UNITED PARK CITY MINES CO, 10KSB, 1997-04-15

UNITED PARK CITY MINES CO
10KSB, 1997-04-15
LAND SUBDIVIDERS & DEVELOPERS (NO CEMETERIES)

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<PAGE>

U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form 10-KSB

[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31,
------------
1996 or
----

[_] Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
_____________ to ____________

Commission file number 1-3753
------

UNITED PARK CITY MINES COMPANY
------------------------------
(Name of small business issuer in its charter)

Delaware 87-0219807
- ------------------------------------------- -----------------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)

P. O. Box 1450
Park City, Utah 84060
- ------------------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (801) 649-8011
--------------

Securities registered under Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
- ----------------------------------- -----------------------------------------
Common Stock, $0.01 Par Value New York Stock Exchange

Securities Registered pursuant to Section 12(g) of the Act:
None
----

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
----- ----

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
-----

Issuer's revenues for its most recent fiscal year. $6,246,935
----------

Based on the closing sales price on March 17, 1997, the aggregate market value
of the voting stock held by nonaffiliates of the registrant was $33,414,431.
For purposes of this computation, voting stock directly held by officers and
directors of the registrant has been excluded. Such exclusion is not intended,
nor shall it be deemed, an admission that such officers and directors are
affiliates of the registrant.

The number of shares outstanding of the registrant's common stock, $0.01 par
value, was 2,700,325 on March 17, 1997.

DOCUMENTS INCORPORATED BY REFERENCE

Specified sections of United Park City Mines Company's 1996 Annual Report to
Stockholders, as described herein, are incorporated by reference in Parts I and
II of this Form 10-KSB. The definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after December 31, 1996, is incorporated by reference
in Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---

Exhibit Index on Page 4
Page 1 of 39
<PAGE>

UNITED PARK CITY MINES COMPANY
FORM 10-KSB ANNUAL REPORT
For the Year Ended December 31, 1996
Page 2

PART I

Item 1. Description of Business

Information concerning the Business of the Registrant is incorporated herein by
reference from pages 2 through 6 of the Registrant's 1996 Annual Report to
Stockholders under the heading "Business and Properties."

Item 2. Description of Property

Information concerning the Properties of the Registrant is incorporated herein
by reference from pages 2 through 6 of the Registrant's 1996 Annual Report to
Stockholders under the heading "Business and Properties."

Item 3. Legal Proceedings

Information concerning the Legal Proceedings of the Registrant is incorporated
herein by reference from pages 7 through 8 of the Registrant's 1996 Annual
Report to Stockholders under the heading "Legal Proceedings."

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Information concerning the Market for the Registrant's Common Equity and Related
Stockholder Matters is incorporated herein by reference from page 8 of the
Registrant's 1996 Annual Report to Stockholders under the heading "Market For
United Park's Stock."

Item 6. Management's Discussion and Analysis or Plan of Operation

Information concerning Management's Discussion and Analysis of Financial
Condition and Results of Operations is incorporated herein by reference from
pages 9 through 13 of the Registrant's 1996 Annual Report to Stockholders under
the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Item 7. Financial Statements

The consolidated financial statements, notes to consolidated financial
statements, and the report of independent accountants are incorporated herein by
reference from pages F-1 through F-14 of the Registrant's 1996 Annual Report to
Stockholders.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

Not Applicable
<PAGE>

UNITED PARK CITY MINES COMPANY
FORM 10-KSB ANNUAL REPORT
For the Year Ended December 31, 1996
Page 3

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

Information concerning the Directors and Executive Officers of the Registrant is
incorporated herein by reference from page 2 of the Registrant's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders under the heading
"Proposal #1-To Elect Four Directors to the Board of Directors."

Item 10. Executive Compensation

Information concerning Executive Compensation of the Registrant's executive
officers is incorporated herein by reference from pages 2 through 4 of the
Registrant's definitive Proxy Statement for the 1997 Annual Meeting of
Stockholders under the heading "Executive Compensation."

Item 11. Security Ownership of Certain Beneficial Owners and Management

Information concerning Security Ownership of Certain Beneficial Owners and
Management of the Registrant is incorporated herein by reference from pages 4
and 5 of the Registrant's definitive Proxy Statement for the 1997 Annual Meeting
of Stockholders under the heading "Security Ownership of Certain Beneficial
Owners and Management."

Item 12. Certain Relationships and Related Transactions

Information concerning Certain Relationships and Related Transactions of the
Registrant is incorporated herein by reference from page 4 of the Registrant's
definitive Proxy Statement for the 1997 Annual Meeting of Stockholders under the
heading "Certain Relationships and Related Transactions."

Item 13. Exhibits and Reports on Form 8-K

(a) The following exhibits are filed with this Form 10-KSB pursuant to
Item 601 of Regulation S-B:
<PAGE>

UNITED PARK CITY MINES COMPANY
FORM 10-KSB ANNUAL REPORT
For the Year Ended December 31, 1996
Page 4

- --------------------------------------------------------------------------------
Reg. S-B Sequential
Reference Page
Number Document Number
- --------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended (1)
by Certificate of Amendment of Restated Certificate
of Incorporation
- --------------------------------------------------------------------------------
3.2 Amendment to Restated Certificate of Incorporation (2)
filed in Delaware on December 19, 1990
- --------------------------------------------------------------------------------
3.3 Amendment to Restated Certificate of Incorporation (5)
filed in Delaware on September 8, 1993
- --------------------------------------------------------------------------------
3.4 Amendment to Restated Certificate of Incorporation (7)
filed in Delaware on August 25, 1995
- --------------------------------------------------------------------------------
3.5 Bylaws (1)
- --------------------------------------------------------------------------------
10.1 Purchase Agreement dated January 1, 1971 between (1)
United Park City Mines Company and Greater Park City
Company (formerly Treasure Mountain Resort Company),
as amended by First Amendment to Purchase Agreement
dated June 11, 1971, Second Amendment to Purchase
Agreement dated March 30, 1972, Third Amendment to
Purchase Agreement dated April 2, 1975, and Fourth
Amendment to Purchase Agreement dated July 1, 1975
- --------------------------------------------------------------------------------
10.2 Memorandum of Agreement dated June 23, 1975 among (1)
United Park City Mines Company, Greater Park City
Company, Unionamerica, Inc., Royal Street Corporation,
Morgan Guaranty Trust Company of New York as Trustee,
The Fidelity Bank as Trustee, and Alpine Meadows of
Tahoe, Inc.
- --------------------------------------------------------------------------------
10.3 Substituted Escrow Agreement dated October 11, 1975 (1)
among United Park City Mines Company, Greater Park
City Company, Royal Street Land Company, Greater
Properties, Inc., Park Properties, Inc., and First
Security Bank of Utah, as trustee and escrow agent, as
amended by Amendment to Substituted Escrow Agreement
dated October 1, 1979
- --------------------------------------------------------------------------------
10.4 Acquisition Agreement dated October 11, 1975 between (1)
Greater Park City Company and Royal Street Land
Company
- --------------------------------------------------------------------------------
10.5 Resort Area Lease dated January 1, 1971 between United (1)
Park City Mines Company and Greater Park City Company,
as amended by Amendment to Resort Area Lease dated
May 1, 1975 and Second Amendment to Resort Area Lease
dated June 19, 1980, and Third Amendment to Resort Area
Lease dated December 12, 1980
- --------------------------------------------------------------------------------
10.6 Crescent Ridge Lease dated January 1, 1971 between (1)
United Park City Mines Company and Greater Park City
Company, as amended by Crescent Ridge Lease dated
May 1, 1975
- --------------------------------------------------------------------------------
10.7 Deer Valley Lease dated January 1, 1971 between United (1)
Park City Mines Company and Greater Park City Company,
as amended by Deer Valley Lease dated May 1, 1975, and
Amendment to Deer Valley Lease dated May 21, 1979 and
Second Amendment to Deer Valley Lease dated July 31, 1980
- --------------------------------------------------------------------------------
10.8 Water Rights Purchase Agreement dated January 1, 1971 (1)
between United Park City Mines Company and Greater Park
City Company, as amended by Amendment to Water Rights
Purchase Agreement dated February 10, 1975 and Second
Amendment to Water Rights Purchase Agreement dated
July 1, 1975
- --------------------------------------------------------------------------------
10.9 Settlement Agreement and Release by and between United (4)
Park City Mines Company, Royal Street Land Company,
Deer Valley Resort Company, Royal Street of Utah, Royal
Street Development Company, and Wells Fargo Bank, N.A.
dated November 6, 1992
- --------------------------------------------------------------------------------
10.10 Employment Agreement dated June 1, 1994 by and between (6)
United Park City Mines Company and Hank Rothwell
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
UNITED PARK CITY MINES COMPANY
FORM 10-KSB ANNUAL REPORT
For the Year Ended December 31, 1996

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Reg. S-B Sequential
Reference Page
Number Document Number
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
10.11 Incentive Stock Option Agreement dated June 27, 1994 (6)
by and between United Park City Mines Company and Hank
Rothwell
- --------------------------------------------------------------------------------
10.12 Incentive Stock Option Agreement dated August 2, 1994 (6)
by and between United Park City Mines Company and
Edwin L. Osika, Jr.
- --------------------------------------------------------------------------------
13.1 United Park City Mines Company's 1996 Annual Report (7)
to Stockholders
- --------------------------------------------------------------------------------
22.1 Subsidiaries of the Registrant (3)
- --------------------------------------------------------------------------------
</TABLE>

(1) Incorporated by reference from Amendment Number 1 of the Registrant's
registration statement on Form S-1 filed with the Securities and Exchange
Commission on March 19, 1987 (Registration Number 33-11328)

(2) Incorporated by reference from Amendment Number 1 of the Registrant's
registration statement on Form S-3 filed with the Securities and Exchange
Commission on January 28, 1991 (Registration Number 33-37914)

(3) Incorporated by reference from the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989

(4) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992

(5) Incorporated by reference from Amendment Number 1 of the Registrant's
registration statement on Form S-3 filed with the Securities and Exchange
Commission on October 12, 1993 (Registration Number 33-67458)

(6) Incorporated by reference from the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994

(7) Incorporated by reference from the Registrant's Form 8-K filed with the
Securities and Exchange Commission on September 7, 1995

(b) Reports on Form 8-K:
Not Applicable
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

UNITED PARK CITY MINES COMPANY
(Registrant)

April 8, 1997 /s/ Hank Rothwell
- ------------------ ------------------------------------------------
Date Hank Rothwell
President, Chief Executive Officer, and Director

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Alan L. Gordon April 8, 1997
- --------------------------- ----------------
Alan L. Gordon Director Date

/s/ Joseph S. Lesser April 8, 1997
- --------------------------- ----------------
Joseph S. Lesser Director Date

/s/ Hank Rothwell April 8, 1997
- --------------------------- ----------------
Hank Rothwell President, Chief Executive Date
Officer, and Director
/s/ Edwin L. Osika, Jr. April 8, 1997
- --------------------------- ----------------
Edwin L. Osika, Jr. Executive Vice President, Date
Secretary, Treasurer, Chief
Financial Officer, and Director
/s/ Dale J. Harrison April 8, 1997
- --------------------------- ----------------
Dale J. Harrison Controller, Chief Accounting Date
Officer

</TABLE>

<PAGE>

EXHIBIT 13.1
<PAGE>

[ART]

1996
ANNUAL REPORT TO STOCKHOLDERS

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS AND PROPERTIES................................................... 2
General................................................................. 2
Real Estate............................................................. 2
Mine Maintenance........................................................ 3
Mine Tour Attraction.................................................... 5
Title To Properties..................................................... 5
Resort Agreements....................................................... 5
Employees............................................................... 6
LEGAL PROCEEDINGS......................................................... 7
United States of America v. 106.79 Acres of Land, United Park City Mines
Company, et al......................................................... 7
Charles Frank Gillmor, et al. v. United Park City Mines Company, et
al..................................................................... 7
Steven Megur and Susan Megur v. United Park City Mines Company, et al... 7
MARKET FOR UNITED PARK CITY MINES COMPANY'S STOCK......................... 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 9
Liquidity and Capital Resources......................................... 9
Real Estate Development............................................... 9
Water................................................................. 10
Mine Maintenance...................................................... 10
Mine Tour Attraction.................................................. 12
Resort Litigation..................................................... 12
Cash Flow............................................................. 12
Results of Operations................................................... 13
1996 Compared with 1995............................................... 13
Outlook............................................................... 14
Impact of Recently Issued Accounting Standards.......................... 14
LIST OF CONSOLIDATED FINANCIAL STATEMENTS................................. 15
</TABLE>
<PAGE>

[LOGO]

APRIL 8, 1997

To Our Stockholders:

The Company's two most recent real estate developments, Morning Star Estates
and Hidden Meadows, have been well received. All of the lots in the Morning
Star Estates subdivision have been successfully marketed, and already more
than one-third of the lots in the Hidden Meadows subdivision have been sold--
despite a somewhat slower than expected real estate market in 1996. The recent
selection of Utah as the host for the 2002 Winter Olympic Games and the
numerous skiing and alpine venues which will be held in close proximity to
Park City will only enhance the Company's real estate values and development
potential.

I am also excited by the progress during the past year toward obtaining
approval for the Company's major Flagstaff Mountain project. The Company
anticipates final approval of this project during 1997. The Flagstaff Mountain
project will be a major master-planned expansion of the upscale Deer Valley
Ski Resort. As presently designed, the project will include a mixture of ski-
in/ski-out single family housing, multi-family housing, hotel, and commercial
and retail space.

The Company's Park City Silver Mine Adventure, an amusement/educational
attraction combining the tour of an actual underground mine, historical
exhibits, theaters, a gift shop, food concession and a special events
facility, has become a favorite attraction for both the locals and tourists.
Since it opened in December, 1995, the mine tour attraction has been visited
by more than 136,000 guests, contributing over $1.3 million to the Company's
revenue during 1996. The Company is aggressively undertaking a number of steps
to increase revenues while decreasing overall operating expenses for the mine
tour attraction. Management believes that the mine tour attraction should
cover its direct costs during 1997 and will soon be contributing to the
Company's cash flows.

After posting a net profit of $773,296 on revenues of $5,638,562 in 1995,
the Company sustained a loss of $594,237 on revenues of $6,246,935 in 1996.
The loss in 1996 is attributable to several factors, including slower than
expected lot sales in the Company's Hidden Meadows subdivision and costs
associated with the initial year of operations of the Company's mine tour
attraction exceeding revenues.

Although the 1996 operating loss is disappointing in view of the Company's
promising results in 1995, I remain optimistic concerning the long term
prospects for our Company.

The Company's real estate assets are world class, its mine tour attraction
is first rate, its employees are committed, and its prospects for the future
are very good. The upcoming year promises to be filled with new challenges and
opportunities.

Sincerely,

/s/ Hank Rothwell

Hank Rothwell
President and
Chief Executive Officer

P.O. Box 1450, Park City, Utah 84060, (801) 649-8011
<PAGE>

BUSINESS AND PROPERTIES

GENERAL

United Park City Mines Company ("United Park" or "Company") is a Delaware
corporation formed in 1953. United Park's principal business is currently the
lease, development, and sale of real property located in or near Park City,
Utah.

United Park acquired mining properties in the Park City area upon its
formation in 1953. Prior to 1982, United Park's principal business was the
mining of lead, zinc, silver, gold, and copper ores from these properties or
the leasing of these properties to other mine operators. United Park now
conducts no active mining operations and has no agreement to sell or lease its
mining properties. The mining properties are maintained on a stand-by basis.
The Company also performs mine and tunnel maintenance for other entities on a
contract basis.

During 1995, United Park completed construction of a mine tour attraction at
its Ontario Mine facilities near Park City, Utah which opened to the public on
December 15, 1995. The mine tour attraction is operated by the Company's
wholly owned subsidiary Park City Silver Mine Adventure, Inc. and combines an
underground mine tour with extensive historical exhibits that depict the
mining heritage of the Park City area.

United Park also leases land for skiing to the operators of the Park City
Ski Area and the Deer Valley Ski Area.

REAL ESTATE

United Park owns the surface estate to more than 8,300 acres of land. Of
this land, United Park leases to ski resort operators its surface estate to
approximately 5,300 acres for skiing. (See "Resort Agreements.") However,
United Park has the right to sell certain portions of the leased properties,
subject to the lessees' right of first refusal to purchase the properties.
United Park believes that a substantial portion of its land, including land
not subject to lease and land which may become unencumbered by the leases in
the future, may be suitable for resort, residential, commercial, or industrial
development.

During 1992, Blue Ledge Corporation ("Blue Ledge"), a wholly owned
subsidiary of the Company, received approvals for development of twelve single
family estate lots ("Morning Star Estates") on approximately 175 acres of land
located north of the Deer Valley Ski Area near Park City, Utah. Blue Ledge
completed the improvements for the Morning Star Estates subdivision during
1994 and repaid the financing obligations for the project in the first quarter
of 1994. Blue Ledge sold nine of the twelve Morning Star Estates lots during
1993 and 1994. Two lots were sold by Blue Ledge during 1995 and the remaining
one lot was sold during the first quarter of 1996.

In the third quarter of 1995, Blue Ledge received approval for annexation
and master plan of a proposed single family lot subdivision, Hidden Meadows,
on approximately 258 acres of land adjacent to the Morning Star Estates
subdivision. The Hidden Meadows subdivision is a 45 lot subdivision, which was
developed and substantially completed during 1995. Blue Ledge sold eleven lots
in the Hidden Meadows subdivision in 1995 and seven lots in 1996. Since
December 31, 1996, Blue Ledge has sold two additional lots and has another
four lots under contract to close in 1997.

During 1991, the Company entered into a series of transactions involving
water rights. As a result of these transactions, United Park has fully
satisfied its future obligation to dedicate water rights to Park City
Municipal Corporation ("Park City") as a direct or indirect condition of the
annexation to or development in Park City of all of the real property
currently owned by United Park. The Company also received a contract right for
400 acre feet per year of water for snow-making purposes.

On November 6, 1992, United Park entered into a Settlement Agreement and
Release ("Settlement Agreement") with Royal Street Land Company, Deer Valley
Resort Company, Royal Street of Utah, Royal

2
<PAGE>

Street Development Company (collectively "Deer Valley"), and Wells Fargo Bank,
N.A. In the settlement, Deer Valley conveyed its interests in certain water
rights, located in Wasatch and Summit Counties, Utah, to United Park, and
United Park assigned its contract right with Park City for 400 acre feet per
year of snow-making water to Deer Valley. The Settlement Agreement also
provides United Park the opportunity to develop, without the encumbrance of
the Deer Valley Ski Lease, certain parcels of land which are currently subject
to the Deer Valley Ski Lease. The Settlement Agreement further provides Deer
Valley the opportunity to acquire United Park's interest in the surface estate
to the balance of the land within the Deer Valley Ski Lease. Both United
Park's and Deer Valley's opportunities concerning these parcels of land
currently under the Deer Valley Ski Lease are contingent upon master plan
approval by Park City and acceptance of the master plan by United Park. During
1993, the Company actively worked on the design of a real estate development
project on Flagstaff Mountain in Deer Valley. The Company requested annexation
and master plan approval for the project from Park City during 1994. The
Company has refined and improved the master plan and vigorously pursued
approval for the project during 1995 and 1996. Park City is currently
finalizing its review of the Company's request for annexation and master plan
approval and it is anticipated that Park City will act upon the annexation and
master plan during 1997.

Some of the factors that influence the development of the Company's real
estate include competition, cooperative agreements with other parties,
governmental approvals, master plans, engineering, installation of utility
service, and financing. The Company also faces competition in its real estate
development activities from developers that have completed and are currently
marketing other development projects in the Park City area. The market for
developed real estate in the Park City area is also subject to seasonal
fluctuations, with most sales occurring during the ski season from December
through March of each year. The Company believes that the quantity and variety
of its real estate holdings, which may be suitable for resort, residential,
industrial or commercial uses, gives the Company a competitive advantage and
the ability to adapt to changing market conditions. The Company occasionally
sells parcels of land outside of United Park's development areas, as
opportunities become available.

While the real estate market in the Park City area has improved during prior
years, it did not continue to improve in the same manner during 1996.

The International Olympic Committee chose the Salt Lake City metropolitan
area, including Park City, to host the 2002 Winter Olympic Games. The Company
believes that the national exposure of the Park City area during the 2002
Winter Olympic Games will favorably impact real estate values.

MINE MAINTENANCE

United Park owns the mineral estate to more than 13,400 acres of land
principally located near or in Park City, Utah, with the exception of 21 acres
of patented mining claims located in Beaver County, Utah. United Park's total
mining properties consist of more than 10,500 acres of patented (fee title)
mining claims, together with an additional 2,726 acres of fee lands and 201
acres of unpatented mining claims. Portions of the surface estate of these
properties have been sold; however, United Park has retained the surface
estate to more than 8,300 acres, which was described under "Real Estate."

The Company owns several underground mines, most of which are interconnected
via underground tunnels and shafts. United Park's mining properties have not
been operated since 1982, but are maintained on a stand-by basis. The Ontario
Mine serves as United Park's primary facility for its maintenance activities;
however, the Company also maintains facilities at several other locations.
United Park has seven principal shafts and five adits suitable for drainage,
ventilation, and transportation as well as numerous drifts, raises,
underground workings, and facilities on the surface of its properties. The
maintenance activities on a number of these shafts and adits are undertaken to
provide that all types of equipment are in adequate condition, that
underground transportation and ventilation systems are adequate, and that the
Company is in compliance with its governmental permits and regulations.

3
<PAGE>

The costs associated with maintaining and holding the Company's mining
properties include, but are not limited to, costs for water treatment and
pumping, tunnel maintenance, security, equipment and building maintenance,
utilities, fuel, payroll, insurance, property taxes, other taxes, and
compliance with various governmental regulations.

The Company, from time to time, performs tunnel maintenance and repair work
for other entities on a contract basis. United Park performs work for Park
City in the Judge Tunnel and the Spiro Tunnel. The Company anticipates further
contract work in 1997.

The water which is discharged from the Ontario Mine is subject to a Utah
Pollutant Discharge Elimination System ("UPDES") permit issued by the Division
of Water Quality, Utah Department of Environmental Quality, with oversight by
the U. S. Environmental Protection Agency ("EPA"). This permit sets
limitations on the concentrations of various metals allowed in the water
before the water can be released into the environment. To comply with the
UPDES permit, the Company must monitor the concentrations of various metals in
the water flowing from the mine and treat the water before it is released. The
Company maintains a water treatment facility at its Keetley plant for this
purpose.

United Park remains in compliance under its environmental and regulatory
permits issued by various governmental agencies. A portion of United Park's
mining property, known as "Richardson Flat Tailings," which the Company
monitors under its UPDES permit, has been subject to testing and evaluation by
the EPA under the National Contingency Plan pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA"). On June
24, 1988, the EPA proposed that the Richardson Flat Tailings site be added to
the EPA's National Priorities List ("NPL"), the EPA's listing of national
priority hazardous waste sites. The site was dropped from consideration for
the NPL on February 11, 1991, in response to the comments submitted by United
Park. On February 7, 1992, the EPA again proposed the listing of the
Richardson Flat Tailings site to NPL. In April 1992, the Company again
submitted written comments opposing the EPA's listing on a number of
substantive and procedural grounds. The EPA has neither responded to United
Park's comments nor finalized its proposal to list the site. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,
Liquidity and Capital Resources, Mine Maintenance" for a complete description
of the proposed listing.

United Park is unable to predict when, if ever, it will be economically
feasible for United Park or another company to resume mining operations. The
economic feasibility of resuming mining operations will depend upon, among
other things, an increase in metals prices and the resolution of technical
problems such as groundwater problems and certain milling applications. The
Company cannot currently predict the metals prices which would allow for
economic mining operations. If the Company or another operator resumes active
mining operations on the properties, it would be necessary to update or
acquire certain additional permits, licenses or approvals from the appropriate
governmental agencies.

The resumption of mining operations may also be hindered by the recent
construction of the Jordanelle Dam and Reservoir in the Bonneville Unit of the
Central Utah Project ("CUP"). The Jordanelle Reservoir covers only minor
portions of United Park's mining properties, but it could cause United Park's
mines to be inundated by the impounded water seeping underground through
existing faults and fissures. This underground seepage would exacerbate the
current problems caused by groundwater in the mines, such as the necessity of
pumping and treating all discharged waters and dewatering additional portions
of the mines before mining operations could be resumed. The United States
Department of Interior, Bureau of Reclamation ("BOR") began construction of
the Jordanelle Dam in 1987 and began filling the Jordanelle Reservoir in 1993.
The reservoir was filled ahead of schedule in 1996. Since 1979, the Company
has continually provided BOR and other government agencies with oral and
written comments concerning the impact of the Jordanelle Dam on the Company's
mining properties. The Company has established a system to monitor water flows
in its mines. This monitoring system is currently providing data which is
being analyzed. The Company intends to continue to pursue the administrative
and legal remedies currently available to it and such other appropriate
remedies in the future as may be necessary to protect the Company's property
rights.

4
<PAGE>

United Park's wholly owned subsidiary The Weber Coal Company ("Weber Coal")
owns approximately 811 acres of fee land located east of Coalville, Utah.
Historically, Weber Coal was a coal producer but the mines were plugged and
abandoned in the 1950's. Pursuant to prior leases for oil and gas development,
which have all now expired by their own terms, an oil and gas exploratory well
was drilled on this land in 1979 to a depth of 17,954 feet. Although this well
was later abandoned for lack of production, Weber Coal does not believe the
oil and gas potential of these lands was adequately tested because of the
substantial subsurface deviation of this wellbore from the targeted formation.
Weber Coal does not currently have any plans for additional exploration or
development of these oil and gas properties. Weber Coal has leased the surface
of its properties for grazing and permits natural gas to be stored under the
surface, but does not receive material revenue from these activities.

MINE TOUR ATTRACTION

During 1995, the Company, assisted by an outside consultant, finalized the
design, development and construction of a mine tour attraction at some of its
mining facilities. The mine tour attraction is located at the Ontario Mine and
includes history and mining exhibits, multi-media presentations, computer
interactive programs, dioramas, a theater, and pictorial displays, along with
a gift shop and a food concession. The primary attraction is an underground
tour of a part of the Company's Ontario Mine. As part of this attraction,
guests descend 1,500 feet into the Ontario Mine, ride a specially designed
mine train through mine tunnels, view mine equipment from several different
eras, and observe a multi-media presentation. The mine tour attraction is
operated by the Company's wholly owned subsidiary Park City Silver Mine
Adventure, Inc. and has been well received by the public. The mine tour
attraction was opened to the public on December 15, 1995, and approximately
136,000 guests have experienced the mine tour attraction to date.

TITLE TO PROPERTIES

United Park has obtained certified abstracts of title on virtually all of
its patented mining claims and fee lands. In general, these abstracts contain
all recorded documents appearing in the chain of title to the particular
property from the original notice of location or patent through the conveyance
into United Park. With respect to fee properties acquired during the past 20
years, however, the seller has generally provided United Park a policy of
title insurance. Although United Park has generally not obtained title
opinions from independent legal counsel or policies of title insurance on its
properties, management has satisfied itself as to title matters either by in-
house reviews of abstracts by Company personnel or by purchasing policies of
title insurance on selected properties on an "as sold" or "as needed" basis.

United Park's unpatented, lode mining claims are generally located on small
"open" areas between its patented mining claims. Under applicable law, United
Park does not hold fee title to these unpatented claims, as is the case with
its patented mining claims, but rather holds equitable and beneficial title to
the mineral estate subject to the paramount title of the United States and to
the requirements of maintaining the claims imposed by applicable federal and
state laws and regulations. United Park maintains files for each of these
unpatented, lode mining claims documenting its compliance with these
requirements for the location and maintenance of the unpatented claims. The
claim files have been reviewed by Company personnel for completeness and
compliance, but no title opinions have been obtained on these properties from
independent legal counsel. Policies of title insurance generally are not
available for unpatented mining claims prior to the time a patent conveying
fee title to the claim is issued by the United States.

Although it has not conducted an examination of the public records affecting
its properties and has not obtained title opinions or policies of title
insurance covering all of its properties, United Park is not aware of any
encumbrances, other than those discussed under "Legal Proceedings" and those
utility and access easements or rights of way either placed upon the
properties by United Park or otherwise affecting the properties.

RESORT AGREEMENTS

From 1963 to 1971, United Park operated a ski resort in Park City, Utah, on
the surface of portions of its properties not used in connection with its
mining operations. Effective January 1, 1971, United Park entered into

5
<PAGE>

certain interrelated agreements ("Resort Agreements") whereby United Park
agreed to sell and lease its ski resort properties to Treasure Mountain Resort
Company, which later changed its name to Greater Park City Company ("GPCC").
The Resort Agreements were amended in 1975 and were subject to litigation
which commenced in 1986 and was settled on November 13, 1995.

As part of the Resort Agreements, the Water Rights Purchase Agreement, dated
January 1, 1971, as amended, provided for the sale of certain water rights by
United Park to GPCC, and United Park perpetually reserved to itself, from some
of the water rights which it sold to GPCC, the right to use the first 2,850
gallons of water per minute for mining, milling, and related purposes.

In addition, United Park entered into three leases with GPCC. These leases
have been amended from time to time. The leases, which together cover the
surface of approximately 5,300 acres of land, permit the operation of ski
lifts and ski runs on the leased land. The term of each lease has been
extended to April 30, 2011 by notice to the Company. The lessees have the
right to extend each lease for two additional periods of 20 years each.
Certain portions of the Company's surface interest in the property subject to
the leases may be sold by United Park subject to the lessee's right of first
refusal. Under the extension provisions, the leases require the lessees to pay
rent to United Park annually at the greater of $0.50 per acre per year or (a)
1.0% of the first $100,000 of gross lift revenue, plus 0.5% of gross lift
revenue in excess of $100,000, annually through the fiscal year ending April,
2011; (b) 2.0% of the first $100,000 of gross lift revenue, plus 1.0% of gross
lift revenue in excess of $100,000, annually for fiscal years 2012 through
2031; and (c) 3.0% of the first $100,000 of gross lift revenue, plus 1.5% of
gross lift revenue in excess of $100,000, annually for fiscal years 2032
through 2051. The Deer Valley and Park City resort operators paid United Park
for the 1994-95 ski season a total of $148,875, and for the 1995-96 ski
season, a total of $152,448.

EMPLOYEES

United Park and its subsidiary Park City Silver Mine Adventure, Inc. employ
a total of thirty-five full-time employees in their operations. United Park
maintains a staff of seven full-time salaried employees in the Ontario #3
office. In addition, United Park maintains a staff of four full-time salaried
employees and nine full-time hourly employees, each of whom is an experienced
underground miner, for its mine maintenance operations. Park City Silver Mine
Adventure, Inc. maintains a staff of four full-time employees and an average
of approximately forty part-time employees.

6
<PAGE>

LEGAL PROCEEDINGS

As of March 24, 1997, United Park was a party to the following legal
proceedings:

UNITED STATES OF AMERICA V. 106.79 ACRES OF LAND, UNITED PARK CITY
MINES COMPANY, ET AL.
Civil No. 88-C-0231W, United States District Court for the District of
Utah

In March 1988, the United States of America filed a complaint in
condemnation against United Park in order to take properties under power of
eminent domain for the Jordanelle Dam and Reservoir and for relocation of
highways in connection with the construction of the Jordanelle Dam and
Reservoir. United Park has filed an answer to the complaint in condemnation in
order to protect its rights and obtain just compensation. As a condition to
the exercise of the power of eminent domain, the United States deposited
$460,850 with the Registry of the court for the use and benefit of the
landowner. Pursuant to a stipulation of the parties and order of the court,
the deposited $460,850 and accrued interest was distributed to United Park;
however, the stipulation and order provide that none of United Park's defenses
raised in its answer are waived by its receipt of the deposited funds. When a
final judgment is entered in this condemnation case, the final compensation
awarded to United Park may be adjusted.

CHARLES FRANK GILLMOR, ET AL. V. UNITED PARK CITY MINES COMPANY, ET AL.
Civil No. 94-030-0087QT, Third Judicial District Court, Summit County,
Utah

In the third quarter of 1994, Charles Frank Gillmor and Nadine Gillmor
("Gillmors") filed a complaint in an action to quiet title against United
Park, Blue Ledge, and others, as defendants, in which the Gillmors claimed an
interest in a number of properties, including a prescriptive easement over,
and title to, a portion of Lot 1 of the Morning Star Estates subdivision, a
prescriptive easement over another parcel of property owned by Blue Ledge, and
title by adverse possession to the surface estate of portions of property
owned by Blue Ledge. After the death of Charles Frank Gillmor, Nadine Gillmor
("Gillmor") filed numerous amendments to the Gillmor complaint, and United
Park and Blue Ledge responded to the amended complaint by filing an answer
denying Gillmor's claims. Blue Ledge also filed a counterclaim against Gillmor
for causes of action to: (1) quiet title in the name of Blue Ledge to the
surface estate of those portions of the property to which Gillmor had filed a
claim; (2) declare that Gillmor has no right, title or interest in or to any
portion of the real property comprising the Morning Star Estates subdivision
as recorded on the subdivision plat with Summit County, Utah; and (3) declare
that Gillmor has no right to an easement across Lot 1 of the Morning Star
Estates subdivision, Summit County, Utah.

On March 25, 1996, the court dismissed with prejudice Gillmor's claims to
various easements and any ownership interest in the Morning Star Estates
subdivision, and Blue Ledge's counterclaims against Gillmor regarding
Gillmor's claim to an easement across, and ownership interest in, the Morning
Star Estates subdivision. Therefore, Gillmor's sole remaining claim and Blue
Ledge's sole remaining counterclaim in this lawsuit concern the ownership of
the surface estate of certain portions of property.

On June 18, 1996 Gillmor filed a motion for summary judgment to quiet title
in the name of Gillmor to the surface estate of the disputed real property. On
July 16, 1996, Blue Ledge filed a detailed memorandum in opposition to
Gillmor's motion for summary judgment. On September 18, 1996, Gillmor filed a
notice of withdrawal of Gillmor's motion for summary judgment. Gillmor has
expressed the desire to pursue additional discovery in this case.

STEVEN MEGUR AND SUSAN MEGUR V. UNITED PARK CITY MINES COMPANY, BLUE
LEDGE CORPORATION, ET AL.
Civil No. 94-C-1026B, United States District Court for the District of
Utah

On October 26, 1994, Steven and Susan Megur ("Megurs") filed a complaint
against United Park, Blue Ledge, Coleman Land Company, Inc., and others, as
defendants, in which the Megurs claimed United Park and Blue Ledge committed
fraud against Megurs by reason of the prescriptive easement previously claimed
by the

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<PAGE>

Gillmors across Lot 1 of the Morning Star Estates subdivision. The Megurs also
claimed negligent misrepresentation against Coleman Land Company, Inc., the
real estate listing agent for Blue Ledge in the Morning Star Estates
subdivision, and against United Park and Blue Ledge, by reason of the
prescriptive easement previously claimed by the Gillmors across Lot 1. Susan
Megur purchased Lot 1 of the Morning Star Estates subdivision from Blue Ledge.
The Megurs sought damages against all of the defendants in the amount of
$937,838 general damages and $3,000,000 punitive damages. In their answers,
United Park, Blue Ledge and the Coleman Land Company, Inc. denied the claims
made by the Megurs.

In an order dated October 31, 1996, granting the motions for summary
judgment of United Park and Coleman Land Company. Inc., the court dismissed
United Park and Coleman Land Company, Inc. as defendants in this lawsuit. On
November 18 through 20, 1996, a trial was held regarding disputed issues of
fact as to whether Blue Ledge committed fraud against Megurs. On March 7,
1997, the court entered its memorandum decision and order in this case stating
that Megurs had not proven that they were defrauded by Blue Ledge and
determining that Blue Ledge has no liability to Megurs. On March 21, 1997,
Megurs filed a motion to alter and amend the court's memorandum decision and
order, enter judgment for Megurs, or in the alternative, for a new trial. Blue
Ledge intends to oppose Megurs' motion.

MARKET FOR UNITED PARK'S STOCK

The common stock of United Park City Mines Company, $.01 par value, is
traded on the New York Stock Exchange under the symbol "UPK." As of March 18,
1997, United Park had 2,700,250 outstanding shares of common stock held by
approximately 1,021 stockholders of record. During the third quarter of 1995,
United Park conducted a reverse stock split and, prior to conducting the
reverse stock split, had 54,006,503 shares of common stock outstanding during
the first two quarters of 1995. The following table sets forth the high and
low sales price for United Park's common stock during the last two years, as
reported in the consolidated transaction reporting system and as adjusted for
the reverse stock split.

<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter.............................. $15.625 $14.000 $ 7.500 $ 7.500
Second Quarter............................. $14.500 $13.875 $22.500 $ 7.500
Third Quarter.............................. $13.875 $11.625 $16.000 $11.260
Fourth Quarter............................. $11.500 $ 9.500 $14.500 $ 6.125
</TABLE>

Since its incorporation, United Park has not paid a dividend on its common
stock and it does not expect to pay a dividend in the near future.

8
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Real Estate Development

Blue Ledge developed approximately 175 acres of land located north of the
Deer Valley Ski Area near Park City, Utah during 1993. This land was
subdivided into twelve single family estate lots ("Morning Star Estates") and
annexed into the city of Park City. Nine lots were sold in 1993 and 1994.
During 1995, Blue Ledge sold two of the twelve lots within the Morning Star
Estates subdivision and in 1996, sold the remaining one lot within the
subdivision. Gross revenue from the sales totaled $387,000 in 1996 and
$1,550,000 in 1995. Blue Ledge recognized profit of $168,536 in 1996 and
$601,156 in 1995. The majority of the cash generated from these sales was used
to pay for subdivision improvements on this and other developments.

During 1995, Blue Ledge developed a 258 acre parcel of land adjacent to the
Morning Star Estates subdivision. This project is known as Hidden Meadows and
includes forty-five improved building lots. Blue Ledge sold seven lots in the
Hidden Meadows subdivision for $1,780,000 during 1996 and eleven lots for
$2,809,600 during 1995. Blue Ledge recognized profit from Hidden Meadows lot
sales of $863,829 in 1996 and $1,364,165 in 1995. Proceeds from these sales
were used to pay for subdivision improvements, repay loans and fund
operations.

During the first quarter of 1997, Blue Ledge sold two additional lots and
has another four lots in the Hidden Meadows subdivision under contract to
close in 1997. Blue Ledge is actively marketing the remaining twenty-one
Hidden Meadows lots at prices ranging from $125,000 to $400,000 and has
projected to sell six lots in addition to those currently under contract
during 1997.

In July 1995, Blue Ledge obtained financing from a local bank totaling
$5,576,483, consisting of a development loan of $3,154,260 and two standby
letters of credit totaling $2,422,223 for the Hidden Meadows project. The loan
was paid in full during 1996 and the letters of credit, as amended, expire on
January 1, 1998. The loan was collateralized by the land and improvements of
the Hidden Meadows subdivision.

Blue Ledge obtained an additional $1,000,000 loan from the same bank in
December, 1995. At December 31, 1996, all of the funds had been drawn against
this loan. The funds were used to fund operations and developments. Unpaid
principal on the loan bears interest at 1 1/2 percent over the bank's prime
lending rate and is collateralized by the remaining land and improvements of
the Hidden Meadows development. This loan was due December 1, 1996 and the
loan was extended by the bank to September 30, 1997. At December 31, 1996,
Blue Ledge had paid $123,116 to the bank in repayment of the loan from the
sales of lots.

Pursuant to the terms of an agreement dated November 6, 1992, between United
Park and Royal Street Land Company, Deer Valley Resort Company, Royal Street
of Utah, Royal Street Development Company (collectively "Deer Valley"), and
Wells Fargo Bank, N.A., United Park has the opportunity to develop, without
the encumbrance of the Deer Valley Ski Lease, certain parcels of land which
are currently subject to the Deer Valley Ski Lease. The agreement further
provides Deer Valley the opportunity to acquire United Park's interest in the
surface estate to the balance of the land within the Deer Valley Ski Lease.
Both United Park's and Deer Valley's opportunities concerning these parcels of
land currently under the Deer Valley Ski Lease are contingent upon master plan
approval by Park City and acceptance of the master plan by United Park.

If Park City does not approve the master plan or if the Company does not
accept the master plan, the land within the Deer Valley Ski Lease will remain
encumbered by the Deer Valley Ski Lease. If master plan approval is obtained
and accepted, the Deer Valley Ski Lease will be terminated. The Company could
then proceed to develop those certain parcels of land which were formerly
encumbered by the Deer Valley Ski Lease and would convey the balance of the
surface estate of the land formerly encumbered by the Deer Valley Ski Lease to
Deer Valley. With the appropriate approvals, the positive impact upon the
Company's real estate development could

9
<PAGE>

be substantial. In 1993, the Company had begun actively working on the design
of a real estate development project on these parcels of land known as
Flagstaff Mountain in Deer Valley. In 1994, the Company requested annexation
and master plan approval for the project from Park City Municipal Corporation
("Park City"). During 1995 and 1996, the Company revised the master plan and
diligently pursued approval for the project. The Company's request for
annexation and master plan approval is currently undergoing final review by
Park City. Park City is expected to act upon the annexation and master plan
during 1997.

The Company has also examined several of its other real estate parcels and
believes that economic real estate development potential exists on these
properties, if the necessary agreements and approvals are obtained. The
Company will continue to pursue development of these properties as the
opportunities arise.

While the Board of Directors is of the opinion that the current value of the
Company's real property is in excess of its book value, the Board of Directors
believes that by holding the property for future sale or development, the
property's value will increase as the real estate market continues to improve
in the Park City area and funds are more readily available to finance real
estate development. Management believes that the recorded costs associated
with land and real estate on the balance sheet will be recoverable through the
sale and development of the related properties.

Water

Prior to 1974, the Company was involved in extensive litigation with Salt
Lake City Municipal Corporation regarding ownership of the water rights to
certain water emanating from the Spiro Tunnel, a tunnel in the Park City area
which is owned by the Company. Under a settlement agreement dated March 20,
1974, the Company received, among other things, a right of first refusal to
purchase surplus water from Salt Lake City Municipal Corporation's water right
in the Spiro Tunnel. On December 6, 1991, United Park exercised its right of
first refusal to purchase 1,000 acre-feet of surplus water from Salt Lake City
Municipal Corporation's water right in the Spiro Tunnel on the same terms and
conditions as such surplus water was offered by Salt Lake City Municipal
Corporation to Park City in an October 8, 1991 Water Supply Agreement.

In an agreement dated January 23, 1992, United Park assigned its right of
first refusal as to the October 8, 1991 Water Supply Agreement to Park City.
United Park also agreed that in the event it acquires rights in water of the
Spiro Tunnel now owned by Salt Lake City Municipal Corporation, Park City
shall have the first right to acquire those rights under terms and conditions
specified in the agreement. In the agreement, Park City accepted these rights
from United Park as full satisfaction of United Park's obligation to dedicate
water rights to Park City as a direct or indirect condition of the annexation
to or development in Park City of all of the real property currently owned by
United Park. The Company believes that the elimination of the obligation to
dedicate water rights to Park City as a condition for development of the
Company's land in Park City has enhanced the Company's ability to proceed with
development of its real estate.

In the second quarter of 1995, the Company finalized a settlement with a
third party regarding shared costs for tunnel maintenance work which the
Company had performed. The Company received water rights with a market value
of at least $400,000 which the Company will utilize in future operations, and
$350,000 in cash which the Company has used in its operations. The water
rights are reflected on the Company's Consolidated Balance Sheet as "Water
rights." The total settlement amount of $750,000 was recorded as "Other"
revenue on the Company's Consolidated Statements of Operations.

Mine Maintenance

In 1991, the Company entered into an agreement with Park City to perform
tunnel maintenance work in the Spiro Tunnel and the Judge Tunnel, tunnels
which supply some of Park City's culinary water. This contract provided
revenue of $50,330 during 1996 and $116,862 during 1995. Additional work will
be performed in the tunnels during 1997. The work involves reinforcement of
the tunnels to avoid possible cave-ins which may restrict the flow of water.

10
<PAGE>

The Company incurs direct costs associated with maintaining and holding the
Company's mining properties. These costs include, but are not limited to,
costs for water treatment and pumping, tunnel maintenance, security, equipment
and building maintenance, utilities, fuel, payroll, insurance, property taxes,
other taxes, and compliance with various regulations. Due to intensified
efforts in its tunnel maintenance activities, the Company expended $1,301,345
in its mine maintenance activities during 1996 and $1,030,289 during 1995.

United Park continues to remain in compliance under all of its environmental
and regulatory permits. A portion of United Park's mining property, known as
"Richardson Flat Tailings," was proposed by the United States Environmental
Protection Agency ("EPA") on June 24, 1988, by notice published in the Federal
Register, to be added to the EPA's National Priorities List ("NPL"), the EPA's
listing of national priority hazardous waste sites. United Park submitted
written comments opposing the listing of the Richardson Flat Tailings site on
a number of procedural and substantive grounds. In a final rule published
February 11, 1991, in the Federal Register, and effective as of March 13,
1991, the EPA announced that the Richardson Flat Tailings site would not be
listed on the NPL. The EPA withdrew the Richardson Flat Tailings site from the
EPA's previous proposal for listing on the NPL because, based on information
then available to the EPA, the site scored below the regulatory cut-off for
listing.

On February 7, 1992, by notice published in the Federal Register, the EPA
again proposed that the Richardson Flat Tailings site be added to the NPL. In
April 1992, the Company submitted written comments opposing the listing on a
number of procedural and substantive grounds. As of this date, the EPA has
neither responded to United Park's comments nor finalized its proposal to list
the site on the NPL.

The NPL has been established by the EPA under CERCLA to identify, inventory,
and prioritize sites which warrant further investigation to assess the nature
and extent of any public health and environmental risks associated with the
site and to determine what remedial action, if any, may be appropriate.

Inclusion of a site on the NPL does not establish that the EPA will
necessarily require remedial action for the site. Listing on the NPL does not
establish that any remedial action by the EPA or any private party is
necessary nor does listing determine any liability for the cost of any
remediation at the site. The EPA, United Park, and/or other potentially
responsible parties may perform more detailed studies at the site to determine
what response, if any, is necessary.

Numerous mining properties throughout the United States owned by other
entities are currently proposed for listing or are listed on the NPL. As a
result of the EPA's evaluation of the Richardson Flat Tailings site, United
Park may be advised to continue its current environmental monitoring and
practices at the site under its UPDES permit, or the Company may be required
to undertake additional stabilization or remediation activities on this
portion of its mining property to comply with the standards for disposal of
mining wastes under CERCLA. In 1983, United Park began a containment program,
which is now substantially complete, to cover the Richardson Flat Tailings
area with topsoil and seed the site for vegetation. Management is not now able
to accurately predict whether the Richardson Flat Tailings site will be listed
on the NPL and, if it is listed, whether further remedial actions will be
required. Should substantial remediation be required at the site and should
United Park be designated a potentially responsible party and it is determined
that United Park is a responsible party liable for remediation, those costs
could be substantial to the Company.

As United Park currently conducts its mine maintenance operations and under
current reclamation statutes and regulations, United Park is not liable for
reclamation costs associated with its mining properties. However, if United
Park ever elects to cease its mine maintenance operations, the Company may
choose to permanently restrict access to its mines. If management chooses to
perform certain elective reclamation of its surface areas disturbed by past
mining operations, management believes that such reclamation and access
restriction costs would be minimal.

The Company established a system of monitoring water flows in the Company's
mines to gather data on water flows before the Jordanelle Reservoir began to
fill, while the reservoir was filling, and after the Jordanelle

11
<PAGE>

Reservoir was completely filled. See "Business and Properties-Mine
Maintenance" for a complete discussion of the Jordanelle Dam project. The
Company believes that its mines may be inundated by the impounded water in the
Jordanelle Reservoir seeping underground through existing faults and fissures.
This underground seepage may necessitate additional pumping and water
treatment costs. The potential flooding of the mines may also impact the
economic feasibility of future mining operation or activities. The Company
intends to pursue the administrative and legal remedies available to it and
such other remedies as may be necessary to protect its property rights.

Mine Tour Attraction

The Company finalized the design and completed construction of the mine tour
attraction during 1995. The mine tour attraction, known as Park City Silver
Mine Adventure, is located at the Ontario Mine and operated by the Company's
wholly owned subsidiary Park City Silver Mine Adventure, Inc. The project
included the remodeling and renovation of more than 30,000 square feet of
building space above ground and the construction in that building of history
and mining exhibits, multi-media presentations, computer interactive programs,
dioramas, a theater, and pictorial displays, along with a gift shop and a food
concession. The project also included construction underground which consisted
of rehabilitation of shafts and tunnels along with the construction of
specially designed cages, a mine train, exhibits and a multi-media
presentation. The Company capitalized a total of $4,402,901 in connection with
the development and construction of the mine tour attraction during 1995 and
$306,565 during 1996.

The Company utilized an outside consultant in the design, construction and
first year's operation of the mine tour attraction. The agreement with the
outside consultant was terminated in November, 1996, and the Company has hired
its own general manager to operate the mine tour attraction and decrease
operating expenses.

Resort Litigation

On November 13, 1995, a Stipulation and Motion for Dismissal With Prejudice
was entered into in order to obtain an Order dismissing all remaining claims
in United Park City Mines Company v. Greater Park City Company, et al., Civil
No. C86-3347, Third Judicial District Court, Salt Lake County, Utah. An Order
of Dismissal With Prejudice disposing of all remaining claims was signed by
the Court and also filed on November 13, 1995, thereby finally terminating all
of the remaining aspects of this litigation. The Company expended $217,034 in
legal fees in 1995. In connection with disposing of all remaining claims, the
Company incurred legal fees of $19,206 in 1996. The Company does not
anticipate incurring any legal fees in connection with this litigation during
1997.

Cash Flow

The Company's Consolidated Statement of Cash Flows indicates net cash
provided by operating activities of $619,346 during 1996. In 1996, the Company
used existing cash balances, proceeds from the sale of lots, land and
buildings, and some of the proceeds from bank borrowings to fund its
operations.

The Company's Consolidated Statement of Cash Flows shows net cash used by
operating activities of $385,918 during 1995. In 1995, the Company used
existing cash balances and some of the proceeds from the sale of lots to fund
its operations.

At various times throughout 1996, the Company has suffered from a lack of
cash flow for its operations due to lower than anticipated sales of lots in
its Hidden Meadows subdivision and greater than expected expenses in
connection with the mine tour attraction. The Company is currently reviewing
various means of providing operating cash, including but not limited to,
additional borrowings and a recapitalization of the Company.

The Company's cash position increased by $676,682 during 1996. The Company
used funds from its cash balances, lot sales, real estate sales and loans to
fund its operations, the construction of its mine tour attraction

12
<PAGE>

and the development of its real estate projects. Of the total loan proceeds of
$1,477,882 all but $587,168 was repaid during 1996 using proceeds from lot
sales. The Company spent $529,832 on capital expenditures in 1996 and does not
expect similar levels of capital activity in 1997 because Hidden Meadows and
the mine tour attraction are fully developed and no other projects have yet
been approved.

RESULTS OF OPERATIONS

1996 Compared with 1995

Revenue in 1996 totaled $6,246,934, an increase of 11% over 1995 revenues.
The increase in revenues is primarily the result of increased sales of land
and a building outside of the Company's development projects and a full year's
operation of the mine tour attraction.

During 1995, Blue Ledge sold two of the twelve Morning Star Estates lots and
in 1996, sold the remaining one lot in the Morning Star Estates subdivision.
Blue Ledge recognized a profit of $610,156 or 39% on gross sales of $1,550,000
in 1995 and recognized a profit of $168,536 or 44% on gross sales of $387,000,
in 1996. These sales accounted for 27% of the Company's total revenue during
1995 and 6% of the Company's total revenue during 1996.

Blue Ledge sold seven lots in the Hidden Meadows subdivision and recognized
a profit of $863,829 or 49% on gross sales of $1,780,000 during 1996. During
1995, Blue Ledge sold eleven lots in the Hidden Meadows subdivision and
recognized a profit of $1,364,165 or 49% on gross sales of $2,809,600. These
sales accounted for 28% of the Company's total revenue in 1996 and 50% of the
Company's total revenue for 1995.

The Company experienced a net loss of $594,237 for 1996 and a net income of
$773,276 for 1995. The net loss for 1996 is primarily the result of costs
exceeding revenue with the mine tour attraction, increased depreciation and
property taxes associated with the mine tour attraction and lower than
expected sales of lots in the Hidden Meadows subdivision. The net income for
1995 is primarily the result of increased lot sales, a settlement with a third
party regarding shared costs for tunnel maintenance work which United Park had
performed, and the effect of recognition of the net change in the valuation
allowance regarding the recognition of the expected utilization of net
operating loss carryforwards.

During 1996, Park City Silver Mine Adventure, Inc. generated $1,341,831 in
revenues and experienced $1,960,611 in operating expenditures. These expenses
reflect some one-time/non-recurring marketing costs that are not anticipated
to continue. During the fifteen days in 1995 that the mine tour attraction was
open, Park City Silver Mine Adventure, Inc. generated $81,029 in revenues and
experienced $231,219 in operating expenditures. The mine tour attraction
revenues accounted for 21.5% of the Company's total revenue in 1996 and 1.4%
of the Company's total revenue for 1995.

The Company sold two parcels of land outside of its development areas during
1996 for a total of $2,370,000. Land costs of $630,036 were allocated to these
sales based upon the relative fair market value of these parcels in relation
to all other lands owned by the Company. These sales accounted for 38% of the
Company's total revenues in 1996. No such sale was transacted during 1995.

Interest income decreased 97% during 1996 when compared with 1995. The
decrease is the result of smaller cash balances available for investment
during 1996.

The Company's other income decreased 83% during 1996 as a result of a one-
time settlement with a third party in 1995 regarding shared tunnel maintenance
costs.

Legal Fees for the Resort Litigation decreased 91% in 1996 as a result of
the court's entering an Order for Dismissal with Prejudice in the litigation
during 1995.

13
<PAGE>

The Company experienced a 57% decrease in revenues and expenses associated
with contract services as a result of the Company's mine crews being assigned
to perform work for the Company rather than for third parties. The Company
anticipates that the contract work will increase during 1997.

Mine maintenance and administrative costs increased 26% during 1996 as a
result of increased efforts in the Company's mine tunnel maintenance.

The Company's depreciation expense increased 156% in 1996 when compared with
1995. The increase is due to the increased assets used in connection with the
mine tour attraction.

The Company incurred $54,377 in interest expense associated with borrowings
which were necessary to fund its operations during 1996. The Company made no
such borrowings during 1995.

Outlook

The Company believes that additional borrowings, a possible restructure of
its existing capital resources and anticipated cash flows from operations will
provide it with sufficient funds to meet its anticipated capital and operating
requirements for 1997.

Based upon projected revenues and expenses, the Company is optimistic that
its wholly owned subsidiary Park City Silver Mine Adventure, Inc. should cover
the direct costs of its operations in 1997 and should contribute to the
Company's future cash flows.

The Company believes that it will continue to incur development costs in
gaining approval for its Flagstaff Mountain of Deer Valley project and expects
to continue funding those costs through borrowings, possible future
recapitalization and its cash flows. As development opportunities with other
parcels of the Company's real estate arise, the Company intends to pursue
those opportunities and will fund such development as it then deems
appropriate.

Blue Ledge anticipates completing twelve sales of building lots in the
Hidden Meadows subdivision during 1997. As the development of the subdivision
is substantially complete, Blue Ledge does not expect to incur substantial
additional costs with this development. During the first quarter of 1997, Blue
Ledge has sold two additional lots and has another four lots in the
subdivision under contract to close in 1997.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS
No. 128 establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock, and is effective for financial statements issued for periods
ending after December 15, 1997. The Company has not determined the impact this
standard will have on its reported EPS.

14
<PAGE>

LIST OF CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheet, December 31, 1996........................... F-2
Consolidated Statements of Operations for the years ended December 31,
1996 and 1995.......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996 and 1995....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995.......................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>

15
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of United Park City Mines Company:

We have audited the consolidated financial statements of United Park City
Mines Company and Subsidiaries, as listed on the index on page 14 of this
report. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United Park
City Mines Company and Subsidiaries as of December 31, 1996 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.

Coopers & Lybrand L.L.P.

Salt Lake City, Utah
April 3, 1997

F-1
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS

<TABLE>
<S> <C>
Cash and cash equivalents.......................................... $ 1,050,405
Accounts receivable................................................ 45,375
Prepaid expenses................................................... 248,452
Inventories........................................................ 107,378
Deferred income taxes.............................................. 475,202
Other.............................................................. 23,901
-----------
1,950,713
-----------
Real estate:
Hidden Meadows development....................................... 2,287,332
Deferred development costs--other................................ 861,808
-----------
3,149,140
-----------
Property and equipment:
Mine shaft, buildings, and equipment............................. 4,120,588
Mine tour attraction............................................. 4,709,466
Construction-in-progress......................................... 190,683
Resort facilities................................................ 58,077
Less accumulated depreciation.................................... (3,979,842)
-----------
5,098,972
Land less accumulated depletion of $1,062,190...................... 7,218,716
Water rights....................................................... 400,000
-----------
12,717,688
-----------
Total assets................................................... $17,817,541
===========
</TABLE>

--continued--

The accompanying notes are an integral part of the consolidated financial
statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

F-2
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<S> <C>
Accounts payable.................................................... $1,009,138
Accrued liabilities and contracts payable........................... 442,756
Bank notes payable.................................................. 866,083
----------
Total liabilities................................................. 2,337,977
----------
Commitments and contingencies (Notes 7 and 8)
</TABLE>
<TABLE>
<S> <C>
Stockholders' equity:
Common stock, $.01 par value:
Authorized: 3,750,000 shares
Issued: 2,701,544 shares....................................... 27,015
Capital in excess of par value.................................. 31,126,187
Accumulated deficit............................................. (15,489,854)
------------
15,663,348
Less cost of treasury stock: 1,294 shares (183,784)
------------
Total stockholders' equity...................................... 15,479,564
------------
Total liabilities and stockholders' equity.................... $ 17,817,541
============
</TABLE>

F-3
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Lot sales............................................. $2,167,000 $4,359,600
Sale of land and building............................. 2,370,000
Mine tour attraction.................................. 1,341,831 81,029
Interest.............................................. 4,184 139,871
Royalties and rentals................................. 185,962 186,984
Contract services..................................... 50,330 116,862
Other................................................. 127,628 754,216
---------- ----------
6,246,935 5,638,562
---------- ----------
Expenses:
Cost of lot sales and selling expense................. 1,134,635 2,385,277
Cost of land and building sold........................ 630,036
Mine tour attraction.................................. 1,960,611 231,219
General and administrative costs...................... 1,142,379 1,149,825
Litigation costs...................................... 19,206 217,034
Mine maintenance and administrative costs............. 1,301,345 1,030,289
Contract services costs............................... 42,692 100,169
Depreciation.......................................... 562,545 219,477
Interest.............................................. 54,377
---------- ----------
6,847,826 5,333,292
Net income (loss) before income taxes............... $ (600,891) $ 305,270
Income tax benefit.................................. 6,654 468,006
---------- ----------
Net income (loss)................................... $ (594,237) $ 773,276
========== ==========
Net income (loss) per share............................. $ (0.22) $ 0.28
========== ==========
Weighted average number of shares outstanding........... 2,701,544 2,715,565
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
===============================================================================
F-4
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN TOTAL TREASURY STOCK TOTAL
----------------- EXCESS OF ACCUMULATED ---------------- STOCKHOLDERS'
DESCRIPTION SHARES AMOUNT PAR VALUE DEFICIT SHARES AMOUNT EQUITY
----------- --------- ------- ----------- ------------ ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 2,701,544 $27,015 $31,126,187 $(15,668,893) 1,294 (183,784) $15,300,525
Net Income.............. 773,276 773,276
--------- ------- ----------- ------------ ----- --------- -----------
Balance at December 31,
1995................... 2,701,544 27,015 31,126,187 (14,895,617) 1,294 (183,784) 16,073,801
Net Loss................ (594,237) (594,237)
--------- ------- ----------- ------------ ----- --------- -----------
Balance at December 31,
1996................... 2,701,544 $27,015 $31,126,187 $(15,489,854) 1,294 $(183,784) $15,479,564
========= ======= =========== ============ ===== ========= ===========
</TABLE>

F-5
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
===============================================================================
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $ (594,237) $ 773,276
---------- -----------
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation....................................... 562,545 219,477
Deferred income taxes.............................. (475,202)
Water rights received.............................. (400,000)
Increase (decrease) from changes in:
Restricted cash................................... 132,267
Accounts receivable............................... 279 (5,477)
Prepaid expenses, inventory and other assets...... (28,809) (209,862)
Subdivision development costs..................... 688,440 (258,341)
Deferred development costs--other................. (144,914) (401,737)
Cost of land and net book value of building sold.. 456,710
Accounts payable, contracts payable and accrued
liabilities...................................... (220,524) 136,681
Deferred income................................... (103,000) 103,000
Other............................................. 2,856
---------- -----------
Total adjustments................................ 1,213,583 (1,159,194)
---------- -----------
Net cash provided (used) in operating
activities...................................... 619,346 (385,918)
---------- -----------
Cash flows from investing activities:
Construction-in-progress............................ (144,811)
Capital expenditures................................ (385,021) (2,985,867)
---------- -----------
Net cash used in investing activities............ (529,832) (2,985,867)
---------- -----------
Cash flows from financing activities:
Proceeds from bank note payable..................... 1,477,882 2,550,615
Principal payments on bank note payable............. (890,714) (2,251,700)
---------- -----------
Net cash provided by financing activities........ 587,168 298,915
---------- -----------
Net increase (decrease) in cash and cash equivalents.. 676,682 (3,072,870)
Cash and cash equivalents-beginning of period......... 373,723 3,446,593
---------- -----------
Cash and cash equivalents-end of period............... $1,050,405 $ 373,723
========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods presented for: interest
(net of interest capitalized of $29,697)........... $ 54,377
========== ===========
</TABLE>
Supplemental Disclosure of Non-Cash Financing and Investing Activities:

During 1995, the Company reclassified $1,037,000 of land costs into the
Hidden Meadows development.

Accounts payable at December 31, 1995 included approximately $1,219,921
related to capital asset purchases.

The accompanying notes are an integral part of the consolidated financial
statements.
================================================================================
F-6
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

1. Significant Accounting Policies:

A. Principles of Consolidation

The consolidated financial statements include the accounts of United Park
City Mines Company (the "Company") and its wholly-owned subsidiaries.

The Company's current principal business is the development, sale, and lease
of real estate located near Park City, Utah. The Company has historically been
engaged in mining in Park City and is currently maintaining its mining
properties in an inactive status. In addition, the Company operates a mine
tour attraction near Park City which was opened in 1995.

The Company believes that cash flows from the sale of lots in the Hidden
Meadows subdivision, cash flows from the operation of its mine tour
attraction, additional borrowings and a possible capital restructuring will be
sufficient to fund its on-going operations in 1997.

B. Cash Equivalents

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are deposited with one financial institution located in Salt Lake
City, Utah.

C. Income Taxes

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Deferred income taxes are provided for the difference between the
financial statement and tax bases of assets and liabilities using applicable
future tax rates. Investment tax credits are accounted for on the flow-through
method.

D. Property and Equipment

Property and equipment is recorded at cost. The investment in mines and
mining claims has been reduced by the gain on the 1971 sale of surface rights
used for resort operations. Management believes that the recorded costs
associated with land on the balance sheet will be recoverable through the sale
and development of the real estate.

Depreciation for assets purchased prior to 1983 has been computed over
estimated remaining useful lives of 10 years for mine equipment and buildings,
and 25 years for the mine shaft using the straight-line method of
depreciation.

Depreciation for assets purchased after 1982 has been computed on the
straight-line method of depreciation over the following useful lives:

<TABLE>
<S> <C>
Automobiles, equipment and furniture......................... 3-5 years
Real property and related improvements....................... 15 years
Mine tour attraction......................................... 3-20 years
</TABLE>

Upon the sale or retirement of property and equipment, any gain or loss on
disposition is reflected in the statement of operations and the related asset
cost and accumulated depreciation are removed from the respective accounts.

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

F-7
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

1. Significant Accounting Policies, continued:

The units-of-production method of depletion has been adopted based on
estimates of ultimate ore reserves and mine production. However, the provision
in any one year is limited by the royalty income received.

The Company assesses recoverability of the remaining net book value of mine
and mine tour attraction related assets based principally on the future net
tour attraction revenues. Based on the Company's assessment of anticipated net
revenues from the mine tour attraction in 1997, there does not appear to be
any impairment of the mine and mine tour attraction net assets.

E. Mine Maintenance and Administrative Expenses

All costs pertaining to the maintenance and administration of the mine are
expensed as incurred.

F. Inventories

Material and supplies inventory for mine maintenance, and gift shop and
concessions inventory for the mine tour attraction are stated at the lower of
cost (first-in, first-out) or market.

G. Real Estate

All direct and indirect costs relating to the Company's real estate projects
are capitalized as incurred.

Revenue from the sale of real estate is recognized at the time title is
conveyed to the buyer, minimum down payment requirements are met, the terms of
any notes received satisfy continuing payment requirements, and there are no
requirements for continuing involvement by the Company with the property. When
it is determined that the earnings process is not complete, income is deferred
using the installment, cost recovery or deposit methods of accounting, as
appropriate.

Expenditures relating to the future development of real estate held by the
Company are deferred and shown as an asset on the balance sheet as they are
expected to be recoverable through future sales. The Company allocates
capitalized real estate development costs on a specific identification basis.
Common costs and amenities are allocated on a relative fair value basis. If
necessary, a valuation allowance is recorded to reflect an impairment in the
carrying value of deferred real estate development costs or land that is held
for sale, lease or development.

Management believes that the recorded costs associated with land and real
estate on the balance sheet will be recoverable through the sale and
development of the real estate.

H. Income (Loss) Per Share

Income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding for each period. Common stock
equivalents consist of common stock options. Common equivalent shares are
excluded from the computation when their effect is anti-dilutive. Primary and
fully diluted income (losses) per share are the same.

I. Reclassifications

Certain amounts from 1995 have been reclassified to conform to the current
year's presentation. These reclassifications had no effect on net loss, total
assets, total liabilities or stockholders' equity.

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

F-8
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

1. Significant Accounting Policies, continued:

J. Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

K. Stock Split

On March 1, 1995, the Board of Directors declared a one-for-twenty reverse
stock split of its shares of common stock. On May 23, 1995, the stockholders
voted on and approved the reverse stock split and the Company conducted the
reverse stock split during the third quarter of 1995. All references to number
of shares and per share amounts have been restated to reflect the effect of
the reverse stock split.

2. Mining Operations of the Company:

The Company is presently maintaining its inactive mine properties in Park
City, Utah. No actual mining operations have taken place since 1982.

The Company is unable to predict when, if ever, it will be economically
feasible for the Company or another company to resume mining operations on its
properties. The economic feasibility of resuming mining operations will depend
upon, among other things, an increase in metals prices and the resolution of
technical problems such as groundwater problems and certain milling
applications. The Company cannot currently predict the metals prices which
would allow for economic mining operations. If the Company or another operator
resumes active mining operations on the properties, it would be necessary to
update or acquire certain additional permits, licenses or approvals from the
appropriate governmental agencies. If necessary, a valuation allowance is
recorded to reflect an impairment in the carrying value of mining property and
equipment.

From time to time the Company performs underground tunnel maintenance and
repair services for other entities, principally Park City Municipal
Corporation.

3. Bank Financing:

In July 1995, the Company obtained a financing commitment from a local bank
totaling $5,576,483, consisting of a development loan of $3,154,260 and two
standby letters of credit totaling $2,422,223. Interest on outstanding
borrowings is paid monthly at 1 1/2 percent above the bank's prime lending
rate (8.5% at December 31, 1995). At December 31, 1995, the outstanding
principal balance on the loan was $298,915. Borrowings were collateralized by
the land and improvements of the Hidden Meadows development and were paid in
full during 1996. The letters of credit expired on January 1, 1997 and have
been renewed through January 1, 1998.

In December 1995, the Company obtained an additional $1,000,000 loan from
the same bank and borrowed the full amount during 1996. Borrowings bear
interest at 1 1/2 percent over the bank's prime lending rate (8.5% at December
31, 1995 and 8.25% at December 31, 1996), are collateralized by the remaining
land and improvements of the Hidden Meadows development, and were due December
1, 1996. The Company extended the due date of the loan to September 30, 1997
and has re-paid $123,116, plus accrued interest, on the loan.

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

F-9
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
================================================================================

4. Ski Leases:

The Company has leased certain surface rights representing approximately
5,273 acres to Greater Park City Company for use in its resort operations.
Greater Park City Company has assigned its rights in a separate lease to Deer
Valley Resort Company. The term of each lease has been extended to April 30,
2011 by notice to the Company. The lessees have the right to extend each lease
for two additional periods of 20 years each. Annual rentals are calculated as
a percent of Gross Ski Revenue as defined by the lease agreement and
subsequent amendments thereto, but not less than a minimum annual rental fee
of fifty cents per acre leased. Greater Park City Company and Deer Valley
Resort Company paid United Park for the 1994-95 ski season, a total of
$148,875 and for the 1995-96 ski season, a total of $152,448.

5. Income Taxes:

The income tax benefit for the years ended December 31, 1996 and 1995
consists of the following:

<TABLE>
<CAPTION>
1996 1995
------ --------
<S> <C> <C>
Current tax provision................................. $ (542) $ (7,196)
Deferred tax benefit.................................. 7,196 475,202
------ --------
Income tax benefit.................................... $6,654 $468,006
====== ========
</TABLE>

The reported benefit from income taxes varies from the amount that would be
provided by applying the statutory U. S. Federal income tax rate to income
before taxes for the following reasons:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Federal statutory tax (benefit) provision......... $(204,303) $ 103,792
Increase (reduction) in taxes resulting from:
State income taxes (net of federal benefit)..... (19,829) 10,074
Alternative minimum tax......................... 7,196
Change in valuation allowance................... 212,256 (475,202)
Utilization of tax loss carryforward............ (114,411)
Other........................................... 5,222 545
--------- ---------
Income tax benefit................................ $ (6,654) $(468,006)
========= =========
</TABLE>

At December 31, 1996 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $14,248,609 and
$5,915,659 respectively, which will expire between 1997 and 2011 if not used
to reduce future taxable income.

The components of the net deferred tax asset and liability as of December
31, 1996 are as follows:

<TABLE>
<S> <C>
Deferred tax assets:
Tax net operating loss carryforwards....................... $5,039,744
Tax credit carryforwards................................... 5,447
Charitable contributions carryover......................... 5,268
Valuation allowance........................................ (4,177,135)
----------
Total deferred tax asset................................. 873,324
Deferred tax liability:
Excess tax depreciation and amortization................... (398,122)
----------
Net deferred tax asset..................................... $ 475,202
==========
</TABLE>
===============================================================================
F-10
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

5. Income Taxes, continued

The valuation allowance at December 31, 1996 has been provided to reduce the
total deferred tax assets to the amount which is considered more likely than
not to be realized. The net increase in the valuation allowance for the year
ended December 31, 1996 was $179,377. The change in the valuation allowance is
due to a revised estimate of the expected future utilization of federal net
operating loss carryforwards and the expiration of state net operating loss
carryforwards.

The net decrease in the valuation allowance for the year ended December 31,
1995 was $628,937. The change relates primarily to a reduction in the
valuation allowance due to utilization of net operating loss carryforwards, a
revised estimate of the expected future utilization of net operating loss
carryforwards and the expiration of state net operating loss carryforwards.

6. Industry Segments:

The industry segments of the Company are defined as Mining, Real Estate,
Mine Tour and Corporate.

<TABLE>
<CAPTION>
DECEMBER 31, 1996: MINING REAL ESTATE MINE TOUR CORPORATE TOTAL
- ------------------ ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 58,964 $ 3,885,660 $ 1,341,831 $ 960,480 $ 6,246,935
Operating income
(loss)................. (1,489,187) 2,053,479 (1,016,075) (149,108) (600,891)
Identifiable assets..... 860,899 10,329,797 4,517,316 1,357,444 17,065,456
Depreciation............ 163,041 4,221 352,812 42,471 562,545
Capital expenditures,
including deferred real
estate development
costs.................. 213,528 338,852 311,820 200 864,400
<CAPTION>
DECEMBER 31, 1995: MINING REAL ESTATE MINE TOUR CORPORATE TOTAL
- ------------------ ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 116,862 $ 4,359,600 $ 81,029 $1,081,071 $ 5,638,562
Operating income
(loss)................. (1,153,835) 1,773,805 (177,387) (137,313) 305,270
Identifiable assets..... 610,659 12,048,402 4,645,814 842,538 18,147,413
Depreciation............ (140,239) (27,197) (52,041) (219,477)
Capital expenditures,
including deferred real
estate development
costs.................. 143,375 2,702,520 4,009,812 52,601 6,908,308
</TABLE>

Corporate revenue in 1995 includes $750,000 of cash and water rights
received in a settlement with a third party.

7. Contingencies:

Litigation and Settlement Agreement

In May 1986, the Company filed a lawsuit against Greater Park City Company
("GPCC"), Royal Street Land Company, Royal Street of Utah, and Deer Valley
Resort Company related to agreements which resulted in the restructuring of
Greater Park City Company in 1975 and later performance under these
agreements. The defendants filed counterclaims against the Company.

On November 13, 1995, an Order of Dismissal With Prejudice of all of the
Company's remaining claims and all of GPCC's claims was signed by the Court
and also filed, thereby finally disposing of all of the remaining aspects of
this litigation.

On November 6, 1992, the Company entered into a Settlement Agreement and
Release ("Settlement Agreement") with Royal Street Land Company, Deer Valley
Resort Company, Royal Street of Utah, Royal

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

F-11
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

7. Contingencies, continued

Street Development Company (collectively "Deer Valley"), and Wells Fargo Bank,
N.A. In this Settlement Agreement, the Company, Deer Valley, and Wells Fargo
agreed, among other things, to dismiss with prejudice the claims and
counterclaims.

The Settlement Agreement provides the Company the opportunity to develop,
without the encumbrance of the Deer Valley Ski Lease, certain parcels of land
which are currently subject to the Deer Valley Ski Lease. The Settlement
Agreement further provides Deer Valley the opportunity to acquire the
Company's interest in the surface estate to the balance of the land within the
Deer Valley Ski Lease. Both the Company's and Deer Valley's opportunities
concerning those parcels of land covered under the Deer Valley Ski Lease are
contingent upon master plan approval by Park City Municipal Corporation and
acceptance of the master plan by the Company.

If Park City Municipal Corporation does not approve the master plan or if
the Company does not accept the master plan, the land within the Deer Valley
Ski Lease will remain encumbered by the Deer Valley Ski Lease. If master plan
approval is obtained and accepted, the Deer Valley Ski Lease will be
terminated. The Company could then proceed to develop those certain parcels of
land which were formerly encumbered by the Deer Valley Ski Lease and would
convey the balance of the surface estate of the land formerly encumbered by
the Deer Valley Ski Lease to Deer Valley.

Additionally, if and when the master plan is accepted by both the Company
and Park City Municipal Corporation, the exchange of the land surface rights
by the Company for the termination of the Deer Valley Ski Lease and right to
develop the land previously encumbered by the lease will represent an exchange
of similar productive assets. Accordingly, the Company will transfer its basis
in the land surface rights to the basis in the land to be developed that was
previously encumbered by the Deer Valley Ski Lease, with no gain or loss
recognized.

8. Retirement Savings Plan:

The Company has a contributory 401(k) Retirement Savings Plan covering all
employees who have completed one year of continuous service and have attained
the age of 21. Under the provisions of the Plan, the Company contributes $0.50
for each dollar contributed by eligible employees up to a limit of $1,000 per
employee per year. Company contributions are 100% vested after six years of
continuous service. Total Company expense for the plan in 1996 and 1995 was
$18,474 and $14,980, respectively.

9. Stock Options:

In 1993, the shareholders of the Company approved a stock option plan
("Plan") for key employees and consultants of the Company. Pursuant to the
terms of the Plan, as amended, 125,000 shares of the Company's $0.01 par value
common stock are reserved for issuance thereunder. The Plan consists of two
autonomous, separately administered programs: an "Employee Program" and a
"Consultant Program." The Employee Program is for key employees (including
employees who are members of the Company's Board of Directors), and the
Consultant Program is for consultants (including non-employee members of the
Board of Directors). Stock Options granted under the Employee Program are
intended to be Incentive Stock Options as defined in the Internal Revenue
Code, and stock options granted under the Consultant Program are intended to
be Non-statutory Stock Options.

Under the Employee Program, a stock option committee ("Committee") of the
Board of Directors will, in its sole discretion, approve the grant of options
to key employees based upon the performance and contribution

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

F-12
<PAGE>

UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES

9. Stock Options, continued:

of each such key employee and based upon the results achieved by the Company.
The Committee will also set the terms and conditions of the individual stock
option grants under the Employee Program within the framework of the Plan.

Under the Consultant Program, the entire Board of Directors will, in its
sole discretion, approve the grant of options to consultants, including
individual members of the Board of Directors. The Board of Directors will set
the terms and conditions of the individual stock option grants under the
Consultant Program, within the framework of the Plan.

No options may be granted under the Plan after June 10, 2003. Options
granted under the Plan are exercisable in such installments and for such
periods as specified by the Board of Directors and the Committee at the time
of grant, but may not be exercisable more than ten years after the date of
grant (five years for shareholders owning 10% or more of the Company's
outstanding stock).

The option price with respect to each option will be determined by the
Committee or the Board of Directors of the Company, but shall not be less than
100% of the fair market value of the common stock of the Company at the time
the option is granted (110% for a shareholder owning 10% or more of the
Company's outstanding stock).

Outstanding stock options must be exercised during employment or within
three months after termination (other than by reason of death) as to any
shares of Common Stock which the employee might have purchased as of the date
of termination.

The Plan provides that new stock options can be granted under the Plan to
holders of existing options in exchange for cancellation of the existing
options, in the sole discretion of the Committee or the Board of Directors.

Changes in stock options under the Company's incentive and non-statutory
stock option plan were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995: SHARES PRICE RANGE PER SHARE
------------------ ------ ---------------------
<S> <C> <C>
Outstanding at December 31, 1995............. 37,500 $6.874
Exercisable.................................. 37,500 6.874
<CAPTION>
DECEMBER 31, 1996: SHARES PRICE RANGE PER SHARE
------------------ ------ ---------------------
<S> <C> <C>
Outstanding at December 31, 1996............. 37,500 $6.874
Exercisable.................................. 37,500 6.874
</TABLE>

At December 31, 1996, a total of 87,500 shares were available for grants of
additional options under the plan.

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

F-13
<PAGE>

DIRECTORS

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

ALAN L. GORDON* JOSEPH S. LESSER*
Vice President and Treasurer General Partner
Loeb Partners Realty Loeb Partners Realty

EDWIN L. OSIKA, JR. HANK ROTHWELL
Executive Vice President, Secretary, President and Chief Executive
and Treasurer Officer
United Park City Mines Company United Park City Mines Company

*Denotes Member of Audit Committee

OFFICERS

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

HANK ROTHWELL EDWIN L. OSIKA, JR.
President and Chief Executive Executive Vice President, Secretary,
Officer and Treasurer
United Park City Mines Company United Park City Mines Company

CORPORATE ADDRESS AND TELEPHONE NUMBER

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

United Park City Mines Company
P. O. Box 1450
1 1/2 Miles South of Park City on Highway 224
Park City, UT 84060
(801) 649-8011

TRANSFER AGENT AND REGISTRAR

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

Address changes or questions on stock transfers should be directed to the
Transfer Agent:

First Chicago Trust Company of New York
P.O. Box 2532
Jersey City, NJ 07303-2532

FORM 10-KSB

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

A copy of the Company's 1996 Annual Report on Form 10-KSB (without exhibits)
will be provided without charge to shareholders upon written request to:
Corporate Secretary, United Park City Mines Company, P. O. Box 1450, Park
City, Utah 84060. Exhibits to the Form 10-KSB will be available upon advance
payment of reproduction costs at 25c per page.

SUBSIDIARIES

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

Blue Ledge Corporation
The Weber Coal Company
Park City Silver Mine Adventure, Inc.

<PAGE>
<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,050,405
<SECURITIES> 0
<RECEIVABLES> 45,375
<ALLOWANCES> 0
<INVENTORY> 107,378
<CURRENT-ASSETS> 1,950,814
<PP&E> 9,078,814
<DEPRECIATION> 3,979,842
<TOTAL-ASSETS> 17,817,541
<CURRENT-LIABILITIES> 2,337,977
<BONDS> 0
0
0
<COMMON> 27,015
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 17,817,541
<SALES> 4,537,000
<TOTAL-REVENUES> 6,246,935
<CGS> 1,764,671
<TOTAL-COSTS> 1,764,671
<OTHER-EXPENSES> 5,028,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,377
<INCOME-PRETAX> (600,891)
<INCOME-TAX> 6,654
<INCOME-CONTINUING> (594,237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (594,237)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)

</TABLE>