW

A VOTE FOR ALL NOMINEES IS RECOMMENDED BY THE BOARD OF DIRECTORS. NOMINEES ARE: ASHER E. FOGEL AND STEPHEN L. BROWN.

INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE’S NAME IN THE SPACE PROVIDED BELOW:

_______________________________________________________________________

2.	TO APPROVE THE ISSUANCE OF SHARES OF COMMON STOCK UPON THE EXERCISE AND CONVERSION OF SECURITIES ISSUED IN CONNECTION WITH OUR RECENT ACQUISITION OF CERTAIN ENERGY ASSETS IN THE UNITED KINGDOM.

3.	TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF SHARES OF COMMON STOCK WE ARE AUTHORIZED TO ISSUE.

4.	IN THEIR DISCRETION UPON ANY OTHER MATTER AS MAY COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO AMERICAN STOCK TRANSFER & TRUST COMPANY, US ENERGY’S TRANSFER AGENT.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. (IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH ABOVE AND IN THE DISCRETION OF THE NAMED PROXIES WITH RESPECT TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.)

_________________________________________

Signature

_________________________________________

Signature, if held jointly

Dated _____________________, 2006

PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS ON YOUR STOCK CERTIFICATE. JOINT OWNERS SHOULD EACH SIGN PERSONALLY. TRUSTEES, CUSTODIANS, EXECUTORS AND OTHERS SIGNING IN A REPRESENTATIVE CAPACITY SHOULD INDICATE THE CAPACITY IN WHICH THEY SIGN.

Name	Age	Class	Position(s) with US Energy
Lawrence I. Schneider	70	1	Chairman of the Board
Asher E. Fogel	56	2	CEO and Director
Stephen L. Brown (2,3)	68	2	Director
Carl W. Greene (1,2,3)	71	3	Director
Jacob Feinstein (1,3)	63	3	Director
Ronny Strauss (1,2)	62	1	Director

			Annual Compensation				Long-Term Compensation Awards
Name & Principal Position	Fiscal Year		Salary		Bonus		Restricted Stock Award(s) ($)			Securities Underlying Options/ SARs (#)		All Other Compensation
Lawrence I. Schneider⁽³⁾		2005		180,000		—		—			—		87,119	⁽¹⁾
Chairman		2004		180,000		800,000		391,305	⁽⁵⁾⁽⁶⁾		—		44,950
		2003		180,000		—		—			—		44,816

Asher E. Fogel ⁽³⁾		2005		110,250		—		195,000	⁽⁴⁾⁽⁶⁾		750,000		—
Chief Executive Officer

Henry N. Schneider		2005		161,250		—		—			750,000		9,125	⁽²⁾
President and		2004		140,415		150,000		—			400,000		6,952
Chief Operating Officer		2003		136,000		—		—			—		4,080

Richard J. Augustine⁽³⁾		2005		145,000		—		19,500	⁽⁴⁾⁽⁶⁾		25,000		7,694	⁽²⁾
Vice President and Chief Accounting Officer		2004		122,509		100,000		28,261	⁽⁵⁾⁽⁶⁾		—		6,067


Adam D. Greene⁽³⁾		2005		18,182		—		19,500	^{(4) (6)}		50,000		—
Senior Vice President

Name	Number of Securities Underlying Options Granted (#)	Percent of Total Options Granted to Employees in Fiscal Year(%)	Exercise or Base Price ($/SH)	Expiration Date	Grant Date Present Value ($)⁽¹⁾

Lawrence I. Schneider	—	—	—	—	—
Asher E. Fogel	150,000⁽²⁾	9.3	1.25	8/16/15	118,710
	150,000⁽³⁾	9.3	2.00	8/16/15	98,415
	450,000⁽⁴⁾	27.8	3.50	12/12/10	247,950
Henry N. Schneider	150,000⁽²⁾	9.3	1.375	8/16/15	80,520
	90,000⁽⁵⁾	5.6	2.00	8/16/10	35,496
	60,000⁽⁶⁾	3.7	2.00	8/16/15	39,366
	450,000⁽⁴⁾	27.8	3.50	12/12/10	247,950
Richard J. Augustine	25,000⁽⁷⁾	1.5	2.50	12/12/10	18,625
Adam D. Greene	50,000⁽⁷⁾	3.1	2.50	12/12/10	37,250

Name	Shares Acquired On Exercise (#)	Value Realized ($)	Number Of Securities Underlying Unexercised Options At December 31, 2005	Value Of Unexercised In-The-Money Options At December 31, 2005 ($) ⁽¹⁾
Name	Shares Acquired On Exercise (#)	Value Realized ($)	Exercisable/Unexercisable	Exercisable/Unexercisable
Lawrence I. Schneider⁽²⁾	—	—	1,016,800/0	—
Asher E. Fogel	—	—	80,000/670,000	79,200/105,300
Henry N. Schneider	—	—	1,095,700/670,000	71,200/130,500
Richard J. Augustine	—	—	0/25,000	—
Adam D. Greene	—	—	0/50,000	—

	2001	2002	2003	2004	2005
US Energy	$114.00	$23.50	$28.25	$20.05	$56.00
Utilities Index	22.18	7.00	9.82	11.71	13.70
Nasdaq Index	79.32	54.84	81.99	89.22	91.12

Name and address	Amount and nature of beneficial ownership			Percent of Class
Lawrence I. Schneider		3,270,128 (1	)		17.7
Asher E. Fogel		220,000 (2	)		*
Henry N. Schneider		1,454,737 (3	)		7.8
Richard J. Augustine		20,444 (4	)		*
Adam D. Greene		— (5	)		*
Stephen L. Brown		20,000 (6	)		*
Carl W. Greene		90,645 (7	)		*
Jacob Feinstein		61,630 (8	)		*
Ronny Strauss		54,429 (9	)		*

Rita Schneider		3,270,128 (10	)		17.7

Mark S. Brady d/b/a Financial Planning Analysts 734 Walt Whitman Road, Suite 301 Melville, New York 11747		1,980,700 (11	)		11.4

Bernard Zahren Pond View Corporate Center 76 Batterson Park Road Farmington, CT 06032		946,920 (12	)		5.4

Göran Mörnhed 94 Colabaugh Pond Road Croton on the Hudson, NY 10520		1,779,000 (13	)		10.2

All executive officers and directors as a group (9 persons)		5,192,013			26.0

Initial Holder	Title of Security	Number of shares of Common Stock issuable upon exercise/conversion	Exercise Price
Silver Point Finance, LLC (“Silver Point”)	Series G Warrants (the “Silver Point Warrants”)	4,488,780¹	$0.01
Kenmont Special Opportunities Master Fund L.P. (“Kenmont”)	Series H Warrants	495,220	$0.01
Credit Suisse Securities (USA) LLC (“Credit Suisse Securities”)	Series H Warrants	90,000	$0.01
Kenmont	Series I Warrants	465,000	$4.37
Credit Suisse Securities	Series I Warrants	135,000	$4.37
VTEX Energy, Inc. (“VTEX”)	Series D Warrants	166,667	$8.00
VTEX	Series E Warrants	166,667	$9.00
VTEX	Series F Warrants	166,666	$10.00
VTEX	100 Class B membership units (the “VTEX Units”) that our subsidiary, US Energy Overseas Investments, LLC (“Overseas”), issued to VTEX	1,900,000	conversion of the VTEX Units