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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, 1997 or
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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
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UNITED PARK CITY MINES COMPANY
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(Name of small business issuer in its charter)
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Delaware 87-0219807
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(State or other jurisdiction of incorporation or organization) (I. R. S. Employer Identification No.)
P. O. Box 1450, Park City, Utah 84060
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (801) 649-8011
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Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, $0.01 Par Value New York Stock Exchange
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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
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Issuer's revenues for its most recent fiscal year. $3,129,008
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Based on the closing sales price on March 12, 1998, the aggregate market value
of the voting stock held by nonaffiliates of the registrant was $105,072,959.
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 was 3,045,711
on March 11, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement for the 1998 Annual Meeting of Stockholders,
which will be filed with the Securities and Exchange Commission within 120 days
after December 31, 1997, is incorporated by reference in Part III of this Form
10-KSB.
Transitional Small Business Disclosure Format (Check One): Yes . No X.
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Exhibit Index on Page 27
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PART I
Item 1. Description of Business
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' rights 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 eleven of the twelve Morning Star Estates lots during
1993, 1994 and 1995. Blue Ledge sold the remaining one lot 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. During 1997,
Blue Ledge also sold seven lots. Blue Ledge has sold another two lots during
the first quarter of 1998 and has another three lots under contract to close in
1998.
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 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
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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 the appropriate government agencies 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 refined and improved the
master plan and vigorously pursued approval for the project during 1995, 1996
and the first half of 1997. The Company ceased discussions with Park City
regarding the annexation and master plan approval of this project due to
unacceptable economic and development restrictions proposed for the project by
Park City during the second quarter of 1997. As provided by Utah statutes, the
Company is pursuing its development opportunities for this project in Summit
County pursuant to an application which the Company filed two years ago.
In conjunction with another developer, the Company completed a master plan
for twelve lots on its properties which adjoin the developer's project known as
Deer Crest. The Company expects to receive the necessary approvals and market
these twelve lots during 1998.
The Company submitted to Wasatch County a master plan for the development
of a golf course and a 450 unit development in the Bonanza Flats area of that
County during the third quarter of 1997. The Company anticipates receiving the
required approvals for this project known as Bonanza Mountain Resort during
1998.
During 1997, the Company received a master plan approval for 354
residential unit equivalents on another portion of its property which overlooks
the Jordanelle Reservoir in the vicinity of Keetley, Utah. The Company will
prepare and submit detailed development plans for this new project in the first
half of 1998, and will diligently pursue final approval for this new development
project.
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 Park City real estate market for single-family lots has been
consistently good during the past several years, the Company expects the Park
City real estate market to improve in the future.
The International Olympic Committee has chosen the Salt Lake City
metropolitan area, including Park City, to host the 2002 Winter Olympic Games.
The Company believes that the national and international 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,
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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.
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. It has performed work for Park City in
the Judge Tunnel and the Spiro Tunnel since 1991. The Company anticipates
continued contract work in 1998.
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 it 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
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remedies currently available to it and such other appropriate remedies in
the future as may be necessary to protect the Company's property rights.
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 242,500 guests have experienced
the mine tour attraction to date.
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 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 lessees' rights 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 1995-96
ski season a total of $152,448, and for the 1996-97 ski season, a total of
$176,969.
Employees
United Park and its subsidiary Park City Silver Mine Adventure, Inc. employ
a total of thirty-four 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 seven full-time salaried
employees, six full-time
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hourly employees and two part-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 five full-time employees, ten
full-time hourly employees and an average of approximately thirty part-time
employees.
Item 2. Description of Property
In addition to the following description, please refer to Item 1. Description of
Business under the headings "Real Estate," "Mine Maintenance" and "Resort
Agreements."
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.
Item 3. Legal Proceedings
As of March 11, 1998, United Park was a party to the following legal
proceedings:
UNITED STATES OF AMERICA V. 107.28 ACRES OF LAND, UNITED PARK CITY MINES
COMPANY, ET AL.
Civil No. 2:88-C-0231C, 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.
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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.
Depositions in this case have been scheduled during April, 1998.
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
The common stock of United Park City Mines Company (hereinafter "United
Park" or "Company"), $.01 par value, is traded on the New York Stock Exchange
under the symbol "UPK." As of March 12, 1998, United Park had 3,045,711
outstanding shares of common stock held by approximately 1,122 stockholders of
record. 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 which
occurred in 1995.
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1997 1996
High Low High Low
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First Quarter $13.750 $11.125 $15.625 $14.000
Second Quarter $21.187 $12.375 $14.500 $13.875
Third Quarter $27.500 $21.000 $13.875 $11.625
Fourth Quarter $29.000 $25.500 $11.500 $ 9.500
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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.
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Item 6. Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Form 10-KSB may contain trend information and forward-looking
statements that involve risks and uncertainties. The actual results of
operations of the Company could differ materially from the Company's historical
results of operations and those discussed in such forward-looking statements as
a result of certain factors set forth in this section and elsewhere in this Form
10-KSB, including information incorporated by reference.
Liquidity and Capital Resources
Cash Flow
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The Company's Consolidated Statements of Cash Flows reflects that
$1,971,269 in net cash was used in operating activities during 1997. In 1997,
the Company used existing cash balances, proceeds from the sale of lots, some of
the proceeds from borrowings, and some of the receipts from the rights offering
to fund its operations.
The Company's Consolidated Statements 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.
At various times throughout 1997, the Company suffered from a lack of cash
flow for its operations due to slower than anticipated sales of lots in its
Hidden Meadows subdivision and expenses in connection with mine maintenance and
the mine tour attraction. To improve its cash position, the Company conducted a
rights offering during 1997 and received $5,304,052 in proceeds from the
offering.
The Company's cash position increased by $2,310,473 during 1997. The
Company used funds from its cash balances, lot sales, loans and receipts from
the rights offering to fund its operations, capital asset additions and the
development of its real estate projects. The total outstanding loan balance of
$886,083 was repaid during 1997 using proceeds from lot sales and receipts from
the rights offering. The Company spent $164,871 on capital expenditures in 1997
and expects additional capital expenditures at similar levels of capital
activity in 1998 in connection with the approval and development of its Bonanza
Mountain Resort project and various other projects.
Rights Offering
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During 1997, the Company conducted a rights offering to raise additional
capital to repay short-term indebtedness, to continue its real estate
development activities, and to provide working capital for the Company's
continuing operations. In the rights offering, the Company issued to its
stockholders non-transferable rights ("Rights") to subscribe for up to 340,000
additional shares of its capital stock. Such Rights were issued to the holders
of capital stock as of the close of business on August 18, 1997 (the "Record
Date"). The stockholders as of the Record Date received one (1) Right for each
eight (8) shares of capital stock they owned on the Record Date. The Rights were
not transferable and they were not traded on any exchange. Each Right entitled
the holder thereof to subscribe for one (1) additional share of capital stock
for $16.00 and provided a right to subscribe for any shares which were
unsubscribed for in the rights offering.
Stockholders subscribed for all of the shares offered in the rights
offering and all of the 340,000 additional shares of the Company's capital stock
offered in the rights offering were issued during the fourth quarter of 1997.
The Company raised approximately $5,440,000, before deducting expenses of the
offering in the amount of approximately $135,948.
Real Estate Development
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Blue Ledge Corporation ("Blue Ledge"), a wholly owned subsidiary of the
Company, 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. Eleven lots were sold in 1993, 1994 and 1995. During 1996,
Blue Ledge sold the remaining one lot within
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the subdivision. Gross revenue from the sales totaled $387,000 and Blue Ledge
recognized a profit of $168,536 on the sale in 1996. The cash generated from the
sale in 1996 was used to fund the Company's operations.
During 1995, Blue Ledge developed forty-five improved building lots on a
258 acre parcel of land adjacent to the Morning Star Estates subdivision. This
project is known as Hidden Meadows and Blue Ledge sold eleven lots during 1995.
Blue Ledge sold seven lots in the Hidden Meadows subdivision during 1997 for
$1,270,000 and sold seven lots for $1,780,000 during 1996. Blue Ledge
recognized profit from Hidden Meadows lot sales of $402,592 in 1997 and $863,829
in 1996. Proceeds from these sales were used to pay for subdivision
improvements, repay loans and fund operations.
During the first quarter of 1998, Blue Ledge sold two lots and has another
three lots in the Hidden Meadows subdivision under contract to close in 1998.
Blue Ledge is actively marketing the remaining fifteen Hidden Meadows lots at
prices ranging from $125,000 to $400,000 and has projected to sell nine lots in
addition to those currently under contract during 1998.
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, expired 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 carried interest at 1-1/2 percent over the bank's prime
lending rate and was collateralized by the remaining land and improvements of
the Hidden Meadows development. This loan was repaid in full during 1997.
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 the appropriate government agencies and acceptance of the master
plan by United Park.
If the appropriate government agencies do 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 (which will not be developed) 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
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/Empire Canyon. 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 with Park City. The Company ceased
discussions with Park City regarding the annexation and master plan approval of
this project due to unacceptable economic and development restrictions proposed
for the project by Park City during the second quarter of 1997. As provided by
Utah statutes, the Company is pursuing its development opportunities for this
project in Summit County pursuant to an application which the Company filed two
years ago. It is anticipated that a portion of the proceeds from the rights
offering will be used in the Company's efforts to obtain approval for this
project and may be used in the eventual development of this project.
During the third quarter of 1997, the Company submitted to Wasatch County a
master plan for the development of a golf course and a 450 unit development in
the Bonanza Flats area of that county. The Company anticipates receiving the
required approvals for this project known as Bonanza Mountain Resort during
1998. Also, the Company will use a portion of the proceeds from the Rights
Offering to obtain approval for and development of this project and other
projects.
9
<PAGE>
Along with another developer, the Company completed a master plan for
twelve lots on its properties which adjoin the developer's project which is
known as Deer Crest. The Company will continue to pursue the necessary approvals
for this project and intends to market the twelve lots during 1998. In the
agreement which the Company entered into with the developer of Deer Crest, the
Company must list its lots through Deer Crest's sales agent to insure that the
Company does not offer its twelve lots at prices lower than Deer Crest's lots.
In exchange for the sales listing and to insure that all of the Company's lots
are actively marketed by the listing agent, the developer of Deer Crest has
agreed to purchase one of the Company's lots in each quarter in which a sale of
one or more of the Company's lots does not occur, for prices of between $800,000
to $1,000,000.
During 1997, the Company pursued and received a master plan approval for
354 residential unit equivalents on a portion of its property in the vicinity of
Keetley, Utah. This property also overlooks the Jordanelle Reservoir. In the
first half of 1998, the Company will prepare and submit detailed development
plans, and will actively pursue final approval for this new development project.
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.
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
$103,127 during 1997 and $50,330 during 1996. Additional work will be performed
in the tunnels during 1998. The work involves reinforcement of the tunnels to
avoid possible cave-ins which may restrict the flow of water.
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. The Company expended $1,162,582
in its mine maintenance activities during 1997 and $1,301,345 during 1996. The
Company anticipates similar expenditures during 1998.
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 the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") to identify,
inventory, and prioritize sites which warrant further
10
<PAGE>
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 Utah Pollutant Discharge Elimination System ("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 has currently conducted 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 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.
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 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 hired its
own general manager to operate the mine tour attraction and decrease operating
expenses. Through 1997, the Company had on its books a total of $4,310,985 in
undepreciated assets which are associated with the development and construction
of the mine tour attraction. Though continued losses from operating the mine
tour attraction could indicate an inability to recover the related costs,
management continues to believe that their advertising efforts and emphasis on
cost efficiencies will result in the mine tour attraction being profitable in
the near future.
11
<PAGE>
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. In connection with disposing of all
remaining claims, the Company incurred legal fees of $19,206 in 1996. The
Company did not incur any expenditures for this litigation in 1997 and does not
anticipate incurring any legal fees in connection with this litigation during
1998.
Year 2000
---------
The Company uses computers principally for processing and analyzing
geological and engineering data, map making and administrative functions such as
word processing, accounting, and management and financial reporting. The Company
has an ongoing program to ensure that its operational and financial systems and
software will not be adversely affected by year 2000 software failures. While
the Company believes it is taking all appropriate steps to assure year 2000
compliance, it is dependent substantially on vendor compliance. The Company
intends to modify or replace those systems and software that are not year 2000
compliant. The Company is requiring its systems and software vendors to
represent that the services and products provided are, or will be, year 2000
compliant, and has planned a program to test compliance. The Company anticipates
receiving all such representations and completing that test no later than
December 31, 1998. At this time, the Company estimates that the cost to
redevelop, replace, or repair its systems and software will not be material.
Results of Operations
1997 Compared with 1996
-----------------------
Revenue in 1997 totaled $3,129,008, a decrease of 50% over 1996 revenues.
The decrease in revenues is the result of no sales of land and a building
outside of the Company's development projects, and fewer than anticipated sales
of lots in its Hidden Meadows subdivision.
During 1996, Blue Ledge sold the remaining Morning Star Estates lot and
recognized a profit of $168,536 or 44% on the gross sale of $387,000. This sale
accounted for 6% of the Company's total revenue during 1996.
Blue Ledge sold seven lots in the Hidden Meadows subdivision and recognized
a profit of $402,592 or 32% on gross sales of $1,270,000 during 1997. 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. These
sales accounted for 41% of the Company's total revenue in 1997 and 28% of the
Company's total revenue for 1996.
The Company experienced a net loss of $2,339,090 for 1997 and a net loss of
$594,237 for 1996. The net loss for 1997 is primarily the result of lower than
expected sales of lots in the Hidden Meadows subdivision, costs exceeding
revenue on the mine tour attraction, and continued costs associated with mine
maintenance. The net loss for 1996 is primarily the result of slower than
expected sales of lots in the Hidden Meadows subdivision, costs exceeding
revenue with the mine tour attraction, and increased depreciation and property
taxes associated with the mine tour attraction.
During 1997, Park City Silver Mine Adventure, Inc. generated $1,440,947 in
revenues and experienced $1,970,319 in operating expenditures. During 1996,
Park City Silver Mine Adventure, Inc. generated $1,341,831 in revenues and
experienced $1,960,611 in operating expenditures. The mine tour attraction
revenues accounted for 46% of the Company's total revenue for 1997 and 21% of
the Company's total revenue in 1996.
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 40%
of the Company's total revenues in 1996. No such sale was transacted during
1997.
12
<PAGE>
Interest income increased $49,900 during 1997 when compared with 1996. The
increase is the result of larger cash balances available for investment during
1997.
The Company's other income decreased 35% during 1997 as a result of fewer
miscellaneous, non-recurring sales of scrap metal as compared with 1996.
The Company experienced a 105% increase in revenues and a more modest
increase in expenses associated with contract services as a result of the
Company's mine crews performing increased work for third parties. The Company
anticipates that the contract work will also increase during 1998.
General and Administrative costs in 1997 decreased $343,565 or 30% when
compared to 1996. This decrease is primarily due to timing in replacing
personnel, fewer outside consultants being utilized and lower legal expenses.
Mine maintenance and administrative costs decreased 11% during 1997 as a
result of mine crews performing more work for third parties.
The Company's depreciation expense decreased 12% in 1997 when compared with
1996. The decrease is due to assets used in connection with mine maintenance
operations becoming fully depreciated.
The Company experienced an increase of 102% in interest expense associated
with borrowings which were necessary to fund its operations during 1997. The
Company does not anticipate similar borrowings during 1998.
Outlook
-------
The Company believes that 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 1998.
Based upon projected revenues and expenses, the Company is optimistic that
its wholly owned subsidiary Park City Silver Mine Adventure, Inc. should
continue to decrease its operating costs while increasing revenues throughout
1998 and, in time, 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/Empire Canyon, Bonanza Mountain
Resort, and the twelve lots at Deer Crest projects, and expects to continue
funding those costs through its cash flows and the funds raised through the
rights offering. The Company anticipates receiving proceeds from lot sales from
the twelve lots at Deer Crest beginning with the second quarter of 1998. 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 1998. As the development of the subdivision
is substantially complete, Blue Ledge does not expect to incur substantial
additional costs with this subdivision. During the first quarter of 1998, Blue
Ledge has sold one lot and has another two lots in the subdivision under
contract to close in the first or second quarters of 1998.
Impact of Recently Issued Accounting Standards:
In June of 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards 130, Reporting Comprehensive Income. The
Statement establishes standards for reporting and display of comprehensive
income and it components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. The Company believes that the adoption
of this Statement will not have a material affect on its financial statements.
In June of 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards 131, Disclosures about Segments of an
Enterprise and Related Information. The Statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in
13
<PAGE>
interim financial reports issued to shareholders. The Statement is effective
for periods beginning after December 15, 1997. The Company believes that the
adoption of this Statement will not have a material affect on its financial
statements.
Item 7. Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
United Park City Mines Company:
We have audited the accompanying consolidated balance sheet of United Park City
Mines Company and Subsidiaries as of December 31, 1997 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years ended December 31, 1997 and 1996. 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, 1997 and the consolidated
results of their operations and their cash flows for the years ended December
31, 1997 and 1996 in conformity with generally accepted accounting principles.
s/ COOPERS & LYBRAND l.l.P.
COOPERS & LYBRAND L.L.P.
Salt Lake City, Utah
March 5, 1998
14
<PAGE>
UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997
ASSETS
Cash and cash equivalents $ 3,360,878
Accounts receivable 96,020
Prepaid expenses 221,855
Inventories 163,708
Deferred income taxes 475,202
Other 11,100
-------------
4,328,763
-------------
Real estate:
Hidden Meadows development 1,680,950
Deferred development costs - other 1,207,931
-------------
2,888,881
-------------
Property and equipment:
Mine shaft, buildings, and equipment 4,081,691
Mine tour attraction 4,826,734
Construction-in-progress 220,192
Resort facilities 58,077
Less accumulated depreciation (4,420,519)
-------------
4,766,175
-------------
Land less accumulated depletion of $1,062,190 7,218,716
Water rights 400,000
-------------
12,384,891
-------------
Total assets $19,602,535
==============
-- continued --
The accompanying notes are an integral part of the consolidated financial
- --------------------------------------------------------------------------
statements.
- ----------
15
<PAGE>
UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 380,982
Contracts payable 65,000
Accrued liabilities 683,383
------------
Total liabilities 1,129,365
------------
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Common stock, $.01 par value:
Authorized: 3,750,000 shares
Issued: 3,045,711 shares 30,457
Capital in excess of par value 36,455,441
Accumulated deficit (17,828,944)
------------
18,656,954
Less cost of treasury stock: 1,294 shares (183,784)
Total stockholders' equity 18,473,170
-------------
Total liabilities and stockholders' equity $19,602,535
=============
The accompanying notes are an integral part of the consolidated financial
- -------------------------------------------------------------------------
statements.
- ----------
16
<PAGE>
UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996
1997 1996
----------------- -----------------
Revenues:
Lot sales $ 1,270,000 $ 2,167,000
Sale of land and building 2,370,000
Mine tour attraction 1,440,947 1,341,831
Interest 54,077 4,184
Royalties and rentals 178,009 185,962
Contract services 103,127 50,330
Other 82,848 127,628
----------------- ----------------
3,129,008 6,246,935
----------------- ----------------
Expenses:
Cost of lot sales
and selling expense 867,408 1,134,635
Cost of land and building
sold 630,036
Mine tour attraction 1,970,319 1,960,611
General and administrative
costs 798,814 1,142,379
Litigation costs 19,206
Mine maintenance
and administrative costs 1,162,582 1,301,345
Contract services costs 61,080 42,692
Depreciation 497,668 562,545
Interest 109,969 54,377
---------------- ------------
5,467,840 6,847,826
----------------- --------------
Net loss before income taxes (2,338,832) (600,891)
Income tax (provision)
benefit (258) 6,654
----------------- --------------
Net loss $ (2,339,090) $ (594,237)
================= ==============
Basic and diluted net loss
per share $ (0.84) $ (0.22)
Basic and diluted weighted ---------------- -------------
average shares outstanding 2,777,222 2,701,544
================ =============
The accompanying notes are an integral part of the consolidated financial
- -------------------------------------------------------------------------
statements.
- -----------
17
<PAGE>
UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997 and 1996
<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, 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
Rights Offering (1) 340,000 3,400 5,300,652 5,304,052
Exercise of Stock Option 4,167 42 28,602 28,644
Net Loss (2,339,090) (2,339,090)
----------- ----------- ----------- ------------- --------- ----------- --------------
Balance at December 31, 1997 3,045,711 $30,457 $36,455,441 $(17,828,944) 1,294 $(183,784) $18,473,170
=========== ============ ============ ============= ======= ============= =============
</TABLE>
(1) net of offering expenses of
$135,948.
The accompanying notes are an integral part of the consolidated financial
- --------------------------------------------------------------------------
statements.
- -----------
18
<PAGE>
UNITED PARK CITY MINES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997 and 1996
1997 1996
----------- ------
Cash flows from operating activities:
Net loss $ (2,339,090) $ (594,237)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation 497,668 562,545
Increase (decrease) from changes in:
Accounts receivable (50,645) 279
Prepaid expenses, inventory and other assets (29,733) (28,809)
Subdivision development costs 645,175 688,440
Deferred development costs - other (384,916) (144,914)
Cost of land and net book value of building sold 0 456,710
Accounts payable and accrued liabilities (305,654) (302,399)
Contracts payable 16,875 81,875
Deferred income 0 (103,000)
Other 12,801 2,856
--------------- ------------
Total adjustments 367,821 1,213,583
--------------- ------------
Net cash provided by (used in) operating
activities (1,971,269) 619,346
--------------- ------------
Cash flows from investing activities:
Construction-in-progress (29,509) (144,811)
Capital expenditures (135,362) (385,021)
Net cash used in investing activities (164,871) (529,832)
Cash flows from financing activities:
Proceeds from rights offering 5,440,000 0
Costs associated with rights offering (135,948) 0
Proceeds from bank note payable 0 1,477,882
Payments on bank note payable (886,083) (890,714)
Exercise of stock option 28,644 0
------------- ------------
Net cash provided by financing activities 4,446,613 587,168
------------- ------------
Net increase in cash and cash equivalents 2,310,473 676,682
Cash and cash equivalents-beginning of period 1,050,405 373,723
------------- -----------
Cash and cash equivalents-end of period $ 3,360,878 $ 1,050,405
============= ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the periods presented for
interest (net of interest capitalized of
$0 in 1997 and $29,697 in 1996) $109,969 $ 54,377
============= ===========
The accompanying notes are an integral part of the consolidated financial
- -------------------------------------------------------------------------
statements.
- -----------
19
<PAGE>
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 and the Deer Crest project will be sufficient to fund its
on-going operations in 1998.
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 land has been
reduced by the gain on the 1971 sale of surface rights used for resort
operations.
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:
Automobiles, equipment and furniture 3-5 years
Real property and related improvements 15 years
Mine tour attraction 3-20 years
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.
- continued -
20
<PAGE>
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. Though continued losses from operating the mine tour
attraction could indicate an inability to recover the related costs, management
continues to believe that their advertising efforts and emphasis on cost
efficiencies will result in the mine tour attraction being profitable in the
near future.
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. Net Loss Per Share
In 1997, the Company adopted the provisions of SFAS No. 128, "Earnings per
Share." All prior periods have been restated to conform to the new
requirements. Basic earnings per share were computed by dividing the net loss
by the weighted average number of common shares outstanding. Diluted earnings
per share were computed by dividing the loss by the sum of the weighted average
number of common shares and the effect of dilutive unexercised stock options.
Options to purchase 33,333 and 37,500 shares of capital stock at $6.874 per
share were outstanding at December 31, 1997 and 1996, respectively, but were not
included in the computation of diluted earnings per share because the effect
would have been antidilutive.
I. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires
- continued -
21
<PAGE>
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
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.
J. Rights Offering
During the third quarter of 1997, the Company conducted a rights offering
to raise additional capital to repay short-term indebtedness, to continue its
real estate development activities, and to provide working capital for the
Company's continuing operations. In the rights offering, the Company issued to
its stockholders non-transferable Rights to subscribe for up to 340,000
additional shares of its capital stock. Such Rights were issued to the holders
of capital stock as of the close of business on August 18, 1997 (the "Record
Date"). The stockholders as of the Record Date received one (1) Right for each
eight (8) shares of capital stock they owned on the Record Date. The Rights were
not transferable and they were not traded on any exchange. Each Right entitled
the holder thereof to subscribe for one (1) additional share of capital stock
for $16.00 and provided a right to subscribe for any shares which were
unsubscribed for in the rights offering.
Stockholders subscribed for all of the shares offered in the rights
offering and all of the 340,000 additional shares of the Company's capital stock
offered in the rights offering were issued during the fourth quarter of 1997.
The Company raised approximately $5,440,000, before deducting expenses of the
offering in the amount of approximately $135,948.
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 was paid monthly at 1-1/2 percent above the bank's prime lending rate
(8.5% at December 31, 1995). 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, 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 were subject
to interest at 1-1/2 percent over the bank's prime lending rate (8.25% at
December 31, 1996) and were collateralized by the remaining land and
improvements of the Hidden Meadows development. The Company repaid the borrowing
plus accrued interest in full during 1997.
4. SKI LEASES:
The Company has leased certain surface rights representing approximately
5,273 acres to Greater Park City
- continued -
22
<PAGE>
Company for use in its resort operations. Greater Park City Company has
assigned some of 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 1995-96 ski season, a total of $152,448 and for the 1996-97 ski season, a
total of $176,969.
5. INCOME TAXES:
The income tax (provision) benefit for the years ended December 31, 1997 and
1996 consists of the following:
1997 1996
------------------------
Current tax provision $ (258) $ (542)
Deferred tax benefit 0 7,196
Income tax (provision) benefit $ (258) $ 6,654
=========================
The reported provision 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:
1997 1996
-----------------------------
Federal statutory tax benefit $(795,203) $(204,303)
Increase (reduction) in taxes resulting from:
State income taxes (net of federal benefit) (76,850) (19,829)
Change in valuation allowance 871,035 212,256
Other 1,276 5,222
----------------------------
Income tax (provision) benefit $ (258) $ 6,654
============================
At December 31, 1997 the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $17,128,000 and
$7,538,000 respectively, which will expire between 1998 and 2012 if not used to
reduce future taxable income.
The components of the net deferred tax asset and liability as of December
31, 1997 are as follows:
Deferred tax assets:
Tax net operating loss carryforwards $6,072,431
Tax credit carryforwards 5,447
Charitable contributions carryover 6,536
Valuation allowance (5,006,763)
Total deferred tax asset 1,077,651
Deferred tax liability:
Excess tax depreciation and amortization (602,449)
--------------
Net deferred tax asset $ 475,202
==============
The valuation allowance at December 31, 1997 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
- continued -
23
<PAGE>
ended December 31, 1997 was $871,035. 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.
6. INDUSTRY SEGMENTS:
<TABLE>
<CAPTION>
The industry segments of the Company are defined as Mining, Real Estate, Mine
Tour and Corporate.
<S> <C> <C> <C> <C> <C>
December 31, 1997: Mining Real Estate Mine Tour Corporate Total
- ----------------- ---------- ------------- ------------ ------------- ----------
Revenue $ 143,846 $ 1,465,667 $ 1,464,371 $55,124 $ 3,129,008
Operating income (loss) (1,133,752) 466,600 (925,949) (745,989) (2,338,832)
Identifiable assets 879,915 10,150,435 4,310,985 4,261,199 19,602,534
Depreciation 81,442 4,254 370,374 41,598 497,668
Capital expenditures, including
deferred real estate development
costs -------------- ----------------- ------------- ------------ ------------
11,332 384,916 117,267 36,272 549,787
December 31, 1997: Mining Real Estate Mine Tour Corporate Total
- ----------------- ---------- ------------- ------------ ------------- ----------
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 934,360 10,206,682 4,517,315 2,159,185 17,817,542
Depreciation 163,041 4,221 352,812 42,471 562,545
Capital expenditures, including
deferred real estate development
costs 70,219 297,762 306,565 200 674,746
</TABLE>
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 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 the appropriate government agencies and acceptance of
the master plan by the Company.
If the appropriate government agencies do 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
- continued -
24
<PAGE>
7. CONTINGENCIES, continued:
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 the appropriate government agencies, the exchange of the
surface rights to the land by the Company for the termination of the Deer Valley
Ski Lease and the 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 surface rights to the land 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 1997 and 1996 was
$19,662 and $18,474, 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 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.
- continued -
25
<PAGE>
9. STOCK OPTIONS, continued:
Stock options under the Company's incentive and non-statutory stock option
plan were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------
Exercise Exercise
Price Price
per per
Options: Shares Share Shares Share
---------------------------------------------------
<S> <C> <C> <C>
Outstanding and exercisable at beginning of year 37,500 $6.874 37,500 $6.874
Granted 0 0
Exercised (4,167) $6.874 0
Forfeited and/or expired 0 0
Outstanding and exercisable at end of year 33,333 $6.874 37,500 $6.874
-----------------------------------------------------
</TABLE>
The weighted average remaining contractual life of the outstanding and
exercisable options is 6 years.
At December 31, 1997, a total of 87,500 shares were available for grants of
additional options under the plan.
Pro forma disclosures of net income and earnings per share are not included
as there were no options granted during 1995, 1996 or 1997.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
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 1998 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 3 and 4 of the
Registrant's definitive Proxy Statement for the 1998 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 1998 Annual Meeting
of Stockholders under the heading "Security Ownership of Certain Beneficial
Owners and Management."
Item 12. Certain Relationships and Related Transactions
Not Applicable
26
<PAGE>
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:
<TABLE>
<CAPTION>
Reg. S-B Sequential
Reference Page
Number Document Number
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended by Certificate of Amendment of 1
Restated Certificate of Incorporation
3.2 Amendment to Restated Certificate of Incorporation filed in Delaware on December 2
19, 1990
3.3 Amendment to Restated Certificate of Incorporation filed in Delaware on 5
September 8, 1993
3.4 Amendment to Restated Certificate of Incorporation filed in Delaware on August 7
25, 1995
3.5 Bylaws 1
10.1 Purchase Agreement dated January 1, 1971 between United Park City Mines Company 1
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 United Park City Mines 1
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 among United Park City Mines 1
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 Greater Park City Company 1
and Royal Street Land Company
10.5 Resort Area Lease dated January 1, 1971 between United Park City Mines Company 1
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 United Park City Mines 1
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 Park City Mines Company 1
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 between United Park City 1
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 Park City Mines Company,
Royal Street Land Company, Deer Valley Resort Company, Royal Street of Utah, 4
Royal Street Development Company, and Wells Fargo Bank, N.A. dated November 6,
1992
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Reg. S-B Sequential
Reference Page
Number Document Number
<S> <C> <C>
10.10 Employment Agreement dated June 1, 1994 by and between United Park City Mines 8
Company and Hank Rothwell
10.11 Incentive Stock Option Agreement dated June 27, 1994 by and between United Park 6
City Mines Company and Hank Rothwell
10.12 Incentive Stock Option Agreement dated August 2, 1994 by and between United Park 8
City Mines Company and Edwin L. Osika, Jr.
10.13 Employment Agreement dated June 1, 1998 by and between United Park City Mines 30
Company and Hank Rothwell
10.14 Agreement of Purchase and Sale of Assets between New Quincy Mining Company as 8
10.15 Agreement of Purchase and Sale of Assets between Lucky Bill Mining Company as 8
Seller and United Park City Mines Company, dated December 31, 1997
22.1 Subsidiaries of the Registrant 8
27 Financial Data Schedule 42
</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)
8 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
8 Incorporated by reference from the Registrant's Form 8-K filed with the
Securities and Exchange Commission on March 6, 1998
(b) Reports on Form 8-K:
Registrant filed a Form 8-K with the Securities and Exchange Commission on
September 17, 1997 reporting additional purchases of its capital stock by
Laborador Partners L.P., Farley Capital L.P. and Stephen L. Farley.
28
<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)
March 26, 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/ Alan L. Gordon March 26, 1997
- ------------------- ----------------
Alan L. Gordon Director Date
/s/ Joseph S. Lesser March 26, 1997
- -------------------- -----------------
Joseph S. Lesser Director Date
/s/ Hank Rothwell March 26, 1997
- -------------------- -----------------
Hank Rothwell Date
President, Chief Executive Officer,
and Director
/s/ Edwin L. Osika, Jr. March 26, 1997
- -------------------- -----------------
Edwin L. Osika, Jr. Date
Executive Vice President, Secretary,
Treasurer, Chief Financial Officer, and
Director
29
<PAGE>
EXHIBIT 13.1
EMPLOYMENT AGREEMENT
PREAMBLE
--------
This Employment Agreement (this "Agreement") is made by and between United
Park City Mines Company, a Delaware corporation (the "Company"), and Hank
Rothwell ("Rothwello") to be effective as of the 1st day of June, 1997.
RECITALS
---------
WHEREAS, the Company and Rothwell previously entered into that certain
Employment Agreement dated as of June 1, 1994 as amended by that certain
Amendment No. 1 to Employment Agreement dated as of September 5, 1995
(collectively referred to herein as the "Prior Employment Agreement"), whereby
Rothwell was employed to serve as the Company's President and Chief Executive
Officer; and
WHEREAS, the term of the Prior Employment Agreement expired on May 31,
1997; and
WHEREAS, the Board of Directors of the Company desires and intends to
continue to employ Rothwell as the Company's President and Chief Executive
Officer on the terms and conditions set forth herein; and
WHEREAS, Rothwell is willing and desires to continue to be employed by the
Company as its President and Chief Executive Officer on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to continue to employ Rothwell,
and Rothwell hereby agrees to continue to be employed, as President and Chief
Executive Officer of the Company, upon the terms and conditions hereinafter set
forth. The location of such employment shall be in either Park City or Salt Lake
City, Utah; however, Rothwell agrees to take whatever reasonable business trips
are requested by the Board of Directors of the Company. The Company and Rothwell
acknowledge that Rothwell is presently serving as a director on the Board of
Directors of the Company. As long as Rothwell is President and Chief Executive
Officer during the term of this Agreement, the Board of Directors of the Company
will cause Rothwell's name to be listed on any proxy soliciting votes for the
election of directors.
2. Term. The employment of Rothwell by the Company pursuant to this
Agreement will be for a period of three (3) years commencing as of June 1, 1997
(the "Employment Term"), unless the Employment Term is terminated earlier
pursuant to the provisions of Section 5 hereof. Notwithstanding the foregoing,
the Company shall have the right, at the Company's sole discretion, to review
Rothwell's performance under this Agreement and to terminate this Agreement
without cause, with such termination to be effective on June 1, 1999. In order
for the Company to exercise this right to terminate the Agreement, the Company
must give written notice to Rothwell of such termination no later than May 1,
1999. In the event the Company exercises its right to terminate this Agreement
as of June 1, 1999, such termination shall be deemed to be the termination of
the Employment Term on the "Normal Expiration Date" pursuant to Section 5.a. of
this Agreement.
3. Duties. Rothwell agrees to perform the duties outlined in the
CompanyAEs bylaws as being applicable for the CompanyAEs President and Chief
Executive Officer, and to perform such other duties as may be assigned from time
to time by the Board of Directors of the Company. Rothwell agrees that he will
devote his full time and energy to the affairs of the Company, and that during
the Employment Term he shall report to the Board of Directors of the Company.
Without prior approval of the Board of Directors of the Company, Rothwell agrees
that he shall not devote his time to any business activities other than the
affairs of the Company during the Employment Term, with the exception of those
business activities (the "Permitted Outside Activities") described in Exhibit
"A" attached hereto and incorporated herein by this reference. The Company
agrees that Rothwell's involvement in the Permitted Outside Activities shall not
violate Rothwell's obligations arising under this Agreement. Rothwell agrees to
give written notice to the Board of Directors of the Company in the event that
any of the Permitted Outside Activities in which Rothwell participates during
the term of this Agreement creates a potential conflict of interest for Rothwell
between his
1
<PAGE>
involvement in the Permitted Outside Activity and the performance by
Rothwell of his duties as the President and Chief Executive Officer of the
Company.
4. Compensation.
-------------
a. Salary. Commencing on June 1, 1997 the Company shall pay Rothwell
------
a minimum annual salary of One Hundred Twenty-Two Thousand Four Hundred Dollars
($122,400), payable in equal semi-monthly installments (such amount, as it may
be increased from time to time, is hereinafter referred to as the "Salary").
The Salary payable to Rothwell by the Company shall be increased every year
during the term of this Agreement, commencing on June 1, 1998 and continuing on
each June 1 thereafter, to an amount which shall be the product obtained by
multiplying the annual Salary which was paid to Rothwell for the immediately
preceding twelve months by the lesser of (a) 106% or (b) a fraction, the
numerator of which is the Consumer Price Index (as hereinafter defined) for the
month of February immediately preceding such adjustment date, and the
denominator of which is the Consumer Price Index for February, 1997 or the month
of February immediately preceding the most recent date on which the Salary was
adjusted, whichever is later. The amount of such increase shall be determined
by the Company as soon as reasonably practicable after the Consumer Price Index
for the month of February immediately preceding each adjustment date becomes
available. The delay or failure of the Company to compute and pay to Rothwell
any increases in the Salary to be made pursuant to this Section 4.a. shall not
impair the continuing obligation of the Company to pay the increased portion of
the Salary resulting from such adjustments. In no event shall the Salary be
decreased as a result of this Section 4.a. For purposes of this Agreement, the
term "Consumer Price Index" shall mean the "Consumer Price Index--U.S. City
Average For All Items For All Urban Consumers (1982-1984 = 100)" (the "CPI-U")
published monthly in the "Monthly Labor Review" by the Bureau of Labor
Statistics of the United States Department of Labor (the "Labor Bureau"). If
the CPI-U is discontinued, "Consumer Price Index" shall refer to comparable
statistics on the purchasing power of the consumer dollar published by the Labor
Bureau or by another agency of the United States Government selected by the
Company.
b. Net Cash Flow Payment. In addition to the Salary described in
---------------------
Section 4.a. above, above, the Company shall, within ninety (90) days after the
end of each calendar year during the term of this Agreement commencing on
January 1, 1997 (each such calendar year is referred to as a "Net Cash Flow
Period"), pay to Rothwell as an incentive payment (the "Net Cash Flow Payment")
an amount equal to three percent (3%) of the Net Cash Flow, as defined below,
from each Project, as defined below, in which the Company, or any of its wholly-
owned subsidiaries, engaged or was actively involved during the Net Cash Flow
Period for which such payment is made.
(1) For purposes of this Agreement," Net Cash Flow" shall mean,
separately with respect to each Project in which the Company or any of its
wholly-owned subsidiaries was engaged or actively involved during the Net Cash
Flow Period for which such Net Cash Flow Payment is being calculated, the excess
of Revenue, as defined below, over Costs, as defined below, less Prior Net Cash
Flow, as defined below. The Net Cash Flow shall be reviewed and audited by the
Company's independent certified public accountants (currently Coopers & Lybrand)
as to each Project within ninety (90) days after the end of each calendar year
during the term of this Agreement. The Net Cash Flow Payment made for each
calendar year during the term of this Agreement shall be based upon the results
of the annual audit by the Company's independent certified public accountants.
(i) For purposes of calculating Net Cash Flow, Revenueo shall mean
all income or receipts received by the Company with respect to a Project from
the inception of the Project through the end of the Net Cash Flow Period for
which the Net Cash Flow is being calculated, including, without limitation, all
gross sales proceeds and other consideration from property sold as part of the
Project, all operating revenues derived from such Project, and all income
received with respect to services rendered pursuant to such Project.
(ii) For purposes of calculating Net Cash Flow, Costso shall mean all
costs and expenses directly or indirectly incurred with respect to a Project, or
allocated to such Project on an equitable basis, from the inception of such
Project through the end of the Net Cash Flow Period for which the Net Cash Flow
Payment is being calculated, including, without limitation, (a) the adjusted
book basis of the assets and property sold and the general and administrative
expenses of the Company equitably allocated to the Project (including an
equitable allocation of the salary and benefits of Rothwell and other employees
who have rendered services with respect to such Project), and (b) the total
amount of all costs, fees and interest incurred by the Company on borrowed funds
which are invested in the Project (including an imputed interest cost which
shall be calculated on all non-borrowed funds of the Company which are invested
in the Project but which imputed interest cost shall not be calculated on any of
the Revenue with respect to such Project which Revenue is invested by the
Company in the Project. The
2
<PAGE>
imputed interest cost shall be calculated from the date of actual expenditure of
such non-borrowed funds by the Company until the date such non-borrowed funds
are returned to the Company from the Revenue generated by the Project, utilizing
an annual rate of interest equal to the prime rate of interest announced from
time to time by the bank or financial institution then used by the Company for
its banking needs, plus two percent (2%) per annum).
(iii) For purposes of calculating Net Cash Flow, Prior
Net Cash Flowo shall mean, with respect to a Project, the cumulative historical
Net Cash Flow from the inception of such Project through the end of the Net Cash
Flow Period immediately preceding the Net Cash Flow Period for which the Net
Cash Flow Payment is being calculated.
(2) For purposes of this Agreement, "Project" shall mean each separate
real estate development or any specifically identifiable phase thereof, or each
separate business enterprise of the Company, in which the Company or any of its
wholly-owned subsidiaries is engaged as of September 1, 1993 and all real estate
developments and business enterprises in which the Company or any of its wholly-
owned subsidiaries is engaged during the term of this Agreement, with respect to
which, in each case (i) the Company has received all necessary approvals and
permits from the applicable public authorities, and (ii) the Company, as
authorized by the Board of Directors, has commenced a development and marketing
program, and (iii) either the Company's equity funds have been allocated or
external financing has been arranged. Notwithstanding the foregoing sentence,
the term "Project" shall also include any separate real estate development
project listed from time to time on Exhibit "B" attached hereto or a
specifically identifiable phase of any such project which is sold in its
entirety in a single sale because of its development potential, even if such
separate real estate development project or phase does not otherwise satisfy the
three requirements set forth in the preceding sentence as essential elements of
a "Project." The term "Project" shall not include specific real estate
developments or business enterprises in which the Company or any of its wholly-
owned subsidiaries was actively involved prior to September 1, 1991. With
respect to large developments or master-planned projects, such as Flagstaff or
Bonanza Flats, each phase of such development shall be treated as a separate
Project for purposes of calculating the Net Cash Flow Payment, and an equitable
(prorata or value based) portion of the accrued costs with respect to such
development shall be allocated to each separate phase thereof, for purposes of
calculating the Net Cash Flow Payment with respect to such Project. As of the
date of this Agreement, the Projects eligible to be considered for a Net Cash
Flow Payment are those Projects specifically identified on Exhibit "B" attached
hereto, which Exhibit "B" may from time to time be amended in writing by the
parties in accordance with the definition of "Project" set forth above.
(3) A Project generating a negative Net Cash Flow through the end of a
Net Cash Flow Period shall be used to offset or reduce the positive Net Cash
Flow which has been generated by other Projects of the Company, and it shall
reduce the amount of the Net Cash Flow Payment as set forth herein.
(4) In the event Rothwell is not employed during an entire Net Cash
Flow Period, the Net Cash Flow and the Net Cash Flow Payment shall be
proportionately reduced to reflect the number of days during such Net Cash Flow
Period that Rothwell was employed by the Company.
c. Incentive Stock Option Agreement. Attached hereto as Exhibit "C"
---------------------------------
is a copy of the Incentive Stock Option Agreement dated June 27, 1994, as
amended by the Amendment to United Park City Mines Company Incentive Stock
Option Agreement dated as of August 25, 1995 by and between the Company and
Rothwell, which shall continue in effect pursuant to the terms and conditions
set forth therein. If at any time during the term of this Agreement the
"Capital Stock" of the Company, as such term is defined in the Incentive Stock
Option Agreement, as amended, ceases to be listed on the stock exchange of any
United States public listing agency, such as the New York Stock Exchange or
NASDAQ (any such public listing agency individually referred to herein as a
"Stock Exchange") for a period of ninety (90) consecutive calendar days, then
Rothwell shall be entitled to give notice to the Company of Rothwell's election
to cause the Company to purchase from Rothwell all of his right, title and
interest arising under the Incentive Stock Option Agreement, provided that
Rothwell gives to the Company written notice of such election by Rothwell within
thirty (30) days after the date that the Capital Stock of the Company has not
been listed on any Stock Exchange for a period of ninety (90) consecutive days.
In the event Rothwell exercises his right to cause the Company to purchase all
of Rothwell's right, title and interest under the Incentive Stock Option
Agreement, the purchase price to be paid by the Company to Rothwell for all of
his right, title and interest arising under the Incentive Stock Option Agreement
shall be an amount equal to the total number of Option Shares which Rothwell is
then entitled to purchase under the Incentive Stock Option Agreement multiplied
by a dollar amount calculated as follows:
3
<PAGE>
(i) the closing bid price per share of the Company's Capital Stock on
the date which is five (5) business days prior to the date which is the earlier
to occur of: (i) the date that the Capital Stock of the Company ceases to be
listed on any Stock Exchange, provided that the Capital Stock of the Company
thereafter remains unlisted on any Stock Exchange for a period of ninety (90)
consecutive calendar days, or (ii) the date that the Stock Exchange which then
lists the Capital Stock of the Company announces its intention to discontinue
the listing of the Company's Capital Stock on such Stock Exchange, provided that
another Stock Exchange does not simultaneously announce its commitment to
commence listing the Capital Stock of the Company, with such new listing to
become effective no later than the date the other Stock Exchange discontinues
its listing of the Capital Stock of the Company, and provided further that the
Capital Stock of the Company, as the result of such announcement, ceases to be
listed on any Stock Exchange and thereafter remains unlisted on any Stock
Exchange for a period of ninety (90) consecutive calendar days,
(ii) less the price per share for which Rothwell is entitled to
purchase the Option Shares under the Incentive Stock Option Agreement.
Such amount shall be calculated and shall be payable by the Company to Rothwell
in cash no later than thirty (30) days following the date that Rothwell gives to
the Company written notice of Rothwell's election to cause the Company to
purchase all of Rothwell's right, title and interest arising under the Incentive
Stock Option Agreement.
d. Employee Benefits. During the Employment Term, Rothwell shall be
entitled to all employee benefits in effect or that may hereafter be adopted,
which are at least equal to the benefits available to all other salaried
employees or management personnel of the Company, including, without limitation,
the Company's pension or profit-sharing plans, insurance plans (such as health,
accident, dental, life, or disability insurance), paid vacations, paid sick
leave, and holidays. The level of benefits applicable to Rothwell shall be
determined in the same manner as the level of benefits is determined for all
other salaried employees of the Company.
5. Termination. The Employment Term shall terminate upon the date of the
first to occur of:
a. the date that is three (3) years after the date hereof (the
"Normal Expiration Date");
b. the accidental death of Rothwell while actively engaged in the
performance of his duties hereunder;
c. the death of Rothwell from any cause other than an accident
during the active performance of his duties hereunder;
d. the physical or mental disability or illness of Rothwell that
shall prevent Rothwell from performing his duties under this Agreement for a
period of at least three (3) consecutive months, as shall be determined in good
faith by the Board of Directors of the Company;
e. the election of the Board of Directors of the Company to
terminate RothwellAEs employment for "Cause" (as defined in this Section 5
below);
f. the election of the Board of Directors of the Company to
terminate RothwellAEs employment without Cause; and
g. fifteen (15) days after written notice from Rothwell to the
Company to terminate his employment with or without Cause.
For the purpose of this Agreement, the word "Cause" shall be defined to
include, but not be limited to, the following:
(i) negligence, willful misconduct, or dereliction of duty to the
Company;
(ii) conduct that may cause or has caused material damage to the
Company;
4
<PAGE>
(iii) breach of fiduciary duties to the Company;
(iv) conviction for a criminal felony charge;
(v) drug or alcohol abuse that causes damage to the Company;
(vi) insubordination in refusing to perform work assigned by the Board
of Directors which is reasonably related to the duties of President
and Chief Executive Officer;
(vii) unapproved disclosure of confidential information;
(viii) engaging in a business competitive to the Company other than
the Permitted Outside Activities;
(ix) sexual harassment that causes damage to the Company; or
(x) theft or abuse of Company funds or property.
6. Payments on Termination.
a. In the event this Agreement is terminated pursuant to Sections
5.a, 5.c, 5.d, 5.e, or 5.g above, the Company shall pay to Rothwell or his
beneficiary or personal representative Rothwell's full Salary and the Net Cash
Flow Payment, together with all benefits and other compensation through the date
of termination. Also, in the event this Agreement is terminated pursuant to
Sections 5.a., 5.c. or 5.d. above, the Company shall continue to pay to Rothwell
or his beneficiary or personal representative the Net Cash Flow Payments with
respect to all of the Projects of the Company which are in existence as of the
date of Rothwell's termination, for a period of three (3) years following the
date of termination at the time the same were to become due if the termination
had not occurred. In the event this Agreement is terminated pursuant to
Sections 5.e. or 5.g. above, the Company shall not be obligated to make any Net
Cash Flow Payments beyond the termination date.
b. In the event this Agreement is terminated pursuant to Section 5.b
because of the accidental death of Rothwell during the active performance of his
duties hereunder, the Company shall pay, as liquidated damages arising out of
the termination of this Agreement, but not as a waiver or release of any other
claims relating to Rothwell's death, to Rothwell's estate, beneficiary or
personal representative:
(1) Rothwell's full Salary and also the entire amount of the accrued
Net Cash Flow Payment through the date of RothwellAEs death, together with all
benefits and other compensation through such date; plus
(2) an amount equal to the aggregate of the Salary to which Rothwell
would have been entitled for a period of (1) year following the date of
Rothwell's death, as if such death had not occurred, all such payments to be
made at the time the same were to become due if the death had not occurred. The
payments provided hereunder shall be in addition to any other payments to which
Rothwell or his estate would be entitled such as pension benefits and life
insurance proceeds, if any; plus
(3) the Company shall continue to pay to Rothwell's beneficiary or
personal representative the Net Cash Flow Payments with respect to all of the
Projects of the Company which are in existence as of the date of RothwellAEs
termination for a period of three (3) years following the date of RothwellAEs
death at the time the same were to become due if RothwellAEs death had not
occurred.
c. In the event this Agreement is terminated pursuant to Section 5.f
above, the Company shall pay to Rothwell as liquidated damages and not as a
penalty:
(1) Rothwell's full Salary and also the entire amount of the accrued
Net Cash Flow Payment in effect prior to the reason for termination through the
date of RothwellAEs termination, together with all benefits and other
compensation through such date; plus
5
<PAGE>
(2) an amount equal to the aggregate Salary to which Rothwell would
have been entitled for the remainder of the Employment Term to the Normal
Expiration Date, all such payments to be made at the time the same were to
become due as if the termination had not occurred; plus
(3) the Company shall continue to pay to Rothwell or to Rothwell's
beneficiary or personal representative the Net Cash Flow Payments with respect
to all of the Projects of the Company which are in existence as of the date of
RothwellAEs termination for a period of three (3) years following the date of
RothwellAEs termination at the time the same were to become due if the
termination had not occurred.
Rothwell shall not be required to mitigate the amount of any payment
provided for in this Section 6 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 6 be
reduced by any compensation or retirement benefits heretofore or hereafter
earned by Rothwell as a result of employment by any other person or business
entity.
7. Sale, Merger or Business Reorganization Involving the Company. In the
-------------------------------------------------------------
event that as the result of a sale, merger or other business reorganization or
acquisition involving the Company which results in the termination or material
adverse alteration of Rothwell's employment, as set forth in this Agreement, the
Company shall pay or shall cause the surviving business entity to pay to
Rothwell as liquidated damages and not as a penalty:
a. Rothwell's full Salary and also the entire amount of the accrued
Net Cash Flow Payment in effect prior to the effective date of such sale, merger
or other business reorganization through such date, together with all benefits
and other compensation through such date; plus
b. An amount equal to the aggregate Salary to which Rothwell would
have been entitled for a period of the longer of (i) the remainder of the
Employment Term to the Normal Expiration Date or (ii) one year following the
effective date of such sale, merger or other business reorganization; plus
c. the Company shall pay or cause the surviving business entity to
pay to Rothwell the Net Cash Flow Payments for a period of three (3) years
following the date of such sale, merger or other business reorganization with
respect to all of the Projects of the Company which are in existence as of the
effective date of such sale, merger or other business reorganization. Projects
in existence are those which meet the definition of Projects in Section 4.c.
as of the applicable date.
d. All such payments shall be made at the time the same were to
become due as if the sale, merger or other business reorganization had not
occurred.
e. Rothwell shall not be required to mitigate the amount of any
payment provided for in this Section 7 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 7 be
reduced by any compensation or retirement benefits heretofore or hereafter
earned by Rothwell as a result of employment by any other person or business
entity.
8. Indemnification. If Rothwell is made a party or is threatened to be
made a party to, or is involved in, any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was an employee, officer or director of the Company, or is or was serving
at the request of the Company, Rothwell shall be indemnified and held harmless
by the Company to the fullest extent authorized by the Company's Certificate of
Incorporation, Bylaws and the General Corporation Law of the State of Delaware,
as the same exists or may hereafter be amended, against all expenses, liability
and loss, including attorneys' fees, judgments, fines and amounts paid or to be
paid in settlement, reasonably incurred or suffered by Rothwell directly or
indirectly in connection therewith or in connection with any appeal therefrom,
so long as Rothwell shall be found to have met the standard of conduct set forth
therein that would allow such indemnification, and such indemnification shall
continue as to Rothwell after he has ceased to be an employee, officer or
director of the Company, and shall inure to the benefit of his heirs, executors
and administrators. The Board of Directors of the Company will undertake a
review of the Company's Certificate of Incorporation and Bylaws and will
determine, in its sole discretion, what expansion of the Company's
indemnification provisions it deems necessary for the Company's officers and
directors.
6
<PAGE>
9. Life Insurance. If requested by the Company, Rothwell shall submit to
--------------
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Company to
obtain life insurance on the life of Rothwell for the benefit of the Company.
10. Confidentiality. Rothwell agrees that in performing under the terms of
---------------
this Agreement he will have access to confidential and proprietary information
and records of the Company. Rothwell agrees that he shall keep all such
information and records confidential and that he shall make no use of any of
such information for any purpose other than the business purposes of the
Company. Rothwell agrees that he shall not give or provide such information or
records to any third party or use them in any way to compete or to allow a third
party to compete with the Company. The provisions of this Section 10 will
survive the termination or expiration of this Agreement; provided, however, that
Rothwell's obligations under this Section 10 shall not relate to information and
records of the Company that become part of the public domain by publication or
otherwise through no fault or action of Rothwell.
11. Non competition. In the event RothwellAEs employment hereunder is
---------------
terminated pursuant to Section 5.f. above, Rothwell will neither directly nor
indirectly, including, without limitation, as a paid or unpaid director,
officer, agent, representative, employee of, or consultant to, any enterprise,
or by acting as a proprietor of an enterprise, or by holding any direct or
indirect participation in any enterprise as an owner, partner, limited partner,
joint venturer, stockholder or creditor, enter into or attempt to enter into any
other business activities within the state of Utah of the type and character
engaged in, or competitive with that conducted by, the Company during the
remainder of the Employment Term to the Normal Expiration Date, as if such
termination had not occurred. Notwithstanding the foregoing, Rothwell's
ownership, involvement and participation in any of the Permitted Outside
Activities shall not be deemed to be a violation of this Section 11. The
ownership by Rothwell of one percent (1%) or less of the outstanding securities
of any corporation engaged in a business competing with the Company shall not
constitute a breach of this Section 11. In the event of a breach by Rothwell of
this Section 11, the Company, in addition to all other rights and remedies it
may have, shall be entitled to preliminary and permanent injunctions restraining
Rothwell from doing or continuing to do any such act in violation of this
Section 11 without showing or proving any actual damage sustained by the
Company, it being acknowledged and agreed by the parties that the business
relationships and good will and the opportunity to build upon those
relationships is a critical element of this Employment Agreement and that a
breach by Rothwell of this Section 11 cannot be adequately valued in money terms
and would cause irreparable injury to the Company for which money damages will
not provide an adequate remedy. The provisions of this Section 11 will survive
the termination or expiration of this Agreement.
12. Binding Effect. Rothwell's rights and obligations under this
--------------
Agreement shall not be transferable by assignment or otherwise, and any attempt
to do any of the foregoing shall be void. The provisions of this Agreement shall
be binding upon and inure to the benefit of Rothwell and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of the
Company, its successors and assigns.
13. Miscellaneous. This Agreement is to be governed by the laws of the
--------------
State of Utah, except with respect to Section 8 which shall be governed
according to the General Corporation Law of the State of Delaware. This
Agreement constitutes the full and complete understanding of the parties, and
except as otherwise expressly provided, supersedes all previous agreements on
the subject matters hereof, and may be amended only by a writing executed by the
parties hereto. All notices hereunder shall be made in writing and shall be
effective when addressed to the Company at its principal place of business or
when addressed to Rothwell at his address contained in the Company's personnel
records, and deposited, postage pre-paid and certified, return receipt
requested, with the U.S. Postal Service. The section headings of this Agreement
are solely for convenience and shall not be considered in its interpretation.
The parties agree that any suit or proceeding in connection with, arising out
of, or relating to this Agreement shall be instituted only in a court (whether
federal or state) located in Utah, and the parties, for the purpose of any such
suit or proceeding, irrevocably submit to the jurisdiction of any such court in
any such suit or proceeding. In any such suit, the losing party shall pay the
prevailing party's costs and expenses of the suit, including reasonable
attorneys' fees.
7
<PAGE>
AUTHORIZED SIGNATURES
In order to bind the parties to this Agreement, their duly authorized
representatives have signed their names on the date first indicated above.
THE "COMPANY" "ROTHWELL"
UNITED PARK CITY MINES COMPANY
s/ Hank Rothwell
HANK ROTHWELL
-----------------------------------------
BY: /s/ Edwin L. Osika, Jr.
_____________________________
EDWIN L. OSIKA, JR.
ITS: EXECUTIVE VICE PRESIDENT
ATTEST:
/s/ Rory L. Murphy
_____________________________
8
<PAGE>
EXHIBIT "A"
PERMITTED OUTSIDE ACTIVITIES
The Employment Agreement restricts Rothwell's business activities to those
exclusively of the Company, unless specifically approved by the Board of
Directors of the Company. The following business activities of Rothwell are
hereby approved by the Board of Directors of the Company:
(1) President and sole owner of Realty Advisors, Inc. ("RA"). RA holds a
brokers license in the State of Utah, and is a member of the Park City Board of
Realtors, the Salt Lake Board of Realtors, and other professional organizations.
It is understood that RA will not be actively engaged in the real estate
development or brokerage business.
(2) Vice President and minority shareholder of Iron Mountain Alliance Inc.
and White Pine Canyon Corp. and also a member of Black Diamond Partners, L.C., a
Utah limited liability company. It is understood that Rothwell's involvement in
these entities will be passive investment and shall not be in conflict with
Rothwell's obligations under the Employment Agreement.
(3) Passive securities and real estate investments.
9
<PAGE>
EXHIBIT "B"
LIST OF PROJECTS OF THE COMPANY AS OF JUNE 1, 1997
1. Morning Star Estates Subdivision
2. Hidden Meadows Subdivision
3. Flagstaff Mountain of Deer Valley
4. Bonanza Mountain Resort
5. Snake Creek Acreage
6. Deer Crest/Pioche 12 Lots
7. Park City Silver Mine Adventure
8. Ontario Water Company
Note: This Exhibit specifically does not include:
1. Company Ski Lease income; and
2. Tunnel maintenance performed for Park City Municipal Corporation.
10
<PAGE>
EXHIBIT "C"
COPY OF THE INCENTIVE STOCK OPTION
AGREEMENT AND THE AMENDMENT THERETO
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations for the year
ended December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,360,878
<SECURITIES> 0
<RECEIVABLES> 96,020
<ALLOWANCES> 0
<INVENTORY> 163,708
<CURRENT-ASSETS> 4,420,519
<PP&E> 9,186,694
<DEPRECIATION> 4,420,519
<TOTAL-ASSETS> 19,602,535
<CURRENT-LIABILITIES> 1,129,365
<BONDS> 0
0
0
<COMMON> 30,457
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,602,535
<SALES> 1,270,000
<TOTAL-REVENUES> 3,129,008
<CGS> 867,408
<TOTAL-COSTS> 867,408
<OTHER-EXPENSES> 4,490,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 109,969
<INCOME-PRETAX> (2,338,832)
<INCOME-TAX> (258)
<INCOME-CONTINUING> (2,339,090)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,339,090)
<EPS-PRIMARY> (0.84)
<EPS-DILUTED> (0.84)
</TABLE>
