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US Energy Shares-for-Debt Deal Proxy Omissions Securities Class Action

The proposed transaction in this case involves US Energy Corp. and its subsidiary US Energy One, LLC on one side, and on the other, APEG Energy II, LP and the company that controls it, Angelus Private Equity Group. APEG would not exchange cash for shares; instead, it would cancel most of the debt Energy One owes to it and to Angelus.

The class for this action is the public stockholders of US Energy Corp.

US Energy acquires and develops oil and gas properties. The company hires operating partners to propose, permit, drill, and complete oil and gas wells, as well as produce, transport, and market the oil.

Under the proposed exchange, APEG would exchange nearly $4.5 million in Energy One’s debt for nearly six million newly-issued shares of US Energy, representing over 49% of the company. In addition, US Energy will prepay $600,000 of its subsidiary’s remaining debt, leaving Energy One owing less than $1 million.

The company is asking shareholders to approve (a) the issuance of the new shares, and (b) an amendment of the articles of incorporation to permit a 1-for-5 reverse stock split. The reverse stock split was proposed because the company’s stock had closed at less than $1 per share over a period of time, so that it no longer met the requirements for listing on NASDAQ.

The complaint claims to have gathered this background for the proposed transaction from the Proxy filed on October 31, 2017: In May 2017, APEG bought Wells Fargo’s rights to Energy One’s credit facility, but made an agreement with Energy One not to exercise its rights—related to existing and potential events of default under the agreement—until July 30, 2017.

At meetings in June, APEG and US Energy agreed to a two-year extension of the loan and an amendment of its terms.

However, in August, the companies met again to discuss a possible debt-for-equity exchange. The discussions led to the proposed transaction announced in October. However, the complaint claims that David A. Veltri, the Chairman of the Board, President, and CEO of US Energy executed the agreements on his own and only later solicited approval from the board.

The complaint claims that the Proxy omits material information, including the following:

  • Whether the company employed a financial advisor assess the transaction terms, and if it did not, what means were used to determine that the terms were fair.
  • Potential conflicts of interest of the board.
  • Details of the background of the transaction, including other terms that were proposed during the negotiations, “other potential acquisition and divestiture opportunities” discussed by the board, and so on.
  • The intentions behind the amendment permitted a reverse stock split, since the company has since regained compliance with NASDAQ’s requirements.

The complaint claims that the omissions violate Sections 14(a) and 20(a) of the Securities Exchange Act of 1934.

Article Type: Lawsuit
Topic: Securities

Most Recent Case Event

US Energy Shares-for-Debt Deal Proxy Omissions Securities Complaint

December 11, 2017

The proposed transaction in this case involves US Energy Corp. and its subsidiary US Energy One, LLC on one side, and on the other, APEG Energy II, LP and the company that controls it, Angelus Private Equity Group. APEG would not exchange cash for shares; instead, it would cancel most of the debt Energy One owes to it and to Angelus. The complaint claims that the Proxy filed for the transaction does not provide the information required under the Securities Exchange Act of 1934, including the basis for the determination that the deal is fair, details of the negotiations, potential conflicts of interest of the board, and the intentions behind the proposed reverse stock split. 

us_energy_corp_sec_compl.pdf

Case Event History

US Energy Shares-for-Debt Deal Proxy Omissions Securities Complaint

December 11, 2017

The proposed transaction in this case involves US Energy Corp. and its subsidiary US Energy One, LLC on one side, and on the other, APEG Energy II, LP and the company that controls it, Angelus Private Equity Group. APEG would not exchange cash for shares; instead, it would cancel most of the debt Energy One owes to it and to Angelus. The complaint claims that the Proxy filed for the transaction does not provide the information required under the Securities Exchange Act of 1934, including the basis for the determination that the deal is fair, details of the negotiations, potential conflicts of interest of the board, and the intentions behind the proposed reverse stock split. 

us_energy_corp_sec_compl.pdf
Tags: Energy Exploration and Production, Providing False or Misleading Information, Proxy Statement, Securities