File No. 33-59063
MARKED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM S-1
REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933
U.S. ENERGY CORP.
(Exact Name of registrant as specified in its charter)
Wyoming
(State or other jurisdiction of incorporation)
1090
(Primary Standard Industrial Classification Code Number)
83-0205516
(I.R.S. Employer Identification No.)
877 North 8th West, Riverton, Wyoming
Tel. 307/856-9271
(Address and telephone of registrant's principal executive offices)
Daniel P. Svilar
(Name, address and telephone of agent for service of process)
Approximate date of commencement of proposed sale to public: As
soon as practicable after this registration statement is declared
effective.
2
Pursuant to Rule 415(1)(ix), the offering of the securities
registered hereby will be commenced quickly, will be made on a
continuous basis, and may continue for a period in excess of 30
days from the date of initial effectiveness.
Calculation of Registration Fee
1
Title of each Proposed Proposed
class of maximum maximum Amount
securities Amount offering aggregate of
to be to be price offering regis.
registered registered per share price fee
Common, 150,000(1) $4.40 $660,000(2) $228.00
$.01 par shares
Totals 150,000 $660,000 $228.00
shares
_____________________
(1) Shares registered are held by The Brunton Company, a wholly-
owned subsidiary of the registrant.
<PAGE>
Cross Reference Sheet
under Rule 501(a)e
Information Required in the Prospectus
Item 1. Forepart of Registration Facing page, front
Statement and Outside Front Cover cover of Prospectus
of Prospectus
Item 2. Inside Front and Outside Inside front and
Back Cover Pages of Prospectus outside back
Prosp. cover pages
Item 3. Summary Information, Summary Information;
Risk Factors, and Ratio of Risk Factors
Earnings to Fixed Charges
Item 4. Use of Proceeds Selling Security
Holders
Item 5. Determination of Not applicable.
Offering Price
Item 6. Dilution Not applicable.
Item 7. Selling Security Holders Selling Security
Holders
Item 8. Plan of Distribution Not applicable.
Item 9. Description of Description of
Securities to be Registered Securities.
Item 10. Interests of Named Not applicable
Experts and Counsel
Item 11. Information With Business
Respect to the Registrant
Item 12. Disclosure of Not applicable.
Commission Position on
Indemnification for
Securities Act Liabilities
<PAGE>
U.S. ENERGY CORP.
150,000 COMMON SHARES
__________________________________________
The Common Shares are offered for sale by The Brunton Company, a
Wyoming corporation ("Brunton"), a wholly-owned subsidiary of U.S.
Energy Corp. ("USE"), so that in effect this is an offering of
securities by USE. Common Shares of USE are traded on the
NASDAQ/NMS quotation system. At June 30, 1995, the closing bid
price was $4.75 per share. See "Market for USE Common shares and
Related Stockholder Matters."
3
The Common Shares are offered at $4.40 each, for estimated net
proceeds of $640,000 after deduction of approximately $20,000.
This Prospectus may be amended for a higher or lower price,
depending on market conditions in the course of the offering. See
"Plan of Distribution."
__________________________________________
These are Speculative Securities. Such Securities Involve a
High Degree of Risk. See "Risk Factors."
__________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR ANY
STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_____________________________________________
The date of this Prospectus is July , 1995
No one is authorized to give any information, or make any
representation on behalf of USE if not contained in this
Prospectus. This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered
hereby, by any person in any jurisdiction in which such an offer or
solicitation is not authorized or in which the person making such
offer or solicitation is not qualified to do so, or to any person
to whom it is unlawful to make such an offer, or solicitation of an
offer.
4
Neither delivery of this Prospectus nor any sale of the securities
being offered hereby, shall create an implication that there has
been no change in the information set forth herein since date of
this Prospectus. This Prospectus will be supplemented as necessary
to reflect any material or fundamental changes in USE or its
business, during the course of this offering.
<PAGE>
AVAILABLE INFORMATION
USE is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other statements and
information with the Commission. The reports and other documents
so filed can be inspected and copied at the Commission's public
reference room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's public reference
facilities at Commission regional offices located at: 7 World Trade
Center, 13th Floor, New York, New York 10048; and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such documents can be obtained at
prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
5 AND 6
This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits thereto, covering
the USE Shares offered hereby, certain portions of which have been
omitted pursuant to Commission rules and regulations. Each
statement made in this Prospectus concerning a document filed as an
exhibit to the Registration Statement, is qualified in its entirety
by reference to such exhibit for a complete statement of its
provisions. Any interested party may inspect the Registration
Statement (and any and all amendments thereto) and its exhibits,
without charge, at the public reference facilities of the
Commission at its offices as stated above.
SUMMARY OF THE OFFERING
The following summary is not intended to be complete and is
qualified in all respects by the more detailed information included
in this Prospectus.
THE COMPANY
USE is in the general minerals business of acquiring, developing,
exploiting and/or selling mineral properties. USE is now engaged
in two principal mineral sectors: uranium and gold. Interests are
held in other mineral properties (principally molybdenum), but are
either nonoperating interests or undeveloped claims. Other USE
business segments are commercial operations (professional and
recreational products manufacture and sales, real estate, and
general aviation), and construction operations.
9
Most USE operations are conducted through a joint venture with
Crested Corp. ("Crested", a majority-owned subsidiary), and various
joint subsidiaries of USE and Crested. USE and Crested originally
were independent companies, with two common affiliates (John L.
Larsen and Max T. Evans). In 1980, USE and Crested formed a joint
venture to do business together (unless one or the other elected
not to pursue an individual project). As a result of USE funding
certain of Crested's obligations from time to time (due to
Crested's lack of cash on hand), and later payment of the debts by
Crested issuing common stock to USE, Crested became a subsidiary of
USE (majority owned in fiscal 1993). See "Security Ownership of
Certain Beneficial Owners and Management" and "Directors and
Executive Officers."
7
Except for 1,400 ounces of gold recovered in fiscal 1992 in a bulk
sampling program at the California gold property, USE has not
received revenues from the mining of either uranium or gold.
Mineral revenues have been received from sales of mineral
properties, and from sales of uranium under certain of the utility
supply contracts held by Sheep Mountain Partners ("SMP", a
partnership), by USE and Crested delivering their one-half share of
uranium and receiving sales proceeds therefrom. In the future,
uranium contract revenues will be affected by the outcome of the
SMP litigation (see "USE Legal Proceedings"); gross revenues from
future performance of all the SMP contracts will flow to the
prevailing parties (USE and Crested, or CRIC and Nukem). However,
regardless of the outcome of such proceedings, commencement of
uranium mining at Green Mountain, Wyoming and/or Ticaboo, Utah may
result in utility supply contracts for Green Mountain Mining
Venture (of which USE and Crested are joint venture partners with
Kennecott Uranium Company), and/or Plateau Resources Limited (a
subsidiary of USE). There is no assurance such mining operations
will commence, or that new utility supply contracts will result.
See "Business-Minerals-Uranium."
8
For the nine months ended February 28, 1995, USE commercial and
construction operations provided a majority of net revenues to USE.
For a discussion of why revenues from mineral sales decreased in
this period, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Results of Operations for Nine
Months Ended February 28, 1995 Compared to Nine Months Ended
February 28, 1994."
USE was incorporated in Wyoming in 1966. All operations are in the
United States. Principal executive offices are located at 877
North 8th Street West, Riverton, Wyoming 82501, telephone (307)
856-9271.
<PAGE>
<PAGE>
RISK FACTORS
10
An investment in the Common Shares of USE involves substantial
risks, including the risks of failure to obtain necessary capital
to put principal properties into production, continued low uranium
prices, and competition. See "Risk Factors."
THE OFFERING
Securities Offered (1). . . . . . . . . . . .150,000 Common Shares.
See "Description of
Securities."
Common Shares Outstanding
Before and After Offering . . . . . . . . .5,580,493 Shares
NASDAQ/NMS Symbol "USEG"
________________
(1) All Common Shares offered are owned by and are being sold for
the account of Brunton, a wholly-owned USE subsidiary, so that in
effect this is an offering by USE of its securities.
SELLING SECURITY HOLDER
This Prospectus relates to the registration by USE of 150,000
common shares owned by The Brunton Company, for sale by Brunton
into the public market from time to time. Brunton has had several
material transactions with USE within the last three fiscal years
(see "Certain Relationships and Related Transactions"), including
the loan by Brunton of $300,000 to USE in August, 1993,
subsequently converted by terms of the loan (in October, 1993) to
restricted USE common shares (such converted shares are included in
the shares offered by this Prospectus).
11
Brunton presently owns 211,205 USE common shares (4,538 shares
acquired prior to fiscal 1992, 50,000 shares purchased in fiscal
1993, 100,000 shares acquired by loan conversion in fiscal 1994,
and 56,667 shares purchased in the private placement which
commenced in December, 1994 and was completed at March 31, 1995--
see the discussion of liquidity and capital resources for the nine
months ended February 28, 1995 under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." If all
150,000 shares offered hereby are sold, Brunton will own 61,205 USE
common shares (1.2 percent of the total outstanding shares), not
including an additional 150,000 shares underlying options
exercisable through April 30, 1998 (none exercised to Prospectus
date). See "Certain Relationships and Related Transactions."
<PAGE>
12
Brunton anticipates using proceeds from sale of the USE common
shares offered by this Prospectus for general working capital
requirements, however, a portion of the proceeds may be loaned to
USE. Net proceeds are estimated at $660,000 if all shares are
sold, after deducting an estimated $20,000 in legal and printing
expense of this offering.
3
PLAN OF DISTRIBUTION
The Common Shares will be offered from time to time, at the $4.00
offering price, by certain of those officers and directors of USE
who did not participate in the private offering of 400,000
restricted common shares in fiscal 1995. The individuals who
participate in this offering on behalf of USE will not be
compensated therefor.
<TABLE>
<CAPTION>
USE
SELECTED FINANCIAL DATA
May 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Current assets $ 3,866,600 $ 1,650,300 $ 3,260,500 $ 7,302,300 $ 5,481,000
Current liabilities 1,291,700 1,592,100 681,900 816,000 634,400
Working capital 2,574,900 58,200 2,578,600 6,486,300 4,846,600
Total assets 33,090,300 24,037,200 24,583,000 20,500,100 13,151,200
Long-term
obligations(1) 16,612,500 2,900,00 4,540,400 3,244,100 4,036,100
Shareholders' equity 12,559,100 15,063,200 14,982,900 15,045,500 8,087,800
________
(1)Includes $3,951,800, $1,695,600, $1,695,600, $725,900 and
$725,900 of accrued reclamation costs on uranium property at May
31, 1994, 1993, 1992, 1991 and 1990, respectively. See Note K of
Notes to the audited Consolidated Financial Statements.
</TABLE>
February 28,
(unaudited)
__________________________
1995 1994
___________ ___________
Current assets $ 3,496,200 $ 3,866,600
Current liabilities 3,092,900 1,291,700
Working capital 404,000 2,574,900
Total assets 33,379,000 34,496,800
Long-term
obligations (2) 15,946,200 16,612,000
Shareholders' equity 12,071,400 12,599,100
(2) See Notes 5 and 6 to the unaudited Consolidated Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
May 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Revenues $ 8,776,300 $9,045,500 $6,353,600 $9,569,100 $6,552,300
Income (loss) before
equity in income
(loss) of affiliates,
provision for
income taxes and
extraordinary item (3,587,900) (103,100) 819,200 6,082,900 4,601,600
Equity in income
(loss) of
affiliates (390,700) (444,700) (324,900) (96,100) (417,800)
Net income (loss) (3,370,800) (221,900) 613,200 6,164,900 3,743,200
Income per share before
extraordinary item $ (.70) $ (.05) $ .09 $ .93 $ .80
Extraordinary item -- -- .06 .62 .21
Income (loss) before
cumulative effect of
accounting change (.70) (.05) .15 1.55 1.01
Cumulative effect at
June 1, 1993 of income
tax accounting change (.06) -- -- -- --
Net income (loss)
per share(1) $ (.76) $ (.05)$ .15 $ 1.55 $ 1.01
Cash dividends per share -0- -0- -0- -0- -0-
_________
(1)Per share amounts for years prior to fiscal 1991 have been
retroactively adjusted to reflect the 10% stock dividend declared
and paid to record shareholders as of November 1, 1990.
</TABLE>
<PAGE>
For Nine Months Ended February 28,
(unaudited)
__________________________
1995 1994
___________ ___________
Revenues $ 6,394,300 $ 6,587,200
Loss before
equity in
loss of affiliates,
provision for
income taxes and
extraordinary item (1,429,300) (2,058,500)
Equity in income
(loss) of
affiliates (304,900) (266,700)
Net income (loss) (1,315,800) (2,019,300)
Income (loss) per
share before
cumulative effect $ (.27) $ (.40)
Cumulative effect -- (.06)
Net loss
per share $ (.27) $ (.46)
Cash dividends per share -0- -0-
13
RISK FACTORS
Prospective investors should note that the business of USE is
subject to certain risks, including the following:
15 AND 16
LITIGATION-SHEEP MOUNTAIN PARTNERS. Because of USE and Crested
litigation against their partner in the Sheep Mountain Partners
partnership ("SMP"), USE and Crested have been required to fund
$4,298,187 in standby mine maintenance and related costs of the SMP
mines from June 1991 through April 1995. Additionally, Use and
Crested have not been reimbursed $136,500 for purchase of uranium
delivered under SMP utility supply contracts. USE and Crested are
seeking to recover these amounts from Nukem and Cycle Resource
Investment Corporation, along with accrued interest of $993,073
through April 30, 1995, for a total of $5,427,759.
17
Recovery by USE and Crested of their funds advanced to the SMP
partnership will depend on the outcome of the litigation. See
"Business-Uranium", "Legal Proceedings", and the audited USE
Consolidated Financial Statements. An unfavorable outcome to the
litigation will result in loss of the funds advanced for standby
maintenance at the SMP mines and loss of the utility supply
contracts held by SMP.
19 AND 20
SUTTER GOLD VENTURE INVESTMENT-NO CURRENT MINING OPERATIONS OR
PRODUCTION OF GOLD. As of February 28, 1995, USE and Crested have
invested more than $12,100,000 to acquire, permit and develop a
gold property in California, held through subsidiary Sutter Gold
Company. The amount of this investment represents a significant
portion of USE's consolidated assets. However, there is no
assurance current efforts will be successful in financing the mill
construction and mine development costs (up to $17,974,000) needed
to put the property into full production. There presently are no
agreements to obtain such financing. See "Information About USE-
Gold-Lincoln Mine."
ADDITIONAL SHARES TO MARKET. Through June 30, 1995 USE has sold
732,500 restricted common shares in private placements. USE will
register all such shares (and up to another 1,417,500 shares if
sold in the current private placement) for resale by the investors
by early 1996. Public sale of such shares by the investors may
depress market prices.
21
Mineral Industry Risks. Generally, the business of USE is subject
to the risks of the minerals industry, including unanticipated
delay and expense in putting properties into production, commodity
price fluctuations, and variable environmental compliance costs.
In addition, recent legislation has increased unpatented federal
mining claim holding costs. Other legislation may be proposed
which, if enacted, would impose percentage royalties on production
from such lands. Any increase in federal land property costs would
adversely affect operations on federal lands, however, the extent
of such impact cannot be presently assessed. See "Business-Certain
Permits, Costs." Operations on patented lands would not be
affected (the Lincoln Mine in Amador County, California, for
example). Mining hazards may cause losses not covered by, or in
excess of coverage provided by insurance policies. USE maintains
policies deemed adequate for hazard losses, but there is no
assurance coverage would be adequate in the event of mine collapse,
environmental damage, or other factors related to mining
activities.
22
UNPATENTED MINING CLAIMS-RISKS OF TITLE. Nearly all the uranium
properties held by GMMV, SMP, and Plateau Resources Limited are
unpatented claims, title to which requires payment of fees to the
Bureau of Land Management and compliance with technical
requirements. Although USE believes it has good title to all its
unpatented claims, there are always possible inherent uncertainties
in this type of property ownership. See "Business-Mining Claim
Holdings."
23 AND 24
RECLAMATION AND ENVIRONMENTAL COSTS. USE is a joint venturer in
GMMV and a partner of SMP, which two entities are responsible for
mine reclamation, environmental restoration and decommissioning
associated with mineral properties and the Sweetwater Mill on Green
Mountain, in south central Wyoming. Future costs to comply with
these obligations are now estimated at approximately $25,000,000.
If actual costs are higher, USE could be adversely impacted. There
is no assurance the properties will generate sufficient revenues to
fund reclamation, restoration and decommissioning costs in excess
of current estimates. See Note K to the audited USE Consolidated
Financial Statements, and the notes to the unaudited USE
Consolidated Financial Statements, for further information.
Current bonds and funds in escrow are deemed adequate for
reclamation and decommissioning liabilities associated with the
Shootaring Mill in Utah.
The GMMV and Sweetwater Mill reclamation liabilities (now
approximately $25,000,000 total) are self bonded by Kennecott, and
accordingly are not booked into the USE or Crested financial
statements. Sheep Mountain and Plateau Resources reclamation
liabilities are booked at $1,451,842 and $2,500,000 respectively
(total $3,951,842). A cash bond of approximately $40,000 is posted
for miscellaneous reclamation costs at the Sutter gold property
(carried under "Other Assets-Deposits and Other" on the USE
financial statements). Reclamation and environmental obligations
for the oil and gas properties held by USE are deemed insignificant
and manageable in the ordinary course of business.
SEASONALITY. The mining and petroleum exploration and development
businesses may be considered seasonal to the extent properties are
located in areas where climate prevents access or reduces
activities during certain times of the year. Exploration of mining
claims located in the Colorado Mineral Belt, and in certain areas
of Wyoming and Montana, is generally limited to the summer months
by rugged terrain and snowpack. USE and affiliates have generally
had year-round access to the Ft. Peck, Montana oil wells. The gold
properties near Sutter Creek, California are accessible year round,
as are the Plateau operations in Utah and the GMMV properties and
Sweetwater Mill in Wyoming. Portions of USE commercial operations
are also seasonally affected, with aviation fuel sales at the fixed
base operation higher in summer months.
<PAGE>
25
POSSIBLE LOSSES ON URANIUM CONTRACTS. USE is not in arrears with
respect to uranium delivery obligations. As of February 28, 1995,
SMP had firm orders for an estimated $29,573,000 of future uranium
deliveries; USE and subsidiaries have no other firm orders for
future deliveries. USE estimates one percent of the SMP
obligations will have been filled during the last quarter of fiscal
1995. The foregoing estimate of firm orders was prepared assuming
the $10.40 per pound price of U3O8 at February 28, 1995 would remain
in effect for the duration of market-price related supply
contracts. Approximate floor price in effect at that date was used
to estimate future delivery obligations under base-price escalated
contracts. However, prices and quantities of U3O8 required by
utilities may vary substantially, as may the cost to USE and
subsidiaries to obtain inventory to supply the contracts. Profits
on such future deliveries cannot be predicted.
27
Increases in the spot market would increase USE' cost of delivering
on certain of the SMP contracts, thus reducing profits, while spot
market decreases would increase profits on such contracts. USE
recorded a loss of $162,900 in fiscal 1994 on deliveries of its
portion of certain of the SMP contracts, as the cost of uranium
exceeded the contracted price. Due to the SMP dispute, earlier
arrangements between the partners to deliver their shares of the
SMP contracts in spite of the dispute were abandoned, and USE made
no deliveries (and therefore recorded no revenues or loss) on any
SMP contracts during fiscal 1995.
26
All uranium supply contracts presently are held by SMP. USE could
lose the contracts if the arbitration proceedings involving SMP are
decided against USE and Crested.
28
See "Business-Uranium-Marketing."
COMPETITION. USE's business is highly competitive in the
exploration for and production of minerals and oil and gas, as well
as in its commercial and construction operations. USE's
competitors include major mining and oil and gas companies, many of
which are larger than USE in all respects. Competitive conditions
vary depending upon the mineral. The location and composition of
mineral ore bodies are of great importance to the competitive
position of a mining company, as are the milling methods that must
be used to extract mineral from the ore. Producers of high-grade
ore bearing readily extractable minerals are in advantageous
position. Producers of one mineral may be able to efficiently
recover other minerals as by-products, with significant competitive
impact on primary producers. Substantial capital costs for
equipment and mine-works are often needed. Competitors that have
developed a property generally have incurred substantial fixed
costs which must precede mining undeveloped properties. As a
result, owners of producing (or previously producing) properties
generally enjoy substantial competitive advantages over
organizations that propose to develop non-producing properties.
In its other business segments, USE affiliate FNG encounters strong
competition with a number of larger civil engineering construction
firms in the western United States, and Brunton competes with
domestic and foreign sporting and professional equipment
manufacturers.
URANIUM PRICES AND COMPETITION. Uranium market prices in the
United States have declined from as high as $17.00 per pound in
1988 to less than $8.00 per pound in 1992, and recovered somewhat
to about $11.00 per pound in March 1995. Further sustained price
increases in the spot market (to $14.00 per pound) are believed to
be required to create the need for United States utilities to seek
long term price stabilizing uranium supply contracts, however,
upward price movement cannot be assured. USE would be adversely
affected if the United States nuclear utilities do not seek long
term uranium supply contracts in the 1990s. See "Business-Certain
Market Information." Although the extent of such adverse impact
cannot be predicted, if uranium prices remained so depressed
through the 1990s that USE's properties and facilities were not put
into operation, the book value of such assets might decrease.
USE believes that if and when market prices improve, it will be
able to compete with other uranium producers, primarily because it
holds significant uranium resource in place, along with the
facilities necessary to mine and mill the ore into uranium oxide,
which assets were acquired for much less than prior owners
reportedly had spent. Applications have been submitted to upgrade
the mill facilities' licenses to operating levels, however, delays
in final permitting may be encountered, as the uranium refining
industry is tightly regulated by the NRC.
Nonetheless, USE expects strong competition from low cost producers
in Canada, Australia and Africa (where uranium is a byproduct of
other mineral recovery processes), and from imports to the United
States of highly enriched uranium from the Commonwealth of
Independent States (formerly the Soviet Union). See "Business-
Certain Market Information."
<PAGE>
29 AND 30
VARIABLE REVENUES, RECENT LOSSES, AND DECLINING WORKING CAPITAL.
Due to the nature of USE business, there are from time to time
major increases in gross revenues from sale of mineral properties.
During fiscal 1991, $7,193,600 was recognized from sale of a
partial interest in a uranium property to Kennecott Uranium Company
(a GMMV partner). No such revenues were recognized in fiscal 1992,
1993 or 1994. Further, USE realized a net gain in fiscal 1992 of
$613,000 and net losses of $221,900 and $3,370,800 in fiscal 1993
and 1994, respectively, and net losses of $2,019,300 and $1,315,800
for the nine months ended February 28, 1994 and 1995, respectively.
To a significant extent, these results reflect the variability of
income from mineral sales, however, USE is not totally dependent on
mineral sale revenues from year to year. In 1995, a majority of
net revenue has been provided by commercial and construction
operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for discussion of such items
for the last three fiscal years.
31
WORKING CAPITAL REQUIREMENTS. Cash requirements of USE for fiscal
1996 are the funding of on-going general and administrative
expenses, including legal costs incurred as a result of the SMP
proceedings; mine development and holding costs of the Sutter gold
property; Plateau Resources mill holding (standby) costs;
development of the Energy gas properties; SMP mines standby costs;
and costs to acquire uranium oxide which USE maybe obligated to
deliver under the SMP contracts (depending on the outcome of the
proceedings).
If additional amounts of working capital are not received, USE and
Crested will need to either sell equity or liquidate interests in
various mining as well as other assets to raise the necessary funds
to sustain operations. Monthly operating expense to hold
properties and fund general and administrative expense is estimated
at $300,000 to $350,000 for fiscal 1996, of which approximately
$200,00 to $250,000 is expected to be provided from current
commercial and construction operations. These estimates reflect
elimination of most legal expenses associated with the SMP
proceedings (evidentiary hearings concluded in June, 1995).
Conventional lending sources and possible equity sales are expected
to be sufficient to cover the operating deficits (estimated at
$1,200,000 for property holding and general and administrative
expense). However, significant funding in excess of such sources
will be required to put the principal mineral properties into
production (Plateau Resources and the Sutter gold property).
Through June 30, 1995 USE received an additional $1,104,900 from a
private placement of equity (332,500 common shares), which will
renew an existing $1,000,000 bank credit line.
<PAGE>
Continued operating losses without offsetting replacements of
working capital will adversely affect USE. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for information on future working capital requirements
and capital resources.
POTENTIAL ISSUANCE OF PREFERRED STOCK. Under the USE Articles of
Incorporation and as permitted by the Wyoming Business Corporation
Act ("WBCA"), the USE board of directors has authority to create
series of preferred stock and to issue shares thereof, without the
approval of any USE shareholders. The creation and issue of USE
preferred stock with dividend rights senior to the USE common
shares could adversely affect common stockholder participation in
future earnings through dividends that otherwise would be available
for distribution to common stockholders.
Such preferred stock also could inhibit a takeover of USE. Under
the WBCA, separate voting approval by classes of stock is required
for certain substantive corporate transactions. If the interests
of preferred stockholders is perceived to be different from those
of the common stockholders, the preferred stockholders could
withhold approval of the transactions needed to effect the
takeover. See "Description of Securities."
POTENTIAL ANTI-TAKEOVER EFFECTS OF STAGGERED BOARD. The USE board
of directors is presently divided into three classes of two
directors each. Pursuant to the USE Articles of Incorporation and
as permitted by the WBCA, the directors in each class serve a three
year term, and only those directors in one class are reelected each
year. This board classification could stall a takeover of USE,
even if a majority of the common stock were to be held by persons
desiring a change in control of the board. See "Description of
Securities."
BUSINESS
USE is principally engaged in the general minerals business. This
segment involves the acquisition, exploration, sale and/or
development of mining properties, with primary interests in
uranium, gold and molybdenum properties in the western United
States. USE also holds oil and gas interests in Montana and
Wyoming.
The other two business segments of USE are commercial operations
and construction operations. See Footnote I to the audited
Consolidated Financial Statements.
A substantial portion of USE business, particularly property
acquisition and exploration, is conducted with its majority-owned
subsidiary, Crested Corp. ("Crested"), through a joint venture
("USECC") owned equally by USE and Crested, and through various
joint subsidiaries.
MINERALS
URANIUM
USE has acquired interests in several uranium properties in Wyoming
and Utah, including uranium processing mills in Sweetwater County,
Wyoming ("Sweetwater Mill") and southeastern Utah ("Shootaring
Mill"), in anticipation of renewed demand for long term uranium
concentrate supply contracts by public utilities in the United
States which operate nuclear powered electrical generation
facilities.
All the uranium properties are located in areas which have produced
significant amounts of uranium in the 1970s and 1980s.
The properties are:
32
Unpatented lode mining claims on Green Mountain (Fremont County,
Wyoming) on which the (Round Park uranium deposit) is located, and
the Sweetwater Mill, (23 miles south of Green Mountain). These
assets are held by the joint venture Green Mountain Mining Venture
("GMMV"), owned 50 percent by USE and USECC, and 50 percent by
Kennecott Uranium Company ("Kennecott"), a subsidiary of Kennecott
Corporation. See "Green Mountain-Concerning Kennecott", below.
All claims are accessible by county and United States Bureau of
Land Management ("BLM") access roads. The proposed Jackpot Mine
into the Round Park deposit has had no previous operators, and
would be a new mine when opened. The Big Eagle Mine and related
claim groups (which are part of the claims held by GMMV), are
accessible by county and private roads; the Big Eagle Mine was
first operated by Pathfinder Mines starting in the late 1970s.
Exploration and delineation of the principal uranium resources on
the Jackpot Mine area has been completed. Mine development by the
GMMV (funded by Kennecott) is expected to begin in 1996.
The Tony M and Frank M Mines (unpatented lode mining claims) in San
Juan County, Utah, accessible by county roads. The mines
(originally developed by Plateau Resources Limited when owned by
Consumers Power Company, a Michigan public utility which also built
the nearby Shootaring Canyon Mill to process uranium ore out of
these mines), the Shootaring Canyon Mill, uranium mineralized
material stockpiled at the mill, and related mill support
facilities, are held by Plateau Resources Limited, a wholly-owned
USE subsidiary. Significant areas of uranium resources underground
have been accessed and delineated by the prior owner's underground
workings. Subject to funding (which may be provided by USE private
equity sales in the summer of 1995), production may resume in late
1995.
Unpatented lode mining claims, underground and open pit uranium
mines and mining equipment in the Crooks Gap area located on Sheep
Mountain, Fremont County, Wyoming (these claims are adjacent to and
west of the Big Eagle mining claims held by GMMV). These assets
are held by the Sheep Mountain Partners partnership ("SMP"), the
partners of which are USE and Crested, doing business as the USECC
Joint Venture, and Nukem, Inc. ("NUKEM") through its wholly-owned
subsidiary Cycle Resource Investment Corporation ("CRIC"). The
Sheep Mountain Mines 1 and 2, accessible by county and private
roads, were first operated by Western Nuclear, Inc. ("WNI") in the
late 1970s.
The above properties contain uranium mineralization in sandstones
of Tertiary age, as is typical of most Wyoming uranium deposits.
Electric power to all the above Wyoming properties is furnished by
either Pacific Power & Light or Hot Springs Rural Electric
Association.
There is no assurance of renewed market demand by the domestic
nuclear utilities for uranium concentrates, which would result in
price increases for concentrates, sufficient to warrant
commencement of mining and milling operations.
GREEN MOUNTAIN
GMMV. In fiscal 1990, USE and Crested sold 50 percent of their
interests in unpatented lode mining claims on Green Mountain
(hereafter, "Green Mountain Claims), and certain other rights, to
Kennecott for $15,000,000 cash (USE's share was $12,600,000, and
the balance was Crested's). In fiscal 1991, USE and USECC ("USE
Parties") and Kennecott formed the Green Mountain Mining Venture
("GMMV") to develop, mine and mill uranium ore from the Green
Mountain Claims, and market uranium oxide concentrates to nuclear
powered utilities.
Kennecott agreed to fund the first $50,000,000 of GMMV
expenditures, pursuant to Management Committee budgets.
Thereafter, GMMV expenses will be shared by the parties generally
in accordance with their participating interests (50 percent
Kennecott, 50 percent USE Parties). However, in addition to the
initial $50,000,000 of expenditures, Kennecott will pay a
disproportionate share (up to an additional $45,000,000) of GMMV
operating expenses, but only out of cash operating margins from
sales of processed uranium at more than $24.00/lb (for $30,000,000
of such operating expenses), and from sales of processed uranium at
more than $27.00/lb (for $15,000,000 of such operating expenses).
Pursuant to the joint venture agreement, each party's participation
interest in the GMMV is subject to reduction for voluntary or
involuntary failure to pay its share of expenses as required in
approved budgets, so that in effect the interest held by each party
collateralizes its performance. These provisions apply equally to
Kennecott's commitment to fund the initial $50,000,000 of GMMV
expenditures, so that if and to the extent Kennecott did not fund
Management Committee approved budgets, its interest in the venture
would be reduced proportionately. However, a defaulting party
would remain liable for third party liabilities incurred during
GMMV operations, proportionate to its interest before reduction.
GMMV cash flows will be shared between Kennecott and the USE
Parties, according to their participation interests. However, 105
of the Green Mountain Claims cover the Round Park uranium deposit,
currently believed to be the most significant mineralized resource
on Green Mountain; these 105 claims had been formerly owned solely
by USE. Pursuant to agreement between USE and Crested, cash flow
from production out these 105 Green Mountain Claims will be
distributed only to USE and Kennecott, and GMMV expenditures from
such properties will be shared 50 percent by USE and 50 percent by
Kennecott.
The USE Parties' share of GMMV cash flow resulting from the balance
of the properties (outside the 105 claims) previously owned by USE
and Crested together, will be shared equally by USE and Crested;
GMMV expenditures from such properties will be shared 25 percent
each by USE and Crested, and 50 percent by Kennecott. Such latter
properties are expected to be developed after the Round Park
deposit is developed and placed into production.
The GMMV Management Committee has three Kennecott representatives
and two USECC representatives, acts by majority vote, and appoints
and supervises the project manager. The USE Parties acted as
project manager during fiscal 1991 and 1992; in fiscal 1993,
Kennecott succeeded as project manager, by consent.
While acting as project manager, the USE Parties received fees in
fiscal 1991, 1992 and part of 1993 for overhead costs and general
and administrative fees, based on a percentage of expenditures on
the project. Since mid-fiscal 1993, USECC has continued work on a
contract basis at Kennecott's request.
Pre-development activities on the GMMV properties have included
environmental and mining equipment studies, mine permitting and
planning work, property maintenance, setting up a uranium marketing
program, and acquisition and monitoring of the Sweetwater Mill.
For fiscal 1996, GMMV plans to build a sediment dam, sediment
basin, drainage diversion ditch, fuel storage facility and other
support facilities and improvements to existing facilities.
PROPERTIES AND MINE PLAN. GMMV owns 443 Green Mountain Claims,
including the 105 claims on which the Round Park uranium deposit is
located. Surface rights are owned by the United States Government
under management by the BLM. In addition, other uranium
mineralization has been delineated in the Phase 2 and Whiskey Peak
deposits on these properties, which formerly belonged to USE and
Crested. These deposits are undeveloped.
Drilling and exploration work has been conducted on the Round Park
deposit, and USECC has constructed two portals for the Jackpot Mine
declines (see below). Roads and utilities have been put in place,
which are satisfactory to support future mine development.
GMMV also owns the Big Eagle Properties on Green Mountain, which
contain substantial uranium mineralization, and are adjacent to the
other GMMV mining claims. The Big Eagle Properties contain one
underground and two open-pit mines, as well as related roads,
utilities, buildings, structures, equipment and a stockpile of ore.
The assets include 38,000 and 8,000 square foot buildings formerly
used by Pathfinder Mines Corporation ("PMC") in mining operations.
Also included are three ore-hauling vehicles, each having a 100-ton
capacity. Permits transferred to GMMV for the properties include:
a permit to mine, an air quality permit, and water discharge and
water quality permits. GMMV owns the surface rights and the
mineral rights to the underlying unpatented lode mining claims.
The Round Park mining claims contain a deposit of uranium which has
been estimated by USECC personnel to contain 52 million pounds of
U3O8 averaging .23% uranium oxide using a grade-thickness cut-off
of .6 (i.e., deposit areas were excluded unless deposit bed
thickness at intercept, times intercept grade of uranium
mineralization, exceeded .6). GMMV plans to produce this deposit
from the Jackpot Mine, which will be driven underground from the
south side of Green Mountain when the market for uranium oxide
concentrates improves. The first of several mineralization
horizons is about 2,300 feet down from the top of Green Mountain.
The mine plan provides for two declines to be driven from the side
of Green Mountain, extending about 10,400 feet into the deposit;
one decline will be used for ventilation and transportation of
personnel, and the other will convey ore, rock and waste out of the
mine.
USE anticipates mine development costs will not exceed $25,000,000
to begin production from the Round Park deposit. However, cost
estimates may change as exploration and initial development
progress. Kennecott has agreed to fund the initial $50,000,000 in
development costs including reclamation costs. Additional costs
would be funded by operations and/or by cash assessments on the
venturers.
SWEETWATER MILL. On June 23, 1992, GMMV acquired the Sweetwater
uranium processing mill and associated properties located in
Sweetwater County, Wyoming, 23 miles south of the proposed Jackpot
Mine, from Union Oil Company of California ("UNOCAL"), primarily in
consideration of Kennecott and GMMV assuming environmental
liabilities, and decommissioning and reclamation obligations.
Kennecott is manager of the Sweetwater Mill, and as such will be
compensated by GMMV out of production. Payments for pre-operating
management will be based on a sliding scale percentage of Mill cash
operating costs prior to Mill operation, and payments for operating
management will be based on 13 percent of mill cash operating costs
when processing ore. Cash operating costs are defined as all costs
for labor (supervisory, operating, maintenance and laboratory),
reagents, utilities, materials and supplies (fuels, grinding balls
and other mill equipment, etc.), road and access maintenance,
environmental and regulatory costs (including permitting and
remediation costs), concentrate shipping costs, vehicle and
equipment operating costs, insurance, and employee health and
benefit costs.
Kennecott, as mill operator, has initiated discussions and
appropriate filings with the Nuclear Regulatory Commission ("NRC")
regarding amendments to the Source Material License to resume ore
processing at the Sweetwater Mill. Separately, Kennecott has
applied to the NRC for permission to use a mill tailings cell to
hold low level tailings waste from an ion exchange plant owned by
USE and Crested in the Crooks Gap area.
The Sweetwater Mill includes buildings, milling and related
equipment, real estate improvements, mining and mill site claims
and other real property interests, personal property and intangible
property (including government permits relating to operation of
those properties). The major assets are the mill buildings and
equipment located on approximately 92 acres.
The mill was designed as a 3,000 ton per day ("tpd") facility.
UNOCAL's subsidiary Minerals Exploration Company reportedly at
times processed in excess of 4,200 tpd. USE believes the mill
adequate for processing projected rates of ore production out of
the Green Mountain Claims. The mill is one of the newest uranium
milling facilities in the United States, and has been maintained in
good condition. UNOCAL has reported that the mill buildings and
equipment have historical costs of $10,500,000 and $26,900,000,
respectively.
As consideration for the Sweetwater Mill, GMMV agreed to indemnify
UNOCAL against certain reclamation and environmental liabilities,
which indemnification obligations are guaranteed by Kennecott
Corporation (parent of Kennecott Uranium Company). GMMV has agreed
to be responsible for compliance with mill decommissioning and land
reclamation laws, for which the environmental and reclamation
bonding requirements are approximately $23,600,000.
None of the GMMV future reclamation and closure costs are reflected
in the USE Consolidated Financial Statements (see Note K to USE
Consolidated Financial Statements). UNOCAL has also agreed that if
GMMV incurs expenditures for environmental liabilities prior to the
earlier of commercial production by GMMV or February 1, 2001,
(which liabilities are not due solely to the operations of GMMV),
then UNOCAL will reimburse GMMV the first $8,000,000 of such
expenditures. Any such reimbursement may be recovered by UNOCAL
from 20% of future cash flows from sale of uranium concentrates
processed through the mill. In any event, until such time as
environmental and reclamation undertakings are liquidated against
the bonds, such costs are not deemed expenditures under Kennecott's
$50,000,000 development commitment (but bond costs may be charged
against such commitment).
The reclamation and environmental liabilities assumed by GMMV
concern two categories: (1) cleanup of the inactive open pit mine
site near the mill (the source of ore feedstock for the mill when
operating under UNOCAL), including water (heavy metals and other
contaminants) and tailings (heavy metals dust and other
contaminants requiring abatement and erosion control) associated
with the pit; and (2) decontamination and cleanup and disposal of
the mill building, equipment and tailings cells after mill
decommissioning. Current liabilities for such efforts have been
established at approximately $17,028,000 by the Wyoming Department
of Environmental Quality ("WDEQ") for mine pit site matters
(exercising EPA-delegated jurisdiction to administer the Clean
Water Act and the Clean Air Act, and directly administering Wyoming
statutes on mined land reclamation), and by the NRC for tailings
cells and mill decontamination and cleanup. The EPA has continuing
jurisdiction under the Resource Conservation and Recovery Act,
pertaining to any hazardous materials which may be on site when
cleanup work is started.
Although USE and the other GMMV parties are liable for all
reclamation and environmental compliance costs associated with mill
and site maintenance, as well as mill decontamination and cleanup
and site reclamation and cleanup after the mill is decommissioned,
USE believes it is unlikely USE would have to pay for such costs
directly. First, based on current estimates of cleanup and
reclamation costs (reviewed annually by the oversight agencies),
such costs may be within the $50,000,000 development commitment of
Kennecott Uranium Company for GMMV. These costs are not expected
to increase materially, if the mill is not put into full operation.
Second, to the extent GMMV is required to spend money on
reclamation and environmental liabilities related to mill and site
operations during ownership by Minerals Exploration Company, UNOCAL
has agreed to fund up to $8,000,000 of such costs (provided such
costs are incurred before February 1, 2001 and before mill
production resumes), which would be recoverable only out of future
mill production (see above). Third, payment of reclamation and
environmental liabilities related to the mill is guaranteed by
Kennecott Corporation, parent of Kennecott Uranium Company. See
"Concerning Kennecott", below. Last, the GMMV will set aside a
portion of operating revenues to fund reclamation and environmental
liabilities when mining and milling operations are shut down.
Kennecott Corporation will be entitled to contribution from the USE
parties in proportion to their participation interests in GMMV, if
Kennecott Corporation is required to pay mill cleanup costs
directly pursuant to its guarantee. Such payments by Kennecott
Corporation only would be required if the liabilities cannot be
satisfied within the initial $50,000,000 development commitment,
and then only to the extent there are insufficient funds from the
accumulated reclamation reserve. In addition, if and to the extent
such liabilities resulted from UNOCAL's mill operations, and
payment of the liabilities was required before February 1, 2001 and
before mill production resumes, then up to $8,000,000 of that
amount would be paid by UNOCAL, before Kennecott Corporation would
be required to pay on its guarantee. However, notwithstanding the
preceding, the extent of any ultimate USE liability for
contribution to mill cleanup costs cannot be predicted.
GMMV believes Minerals Exploration Company operated the mill in a
responsible manner, and that reclamation and environmental
liabilities for the mill and site as acquired from Minerals
Exploration Company are within the normal range of such costs for
similar operations in the western United States.
GMMV reimbursed UNOCAL one-half of UNOCAL's mill maintenance costs
for the period January 1, 1991 to June 23, 1992. Ongoing mill
maintenance expense is funded by Kennecott as part of its
development commitment.
CONCERNING KENNECOTT. Kennecott Corporation is a wholly-owned
United States corporation subsidiary of The RTZ Corporation PLC
("RTZ"), a United Kingdom public company. RTZ is one of the
world's leading international natural resource companies and one of
the largest companies in the United Kingdom with a market
capitalization exceeding $9 billion. Kennecott Corporation owns
and operates several mines through wholly-owned subsidiaries,
including the Bingham Canyon, Utah open pit copper mine which was
started in 1906.
Kennecott Uranium Company is a wholly-owned United States
corporation subsidiary of Kennecott Corporation. Based upon the
financial resources and results of operations of RTZ, upon
Kennecott Corporation's reported contributions to RTZ net earnings,
upon Kennecott Corporation's acceptance by the NRC as a financially
sound self-bonding entity for reclamation purposes (see Note K to
the USE Consolidated Financial Statements), and upon Kennecott
Uranium Company's $27,133,728 financial performance through May 31,
1994 in the Green Mountain project ($15,000,000 in 1990 to purchase
a one-half interest in the Green Mountain uranium properties from
USE and Crested, and $12,133,728 in GMMV expenditures from 1991
through May 31, 1994), USE believes Kennecott Uranium Corporation
will continue to have the ability to satisfy its obligations under
the GMMV joint venture agreement. In the event such obligations
are not met, Kennecott Uranium Company's participation interest in
the GMMV would be reduced, and the USE parties' interest would be
increased. See "Uranium-Green Mountain," above.
USE has no knowledge of any guarantee by Kennecott Corporation or
RTZ of the performance by Kennecott Uranium Company of Kennecott
Uranium Company's development commitment under the GMMV joint
venture agreement. Further, USE has no knowledge whether earnings
of Kennecott Uranium Company are retained by it, or remitted to its
shareholder Kennecott Corporation. Accordingly, performance by
Kennecott Uranium Company of its development commitment under the
GMMV joint venture agreement is not assured.
PERMITS. In March 1993, GMMV applied to the WDEQ for a Permit to
Mine the Round Park deposit through the Jackpot Mine, for up to 22
years; this document presently is under review. Until this Permit
is granted, no further construction of mine facilities is allowed,
no further underground mine development can occur, and the Round
Park Deposit cannot be mined.
A renewal application for a License to Explore, obtained from the
Wyoming Department of Environmental Quality, was submitted to the
WDEQ, and was approved on August 23, 1994. This is an annual
renewal, which keeps prior exploration work in current status to
abate any site reclamation which otherwise would be required, until
after completion of all actual exploration activities. Failure to
renew would activate the reclamation obligations, which is less
than $150,000. Planned improvements to the GMMV properties in
fiscal 1995 will be made under the License to Explore.
Initial environmental studies have been submitted to appropriate
governmental regulators, and are being reviewed. Applications to
appropriate water have been made, and an NPDES permit has been
obtained (expiring December 31, 1997). Additional surface water,
weather and wetland studies have also been initiated.
In 1993, an application was submitted to the BLM for upgrading
roads to the Sweetwater Mill.
The WDEQ is the lead agency for review of environmental issues
associated with mining in Wyoming, and as such has authority to
examine landowners' and lessees' proposed uses of public lands for
compliance with the United States environmental statutes (the Clean
Water Act, the Clean Air Act, and others), as well as Wyoming laws.
This authority is exercised, in part, by WDEQ requiring proposed
mining plans to undergo environmental review prior to issuance of
a Permit to Mine, which may contain express conditions to mitigate
possible environmental impacts from operations.
In 1993, the BLM, as manager of Federal Lands, determined that the
potential effects of the Jackpot Mine (and associated work areas
and roads) on surface and ground waters, air quality, animal
habitat and local fauna at Green Mountain should be presented and
analyzed by an environmental impact statement ("EIS"). The EIS is
being prepared by the BLM (funded by the GMMV) and will be
submitted to the WDEQ. Accordingly, the environmental assessment
application previously submitted by the BLM has been withdrawn.
The EIS is nearly complete and, after public comment, will be
submitted to the WDEQ in the near future. Following the WDEQ
technical review of the Jackpot Mine plan, the Permit Application
will be presented for public comment. After the EIS has been
reviewed by the WDEQ, the Permit to Mine would be issued (with any
amendments to conditions required after public hearings and final
WDEQ review).
Uranium was mined on Green Mountain in the 1970s and 1980s. USE
and Crested do not anticipate any adverse environmental impacts
from the Jackpot Mine which cannot be mitigated to acceptable
levels. Accordingly, the Permit to Mine the Round Park deposit
through the Jackpot Mine portal is expected to be issued by the
WDEQ in due course, subject to delays from appeals of WDEQ
decisions by project opponents.
The Environmental Protection Agency has promulgated final rules for
radon emissions. These regulations affect the mining and milling
of uranium and may require substantial expenditures for compliance.
GMMV (and SMP, for its properties, see below) may need to install
venting at mine sites, and must monitor radon emissions at the
mines, as well as wind speed, direction and other conditions. USE
believes all its uranium operations are in compliance with these
rules.
SHOOTARING CANYON MILL
ACQUISITION OF PLATEAU RESOURCES. On August 11, 1993, USE closed
the Stock Purchase Agreement ("Agreement") with Consumers Power
Company ("CPC"), by which USE purchased from CPC all outstanding
stock of Plateau Resources Limited ("Plateau"). Plateau, a Utah
corporation, owns the Shootaring Canyon uranium processing mill and
support facilities in southeastern Utah ("Shootaring Mill"). The
Shootaring Mill holds a source materials license from the NRC. CPC
is a utility company with offices in Jackson, Michigan.
USE paid nominal cash consideration for the Plateau stock, but as
additional consideration, USE has agreed:
(a) to perform or cause the performance by Plateau of all studies,
remedial or other response actions or other activities necessary
from time to time for Plateau to comply with environmental
monitoring and other provisions of (i) federal and state
environmental laws relating to hazardous or toxic substances, and
(ii) the Uranium Mill Tailings Radiation Control Act, the Atomic
Energy Act of 1954, and administrative orders and licenses relating
to nuclear or radioactive substances or materials on the property
of or produced or released by Plateau; and
(b) to indemnify CPC from all liabilities and costs related to the
presence of hazardous substances or radioactive materials on
Plateau property, and to any future violation of laws and
administrative orders and licenses relating to the environment or
to nuclear or radioactive substances.
Prior to Agreement closing, CPC and affiliates paid Plateau
approximately $11,700,000 against prior outstanding loans to and
accounts receivable from CPC and its affiliates. At closing,
Plateau transferred an additional $2,500,000 cash to fund the "NRC
Surety Trust Agreement" with a commercial bank as trustee. The
trustee is to pay future costs of Shootaring Mill decommissioning,
site reclamation, and long term site surveillance, as directed by
the NRC. The amount transferred to the trust is the minimum amount
now required by the NRC as financial assurance for clean up after
permanent shut down of the Shootaring Mill.
Also at closing, Plateau transferred $4,800,000 cash out of the
$11,700,000 to fund the "Agency Agreement" with a commercial bank.
These funds will be available to indemnify CPC against possible
claims related to environmental or nuclear matters, as disclosed
above, and against third-party claims related to a tax benefit
transfer agreement between Plateau and the third-party, in the
event of a "disqualification event" as provided in such agreement.
See Note K to the USE audited Consolidated Financial Statements.
There are no present claims against funds held under either the
Trust Agreement or Agency Agreement. Funds (including accrued
interest) not disbursed under the Trust and Agency Agreements will
be paid over to Plateau upon termination of such Agreements with
NRC concurrence.
Prior to closing of the Stock Purchase Agreement, there was no
affiliation between USE and any USE affiliate, and Plateau. There
is no affiliation between USE and CPC.
The consideration paid by USE was determined by negotiation with
CPC, taking into account estimated annual Shootaring Mill holding
costs, and estimated future Mill decommissioning and site
reclamation costs as required by the NRC and the Utah Department of
Natural Resources, Division of Oil, Gas and Mining ("DOGM").
The Plateau acquisition was negotiated and closed solely for the
account of USE, in light of potential NRC objections to selling
Plateau to the USECC joint venture. Subsequent to closing, in
September 1993, USE and Crested agreed that after Plateau's
unencumbered cash has been depleted, USE and Crested each will
assume one-half of Plateau's obligations, and share equally in
Plateau operating cash flows, pursuant to the USECC Joint Venture.
SHOOTARING MILL AND FACILITIES. The Shootaring Mill is located in
south-eastern Utah, approximately 13 miles north of Lake Powell,
and 50 miles south of Hanksville, Utah via State Highway 276, then
four miles west on good gravel roads. The entire facility occupies
18.9 acres of a 264.52 acre plant site. The mill was designed to
process 750 tpd, but only operated on a trial basis for two months
in mid-summer 1982. In 1984, Plateau suspended operations and put
the mill on standby because of the depressed uranium concentrate
market.
Included with mill assets are tailings cells, laboratory
facilities, equipment shop and inventory.
The NRC issued a license to Plateau authorizing production of
uranium concentrates, however, since the mill was shut down, only
maintenance and required safety and environmental inspection
activities have been performed. The current source materials
license with the NRC is for a standby operation only and expired on
December 31, 1993. Prior to expiration, USE applied for, and
expects either license renewal or extension of its expiration date
in due course.
Plateau owns approximately 90,000 tons of uranium mineralized
material stockpiled at the mill site.
USE intends for Plateau to continue maintenance activities pending
evaluation of resuming Shootaring Mill operations to process
uranium ores to concentrates in anticipation of increased
concentrate prices. NRC and DOGM approval will be required prior
to commencing such operations.
Plateau also owns Canyon Homesteads, Inc. ("Canyon"), which
developed the Ticaboo, Utah townsite 3.5 miles south of the mill,
including a 66 room motel, general store, laundromat facility, 98
single family home sites, 151 mobile home sites, and 26
recreational vehicle sites (all with utility access). The townsite
is located on a State of Utah lease near Lake Powell, and is
planned to be operated as a commercial enterprise, for which
purpose in fiscal 1994 limited capital improvements and a general
refurbishing were effected (total costs approximately $400,000).
USE may further develop the townsite, and seeks financial partners.
There have been no further material expenditures on the Ticaboo
townsite in fiscal 1995. See "Commercial and Construction - Utah
Properties", below.
SHEEP MOUNTAIN PARTNERS ("SMP")
PARTNERSHIP. SMP is a Colorado general partnership formed in
December 1988 between USE and Crested, d/b/a USECC, and NUKEM, Inc.
through its wholly-owned subsidiary Cycle Resource Investment
Corporation ("CRIC"). NUKEM, of Stamford, Connecticut is a uranium
brokerage and trading concern. During fiscal 1991, certain
disputes arose among members of SMP. These matters are in
litigation. See Item 3 - Legal Proceedings."
In February 1988, USE and Crested acquired uranium mines and mining
equipment properties at Crooks Gap in south-central Fremont County,
Wyoming, from Western Nuclear, Inc. (a subsidiary of Phelps-Dodge).
USE and Crested, doing business as USECC, mined and sold uranium
ore from one of the underground mines in fiscal 1988 and 1989.
These Crooks Gap properties are adjacent to the Green Mountain
uranium properties referred to above.
USE and Crested sold 50 percent of their interests in the
properties to NUKEM's subsidiary CRIC for cash; the parties
thereafter contributed the properties to SMP, in which USE and
Crested received an undivided 50 percent interest. Each group was
to provide one-half of $350,000 to purchase equipment from Western
Nuclear, Inc.; USE and Crested also contributed their interests in
three uranium supply contracts to SMP and agreed to be responsible
for property reclamation obligations. The agreement provided that
each partner generally had a 50 percent interest in SMP net
profits, and an obligation to contribute 50 percent of funds needed
for partnership programs or discharge of liabilities. Capital
needs were to have been met by loans and credit lines.
SMP was directed by a management committee, with three members
appointed by USE and Crested, and three members appointed by
NUKEM/CRIC. The committee has not met since 1991.
PROPERTIES. SMP owns 77 unpatented lode mining claims on the
Crooks Gap properties, including one open-pit and five underground
uranium mines, mining equipment, and an inventory of uranium ore.
An ion-exchange plant (see below) is located near the SMP
properties, but is held by USECC and not SMP. Production from the
properties is subject to sliding-scale royalties payable to WNI;
the rates are from one to four percent on recovered uranium
concentrates. Two Wyoming State leases (one for minerals covering
640 acres, and one for surface use covering 142 acres) expired in
early 1994, and will not be renewed.
Various structures and equipment are located on the properties:
three operating and three non-operating mine headframes with
hoists; maintenance shops; offices; and other buildings, equipment
and supplies.
SMP also has interests in 59 unpatented mining claims, one State
mineral lease and one State surface use lease, which have been
conveyed to Pathfinder Mines Corporation ("PMC"). The conveyance
originally was made to induce PMC to mill ore produced from the
properties, at PMC's mill. These properties contain a previously-
mined open-pit uranium mine (the Congo pit) and three underground
mines. PMC has the right to mine a portion of these properties
(the Congo area), by open-pit or in-situ techniques to certain
depths, without royalty or other obligations to SMP. PMC has the
responsibility for reclamation work needed thereon as a result of
its activities. If PMC mines any portion of the properties outside
the Congo area, a 3% royalty is owed to SMP. Conversely, SMP has
the right to mine portions of the claims and leases outside the
Congo area (and specified surrounding zones) by underground mining
techniques, subject to a 3% royalty to PMC. PMC has completed an
exploration program on a portion of these properties, and advises
it presently does not intend any further development. The 59
claims and two leases may be reacquired from PMC by SMP. PMC has
decommissioned and dismantled its uranium mill in the vicinity.
An ion exchange plant on the former PMC properties (and now held by
USECC) was used to remove natural soluble uranium from mine water.
Decommissioning of this facility awaits final NRC approval.
PROPERTY MAINTENANCE. As operating manager for SMP, USECC is
responsible for exploration, mining, and care and maintenance of
SMP mineral properties. USECC was to have been reimbursed for
certain expenditures on the properties. Currently, USECC has a
limited care and maintenance staff on site to maintain the mines
and pump mine water to prevent flooding of the mines. NUKEM/CRIC
have refused to allow SMP to pay USECC for care and maintenance
services since the spring of 1991.
In 1988, USECC produced uranium from certain of the underground
mines located on the Crooks Gap properties. Production ceased in
fiscal 1989, because uranium could be purchased from the spot
market at prices below SMP mining and milling costs.
URANIUM MARKETING. NUKEM, Inc. was engaged by SMP to provide SMP
with financial expertise and marketing services. SMP entered into
a marketing agreement with CRIC, which was assigned to and assumed
by NUKEM, to provide marketing and trading services for SMP, which
included acquiring uranium for SMP by purchasing or borrowing.
Nukem was to be reimbursed at its direct costs for acquiring such
uranium for SMP. USECC, SMP and Nukem had acquired seven long-term
contracts for sales of uranium to eight domestic utilities. SMP
had paid annual nonaccountable fees of $300,000 for marketing to
NUKEM, but SMP ceased making such payments in the spring of 1991,
when NUKEM/CRIC refused to authorize payment of care and
maintenance costs.
SMP's uranium supply contracts either are base-price escalated or
market-related (referring to how price is determined for uranium to
be delivered). Base-price escalated contracts set a floor price
which is escalated over the term of the contract to reflect changes
in the GNP price deflator. The current base-price escalated
contract of SMP requires deliveries of from 94,200 to 424,100
pounds of uranium concentrates during various years in the 1990s.
The amounts deliverable under the contract may be increased or
decreased by the utility, in amounts from 10% to 25%. Prices of
uranium for deliveries under the base-escalated price contract
currently exceed prices at which uranium can be purchased in the
spot market.
Under the market-related contracts, the purchaser's cost depends on
quoted market prices and the price at which a willing seller will
sell its U3O8 during specified periods before delivery. Some of
these contracts place a ceiling on the purchase price, substituting
a base-price escalated amount, if the market price exceeds a
certain level. Under the terms of the various market-price related
contracts, SMP is required to deliver from 270,000 to 1,301,253
pounds of uranium annually from 1995 to 2000, which amounts may be
increased or decreased by specified percentages.
Through fiscal 1994, USE and its affiliates have satisfied most of
these contracts with either uranium previously produced by SMP,
borrowed from others, or purchased on the open market. A number of
disputes have arisen among USECC and its partner NUKEM/CRIC in SMP,
and USECC initiated litigation against NUKEM, CRIC and certain of
their affiliates. See "USE Legal Proceedings."
However, performance under the SMP utility supply contracts has
been in dispute since fiscal 1993, and may continue past May 31,
1995; the cooperation of NUKEM to assure deliveries to customers
pending resolution of the SMP disputes, is not assured. See "Legal
Proceedings".
PERMITS. Necessary permits to operate current mines on SMP
properties have been issued by the State of Wyoming. Amendments
are needed to open new mines within the permit area. As a
condition to the issuance of the permits, an NPDES permit under the
Clean Water Act has been obtained. Monitoring and treatment of
water removed from the mines and discharged in nearby Crooks Creek
is generally required. During the past year, SMP did not discharge
wastewater into Crooks Creek, and the mine water is presently being
discharged into the McIntosh Pit.
GOLD
LINCOLN MINE (CALIFORNIA)
SUTTER GOLD MINING COMPANY. In fiscal 1991, USE acquired an
interest in the Lincoln Project (including the underground Lincoln
Mine) in the Mother Lode Mining District of Amador County,
California. This property, formerly held by the Sutter Gold
Venture ("SGV"), a mining joint venture, is now wholly owned by
USECC Gold, a Wyoming limited liability company (owned by USE and
Crested). Until the end of fiscal 1994, Seine River Resources Inc.
("SRRI", a Vancouver Stock Exchange listed company which is not
affiliated with USE or its subsidiaries) was a joint venture party
in SGV. USECC Gold now is a subsidiary of Sutter Gold Mining
Company (see below).
32
USE expects to commence additional exploration and mine development
as soon as funding is provided through a joint venture or other
source. However, although USE is in discussions with possible
joint venture partners, funding is not presently available. This
property, therefore, may not be placed into production in 1996.
See "Permits and Future Plans."
The parties had intended to operate SGV as equal 50 percent
venturers. However, because of SRRI defaults on its obligations to
USE, USE and Crested had acquired (through USECC Gold) by the end
of fiscal 1993 a 90 percent aggregate equity interest in the
Lincoln Project (and the interests in USECC Gold were owned 88.89
percent by USE, and 11.11 percent by Crested). By the end of
fiscal 1994, SRRI owed USE and Crested $1,970,507 for SGV property
holding costs, permitting costs and mine maintenance expense
incurred and paid for by USE and Crested since March 1992,
including interest and management fees charged by USE and Crested.
As of May 23, 1994 SRRI agreed to assign its remaining 10 percent
interest in SGV to USE as payment for the $1,970,507 owed USE and
Crested. However, only the $1,389,272 of costs and expenses paid
for by USE and Crested was recorded; $581,235 for interest and
management fees was written off as uncollectible. SRRI also issued
400,000 common shares of stock and delivered them to USE as final
payment of any deficiencies for pre-fiscal 1994 indebtedness (owed
by SRRI to SGV) which had been secured with SRRI's interest in SGV
and upon which USE and Crested acquired in lieu of foreclosure (see
Note E to the USE Consolidated Financial Statements). A conveyance
of SRRI's 10% interest is being prepared for delivery to USE and
Crested pending the decision of Amador United Gold Mines on its
right of first refusal on the project.
Subsequent to the end of fiscal 1994, the Sutter Gold Venture was
terminated, USE and Crested formed a new Wyoming corporation
(Sutter Gold Mining Company), and agreed to exchange their
interests in USECC Gold for common stock of Sutter Gold Mining
Company (hereafter, "Sutter Gold"). Sutter Gold is owned 89
percent by USE and 11 percent by Crested; USECC Gold is a
subsidiary of Sutter Gold.
Sutter Gold continues to seek the capital funding needed to fund
mine development, construction of a gold mill and related
facilities, to put the gold mine into full production at an initial
rate of 300 tons per day. To date, there are no agreements in
principle to obtain such financing.
For information on the initial formation of SGV, and the respective
interests of USE, Crested and SRRI at formation and thereafter, see
Note E to the audited USE Consolidated Financial Statements.
During fiscal years 1992, 1993 and 1994, SGV conducted
environmental studies, drafted initial mine and mill designs, mined
bulk samples from the Lincoln Mine for assay and mill design
purposes, installed an underground water treatment plant to treat
mine water seepage, and performed other work to support application
for operating permits. See "Properties", below.
PROPERTIES. Sutter Gold (through USECC Gold) holds approximately
14 acres of surface and mineral rights (owned), 362 acres of
surface rights (leased), 217 acres of mineral rights (leased), and
374 acres of mineral rights (owned), all on patented mining claims
near Sutter Creek, Amador County, California. The properties are
located in the western Sierra Nevada Mountains (1,000 to 1,500 feet
elevation); year-round climate is temperate. Access is by
California State Highway 16 from Sacramento to California State
Highway 49, then by paved county road approximately .4 miles
outside Sutter Creek.
Total land holding costs are estimated at $574,000 for the two
fiscal years ending May 31, 1996, including $42,000 for payments on
two parcels (14 acres) purchased in 1994; $30,000 in one time costs
to acquire a surface easement and lease for land running from the
proposed mill site to California State Highway 49; payment of two
years' accrued royalties of $46,000, plus advance royalties coming
due in 1995 and 1996 totalling $96,000 on a surface and minerals
lease (with purchase option); payment of advance royalties and
lease rental payments coming due in 1995 and 1996 on other surface
and mineral properties, totalling $228,000; and property taxes of
$60,000 ($30,000 annually); and other miscellaneous lease payments.
Property taxes will increase to about $100,000 annually when the
mill is built and the mine is in production.
The leases are for varying terms (the earliest expires in November
1995), and require rental fees, advance production royalties, real
property taxes and insurance. Leases expiring before 2010 will
generally be extended, so long as minerals are continuously
produced from the property that is subject to the lease. Other
leases may be extended for various periods on terms similar to
those contained in the original leases. Production royalties are
from four to seven percent, and up to 20 percent for some areas of
high-grade ore. The various leases have different methods of
calculating royalty payments (net smelter return, gross proceeds,
and net profits interest).
Amador United Gold Mines ("Amador United") was a prior owner of
certain leases which it conveyed into the Lincoln Project when
owned by Meridian Minerals, in return for which Amador United
received a right of first refusal to buy the Lincoln Project (see
below) and a 20 percent net profits interest in production from any
of the Lincoln Project properties. Although all of the properties
which Amador United conveyed into the Lincoln Project were
relinquished by Meridian as uneconomic or of marginal utility to
the Project, Amador United remains entitled to its net profits
interest. "Net profits" will be determined by deducting from gross
revenues from sale of minerals produced by the Lincoln Project, an
amount equal to 105 percent of all costs and expenses in excess of
$6,000,000 which are directly or indirectly attributable and
necessary or incidental to the acquisition, exploration,
development, mining and marketing of minerals produced from all of
the properties comprising the Lincoln Project. Costs and expenses
are defined to include (but not be limited to): ad valorem real
property and personal property taxes; reasonably anticipated
reclamation costs; salaries and wages of employees assigned to
property acquisition, exploration, development, mining and
marketing activities; travel expenses and transportation of
employees, material equipment and supplies; all payments to
contractors; assay, metallurgical testing and other analyses to
determine the quality and quantity of minerals on all of the
properties; costs to obtain environmental permits and other
permits, rights-of-way and similar rights, as incurred in
connection with acquisition, exploration, development, mining and
marketing activities; property acquisition and holding expenses;
costs for feasibility studies; costs for title curative work; and
1.25 percent monthly interest on such costs and expenses which are
not paid.
Based on an estimated $15,000,000 of investments to date in the
Lincoln Project by Meridian and USE, and current estimates of up to
$17,974,000 additional investment required to put the properties
into full production, payment of any amount to Amador United for
its net profits interest will only occur after the Lincoln Project
has generated gross revenues in excess of the amount invested.
Lease royalties burdening the Lincoln Project properties are in
addition to Amador United's net profits interest.
In connection with SRRI's transfer of interests in the Lincoln
Project to USE and Crested at formation of the SGV, and thereafter
upon USE's and Crested's acquisition of SRRI's remaining interests
in SGV due to default by SRRI, Amador United was provided notice of
its right of first refusal to acquire such interests for amounts
equal to USE's and Crested's advances to SRRI. Amador United has
made technical objections to the notices given, however, USE and
Crested believe these objections are without merit.
In fiscal 1992, USE and Crested expended $2,537,400 on SGV for mine
development, mining and processing bulk samples of mineralization,
project permitting costs, holding costs, and related general and
administrative costs, which amount includes advances by USE and
Crested to cover SRRI's share of such costs. In fiscal 1993 and
1994, SGV spent $1,266,500 and $1,088,536, respectively, for
exploration and feasibility work to further delineate the Lincoln,
Comet and other zones, and for land holding, permitting and related
costs. All expenditures were funded by USE and Crested, including
SRRI's share of such costs. To Prospectus date, Sutter Gold (and
predecessor SGV) has spent over $12,100,000 to acquire the Lincoln
Project, and on mine development, exploration and feasibility work,
permitting and mill equipment.
GEOLOGY AND RESERVES. The minerals consulting firm Pincock, Allen
& Holt ("PAH") has prepared a prefeasibility study on the Lincoln
Project. PAH reviewed core drilling data on the Lincoln Zone on
100-foot centers from the surface, and drilling on the Comet Zone
from both surface and underground. PAH also reviewed data from
drilling on the Keystone Zone from surface on 200-foot centers.
Total data is from 162 exploration core holes (surface and
underground), with total footage of 64,700 feet. PAH based its
estimate of proven reserves on mineralized material within 25 feet
of sample information; probable reserves were based on material
located between 25 and 50 feet of sample information. In nearly
all cases, the veins (approximately 17 in number, though at some
points several veins appear to briefly converge) in the three areas
sampled are believed by PAH to extend well beyond these limits.
Using a cutoff grade of 0.25 ounces of gold per ton in place, PAH
estimates the Lincoln Project contains 194,740 tons of proven and
probable reserves grading 0.57 ounces of gold per ton. If
operating economics indicate a lower cutoff grade is feasible, the
amounts of reserves would increase.
In fiscal 1992, SGV mined 8,000 tons of material (including waste
rock and low grade mineralization) out of drifts and raises off the
Stringbean Alley decline (see "Permits and Future Plans", below) in
a bulk sampling program to test mining techniques and milling
recoveries. Milling results indicated at least 94 percent of the
gold in the ore should be recoverable with gravity, flotation and
cyanidation milling circuits (1,400 ounces of gold were recovered
in this program). Subsequent metallurgical tests by the
engineering firm Brown & Root, Inc. (using test data from the
Lincoln Project developed by Hazen Research, Inc.) indicate mill
recovery should be in excess of 96 percent. PAH believes the
recovery rate should be between 93 and 95 percent.
The geology within the Lincoln project is typical of the historic
Mother Lode region of California, with a steeply dipping to
vertical sequence of metavolcanic and metasedimentary rocks hosting
the gold-bearing veins. Depending on location along the strike
length on the vein systems, the gold-bearing veins are slate,
metavolcanic greenstone, or an interbedded unit of slates and
volcanics. The Lincoln Project covers over 11,000 feet of strike
length along the Mother Lode vein systems.
PERMITS AND FUTURE PLANS. In August 1993, the Amador County Board
of Supervisors issued a Conditional Use Permit ("CUP") allowing
mining of the Lincoln Mine and milling of production, subject to
conditions relating to land use, environmental and public safety
issues, road construction and improvement matters, and site
reclamation. The permit will allow construction of the mine and
mill facilities in stages as the project gets underway, thereby
reducing initial capital outlays. Additional permits (for road
work, dust control and construction of mill and other surface
improvements) will be applied for in due course.
Initial mining using standard cut-and-fill overhead stoping
techniques, is planned for the Lincoln and Comet Zones, by an
existing 15 feet by 12 feet by 2,800 feet decline (the Stringbean
Alley decline), which runs from the surface down through the Comet
and into the Lincoln Zone. This decline was developed by Meridian
Minerals. Screened tailings from the mill flotation circuit will
be used to back-fill the stopes and stabilize the wall rocks; this
recycling will also greatly reduce the volume of tailings going
into the tailings ponds. In the pre-production stage, the
Stringbean Alley decline will be extended down to 750 feet, then a
drift driven back horizontally along the 750 foot level (above sea
level).
The CUP requires that within 18 months after operations start up,
a new decline (to be named the Lincoln Decline) will have to be
completed running for 1,850 feet from the surface at the mill site
(1,340 feet above sea level) down to a new drift to be driven at
the 1,000 foot (above sea) level; the new decline will be used for
access of mining personnel and supplies to the underground
workings, as well as permit ore haulage up the decline by conveyor,
thus eliminating surface ore haulage from mine portal to the mill.
Concurrently with production mining, Sutter Gold intends to
maintain an aggressive underground development program to delineate
(on an on-going basis) two to three years of developed ore in
sight.
Sutter Gold may require up to $17,974,000 financing to construct
the mill and prepare the mine for full scale production, and for
interim holding costs. The mill design has been reviewed by PAH,
and Sutter Gold expects to follow PAH's recommendations in building
the recovery circuits. The mill will be constructed to allow a 500
ton per day operations, but initially equipped so as to handle 300
tons per day throughput. Exclusive of attached lab and other
support facilities, the central mill building is expected to cover
approximately 20,000 square feet, and will be constructed with
interior mezzanine levels to hold different banks of equipment.
Adequate power is available at the boundaries of the Lincoln
Project from the local utility; water also is available from a
utility if needed, although the Lincoln Mine is expected to produce
adequate water for mining and milling operations.
MOLYBDENUM
As holders of royalty, reversionary and certain other interests in
properties located at Mt. Emmons near Crested Butte, Colorado, USE
and Crested have received annual advance royalties of 50,000 pounds
of molybdenum, or cash equivalent (one-half to each), starting in
fiscal 1990, pursuant to agreements for sale of interests in the
Mt. Emmons properties to AMAX. The properties were acquired in the
1970s, and sold to AMAX in 1980. AMAX delineated a deposit of
molybdenum containing approximately 146 million tons of
mineralization averaging 0.43% molybdenum on the properties, making
the deposit one of the world's largest known primary molybdenum
deposits.
Advance royalties are paid in equal quarterly installments, until:
(i) commencement of production; (ii) failure to obtain certain
licenses, permits, etc., that are required for production; or (iii)
AMAX's return of the properties to the USE and Crested. During
fiscal 1994, USE recognized $126,800 of advance royalty revenue
under this arrangement. These royalties are shown in the
Statements of Operations as a component of gains from restructuring
mineral properties agreements. See Note F to the audited USE
Consolidated Financial Statements. The royalty payments reduce the
operating royalties (six percent of gross production proceeds)
which would otherwise be owed by AMAX in the event of production.
There is no obligation to repay the advance royalties, if the
property is not placed in production. AMAX is to pay $2,000,000 to
USE and Crested (one-half to each), if the Mt. Emmons properties
are put into production.
In fiscal 1995, USE and Crested reached agreement with AMAX (now
Cyprus Climax) to forego six quarters of advance royalties
(starting fourth quarter calendar 1994) for full payment for real
estate in Gunnison, Colorado owned by AMAX and the subject of a
purchase option held by USE and Crested. The option exercise price
was valued at $266,250.
Also as part of the original AMAX transaction, interest free loans
were made to USE and Crested. These loans were fully amortized by
the end of the first quarter of fiscal 1994 (see Notes F and G to
the audited USE Consolidated Financial Statements. In the event
AMAX sells its interest in the properties, USE and Crested would
receive 15 percent of the first $25,000,000 received by AMAX.
PARADOR MINING (NEVADA)
USE and Crested are sublessees and assignees from Parador Mining
Co., Inc. ("Parador"), on certain rights under two patented mining
claims located in the Bullfrog Mining District of Nye County,
Nevada. The claims are immediately adjacent to and part of a gold
mine operated by Bond Gold Bullfrog, Inc. ("BGBI"), a non-
affiliated third party. They have also been assigned certain
extralateral rights associated with the claims and certain royalty
rights relating to a prior lease on those properties. The lease to
USE and Crested is for a ten year primary term, is subject to a
prior lease to BGBI on the properties, and allows USE and Crested
to explore for, develop and mine minerals from the claims. If USE
and Crested conduct activities on the claims, they are entitled to
recover costs out of revenues from extracted minerals. After
recovering any such costs, USE and Crested will pay Parador a
production royalty of 50 percent of the net value of production
sold from the claims.
USE, Crested and Parador have informed BGBI that payments are owed
to them pursuant to extralateral rights on the claims. BGBI in
turn has initiated legal proceedings to establish the rights of the
various parties in the claims. Thereafter, Parador notified BGBI
that it had defaulted in its lease and terminated the lease. BGBI
denies that it has defaulted. See "Legal Proceedings".
OIL AND GAS
FORT PECK LUSTRE FIELD (MONTANA). USECC conducts oil production
operations at the Lustre Oil Field on the Ft. Peck Indian
Reservation in north-eastern Montana; five wells are producing, and
USE and Crested receive a fee based on oil produced. USE is the
operator of record. No further drilling is expected in this Field.
This fee and certain real property of USE and Crested, have been
pledged or mortgaged as security for a $1,000,000 line of credit
from a bank.
ENERGX, LTD. FORT PECK GAS PROJECT. ENERGX, LTD., a Wyoming
corporation and a subsidiary of USE and Crested formed in fiscal
1994, signed on October 29, 1993 an "Agreement Between The
Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation
and ENERGX, LTD. to Explore, Develop and Produce Shallow Gas."
This Agreement has been approved by the Secretary of the Interior
and the United States Bureau of Indian Affairs. ENERGX intends to
drill and test three exploratory wells, and otherwise develop the
area, with NuGas Resources (see below). If ENERGX determines there
is potential for a natural gas field, ENERGX (and NuGas) will have
exclusive exploration rights for shallow gas (down to the top of
the Muddy formation, approximately 4,000 feet) on approximately
325,000 acres of tribal mineral lands on the Reservation for a
period of five years, and for successive five year terms, provided
ENERGX drills another five exploration wells during each term. The
first three dry holes would be at ENERGX sole expense (and now will
be funded by NuGas-see below).
Proceeds from production will be allocated to ENERGX (and now
NuGas-see below) for all wells' drilling and completion expense
(except for the initial three dry holes), lease operating expenses,
gas gathering and compression facilities, capital and operating
costs. Net revenues will be allocated 40 percent to the Tribes and
60 percent to ENERGX. Pursuant to United States Law, only the
Tribes may own beneficial interests in reservation minerals;
ENERGX' share of net revenues is compensation for operating
services. The Tribes also own 10 percent (nondilutable) of ENERGX
common stock.
Two major gas transmission systems cross the Fort Peck reservation
(Northern Border and Williston Basin).
The Fort Peck tribal lands are believed to contain significant
shallow gas deposits, analogous to the Bowdoin Gas Field (eastern
Montana) and other Cretaceous age gas producing reservoirs in the
Northern Great Plains Gas Province. Numerous wells drilled for
deep oil on the Fort Peck tribal lands have documented shallow gas
shows. However, no reserves have been established for the acreage
subject to the Agreement with ENERGX.
NUGAS AGREEMENT. By the Joint Venture Agreement ("JVA") of
July 18, 1994, NuGas Resources (U.S.) Inc., Calgary, Alberta,
Canada will drill and complete (or abandon) at NuGas' sole expense,
eight exploratory shallow gas wells on the Fort Peck Reservation
(three before December 31, 1994, and five more by July 1, 1996), to
earn a one-half interest in ENERGX' rights under the Fort Peck
Shallow Gas Agreement (see above). Well gathering, gas dehydration
and related equipment costs will be shared equally by NuGas and
ENERGX. ENERGX Will be carried for the first eight exploratory
wells (see below).
NuGas has contributed $100,000 to pay for costs of acquiring leases
and easements on non-Tribal lands contiguous to Tribal lands, so as
to assemble adequate sized drilling units for the first three
exploratory wells. Due to the unexpected complexity of assembling
the necessary land packages, NuGas and ENERGX have postponed the
drilling of the initial exploratory wells until the summer of 1995.
NuGas and ENERGX each will receive 50 percent of proceeds from gas
produced and sold out of the initial eight wells, until NuGas
receives 50 percent of such wells' drilling, completion, geological
and equipping costs; thereafter, distributions will be shared 30
percent each to NuGas and Energx, and 40 percent to the tribes
pursuant to the Fort Peck Shallow Gas Agreement. NuGas will not be
entitled to recoup any of drilling and geological costs related to
up to three dry holes drilled in the initial eight well drilling
program. All activities after the initial exploration drilling
program will be funded equally by NuGas and ENERGX.
ENERGX received $200,000 under the JVA as a prospect generation
fee, and will be the operator of the initial exploration program.
NuGas is a subsidiary of a Toronto Stock Exchange company with
substantial experience in shallow gas exploration and production,
principally in the northern plains states and Canada, where the
company currently operates more than 450 shallow gas wells and
produces 25,000,000 cubic feet of gas per day.
POWDER RIVER BASIN. ENERGX holds by lease approximately 960
acres of coalbed methane rights in the Powder River Basin,
Campbell County, Wyoming, having drilled two coalbed methane
stratigraphic test wells, and four production wells to test for and
produce coalbed methane. Casing has been set in each of the four
coalbed methane wells. The coal is expected to produce commercial
quantities of methane, once the hydrostatic pressure is reduced by
pumping water out of the coalbed formation.
One of the four wells is on water pump. Until methane production
commences, methane reserves cannot be reliably estimated.
WIND RIVER BASIN. Approximately 38 sections (25,000 acres) of
BLM leases (10 year term) in Fremont County, WY are now held by
ENERGX, believed to be prospective of shallow coalbed methane and
conventional stratigraphic natural gas and oil deposits. Acreage
in this part of the County has been leased by major oil and gas
companies in the past, but very little of the acreage has been
drilled. ENERGX may negotiate farmout arrangements with other
companies to test the acreage (two large independent oil and gas
exploration and production companies have acreage near ENERGX's
positions).
ENERGX operations to date have been funded with USECC equity
investments and advances, and transaction revenue (the NuGas
prospect generation fee). Future operations are to be funded by a
combination of private equity financing by ENERGX, and by industry
and private investor participants on prospects.
<PAGE>
COMMERCIAL AND CONSTRUCTION
USE owns varying interests, alone and with Crested, in affiliated
companies in manufacturing and retailing, real estate,
transportation, and engineering businesses. The affiliated
organizations include Brunton, Western Executive Air, Inc. ("WEA"),
Four Nines Gold, Inc. ("FNG"), and Plateau through its wholly-owned
subsidiary Canyon Homesteads, Inc. Activities of these
subsidiaries and USE in these business sectors include a variety of
real estate operations (ownership and management of a commercial
office building, which includes the quarters where USE executive
offices are located, ownership and management of a trailer home
park in Riverton, Wyoming, and ownership and management of town
sites and a motel facility in Ticaboo, Utah). WEA owns and
operates an aircraft fixed base operation with fuel sales, charter
planes and flight school in Riverton, Wyoming. Manufacturing and
marketing of recreational products and professional engineering
products are carried on through Brunton. FNG provides civil
engineering contracting primarily for large concrete structure and
pipe work in municipal sewage systems, irrigation systems and other
water control projects.
MANUFACTURING
BRUNTON
Brunton operates in the industry segment of manufacture and sales
of outdoor professional and sporting products. All common stock of
Brunton except for shares previously owned by USE was acquired as
of May 1994, in exchange for 276,470 registered common shares of
USE.
Brunton is the manufacturer of the original Brunton pocket transit
(developed by D.W. Brunton in 1884), and has been manufacturing and
marketing pocket transits to the professional surveying, mining,
geology and military markets world wide since 1972 when the product
line was purchased from a Denver company and moved to Riverton,
Wyoming.
Brunton also manufactures and sells a line of sporting compass
products, and imports and distributes optical products and Lakota
cutlery, having acquired Lakota cutlery in 1982. These products
are marketed through traditional sporting goods channels by
distributors, catalog houses, retailers and chain stores nationally
and internationally. Additional markets include ad specialty,
military and the U.S. government. A majority of the products are
marketed as quality items commanding premium prices.
Brunton sales for fiscal 1994 (compared to fiscal 1993) by product
line were: 35 percent (44 percent) sporting compasses; 26 percent
(26 percent) professional products; 27 percent (21 percent) optical
products; and 7 percent (9 percent) cutlery. The balance of 1994
revenues were from interest income, paint shop custom work, and
warranty service.
No customer accounted for more than 10 percent of Brunton sales in
any of the three fiscal years ended May 31, 1994. Major customer
revenue contributions within product lines are discussed below.
Brunton has 34 full-time employees and 5 part-time employees, none
under collective bargaining agreements. Employee relations are
considered satisfactory.
PROFESSIONAL PRODUCTS
POCKET TRANSITS AND ACCESSORIES. Brunton is a manufacturer of
pocket transits. This instrument is a hand-held compass with a
mirrored protective cover and long bar sight, capable of
calculating both horizontal (compass bearings) and vertical
(inclination) angles. Primary advantages of the pocket transit
include small size and accuracy.
Several versions of this instrument are produced to satisfy the
needs of civil engineers, mining engineers, archaeologists,
foresters, geologists and military personnel. Many units are
waterproof. Numerous product options, high quality and ready
serviceability separate Brunton instruments from its competition.
Suggested retail price for the pocket transit range from $187 to
$263 per unit. Brunton also manufactures and sells non-magnetic
tripods and field accessories to the foregoing consumer groups.
MARKETING. Professional products are sold on a direct basis
to 275 wholesale dealers, distributors and catalog supply houses
throughout the world. In addition, Brunton markets professional
products to the U.S. government (GSA) and military organizations
including the U.S. Army.
COMPETITION. Brunton faces competition for its pocket
transits with look-a-like models manufactured in the far east by
companies substantially larger than Brunton who include their
competing unit as one of several surveying type instruments
available from the company. Despite larger competitors, and
despite somewhat higher prices for Brunton pocket transits,
management believes Brunton holds a consistent estimated 80 percent
United States market share for the pocket transit market. This is
due to name brand recognition, highest quality workmanship,
excellent wholesale and consumer service and consistent advertising
programs.
SEASONALITY. Sales of pocket transits are seasonal with
increased sales in the spring and summer due to minerals
exploration and college/university field exercises. Brunton
currently seeks to increase penetration of South American markets
to counter seasonality of North American sales.
MAJOR CUSTOMERS. One customer (Forestry Suppliers, Inc., a
catalogue supplier) accounted for 10 percent of professional
product sales in fiscal 1994 (15 percent in fiscal 1993). Loss of
this customer would not have a material adverse effect on Brunton.
SPORTING PRODUCTS
There are three lines of Brunton sporting products: compasses,
optics and cutlery. Compasses and optics are marketed under the
Brunton name; cutlery is marketed under the Lakota label.
COMPASSES. Brunton map compasses were first introduced in
1979 to the general sporting goods market. To the best of
management's knowledge, Brunton compasses continue to be the only
100 percent made in USA map compasses. A complete priced line of
compasses (22 different models) is offered, with a suggested retail
price range of $3.99 to $264, and are used by virtually any type of
outdoors person, from hunters to backpackers, boaters to mountain
climbers. All sporting compasses are liquid damped, which means
that the compass housing contains a clear oil-based fluid to dampen
the action of the magnetic needle, which allows for quicker and
more accurate instrument readings.
OPTICS. Brunton optics include a range of high quality
binoculars and monoculars, which are manufactured primarily in
Japan and Korea to Brunton specifications. Brunton optical
products are targeted to wholesale accounts that market to quality
conscious consumers willing to pay premium prices for quality
optical products. Additional features are found on its optics,
including upgraded lenses and prisms, fully-coated optics, long eye
relief (so eyeglass wearers can enjoy full field of view), and lens
coatings (to significantly reduce both ultraviolet (UV) and
infrared (IR) light from entering the product). Suggested retail
prices for the 11 standard optical products range from $129 to
$389.
Substantially all optics are manufactured for Brunton by one
Japanese firm. Although the services of such firm could be
replaced if necessary, attendant delays would adversely impact
Brunton and could result in eroding market share. Relations
between such firm and Brunton are considered excellent. However,
continued erosion of the dollar against the yen could lead to price
increases which may be difficult for Brunton to pass along to
customers.
CUTLERY. Lakota cutlery offers high quality cutlery for the
outdoors person, with models that include unique lockback and fixed
blade designs. Lakota cutlery is manufactured in Japan by quality
conscious subcontractors. Leather sheaths and packaging are
assembled at Brunton headquarters. A majority of Lakota designs
are for hunters, campers and fishermen. Twenty models are
currently in the Lakota line, with a suggested retail price range
of $32 to $155.
The current cutlery manufacturer could be replaced if necessary,
although Brunton would be adversely affected depending on the lead
time required for a new firm to come on line.
MARKETING. All Brunton sporting products are distributed
throughout the United States and overseas markets by its direct
sales force and manufacturers sales representatives, to over 1,000
retailers, including sporting goods retailers, mass merchants,
catalog houses, cutlery shops, and certain U.S. Army/Navy PX
stores. In addition, Brunton sells some of nearly every model of
its products to corporations and other organizations for
promotional purposes, premium and employee gift award programs, and
corporate identity programs.
In fiscal 1994, foreign sales represented 14 percent of sales (all
lines), and sales in the United States represented 86 percent of
sales. These percentages are not expected to change materially in
fiscal 1995.
COMPETITION. Competition in the compass line is provided by
several foreign firms, including Silva in Sweden and Suunto in
Finland. Brunton is unable to determine its market share for
compass sales, as data therefor is unreliable, but believes it is
a substantial competitor in the United States. Silva and Suunto
are believed to have larger market shares in the United States
compass market; such companies are believed to have resources
substantially greater than Brunton.
Lakota cutlery faces competition from over ten competitors, all of
which have larger United States market shares and greater marketing
and other resources than Brunton.
Brunton optical products compete with products from at least ten
other firms, all of which have a larger percentage of the United
States binocular market. Most of these competitors have
substantially greater marketing and other resources.
SEASONALITY. All Brunton sporting products experience
seasonal sales, with stronger sales in July through December and
declining in January and February.
MAJOR CUSTOMERS. Two national discount chains accounted for
approximately 21 percent of compass sales in fiscal 1994, compared
to 20 percent in fiscal 1993. Sales to one catalogue supplier
represented 18 percent of optical product sales in fiscal 1994,
compared to 35 percent in fiscal 1993. Sales to one catalogue
supplier represented 13 percent of cutlery sales in fiscal 1994.
The preceding percentages have not changed materially to date in
fiscal 1995.
Loss of any one of the major customers would not have a material
adverse effect on Brunton, however, loss of more than one in any
one product line could cause significant market share loss.
<PAGE>
Intellectual Property
Brunton currently holds United States utility patent Nos. 4,175,333
(expires 2005), covering its pocket transit, and 5,079,846,
covering a liquid-type survival compass (expires 2009). Eight
other United States utility patents are held which cover different
compass constructions, expiring 1993 to 1994, and one United States
utility patent (4,578,864) is held on a cutlery model (expires
2002).
Five United States design patents are held on compasses and
cutlery, which expire between 1998 and 2004.
Foreign patent protection in certain countries (principally Canada
and Europe) has been obtained on a limited number of products.
United States patent applications are filed for significant new
products, as developed. No notice of adverse determinations has
been received with respect to pending applications.
REAL ESTATE
WYOMING PROPERTIES. USECC owns a 14-acre tract in Riverton,
Wyoming, with a two-story 30,400 square foot office building
(including underground parking). The first floor is rented to
affiliates, nonaffiliates and government agencies; the second floor
is occupied by USE and Crested and is adequate for their executive
offices. USECC also owns and operates Wind River Estates, a 100-
unit trailer park on 19.7 acres in Riverton. The preceding two
properties are mortgaged to the State of Wyoming as security for
future reclamation work on the SMP properties.
USECC owns a fixed base aircraft operation at the Riverton
Municipal Airport, including a 10,000 square foot aircraft hangar
and associated offices and facilities. This operation is located
on land leased from the City of Riverton, for a term ending
December 16, 2005, with an option to renew on mutually agreeable
terms for five years. The annual rent is presently $1,156
(adjusted annually to reflect changes in the Consumer Price Index),
plus a $0.02 fee per gallon of fuel sold.
USE and Crested own 18 undeveloped lots on 26.8 acres of the Wind
River Airpark near the Riverton Municipal Airport, and three
mountain sites covering 16 acres in Fremont County, Wyoming.
USECC owns various buildings, 600 city lots and other properties at
the Jeffrey City townsite in south-central Wyoming. More than
4,000 people resided in Jeffrey City in the early 1980s, when the
nearby Crooks Gap and Big Eagle uranium mining projects were
active. The townsite may be utilized for worker housing as the
Jackpot Mine and Sweetwater Mill are put into operation.
USE owns five city lots and a 20-acre tract with improvements
including two smaller office buildings and three other buildings
with 19,000 square feet of office facilities, 5,000 square feet of
laboratory space and repair and maintenance shops containing 8,000
square feet, all in Riverton, Wyoming.
COLORADO PROPERTIES. In connection with the AMAX transaction for
the molybdenum properties near Crested Butte, Colorado, USECC
acquired an option from AMAX (now Cyprus Climax) to purchase (until
June, 2002) approximately 57 acres for $200,000 in Mountain Meadows
Business Park, Gunnison, Colorado. The property is zoned
commercial and industrial, and is adjacent to Western State
College. In fiscal 1995, USECC and Cyprus Climax agreed on
exercise of the option by foregoing six quarters of advance
royalties from Cyprus Climax (the option purchase price was
$200,000). See "Molybdenum" above.
Thereafter, USE (together with Crested) signed option agreements
with Pangolin Corporation, a Park City, Utah developer, for sale of
the 57 acres, and a separate parcel owned in Gunnison County,
Colorado. If both options are exercised, the combined purchase
price is US$1,851,920. The acreage is not encumbered.
The first option (exercised in February, 1995) was for the 57
commercial and noncommercial zoned acres in the City of Gunnison,
Colorado; the purchase price was $970,300. Pangolin has paid
$345,000 cash and $625,300 by its three year nonrecourse promissory
note. 19.25 acres have been deeded to Pangolin; the remaining
acreage secures the note, and will be released to the buyer against
principal payments on the note as development (mixed commercial and
residential) advances.
The second option covers 472.5 acres of ranch land northwest of the
City of Gunnison, Colorado (purchase price $851,920). Pangolin has
paid $10,000 for the option; on option exercise and closing,
Pangolin will pay $40,000 in cash and $801,920 by two nonrecourse
promissory notes (each with principal and unpaid interest due on
the third anniversary of closing). At closing, 22.19 acres will be
deeded to Pangolin; different parcels of the remaining acreage will
secure the notes, and be released for principal payments in the
course of development. The option expiration date of February 20,
1995 is being extended on a monthly basis in anticipation of
exercise and closing within fiscal 1995.
Both notes ($150,000 and $651,920) will require annual payments of
accrued interest: the larger note accrues interest at 7.5 percent;
the initial interest rate on the smaller note is 7.5 percent for 90
days after closing if all principal and interest is paid by the
ninetieth day, and 12 percent thereafter (with a $35,000 principal
payment on the first anniversary). Separately, the Company (and
Crested Corp.) are negotiating a possible joint venture residential
lot development of an 88 acre parcel northwest of Crested Butte,
Colorado, previously the site of anthracite coal mining. No
agreement has been signed to date on this parcel.
UTAH PROPERTIES. Canyon Homesteads, Inc. (a Plateau subsidiary)
owns the Ticaboo Townsite in Ticaboo, Utah. Canyon Homesteads was
the majority partner in a joint venture which developed the
townsite in the 1980s; subsequent to May 31, 1994, USE acquired the
minority interest in the venture from a nonaffiliate.
The townsite is 3.5 miles south of the Shootaring Canyon Mill, and
includes a 66 room motel, general store, laundromat facility, 98
home sites, 151 mobile home sites, and 26 recreational vehicle
sites (all with utility access). The townsite is located on a
State of Utah lease near Lake Powell. In fiscal 1994, limited
capital improvements and a general refurbishing were effected by
USE (total costs approximately $400,000). There have been no
similar material expenditures in fiscal 1995. USE presently seeks
an operator/developer partner for upgrading this asset to a
commercial enterprise, located 13 miles from Lake Powell; no
agreements have been reached to date.
NET REVENUES BY USE SEGMENT
Minerals and construction operations have accounted for more than
15 percent of USE total revenues in the last three fiscal years.
Percentage contributions by the three USE segments in the last
three fiscal years was:
33
Percentage of Net Revenue For Year/Nine Months Ended
Feb. 28, May 31, May 31, May 31,
1995 1994 1993 1992
Minerals Operations 3% 50% 53% 26%
Commercial Operations 58% 13% 10% 13%
Construction Operations 13% 30% 22% 46%
See Note I to audited USE Consolidated Financial Statements for
information concerning a significant customer in minerals
operations. Neither commercial nor construction operations are
dependent upon a single customer, or a few customers, the loss of
which would have a materially adverse effect on USE.
URANIUM AND MOLYBDENUM MARKET INFORMATION
URANIUM. During recent years there have been several major
producers of uranium in the United States (Pathfinder Mines
Corporation, Chevron Resources, Uranium Resources Inc., Freeport-
McMoRan Resource Partners, L.P., Energy Fuels Nuclear, Inc.,
Ferrett Exploration, General Atomics and others). There are
several major producers in Canada (Cameco, Cogema Canada, Ltd. and
Rio Algom); Australia (Energy Resources of Australia and
Pancontinental Mining, Ltd.); Africa (Cogema and RTZ's Rossing
unit), and Europe. Many of these operations are in standby mode
due to current low prices for U3O8. The market deteriorated as the
former Soviet Union, now known as the Commonwealth of Independent
States ("CIS"), increased exports to the western uranium spot
market, which slowed down the reduction of western inventories.
Uranium is primarily used in nuclear reactors that heat water to
drive turbines that generate electricity. There are presently
about 425 commercial nuclear power plants worldwide either
operating, under construction or on order. Current worldwide
consumption is about 150 million pounds of U3O8 per year, but
worldwide production is approximately 75 million pounds per year.
Published reports indicate that approximately 31 percent of the
worldwide nuclear-powered electrical generating capacity is in the
U.S., 49 percent is in western Europe, and 14 percent is in the Far
East. Although the reactors in western Europe have a greater
aggregate generating capacity and fuel usage, the supply of uranium
for those reactors has been obtained for relatively long periods,
and the market requiring the greatest supply of uranium for the
next few years is believed to be the United States. The Asia
Pacific region may also develop into a significant uranium
consumer, due to announced plans for rapid expansion of nuclear
power programs in Japan and Korea.
Pursuant to Suspension Agreements signed in fiscal 1993 between the
United States Department of Commerce ("DOC") and certain of the
Republics of the Commonwealth of Independent States ("CIS"), to
rectify prior damage to domestic United States uranium producers
from dumping sales by certain CIS republics of U3O8, all spot sales
of U3O8 delivered into the U.S. now reflect quota restrictions on
U3O8 imports from the CIS. However, there are provisions which
allow certain long-term uranium sales contracts entered into with
domestic utilities prior to March 5, 1992, to be grandfathered.
NUEXCO EXCHANGE VALUE. The market related contracts of SMP are
based on an average of the Nuexco Exchange Value ("NEV") for 2, 3
or more months before uranium delivery. The high and low NEV
reported on U3O8 sales during USE's past five fiscal years are shown
below. NUEXCO Exchange Values are reported monthly and represent
NUEXCO's judgment of the price at which spot and near term
transactions for significant quantities could be concluded. NEVs
for fiscal 1993 are higher for U.S. transactions, due to the impact
of CIS import restrictions since late 1992. These prices ("US
NEV") were reported by NUEXCO for spot sales in the restricted U.S.
market.
NUEXCO EXCHANGE VALUE
Years Ended US $/pound of U3O8
May 31, High Low
1989 15.10 9.85
1990 9.80 8.70
1991 11.70 8.35
1992 9.05 7.75
1993 10.05 7.75
1994 10.20 9.25
US NEV at March 31, 1995 was $11.15.
On August 31, 1993, NUEXCO made a public release that clarified its
definition of the NEV with reference to restricted and unrestricted
terminology, so that the restricted market values apply to all
products and services delivered in the U.S. as well as non-CIS
origin products and services delivered outside the U.S.
In the U.S., uranium is generally supplied to electric utilities
under medium to long-term supply agreements, which require
deliveries more than one year after entry into the contract. These
agreements are designed to provide both the producer-supplier and
the customer with comfort as to the amount of uranium desired and
the availability of supply at a predictable price. Utilities
generally seek supply contracts at least two to three years before
their needs occur. It is expected that a large portion of U.S.
demand will be secured by electric utilities entering into
contracts in the next two to four years. There also is an active
spot market, through which approximately 5 to 10 percent of uranium
concentrate needs are satisfied.
NUEXCO reports that through the first six months of 1994, U.S.
utilities bought 6,300,000 lbs U3O8 in the spot and near term
market, and another 11,800,000 lbs. U3O8 was purchased under
outstanding long-term contracts. A portion of the spot and near
term market sales may have supplied purchases under long-term
contracts. While demand in 1994 appears to exceed domestic
production, there remains a near-term supply of U3O8 from domestic
producers' inventory, and from unrestricted (i.e., not under
quotas) foreign producers current production and inventory. USE
expects these and other factors (e.g., weapons grade uranium
conversions) will contribute to moderate concentrate price
increases, which otherwise might be expected from the shortfall of
United States production meeting demand, into fiscal 1996, in spite
of increasing interest from U.S. utilities in renewing long-term
contracts at higher than spot market prices. To date in fiscal
1995, long-term contract prices have increased moderately, and spot
prices have increased from $10.20 in fiscal 1994 to $11.15 at March
31, 1995.
MOLYBDENUM
Molybdenum is a metallic element with applications in both
metallurgy and chemistry. Principal consumers include the steel
industry, which uses molybdenum alloying agents to enhance strength
and other characteristics of its products, and the chemical, super-
alloy and electronics industries, which purchase molybdenum in
upgraded product forms.
The molybdenum market is cyclical with prices influenced by
production costs of foreign and domestic competition, world-wide
economic conditions, the U.S. dollar exchange rate, and other
factors such as the market for end-use products. When molybdenum
prices rose dramatically in the late 1970s, for example, steel
alloys were modified to reduce reliance on molybdenum. AMAX and
Cyprus Minerals Company were the two major primary producers of
molybdenum in the United States until late 1993, when the companies
merged.
Worldwide demand for molybdenum in 1989 was reportedly 210 million
pounds, its highest level ever. However, production for that
period was about 233 million pounds, as the industry and prices
continue to be affected by co- and by-product production of
molybdenum by other metals operations, and by excess capacity of
the primary producers. By-product producers of molybdenum
(primarily Chilean copper mining companies) dominate the molybdenum
market and have a major impact on available supplies. It is
unlikely that any new major primary deposits will commence
production during fiscal 1995.
Molybdenum prices on the open spot market have increased
substantially ($3.35 per pound of molybdic oxide (the refined
product) in September 1994, to $10.50-11.50 per pound in April
1995).
RESEARCH AND DEVELOPMENT
USE has incurred no research and development expenditures, either
on its own account or sponsored by customers, during the past three
fiscal years.
ENVIRONMENTAL
USE operations are subject to various federal, state and local laws
and regulations regarding the discharge of materials into the
environment or otherwise relating to the protection of the
environment, including the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act ("RCRA"), and the
Comprehensive Environmental Response Compensation Liability Act
("CERCLA"). With respect to mining operations conducted in
Wyoming, Wyoming's mine permitting statutes, Abandoned Mine
Reclamation Act and industrial development and siting laws and
regulations impact USE. Similar laws in California affect Sutter
Gold Mining Company operations. Utah statutes will effect
Plateau's operations.
To USE's knowledge, it is in compliance with current environmental
regulations. To the extent that production by SMP, GMMV or Sutter
Gold is delayed, interrupted or discontinued due to need to meet
additional provisions which relate to environmental protection,
future USE earnings could be adversely affected.
CERTAIN PERMITS, COSTS
A number of legislative proposals and regulations have been
introduced in Congress and in the legislative bodies of various
states which, if enacted, would significantly affect the minerals
industry. For example, in fiscal 1993 the Mining Law of 1872 was
revised to change methods of acquiring and maintaining mining
claims on public lands, by requiring the payment (two years in
advance) of an annual fee of $100 per claim for assessment rather
than performing $100 worth of work on each unpatented mining claim.
This law already has affected USE, as a number of unpatented claims
were dropped in fiscal 1993 due to high holding costs. A limited
number of such claims are currently held.
Status and estimated future costs for permits not previously
disclosed in this Report follow:
CROOKS GAP. An inoperative ion exchange facility at Crooks Gap
currently holds a NRC license for possession of uranium operations
byproducts. To date, a notice of minor violations was received
from the NRC, which USE has resolved. USE has applied to the NRC
for permission to decommission and decontaminate the plant, dispose
low level waste into the Sweetwater Mill tailings cell, and keep
intact such of the facility as does not require dismantling. Costs
for this two year effort (once approved by the NRC) are not
expected to exceed $150,000.
SMP. USE and Crested are not required to make additional
expenditures to comply with provisions of the mine permit and
licenses and to protect the environment at SMP, however, included
in general and administrative expenses are expenditures related to
preparation and filing of reports on maintaining the properties in
compliance with environmental regulations.
GMMV. During the twelve months ending May 31, 1995, it is
anticipated that expenditures by GMMV to comply with provisions of
the mine permits and licenses, or otherwise to protect the
environment, will be approximately $200,000, 50 percent of which
will be for capital expenditures.
SUTTER GOLD. In fiscal 1994, Sutter Gold spent approximately
$90,000 to build an underground mine water treatment and surface
disposal plant, in compliance with California environmental
regulations. This plant will be adequate for future mine water
treatment needs, even after the Lincoln Mine is put into
production.
A significant amount of the total capital requirements to put the
Lincoln Mine into production, will pay for road construction,
tailing ponds, mill circuit design and other capital items which
are required by the conditional use permit from the Amador County
Board of Supervisors.
Actual costs for compliance with environmental laws may vary
considerably from estimates, depending upon such factors as changes
in environmental regulation (e.g., the new Clean Air Act), and
conditions encountered in minerals exploration and mining.
With respect to environmental compliance expenditures by GMMV,
there ultimately will be an effect on USE earnings since GMMV
operations will be accounted for by the equity method. GMMV's
expenses for compliance with environmental laws (as well as other
matters) are not expected to materially affect USE from a cash flow
standpoint during the next two years, as Kennecott will fund the
first $50,000,000 of costs of GMMV. USE does not anticipate that
expenditures of SMP, GMMV and SGV to comply with laws regulating
the discharge of materials into the environment, or which are
otherwise designed to protect the environment, will have any
substantial impact on the USE's competitive position.
EMPLOYEES
USE has 52 full-time employees. Crested uses approximately 50
percent of the time of USE employees, and reimburses USE
accordingly. Payroll expense has been shared by USE and Crested
since 1981.
MINING CLAIM HOLDINGS
The majority of mining properties owned by USE and/or by USECC are
unpatented mining claims, valid title to which depends upon
numerous factual matters. Due to changes in the 1872 Mining Law,
USE and/or its co-venturers had the obligation to pay a rental fee
of $200 per claim for years ending on September 1, 1993 and 1994 by
August 31, 1993, and thereafter $100 annual per claim in order to
preserve the right to possession of unpatented mining claims. Due
to these changes in the 1872 Mining Law, USE dropped a large number
of claims to reduce holding costs. In addition to annual rental
fees, there are technical requirements which must be met to
establish a valid mining claim. Satisfaction of these technical
requirements cannot be assured.
As a result of the above changes in 1872 Mining Law, title to the
unpatented lode mining claims held by GMMV and SMP on the Wyoming
uranium properties now are maintained by annual filings with the
BLM of $100 per claim. Such claim filings are current.
USE LEGAL PROCEEDINGS
CONCERNING SHEEP MOUNTAIN PARTNERS
ARBITRATION. On June 26, 1991, CRIC submitted certain disputed
matters concerning SMP to arbitration before the American
Arbitration Association in Denver, Colorado, to which USE and
Crested filed a responsive pleading and counterclaim alleging
violations of contracts and duties by CRIC related to SMP. CRIC
asserted that USE and Crested, d/b/a/ USECC, were in default under
the SMP partnership agreement ("SMP Agreement"). Prior to
initiation of arbitration proceedings, USE and Crested had notified
CRIC it was in default under the SMP Agreement. The issues raised
in the arbitration proceedings were generally incorporated in the
Federal proceedings (see below), wherein the U.S. District Court of
Colorado stayed further proceedings in arbitration. See
"Stipulated Arbitration", below.
FEDERAL PROCEEDINGS. On July 3, 1991, USE and Crested
("plaintiffs") filed Civil Action No. 91-B-1153 in the United
States District Court for the District of Colorado against CRIC,
Nukem, Inc. ("Nukem"), and various affiliates of CRIC and Nukem
(together, the "defendants"), alleging that CRIC and Nukem
misrepresented material facts to and concealed material information
from the plaintiffs to induce their entry into SMP Agreement and
various related agreements. Plaintiffs also claim CRIC and Nukem
have wrongfully pursued a plan to obtain ownership of the USE-
Crested interests in SMP through various means, including
overcharging SMP for uranium "sold" to SMP by defendants.
Plaintiffs further allege that defendants refused to provide a
complete accounting with respect to dealings in uranium with and on
behalf of SMP, and that certain defendants misappropriated SMP
property, and engaged in other wrongful acts relating to the
acquisition of uranium by SMP.
Plaintiffs requested that the court order rescission of the SMP
Agreement and related contracts, and ask the court to determine the
amounts payable to CRIC by USECC as a result of any such rescission
order to place the parties in status quo. USE and Crested also
requested that the court order defendants to make a complete
accounting to them concerning the matters alleged in the Amended
Complaint. They requested an award of damages (including punitive,
exemplary and treble damages, interest, costs and attorneys' fees)
in an amount to be determined at trial. Plaintiffs had further
requested imposition of a constructive trust on all property of SMP
held by defendants, and on profits wrongfully realized by
defendants on transactions with SMP.
The defendants filed various motions, an answer and counterclaims
against plaintiffs, claiming plaintiffs had misappropriated a
partnership opportunity by being involved with Kennecott on the
Green Mountain uranium properties. Defendants also requested
damages (including punitive, exemplary and treble damages, interest
costs and attorney fees).
STIPULATED ARBITRATION. In fiscal 1994, the plaintiffs and
defendants agreed to proceed with exclusive, binding arbitration
before a panel of three arbitrators with respect to any and all
post-December 21, 1988 disputes, claims and controversies
(including those brought in the 1991 arbitration proceedings, the
Colorado State Court proceeding (see below), and the U.S. District
Court proceeding), that any party may assert against the other.
Each party may file or amend its claims in the arbitration
proceeding, to assert all claims it believes it has. All pre-
December 21, 1988 claims, disputes and controversies pending before
the U.S. District Court have been stayed by stipulation between the
parties, until the arbitrators enter an order and award in the
arbitration proceeding.
In connection with agreeing to proceed to arbitration as stated
above, the plaintiffs have affirmed the Sheep Mountain Partners
partnership, and are proceeding on common law damages and other
claims in the arbitration. Approximately $8.6 million cash,
comprising part of the damages claimed by plaintiffs, has been
placed in escrow by agreement of the parties pending resolution of
the disputes. Plaintiffs are claiming additional substantial
amounts of damages.
The arbitration evidentiary proceedings were completed in June
1995, and the award of the arbitrators is expected in calendar
1995. As in most litigation, there is no assurance of the outcome.
COLORADO STATE COURT PROCEEDING. On September 16, 1991, plaintiffs
filed Civil Action No. 91CV7082 in Denver District Court, seeking
reimbursement of $85,000 per month from the spring of 1991 for
maintaining the SMP underground uranium mines at Crooks Gap on a
standby basis. On behalf of SMP, CRIC filed an answer, affirmative
defenses and a counterclaim against plaintiffs. Plaintiffs filed
a motion for summary judgment; the court denied the motion and
stayed all proceedings pending resolution of the Federal
proceeding, which in turn have been stayed through arbitration (see
"Stipulated Arbitration" above).
BGBI LITIGATION PARADOR
On July 30, 1991, Bond Gold Bullfrog, Inc. ("BGBI") filed Civil
Action No. 11877 in the District Court of the Fifth Judicial
District of Nye County, Nevada, naming USE, Crested, USECC, Parador
and H. B. Layne Contractor, Inc. ("Layne"), as defendants. The
complaint primarily concerns extralateral rights associated with
two patented mining claims owned by Parador and initially leased to
a predecessor of BGBI. USE and Crested assert certain interests in
the claims under an April 1991 assignment and lease with Parador,
which claims are in and adjacent to BGBI's Bullfrog open pit and
underground mine. The Bullfrog Mine reportedly produced
approximately 220,000 ounces of gold in 1990, 199,000 ounces of
gold in 1991, and 323,800 ounces of gold in 1993.
The BGBI complaint alleges Layne owns 20 unpatented mining claims
adjacent to or in the vicinity of the subject claims, which 20
claims are allegedly under lease by Layne to BGBI. BGBI seeks a
declaratory judgment on any extralateral rights of defendants to
the various claims at the Bullfrog Mine. Parador, USE and Crested
had previously advised BGBI that they are entitled to royalty
payments with respect to extralateral rights of the subject claims
on minerals produced at the Bullfrog Mine, claiming that the lode
or vein containing the gold mineralization apexes on the Parador
claims and dips under the Layne claims.
BGBI also seeks quiet title to its leasehold interest in the
subject claims, alleging that the lease thereof to USE and Crested
is adverse to the interest claimed by BGBI, and that the assertions
by USE and Crested of an interest in the claims have no foundation.
BGBI seeks a determination that USE and Crested have no rights in
the Claims, and an order enjoining USE and Crested from asserting
any interest in them. BGBI further claims that in attempting to
lease an interest in the subject claims to USE and Crested, Parador
breached the provisions of its lease to BGBI, and that Parador is
responsible for the legal fees and costs incurred by BGBI in the
quiet title action which may be offset against royalties. Under an
arrangement to pay certain legal expenses of Parador, USE and
Crested may be responsible for any such amounts.
BGBI alleges that by entering into the Assignment and Lease of
Mining Claims with Parador, USE and Crested disrupted the
contractual relationship between BGBI and Parador. In addition,
BGBI claims that the USECC-Parador agreement slanders BGBI's title
to the Claims. BGBI seeks compensatory damages from Parador, USE
and Crested; punitive damages from USE and Crested; and costs and
other appropriate relief from Parador, USE and Crested, all in
amounts to be determined.
USE and Crested believe that they have rightfully acquired
interests in extralateral rights concerning the subject claims, and
have filed an answer, counterclaim against BGBI and cross-claim
against Layne asserting rights to royalties and other obligations
due from BGBI.
The parties have held discovery conferences and exchanged exhibits
and scheduled depositions. USE and Crested filed a motion for
summary judgement, which was denied. This litigation is not
anticipated to have a material adverse impact on USE, regardless of
its outcome. If USE's position concerning extralateral rights is
sustained, substantial additional revenues and income may be
received by USE and Crested. Trial on the issue of extralateral
rights is scheduled for July 1995.
CONCERNING ILLINOIS POWER
On October 29, 1993 Illinois Power Company ("IPC") filed Civil
Action No. 93-2247 in United States District Court, Central
District of Illinois, naming USE, Crested, USECC, CRIC, Nulux Nukem
Luxemburg GmbH (NULUX), Dresdner Bank, and SMP, seeking a
declaratory judgment that IPC was entitled to terminate the 1988
uranium supply contract between IPC (a utility) and USECC. Under
this contract, IPC agreed to purchase 1 million pounds of uranium
by increments from 1990 to 2000. Contract prices started at $20.00
per pound plus escalator provisions, and currently are
substantially over spot market prices.
Plaintiff IPC claimed authority to terminate the contract (assigned
by USECC to SMP, and thereafter assigned by SMP to Nulux and
Dresdner Bank), under contract provision permitting termination in
the event a contract party "enters into any voluntary or
involuntary receivership, bankruptcy, or insolvency proceedings."
<PAGE>
Plaintiff IPC alleged that when USE and Crested filed (in July
1991) a motion (in United States District Court, District of
Colorado) for appointment of USE and Crested as receiver pendente
lite for SMP and the SMP assets (pending resolution of the
litigation claims among the SMP partners), such filing constituted
"receivership proceedings" under the contract with IPC, giving IPC
power to terminate the contract. Subsequent to filing their motion
for receiver, USE and Crested asked the court to defer ruling on
the motion for receiver.
No receiver has been appointed over USE, Crested, USECC or SMP or
their assets, in the United States District Court, District of
Colorado proceedings to date.
Plaintiff IPC had notified USE (and SMP and the other SMP
partners), that IPC will not accept the nine uranium concentrate
deliveries anticipated under the contract, from October 31, 1993
through June 1996.
Dresdner Bank was dismissed from the case in fiscal 1994. The
remaining defendants filed Motions for Summary Judgment.
Subsequent to hearing on May 27, 1994, the Court granted
defendants' motions to dismiss IPC's complaint, and granted summary
judgment on all of the defendants' counterclaims against IPC. A
trial to the court on the amounts of plaintiffs' damages had been
set for October 23, 1995.
In June 1995, the parties settled by amending the IPC contract
(with IPC affirming the validity of the contract), to provide for
SMP delivery of 486,483 pounds of uranium oxide over a three year
period, at prices substantially in excess of current spot market
prices. IPC's payments on the contract as it is performed will be
escrowed, with escrowed payments to go to the prevailing party or
as otherwise directed by the arbitrators in the SMP arbitration.
Payments after the SMP dispute is resolved, will be made as
directed by the arbitrators in their award.
MARKET FOR USE COMMON SHARES AND RELATED STOCKHOLDER MATTERS
Shares of USE common stock are traded on the over-the-counter
market, and prices are reported on a "last sale" basis by the
National Market System ("NMS") of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). The
range by quarter of high and low sales prices for USE common stock
is set forth below for fiscal 1993, 1994, and the first three
quarters of fiscal 1995.
High Low
Fiscal year ending May 31, 1995
First quarter ended 8/31/94 $5.13 $3.88
Second quarter ended 11/30/94 4.75 3.50
Third quarter ended 2/28/95 4.63 3.38
Fiscal year ending May 31, 1994
First quarter ended 8/31/93 $6.25 $4.25
Second quarter ended 11/30/93 5.00 4.12
Third quarter ended 2/28/94 4.12 3.75
Fourth quarter ended 5/31/94 5.13 4.12
Fiscal year ended May 31, 1993
Fourth quarter ended 5/31/93 $5.38 $2.50
Third quarter ended 2/28/93 3.63 2.25
Second quarter ended 11/30/92 3.75 2.63
First quarter ended 8/31/92 4.25 2.88
At April 3, 1995, there were 837 stockholders of record for USE
common stock.
USE has never paid cash dividends on any class of stock. There are
no contractual restrictions on USE's present or future ability to
pay cash dividends, however, USE intends to retain any earnings in
the near future for operations.
<PAGE>
USE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is managements's discussion and analysis of those
significant factors which have affected USE's liquidity, capital
resources and results of operations during the periods covered in
the USE Consolidated Financial Statements included with this
Prospectus.
LIQUIDITY AND CAPITAL RESOURCES AT FEBRUARY 28, 1995 (UNAUDITED)
Working capital declined during the nine months ended February 28,
1995 by $2,170,900 to working capital of $404,000. Cash and cash
equivalents decreased by $401,000 during the period ended February
28, 1995. This decrease was primarily as a result of operating and
investing activities.
USE utilized $268,400 in its investing activities during the nine
months ended February 28, 1995. This was primarily as a result of
USE and its subsidiary Crested Corp. ("Crested") funding Sheep
Mountain Partners ("SMP"), Plateau Resources Limited ("Plateau"),
Energx, Ltd. ("Energx") and the Sutter Gold Mining Company
("SGMC"). As USE and Crested provide various services for GMMV and
SMP, the non-affiliated participants are invoiced for their
proportionate share of the approved operating costs. GMMV is
current on its reimbursements to USE and Crested for all the
operating costs. Due to disputes existing between the SMP
partners, USE and Crested have not been reimbursed for care and
maintenance costs expended on the SMP mineral properties since the
spring of 1991.
The other significant changes in current assets occurring during
the most recently completed period, were a decrease in accounts
receivable of $131,200 and an increase in inventory of $61,800.
Inventories increased as a result of USE's subsidiary Brunton
expanding its optics product line.
Other changes in working capital were increases in accounts payable
and accrued expenses of $672,100 and current portion of long term
debt of $1,128,400. The increase in current portion of long term
debt is primarily due to the draw down by USE and Crested of a line
of credit with a bank. The line of credit is for $1,000,000 and as
of February 28, 1995 USE and Crested had utilized $960,000 of the
credit facility leaving $40,000 available for operations.
The primary requirements for USE's working capital continue to be
the funding of on-going administrative expenses, including legal
costs incurred as a result of the SMP litigation and arbitration
with Nukem/CRIC; the mine and mill development and holding costs of
SGMC; holding costs of Plateau; development of gas properties of
Energx; uranium (U3O8) delivery costs, and property holding costs
of SMP. As a result of the disputes between the SMP partners, USE
and Crested have been delivering certain of their respective
portions of the U3O8 concentrates required to fill various delivery
requirements on long-term U3O8 contracts with domestic utilities.
Currently, Nukem/CRIC are making the SMP deliveries of U3O8. It is
not known how long this arrangement will continue. The capital
requirements to fill USE's and Crested's portion of the remaining
commitments in fiscal 1995 will depend on the spot market price of
uranium and is also dependent on the outcome of proceedings
involving Nukem/CRIC.
The primary source of USE's capital resources for the remainder of
fiscal 1995, will be (i) cash on hand; (ii) sale of all or a
partial interest in mining and investment properties, (iii) sale of
equipment; (iv) private placement of USE's common stock; (v)
settlement of litigation; (vi) sale of royalties on mineral
properties; (vii) proceeds from the sale of uranium under the SMP
contracts; (viii) and borrowings from financial institutions. Fees
from oil production, rentals of various real estate holdings and
equipment, aircraft chartering and the sale of aviation fuel will
also provide cash. Additional working capital to that on hand at
February 28, 1995 will be required to hold and maintain existing
mineral properties, permitting, the construction of a mill, and
mine development of SGMC, funding of litigation against Nukem/CRIC
and the development of Plateau associated properties and
administration costs. USE and Crested are currently seeking a
joint venture partner and/or other means of financing the
construction of the SGMC mill and mine development.
The funding of SMP care and maintenance costs may require
additional funding, depending on the outcome of the SMP
arbitration. USE and Crested sought rescission of the SMP
Partnership Agreement as well as damages from Nukem/CRIC in U.S.
District Court. The parties to the litigation agreed to a
consensual binding arbitration on claims accruing after the
formation of the SMP partnership. In the opinion of management,
the arbitration proceedings are progressing favorably for USE and
Crested, however, it is premature at this time to predict the
outcome. It is currently anticipated that the arbitration hearings
will be concluded by June 2, 1995. It is further anticipated that
the Arbitration Panel will enter its award some time during August
or September 1995 depending on the Panel's availability.
34
During the quarter ended February 28, 1995, USE began selling
shares of its common stock through a private placement to
individual investors. As of February 28, 1995 a total of 289,396
shares had been sold for a total of $868,188. The balance of the
private placement was completed during March 1995. The total
number of shares sold was 400,000 at $3.00 per share for total
proceeds of $1,200,000. No commissions were paid. USE has agreed
to either buy the stock back on October 15, 1995 or issue an
additional share for every three shares purchase or a total of
133,333 additional shares. USE has further agreed to register all
the shares issued in the private placement by February 28, 1996.
Through June 30, 1995 USE has received $1,104,900 net proceeds from
a private placement of 332,500 restricted common shares with
accredited investors, at $4.00 per share. In the second or third
quarter of fiscal 1996, USE will file a registration for resale of
the securities The private offering, which started in June 1995,
seeks total financing of $7,000,000 from sale of 1,750,000 shares.
Net proceeds of approximately $6,000,000 will be applied to
property holding and general and administrative expense, and to
commencement of uranium mining and recommissioning of the mill at
Plateau Resources' facility in Utah. The offering is being
conducted on a best efforts basis by a broker-dealer; USE has
agreed to pay the broker-dealer sales commissions of 10 percent
plus a nonaccountable expense allowance of 3 percent.
RESULTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1995 COMPARED TO NINE MONTHS ENDED
FEBRUARY 28, 1995 (UNAUDITED)
Revenues for the period ended February 28, 1995 remained consistent
with the same period of the previous year; however the components
changed somewhat.
35A
Commercial revenues increased by $3,259,218 as a result of the
consolidation of sales of Brunton for the nine month period
(Brunton was acquired in May 1994). Although the revenues from
Brunton were not consolidated for the quarter ended February 28,
1994, Brunton had revenues of $2,832,214 during that period. Other
increases in revenues were rentals and miscellaneous of $151,063
and $136,427, respectively. Rental revenues increased due to
increased occupancy of office space and the trailer court, and
equipment rentals. Miscellaneous principally was composed of room
rents and restaurant sales at Ticaboo, Utah. However, this
increase in miscellaneous revenues was offset by reductions in such
revenue recognized by USECC and Four Nines Gold ($3,836 and
$20,706, respectively).
Revenues from mineral sales and mineral property transactions
decreased by $2,893,700 and $505,900, respectively. The reduction
in mineral sales is as a result of the SMP arbitration. During
fiscal 1994, USE and Crested made all or a portion (50 percent) of
certain of the uranium deliveries required under the SMP contracts.
However, during fiscal 1995, USE and Crested have not been allowed
to make such deliveries, due to disputes with the other SMP
partners; under agreements reached on an interim basis for
remainder of time required for the SMP dispute resolution, all
deliveries have been made by Nukem and CRIC. Once the arbitration
proceedings are concluded, deliveries will be made in accordance
with the award. The arbitration outcome cannot be predicted.
The reduction in mineral property transactions is related to the
Mt. Emmons molybdenum property, in which USE and Crested have a six
percent gross royalty. In addition to the gross royalty, there
were promissory notes of $7,500,000 each issued to USE and Crested
in 1980, with provision for advance royalties. In 1985, AMAX, USE
and Crested agreed to amortize the notes at an annual rate of
$1,000,000 each to USE and Crested ($250,000 each, per quarter), in
lieu of advance royalties. The advance royalties were to be
reinstated at a lower amount later. During fiscal 1994, the final
$500,000 was amortized on the long term note, so there was
consequently no amortization of such debt in the nine months ended
February 28, 1995. The remaining component of the decrease in gain
from restructuring mining properties agreements, is as a result of
the fluctuation of the market price of molybdenum, which is paid in
kind by AMAX for the advance royalty.
Construction operation revenues for the nine months ended February
28, 1995 decreased by $1,085,100 from the same period last year due
to decreased contract work performed by USE's subsidiary Four Nines
Gold, Inc. ("FNG"). The reason for this decrease can be attributed
to FNG not being successful in the bidding process for new
construction work. during fiscal 1995, FNG spent the majority of
its time bidding on a large ($3,500,000) contract for structure
work. During the first quarter of fiscal 1995, FNG was awarded
this contract, which is projected to be profitable. Long term
growth and profits for the construction industry is based on FNG's
ability to competitively bid for work and at the same time remain
profitable. It is anticipated that FNG will continue to grow,
however, there will be periods of time that show declines, as was
experienced during the nine months ended February 28, 1995.
Revenues from the sale of assets increased by $1,258,600 during the
nine months ended February 28, 1995 compared to the corresponding
period of the prior year. The increase is due to sale for $993,077
of certain real estate in Colorado, and equipment in Wyoming, sale
for $100,000 of certain equipment by Plateau Resources, and sale
for $195,857 by Energx of an interest in a gas property. During
the corresponding period in 1994, there were only sales of
miscellaneous equipment for $30,000. As a result of certain of the
sales of assets during the nine months ended February 28, 1995
being partially financed by USE and Crested, the amount shown on
the Statement of Operations exceeds the amount of gain shown on the
Statement of Cash Flows. Accounts and notes receivable have been
adjusted accordingly.
Commercial operations accounted for 58 percent of the total USE
revenues during the nine months ended February 28, 1995. 81
percent of these revenues from commercial operations were from
Brunton. Construction revenues and the gain recognized on the sale
of assets accounted for 13 percent and 18 percent, respectively, of
total revenues. It is expected that if uranium oxide prices
continue to move up, sales of uranium oxide will be USE's primary
business segment.
The costs and expenses associated with mineral operations decreased
by $2,927,400, primarily due to no U3O8 sales in fiscal 1995. The
costs associated with commercial operations increased by
$2,267,400, as a result of the consolidation of Brunton
($1,796,300), increased costs at Plateau Resources ($156,700), and
increased operating costs ($314,400) for USE and Crested at the SMP
mines, Plateau Resources' mill in Utah, and Sutter gold property
costs. Construction costs declined by $983,800 due to decreased
construction activity in the period (which lowered labor costs as
well as other overhead). General and administrative expense
increased by $923,000 during the nine months ended February 28,
1995 compared to the prior year period, primarily due to legal
fees, and arbitration fees paid to the American Arbitration
Association (during the nine months ended February 28, 1995, the
total of these costs associated with the SMP proceedings was
$1,034,976).
On June 1, 1993, USE implemented SFAS No. 109. See Footnote 4 to
the unaudited USE Consolidated Financial Statements. The
cumulative effect for the period ended February 28, 1994, of this
tax accounting change was a decrease of net income of $267,000. No
charge for a change in tax accounting was made for the nine months
ended February 28, 1995.
Operations for the nine months ended February 28, 1995 resulted in
a net loss $1,315,800 as compared to a loss of $2,019,300 during
the same period of the previous year.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AT MAY 31, 1994
WORKING CAPITAL COMPONENTS. Net cash used in operating activities
and financing activities were $3,808,400 and $285,900, respectively
for fiscal 1994. Cash provided by investing activities was
$4,796,400. For the year, these activities resulted in a net
increase of $702,100 in cash.
Working capital increased during the fiscal year ended May 31, 1994
by $2,516,700 to $2,574,900 (from $58,200 at May 31, 1993). The
principal components of the increase were a $702,100 increase in
cash and cash equivalents, an increase of $1,344,200 in inventory
which is primarily as a result of the acquisition of Brunton, and
$251,600 of trade receivables. The increase in cash resulted from
the acquisition and consolidation of Plateau through a stock
purchase agreement and the acquisition of Brunton (see Note F to
the USE Consolidated Financial Statements). The trade receivable
increased primarily as a result of the acquisition of Brunton. At
the time of the acquisition of Plateau, USE received $14,200,000 in
cash and the Shootaring Mill facilities for the assumption of
certain liabilities as described further in Note F to the
consolidated financial statements. $7,300,000 of these funds were
deposited in trust accounts for the future settlement of an
estimated $2,500,000 reclamation liability relative to the Plateau
assets and $4,800,000 for the resolution of any other environmental
claims associated with the Shootaring Mill owned by Plateau. The
remaining $6,900,000 of cash received from Plateau, together with
$293,500 of cash received when the remaining interest in Brunton
was acquired in May, 1994, gave USE $7,193,500 of cash from
investing activities that was used primarily to fund expenditures
made during 1994.
Cash was primarily used in operations and financing activities
during the period. Cash was used in the development of mining
properties, primarily SGV's Lincoln gold project, in the amount of
$796,300, development of the Energx gas properties, $207,900,
purchases and modification of property and equipment, $855,800 and
the continued investment in affiliates, $760,500. These activities
resulted in a net cash flow from investing activities of
$4,796,400.
Due to disputes among the SMP partners, USE and Crested have not
been reimbursed for care and maintenance costs for the SMP
properties since the spring of 1991. Such costs, including the
running of a decline to reduce pumping and production costs, were
approximately $1,400,000 in fiscal 1994.
CAPITAL REQUIREMENTS - GENERAL: The primary requirements for USE's
working capital during fiscal 1995 are expected to be the costs
associated with development activities of SGV, care and maintenance
costs of SMP, care and maintenance of the Plateau properties,
payments of holding fees for all mining claims, purchase of uranium
for delivery to utility customers of SMP, drilling and overhead
expenses of ENERGX, and corporate general and administrative
expenses, including costs associated with continuing litigation and
arbitration.
CAPITAL REQUIREMENTS - SGV: SGV's properties contain reserves of
gold. A portion of those properties has been the subject of a
preliminary feasibility study for the development of the
underground Lincoln Mine. The study estimated that for a 500 ton
per day ("tpd") mine/mill operation using a cyanide-flotation
process, up to $18,000,000 may be needed for mine site development,
mill and tailings construction, permitting and the like, to place
the proposed mine into full operation. However, more recent
studies indicate a gravity milling process will produce
satisfactory gold recovery rates. Thus, USE and Crested anticipate
building the gravity process system initially, estimated to cost
less than $3,000,000. USE and Crested have already purchased a
used semiautogeneous grinding mill and other equipment for the
front end of the facility.
Although pre-production mine development and underground
exploration is substantially complete, capital resources in
addition to those currently held on hand, will be needed to
complete mine development and construct a mill facility. The
timing of these expenditures will depend upon internal cash flows
or additional financing.
CAPITAL REQUIREMENTS - SMP: SMP's activities continue to consist
of negotiation of uranium sales agreements, purchases and
borrowings of uranium to fill contracts, and maintenance of the
Crooks Gap mines in a standby mode. There are no current plans to
mine the SMP Crooks Gap properties during fiscal 1995, however, USE
and Crested will continue to preserve the ore body and develop
concepts to reduce care and maintenance costs, including driving a
decline to reduce pumping costs (which also would reduce future
mining costs by reducing hoisting costs). Although funds are
available in SMP's bank account, these funds are restricted and
since early 1991 SMP has not paid USE and Crested the operating
costs and fees associated with their services as operating manager
of the Crooks Gap properties; such accumulated costs and fees were
$3,643,100 at May 31, 1994.
Notwithstanding disputes between the SMP partners, USE and Crested
have delivered an agreed-upon portion of the uranium concentrates
required to fill contract delivery requirements on certain long-
term U3O8 contracts since July 1, 1991. Working capital was
required for the purchase of these pounds on a short-term basis,
until resold under delivery contracts. However, there is no
assurance this protocol with NUKEM/CRIC will be in place for 1995
and thereafter. If the SMP partners are unable to agree on how to
separately effect contract performance for the various SMP
customers, resulting delivery delays and/or incomplete deliveries
could adversely affect the contracts, and therefore USE.
CAPITAL REQUIREMENTS - GMMV: Operations of GMMV are not requiring
USE's capital resources, as the initial $50,000,000 of expenses on
the GMMV properties is being paid by Kennecott. USE and Crested
continue to project the proposed Jackpot Mine can be put into
production for less than $25,000,000. However, depending on
results of exploration and development projects on the properties,
additional expenditures may be required. GMMV expenditures for
fiscal 1995 will depend on whether one or both declines for the
proposed mine are started. A decision by the management committee
of GMMV regarding the declines will be made after all necessary
permits are acquired. Nonetheless, GMMV should not require any
funding from USE during fiscal 1995.
CAPITAL REQUIREMENTS - PLATEAU: During fiscal 1994 the annual care
and maintenance costs for the Shootaring Mill were $1,098,000. It
is anticipated that these costs will continue until the mill is
either placed into production or decommissioned unless USE is able
to sell or Joint Venture a portion of the Plateau assets.
CAPITAL REQUIREMENTS - ENERGX: Another requirement of USE's and
Crested's working capital is the continued funding of ENERGX
overhead expenses and drilling operations. Subsequent to May 31,
1994, ENERGX entered into an agreement with a Canadian firm, NuGas,
to drill shallow gas wells on the Fort Peck indian reservation in
Montana. NuGas as a condition of its earn-in to the properties is
required to fund the drilling of the first eight wells. After the
first eight wells, Energx will be required to fund its share of all
future drilling. It is currently anticipated that if the first
eight wells are not profitable, there will be no additional wells
drilled. Therefore capital expenditures for Energx by USE are not
anticipated to be significant in fiscal 1995.
LONG-TERM DEBT AND OTHER OBLIGATIONS: In connection with the
transfer of properties to AMAX in 1980, AMAX made long-term loans
to USE and Crested of $7,500,000 each. AMAX later agreed to credit
each of USE and Crested $250,000 per quarter against principal, in
lieu of advance royalties due USE and Crested.
Indebtedness to AMAX is now fully retired (the final $500,000 was
amortized by AMAX without the use of cash during the quarter ended
August 31, 1993, in accordance with previously negotiated
arrangements); this final $500,000 installment was recognized as
revenue from mineral property transactions, as have been previous
such installments. These revenues from debt amortization did not
generate cash.
Long-term debt at May 31, 1994 was $1,678,600, the current portion
of which is $569,500 (see Note G to the audited USE Consolidated
Financial Statements), not including $600,000 of draw downs as of
September 1, 1994 on the new credit line discussed below).
RECLAMATION COSTS. Prior to fiscal 1994, USE and Crested assumed
the reclamation obligations, environmental liabilities and
contingent liabilities for employee injuries, from mining the
Crooks Gap and other properties in the Sheep and Green Mountain
Mining Districts. The reclamation obligations, which are
established by governmental regulators, were most recently set at
$1,451,800, which amount is shown on USE's balance sheet as a long-
term obligation.
To assure the reclamation work will be performed, regulatory
agencies require posting of a bond or other security. USE and
Crested satisfied this requirement with respect to SMP properties
by mortgaging their executive office building and a trailer park in
Riverton, Wyoming. A portion of the funds for the reclamation of
SMP's properties was to have been provided by SMP, which agreed to
pay up to $.50 per pound of uranium produced from its properties to
USE and Crested for reclamation work. The status of this
commitment could be impacted by the ultimate settlement of the
litigation with SMP.
Reclamation obligations on the contiguous Big Eagle properties and
the Sweetwater Mill, estimated at approximately $23,600,000, have
been assumed by the GMMV venturers, and secured by a bank letter of
credit provided by Kennecott. The reclamation and environmental
costs associated with the Sweetwater Mill will not commence prior
to conclusion of mining activities on Green Mountain. As uranium
is processed through the Mill, a reclamation reserve will be funded
on a per unit of production basis. Up to $8,000,000 (in 1990
dollars) in any reclamation costs which may be incurred prior to
commencement of production or 2001 will be paid for by UNOCAL.
Reclamation obligations of Plateau are covered by a $2,500,000 cash
bond to the U.S. Nuclear Regulatory Commission and a $4,800,000
cash deposit for the resolution of any environmental or nuclear
claims.
Reclamation work on any of the above properties need not be fully
completed until a decision is made to abandon the properties, or as
otherwise required by regulatory agencies. Reclamation and
environmental costs associated with any of these properties are not
expected to require USE funding in fiscal 1995, because such costs
are not anticipated to be incurred for many years.
See Note K to the audited USE consolidated financial statements
regarding reclamation and environmental costs, and the funding
thereof.
CAPITAL RESOURCES: The primary source of USE capital resources for
fiscal 1995 will be cash on hand, proceeds from sale of uranium
under SMP contracts, sale of certain marketable securities and
miscellaneous non-core assets, and proceeds from financing
activities. Fees from oil production (Ft. Peck Lustre Field,
Montana), rentals of real estate holdings and equipment, aircraft
chartering and aviation fuel sales, also will provide cash.
Additional sources of capital will be needed to develop and build
the mine and mill complex for the Lincoln Project, for which
capital costs Sutter Gold Mining Company presently is seeking
financing by joint venture partner or public offering of equity.
If such financing cannot be obtained, USE and Crested will be
forced to either sell the Lincoln Project or continue funding
Sutter Gold's property holding costs. Continued funding of such
costs could cause USE and Crested to incur short term working
capital needs. At Prospectus date, no arrangements for funding
needed for the project are under contract or agreement in
principle.
To fund the ENERGX drilling on the Fort Peck Reservation as well as
other locations, USE will seek a joint venture partner or obtain
financing through banking institutions or the public market. At
Prospectus date, no arrangements for such financing are under
contract or agreement in principle.
Funding of SMP care and maintenance costs may require additional
funding, depending on the outcome of the SMP litigation. See
"Business-Legal Proceedings." Although management is of the
opinion that the SMP litigation will be resolved in favor of USE
and Crested, which will result in funds being available to repay
USE and Crested for advances to SMP, this outcome is not assured.
In any event, further delays (at least to the end of fiscal 1995)
in resolution of the litigation are expected, and may cause short
term liquidity needs.
USE believes available working capital, operating revenues and
anticipated financing operations will continue to be adequate to
fund working capital requirements. However, with the exceptions of
GMMV and Plateau, USE will require additional sources of funding to
continue to develop and invest in its various mineral ventures.
As of the end of fiscal 1994, USE had negotiated a $1,000,000
commercial bank credit line, $300,000 of which was available for
uranium spot market purchases and $100,000 was available for short
term working capital. USE continues to implement a program to
reduce costs generally.
Although USE currently is not in production on any mineral
properties, development work continues on several of its major
investments. USE is not using hazardous substances and known
pollutants to any great degree in these activities. Consequently,
recurring costs for managing hazardous substances, and capital
expenditures for monitoring hazardous substances or pollutants,
have not been significant. Likewise, USE does not have properties
which require current remediation. USE is not aware of any claims
for personal injury or property damages that need to be accrued or
funded.
35
USE has received a notification of tax deficiency from the Internal
Revenue Service for fiscal years ended May 31, 1989, 1990 and 1991.
USE has filed a response to the proposed deficiency, and has
requested an administrative appeal of the initial examiner's
deficiency finding. To Prospectus date, USE has received a
preliminary indication that a major portion of the findings has
been resolved in favor of USE, however, no written confirmation has
been received to date, and therefore no quantitative amount of tax
deficiency can be determined. USE does not believe the remaining
issues will have a material effect on its financial condition.
Further, USE is confident the matters will be resolved favorably at
the administrative appeals level. Until such time, if ever, as the
deficiency claim goes to Tax Court after exhaustion of
administrative hearings, management is of the opinion that this
dispute is not a legal proceedings matter.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED FISCAL 1993
35A
Overall, while revenues declined only slightly (by $269,200) in
fiscal 1994 to $8,776,300 (compared to $9,045,500 for the prior
year), costs and expenses increased substantially (by $3,215,600)
in fiscal 1994 to $12,364,200 (compared to $9,148,600 for 1993).
Although operating losses were recorded for some activities, as
discussed below, two items contributed significantly to the overall
operating loss of $3,370,800 for the year. First, general and
administrative expense increased by $741,500 to $2,696,800
(compared to $1,955,300), reflecting the one-time legal and
accounting expenses of acquiring Brunton of approximately $45,000
(which closed at the end of fiscal 1994), increased general and
administrative expenses associated with Sutter Gold of
approximately $196,000, general and administrative expenses
associated with Plateau of approximately 1544,000, the write down
of a note receivable to market prior to its assumption by Crested
by $143,000, and other increases in components of general and
administrative expense. Second, costs associated with mineral
operations, which are producing no revenues, increased by $469,100
to $1,129,000 (compared to $659,900 for the prior year). This
increase is due primarily to the litigation over the SMP and
Parador disputes ($295,700) and increased maintenance cost of heavy
mining equipment due to underground development work on the SMP
properties.
Cost of minerals sold increased by $1,277,800 as a result of an
increase in the numbers of pounds of uranium oxide delivered by USE
and Crested to the SMP contracts during fiscal 1994. Costs
associated with construction operations increased by $528,500 as a
result of increased contract work on cement structures. These
costs of construction are offset by an increase of $579,000 in
construction contract revenues. Commercial operation expenses
increased by $416,400 as a result of the consolidation of the
Plateau Resources operations (commercial townsite operations at
Ticaboo, Utah). Increased general and administrative expense also
was recorded in the amount of $212,000, primarily for costs
associated with USE corporate aircraft.
Mineral sales revenues increased primarily as a result of the sale
and delivery during the year of U3O8 in accordance with SMP utility
supply contracts, however an operating loss of $665,100 for the
year was recognized due to contracted price being lower than the
price at which USE could acquire the U3O8 and increased maintenance
costs on properties and equipment. Construction contract revenues
increased by $579,900 (to $2,606,400 compared to $2,026,500 for
fiscal 1993), due to increased contract work by USE's subsidiary
Four Nines Gold, Inc. ("FNG"), resulting to an operating profit of
$317,500 for construction contract activities for the year.
Interest income increased by $250,500 to $328,700 (compared to
$78,200 for fiscal 1993) because of higher cash balances from the
Plateau acquisition early in the year.
During the quarter ended August 31, 1993, USE implemented Statement
of Financial Accounting Standard No. 109 ("Accounting for Income
Taxes", hereafter "SFAS 109"). The cumulative effect of this tax
accounting change is a $267,000 decrease in net income for fiscal
1994.
Oil sales revenues (recorded for services provided by USE as
operator of the Ft. Peck Lustre Field) dropped by $102,600 to
$183,700 (compared to $286,300 in fiscal 1993) due to lower
production rates and lower prices for the first two quarters of
fiscal 1994. Separately, but related to oil and gas activities,
certain start-up operations in coalbed methane gas contributed
$157,800 to 1994 costs and expenses.
<PAGE>
RESULTS OF OPERATIONS
FISCAL 1993 COMPARED TO FISCAL 1992
During fiscal 1993, USE recorded $2,690,800 in revenues from the
sale of U3O8,which revenue was recognized as a result of the dispute
between the SMP partners, which has resulted in USE and Crested
making their share of various deliveries under long-term supply
contracts, compared to $123,300 recognized from uranium sales in
fiscal 1992, due to higher delivery volumes in 1993. A dispute
arose between SMP and a utility during 1993 regarding the price
calculation for delivery under a market related contract. USE and
Crested elected to not make their portion of the delivery.
CRIC/Nukem indemnified the utility and delivered their portion as
well as USE's and Crested's portion. This matter may be resolved
as part of the on-going litigation and now arbitration with
Nukem/CRIC.
USE recognized $2,026,500 of construction revenues during fiscal
1993 as compared to construction revenues of $2,895,000 during
fiscal 1992, due to FNG not being successful in bidding as many
jobs during fiscal 1993.
Revenues from gold sales of $498,300 were recognized during 1992,
being gold processed from a bulk sample at SGV. There were no gold
sales during 1993. During fiscal 1993, USE recorded revenues from
the sale of various pieces of equipment and securities (SRRI stock)
of $326,000 and $408,600, respectively. No revenues from these
activities were recognized in fiscal 1992.
Revenues from the restructuring of mineral property agreements and
oil sales increased by $1,049,900 and $152,200. This increase is
not due to increased activity, but as a result of the consolidation
of operations of Crested in 1993. Operations of Crested were not
consolidated with USE in 1992, as the increase in ownership did not
occur until late May 1992.
Management fee revenues decreased by $398,900 to $228,900 for
fiscal 1993, as a result of (i) a portion of the management fees
and other charges to SGV being reduced due to increased ownership
by USE, and (ii) reduced activities by USE and Crested at GMMV.
During fiscal 1993, interest revenues decreased by $123,800 as a
result of smaller amounts of cash being invested in interest
bearing accounts and reduced interest rates.
Oil production expenses increased by $46,100 as a result of
maintenance required on various equipment on the Ft. Peck Lustre
Field in Montana being operated by USE. Oil prices for this
production averaged approximately $21.00 per barrel in both 1993
and 1992. As no exploration is conducted in this field, and USE is
compensated for services with the rate based on share of net
production income, commodity price swings (if any) only would
affect the amount of income received during the year. Year to year
changes in income from oil activities is not considered material to
USE operations.
Cost of mineral sales were $2,617,600 for uranium sales to supply
SMP contracts. For fiscal 1993, the average cost per pound for
uranium delivered was approximately $8.80, compared to
approximately $8.92 per pound in fiscal 1992. During fiscal 1993,
the NUEXCO uranium spot price per pound ranged from $8.75 early in
the period, up to $10.50 mid-period, then back to $10.00 at the end
of the period. The increases were largely due to import
restrictions levelled against the CIS (see "Business-Certain Market
Information-Uranium NUEXCO Exchange Value). These commodity prices
favorably impacted uranium margins for fiscal 1993, as prices paid
by buyers under market-related utility contracts increased
according to contract terms, which enabled USE to purchase at or
below spot and supply at a profit.
The decrease in construction costs of $880,500 is as a result of
the reduced amount of work performed by FNG during fiscal 1993.
During fiscal 1993, USE recorded an expense of $378,700 as a result
of the abandonment of certain mining claims. This is an increase
in mining claim abandonment of $203,300 over the prior year. It is
not anticipated that this is a recurring expense.
Mineral operations, commercial operations and general and
administrative expenses increased by $344,800, $847,600 and
$1,034,300, respectively. These increases are primarily as a
result of the consolidation of operations from Crested into the USE
Consolidated Financial Statements during the year ended May 31,
1993. Crested's operations were not consolidated during the year
ended May 31, 1992. All operations for USE and Crested are
recorded on the books of USECC Joint Venture. The increase in
these expenses of mineral operations, commercial operations and
general and administrative expense, do not reflect any increase in
activity or a material change in operations, but rather the
accounting treatment of the acquisition of additional equity in
Crested by USE in fiscal 1993.
Operations for fiscal 1993 resulted in a loss before provision for
income taxes and extraordinary item of $103,100. Equity in loss of
affiliates of $444,700, along with minority interest in losses of
consolidated subsidiaries of $325,900, resulted in a loss of
$221,900.
<PAGE>
EFFECTS OF CHANGES IN PRICES
Mining operations and the acquisition, development and disposition
of mineral properties are significantly affected by changes in
commodity prices. As prices for a particular mineral increase,
prices for prospects for that mineral also increase, making
acquisitions of such properties costly, and dispositions
advantageous. Conversely, a price decline facilitates acquisitions
of properties for that mineral, but makes sales of such properties
more difficult. Operational impacts of changes in mineral
commodity prices are common in the mining industry.
URANIUM AND GOLD. Changes in the prices of uranium and gold affect
USE to the greatest extent. When uranium prices were relatively
high in fiscal 1988, USE and Crested acquired the Crooks Gap
properties, and thereafter put the properties into production.
When uranium prices fell sharply during fiscal 1989-1991, USECC
suspended mining operations for SMP, because uranium could be
purchased at prices less than the costs of producing uranium.
Uranium production in the United States reportedly fell by 25
percent to 33 percent in 1990, due to the lowest prices for uranium
since the market developed in the 1960s. However, these low prices
created opportunities for acquiring the Sweetwater Mill and the
Shootaring Canyon Mill.
Changes in uranium prices directly affect the profitability of
SMP's uranium supply agreements with utilities. Certain of those
agreements become advantageous to USE when the spot market price
for uranium falls significantly below the price which a utility has
agreed to pay. Some of the supply agreements of SMP were acquired
before the fall of spot market prices during fiscal 1989-1991.
Those fixed-price contracts, which have contract prices exceeding
current spot market rates, are currently advantageous to USE, as
the uranium to fill them can be readily obtained at favorable
prices. Although such contracts benefit SMP and USE in a falling
market, a corresponding adverse impact would not be anticipated in
the event of substantially increased prices. SMP would produce
uranium from its Crooks Gap properties to fill those contracts, in
the event of a prolonged increase in the spot market price above
the contract prices.
For information on the particular impacts changing uranium spot
prices may have had on operations, see the period to period
discussions of Results of Operations, above.
USE believes SGV's Lincoln Mine will be profitable with gold prices
over $290 per ounce. Recent price improvements for gold (from
approximately $340 per ounce in fiscal 1993 to approximately $390
per ounce at April 3, 1995) would positively impact operating
margins at the Lincoln Mine, if such prices are sustained, when,
and if, the mine becomes operational.
MOLYBDENUM AND OIL. Changes in oil prices are not expected to
materially affect USE with respect to either its oil production
fees. However, a significant increase in the price of molybdenum
would increase the likelihood that the Mt. Emmons properties will
be developed by AMAX, and in the interim would increase income from
advance molybdenum royalties.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of USE are divided into three classes of two persons
each. Directors are elected until the third succeeding annual
meeting and until their successors have been duly elected or
appointed and qualified or until death, resignation or removal.
Name, age and Positions Director
designation with USE since
John L. Larsen (63) Chairman, CEO and 1966
President (c)(d)(e)
Max T. Evans (70) Secretary 1978
(a)(c)(e)
Harold F. Herron (41) Vice President 1989
(b)(c)(e)
David W. Brenman (38) (b)(d) 1989
Don C. Anderson (67) Geologist (c) 1990
Nick Bebout (43) (a)(b)(d) 1989
__________
(b) Member of the compensation/stock option committee.
(c) Member of the executive committee.
(d) Member of the audit committee.
(e) ESOP trustee.
Executive officers are elected by the Board at annual directors'
meetings, which follow each Annual Shareholders' Meeting, to serve
until the officer's successor has been duly elected and qualified,
or until death, resignation or removal by the Board.
ROBERT SCOTT LORIMER, 44, has been the Controller and Chief
Financial Officer for both USE and Crested for more than the past
five years. Mr. Lorimer has also been the Chief Financial Officer
for both of those companies, since May 25, 1991, and their
Treasurer since December 14, 1990. There are no understandings
between Mr. Lorimer and any other person, pursuant to which he was
named as an officer, and he has no family relationship with any of
the other executive officers or directors of USE or Crested.
DANIEL P. SVILAR, 66, has been general counsel for both USE and
Crested for more than the past five years. He has also served as
Secretary and a director of Crested and Assistant Secretary for
USE. He serves at the will of the USE and Crested Boards of
Directors. There are no understandings between Mr. Svilar and any
other person pursuant to which he was named as an officer. He has
no family relationships with any of the other executive officers or
directors of the USE or Crested, except Nick Bebout, a director of
USE and Mr. Svilar's nephew.
FAMILY RELATIONSHIPS.
HAROLD F. HERRON, a director and vice-president, is the son-in-law
of John L. Larsen, a principal shareholder, director and Chief
Executive Officer of USE. Nick Bebout, a director, is a nephew of
Daniel P. Svilar, a principal shareholder and USE general counsel.
There are no other family relationships among the executive
officers or directors of USE.
BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS
JOHN L. LARSEN has been an officer and director of USE since 1966.
He is a director of USE subsidiary Ruby Mining Company, and an
officer and director of Crested Corp. Crested and Ruby have
registered classes of equity securities under the Exchange Act.
Mr. Larsen is an officer and director of Plateau Resources Limited,
a private Utah corporation and wholly-owned USE subsidiary.
MAX T. EVANS has been principally employed as an officer and chief
geologist of USE and Crested for more than the past five years. He
is a director of Crested. Mr. Evans received B.S. and M.S. degrees
in geology from Brigham Young University. Mr. Evans is an officer
and director of Plateau Resources Limited.
HAROLD F. HERRON has been a director of USE, and its Vice-President
since 1989. Since 1976, Mr. Herron has been an employee of
Brunton, and since 1987 he has been its president. Mr. Herron is
a director of Ruby and Northwest Gold, Inc. ("NWG"), which have
registered equity securities under the Exchange Act. Mr. Herron
received an M.B.A. degree from the University of Wyoming after
receiving a B.S. degree in Business Administration from the
University of Nebraska at Omaha. Mr. Herron is an officer and
director of Plateau Resources Limited.
DAVID W. BRENMAN has been a director of USE since January 1989.
Since September 1988, Mr. Brenman has been a self-employed
financial consultant. In that capacity, Mr. Brenman has assisted
USE and Crested in negotiating certain financing arrangements.
From February 1987 through September 1988, Mr. Brenman was a vice-
president of project financing for Lloyd's International Corp., a
wholly-owned subsidiary of Lloyd's Bank, PLC. From October 1984
through February 1987, Mr. Brenman was president, and continues to
be a director of Cogenco International, Inc., a company engaged in
the electric cogeneration industry, which has a class of equity
securities registered under the Exchange Act. Mr. Brenman has an
L.L.M. degree in taxation from New York University and a J.D.
degree from the University of Denver.
DON C. ANDERSON has been a geologist for USE since January 1990 and
a member of its Board since May 1990. Mr. Anderson was Manager of
Exploration and Development for Pathfinder Mines Corporation, a
major domestic uranium mining and milling corporation, from 1976
until retirement in 1988. Previously, he was Mine Manager for
Pathfinder's predecessor, Utah International, Inc., from 1965 to
1976. He received a B. S. degree in geology from Brigham Young
University.
NICK BEBOUT has been a director of USE since 1989. He is a
director and president of NUCOR, Inc., a private corporation
providing exploration and development drilling services to the
mineral and oil and gas industries. Mr. Bebout is also president
and a director of S.W. Financial Corp. ("SWF"), a corporation which
is evaluating potential acquisitions or business combinations with
other entities, but has no other current operations. SWF is
currently subject to certain periodic reporting requirements under
Section 15(d) of the Exchange Act.
EXECUTIVE COMPENSATION
Under a Management Agreement dated August 1, 1981, the Company and
Crested share certain general and administrative expenses,
including compensation of the officers and directors of the
companies (but excluding directors' fees) which have been paid
through the USECC Joint Venture ("USECC"). Substantially all the
work efforts of the officers of the Company and Crested are devoted
to the business of both the Company and Crested.
All USECC personnel are Company employees, in order to utilize the
Company's ESOP as an employee benefit mechanism. The Company
charges USECC for the direct and indirect costs of its employees
for time spent on USECC matters, and USECC charges one-half of that
amount to each of Crested and the Company.
The following table sets forth the compensation paid to the USE
Chief Executive Officer, and those of the four most highly
compensated USE executive officers who were paid more than $100,000
cash in any of the three fiscal years ended May 31, 1994. The
table includes compensation paid such persons by Crested and
Brunton for such persons' services to such subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
____________________________
Annual Compensation Awards Payouts
____________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)(4)
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John L. Larsen 1994 $148,239 $ 7,028 -- $9,600(1) -0- -- $14,394
CEO, 1993 164,968 4,016 -- 7,200(1) 100,000(2) -- 15,026
President 1992 144,024 406,357 -- -- 100,100(3) -- 22,844
Daniel P. Svilar 1994 112,753 64,984 -- 8,640(1) -0- -- 17,300
Asst. Secretary 1993 108,000 2,991 -- 6,480(1) -0- -- 11,100
1992 108,000 5,088 -- -- 66,000(3) -- 11,309
Harold F. Herron 1994 105,983 18,268 -- -- -0- -- 9,743
Vice President 1993 99,469 12,617 -- -- -0- -- 4,824
1992 87,609 3,155 -- -- 11,000(3) -- 4,481
R. Scott Lorimer 1994 92,799 43,461 -- 6,181(1) -0- -- 13,260
Treasurer 1993 78,921 2,196 -- 4,548(1) -0- -- 8,111
1992 77,192 3,652 -- -- 29,700(3) -- 8,084
_________
(1)
Bonus shares equal to 20% of original bonus shares issued FY
1990, multiplied by $4.00 in 1994 and $3.00 in 1993, the closing
bid price on issue dates. These shares are subject to forfeiture
on termination of employment, except for retirement, death or
disability.
(2) 10-year non-qualified option at $2.00 per share.
(3) 10-year non-qualified option at $2.90 per share.
(4) Dollar values for ESOP contributions and 401K matching
contributions.
</TABLE>
EXECUTIVE COMPENSATION PLANS AND EMPLOYMENT AGREEMENTS
To provide incentive to Mr. Larsen for his efforts in having GMMV
develop a producing mine as soon as possible, in fiscal 1993 the
USE Board adopted a long-term incentive arrangement under which Mr.
Larsen is to be paid a non-recurring $1,000,000 cash bonus,
provided that the Nuexco Exchange Value of uranium oxide
concentrates has been maintained at $25.00 per pound for six
consecutive months, and provided further that USE has received
cumulative cash distributions of at least $10,000,000 from GMMV as
a producing property. It is not expected that this cash bonus will
become payable in fiscal 1995.
<PAGE>
The Company has adopted a plan to pay the estates of Messrs.
Larsen, Evans and Svilar amounts equivalent to the salaries they
are receiving at the time of their death, for a period of one year
after death, and reduced amounts for up to five years thereafter.
The amounts to be paid in such subsequent years have not yet been
established, but would be established by the Boards of the Company
and Crested.
Mr. Svilar has an employment agreement with the Company and
Crested, which provides for an annual salary in excess of $100,000,
with the condition that Mr. Svilar pay an unspecified amount of
expenses incurred by him on behalf of the Company and its
affiliates. In the event Mr. Svilar's employment is involuntarily
terminated, he is to receive an amount equal to the salary he was
being paid at termination, for a two year period. If he should
voluntarily terminate his employment, the Company and Crested will
pay him that salary for nine months thereafter. The foregoing is
in addition to Mr. Svilar's Executive Severance and Non-Compete
Agreement with the Company (see below).
In fiscal 1992, the Company signed Executive Severance and Non-
Compete Agreements with Messrs. Larsen, Evans, Svilar and Lorimer,
providing for payment to such person upon termination of his
employment with the Company, occurring within three years after a
change in control of the Company, of an amount equal to (i)
severance pay in an amount equal to three times the average annual
compensation over the prior five taxable years ending before change
in control, (ii) legal fees and expenses incurred by such persons
as result of termination, and (iii) the difference between market
value of securities issuable on exercise of vested options to
purchase securities in USE, and the options' exercise price. These
Agreements also provide that for the three years following
termination, the terminated individual will not compete with USE in
most of the western United States in regards to exploration and
development activities for uranium, molybdenum, silver or gold.
For such non-compete covenant, such person will be paid monthly
over a three year period an agreed amount for the value of such
covenants (depending on the individual, ranging from $66,667 up to
$86,667). These Agreements are intended to benefit the Company's
shareholders, by enabling such persons to negotiate with a hostile
takeover offeror and assist the Board concerning the fairness of a
takeover, without the distraction of possible tenure insecurity
following a change in control. At Prospectus date, USE Company is
not aware of any proposed hostile takeover.
USE and Crested provide all of their employees with certain forms
of insurance coverage, including life and health insurance. The
health insurance plan does not discriminate in favor of executive
employees; life insurance of $50,000 is provided to each member of
upper management (which includes all persons in the compensation
table), $25,000 of such coverage is provided to middle-management
employees, and $15,000 of such coverage is provided to other
employees.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). USE has adopted an ESOP,
to encourage ownership of USE Common Stock by employees and provide
a source of retirement income to them. The ESOP is a combination
stock bonus plan and money purchase pension plan. It is expected
that the ESOP will continue to invest primarily in the Common
Stock. Messrs. Larsen, Herron and Evans are the ESOP trustees.
Contributions to the stock bonus plan portion of the ESOP are
discretionary and are limited to a maximum of 15% of the covered
employees' compensation for each year ended May 31. Contributions
to the money purchase portion of the ESOP are mandatory (fixed at
ten percent of the compensation of covered employees for each
year), are not dependent upon profits or the presence of
accumulated earnings, and may be made in cash or shares of Company
Common Stock.
The Company made a contribution of 46,332 shares to the ESOP for
fiscal 1994, all of which were contributed under the money purchase
pension plan. At the time the shares were contributed, the market
price was $4.00 per share, for a total contribution valued at
$185,000 which has been funded by the Company. Crested and the
Company are each responsible for one-half of that amount (i.e.,
$92,500), and Crested currently owes its one-half to the Company.
Employees are eligible to participate in the ESOP on the first day
of the plan year (June 1) following completion of one year of
service in which at least 1,000 hours are credited. Each
employee's participation in the ESOP continues until the ESOP's
anniversary date coinciding with or next following termination of
service by reason of retirement, disability or death. In these
cases, the participant will share in the allocation of USE's
contributions for the ESOP year in which the retirement, death or
disability occurs, and will have a fully-vested interest in
allocations to the participant's account.
An employee's participation in the ESOP does not cease upon
termination of employment. If the employment of a participant in
the ESOP is terminated for reasons other than disability, death, or
retirement (unless the employee receives a lump sum distribution
upon the termination of employment), participation continues
following the termination, until five consecutive one-year breaks
in service have been incurred. An employee is deemed to have
incurred a one-year break in service during any year in which 500
or fewer hours of service are completed.
Employee interests in the ESOP are earned pursuant to a seven year
vesting schedule. Upon completion of three years of service for
the Company, the employee is vested as to 20% of the employee's
account in the ESOP, and thereafter at the rate of 20% per year.
Any portion of an employee's ESOP account which is not vested is
forfeited upon termination of employment for any reason, other than
retirement, disability, or death.
The 46,332 shares issued to the ESOP for fiscal 1994 included 3,165
shares allocated to John L. Larsen's account, 1,962 shares
allocated to Max T. Evans' account, 713 shares allocated to Harold
F. Herron's account, 4,325 shares allocated to Daniel P. Svilar's
account, and 3,315 shares allocated to R. Scott Lorimer's account,
for a total of 13,480 shares allocated to accounts for all
executive officers as a group (five persons). The accounts of the
executive officers are fully vested, as they have all been employed
by the Company and USECC for more than the past seven years.
Allocations of shares for fiscal 1995 have not been made with
respect to any participant in the ESOP.
The maximum loan outstanding during fiscal 1993 under a loan
arrangement between USE and the ESOP, was $1,014,300 at May 31,
1994 for loans made in fiscal 1992 and 1991. Interest owed by the
ESOP was not booked by USE. Crested pays one-half of the amounts
contributed to the ESOP by USE. Because the loans are expected to
be repaid by contributions to the ESOP, Crested may be considered
to indirectly owe one-half of the loan amounts to USE.
During fiscal 1994, the Company was issued a proposed adjustment
from the Internal Revenue Service ("IRS") indicating that the ESOP
was not in compliance with certain sections of the Internal Revenue
Code. Based on management's response to the IRS notice, the IRS
has determined that the ESOP has complied with applicable sections
of the Internal Revenue Code, subject to operation of the ESOP in
compliance with ESOP provisions and applicable law and rules. No
Company deductions were disallowed by the IRS.
STOCK OPTION PLAN. USE has a combined incentive stock option/non-
qualified stock option plan, reserving an aggregate of 550,000
shares of Common Stock for issuance upon exercise of options
granted thereunder. Awards under the plan are made by a committee
of two or more persons selected by the Board (presently Messrs.
Bebout and Brenman). The committee establishes the exercise
periods and exercise prices for options granted under the plan.
Total grants to officers and directors as a group may not exceed
275,000 shares.
Options expire no later than ten years from the date of grant, and
on termination of employment, except in cases of death, disability
or retirement. Subject to the ten year maximum period, upon the
death, retirement or permanent and total disability of an optionee,
options are exercisable for three months (in case of retirement or
disability) or one year (in case of death) after such event. In
fiscal 1994, conditions relating to periods of Company service
before vesting of stock purchased on exercise of the non-qualified
options were removed.
For fiscal 1994, no qualified or non-qualified options were
granted.
The following table shows unexercised options, how much thereof
were exercisable, and the dollar values for in-the-money options,
at May 31, 1994.
Aggregated Option/SAR Exercises in Last Fiscal year and FY-End
Option/SAR Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
FY-End (#) FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <S> <C> <C> <C>
John L. Larsen, -0- -0- 100,000 $200,000(1)
CEO, President exercisable exercisable and
unexercised
100,100 $110,110(2)
exercisable exercisable and
unexercised
Max T. Evans, -0- -0- 57,200 $ 62,920(2)
Secretary exercisable exercisable and
unexercised
Harold F. Herron, -0- -0- 11,000 $ 12,100(2)
Vice President exercisable exercisable and
unexercised
Daniel P. Svilar -0- -0- 66,000 $ 72,600(2)
Assistant Secretary exercisable exercisable and
unexercised
R. Scott Lorimer -0- -0- 29,700 $ 32,370(2)
Treasurer exercisable exercisable and
unexercised
(1) Equal to $4.00 closing bid on last trading day in FY 1994,
less $2.00 per share option exercise price, multiplied by all
shares exercisable.
(2) Equal to $4.00 closing bid on last trading day in FY 1994,
less $2.90 per share option exercise price, multiplied by all
shares exercisable.
</TABLE>
<PAGE>
RESTRICTED STOCK PLANS. USE has issued stock bonuses to various
executive officers and directors of USE and others. These shares
are subject to forfeiture to the issuer by the grantee if
employment terminates otherwise than for death, retirement or
disability. If the required service is completed, the risk of
forfeiture lapses and the shares become the unrestricted property
of the holder. Messrs. Larsen, Evans, Svilar, Herron, Lorimer and
all executive officers as a group (five persons) received 13,200,
8,250, 11,880, 9,900, 7,920 and 51,150 shares of Common Stock,
respectively, under this restricted stock plan through fiscal 1993.
In fiscal 1994, another 7,500 shares were issued to such persons as
a bonus (20% of the 1990 shares). Additional bonuses of 20% of the
original shares will be issued annually through fiscal 1997. The
expenses relating to these stock issuances are shared equally by
the Company and Crested.
The Company has also issued restricted stock bonuses to non-
employee directors. A total of 5,500 shares are held by the two
directors who are not also employees of the Company (one-half to
each). See "Directors' Fees and Other Directors' Compensation".
SUBSIDIARY PLANS. During the year ended May 31, 1991, Brunton
adopted a salary deduction plan intended to qualify as a deferred
compensation plan under Internal Revenue Code Section 401(k).
Harold F. Herron and John L. Larsen are the only Company officers
who are able to participate in this retirement plan. The fiscal
1994 acquisition of Brunton by the Company has not affected the
Brunton 401(k) plan.
Other than as set forth above, neither USE nor any of its
subsidiaries have any pension, stock option, bonus, share
appreciation, rights or other plans pursuant to which they
compensate the executive officers and directors of USE. Other than
as set forth above, no executive officer received other
compensation in any form which, with respect to any individual
named in the Cash Compensation Table, exceeded ten percent of the
compensation reported for that person, nor did all executive
officers as a group receive other compensation in any form which
exceeded ten percent of the compensation reported for the group.
DIRECTORS' FEES AND OTHER COMPENSATION
The Company pays non-employee directors a fee of $150 per meeting
attended. All directors are reimbursed for expenses incurred with
attending meetings.
Prior to fiscal 1992, the Board authorized the Executive Committee
to make loans to members of the Board, or to guarantee their
obligations in amounts of up to $50,000, if such loans or surety
arrangements would benefit USE. Any loans or surety arrangements
for directors which are in excess of $50,000 will require Board
rather than Executive Committee approval. USE loaned $25,000 to
David W. Brenman under this plan prior to fiscal 1991. The loan to
Mr. Brenman bears interest at the prime rate of the Chase Manhattan
Bank and was due September 1, 1994, but has been extended to
September 1, 1995 by Board vote (Mr.Brenman abstaining). The loan
was provided as partial consideration for Mr. Brenman's
representation of the Company to the financial community in New
York City. The loan to Mr. Brenman originally was approved by the
executive committee.
Pursuant to shareholder approval of the 1992 Stock Compensation
Plan for Outside Directors at the 1992 Annual Meeting, in fiscal
1993 the Board issued 5,000 shares of Common Stock each to outside
directors Brenman, Anderson and Bebout, which shares vest 1,000
shares to each on the 1992 Annual Meeting date and each succeeding
four Annual Meetings through 1996.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PURCHASE OF COMMON SHARES [FISCAL 1995]. From December, 1994
through Prospectus date, certain affiliates of USE purchased 96,700
restricted common shares from USE (pursuant to the private
placement offer of 400,000 shares) at $3.00 per share (total
purchases $290,100), as follows: Daniel P. Svilar, general counsel
(16,700 shares, through a family partnership); R. Scott Lorimer,
chief financial officer (8,333 shares); Brunton (56,667 shares);
Max T. Evans, officer and director (6,667 shares); Nick Bebout,
director (8,333 shares, through Nucor, Inc., an affiliate of Mr.
Bebout).
TRANSACTIONS WITH BRUNTON [FISCAL 1993 AND 1994]. In fiscal 1993
and early fiscal 1994, USE and Crested had entered into financing
arrangements with Brunton totalling $1,173,260, as set forth below.
These transactions were effected prior to the acquisition of
Brunton by USE at the end of fiscal 1994.
SALE AND LEASE BACK. In November, 1992 USE and Crested sold
Brunton certain aircraft and heavy equipment for $404,000, and
Brunton leased the items back to USE and Crested for seven years
(level payments amortizing purchase price with interest at prime
plus two points, subject to Brunton's renegotiating term and
interest after three years). Brunton funded the loan with bank
financing secured with the items sold and the lease.
LOAN, STOCK SALE AND OPTION. By agreement of April 30, 1993,
Brunton (i) loaned USE and Crested $211,800 and $76,760,
respectively, secured by borrowers' 3,607,000 Brunton shares
(2,647,500 owned by USE and 959,500 owned by Crested), with the
loans (maturity of April, 2003) bearing interest at prime plus 2.5
points; (ii) purchased 50,000 shares of restricted USE Common Stock
for $137,500 ($2.75 each) and 160,000 shares of restricted Crested
Common Stock for $43,200 ($.27 each); and (iii) received options
through April 30, 1998 to purchase 150,000 shares of restricted USE
Common Stock for $525,000 ($3.50 each) and 300,000 shares of
restricted Crested Common Stock for $120,000 ($.40 each).
In fiscal 1994, the April 30, 1993 loans to USE and Crested
($288,560 principal) were repaid and the collateral Brunton shares
released back to USE and Crested. In late fiscal 1994, all common
stock of Brunton (except for Brunton shares previously owned by
USE) was acquired in exchange for 276,470 registered common shares
of USE.
CONVERTIBLE LOAN. In August 1993, Brunton loaned USE $300,000
(without security), due October 19, 1993. The loan, bearing
interest at 10 percent per annum, was convertible in whole or part
at Brunton's election into shares of USE Common Stock at the rate
of one share for $3.00 of debt (100,000 shares maximum). In fiscal
1994 (but prior to USE's acquisition of Brunton), the debt was
converted to 100,000 shares of USE Common Stock.
TRANSACTIONS CONCERNING SUTTER GOLD VENTURE. During fiscal 1991,
USE acquired an interest in an underground gold mine (the "Lincoln
Mine") being developed in the Mother Lode Gold Mining District of
Amador County, California. Until the end of fiscal 1994, the
leasehold interests had been held by and operations on the
properties conducted through the Sutter Gold Venture ("SGV"), a
joint venture between Seine River Resources Inc. ("SRRI", a
Vancouver Stock Exchange listed company not affiliated with USE or
Crested), and USECC Gold Limited Liability Company ("USECC Gold").
USECC Gold, in turn, had been owned 89 percent by USE and 11
percent by Crested.
The parties had intended to operate SGV as equal 50 percent
venturers. However, because of SRRI defaults on its obligations to
USE, USE and Crested had acquired (through USECC Gold) by the end
of fiscal 1993 a 90 percent aggregate equity interest in the
Lincoln Project. By the end of fiscal 1994, SRRI owed the Company
and Crested $1,970,507 for property holding, permitting and mine
maintenance costs incurred and paid for by the Company and Crested
since March 1992, including interest and management fees charged by
the Company and Crested.
As of May 23, 1994 SRRI agreed to assign its remaining 10 percent
working interest in the Lincoln Project for the $1,970,507 owed the
Company and Crested. However, only the $1,389,272 of costs and
expenses paid for by the Company and Crested was recorded; $581,235
for interest and management fees was written off as uncollectible.
SRRI also issued 400,000 common shares of stock and delivered same
to the Company as final payment of any deficiencies for pre-fiscal
1994 indebtedness which SRRI had owed to the Company and Crested,
which had been secured by SRRI's interests and acquired by the
Company and Crested in lieu of foreclosure when SRRI defaulted on
its payments.
Subsequent to the end of fiscal 1994, the SGV was terminated, the
Company and Crested formed a new Wyoming corporation (Sutter Gold
Mining Company), and agreed to exchange their respective interests
in USECC Gold for common stock of Sutter Gold Mining Company, in
the same percentage interests as the parties hold interests in
USECC Gold (which latter entity will continue to hold the property
interests of record, as a wholly-owned subsidiary of Sutter Gold
Mining Company).
A conditional use permit for the Lincoln Mine was issued by the
Amador County Board of Supervisors in August, 1993. USE and
Crested are exploring different sources of capital to develop the
Mine and build a milling complex, however, at Proxy Statement date
no financing agreements have been signed and there is no assurance
needed capital will be available.
TRANSACTIONS WITH SHEEP MOUNTAIN PARTNERS ("SMP"). In fiscal 1989,
USE and Crested through USECC sold a one-half interest in the Sheep
Mountain properties to Cycle Resource Investment Corporation
("CRIC"), a wholly-owned subsidiary of Nukem, Inc., and thereafter
USECC and CRIC contributed their 50% interests in the properties to
a new Colorado partnership, SMP, which was organized to further
develop and mine the uranium claims, market uranium and acquire
additional uranium sales contracts. Due to disputes (in
arbitration proceedings at Proxy Statement date) with CRIC and
Nukem, necessary mine maintenance has been funded by USECC alone
without reimbursement from SMP. At May 31, 1993, USE and Crested
had expended $2,056,900 on SMP mine maintenance and $136,500 for
the purchase of U3O8, all of which is owed USE and Crested by SMP.
For fiscal 1994, USE and Crested spent an additional $1,449,700 on
SMP property maintenance, none of which has been reimbursed by SMP.
At May 31, 1994, accumulated SMP property maintenance costs and
fees owed USE and Crested were $3,643,100 ($4,127,229 at February
28, 1995).
TRANSACTIONS WITH DIRECTORS. Three of USE's directors, Messrs.
Larsen, Evans and Herron, are trustees of the ESOP. In that
capacity they have an obligation to act in the best interests of
the ESOP participants. This duty may conflict with their
obligations as directors of USE in times of adverse market
conditions for the Common Stock, or in the event of a tender offer
or other significant transaction.
In general, the ESOP trustees exercise dispositive powers over
shares held by the ESOP, and exercise voting powers with respect to
ESOP shares that have not been allocated to a participant's
account. In addition, the Department of Labor has taken the
position that in certain circumstances ESOP trustees may not rely
solely upon voting or dispositive decisions expressed by plan
participants, and must investigate whether those expressions
represent the desires of the participants, and are in their best
interests.
Harold F. Herron, son-in-law of John L. Larsen, has been living in
and caring for a house owned by USE until such time as the property
was sold. In fiscal 1995, Mr. Herron purchased the house for
$260,000, the appraised value of the property, and was reimbursed
by USE for leasehold improvements totaling $22,800.
OTHER INFORMATION. USE has adopted a stock repurchase plan under
which it may purchase up to 275,000 shares of its Common Stock.
These shares would be purchased in part to provide a source of
shares for issuance upon the exercise of various outstanding
options.
Three of John L. Larsen's sons are employed by USE (as manager of
USECC's commercial operations, uranium marketing manager, and as
chief pilot, respectively). Mr. Larsen's brother is employed by
USE as drilling superintendent. Collectively, the four individuals
received $224,900 in compensation for those services during the
fiscal year ended May 31, 1994. That expense was shared by USE and
Crested, in accordance with the compensation arrangements for all
employees.
CERTAIN INDEBTEDNESS
TRANSACTIONS INVOLVING USECC. USE and Crested conduct the bulk of
their activities through their equally-owned joint venture, USECC.
From time to time USE and Crested advance funds to or make payments
on behalf of USECC in furtherance of their joint activities. These
advances and payments create intercompany debt between USE and
Crested. The party extending funds is subsequently reimbursed by
the other venturer. USE had a note receivable of $3,792,800 from
Crested at May 31, 1994. The largest aggregate debt of Crested to
USE during fiscal 1994 was $3,792,800.
DEBT ASSOCIATED WITH USE'S ESOP. During the year ended May 31,
1994, USE made a contribution of 46,332 shares of Common Stock to
the ESOP. Because Crested engages USE's employees to discharge
substantially all of its functions, these contributions benefitted
Crested. As a result, Crested owes USE $92,500 for one-half of
USE's contribution to the ESOP. Regular and substantial
contributions by the USE to the ESOP are required to maintain the
ESOP in effect. In fiscal 1993 USE contributed 46,591 shares of
Common Stock to the ESOP, for one-half of which Crested owes USE
$87,360.
LOANS TO THREE DIRECTORS. In fiscal 1992 USE loaned Mr. Evans
$24,200 against his promissory note due April 30,1993 and bearing
annual interest at ten percent. This loan is secured with 7,500 of
Mr. Evans' shares of Common Stock. Also in fiscal 1992, USE loaned
Mr. John L. Larsen $147,000 and further agreed to consolidation of
such new loan with outstanding indebtedness of $99,008 owed USE by
members of his immediate family (total debt $246,008), against Mr.
Larsen's promissory note for the total amount due April 30, 1993
and bearing annual interest at ten percent. The Board approved
these transactions to obtain a higher interest rate of return on
the funds compared to commercial rates, and to avoid having USE
stock prices depressed from such persons selling their shares to
meet personal obligations. The loan maturities were extended to
October 30, 1994, and again to May 31, 1996. At May 31, 1994, the
Larsen family indebtedness totaled $432,200, of which $322,800 is
represented by notes secured by 120,600 shares of USE's Common
Stock.
In fiscal 1995, USE made a five year non-recourse loan in the
amount of $112,170 to Harold F. Herron. The loan is secured by
30,000 shares of USE's Common Stock, bears interest at a rate of 7%
and is payable at maturity. The Board approved the loan to obtain
a higher interest rate of return on the funds compared to
commercial rates, and to avoid having USE stock prices depressed
from such persons selling their shares to meet personal
obligations. See Transactions with Directors above.
OTHER DEBT. At June 1, 1990, a brother of Nick Bebout, a director
of USE, and nephew of Daniel P. Svilar, general counsel, was
indebted to USE in the amount of approximately $408,800. This loan
was made in 1983, prior to the time Mr. Nick Bebout became a
director. The non-recourse note was secured by 60,000 shares of
USE's Common Stock and did not bear interest. During fiscal 1991,
Mr. Bebout repaid $36,200 of the loan. At May 23, 1994, the
principal amount of the debt was $372,600.
In fiscal 1993, the Board (Nick Bebout abstaining), extended
maturity of this $372,600 loan and the maturity of a separate
$72,700 loan (from Crested made in 1987, which Mr. Bebout secured
with 20,000 shares of USE Common Stock), to October 30, 1994. In
fiscal 1994, Crested assumed the liability for the non-recourse
loan to USE in exchange for the 60,000 shares of USE's Common Stock
at $260,600 (the market value of the pledged shares on the date of
the assumption). At the same time Crested accepted 22,000 shares
(the pledged shares plus 2,000 stock dividend shares received in
1990) of USE's Common Stock as full payment of the $72,700 non-
recourse loan made by Crested to Mr. Bebout.
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following is a list of all record holders who, as of February
28, 1995, beneficially owned more than five percent of the
outstanding shares of Common Stock, as reported in filings with the
Securities Exchange Commission or as otherwise known to the
Company. Except as otherwise noted, each holder exercises sole
voting and dispositive powers over the shares listed opposite the
holder's name. It should be noted that voting and dispositive
powers over certain shares are shared by two or more of the listed
holders. Such securities are reported opposite each holder having
a shared interest therein.
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
Total Percent
Name and address Voting Rights Dispositive Rights Beneficial of
of beneficial owner Sole Shared Sole Shared Ownership Class(1)
<S> <C> <C> <C> <C> <C> <C>
John L. Larsen(2) 588,497 998,409 539,536 1,244,192 1,811,228 35.1%
201 Hill Street
Riverton, WY 82501
Max T. Evans(3) 107,666 681,259 95,950 927,042 1,022,992 21.0%
1410 Smith Road
Riverton, WY 82501
Daniel P. Svilar(4) 139,841 527,559 122,184 527,559 667,400 13.7%
357 Indiana Street
Hudson, WY 82515
Michael D. Zwickl(5) 53,625 515,359 53,625 515,359 568,984 11.8%
137 North Beech Street
Casper, WY 82601
Kathleen R. Martin(6) -0- 515,359 -0- 515,359 515,359 10.7%
309 North Broadway
Riverton, WY 82501
Crested Corp. 515,359 -0- 515,359 -0- 515,359 10.7%
877 North 8th West
Riverton, WY 82501
Harold F. Herron(7) 98,554 484,631 94,251 730,414 824,665 16.6%
3425 Riverside Road
Riverton, WY 82501
U.S. Energy Corp.
ESOP(8) 165,900 -0- 411,683 -0- 411,683 8.6%
877 North 8th West
Riverton, WY 82501
(1) Percent of class is computed by dividing the number of
shares beneficially owned plus any options held by the reporting
person, by the number of shares outstanding plus the shares
underlying options held by that person.
(2) Mr. Larsen exercises sole voting powers over 366,936
directly owned shares, 200,100 shares underlying options and 21,461
shares held in the U.S. Energy Corp. Employee Stock Ownership Plan
("ESOP") account established for his benefit. The directly owned
shares include 132,000 held in joint tenancy with Mr. Larsen's
wife. Those shares also include 27,500 shares gifted to his wife,
that have remained in Mr. Larsen's name. Shares over which shared
voting rights are exercised consist of 832,509 shares held by
corporations of which Mr. Larsen is a director, and 165,900 shares
held by the ESOP, which have not been allocated to accounts
established for specific beneficiaries. The shares held by
corporations of which Mr. Larsen is a director consist of 515,359
shares held by Crested Corp. ("Crested"), 154,538 shares held
directly by The Brunton Company ("Brunton"), 150,000 shares
underlying options held by Brunton and 12,612 shares held by Ruby
Mining Company ("Ruby"). Mr. Larsen shares voting powers over the
unallocated ESOP shares in his capacity as an ESOP Trustee. Shares
over which sole dispositive rights are exercised consist of
directly owned shares and options, less the 27,500 shares gifted,
but not transferred, to his wife. Shares for which shared
dispositive powers are held consist of the 411,683 shares held by
the ESOP, the 515,359 Crested shares, 154,538 Brunton shares,
150,000 share Brunton option and 12,612 Ruby shares. The shares
shown as beneficially owned by Mr. Larsen do not include 42,350
shares owned directly by his wife, who exercises the sole
investment and voting powers over those shares.
(3) Shares over which Mr. Evans exercises sole voting powers
consist of 38,750 directly owned shares, 57,200 shares underlying
options and 11,716 shares held in the ESOP account established for
his benefit. Shares for which Mr. Evans holds sole dispositive
powers are comprised of his directly held shares and the shares
underlying his options. Shares over which Mr. Evans exercises
shared voting rights consist of those held by Crested and the
unallocated ESOP shares. He exercises shared dispositive rights
over the shares held by Crested and the ESOP. Mr. Evans shares
voting and dispositive power over Crested's shares with the
remaining directors of that company, and he shares voting powers
over unallocated ESOP shares with the other ESOP Trustees.
(4) Mr. Svilar exercises sole voting powers over 56,184
directly owned shares, 66,000 shares underlying options and 17,657
shares held in the ESOP account established for his benefit. He
holds sole dispositive power for his directly held shares and the
shares underlying his options. The shares over which he exercises
shared voting and dispositive rights consist of 12,200 shares held
jointly with a family member, and the 515,359 shares held by
Crested, over which he exercises shared investment and voting
powers as a Crested director.
(5) Mr. Zwickl exercises sole voting and dispositive powers
over 53,625 shares held by two (2) limited partnerships. He is the
sole officer and director of the corporate general partner of those
partnerships. As a director of Crested, Mr. Zwickl exercises
shared voting and dispositive powers over the 515,359 shares held
by Crested.
(6) Consists of shares held by Crested over which shared voting
and dispositive powers are exercised with the other Crested
directors.
(7) Mr. Herron exercises sole voting powers over 71,251
directly owned shares, 12,000 shares held for his minor children
under the Wyoming Uniform Transfers to Minors Act (the Minor's
shares), 11,000 shares underlying options and 4,303 shares held in
the ESOP account established for his benefit. Sole dispositive
powers are exercised over the directly held shares, the Minor's
shares and the shares underlying options. Mr. Herron exercises
shared voting rights over 154,538 shares held by Brunton, 150,000
shares underlying options held by Brunton, 12,612 shares held by
Ruby, 1,581 shares held by NWG and the unallocated ESOP shares.
Shared dispositive rights are exercised over the shares held by the
ESOP, and the shares held by Brunton, Ruby and NWG. Mr. Herron
exercises shared dispositive and voting powers over the shares held
by Brunton, Ruby and NWG as a director of those companies. He
exercises shared voting powers over unallocated ESOP shares in his
capacity as an ESOP Trustee. The 6,030 shares held of record by
Mr. Herron's wife are excluded from the shares reported as
beneficially owned by him.
(8) The ESOP holds 411,683 shares, 165,900 of which have not
been allocated to accounts of individual plan beneficiaries. The
Trustees exercise the voting rights over the unallocated shares.
Plan participants exercise voting rights over allocated shares.
</TABLE>
DESCRIPTION OF SECURITIES
The USE Articles of Incorporation authorize issuance of 20,000,000
shares of common stock, $.01 par value, and 100,000 shares of
preferred stock, $.01 par value.
COMMON STOCK. Holders of USE common stock are entitled to receive
dividends when and as declared by the USE Board of Directors out of
funds legally available therefor.
Holders of USE common stock are entitled to one vote per share on
all matters upon which such holders are entitled to vote, and
further have the right to cumulate their votes in elections of
directors to the USE Board of Directors. Cumulation is effected by
multiplication of shares held by the number of director nominees,
and voting is by casting the product as desired among the nominees;
directors are elected by a plurality of votes cast.
Pursuant to the USE Articles and the Wyoming Management Stability
Act, shares of USE common stock held by Crested may be voted by
Crested in elections of USE directors, so long as USE conducts
substantial business in Wyoming and is "qualified" under such Act
as having assets in excess of $10,000,000, with a class of stock
listed on NASDAQ or on a principal exchange.
In the event of dissolution, liquidation or winding up of USE,
holders of USE common stock are entitled to share ratably in assets
remaining after creditors (including holders of any preferred
stock, as to liquidation preferences) have been paid.
All outstanding shares of USE common stock (including the USE
Shares offered for sale by this Prospectus) have been fully paid
and nonassessable.
<PAGE>
PREFERRED STOCK. The USE Board of Directors is authorized to issue
shares of preferred stock in one or more series, with such rights
to redemption, liquidation preference, dividends, voting and other
matters as determined by the Board of Directors, without
authorization from the USE stockholders. Accordingly, the USE
Board of Directors could issue preferred shares with dividend
rights senior to the common shares. Under the WBCA, separate
classes of stock are entitled to vote separately on certain
substantive transactions (e.g., a merger or sale of most of the
company assets), with approval of the transaction subject to
approval by each class.
No shares of USE preferred stock have been issued, and no series
thereof has been established to date.
EXPERTS
The consolidated financial statements of USE included in this
Prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports. Reference is made to
said report which includes an explanatory paragraph that describes
the litigation discussed in notes E, F, and K to the USE
consolidated financial statements.
LEGAL MATTERS
Stephen E. Rounds, Denver, Colorado, has acted as special counsel
to USE in connection with this offering.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
ASSETS
February 28, May 31,
1995 1994
____________ ____________
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash $ 780,700 $1,181,700
Accounts receivable
Trade 791,000 1,009,800
Related parties 254,100 166,500
Inventory 1,486,400 1,424,600
Deferred federal income tax current 36,000 --
Deferred compensation 12,200 12,200
Other 135,800 71,800
____________ ____________
TOTAL CURRENT ASSETS 3,496,200 3,866,600
INVESTMENTS
Affiliates 2,980,600 2,807,900
Other 7,637,700 7,728,500
____________ ____________
10,618,300 10,536,400
PROPERTIES AND EQUIPMENT 26,890,800 26,252,200
Less accumulated depreciation,
depletion and amortization (9,507,500) (8,874,000)
____________ ____________
17,383,300 17,378,200
OTHER ASSETS:
Accounts and notes receivable:
Real estate sale and other 652,400 28,700
Affiliates and related parties 25,000 25,000
Employees 498,500 366,000
Buildings and improvements held for sale 496,200 758,200
Deferred compensation, long-term 8,100 17,300
Deposits and other 117,200 113,900
____________ ____________
1,797,400 1,309,100
____________ ____________
$33,295,200 $33,090,300
____________ ____________
____________ ____________
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
February 28, May 31,
1995 1994
____________ ____________
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $1,394,300 $ 722,200
Current portion of long-term debt 1,697,900 569,500
____________ ____________
TOTAL CURRENT LIABILITIES 3,092,200 1,291,700
LONG-TERM DEBT (See Note 5) 918,700 1,109,100
RECLAMATION LIABILITY (See Notes 6) 3,951,800 3,951,800
OTHER ACCRUED LIABILITIES
(See Note 6) 10,892,500 11,284,600
DEFERRED TAX LIABILITY 183,200 267,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 815,300 1,326,400
Common stock, 187,817 and 169,300
shares forfeitable 1,370,100 1,300,600
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued, 5,002,486 and 4,693,090 49,900 46,800
Additional paid-in capital 17,729,900 16,784,800
Retained earnings (deficit) (2,501,600) (1,185,800)
40
Treasury stock, 758,276 and
718,276 shares, at cost (2,192,500) (2,072,400)
Unallocated ESOP contribution (1,014,300) (1,014,300)
____________ ____________
12,071,400 12,559,100
____________ ____________
$33,295,200 $33,090,300
____________ ____________
____________ ____________
See notes to consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
______________________________________________________
1995 1994 1995 1994
____________ ____________ ___________ ___________
REVENUES:
Mineral sales $ -- $ -- $ -- $2,893,700
Oil sales 47,400 51,100 138,200 141,900
Commercial revenues 1,268,600 123,700 4,032,200 461,700
Gain from restructuring
mining properties
agreements -- 33,400 85,500 591,400
Construction contract
revenues 29,100 120,400 919,600 2,004,700
Gain on sale of assets 975,000 -- 1,288,900 30,300
Interest 81,100 61,000 254,200 162,000
Management fees
and other 77,000 98,000 215,700 301,500
__________ __________ ___________ __________
2,478,200 487,600 6,934,300 6,587,200
__________ __________ ___________ __________
COSTS AND EXPENSES:
Cost of mineral sales -- -- -- 2,927,400
Mineral operations 299,300 262,500 1,005,500 700,900
Construction costs 36,500 106,000 790,500 1,774,300
General and
administrative 1,127,300 787,400 2,783,200 1,859,400
Commercial operations 1,195,100 366,900 3,466,800 1,004,600
Oil production 24,100 106,200 52,700 259,900
Loss on sale
of investments -- 29,800 89,900 31,800
Interest 72,400 26,900 175,000 87,400
__________ _________ __________ __________
2,754,700 1,685,700 8,363,600 8,645,700
__________ _________ __________ ___________
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
February 28, February 28,
___________________________________________________
1995 1994 1995 1994
___________ ____________ ___________ ___________
Income (Loss) Before
Equity Income of
Affiliate, Provision
for Income Taxes
and Extraordinary Item (276,500) (1,198,100) (1,429,300) (2,058,500)
Minority Interest in
Loss of Consolidated
Subsidiaries 76,200 299,600 418,400 572,900
Equity in Income of
Affiliates-net (128,100) (95,400) (304,900) (266,700)
___________ ___________ ___________ ___________
Income (Loss) Before
Provision for
Income Taxes
and Cumulative
Effect (328,400) (993,900) (1,315,800) (1,752,300)
Provision for
Income Taxes -- -- -- --
___________ ___________ ___________ ___________
Income (Loss) Before
Cumulative Effect
of Accounting Changes (328,400) (993,900) (1,315,800) (1,752,300)
Cumulative Effect
at June 1, 1993
of Income Tax
Accounting Changes -- -- -- (267,000)
___________ ____________ ___________ ___________
NET INCOME (LOSS) $(328,400) $(993,900) $(1,315,800) $(2,019,300)
___________ ____________ ____________ ___________
NET INCOME (LOSS)
PER SHARE $ (.07) $ (.22) $ (.27) $ (.46)
____________ ___________ ___________ ____________
____________ ___________ ___________ ____________
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 5,012,216 4,473,468 4,877,776 4,402,658
___________ __________ __________ ___________
___________ __________ __________ ___________
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 28,
__________________________
1995 1994
___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $(1,315,800) $(2,019,300)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Minority interest in (gain) loss
of consolidated subsidiaries (418,400) (572,900)
Depreciation, depletion and
amortization 577,300 710,600
Non-cash compensation 69,500 82,300
Gain from restructuring mineral
properties agreements -- (500,000)
Equity in loss of affiliates 304,900 266,700
Gain on sale of assets (1,288,900) (27,900)
Loss (gain) on sale of investments 89,900 (3,400)
Cumulative effect of
accounting changes (83,800) 267,000
Change in deferred income taxes (36,000) --
Net changes in components
of working capital 282,600 (1,138,100)
________________________
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,818,700) (2,935,000)
________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (476,800) (1,095,300)
Investments other (198,400) --
Purchase of property and equipment (141,000) (632,200)
Proceeds from sale of assets 969,100 55,100
Development of mining claims (341,400) (624,100)
Development of gas properties (147,700) --
Increase in note receivable (128,200) (36,800)
Proceeds from sale of investments 199,300 --
Cash acquired in purchase
of subsidiary -- 6,900,000
Deposits and other (3,300) 172,300
________________________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (268,400) 4,739,000
________________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common stock 868,100 --
Company stock purchased by
consolidated affiliate (120,000) --
Additions to long-term debt 1,740,800 368,400
Payments on long-term debt (802,800) (630,800)
________________________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,686,100 (262,400)
________________________
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
February 28,
_____________________________
1995 1994
____________ ____________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (401,000) 1,541,600
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,181,700 479,600
_________________________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 780,700 $2,021,200
__________________________
__________________________
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ 118,900 $ --
__________________________
__________________________
Interest paid $ 175,000 $ 60,500
__________________________
__________________________
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of unowned portion of
affiliate with Company stock $ 80,000 $ --
____________ ____________
____________ ____________
Common stock issued in lieu of
payment of long-term debt $ -- $ 300,000
____________ ____________
____________ ____________
Negotiate settlement on accounts payable
for asset previously capitalized $ -- $ 155,000
____________ ____________
____________ ____________
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Notes to Condensed Consolidated Financial Statements
1) The Condensed Consolidated Balance Sheet as of February 28, 1995,
the Condensed Consolidated Statements of Operations for the nine months ended
February 28, 1995 and 1994, and the Condensed Consolidated Statements of Cash
Flows for the nine months ended February 28, 1995 and 1994, have been
prepared by the Registrant without audit. The Condensed Consolidated Balance
Sheet as of May 31, 1994, has been taken from the audited financial
statements included in the Registrant's Annual Report on Form 10-K for the
period then ended. In the opinion of the Registrant, the accompanying
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of
Registrant as of February 28, 1995 and May 31, 1994, the results of
operations for the nine months ended February 28, 1995 and 1994, and the cash
flows for the nine months then ended.
2) Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these financial statements be read in conjunction with the Registrant's May
31, 1994 Form 10-K. The results of operations for the periods ended
February 28, 1995 and 1994 are not necessarily indicative of the operating
results for the full year.
3) The consolidated financial statements of the Registrant include
100% of the accounts of USECB Joint Venture (USECB) which is owned 50% by the
Registrant and 50% by the Registrant's subsidiary, Crested Corp. (Crested).
The consolidated financial statements also reflect 100% of the accounts of
its majority-owned subsidiaries: The Brunton Company (100%), Energx Ltd.
(90%), Crested (51.9%), USECC Gold Limited Liability Company (100%), Plateau
Resources Limited (100%) and Four Nines Gold, Inc. (50.9%) All material
intercompany profits and balances have been eliminated.
4) Effective June 1, 1993, the Registrant adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". This statement requires recognition of deferred income tax assets
and liabilities for the expected future income tax consequences, based on
enacted tax laws, of temporary differences between the financial reporting
and tax bases of assets, liabilities and carryforwards.
In contrast to the previous method, SFAS No. 109 requires recognition of
deferred tax assets for the expected future effects of all deductible
temporary differences, loss carryforwards and tax credit carryforwards.
Deferred tax assets are then reduced, if deemed necessary, by a valuation
allowance for any tax benefits which, based on current circumstances, are not
assured of realization.
As a result of adopting SFAS No. 109, the Registrant recognized a
cumulative provision for change in accounting principle of $267,000 or
$(0.06) per common share as of the beginning of the fiscal year. The
provision is included under the caption "cumulative effect at June 1, 1993 of
income tax accounting change" in the accompanying condensed consolidated
statements of operations.
5) Debt as of February 28, 1995 consists of a $960,000 operating line
of credit; two property loans totaling $274,900; various equipment and other
loans totaling $199,200; and debt attributable to consolidated affiliates of
$1,029,200 on Brunton and $153,300 on Four Nines Gold. Certain inter-
affiliate loans were eliminated during consolidation.
6) Accrued reclamation obligations of $3,951,800 are the Registrant's
share of a reclamation liability at the Crooks Gap Mining District and the
full obligation at the Shootaring Uranium Mill. The reclamation work may be
performed over several years.
7) Net income (loss) per share is computed using the weighted average
number of common shares outstanding during each period. The dilutive effect
of stock options is not included in the computation, as it is not material.
39
8) Pursuant to the November 28, 1994 Private Placement, the Company is
obligated to buyback 289,396 shares at $3.50 for a total of $1,012,886.00 as
of February 28, 1995 or issue an additional 96,465 shares of common stock to
the participants in the Private Placement on or before October 15, 1995.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31,
__________________________
1994 1993
___________ ____________
CURRENT ASSETS:
Cash and cash equivalents $1,181,700 $ 479,600
Accounts and notes receivable (Note C):
Trade, net of allowance of $32,600
and $4,000 for doubtful accounts 1,009,800 758,200
Related parties, net of allowance
of $1,600 and $1,600 for
doubtful accounts 166,500 242,400
Inventory (Note B) 1,424,600 80,400
Deferred compensation (Note J) 12,200 40,800
Other 71,800 48,900
____________ ____________
TOTAL CURRENT ASSETS 3,866,600 1,650,300
____________ ____________
INVESTMENTS AND ADVANCES (Notes E and F):
Affiliates 2,807,900 2,706,700
Restricted investments (Note F) 7,728,500 800
____________ ____________
10,536,400 2,707,500
PROPERTIES AND EQUIPMENT (Notes B, C, D and F):
Land and mobile home park 2,803,100 2,794,300
Buildings and improvements 5,728,600 5,237,500
Aircraft and other equipment 6,237,800 6,160,800
Developed oil properties,
full cost method 1,769,800 1,769,800
Undeveloped gas properties 207,900 --
Mineral properties and mine
development costs 9,505,000 8,510,000
____________ ____________
26,252,200 24,472,400
Less accumulated depreciation,
depletion and amortization (8,874,000) (8,182,800)
____________ ____________
17,378,200 16,289,600
____________ ____________
OTHER ASSETS:
Notes receivable:
Trade 28,700 15,200
Affiliates 25,000 25,000
Employees (Note C) 366,000 435,800
Shareholder (Note C) -- 445,300
Joint venture partner (Note F) -- 1,275,500
Buildings and improvements held for sale 758,200 758,200
Long-term deferred compensation (Note J) 17,300 29,400
Deposits and other 113,900 405,400
____________ ____________
1,309,100 3,389,800
____________ ____________
$33,090,300 $24,037,200
____________ ____________
[FN]
The accompanying notes to financial statements are an integral part
of these balance sheets.
[FN]
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
May 31,
______________________________
1994 1993
____________ ____________
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 722,200 $ 963,000
Current portion of
long-term debt (Note G) 569,500 629,100
____________ ____________
TOTAL CURRENT LIABILITIES 1,291,700 1,592,100
LONG-TERM DEBT (Notes F and G) 1,109,100 1,204,400
RECLAMATION LIABILITY (Note K) 3,951,800 1,695,600
OTHER ACCRUED LIABILITIES (Note F) 11,284,600 --
DEFERRED GAIN ON SALE OF ASSETS
(Note C) -- 249,800
DEFERRED TAX LIABILITY (Note H) 267,000 --
COMMITMENTS AND CONTINGENCIES
(Note K)
MINORITY INTERESTS 1,326,400 2,986,800
FORFEITABLE COMMON STOCK,
$.01 par value; issued 169,300
and 155,780, shares,
respectively, forfeitable
until earned (Notes C and J) 1,300,600 1,245,300
SHAREHOLDERS' EQUITY (Notes C and J):
Preferred stock, $.01 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.01 par value;
authorized, 20,000,000 shares;
issued 4,693,090 and
4,257,288 shares, respectively 46,800 42,500
Additional paid-in capital 16,784,800 15,050,900
(Accumulated deficit)/
retained earnings (1,185,800) 2,185,000
Treasury stock at cost,
718,276 and 440,301
shares, respectively (2,072,400) (1,200,900)
Unallocated ESOP contribution (1,014,300) (1,014,300)
____________ _____________
12,559,100 15,063,200
____________ ____________
$33,090,300 $24,037,200
____________ ____________
[FN]
The accompanying notes to financial statements are an integral part
of these balance sheets.
[FN]
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended May 31,
_____________________________________
1994 1993 1992
_____________________________________
REVENUES:
Mineral sales $3,732,500 $2,690,800 $ 621,600
Construction contract revenues 2,606,400 2,026,500 2,895,000
Commercial operations 1,165,100 894,400 817,200
Oil sales 183,700 286,300 134,100
Gain on sale of assets (Note F) 52,800 326,000 --
Gain on sale of investments -- 408,600 --
Gain from restructuring mineral
properties agreements (Note F) 626,800 2,105,800 1,055,900
Interest 328,700 78,200 202,000
Management fees and other (Note C) 80,300 228,900 627,800
____________________________________
8,776,300 9,045,500 6,353,600
____________________________________
COSTS AND EXPENSES:
Cost of minerals sold 3,895,400 2,617,600 619,200
Mineral operations 1,129,000 659,900 315,100
Construction costs 2,288,900 1,760,400 2,640,900
Commercial operations 1,989,400 1,573,000 725,400
Oil production 89,800 122,400 76,300
General and administrative 2,696,800 1,955,300 921,000
Abandonment of mining claims -- 378,700 175,400
Gas operations 157,800 -- --
Interest and other 117,100 81,300 61,100
____________________________________
12,364,200 9,148,600 5,534,400
____________________________________
INCOME (LOSS) BEFORE MINORITY INTEREST
IN LOSS, EQUITY IN INCOME (LOSS) OF
AFFILIATES, PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (3,587,900) (103,100) 819,200
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES 874,800 325,900 58,900
EQUITY IN LOSS OF AFFILIATES (390,700) (444,700) (324,900)
____________________________________
(Continued)
The accompanying notes to financial statements are an integral
part of these statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
Year Ended May 31,
____________________________________
1994 1993 1992
_____________________________________
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES AND EXTRAORDINARY ITEM $(3,103,800) $(221,900) $ 553,200
PROVISION FOR INCOME TAXES (Note H) -- -- 197,300
__________________________________
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (3,103,800) (221,900) 355,900
EXTRAORDINARY ITEM
Utilization of net operating loss
carryforward (Notes E and H) -- -- 257,300
_____________________________________
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (3,103,800) (221,900) 613,200
CUMULATIVE EFFECT AT JUNE 1, 1993
OF INCOME TAX ACCOUNTING CHANGE
(Notes B and H) (267,000) -- --
____________________________________
NET INCOME (LOSS) $(3,370,800) $(221,900) $ 613,200
____________________________________
EARNINGS PER SHARE AMOUNTS:
Income (loss) Before Extraordinary Item$ (.70) $ (.05) $ .09
Extraordinary Item -- -- .06
____________________________________
Income (loss) before cumulative
effect of accounting change (.70) (.05) .15
Cumulative effect at June 1, 1993 of
income tax accounting change (.06) -- --
____________________________________
NET INCOME (LOSS) PER SHARE $ (.76) $ (.05) $ .15
____________________________________
____________________________________
WEIGHTED AVERAGE SHARES OUTSTANDING 4,431,469 4,248,848 4,228,165
____________________________________
____________________________________
The accompanying notes to financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
<CAPTION>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock (Accumulated Treasury Stock
__________________ Additional Deficit)/ ________________ Unallocated Total
Paid-In Retained ESOP Shareholders'
Shares Amount Capital Earning Shares Amount Contribution Equity
_________ ________ ___________ __________ ______ _________ ___________ ___________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1991 4,103,289 $41,100 $14,531,500 $1,793,700 51,267 $(310,100) $(1,010,700) $15,045,500
Funding of ESOP 49,599 500 173,100 -- -- -- -- 173,600
Other 313 -- -- -- -- -- -- --
Loan to ESOP to
purchase common stock -- -- -- -- -- -- (3,600) (3,600)
Issuance of common stock
to third party for
services rendered 5,000 -- 18,700 -- -- -- -- 18,700
Common stock owned by
Crested Corp. -- -- -- -- 387,384 (882,200) -- (882,200)
Issuance and forfeiture
of common stock bonus 5,000 -- 26,300 -- 1,650 (8,600) -- 17,700
Net income -- -- -- 613,200 -- -- -- 613,200
___________________________________________________________________________________________
Balance, May 31, 1992 4,163,201 41,600 14,749,600 2,406,900 440,301 (1,200,900) (1,014,300) 14,982,900
Funding of ESOP 49,087 400 183,000 -- -- -- -- 183,400
Issuance of common stock
to affiliate for cash 50,000 500 137,000 -- -- -- -- 137,500
Common stock issued to a
third party in prior year
that was forfeitable (5,000) -- (18,700) -- -- -- -- (18,700)
Net loss -- -- -- (221,900) -- -- -- (221,900)
___________________________________________________________________________________________
Balance, May 31, 1993 4,257,288 $42,500 $15,050,900 $2,185,000 440,301 $(1,200,900) $(1,014,300) $15,063,200
___________________________________________________________________________________________
<FN>
The accompanying notes to financial statements are an integral
part of these statements.
</FN>
</TABLE>
<PAGE> U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(continued)
<CAPTION>
Common Stock (Accumulated Treasury Stock
__________________ Additional Deficit)/ ____________________ Unallocated Total
Paid-In Retained ESOP Shareholders'
Shares Amount Capital Earning Shares Amount Contribution Equity
_________ ________ __________ __________ _______ ____________ ___________ ___________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 4,257,288 $42,500 $15,050,900 $2,185,000 440,301 $(1,200,900) $(1,014,300) $15,063,200
Funding of ESOP 46,332 400 184,900 -- -- -- -- 185,300
Issuance of common stock
to affiliate in lieu of
payment of loan 100,000 1,000 299,000 -- -- -- -- 300,000
Issuance of common stock
to purchase an affiliate 276,470 2,800 1,197,100 -- -- -- -- 1,199,900
Issuance of common stock
to third party for
services rendered 7,000 100 26,900 -- -- -- -- 27,000
Issuance of common stock
to an employee for
services rendered 1,000 -- 4,300 -- -- -- -- 4,300
Issuance of common stock 5,000 -- 21,700 -- -- -- -- 21,700
Common stock owned by
Brunton -- -- -- -- 150,000 (437,500) -- (437,500)
Common stock owned by
Crested Corp. -- -- -- -- 127,975 (434,000) -- (434,000)
Net loss -- -- -- (3,370,800) -- -- -- (3,370,800)
_______________________________________________________________________________________________
Balance, May 31, 1994 4,693,090 $46,800 $16,784,800 $(1,185,800) 718,276 $(2,072,400) $(1,014,300) $12,559,100
________________________________________________________________________________________________
<FN>
Shareholders' Equity at May 31, 1994 does not include 169,300 shares
currently issued but forfeitable if certain conditions are not met by
the recipients. However, both the "Outstanding Shares at September 7, 1994"
on the cover page and the "Weighted Average Shares Outstanding"
on the Consolidated Statement of Operations include the forfeitable shares.
These two line items also include the 665,359 shares of common stock
held by a majority-owned subsidiary, which, through consolidation,
are treated as treasury shares.
The accompanying notes to financial statements are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended May 31,
__________________________________
1994 1993 1992
___________ __________ _________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(3,370,800) $(221,900) $ 613,200
Adjustments to reconcile net income
to net cash used in operating activities:
Minority interest in loss of
consolidated subsidiaries (874,800) (325,900) (58,900)
Depreciation, depletion and
amortization 720,200 908,400 876,100
Abandoned mining claims -- 378,700 175,400
Gain from restructuring mineral
properties agreements (500,000) (2,000,000) (1,000,000)
Unrealized gain on investment -- -- (180,800)
Equity in (income) loss
from affiliates 390,700 444,700 264,900
Gain on sale of assets (52,800) (326,000) --
(Gain) loss on sale/write down
of marketable
equity securities -- (408,600) --
Common stock issued to fund ESOP 185,300 183,400 86,800
Non-cash compensation 75,900 55,600 --
Common stock exchanged for services 34,300 -- 18,700
Other (149,900) (246,400) (21,400)
Net changes in:
Accounts and notes receivable 468,700 (406,800) (719,000)
Inventory (9,100) 407,300 (450,900)
Other assets (4,000) 62,200 (2,000)
Accounts payable and
accrued expenses (573,700) 557,900 27,900
Other liabilities (415,400) -- --
Income taxes payable -- -- (289,800)
Deferred tax liability 267,000 -- --
__________ _________ ___________
NET CASH USED IN OPERATING ACTIVITIES (3,808,400) (937,400) (659,800)
___________ __________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in purchase
of subsidiaries 7,193,500 -- 344,100
Development of mining properties (796,300) (740,500) (2,129,000)
Development of gas properties (207,900) -- --
Proceeds from sale of property and
equipment 149,700 848,800 --
Proceeds from sale of investments -- 611,200 --
Purchases of property and equipment (855,800) (656,700) (218,700)
Changes in notes receivable 73,700 (173,400) (110,800)
Investments in affiliates (760,500) (1,108,600) (770,400)
__________ ___________ ___________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,796,400 (1,219,200) (2,884,800)
__________ ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 137,500 --
Loan to ESOP -- -- (3,600)
Increase in long-term debt 368,400 914,600 326,100
Principal payments on long-term debt (654,300) (202,700) (583,400)
___________ __________ ___________
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (285,900) 849,400 (260,900)
__________ __________ ___________
(Continued)
The accompanying notes to financial statements are an integral part
of these statements.
(continued)
<PAGE>
U.S. ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended May 31,
___________________________________
1994 1993 1992
__________ ___________ ___________
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 702,100 $(1,307,200) $(3,805,500)
CASH AND CASH EQUIVALENTS,
Beginning of year 479,600 1,786,800 5,592,300
__________ ___________ __________
CASH AND CASH EQUIVALENTS, End of year $1,181,700 $ 479,600 $1,786,800
___________ ___________ __________
___________ ___________ __________
SUPPLEMENTAL DISCLOSURES:
Interest paid $ -- $ 79,100 $ 54,000
___________ ___________ __________
___________ ___________ __________
Income taxes paid $ -- $ -- $ 290,000
___________ ___________ ___________
___________ ___________ ___________
Non-cash investing and financing activities:
Issuance of common stock to acquire
affiliate $1,199,900 $ -- $ --
___________ ___________ ___________
___________ ___________ ___________
Issuance of common stock in lieu of
payment on debt to affiliate $ 300,000 $ -- $ --
___________ ___________ ___________
___________ ___________ ___________
Release of forfeitable common stock
bonus to third party $ 18,000 $ -- $ --
___________ ___________ ___________
___________ ___________ ___________
Issuance of common stock to
offiers and employees for
services rendered $ 104,400 $ -- $ 729,300
___________ ___________ ___________
___________ ___________ ___________
Change in valuation of
reclamation liability $ (243,800) $ -- $ 121,900
___________ ___________ ___________
___________ ___________ ___________
Conversion of SRRI receivable to
investment upon SRRI loan default $ 1,857,800 $ -- $1,777,800
___________ ___________ ___________
___________ ___________ ___________
Undeveloped mining properties
contributed to the Green
Mountain Mining Venture $ 243,800 $ -- $ --
___________ ___________ ___________
___________ ___________ ___________
Cancellation of accounts receivable
for common stock of affiliate $ -- $ -- $ 809,200
___________ ___________ ___________
___________ ___________ ___________
Acquisition of USE common stock
in exchange for shareholder
notes receivable $ 445,300 $ -- $ --
___________ ___________ ___________
___________ ___________ ___________
<PAGE>
U.S. ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Significant assets acquired and liabilities assumed in acquisition
of subsidiaries:
Reclamation liability $ 2,500,000
Other accrued liabilities 11,700,000
Restricted investments (7,300,000)
Other 293,500
____________
Net cash acquired in
purchase of subsidiaries $ 7,193,500
____________
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1994, 1993 AND 1992
A. BUSINESS ORGANIZATION AND DESCRIPTION:
U.S. Energy Corp. (the "Company" or "USE") was incorporated in
the State of Wyoming on January 26, 1966 under the name of Western
States Mining & Contracting, Inc. The name was subsequently
changed to U.S. Energy Corp. The Company engages in the
acquisition, exploration, sale and/or development of mineral
properties, mining and marketing of minerals. Principal mineral
interests are in uranium, gold, and molybdenum. The Company also
holds various real and personal properties used in commercial
operations and engages in the exploration, development and
production of petroleum and methane gas. Most of these activities
are conducted through the joint venture discussed below and in Note
B. The Company, through its wholly-owned subsidiary, The Brunton
Company ("Brunton"), the remaining 56% of which was acquired at
fiscal 1994 year end (see Note C), also engages in the
manufacturing and/or marketing of compasses and the distribution of
outdoor recreational products, including knives and binoculars. In
addition, through its majority owned subsidiary, Four Nines Gold,
Inc. ("FNG"), the Company engages in projects such as the
construction of municipal sewage systems, irrigation projects and
other civil engineering matters.
The Company and its 52%-owned subsidiary, Crested Corp.
("Crested") (see Note E) are engaged in two ventures to develop
certain uranium properties, one with Kennecott Uranium Company
("Kennecott") known as Green Mountain Mining Venture ("GMMV"),
formed on June 1, 1990, and the second, a partnership with Nukem,
Inc. ("Nukem") through its wholly-owned subsidiary Cycle Resource
Investment Corporation ("CRIC"), known as Sheep Mountain Partners
("SMP"). During fiscal 1991, the Company and Crested formed USECC
Gold Limited Liability Company ("USECC Gold"), and with Seine River
Resources Inc. ("SRRI") established the Sutter Gold Venture ("SGV")
to develop certain gold properties located in California. The
remaining interest of SRRI was acquired by the Company and Crested
during fiscal 1994 (see Note F).
During fiscal 1994, the Company also acquired 100% of the
outstanding stock of Plateau Resources Limited ("Plateau"), which
owns a uranium mill and support facilities in Southeastern Utah.
Currently the mill is nonoperating but being maintained. See a
further discussion of the acquisition details in Note F.
<PAGE>
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of USE and affiliates
include the accounts of the Company, the accounts of its majority-
owned subsidiaries: Brunton (100%), Plateau Resources Ltd
("Plateau") (100%), Energx, Ltd ("Energx") (90%), FNG (50.9%),
USECC Gold (100%), Crested (52%) and USECC Joint Venture ("USECC"),
a joint venture through which USE and Crested conduct the bulk of
their operations. USECC is owned equally by the Company and
Crested. USECC owns the buildings and other equipment (see Note D)
used by the Company and has invested in SMP (see Notes E and F).
The accompanying consolidated balance sheets include the accounts
of USE, Brunton, Plateau, Energx, FNG, USECC, USECC Gold and
Crested for 1994 and USE, FNG, USECC, USECC Gold and Crested for
1993. The accompanying consolidated statements of operations
include USE, Plateau, ENERGX, FNG, USECC, USECC Gold and Crested
for fiscal 1994, and USE, FNG, USECC, USECC Gold and Crested for
fiscal 1993. Brunton was not consolidated in the statement of
operations and cash flows in 1994 or prior because the Company
acquired it on May 20, 1994. Crested was not consolidated in the
statements of operations and cash flows prior to fiscal 1993
because the Company acquired its controlling interest on May 26,
1992. Consequently, the accompanying consolidated statements of
operations include USE, FNG, USECC Gold and one-half of the
accounts of USECC for fiscal 1992.
Investments in other joint ventures and 20% to 50% owned
companies are accounted for by the equity method (Note E).
Investments of less than 20% in companies are accounted for by the
cost method. All material intercompany profits, transactions and
balances have been eliminated.
Unaudited Pro Forma Condensed Consolidated Results of Operations
The following unaudited pro forma consolidated results of
operations assume that the acquisitions of the controlling
interests in Brunton and Plateau occurred at the beginning of
fiscal years 1994 and 1993. The following condensed unaudited
consolidated results therefore include the accounts of USE, USECC
Gold, FNG, Crested, USECC, Brunton, Plateau and Energx:
May 31,
1994 1993
_____________ ____________
(Unaudited) (Unaudited)
Revenues $12,895,100 $12,607,200
(Loss) income before cumulative
effect of accounting changes (2,848,200) 45,600
Net (loss) income (3,115,200) 45,600
Net (loss) income per share (.70) .01
<PAGE>
Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Marketable Equity Securities
Marketable equity securities are carried at lower of aggregate
cost or market. Net unrealized losses on non-current marketable
equity securities are included in shareholders' equity unless such
losses are considered to be other than temporary, in which case the
losses are charged to operations.
Inventories
Inventories consist primarily of outdoor recreational products
including compasses, knives and binoculars. Other inventory
includes aviation fuel, associated aircraft parts, mining supplies,
purchased uranium and gold ore stockpile. Manufactured and retail
inventories are stated using the average cost method of accounting
for inventories. Finished goods and work in process inventories
include related materials, labor and applied overhead. Other
inventory is stated at the lower of cost or market.
Inventories consist of the following:
May 31,
__________________________
1994 1993(A)
___________ __________
Outdoor Recreational Products
Raw materials $ 508,900 $ --
Work in process 161,600 --
Finished goods 664,600 --
Other 89,500 80,400
___________ _________
$1,424,600 $ 80,400
___________ _________
___________ _________
(A)There was no outdoor recreational products inventory at May
31, 1993 because the controlling interest in Brunton was not
acquired until fiscal 1994.
<PAGE>
Properties and Equipment
Land, buildings, improvements, aircraft and other equipment
are carried at cost.
Depreciation of buildings and improvements, aircraft and other
equipment is provided principally by the straight-line method over
estimated useful lives ranging from three to forty-five years.
The Company capitalizes all costs incidental to the
acquisition, exploration and development of mineral properties as
incurred. The costs of mine development are deferred until
production begins on the basis that they will be recovered through
future mining operations. Once commercial production begins, mine
development costs incurred to maintain production will be expensed.
Capitalized costs are charged to operations at the time the Company
determines that no economic ore bodies exist on such properties.
An impairment allowance is charged to operations at such time when,
in the opinion of management, the carrying value of the property
exceeds its expected future economic benefit. Costs and expenses
related to general corporate overhead are expensed as incurred.
The Company and Crested have acquired substantial mining
property assets and associated facilities at minimal cash cost,
primarily through the assumption of reclamation and environmental
liabilities. Certain of these assets are owned by various ventures
in which the Company is either a partner or venturer. The market
value of these assets and the reclamation and environmental
liabilities associated with them are not reflected in the
accompanying balance sheets (see Note K).
Proceeds from the sale of undeveloped mineral properties are
treated as a recovery of costs with any excess of proceeds over
cost recognized as gain.
The Company follows the full-cost method of accounting for oil
and gas properties whereby all costs incurred in the acquisition,
exploration and development of the properties, including
unproductive wells, are capitalized, limited to the present value
of the estimated proved reserves and the lower of cost or estimated
fair value of unproved properties.
Depreciation, depletion and amortization of oil properties is
provided by the unit of production method based on the estimated
reserves to be recovered.
Revenue Recognition
Advance royalties which are payable only from future
production or which are non-refundable are recognized as revenue
when received (see Note F). Non-refundable option deposits are
recognized as revenue when the option expires.
Sales of gold, uranium and oil are recognized upon delivery.
Revenues are recognized from the rental of certain assets as they
are rented.
Revenue from long-term construction contracts is recognized on
the percentage-of-completion method determined by the ratio of
costs incurred to management's estimate of total anticipated costs.
If estimated total costs on any contract indicate a loss, the
Company provides currently for the total anticipated loss on the
contract. Billings on uncompleted long-term contracts may be
greater than or less than incurred costs and estimated earnings,
and are shown as current liabilities or current assets in the
accompanying balance sheets.
Revenue from sales of outdoor recreational products are
recognized upon shipment of products.
Income Taxes
Effective June 1, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". This statement requires recognition of deferred
income tax assets and liabilities for the expected future income
tax consequences, based on enacted tax laws, of temporary
differences between the financial reporting and tax basis of
assets, liabilities and carryforwards.
In contrast to the previous method, SFAS No. 109 requires
recognition of deferred tax assets for the expected future effects
of all deductible temporary differences, loss carryforwards and tax
credit carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for any tax benefits
which, based on current circumstances, are not assured of
realization.
The Company previously followed Accounting Principles Board
Opinion No. 11 whereby deferred income taxes were provided to
reflect the tax effect of timing differences.
As a result of adopting SFAS No. 109, the Company recognized
a cumulative provision for change in accounting principle of
$267,000 or $(0.06) per common share as of the beginning of the
fiscal year. The provision is included under the caption
"cumulative effect at June 1, 1993 of income tax accounting change"
in the accompanying Consolidated Statements of Operations.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted
average number of common shares outstanding during each period.
The dilutive effect of stock options is not included in the
computation, as it is not material.
<PAGE>
Reclassifications
Certain reclassifications have been made in the 1993 and 1992
financial statements to conform to the classifications used in
1994.
C. RELATED-PARTY TRANSACTIONS:
In November 1993, USE and Brunton executed an Agreement and
Plan of Share Exchange ("Exchange Agreement") which closed in late
May 1994. The Exchange Agreement provided for the Exchange of
276,470 shares of USE common stock for all 5,529,200 outstanding
shares of Brunton's common stock, which were not owned by USE.
Brunton is now owned 100% by USE as of May 31, 1994. The
transaction was accounted for as a purchase.
The Company and Crested provide management and administrative
services for affiliates under the terms of various management
agreements. The Company provides all employee services required by
Crested. In exchange, Crested reimburses the Company for its share
of the costs for providing such employees. Revenues from services
by the Company to affiliates other than Crested were $80,300,
$113,000 and $252,800 in fiscal 1994, 1993 and 1992, respectively.
At May 31, 1994, the Company's President and immediate family
were indebted to the Company in the amount of $432,200, of which
$322,800 is represented by notes secured by 120,600 shares of the
Company's common stock.
The Company holds a $260,600 non-interest bearing, non-
recourse promissory note from an affiliate. The note is secured by
60,000 shares of the Company's common stock and is due
October 30, 1994. This note is eliminated in consolidation.
On May 26, 1992, the Company received 1,618,746 shares of
Crested common stock in exchange for the cancellation of accounts
receivable of $809,300 due the Company from Crested. The receipt
of these shares increased the Company's ownership in Crested to
52.9%. Therefore, both the balance sheet and statement of
operations have been consolidated with the Company for fiscal years
ended May 31, 1994 and 1993, but the statement of operations was
not consolidated for fiscal 1992.
In November 1992, the Company entered into a sale/leaseback
agreement as the lessee, and sold certain machinery and equipment
to Brunton. This machinery and equipment is being leased from the
affiliate on a month to month basis for $6,800. The Company had
deferred the gain of $249,800 on this sale as of May 31, 1993. The
deferred gain was eliminated in consolidation as of May 31, 1994
(Note B).
<PAGE>
In April 1993, the Company received a $211,800 advance from an
affiliate and sold 50,000 shares of common stock to this affiliate
for $2.75 per share, which approximated market value. The advance
is in the form of a note to be repaid by 2003, with interest at
2.5% above prime. This note was paid off during fiscal 1994. As
further consideration for the note, the Company granted the
affiliate options for 150,000 common shares at $3.50 per share.
These options are exercisable over a five year period. None of
these options have been exercised as of May 31, 1994.
D. USECC JOINT VENTURE:
USECC operates the Glen L. Larsen office complex; Wind River
Estates, a 100-unit mobile home park; an aircraft hangar with a
fixed base operation, office space and certain aircraft; holds
interests in various mineral operations including SMP and GMMV;
conducts oil and gas operations; and transacts all operating and
payroll expenses, except for specific expenses allocated directly
to each venturer. The joint venture agreement also provides for
the allocation of certain operating expenses to other affiliates.
E. INVESTMENTS AND ADVANCES:
The Company's investment in and advances to affiliates are as
follows:
Carrying Value at May 31,
________________________
Consolidated
Ownership 1994 1993
___________ __________ __________
Equity Method:
GMMV 50.0% $ 724,800 $ 724,800
Brunton (Note B,
consolidated
at end of 1994) 43.6% -- 737,400
Ruby Mining Company 26.7% 40,700 57,000
SMP (Note F) 50.0% 2,042,400 1,187,500
___________ ___________
$2,807,900 $2,706,700
___________ ___________
___________ ___________
<PAGE>
Equity income (loss) from investments and writedowns of
investments accounted for by the equity method are as follows:
Year Ended May 31,
________________________________
1994 1993 1992
__________ __________ ________
Crested Corp.
(consolidated
beginning in 1993) $ -- $ -- $ 115,100
SMP (Note F) (514,800) (532,000) (497,400)
Brunton (Note B) 140,500 85,600 61,900
Ruby Mining Company (16,400) 1,700 (4,500)
GMMV -- -- --
_________ _________ _________
(390,700) (444,700) (324,900)
Equity investment
extraordinary item -- -- 60,000
_________ _________ _________
$(390,700) $(444,700) $(264,900)
_________ _________ _________
_________ _________ _________
There is currently litigation and arbitration proceedings with
the Company's partner in the SMP partnership, as discussed further
in Note K. Because of the litigation and arbitration, the Company
has funded all recent advances to SMP in the amount of $3,643,100
for standby mine care and maintenance, the rental of certain mining
equipment and administrative costs during fiscal 1992, 1993 and
1994. These advances are included in the above investment account
and while they have been reduced by the Company's equity share of
SMP's expenses, the Company considers the $3,643,100 to be a
receivable from SMP. Whether or not the $3,643,100 of advances are
recovered will depend on the outcome of the litigation and
arbitration with Nukem and its wholly-owned subsidiary CRIC as
further discussed in Note K.
SMP has entered into various market related and base price
escalated uranium sales contracts with certain utilities which
require delivery of an estimated 270,000 to 1,301,253 pounds of
uranium annually from 1995 through 2000. These contracts also
allow for the quantities to be substantially increased by the
utilities. Until the disputes between the SMP partners are
resolved, the Company and Crested are arranging for the purchase
and delivery of their portion of the contracts or are allowing
NUKEM and CRIC to make the entire delivery. The deliveries will be
satisfied by purchases in the spot market, existing purchase
contracts, uranium inventories or by producing from SMP properties.
Production will not be commenced, however, until uranium prices
rise substantially. Most market related sales contracts can be
settled through spot market purchases. All base price sales
contracts exceed the spot market price as of May 31, 1994.
Revenues from such uranium sales of $2,893,800, $2,690,800 and
$123,300 have been included in the accompanying consolidated
statements of operations for the years ended May 31, 1994, 1993 and
1992, which would normally have been sales of SMP.
During fiscal 1993, GMMV began expensing certain general and
administrative, maintenance and holding costs. The Company has not
recognized an equity loss in GMMV for fiscal 1994 and 1993 because
Kennecott is committed to fund 100% of the first $50,000,000 of
development and operating costs of the Joint Venture. The
Company's investment in GMMV of $724,800 in the accompanying
balance sheets is substantially lower than its equity in GMMV.
Condensed combined statements of operations of the Company's
equity investees include GMMV, SMP, Brunton and Ruby Mining Company
("Ruby") for 1994, 1993 and 1992. Condensed combined balance
sheets do not include Brunton for 1994 as Brunton's balance sheet
was consolidated into USE as of May 31, 1994.
CONDENSED COMBINED BALANCE SHEETS - EQUITY INVESTEES
May 31,
_____________________________
1994 1993
____________ ____________
Current assets $ 720,700 $ 2,677,100
Non-current assets 48,795,700 47,953,900
____________ ____________
$ 49,516,400 $ 50,631,000
____________ ____________
Current liabilities $ 6,429,000 $ 5,432,900
Other long-term debt 23,621,600 24,423,900
Excess in assets 19,365,800 20,774,200
____________ ____________
$ 49,516,400 $ 50,631,000
____________ ____________
____________ ____________
<PAGE>
<PAGE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS - EQUITY INVESTEES
Year Ended May 31,
__________________________________________
1994 1993 1992
___________ ___________ ___________
Revenues $ 17,000 $ 3,604,800 $ 3,845,500
Less costs
and expenses 2,980,300 8,500,500 4,690,200
___________ ___________ ___________
Net loss $(2,963,300) $(4,895,700) $ (844,700)
___________ ___________ ___________
___________ ___________ ___________
F. MINERAL CLAIMS TRANSACTIONS AND MINING PROPERTIES:
GMMV
During fiscal 1990, the Company and Crested entered into an
agreement with Kennecott, a wholly-owned, indirect subsidiary of
The RTZ Corporation PLC, for Kennecott to acquire a 50% interest in
certain uranium mineral properties known as the Green Mountain
Properties. The purchase price was $15,000,000 of which $6,000,000
was received in fiscal 1990 and $9,000,000 was received in fiscal
1991. Before they were contributed to GMMV, the Green Mountain
Properties were owned by the Company, with a portion owned by
USECC.
The Boards of Directors of the Company and Crested adopted a
method of apportioning the initial consideration of $15,000,000, on
a ratio of 84% to the Company and 16% to Crested. This division
was based on analyses of the projected cash flows of the properties
contributed by USE and USECC.
Kennecott committed to fund 100% of the first $50 million of
capital contributions to the joint venture. Kennecott will also
pay additional amounts if certain future operating margins are
achieved. Because the Company held 100% of the claims containing
the Round Park Deposit portion of the Green Mountain properties, it
has the right to receive 50% of the cash flows from the operations
relating to that portion of GMMV properties. With respect to
portions of GMMV properties previously held by USECC, the Company
and Crested share in cash flows attributable to their combined 50%
interest in GMMV.
GMMV has incurred $12,133,700 in the development and
operations of the above uranium mineral properties through May 31,
1994. This was funded by Kennecott out of the $50 million funding
commitment. As previously mentioned, the Company's carrying value
of its investment in GMMV is $724,800 at May 31, 1994, which is
substantially lower than its equity basis in GMMV. Reclamation
obligations of GMMV are discussed in Note K. Development of the
properties continues in anticipation of future uranium price
increases.
SMP
During fiscal 1989, USE and Crested, through USECC, entered
into an agreement to sell a 50% interest in their Sheep Mountain
properties to Nukem's subsidiary CRIC. USECC and CRIC immediately
contributed their 50% interests in the properties to a newly-formed
partnership, SMP. SMP was established to further develop and mine
the uranium claims on Sheep Mountain, acquire uranium supply
contracts and market uranium. In 1989 USECC agreed to assign three
uranium delivery contracts to SMP. USECC, however, remained solely
responsible for the reclamation of the properties and future
environmental liabilities. SMP agreed to deposit up to $.50 per
pound of U3O8 as it is produced from the properties for reclamation
obligations. See Notes E and K for a description of the investment
and a discussion of related litigation.
AMAX Transactions
During prior years, the Company and Crested conveyed interests
in mining claims to AMAX Inc. ("AMAX") in exchange for cash,
royalties, and other consideration including interest-free loans,
due in 2010. In connection with a renegotiation of various rights
and duties of the parties, AMAX agreed to amortize the principal
amount of those loans to the Company and Crested by $250,000 each
quarter, subject to certain conditions and until AMAX put the
properties into production, which has not occurred. The
amortization of these loans is complete as of May 31, 1994.
In addition, AMAX pays the Company and Crested an annual
advance royalty of 50,000 pounds of molybdenum (or its cash
equivalent). AMAX is entitled to a credit against future royalties
for any advance royalty payments made, but such royalties are not
refundable if the properties are not placed into production. The
Company recognized $126,800, $105,800 and $55,900 of revenue from
the advance royalty payments in fiscal 1994, 1993 and 1992,
respectively.
AMAX may elect to return the properties to the Company and
Crested which would cancel the advance royalty obligation. If AMAX
formally decides to place the properties into production, it will
pay $2,000,000 to the Company and Crested, and if AMAX sells the
properties, the Company and Crested will receive 15% of the first
$25 million received by AMAX.
<PAGE>
Sutter Gold Venture
During fiscal 1991, the Company acquired a one-half interest
in Sutter Gold Venture ("SGV"), a joint venture formalized to
acquire mineral leases and develop and mine gold from properties in
California. The Company, in conjunction with Crested, formed USECC
Gold and transferred one-ninth of its interest in SGV to Crested in
exchange for Crested's agreement to pay one-ninth of the Company's
acquisition costs for its interest in the joint venture, plus
accrued interest as described below.
The Company acquired its interest in SGV for: (i) $4,500,000
of the $5,000,000 purchase price of SGV's properties; (ii) an
agreement to fund predecessor holding costs and the initial
development costs of SGV totalling $500,000; and (iii) its
agreement to provide its share of costs and assessments of SGV.
SRRI, the other initial venturer in SGV, provided $500,000 of the
property purchase price, and agreed to pay $2,000,000 to the
Company to equalize their investments in SGV. The Company and SRRI
agreed that they would each initially hold 50% interests in SGV.
SRRI issued a $2,000,000 note to the Company, bearing interest
at 10% per annum. The note provided that $500,000 of principal and
accrued interest was due April 12, 1991, and the balance of
$1,500,000 was due October 12, 1991, with interest. If the
installments were not paid when due, the interests of the Company
and SRRI in SGV were to be adjusted to equal the percentage of the
$5,000,000 purchase price of SGV's properties that each of them
provides.
Crested's purchase price for its interest in SGV was: (i)
$500,000 (one-ninth of the $4,500,000 provided by the Company to
purchase the SGV properties) with interest; (ii) an agreement to
pay the Company $55,556 (one-ninth of the initial $500,000 of
predecessor holding costs and initial development costs of SGV
which the Company agreed to pay) with interest; and (iii) an
agreement to fund one-ninth of the assessments and liabilities
imposed on the Company-Crested ownership interest in SGV. In
exchange, Crested received one-ninth of the Company's interest in
SGV, which initially entitled it to a 5.6% interest in the project.
Crested was also entitled to one-ninth of any payments on the
$2,000,000 note by SRRI.
In exchange for an agreement to issue 475,000 shares of SRRI's
common stock (one-ninth to Crested and eight-ninths to the
Company), SRRI obtained an extension of the due date for the
initial $500,000 note obligation to July 16, 1991. Payment was not
received by the extended due date, and the 50% interest of SRRI in
SGV was reduced to 40%, with a corresponding increase in the
Company-Crested interest to 60%. Payment was not received on the
remaining portion of the debt by the final due date and USECC
Gold's percentage interest in SGV increased to 90%. During May
1994, the Company, Crested and SRRI reached an agreement under
which SRRI gave up all rights, title and interest in SGV and
delivered 400,000 shares of its common stock in exchange for
forgiveness of all accounts and notes payable by SRRI to the
Company and Crested. Consequently, USE and Crested own 100% of
SGV.
SGV is in the development stage at May 31, 1994 and is
primarily engaged in mine development, exploration and feasibility
work, permitting and acquisition of mill equipment. Limited
revenues have been generated to date from processed ore samples.
The related mining costs were recognized along with all general and
administrative type costs. All acquisition and other mine
development costs have been capitalized, amounting to $9,317,300 at
May 31, 1994.
Plateau Resources Limited
On August 11, 1993, the Company concluded the June 30, 1993
Stock Purchase Agreement ("SPA") with Consumers Power Company
("CPC"), by which the Company purchased from CPC all of the
outstanding stock of Plateau Resources Limited ("Plateau").
Plateau, a Utah corporation, owns the Shootaring Canyon Uranium
Mill and support facilities in southeastern Utah. At the present
time, Plateau has applied to renew its materials license with the
United States Nuclear Regulatory Commission ("NRC"). See paragraph
(b) below.
In 1984, because of a severely depressed uranium market for
uranium concentrates, Plateau indefinitely extended the suspension
of operations of its uranium processing facility and ceased
development of the Ticaboo Townsite project. Therefore, the
acquisition as discussed below consisted of non-operating assets
with no reportable continuing operations. The Company paid nominal
cash consideration for the Plateau stock. As additional
consideration, the Company agreed:
(a) to perform or cause the performance by Plateau of all
studies, remedial or other response actions or other activities
necessary from time to time for Plateau to comply with
environmental monitoring, site exit and other provisions of (i)
federal and state environmental laws relating to hazardous or toxic
substances, and (ii) the Uranium Mill Tailings Radiation Control
Act, the Atomic Energy Act of 1954, and administrative orders and
licenses relating to nuclear or radioactive substances or materials
on the property of or produced or released by Plateau; and
(b) to indemnify CPC from all liabilities and costs related to
the presence of hazardous substances or radioactive materials on
Plateau property, and of any future violation of laws and
administrative orders and licenses relating to the environment or
to nuclear or radioactive substances.
At closing of the SPA, Plateau's assets included $14,200,000
in cash and cash equivalents. Of this amount, $2,500,000 was
transferred at closing by Plateau to fund the "NRC Surety Trust
Agreement" with a commercial bank as trustee. The trustee is to
pay future costs of mill decommissioning, site reclamation, and
long term site surveillance, as directed by the NRC. The amount
transferred to the trust is the minimum amount now required by the
NRC as financial assurance for clean up after permanent shut down
of the mill.
Also at closing, $4,800,000 was transferred by Plateau to
fund the "Agency Agreement" with a commercial bank. These funds
will be available to indemnify CPC against possible claims related
to environmental or nuclear matters, as disclosed above, and
against third-party claims related to a tax benefit transfer
agreement between Plateau and the third-party, in the event of a
"disqualification event" as provided in such agreement. The
$4,800,000 and $2,500,000 are reflected as Restricted Investments.
No value has been recorded by the Company for the mill and related
operating assets received in the transaction because of their
current nonoperating nature and the lack of cash flow from any
operations in the foreseeable future. The Company recorded the
specified $2,500,000 reclamation liability, an additional liability
for $4,800,000 related to an indemnification of other possible
claims against Plateau and recorded a liability of $6,900,000 for
estimated care and maintenance costs on the mill. Certain care and
maintenance costs incurred during the year reduced this liability
to $6,484,600 at yearend. Together with the $4,800,000
indemnification reserve, these estimated obligations are recorded
as Other Accrued Liabilities of $11,284,000 in the accompanying
consolidated financial statements.
Since the date of acquisition, there has been only minimal
subsequent operations because the future operating and holding
costs of most of the facilities acquired were accrued as part of
the acquisition transaction and included Other Accrued Liabilities.
Energx
During fiscal 1994, USE and Crested formed Energx to engage in
the exploration, development and operation of natural gas
properties. Energx currently has leased properties in Wyoming and
the Fort Peck Indian Reservation, Montana. Energx is owned by USE
(45%), Crested (45%), the Assiniboine and Sioux Tribes (10%).
<PAGE>
G. LONG-TERM DEBT:
The last quarterly amortization of $250,000 each for the non-
interest bearing loans from AMAX to USE and Crested were recognized
in fiscal 1994 (Note F).
The Company's debt includes the $200,000 revolving line of
credit of Brunton with a commercial bank. The line of credit
accrues interest at 9.75% and expires on April 27, 1995 . As of
May 31, 1994, $161,000 was outstanding on the line of credit.
Brunton has two installment notes bearing interest at 8% secured by
generally all of the assets of Brunton. FNG also has various
installment notes bearing interest from 6.9% to 11.5% which are
secured by FNG equipment with maturity dates through 1997.
The components of debt as of May 31, 1994 and 1993 are as
follows:
May 31,
__________________________
1994 1993
___________ ____________
Non-interest bearing note to AMAX
USE portion (Note F) $ -- $ 250,000
Non-interest bearing note to AMAX
Crested portion (Note F) -- 250,000
Installment note - secured by equipment,
interest at 8%, matures February 1996 220,200 --
Installment notes - secured by real estate,
interest at 7.9% - 8%, matures 1998-2004 287,600 --
Brunton installment notes 770,000 --
Brunton line of credit 161,000 --
FNG installment notes 157,800 805,000
FNG line of credit -- 213,500
Notes payable - other 82,000 315,000
___________ __________
1,678,600 1,833,500
Less current portion (569,500) (629,100)
___________ __________
$1,109,100 $1,204,400
___________ __________
___________ __________
Principal requirements on debt for the five years after May
31, 1994 are as follows: 1995 - $569,500; 1996 - $232,900; 1997 -
$142,800, 1998 - $129,400, and thereafter - $604,000.
<PAGE>
Subsequent to yearend, USE and Crested obtained a $1,000,000
line of credit from a bank. The line of credit bears interest at
the banks prime rate plus .5% (8.5% initially) and matures on June
23, 1995. The line of credit is secured by certain receivables and
a share of the net proceeds of production from certain oil and gas
wells. As of September 1, 1994, $600,000 had been drawn under this
agreement.
H. INCOME TAXES:
The Company adopted SFAS 109 during fiscal 1994.
The components of deferred taxes as of May 31, 1994 are as
follows:
May 31,
1994
_______________
Deferred tax assets:
Deferred compensation $ 26,800
Deferred gain on sale of assets 84,500
Net operating loss carryforwards 4,601,100
Capital loss carryforwards 452,000
Tax Credits 325,000
Other 36,000
____________
Total deferred tax assets $ 5,525,400
____________
Deferred tax liabilities:
Accelerated depreciation for tax (1,112,900)
Development and exploration costs (2,039,900)
____________
Total deferred tax liabilities (3,152,800)
____________
$ 2,372,600
Valuation allowance $ (2,639,600)
____________
Net deferred tax liability $ 267,000
____________
____________
The Company has established a valuation allowance of
$2,639,600 against deferred tax assets due to the losses incurred
by the Company in fiscal 1994 and 1993. The Company's ability to
generate future taxable income to utilize the NOL and capital loss
carryforwards is uncertain.
<PAGE>
<PAGE>
For the years ended May 31, 1993 and 1992, the tax effect of
deferred taxes resulting from timing differences in the recognition
of revenues and expenses for tax and financial statement purposes
are as follows:
Year Ended May 31,
____________________________
1993 1992
_____________ ____________
Gain on sale of property
and equipment $ (81,800) $ --
Operating loss
carryforwards for
income tax
reporting purposes (311,200) (563,700)
Deferred compensation
expense (55,600) (75,800)
Exploration and
development costs 437,700 737,900
Depreciation 54,000 50,300
Other (43,100) 48,600
___________ __________
Deferred income taxes -- 197,300
Less operating loss
carryforwards
recognized for
financial reporting
purposes -- 197,300
___________ __________
Net deferred
income taxes $ -- $ --
___________ __________
___________ __________
The income tax provision (benefit) is different from the
amounts computed by applying the federal income tax rate to income
before taxes. The reasons for these differences are as follows:
<PAGE>
<PAGE>
Year Ended May 31,
________________________________________
1994 1993 1992
____________ __________ ____________
Expected federal
income tax $(1,055,300) $ -- $ 208,500
Other -- -- (11,200)
SFAS 109 allowance 1,055,300 -- --
___________ _________ __________
Income tax provision -- -- 197,300
Extraordinary item -
net operating
loss carryforwards -- -- 197,300
___________ _________ __________
Provision for
(benefit from)
income taxes less
net operating
loss carryforwards $ -- $ -- $ --
___________ _________ __________
___________ _________ __________
There were no taxes payable as of May 31, 1994 or 1993.
At May 31, 1994, the Company and its subsidiaries had
available, for federal income tax purposes, net operating loss
carryforwards of approximately $13,150,000, which will expire from
1995 to 2009 and investment tax credit carryforwards of $325,000
which, if not used, will expire from 1995 to 2001. The Internal
Revenue Code contains provisions which limit the NOL carryforwards
available which can be used in a given year when significant
changes in company ownership interests occur. In addition, the NOL
and credit amounts are subject to examination by the tax
authorities.
The Internal Revenue Service has audited the Company's and
affiliates' tax returns through fiscal 1986, and their income tax
liabilities are settled through that year. The IRS has recently
audited the Company's and affiliates' fiscal years 1989, 1990 and
1991 tax returns. The Company has received a deficiency letter for
the years 1989 through 1991. The Company has submitted a written
appeal to protest the findings of the examining agent. Management
believes the Company will prevail on the significant issues in
dispute, and therefore, that significant liabilities will not
result from the findings.
I. SEGMENTS AND MAJOR CUSTOMERS:
The Company's primary business activity is minerals
operations. Other reportable industry segments included commercial
operations, primarily real estate activities and operation of an
airport fixed base operation and construction operations. The
following is information related to industry segments:
<PAGE>
Year Ended May 31, 1994
_______________________________________________________
Minerals Commercial Construction
Operations Operations Operations Consolidated
__________ ___________ ___________ _______________
Revenues $4,359,300 $ 1,165,100 $2,606,400 $ 8,130,800
___________ __________ __________
___________ __________ __________
Interest and
other revenues 645,500
___________
Total Revenues $ 8,776,300
___________
___________
Operating
profit (loss) $ (665,100) $ (824,300) $ 317,500 $ (1,171,900)
___________ __________ __________
___________ __________ __________
Interest and
other revenues 645,500
General corporate
and other expenses (2,186,700)
Equity in loss
of affiliates (390,700)
Cumulative effect
of income tax
accounting change (267,000)
___________
Loss before income
taxes and cumu-
lative effect $ (3,103,800)
___________
___________
Identifiable assets
at May 31, 1994 $17,745,200 $ 6,464,000 $ 371,200 $ 24,580,400
___________ __________ __________
___________ __________ __________
Investments in
affiliates 2,807,900
Corporate assets 5,702,000
___________
Total assets
at May 31, 1994 $ 33,090,300
___________
___________
Capital expenditures $1,190,700 $ 441,600 $ 19,800
___________ __________ __________
___________ __________ __________
Depreciation,
depletion and
amortization $ -- $ 505,600 $ 160,200
___________ __________ __________
___________ __________ __________
<PAGE>
Year Ended May 31, 1993
_______________________________________________________
Minerals Commercial Construction
Operations Operations Operations Consolidated
__________ ___________ ___________ _______________
Revenues $ 4,796,600 $ 894,400 $ 2,026,500 $ 7,717,500
____________ __________ ___________
____________ __________ ___________
Interest and
other revenues 1,328,000
___________
Total Revenues $ 9,045,500
___________
___________
Operating
profit (loss) $ 1,140,400 $ (678,600) $ 266,100 $ 727,900
____________ __________ ___________
____________ __________ ___________
Interest and
other revenues 1,328,000
General corporate and
other expenses (1,833,100)
Equity in loss
of affiliates (444,700)
___________
Loss before
income taxes
and extra-
ordinary item $ (221,900)
___________
___________
Identifiable assets
at May 31, 1993 $ 8,765,100 $ 5,605,800 $ 1,190,200 $ 15,561,100
____________ __________ ___________
____________ __________ ___________
Investments
in affiliates 2,706,700
Corporate assets 5,769,400
___________
Total assets
at May 31, 1993 $ 24,037,200
___________
___________
Capital expenditures $ 3,300 $ 169,800 $ 819,900
____________ __________ ___________
____________ __________ ___________
Depreciation,
depletion and
amortization $ -- $ 419,400 $ 162,200
____________ __________ ___________
____________ __________ ___________
<PAGE>
Year Ended May 31, 1992
_______________________________________________________
Minerals Commercial Construction
Operations Operations Operations Consolidated
__________ ___________ ___________ _______________
Revenues $ 1,677,500 $ 817,200 $ 2,895,000 $ 5,389,700
____________ __________ ___________
____________ __________ ___________
Interest and
other revenues 963,900
___________
Total Revenues $ 6,353,600
___________
___________
Operating profit $ 567,900 $ 91,800 $ 254,100 $ 913,800
____________ __________ ___________
____________ __________ ___________
Interest and
other revenues 963,900
General corporate and
other expenses (999,600)
Equity in loss
of affiliates (324,900)
___________
Income before
income taxes
and extra-
ordinary item $ 553,200
___________
___________
Identifiable assets
at May 31, 1992 $ 8,059,900 $ 6,368,400 $ 583,400 $ 15,011,700
____________ __________ ___________
____________ __________ ___________
Investments in
affiliates 1,985,700
Corporate assets 7,585,600
___________
Total assets
at May 31, 1992 $ 24,583,000
___________
___________
Capital expenditures $ 1,600 $ 228,600 $ 336,100
____________ __________ ___________
____________ __________ ___________
Depreciation,
depletion and
amortization $ -- $ 266,700 $ 126,100
____________ __________ ___________
____________ __________ ___________
<PAGE>
During fiscal 1994, 1993 and 1992, approximately 14%, 44% and
62% of mineral revenues were from amortization of principal on the
AMAX notes and annual advance royalties of molybdenum from AMAX.
During fiscal 1994, 1993 and 1992, 86%, 56% and 7%, respectively,
of mineral revenues were from sales of uranium.
The Company subleases excess office space, contracts aircraft
for charter flights and sells aviation fuel. Commercial revenues
in the statements of operations consist of mining equipment, office
and other real property rentals, charter flights and fuel sales.
J. SHAREHOLDERS' EQUITY:
The Board of Directors has adopted the U.S. Energy Corp. 1989
Stock Option Plan (the "Option Plan") for the benefit of USE's key
employees. 550,000 shares of the Company's $.01 par value common
stock have been reserved for issuance under the Option Plan.
During fiscal 1990, the Company issued options to certain of its
executive officers, Board members and others. 44,000 incentive
options were issued at purchase prices ranging from $7.84 per
share to $8.62 per share. 231,000 non-qualified options were also
issued at exercise prices from $6.27 to $8.62 per share. The
options will expire on January 2, 2000, with the exception of those
issued to the Company's Chief Executive Officer, which will expire
January 2, 1996.
The Board of Directors of USE adopted the U.S. Energy Corp.
1989 Employee Stock Ownership Plan ("ESOP") in 1989, for the
benefit of USE's employees. During fiscal 1994, 1993 and 1992, the
Board of Directors of USE contributed 46,332, 49,087 and 49,599,
shares to the ESOP at prices of $4.00, $3.75 and $3.50 per share,
respectively. The Company is responsible for one-half of these
contributions of $92,500, $91,700 and $86,800 in fiscal 1994, 1993
and 1992, respectively. Crested is responsible for the remainder
(see Note C). USE has loaned the ESOP $1,014,300 to purchase
125,000 shares from the Company and 38,550 shares on the open
market. These loans, which are secured by pledges of the stock
purchased with the loan proceeds, bear interest at the rate of 10%
per annum and are due in fiscal 1995 and 1996.
During fiscal 1991, the Board of Directors of both the Company
and Crested issued shares of stock as bonuses to certain directors,
employees and third parties. The stock bonus shares have been
reflected outside of the Shareholders' Equity section in the
accompanying balance sheets because such shares are forfeitable to
the Company and Crested until earned. Crested is responsible for
one half of the compensation expense related to these issuances
(see Note C). Compensation expense will be recognized over the
various earn out periods. As of May 31, 1994, 1993 and 1992, the
Company had compensation expense of $116,700, $271,700 and
$293,200, respectively, resulting from these issuances. During
fiscal 1993, the Company's Board of Directors amended the stock
bonus plan. As a result, the earn out dates have been extended
until retirement, which is the earn out date of the amended stock
bonus plan. The new plan grants a stock bonus of 20% of the
previous plan per year for five years. Additional information
related to these stock issuances is set forth in the following
table:
Issue Number Issue Total
Date of Shares Issuer Price Compensation
May 1990 44,330 USE $ 8.86 $392,925
June 1990 46,530 USE 10.00 465,300
June 1990 15,400 USE 10.00 154,000
June 1990 11,000 USE 10.00 110,000
June 1990 25,000 Crested 1.0625 26,562
December 1990 22,500 Crested .50 11,250
January 1993 18,520 USE 3.00 55,560
January 1993 6,500 Crested .22 1,430
January 1994 18,520 USE 4.00 74,080
January 1994 6,500 Crested .28 1,828
No shares were earned in fiscal 1993 or 1992; however, 5,000
shares were earned and released in fiscal 1994.
In April 1993, the Board of Directors of USE authorized the
issuance of 50,000 shares of its common stock at $2.75 per share to
an affiliate for cash in an effort to increase the Company's
operating capital. USE also granted Brunton options for 150,000
common shares at $3.50 per share. No options have been exercised
as of May 31, 1994.
On November 11, 1993, the Company issued 100,000 shares of its
common stock at $3.00 per share to Brunton in lieu of payment on a
$300,000 line of credit.
K. COMMITMENTS, CONTINGENCIES AND OTHER:
Legal Proceedings
SMP
Arbitration Proceeding Concerning SMP. During fiscal 1992,
NUKEM's wholly-owned subsidiary Cycle Resource Investment
Corporation ("CRIC") instituted arbitration proceedings against the
Company and Crested. CRIC claimed that the Company and Crested
violated the SMP partnership agreement by assigning amounts equal
to any SMP cash distributions to USECC derived from sales of
uranium under SMP supply contracts. CRIC also asserted that by
entering into the GMMV agreement, the Company and Crested
misappropriated a business opportunity of SMP. CRIC seeks damages
and certain equitable remedies from the Company and Crested, in an
amount to be determined and seeks to expel the Company and Crested
from the SMP Partnership. The Company and Crested do not believe
their entry into the GMMV agreement violated the restraints on
transfer of SMP property set forth in the SMP agreement. They have
vigorously defended themselves against the allegations of CRIC.
<PAGE>
Federal Court Action Concerning SMP. On July 3, 1991, the
Company and Crested filed a civil action in the U. S. District
Court of Colorado against Nukem, CRIC and their affiliates,
alleging that Nukem, CRIC and their affiliates fraudulently
misrepresented facts and concealed information from the Company and
Crested to induce their entry into the agreements forming SMP and
seeks rescission, damages and other relief. The Company and
Crested further alleged that NUKEM and CRIC have refused to provide
information about transactions by CRIC and its affiliates with SMP,
and that the defendants had engaged in various wrongful acts
relating to financing and acquisition of uranium for SMP. NUKEM
and CRIC filed an answer and a variety of counterclaims against the
Company and Crested. NUKEM's affiliates (excluding CRIC) were
thereafter dismissed from the lawsuit. The U. S. District Court
granted the motion of the Company and Crested to stay the above
arbitration initiated by CRIC and also ordered the Company and
Crested to amend their complaint. On April 6, 1992, the Company
and Crested filed an amended complaint against NUKEM and CRIC
setting out the alleged fraud with particularity, and NUKEM and
CRIC filed answers and counterclaims to the amended complaint.
State Court Action Concerning SMP. On September 16, 1991,
USECC filed a civil action in the Denver District Court against SMP
seeking reimbursement of $85,000 per month since the spring of 1991
for the care and maintenance of the SMP underground uranium mines
and properties in south-central Wyoming. On May 11, 1993, the
Denver District Court stayed all proceedings until the U.S.
District Court for Colorado case is resolved.
Summary. The discovery stage in the case filed by the Company
and Crested on July 3, 1991 in the U. S. District Court of Colorado
against NUKEM, CRIC et al has been protracted and vigorously
contested by all parties. On November 6, 1993, the remaining
parties in that suit, NUKEM and CRIC, verbally agreed with the
Company and Crested that the majority of the litigation post the
formation of SMP, would be handled through consensual arbitration
with the American Arbitration Association ("AAA"). The agreement
to arbitrate was finally reduced to writing and executed effective
on February 7, 1994. The arbitration proceeding commenced on June
27, 1994 before a three member AAA arbitration panel. Given the
amount of evidence to be addressed and the availability of the
members of the panel and counsel, it is currently estimated that
arbitration proceedings will not be concluded until early 1995.
Pursuant to a court order requiring an election of remedies, the
Company and Crested elected to affirm the SMP Partnership and seek
the remedies of common law damages, damages as provided under the
Racketeer Influenced and Corrupt Organization(s) Act (RICO) and
other remedies, in lieu of asking that the SMP Partnership be
rescinded.
<PAGE>
Illinois Power
Illinois Power Company ("IPC"), one of the utilities with whom
SMP has a long-term uranium supply contract, unilaterally sought to
terminate the contract on October 28, 1993 and filed suit
contemporaneously in the Federal District Court, Danville,
Illinois, against the Company, Crested, CRIC, SMP, Nukem Luxemburg
GmbH ("NULUX") and the Dresdner Bank, seeking a declaratory
judgment that the contract with USECC, which was assigned to SMP
and thereafter to NULUX, had been breached by USECC filing of a
Motion for Appointment of Receiver in the SMP litigation. The
Dresdner Bank was dismissed from the case, and the remaining
defendants filed answers denying IPC's allegations and filed
counterclaims for damages due under the IPC contract. These
defendants also filed Motions for Summary Judgment and a hearing
was held on the motions on May 27, 1994. On September 1, 1994, the
U. S. District Court for the Central District of Illinois granted
the defendants' motions for summary judgment against IPC dismissing
IPC's complaint, and further granted those defendant's
counterclaims against IPC for breach of contract by IPC. A
scheduling conference has been set by the Court for September 30,
1994 to determine the amount of damages, if any, to be awarded to
the Company.
Reclamation and Environmental Liabilities
Most of the Company's mine development, exploration and
operating activities are subject to federal and state regulations
that require the Company to protect the environment. The Company
attempts to conduct its mining operations so as to comply with
these regulations, but they are continually changing and generally
becoming more restrictive. Consequently, the Company's current
estimates of its reclamation obligations and its current level of
expenditures to perform ongoing reclamation may change in the
future. At the present time, however, the Company cannot predict
the outcome of future regulation or its impact on costs.
Nonetheless, the Company has recorded its best estimate of future
reclamation and closure costs based on currently available facts
and technology and enacted laws and regulations. Certain
regulatory agencies, such as the Nuclear Regulatory Commission, the
Bureau of Land Management and the Wyoming Department of
Environmental Quality review the Company's reclamation,
environmental and decommissioning liabilities, and the Company
believes its recorded amounts are consistent with those reviews and
related bonding requirements. To the extent that planned
production on its properties is delayed, interrupted or
discontinued because of regulation or the economics of the
properties, the future earnings of the Company would be adversely
affected. The Company believes it has accrued all necessary
reclamation costs and there are no additional contingent losses on
unasserted claims to be disclosed or recorded in the reclamation
liability. The Company has not disposed of any properties for
which it has a commitment or is liable for any known environmental
liabilities.
The majority of the Company's environmental obligations relate
to former mining properties acquired by the Company. Since the
Company currently does not have properties in production, the
Company's policy of providing for future reclamation and mine
closure costs on a unit-of-production basis has not resulted in any
significant annual expenditures or costs. For the obligations
recorded on acquired properties, including site-restoration,
closure and monitoring costs, actual expenditures for reclamation
will occur over a number of years, and since these properties are
all considered future production properties, those expenditures,
particularly the closure costs, may not be incurred for many years.
The Company also does not believe that any significant capital
expenditures to monitor or reduce hazardous substances or other
environmental impacts are currently required. As a result, the
near term reclamation obligations are not expected to have a
significant impact on the Company's liquidity.
As of May 31, 1994, the Company has recorded estimated
reclamation obligations, including standby costs, of $15,236,400,
as reflected in reclamation and other long-term liabilities in the
accompanying financial statements. In addition, the GMMV joint
venture, in which the Company is a 50% equity investor, has
recorded a $23,600,000 liability for future reclamation and closure
costs. None of these liabilities have been discounted, and the
Company has not recorded any potential offsetting recoveries from
other responsible parties or from any insurance companies.
The Company currently has four mineral properties or
investments that account for most of its environmental obligations.
The Company is a partner in SMP, a joint venturer of GMMV and owner
of SGV and Plateau. The environmental obligations and the nature
and extent of cost sharing arrangements with other potentially
responsible parties, as well as any uncertainties with respect to
joint and several liability of each are discussed in the following
paragraphs:
SMP
The Company and Crested agreed to assume the reclamation
obligations, environmental liabilities and liabilities for injuries
to employees in mining operations with respect to the Crooks Gap
properties, which are part of the SMP venture. The reclamation
obligations, which are established by regulatory authorities, were
reviewed by the Company and the regulatory authorities during
fiscal 1994 and the balance in the reclamation liability account at
May 31, 1994 of $1,451,800 was determined by the Company to be
adequate. The obligation will be satisfied over the life of the
mining project which is estimated to be at least 20 years. The
Company and Crested self bonded this obligation by mortgaging
certain of their real estate holdings. A portion of the funds for
the reclamation of SMP's properties is expected to be provided by
SMP which has agreed to pay up to $.50 per pound of uranium to the
Company and Crested for reclamation work, as the uranium is
produced from the properties. The current arbitration proceedings
with Nukem and CRIC could result in changes to these agreements
between the parties.
GMMV
During fiscal 1991, the Company and Crested acquired developed
minerals properties on Green Mountain known as the Big Eagle
Property. In connection with that acquisition, the Company and
Crested agreed to assume reclamation and other environmental
liabilities associated with the property. Reclamation obligations
imposed by regulatory authorities were established at $7,300,000 at
the time of acquisition. Immediately after the acquisition, the
Company and Crested transferred a one-half interest in them to
Kennecott, and Kennecott, the Company and Crested contributed the
Big Eagle properties to GMMV, which assumed the reclamation and
other environmental liabilities. Kennecott holds a commercial bank
letter of credit as security for the performance of the reclamation
obligations for the benefit of GMMV.
During fiscal 1993, GMMV entered into an agreement to acquire
the Sweetwater uranium mill and related properties from UNOCAL.
GMMV's consideration for the acquisition of the Sweetwater Mill
Property was the assumption of all environmental liabilities and
reclamation bonding obligations. The environmental obligations of
GMMV are guaranteed by Kennecott Corporation (parent of Kennecott
Uranium Company, the other joint venture partner). However, UNOCAL
also agreed that if GMMV incurs expenditures for environmental
liabilities prior to the earlier of commercial production by GMMV
or February 1, 2001 (which liabilities are not due solely to the
operations of GMMV), UNOCAL will reimburse GMMV the first
$8,000,000 of such expenditures. Any such reimbursement may be
recovered by UNOCAL from 20% of future cash flows from sale of
uranium concentrates processed through the Mill. In any event,
until such time as environmental and reclamation undertakings are
liquidated against Kennecott Corporation, such costs are not deemed
expenditures under Kennecott's $50,000,000 development commitment
(although bond costs may be charged against this development
commitment).
The reclamation and environmental liabilities assumed by GMMV
concern two categories: (1) cleanup of an inactive open mine pit
site near the Mill, including water (heavy metals and other
contaminants) and tailings (heavy metals and other dust contaminant
abatement and erosion control) associated with the pit, and (2)
decontamination and cleanup and disposal of the Mill building and
equipment and tailings cells after Mill decommissioning. Current
liabilities for such efforts have been established at approximately
$16,314,000 by the Wyoming Department of Environmental Quality for
mine pit site matters (exercising EPA-delegated jurisdiction to
administer the Clean Water Act and the Clean Air Act, and directly
administering Wyoming statutes on mined land reclamation), and by
the NRC for decontamination and cleanup of the Mill and Mill
tailings cells. The EPA has continuing jurisdiction under the
Resource Conservation and Recovery Act, pertaining to any hazardous
materials which may be on site when cleanup work is started.
Although USE and the other GMMV parties are liable for all
reclamation and environmental compliance costs associated with Mill
and site maintenance, as well as Mill decontamination and cleanup
and site reclamation and cleanup after the Mill is decommissioned,
USE believes it is unlikely USE will have to pay for such costs
directly. First, based on current estimates of cleanup and
reclamation costs (reviewed annually by the oversight agencies),
such costs may be within the $50,000,000 development commitment of
Kennecott Uranium Company for GMMV. These costs are not expected
to increase materially, if the Mill is not put into full operation.
Second, to the extent GMMV is required to spend money on
reclamation and environmental liabilities related to previous Mill
and site operations during ownership by Minerals Exploration
Company (a UNOCAL subsidiary), UNOCAL has agreed to fund up to
$8,000,000 of such costs (provided such costs are incurred before
February 1, 2001 and before Mill production resumes), which would
be recoverable only out of future Mill production (see above).
Third, payment of the GMMV reclamation and environmental
liabilities related to the mill is guaranteed by Kennecott
Corporation, parent of Kennecott Uranium Company. Last, GMMV will
set aside a portion of operating revenues to fund reclamation and
environmental liabilities once mining and milling commences. To
date, ongoing Mill maintenance expense is funded by Kennecott as
part of its development commitment.
Kennecott Corporation will be entitled to contribution from
the USE parties in proportion to their participation interests in
GMMV, if Kennecott Corporation is required to pay Mill cleanup
costs directly pursuant to its guarantee. Such payments by
Kennecott Corporation only would be reimbursed if the liabilities
cannot be satisfied within the initial $50,000,000 expenditure
commitment, and then only to the extent there are insufficient
funds from the reclamation reserve (to be built up out of GMMV
operating revenues). In addition, if and to the extent such
liabilities resulted from UNOCAL's Mill operations, and payment of
the liabilities was required before February 1, 2001 and before
Mill production resumes, then up to $8,000,000 of that amount would
be paid by UNOCAL, before Kennecott Corporation would be required
to pay on its guarantee. Accordingly, although the extent of any
ultimate USE liability for contribution to Mill cleanup costs
cannot be predicted, USE and Crested will only be required to pay
its proportional share of Mill cleanup if a) the liabilities cannot
be satisfied with the initial $50,000,000 expenditure commitment
from Kennecott, b) there are insufficient funds from the
reclamation reserve to be built up out of GMMV operating revenues
and c) payments are not available from UNOCAL.
<PAGE>
SGV
The Company and Crested currently own 100% of SGV, which owns
gold mineral properties in California. Currently, the property is
in development and costs consist of drilling, permitting, holding
costs and administrative costs. No substantial mining has been
completed, although a 2,800 foot decline through the identified ore
zones for an underground mine was acquired in the purchase.
Because the mine is not in the production stage and the Company's
policy is to provide reclamation on a unit-of-production basis, no
environmental liabilities have been accrued as of May 31, 1994.
Any reclamation liability for SGV properties which currently exist
is insignificant.
Plateau
The environmental obligations acquired with the acquisition of
Plateau include all environmental and reclamation obligations
relating to the Shootaring Mill. Based on the bonding
requirements, Plateau transferred $2,500,000 to a trust account to
pay future costs of mill decommissioning, site reclamation and
long-term site surveillance. In addition, Plateau has recorded
additional obligations of $11,284,600 as of May 31, 1994, for the
estimated holding and maintenance costs needed until the mill is
placed in service or decommissioning begins. The estimated future
Shootaring Mill decommissioning and site reclamation costs noted
above ,as required by the NRC and the Utah Department of Natural
Resources, were determining factors in the consideration paid by
the Company
Executive Compensation
The Company and Crested are committed to pay the estates of
certain of their officers an amount equal to one year's salary for
one year after their death and reduced amounts, to be set by the
Board of Directors, for a period up to five years thereafter.
Subsequent Events
On August 25, 1994, Plateau Resources, Limited., a wholly
owned subsidiary of the Company signed a letter of intent with an
unrelated third party to sell part interest in Canyon Homesteads,
Inc., a wholly owned subsidiary of Plateau, and to develop the
Ticaboo Townsite, in south central Utah and other resort properties
near Lake Powell. The total purchase price for a one-half interest
in Canyon Homesteads is $6,000,000. The party has made a non
refundable earnest money payment of $100,000 to Plateau to be
credited to the purchase price, and will pay an additional $900,000
within 30 days of the signing of the letter of intent. The next
payment of $2,000,000 will be made 30 days later with the balance
of $3,000,000 to be paid out of cash flows generated from the
operations. The development is anticipated to include the
following: homesites, 18 hole golf course, boat storage, trailer
park, RV park, motel, condominiums, and other commercial business.
On August 31, 1994, the Company and Crested agreed to exercise
an option to purchase a 57 acre parcel of land in the City of
Gunnison, CO. from Cyprus Climax Metals Company ("AMAX"). This
land will be acquired in exchange for the Company's and Crested's
forgiveness of the next six quarters of advance minimum royalty
payments of molybdenum which would otherwise be due from Cyprus to
the respective Companies. The total purchase price of the exchange
given the current dealer oxide price is worth approximately
$266,250. (See Note F.)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Legal $5,000.00*
Audit 2,000.00*
SEC and
state fees 500.00*
$7,500.00*
* Estimate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Wyoming Business Corporation Act ("WBCA"), W.S. 17-16-850 et
seq., provides for indemnification of the registrant's officers,
directors, employees, and agents against liabilities which they may
incur in such capacities. A summarization of circumstances in
which such indemnification may be available follows, but is
qualified by reference to registrant's Articles of Incorporation
and the text of the statute.
In general, any officer, director, employee, or agent may be
indemnified against expenses, fines, settlements, or judgments
arising in connection with a legal proceeding to which such person
is a party, as a result of such relationship, if that person's
actions were in good faith, were believed by him or her to be in
(or at least not opposed to) registrant's best interests, and in
the case of any criminal proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful. Unless such
person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by
decision of the board of directors (by directors not at the time
parties to the proceeding) or by majority shareholder vote
(excluding shares held or controlled by directors who are at the
time parties to the proceeding), or by opinion of special legal
counsel.
The circumstances under which indemnification would be made in
connection with an action brought on behalf of the registrant are
generally the same as stated above, except that indemnification is
permitted only for reasonable expenses.
In addition, registrant has statutory authority to purchase
insurance to protect its officers, directors, employees, and agents
against any liabilities asserted against them, or incurred in
connection with their service in such capacities. Further,
registrant may advance or reimburse funds to a director who is a
party to a proceeding, for reasonable expenses incurred in
connection with a proceeding.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a)(1) In August, 1993 the registrant sold a $300,000 convertible
promissory note to The Brunton Company, which note was subsequently
converted (on October 19, 1993) to 100,000 common shares of the
registrant at $3.00 per share (which are the shares to which this
registration statement relates).
(2) From November 28, 1995 to February 28, 1995 the registrant
has sold 289,396 common shares, out of a total 400,000 common
shares offered. This private placement was completed as of March
31, 1995, all shares having been sold.
(3) From June 8, 1995 through June 30, 1995 the registrant has
sold 332,500 restricted common shares to accredited investors at
$4.00 per share, out of 1,750,000 common shares offered. This
private placement is continuing at filing date.
(b)(1) and (2) No underwriters are involved in the foregoing
transactions of (a)(1) and (2). RAF Financial Corp. is placement
agent for the (a)(3) private offering, and will receive a 10
percent sales commission and a 3 percent nonaccountable expense
allowance on shares sold.
(c)(1) See above.
(2) Shares are offered at $3.00. (3) Shares are offered at
$4.00.
(d)(1) The note and the conversion shares were offered and sold in
reliance on the section 4(2) exemption from section 5 registration.
(2) and (3) The common shares in the private placements are
offered and have been sold in reliance on the section 4(2)
exemption from registration, and rule 506 of regulation D
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following financial statements are filed as a part of this
registration statement:
(1) Consolidated Financial Statements (audited only for fiscal
periods ending May 31)
Registrant and Affiliates
Report of Independent Public Accountants. . . . . . . .42-43
Consolidated Balance Sheets - May 31, 1994 and 1993 . .44-45
February 28, 1995
<PAGE>
Consolidated Statements of Operations
for the Years Ended May 31, 1994, 1993 and 1992
Nine Months Ended February 28, 1995 and 1994 . . . . .46-47
Consolidated Statements of Shareholders'
Equity for the Years Ended
May 31, 1994, 1993 and 1992 . . . . . . . . . . . . . .48-49
Consolidated Statements of Cash Flows
for the Years Ended May 31, 1994, 1993 and 1992
Nine Months Ended February 28, 1995 and 1994. . . . . .50-51
Notes to Consolidated Financial Statements . . . . . .52-75
(2) Financial Statement Schedules
(i) Registrant and Affiliates
II. Valuation and Qualifying Accounts . . . . . . . 82
(ii) Financials and Schedules of Affiliates
(a) Green Mountain Mining Venture*
Report of Independent Public Accountants
Balance Sheet - December 31, 1993 and 1992*
Statement of Operations for the Period from June 1,
1990 (Date of Inception) through December 31, 1993*
Statement of Changes in Partners' Capital for the
Period from June 1, 1990 (Date of Inception)
through December 31, 1993*
Statement of Cash Flows for the Period from
June 1, 1990 (Date of Inception) through
December 31, 1993*
Notes to Financial Statements*
* Incorporated by reference from Registrant's S-4
Registration Statement SEC File No. 33-72280)
initially filed in November 1993 and effective
April 13, 1994.
(b) Sheep Mountain Partners
USE's partner in SMP, Nukem/CRIC, has refused to provide
certain information concerning SMP to SMP's independent
public accountants. The information requested concerns
partnership costs for uranium purchases. USECC and
Nukem/CRIC disagree as to whether uranium costs of the
partnership means: (i) the price which Nukem/CRIC pays
for purchases of uranium for SMP; or (ii) the price which
CRIC charges SMP for uranium.
<PAGE>
As a result, the independent public accountants have
informed USE that they have been unable to complete their
audit of SMP, and are unable to render a report on SMP's
financial statements. USE and SMP's independent public
accountants are seeking to resolve these uncertainties so
that SMP's financial statements may be finalized and
filed. When and if these matters are resolved, the SMP
financial statements will be filed under cover of an
amendment.
Balance Sheets - May 31, 1994 and 1993
Statements of Operations - Years Ended
May 31, 1994, 1993 and 1992
Statements of Changes in Partners' Capital -
Years Ended May 31, 1994, 1993 and 1992
Statements of Cash Flows - Years Ended
May 31, 1994, 1993 and 1992
Notes to the Financial Statements
Schedules to SMP's Financial Statements
*To be filed by amendment to registration statement.
All other schedules have been omitted because the
information is not applicable or because the information
is included in the financial statements.
37
(b) Exhibits. Page No.
2.1 Agreement and Plan of Share Exchange (Brunton)
3.1 USE Restated Articles of Incorporation
3.1(a) USE Articles of Amendment
3.2 USE Bylaws
4.1 USE 1989 Incentive Stock Option Plan, as amended 2/7/94
4.1(a) USE Restricted Stock Bonus Plan, as amended 2/7/94
5.1 and
24.2 Opinion and Consent of Stephen E. Rounds, Esq.
10.2 Stock Sale and Option Agreement with Brunton [includes
Brunton loans of $211,800 to USE and $76,760 to Crested]
(dated April 30, 1993).
10.3 Credit Facility (Brunton loan of $300,000 to USE,
convertible to USE common stock) (dated August 3, 1993)
10.4 Stock Purchase Agreement, and filed exhibits
(Plateau Resources)
24.1 Consent of Independent Public Accountants*
* Previously filed.
<PAGE>
ITEM 17. UNDERTAKINGS.
The registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
38
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registrations statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(a)(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(a)(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of this offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors,
officers, and controlling persons of the registrant, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the
registrant in the successful defense of any action suit or
proceeding) is asserted by such officer, director, or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, duly authorized in the City of
Riverton, State of Wyoming, on July 5, 1995.
U.S. ENERGY CORP.
By:
John L. Larsen, President
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in
the capacities and on the dates stated.
Signature Capacity Date
s/ John L. Larsen President, 7/5/95
____________________ and Director
s/ Max T. Evans Director 7/5/95
____________________
s/ Harold F. Herron Director 7/5/95
____________________
s/ Director
____________________
Don C. Anderson
s/
____________________ Director
David W. Brenman
s/ Nick Bebout Director 7/5/95
____________________
s/ R. Scott Lorimer Prin. Fin.Officer 7/5/95
____________________
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
Year Ended May 31, 1994
Allowance for doubtful accounts
Accounts and notes receivable:
Trade $4,000 $28,600 $ -- $32,600
Related parties 1,600 -- -- 1,600
$ 5,600 $28,600 $ -- $34,200
Year Ended May 31, 1993
Allowance for doubtful accounts
Accounts and notes receivable:
Trade $10,300 $ -- $6,300 $4,000
Related parties 1,800 -- 200 1,600
$12,100 $ -- $6,500 $5,600
Year Ended May 31, 1992
Allowance for doubtful accounts
Accounts and notes receivable:
Trade $5,100 $5,200 $ -- $10,300
Related parties 800 1,000 -- 1,800
$5,900 $6,200 $ -- $12,100
AGREEMENT AND PLAN OF SHARE EXCHANGE, dated as of November , 1993
("Agreement") between U.S. Energy Corp., a Wyoming corporation ("USE"),
and The Brunton Company, a Wyoming corporation ("Brunton").
R E C I T A L S
A. The Exchange. At the Effective Time (as defined in
Section 1.4), the parties intend for USE to acquire all the
outstanding 5,547,950 common shares of Brunton ("Brunton Shares")
which are not owned by USE at Agreement date, in exchange for
277,398 shares of the common stock of USE ("USE Shares"), plus such
additional USE Shares as may be required for rounding up fractions.
The USE Shares shall be voting stock.
B. Intention of the Parties. It is the intention of the
parties that for federal income tax purposes the Exchange shall
qualify as a "reorganization" within the meaning of Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended
("Code").
C. Approvals. The respective Boards of Directors of USE and
Brunton have determined that this Agreement is in the best
interests of USE or Brunton, as the case may be, and its respective
shareholders, and have duly approved this Agreement and authorized
its execution and delivery.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants, and agreements set forth
herein, the parties agree as follows:
ARTICLE I.
THE EXCHANGE; CLOSING; EFFECTIVE TIME
1.1 The Exchange. Subject to the terms and conditions of this
Agreement, at the Effective Time, USE and Brunton shall consummate
the Exchange by which Brunton shall become a 100 percent owned
subsidiary of USE, without change in the separate existence of
Brunton as an operating corporation under the laws of the State of
Wyoming. The Exchange shall have the effects specified in Section
17-16-1106(b) of the Wyoming Business Corporation Act ("WBCA").
1.2 Effective Time. Promptly after all conditions to
consummation of this Agreement have been satisfied, USE shall
prepare and file Articles of Share Exchange with the Wyoming
Secretary of State, pursuant to WBCA Section 17-16-1105. The
Effective Time of the Exchange shall be the time and date of such
filing.
1.3 Closing. The closing of the Exchange ("Closing") shall
take place at the offices of USE, 877 North 8th West, Second Floor,
Riverton, Wyoming 82501, at 10:30 a.m. on the first business day on
which all the conditions set forth in this Agreement (other than
those that are waived by the party for whose benefit such
conditions exist) can be fulfilled, or at such other place and/or
time and/or on such other date to which the parties agree. The
date upon which the Closing shall occur is herein called the
"Closing Date."
ARTICLE II.
ARTICLES OF INCORPORATION AND BYLAWS
OF USE AND BRUNTON
2.1 Articles of Incorporation. The Articles of Incorporation
of USE, and of Brunton, at Agreement date shall not be affected by
the Exchange.
2.2 Bylaws. The Bylaws of USE, and of Brunton, at Agreement
date shall not be affected by the Exchange.
ARTICLE III.
DIRECTORS AND OFFICERS
OF USE AND BRUNTON
3.1 Directors. The number of directors to serve on the board
of directors of USE, and of Brunton, at Agreement date, shall not
be affected by the Exchange. There shall be no change in the
persons serving as directors of USE, or of Brunton, due to the
Exchange.
3.2 Officers. The officers of USE, and of Brunton, at
Agreement date, shall not be changed due to the Exchange.
ARTICLE IV.
EXCHANGE CONSIDERATION; CONVERSION OR CANCELLATION
OF SHARES IN THE Exchange
4.1 Exchange Consideration; Conversion or Cancellation of
Shares. At the Effective Time, by virtue of the Exchange and
without any action on the part of any holder of Brunton Shares, all
of the Brunton Shares (other than Brunton Shares owned by USE at
Agreement date) shall be exchanged into USE Shares, at the rate of
20 Brunton Shares for one USE Share, and USE shall own all the
outstanding Brunton Shares. After the Effective Time, the former
holders of the Brunton Shares (other than USE) shall be entitled
only to receive the USE Shares to which they are entitled under
this Agreement, or to the benefit of their rights as Dissenting
Shareholders.
4.2 Exchange of Old Certificates for New Certificates.
a. Appointment of Exchange Agent. From and after the
Effective Time until the end of the twelve-month period following
the Effective Time, USE shall make available or cause to be made
available to Society Investment Management and Trust Services,
Denver, Colorado (the "Exchange Agent") certificates ("New
Certificates") representing the USE Shares, for the Exchange Agent
to deliver New Certificates to the former holders of the Brunton
shares in exchange for certificates therefor ("Old Certificates").
b. Exchange Procedures. Promptly after the Effective
Time, USE shall cause the Exchange Agent to mail or deliver to each
person (other than any Dissenting Shareholder) who was, at the
Effective Time, a holder of record of Brunton Shares a form of
transmittal letter with instructions for surrender of Old
Certificates in exchange for New Certificates, or for deposit of
Old Certificates by Dissenting Shareholders. Upon surrender to the
Exchange Agent of an Old Certificate for cancellation together with
the completed transmittal letter, the holder of such Old
Certificate shall be entitled to receive a New Certificate
representing the USE Shares, and the Old Certificate as surrendered
shall forthwith be canceled. If any New Certificate is to be
issued in a name other than that in which the Old Certificate
surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange
shall pay any transfer or other taxes required by reason of the
issuance of such New Certificate in a name other than the
registered holder of the Old Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that any such
taxes have been paid or are not applicable.
Twelve months after the Effective Time, USE shall be
entitled to cause the Exchange Agent to deliver back any unclaimed
New Certificates. Any former Brunton shareholders who have not
theretofore exchanged their Old Certificates for New Certificates
shall thereafter look exclusively to USE only as general creditors
thereof for the USE Shares to which they became entitled, subject
to exchange of their Old Certificates. Notwithstanding the
foregoing, neither the Exchange Agent nor any party hereto shall be
liable to any former holder of Brunton Shares for USE Shares
delivered to public officials pursuant to escheat laws.
USE shall pay all expenses of the exchange of New
Certificates for Old Certificates.
c. Fractional Shares. No fractional USE Share shall be
issued in the Exchange, and any fraction to which a former holder
of Brunton Shares would otherwise be entitled, shall be rounded up
to the next full USE Share if the former holder of Brunton Shares
owned 10 or more thereof, and down to the next lower full USE Share
if the former holder of Brunton Shares owned 9 or fewer thereof.
d. Distributions with Respect to Unexchanged Shares. No
dividends on USE Shares shall be paid to a former holder of Brunton
Shares holding an Old Certificate, until the Old Certificate is
surrendered for exchange. Subject to the effect of applicable
laws, following surrender of any such Old Certificate by any holder
thereof other than a Dissenting Shareholder, there shall be paid to
the holder of the New Certificate issued in exchange therefor,
without interest (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to the USE Shares
represented thereby and not paid, less any required withholding
taxes, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the
Effective Time but prior to the time of such surrender and a
payment date subsequent to the time of such surrender payable with
respect to the USE Shares represented thereby, less the amount of
any required withholding taxes.
e. Transfers. At and after the Effective Time, there
shall be no transfers of Brunton Shares on the Brunton stock
transfer books, except to transfer all issued and outstanding
Brunton Shares to USE as record and beneficial owner.
f. No Liability. If any Old Certificate shall have been
lost, stolen or destroyed, upon making of an affidavit of that fact
by the person claiming such, and if required by USE the posting by
such person of a bond in reasonable amount as indemnity against
possible future claim against it with respect to such Old
Certificate, USE shall cause the Exchange Agent to issue the USE
Shares in respect thereof pursuant to this Article IV.
4.3 Dissenters' Rights. If any Brunton Dissenting
Shareholder gives written notice to Brunton under WBCA Section 17-
60-1321 to seek payment of the "fair value" of his or her Brunton
Shares as provided in the WBCA, Brunton shall give USE notice
thereof, and USE shall have the right to participate in
negotiations with respect to such demands. Only Brunton shall make
any such payments, and then only from Brunton funds. Pursuant to
the WBCA, a Dissenting Shareholder who fails to perfect, or loses
the right to dissent, shall only be entitled to USE Shares based on
the Exchange, and shall be entitled to no payment for his or her
Brunton Shares.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties. Brunton hereby
represents and warrants to USE, and USE represents and warrants to
Brunton that, except as set forth in a letter ("Disclosure Letter")
delivered by it to the other party prior to executing and
delivering this Agreement, or in its Reports (as defined in Section
5.1(e)) in the case of USE, or in its financial statements in the
case of Brunton, in both cases prior to the date hereof:
a. Corporation Organization and Qualification. Each of
it and any subsidiaries (as defined in Section 9.8) is a
corporation (or a limited liability company, in the case of USECC
Gold Venture, a USE subsidiary), duly organized and in good
standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by
it or such subsidiary requires such qualification, except for any
such failure so to qualify or be in good standing which, when taken
together with all other such failures, is not reasonably likely to
have a Material Adverse Effect. "Material Adverse Effect" means an
effect which would be materially adverse to the properties,
business, financial condition, results of operations or prospects
of Brunton or USE. Each of it and its subsidiaries has the
requisite corporate power and authority to carry on its businesses
as they are now being conducted. It has made available to the
other complete and correct copies of its Articles of Incorporation
and Bylaws, each as amended to date.
b. Capital Stock. (i) USE. USE has authorized capital
stock of 100,000 preferred shares, $.01 par value, none of which
are outstanding, and 20,000,000 common shares, $.01 par value, of
which 4,360,151 are issued and outstanding, including 155,780
common shares issued as stock bonus shares to officers, directors
and other employees of USE, and to directors and others for payment
of services. Of the 155,780 total shares, 149,780 are subject to
forfeiture unless certain employment and service conditions are
met. All issued and outstanding shares of USE common stock (except
for those shares subject to forfeiture) have been duly authorized
and validly issued and are fully paid and nonassessable. USE has
reserved 550,000 common shares for issuance under the 1989 Stock
Option Plan, under which there are outstanding options to purchase
the number of shares of common stock, as stated on Exhibit A. The
capital shares or other interests of each significant subsidiary of
USE have been duly authorized and validly issued and are fully paid
and nonassessable. Such shares or other interests are held
directly or indirectly by USE free and clear of all liens, security
interests, preemptive or subscriptive rights, or other
encumbrances. USE has outstanding no bonds, debentures or other
obligations the holders of which have the right to vote (or are
convertible or exchangeable into or exercisable for securities
having the right to vote) with the shareholders of USE on any
matter.
(ii) Brunton. Brunton has authorized capital stock of
20,000,000 common shares, $.01 par value, of which 8,195,450 are
issued and outstanding, and an additional 90,750 are held in
treasury as issued but not outstanding common shares. All issued
and outstanding shares of Brunton common stock have been duly
authorized and validly issued and are fully paid and nonassessable.
Brunton has outstanding no bonds, debentures or other obligations
the holders of which have the right to vote (or are convertible or
exchangeable into or exercisable for securities having the right to
vote) with the shareholders of Brunton on any matter.
c. Corporate Authority. Subject only approval of this
Agreement by the holders of a majority of the issued and
outstanding shares of Brunton common stock under Section 7.1, each
has the requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform
this Agreement and to consummate the transactions contemplated
herein.
d. Partnerships and Ventures. Except as disclosed in
its Reports and Disclosure Letter, USE is in compliance in all
material respects with the terms of each partnership agreement and
joint venture agreement to which USE is a party, and each interest
therein is held free and clear of all liens or security interests.
Except as may be set forth in its Disclosure Letter, Brunton is not
party to any partnership or venture.
e. Governmental Filings; No Violations. (i) Other than
filings required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Securities Act of 1933, as
amended (the "Securities Act"), state securities and "Blue Sky"
laws (collectively, the "Regulatory Filings"), except as set forth
in its Disclosure Letter, no notices, reports or other filings are
required to be made by it with, nor are any consents,
registrations, approvals, permits or authorizations required to be
obtained by it from any governmental or regulatory authority,
agency, court, commission or other entity, domestic or foreign
("Governmental Entity"), in connection with this Agreement, the
failure to make or obtain any or all of which, individually or in
the aggregate, is reasonably likely to have a Material Adverse
Effect.
(ii) The execution, delivery and performance by it of
this Agreement does not or will not, and the consummation by it of
any of the transactions contemplated hereby will not, constitute or
result in (x) a breach or violation of, or a default under, its
Articles of Incorporation or Bylaws, or the comparable governing
instruments of any of its subsidiaries, or (y) a breach or
violation of, or acceleration or creation of a security interest or
other encumbrance on assets of it pursuant to any material
agreement, lease or other obligation ("Contracts") of it or any of
its subsidiaries or any law, ordinance, regulation or judgment or
decree or permit to which it or any of its subsidiaries is subject
except, in the case of clause (y) above, for such that are
disclosed in its Disclosure Letter or are not reasonably likely to
have a Material Adverse Effect.
f. Reports; Financial Statements; No Undisclosed
Liabilities. (i) USE has delivered to Brunton each registration
statement, report, proxy statement or information statement
prepared by it since May 31, 1990, (collectively, "Reports") filed
with the Securities and Exchange Commission (the "SEC"). As of
their respective dates (but including any change therein due to a
Form 8 Amendment to a Report), the Reports of USE did not contain
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading. All of its financial
statements included in or incorporated by reference into its
Reports fairly present the financial position of it and its
subsidiaries as of the date and for the periods set forth therein,
in each case in accordance with generally accepted accounting
principles.
(ii). Brunton has delivered to USE annual financial
statements prepared by Brunton since May 31, 1990, audited by
independent certified public accountants. All of such financial
statements fairly present the financial position of Brunton as of
the date and for the periods set forth therein, in each case in
accordance with generally accepted accounting principles.
(iii) To the knowledge of its executive officers, except
as disclosed in the Reports of USE or in its Disclosure Letter, or
in the case of Brunton as disclosed in the Brunton financial
statements since May 31, 1990 or in its Disclosure Letter, neither
it nor its subsidiaries in the case of USE, or Brunton, has any
liabilities, whether or not accrued, contingent or otherwise, that,
individually or in the aggregate, are reasonably likely to have a
Material Adverse Effect.
g. Absence of Certain Events and Changes. Except as
disclosed in its Reports filed with the SEC prior to the date
hereof or in its Disclosure Letter, since May 31, 1993 USE and its
subsidiaries have conducted their respective businesses only in the
ordinary and usual course, and there has not been any change or
development which is reasonably likely to result in a Material
Adverse Effect. Except as disclosed in its Disclosure Letter or in
its financial statements since May 31, 1993, Brunton has conducted
its business only in the ordinary and usual course, and there has
not been any change or development which is reasonably likely to
result in a Material Adverse Effect.
h. Compliance with Laws. It (and in the case of USE,
its subsidiaries) has complied with all applicable laws,
regulations, ordinances, judgments, orders or decrees applicable
thereto, except where the failure to comply is not reasonably
likely to have a Material Adverse Effect. To the knowledge of its
officers, each of it (and in the case of USE, its subsidiaries) has
all permits and has made all filings, applications, and
registrations with governmental or regulatory bodies that are
required in order to permit it or such subsidiary to carry on
business as presently conducted, except for such failures which are
not reasonably likely to have a Material Adverse Effect.
i. Title to Assets. Each of it (and in the case of USE,
its subsidiaries) has good and marketable title to its assets
(other than property as to which it is lessee), including
intellectual property assets in the case of Brunton, except for
such defects in title that are not reasonably likely to have a
material adverse effect, and in the case of USE except for such
title matters as are disclosed in its Reports.
j. Litigation. In the case of USE, except as disclosed
in its Reports filed with the SEC prior to the date hereof or in
its Disclosure Letter, and in the case of Brunton, except as
disclosed in its Disclosure Letter, there are no suits,
investigations or proceedings pending or, to the knowledge of its
executive officers, threatened, against it (or, in the case of USE,
any of its subsidiaries) that, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect. Except,
in the case of USE, as may be disclosed in its Reports or
Disclosure Letter, and in the case of Brunton, as may be disclosed
in its financial statements or Disclosure Letter, there are no
judgments or outstanding injunctions, or awards against it, its
properties or business, which are reasonably likely to have a
Material Adverse Effect.
k. Taxes. All material federal, state, local and
foreign tax returns required to be filed by or on behalf of it (or,
in the case of USE, any of its subsidiaries) have been timely filed
or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all
such filed returns are complete and accurate in all material
respects. In the case of USE, except as disclosed in its Reports
or in its Disclosure Letter, and in the case of Brunton, except as
disclosed in its financial statements and Disclosure Letter, all
material taxes required to be shown on returns filed by it, as of
the date of such Report, have been paid in full or have been
recorded on its balance sheet and statement of earnings or income
(in accordance with generally accepted accounting principles). As
of the date of this Agreement and, in the case of USE except as
disclosed in its Reports or in its Disclosure Letter, and in the
case of Brunton except as disclosed in its financial statements or
in its Disclosure Letter, there is no outstanding audit
examination, deficiency, or refund litigation with respect to any
taxes of it that, individually or in the aggregate, is reasonably
likely to have a material adverse effect. All material taxes,
interest, additions, and penalties due with respect to completed
and settled examinations or concluded litigation relating to it
have been paid in full or have been recorded on its balance sheet
and statement of earnings or income (in accordance with generally
accepted accounting principles). Except for the Tax Benefit
Transfer Agreement to which Plateau Resources Inc. is a party and
as to which USE is an indemnitor, neither USE nor any subsidiary
has indemnified another party with respect to taxes.
l. Labor Matters. Neither party, nor any USE
subsidiary, is a party to, or is bound by any collective bargaining
agreement with a labor organization.
m. Employee Benefits. (i) The Reports filed by USE with
the SEC, and the Brunton financial statements, disclose all bonus,
deferred compensation, retirement, employee stock ownership, and
other stock plans, as well as all material employment or similar
provisions in any consulting plan ("Compensation Plans").
(ii) In the case of USE, except as may be disclosed
in the USE Reports, and in the case of Brunton, except as may be
disclosed in the Brunton financial statements, all material
contributions required to be made by each party under its
Compensation Plans have been timely made or have been reflected on
its respective balance sheet.
n. Environmental Matters. In the case of USE, except as
disclosed in its Reports or its Disclosure Letter, and in the case
of Brunton except as may be disclosed in the Brunton financial
statements or its Disclosure Letter, save for such matters that,
individually or in the aggregate, are not reasonably likely to have
a Material Adverse Effect, to the knowledge of its executive
officers, other than as permitted under then applicable
Environmental Law, it is (and, in the case of USE, subsidiaries
are) in compliance with applicable Environmental Laws.
"Environmental Law" means (i) any law, ordinance, rule,
permit or agreement with any government entity, (x) relating to the
protection, preservation or restoration of the environment or to
human health or safety, or (y) Hazardous Substances, in each case
as amended and as now in effect. "Hazardous Substance" means any
substances classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law.
o. Brokers and Finders. Neither USE nor Brunton has
employed any broker or finder in connection with the Exchange.
ARTICLE VI.
COVENANTS
6.1 Interim Operations. Each of USE and Brunton covenants
and agrees as to itself (and, in the case of USE, its subsidiaries)
that, from and after the date hereof until the Effective Time,
except as the other party otherwise consents or except as otherwise
contemplated by this Agreement:
a. Its business will be conducted in the ordinary course
and it will maintain existing relations with customers, suppliers,
employees and business associates.
b. It will not (i) in the case of USE, sell or pledge or
agree to sell or pledge any stock owned by it in any of its
subsidiaries; (ii) amend its Articles of Incorporation or Bylaws;
(iii) split, combine or reclassify any outstanding capital stock;
(iv) declare, set aside or pay any dividend with respect to its
capital stock; or (v) repurchase shares of capital stock or
securities convertible or exercisable for capital stock.
c. It will not issue any shares of, or securities
convertible or exchangeable for, or options, puts, warrants, calls,
commitments or rights of any kind to acquire any shares of capital
stock, other than shares of USE common stock on exercise of
outstanding options.
d. It will not sell, mortgage or dispose of property or
assets or encumber any property or assets or incur or modify any
indebtedness or other liability other than in the ordinary course
of business.
e. In the case of USE, except as required by agreements
disclosed in its Reports or its Disclosure Letter, and in the case
of Brunton except as required by agreements disclosed in the
Brunton financial statements or its Disclosure Letter, grant
severance or termination pay to a director or officer.
6.2 Information Supplied. USE and Brunton agree that none of
the information to be supplied by it for inclusion in the
Registration Statement on Form S-4 to be filed with the SEC in
connection with the Exchange (including the joint proxy statement
and prospectus, the "Registration Statement") will, at the time
effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
6.3 Shareholder Approval. Brunton agrees to convene a
meeting of the holders of Brunton common stock to consider and vote
upon approval of this Agreement.
6.4 Filings. Brunton and USE agree to promptly prepare and
USE will file with the SEC the Registration Statement. USE agrees
to use its best efforts to have the Registration Statement declared
effective, and thereafter to mail the Proxy Statement to the
Brunton shareholders. USE also agrees to use its best efforts to
obtain all necessary state securities law or permits required.
6.5 Accountants' Letters. USE and Brunton will cause to be
delivered to the other a letter of its independent auditors, dated
shortly prior to the Closing Date, in form and substance customary
for "comfort" letters.
6.6 Access. Each party agrees to afford each other party's
officers and other authorized representatives (the
"Representatives") access until the Closing Date, to its
properties, books and records, and furnish information concerning
its business, properties and personnel as may be reasonably
requested. Each party will not use information obtained for any
purpose unrelated to the transactions contemplated by this
Agreement.
6.7 Notification of Certain Matters. Each party will give
prompt notice to the other party of any change that is reasonably
likely to result in any Material Adverse Effect.
6.8 Publicity. Brunton acknowledges USE will control
distribution to the public of information concerning this Agreement
and the transactions hereunder.
6.9 Benefits. No change in either party's Compensation Plans
shall occur due to Closing of the Exchange.
6.10 Expenses. Each party shall pay its own expenses in
connection with the Exchange.
ARTICLE VII.
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the
Reorganization. The respective obligation of USE and Brunton to
consummate the Exchange is subject to the following conditions.
(a) The holders of a majority of the outstanding Brunton
common shares shall have duly approved this Agreement and the
Exchange contemplated hereby, in accordance with the Securities
Act, applicable state securities laws, the WBCA, and the Brunton
Articles of Incorporation and Bylaws.
(b) Any consent or approval of third persons required for or
in connection with this Agreement, shall have been obtained, except
for such the failure to obtain which would not constitute a
Material Adverse Effect.
(c) No material litigation shall have been initiated against
either party.
(d) The representations and warranties of each party set forth
in this Agreement shall be true and correct in all material
respects as of Agreement date and as of the Closing Date, as though
made on and as of the Closing date, and each party shall have
received a certificate signed by the other's chief executive and
chief financial officers, to such effects.
(e) Each shall have received an opinion of counsel, to the
effect that the Exchange is a "reorganization" under Code Section
368(a)(1)(B), and concerning such other matters as are customary in
transactions like the Exchange.
(f) USE common stock shall be listed on the NASDAQ/National
Market System.
ARTICLE VIII.
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Exchange may be abandoned at any time prior to
the Effective Time, before or after approval by the Brunton
shareholders, by the mutual consent of Brunton and USE.
8.2 Termination by Either Brunton or USE. This Agreement may
be terminated and the reorganization may be abandoned by action of
the Board of Directors of either Brunton or USE if (i) the Exchange
shall not have been consummated by February 28, 1994, or (ii) this
Agreement is not approved at a Brunton shareholders' meeting called
for such purpose.
8.3 Effect of Termination and Abandonment. If this Agreement
is terminated pursuant to this Article VIII, no party shall have
liability or further obligation to any other party, except for
liability for material and willful breach of any covenant contained
herein.
ARTICLE IX.
MISCELLANEOUS AND GENERAL
9.1 Survival. Only those agreements and covenants of the
parties which by their express terms apply in whole or in part
after the Effective Time shall survive the Effective Time. All
other representations, warranties, agreements and covenants shall
be deemed only to be conditions of the Exchange and shall not
survive the Effective Time.
9.2 Modification or Amendment. At any time prior to the
Closing Date, the parties may modify or amend this Agreement, by
written agreement executed and delivered.
9.3 Waiver of Conditions. The conditions to each party's
obligation to consummate the Exchange are for the sole benefit of
such party and may be waived by such party in whole or in part.
9.4 Counterparts. This Agreement may be executed in any
number of separate counterparts.
9.5 Governing Laws. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wyoming.
9.6 Notices. Any notice or document to be given hereunder
shall be in writing and shall be deemed to have been duly given on
the date of delivery if delivered personally upon confirmation of
receipt, or on the third business day following the date of mailing
if delivered by certified mail, return receipt requested, postage
prepaid. All notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be designated
in writing by the party to receive such notice.
a. If to Brunton:
The Brunton Company
620 East Monroe Avenue
Riverton, Wyoming 82501
b. If to USE:
U.S. Energy Corp.
877 North 8th West
Riverton, Wyoming 82501
9.7 Entire Agreement. This Agreement (a) constitutes the
entire agreement and supersedes all other prior agreements,
understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter hereof,
and (b) shall not be assignable by operation of law or otherwise.
9.8 Definition of "Subsidiary". When a reference is made in
this Agreement to a subsidiary of a party, the term "subsidiary"
means any corporation or other organization whether incorporated or
unincorporated of which at least a majority of the securities or
interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or
other organization, is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries, or by such
party and one or more of its subsidiaries.
9.9 Captions. The Article , Section and paragraph captions
herein are for convenience of reference only, do not constitute
part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof.
9.10 Specific Performance. In the event of actual or
threatened default in or breach of, any terms of this Agreement,
the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving
effect to its or their rights under this Agreement, in addition to
other rights and remedies at law or in equity. All such rights and
remedies shall be cumulative. The parties agree that the remedies
at law for any breach or threatened breach, including monetary
damages, are inadequate compensation for any loss, and that any
defense in any action for specific performance that a remedy at law
would be adequate is waived.
9.11 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance is determined by
a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof, or the application
of such provision to persons or circumstances other than those as
to which it has been held invalid or unenforceable, shall remain in
full force and effect and shall in no way be affected, impaired, or
invalidated thereby, so long as the economic or legal substance of
the transaction contemplated hereby is not affected in any manner
substantially adverse to any party. Upon such determination, the
parties shall negotiate in good faith in an effort to agree upon a
suitable and equitable substitute provision to effect the original
intent of the parties.
9.14 No Third Party Beneficiaries. Nothing contained in this
Agreement, expressed or implied, is intended to confer any person
or entity other than the parties hereto, with any benefit, right or
remedies.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on
the date first above written.
THE BRUNTON COMPANY
By:
Harold F. Herron, President
U.S. ENERGY CORP.
By:
John L. Larsen, President
RESTATED
ARTICLES OF INCORPORATION
OF
U.S. ENERGY CORP.
Pursuant to the provisions of Section 17-1-307 of the Wyoming
Business Corporation Act and a Resolution adopted by its Board of
Directors, U.S. Energy Corp. hereby adopts the following Restated
Articles of Incorporation, which sets forth all of the operative
provisions of the Articles of Incorporation as theretofore amended
and states that the Restated Articles of Incorporation correctly
sets forth without change, the corresponding provisions of the
Articles of Incorporation as theretofore amended and that the
Restated Articles of Incorporation supersede the original Articles
of Incorporation and all amendments thereto.
ARTICLE I
Name
The name of the Corporation shall be U.S. ENERGY CORP.
ARTICLE II
Duration
The period of duration of the Corporation shall be perpetual.
ARTICLE III
Objects, Purposes, and Powers
The purposes for which the Corporation is organized are to
engage in any activity or business not in conflict with the laws of
the State of Wyoming or of the United States and, without limiting
the generality of the foregoing, specifically:
1. To engage in exploring, prospecting, drilling for,
developing, mining, extracting, producing, milling,
refining, and otherwise processing for its own account
and for the account of others any and every type of
mineral substance of whatever nature, including but not
limited to oil, gas, and other hydrocarbon substances,
base and precious metals, and fissionable materials.
2. To market any and all mineral substances, including all
hydrocarbon substances, before or after refinement.
3. To manufacture, buy, sell, and generally deal in any
article, product, or commodity produced as the result of
or through the use of any inventions, devices, processes,
discoveries, formulae, improvements, and/or modifications
of any thereof, or any articles, products, commodities,
supplies, and materials used or suitable to be used in
connection therewith or in any manner applicable or
incidental thereto: to grant licenses, sub-licenses,
rights, interests, and/or privileges in respect of any
of the foregoing; to supervise or otherwise exercise
such control over its licensees or grantees and the
business conducted by them, as may be agreed upon in its
contracts or agreements with such licensees or grantees,
for the protection of its rights and interests therein;
and to secure to it the payment of agreed royalties or
other considerations.
4. To form, promote, and assist, financially or otherwise,
corporations, syndicates, partnerships, companies, and
associations of all kinds; to give any lawful guarantee
in connection therewith or otherwise for the payment of
money or for the performance of any obligations or
undertakings; and to achieve the purposes and exercise
the power specified herein, either directly or through
subsidiary corporations, syndicates, partnerships,
companies, or other associations.
5. To acquire, own, hold, develop, maintain, operate,
manage, lease, sell, exchange, convey, mortgage, dispose
of, and otherwise deal in property of every nature and
description, both real and personal, whether situated in
the United States or elsewhere, so far as permissible by
law; to pay for the same in cash, the stock of this
Corporation, bonds, or otherwise; to hold, exploit, and
develop or in any manner to dispose of or assign the
whole or any part of the property so purchased; and to
produce, refine, and market any and all minerals or other
products from any such operations.
6. To advance or negotiate the advance of money or interest
on securities or otherwise; to lend money or negotiate
loans; to draw, accept, endorse, discount, buy, sell, and
deliver bills of exchange, promissory notes, bonds,
debentures, coupons, and other negotiable instruments and
securities; and to issue on commission, subscribe for,
take, acquire, and hold, sell, exchange, and deal in
shares, stocks, bonds, obligations, and securities of
any government or authority or company.
7. Generally, to carry on and undertake any business,
undertaking, transaction, or operation commonly carried
on or undertaken by promoters and financiers; and to
engage in any other business which may seem to the
Corporation capable of being conveniently carried on in
connection with the above or calculated, directly or
indirectly, to enhance the value of or render profitable
any of the Corporation's activities or business.
8. To have one or more offices to carry on all or any of its
business and, without restrictions or limits, to purchase
or otherwise acquire, and to own, hold, maintain, work,
develop, sell, trade, exchange, convey, mortgage, lease,
or otherwise dispose of, without limit as to amount, and
in any part of the world, any property, real, personal,
or mixed, and any interests and rights, in whole or in
part, therein.
9. To apply for, obtain, register, lease, purchase, or
otherwise acquire, hold, use, sell, trade, exchange,
assign, mortgage, or otherwise dispose of trademarks,
copyrights, inventions, trade names, formulae, secret
processes, and all improvements and processes used in
connection with or secured under letters patent of the
United States or of other countries or otherwise, and to
grant licenses in respect thereto, and otherwise turn the
same to account.
10. To contract with the United States, or any agency
thereof, or any of the states or political subdivisions
thereof, or with any persons in authority,
municipalities, boards, bureaus, or departments, or any
political subdivisions of any state of the United States
or colonies or territories thereof, or any foreign
countries, or any political subdivisions thereof, and all
corporations, firms, associations, and individuals in
relation to or in connection with any of the objects,
purposes, or business of the Corporation.
11. To act as a dealer for the sale of its own stocks and
bonds and to execute all instruments incident to the
above; to enter into underwriting agreements for the sale
of its stocks and bonds or other securities; and to make
and enter into options for the sale of its stock upon
such terms and conditions as are permitted by the laws
of the State of Wyoming and the United States.
12. To indemnify officers, directors, and employees against
harm or loss resulting from their actions in their
capacities as such.
13. To purchase or otherwise acquire and to hold, mortgage,
pledge, sell, exchange, or otherwise dispose of
securities (which term includes, without limitation of
the generality thereof, any shares of stocks, bonds,
debentures, notes, mortgages, or other obligations, and
any certificates, receipts, or other instruments
representing rights to receive, purchase, or subscribe
for the same, or representing any other rights or
interests therein or in any property or assets) created
or issued by such persons, firms, associations,
corporations, or governments or subdivisions thereof; to
make payment therefor in any lawful manner; and to
exercise, as owner or holder of any securities, any and
all rights, powers, and privileges in respect thereof.
14. To lend its uninvested funds from time to time to such
extent to such persons, firms, associations,
corporations, governments, or subdivisions thereof, and
on such terms and on such security, if any, as the Board
of Directors of the Corporation, may determine.
15. To endorse or guarantee the payment of principal,
interest, or dividends upon, and to guarantee the
performance, of, sinking-fund or other obligations of any
securities, and to guarantee in any way permitted by law
the performance of any of the contracts or other
undertakings in which the Corporation may otherwise be
or become interested, of any persons, firms, association,
corporation, government or subdivision thereof, or of any
other combination, organization, or entity whatsoever.
16. To conduct its business in Wyoming, other states, the
District of Columbia, the territories and colonies of the
United States, and foreign countries and territories and
colonies thereof; to have one or more offices outside of
this state; and to acquire, purchase, hold, mortgage,
pledge, assign, transfer, and convey real and personal
property out of Wyoming.
17. In furtherance of and not in limitation of the powers
conferred by the laws of the State of Wyoming, the Board
of Directors is expressly authorized without the assent
or the vote of the stockholders to issue bonds,
debentures, or other obligations of the Corporation,
secured or unsecured, from time to time, for any of the
objects or purposes of the Corporation and to include
therein such provisions as the redeemability,
convertibility into stock, or otherwise, and to sell or
to otherwise dispose of any or all of them, all in such
manner and upon such terms as the Board of Directors may
deem proper and as shall be fixed and stated in a
resolution or resolutions adopted by the Board of
Directors.
18. To such extent as a corporation organized under the laws
of the State of Wyoming may now or thereafter lawfully
do, to do, either as principal or agent and either alone
or in connection with other corporations, firms, or
individuals, all and everything necessary, suitable,
convenient, or proper for, in connection with, or
incident to the accomplishment of any of the purposes or
the attainment of any one or more of the object herein
enumerated or designed directly or indirectly to promote
the interest of the Corporation or to enhance the value
of its properties; and, in general, to do any and all
things and exercise any and all powers, rights, and
privileges which a corporation may now or thereafter be
organized to do or to exercise under the laws of the
State of Wyoming or under any act amendatory thereof,
supplemental thereto, or substituted therefor.
19. To become a member of one or more partnerships, limited
partnerships, joint ventures, or similar associations.
The several clauses contained in this statement of purposes
shall be construed as both purposes and powers; and the statement
contained in each clause shall be in nowise limited or restricted,
by reference to or inference from the terms of any other clause,
but shall be regarded as independent purposes and powers. No
recitation, expression, or declaration of specific purposes or
special powers herein enumerated shall be deemed to be exclusive;
but it is hereby expressly declared that all other lawful powers
not inconsistent herewith are hereby included.
ARTICLE IV
Capital Stock
The total number of shares of all classes of capital stock
which the corporation shall have the authority to issue is
10,100,000 shares, which shall be divided into two classes as
follows:
100,000 shares of preferred stock with a par value of $.01 per
share, and
10,000,000 shares of common stock with a par value of $.01 per
share.
Any stock of the Corporation may be issued for money,
property, services rendered, labor done, cash advances to the
Corporation or for any other assets of value in accordance with the
action of the Board of Directors whose judgment as to value
received in return therefor shall be conclusive and said stock when
issued shall be fully paid and nonassessable.
The preferred stock shall be classified, divided and issued in
series. Each series of preferred stock may be issued as determined
from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuance of such stock
adopted by the Board of Directors pursuant to authority vested in
it. Each series is to be appropriately designated prior to the
issue of any shares thereof by some distinguishable letter, number
or title. All shares of preferred stock shall be of equal rank and
have the same powers, preferences and rights, and shall be subject
to the same qualifications, limitations and restrictions, without
distinction between the shares of different series thereof, except
in regard to the following particulars, which may be different in
different series:
1. The rate of dividends.
2. The price at and the terms and conditions on which shares
may be redeemed.
3. The amount payable upon shares in the event of voluntary
or involuntary liquidation.
4. Sinking fund provisions for the redemption or purchase
of shares.
5. The terms and conditions on which shares may be converted
if the shares of any series are issued with the privilege
of conversion.
6. Voting rights, if any.
The Board of Directors may, from time to time, increase the
number of shares of any series of preferred stock already created
by providing that any unissued shares of preferred stock shall
constitute part of such series, or may decrease (but not below the
number of shares thereof then outstanding) the number of shares of
any series of any preferred stock already created providing that
any unissued shares previously assigned to such series shall no
longer constitute a part thereof. The Board of Directors is hereby
empowered to classify or reclassify any unissued preferred stock by
fixing or altering the terms thereof in respect to the above-
mentioned particulars and by assigning the same to an existing or
newly-created series from time to time before the issuance of such
stock.
Dividends shall be payable upon the preferred or common stock
at the discretion of the Board of Directors of the Corporation at
such times and in such amounts as it deems advisable, subject,
however, to the provisions of any applicable law; provided further,
however, that any dividends which may be declared by the Board of
Directors of the Corporation shall be paid in cash or property only
out of the unreserved and unrestricted earned surplus of the
Corporation, except as otherwise provided by the applicable laws of
the State of Wyoming and except that the Board of Directors of the
Corporation, from time to time, may distribute to its shareholders
in partial liquidation, out of capital surplus of the Corporation,
a portion of its assets, in cash or property, subject to the
following provisions:
1. No such distribution shall be made at a time when the
corporation is insolvent or when such distribution would
render the Corporation insolvent; and
2. Each such distribution when made shall be identified as
a distribution in partial liquidation and the amount per
share disclosed to the shareholders receiving the same
concurrently with the distribution thereof.
Each outstanding share of common stock, $.01 par value, shall
be entitled to one vote at shareholders' meetings, either by person
or by proxy.
In all elections for directors, every holder of the common
stock shall have the right to vote in person, by proxy or by voting
trustee under any voting trust, the number of shares of stock owned
by him for as many persons as there are directors to be elected, or
to cumulate such shares and to give one candidate as many votes as
shall be equal to the number of directors multiplied by the number
of his shares of stock or to distribute them on the same principle
among as many candidates as he shall think fit; and directors shall
not be elected in any other manner. Holders of preferred stock
shall have such voting rights as are established by the Board of
Directors in accordance with the terms hereof.
No holder of shares of common or preferred stock or any other
securities which the Corporation may now or hereafter be authorized
to issue shall be entitled to any preemptive or preferential right
to subscribe to any unissued common or preferred stock or any other
securities which the Corporation may now or hereafter be authorized
to issue. The Board of Directors of the Corporation, however, in
its discretion by resolution, may determine that any unissued
securities of the Corporation shall be offered for subscription
solely to the holders of its common or preferred stock or solely to
the holders of any class or classes of such stock, which the
Corporation may now or hereafter be authorized to issue, in such
proportions based on stock ownership as the Board of Directors in
its discretion may determine.
The Board of Directors may restrict the transfer of any of the
Corporation's common or preferred stock or any other securities
which the Corporation may now or hereafter authorize to issue by
giving the Corporation or any shareholder "first right of refusal
to purchase" the stock, by making the stock redeemable or by
restricting the transfer of the stock under such terms and in such
manner as the directors may deem necessary and as are not
inconsistent with the laws of the State of Wyoming. Any stock so
restricted must carry a conspicuous legend noting the restriction
and the place where such restriction may be found in the records of
the Corporation.
ARTICLE V
Place of Business
The address of the Corporation's principal office is 877 North
8th West, Riverton, WY. The agent for service of process at that
address will be John L. Larsen.
ARTICLE VI
Directors
The affairs of the Corporation shall be governed by a Board of
Directors of not less than three (3) nor more than seven (7)
directors who shall be elected in accordance with the By-Laws of
the Corporation and the statutes of the State of Wyoming now or
hereafter in effect. The number of directors shall be increased or
decreased in accordance with the By-Laws of the Corporation and the
laws of the State of Wyoming as now or hereafter in effect, except
that the number constituting the initial Board of Directors, who
hold office at the time of adoption of this amendment, are as
follows:
Name Address
Glen L. Larsen, President 489 N. 3rd W., Provo, Utah
Leslie W. Larsen, Vice-President 805 W. Fremont, Riverton, Wyoming
G. Lloyd Larsen, Vice-President 1413 Mary Anne, Riverton, Wyoming
John L. Larsen, Secretary-Treasurer 1111 Westview Dr., Riverton, Wyoming
Directors of the Corporation need not be residents of the
State of Wyoming and need not own shares of the Corporation's
stock.
Meetings of the Board of Directors, regular or special, may be
held within or without the State of Wyoming upon such notice as may
be prescribed by the By-Laws of the Corporation. Attendance of a
director at a meeting shall constitute a waiver of notice of such
meeting, except where a director attends such meeting for the
express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither
the business to be transacted at nor the purpose of any regular or
special meeting of the Board of Directors needs to be specified in
the notice of waiver of notice of any such meeting unless the By-
Laws of the Corporation otherwise require.
A majority of the number of directors at any time constituting
the Board of Directors shall constitute a quorum for the
transaction of business; and the action of a majority of the
directors present at a meeting at which a quorum is present shall
be the act of the Board of Directors.
Any vacancy occurring in the Board of Directors may be filled
by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term
of his predecessor in office. Any directorship to be filled by
reason of any increase in the number of directors shall be filled
by election at an annual meeting of shareholders of the Corporation
or a special meeting of such shareholders called for that purpose.
The Board of Directors shall have the power to designate, by
resolution passed by a majority of the whole board, not less than
two (2) of its members to constitute an Executive Committee which,
to the extent provided in said resolution or in the By-Laws of the
Corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business, affairs, and property
of the Corporation during the intervals between the meetings of the
directors, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it; and
when the seal has been so affixed pursuant to such authority, it
shall be deemed to have been affixed by order of the Board of
Directors.
The Board of Directors of the Corporation may, from time to
time, distribute to its shareholders in partial liquidation, out of
capital surplus of the Corporation, a portion of its assets, in
cash or property, subject to the following provisions:
1. No such distribution shall be made at a time when the
Corporation is insolvent or when such distribution would
render the Corporation insolvent.
2. Each such distribution, when made, shall be identified
as a distribution in partial liquidation and the amount
per share disclosed to the shareholders receiving the
same concurrently with the distribution thereof.
ARTICLE VII
By-Laws
The By-Laws of the Corporation shall be adopted by its Board
of Directors. The power to alter, amend, or repeal the By-Laws, or
to adopt new By-Laws, shall be vested in the Board of Directors,
except as may otherwise be specifically provided in the By-Laws.
ARTICLE VIII
Transactions with Directors and other Interested Parties
No contract or other transaction between the Corporation and
any other corporation, whether or not a majority of the shares of
the capital stock of such other corporation is owned by this
Corporation, and no act of this Corporation shall in any way be
affected or invalidated by the fact that any of the directors of
this Corporation are pecuniarily or otherwise interested in, or are
directors or officers of, such other corporation. Any director of
this Corporation, individually, or any firm of which such director
may be a member, may be a party to, or may be pecuniarily or
otherwise interested in, any contract or transaction of the
Corporation; provided, however, that the fact that he or such firm
is so interested shall be disclosed or shall have been known to the
Board of Directors of this Corporation or a majority thereof; and
any director of this Corporation who is also a director or officer
of such other corporation, or who is so interested, may be counted
in determining the existence of a quorum at any meeting of the
Board of Directors of this Corporation that shall authorize such a
contract or transaction and may vote thereat to authorize such
contract or transaction with like force and effect as if he were
not such director or officer of such other corporation or not so
interested.
ARTICLE IX
Section 1. Upon the adoption of this provision to the
Articles of Incorporation, the Board of Directors shall be divided
into three classes, as equal in number as the total number of
members of the Board of Directors provided in the By-Laws permits.
the Board of Directors shall be separated into three classes which
shall be denominated as Class One, Class Two and Class Three.
Section 2. In the voting upon the election of members of the
Corporation's Board of Directors which first occurs after the
filing of an amendment to the Corporation's Articles of
Incorporation containing these provisions for a classified Board of
Directors, the persons nominated as Class One directors shall be
elected to hold office for a term expiring at the third succeeding
annual meeting and until their successors have been duly elected or
appointed and qualified or until death, resignation or removal.
Persons nominated for election as Class Two directors shall be
elected to hold office for a term expiring at the second succeeding
annual meeting and until their successors have been duly elected or
appointed and qualified or until death, resignation or removal.
Persons nominated for election as Class Three directors shall be
elected to hold office for a term expiring at the next succeeding
annual meeting and until their successors have been duly elected or
until death, resignation or removal. At all meetings thereafter,
directors then being elected shall be elected to hold office for a
term expiring at the third succeeding annual meeting and until
their successors have been duly elected or appointed and qualified
or until death, resignation or removal, except for directors being
elected solely by a series of preferred stock, if the resolution
defining the rights of such series specifically states that the
directors being elected by the holders of that series of preferred
stock shall be elected to serve only until the next annual meeting
of shareholders and until their successors have been duly elected
or until death, resignation or removal. Any vacancies in the Board
of Directors for any reason and any newly created directorships
resulting from any increase in the number of directors may be
filled by the Board of Directors acting by a majority of the
directors then in office, although less than a quorum, and any
directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until
their successors shall be elected or appointed and qualified or
until death, resignation or removal. No decrease in the number of
directors shall shorten the term of any incumbent director.
Section 3. Notwithstanding any other provision of these
Articles of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that some lesser percentage may be
specified by law, these Articles of Incorporation or the By-Laws of
the Corporation), the affirmative vote of the holders of 75% of the
total votes of the shares entitled to vote generally in the
election of directors (considered for this purpose as one class)
shall be required to amend, alter, change or repeal this Article IX
of the Articles of Incorporation.
ARTICLE X
No Director shall be personally liable to the Corporation or
any shareholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such
director shall be liable under Section 17-1-141 of the Wyoming
Statutes, or any amendment thereto or successor provision thereto,
and except for any matter in respect of which such director shall
be liable by reason that he (i) has breached his duty of loyalty to
the corporation or its shareholders, (ii) has not acted in good
faith or, in failing to act, has not acted in good faith, (iii) has
acted in a manner involving intentional misconduct or a knowing
violation of law, in failing to act, has acted in a manner
involving intentional misconduct or a knowing violation of law, or,
(iv) has derived an improper personal benefit. Neither the
amendment nor repeal of this Article X, nor the adoption of any
provision of the Articles of Incorporation inconsistent with this
Article X, shall eliminate or reduce the effect of this Article X
in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article X would accrue or arise prior to
such amendment, repeal or adoption of an inconsistent provision.
Executed in duplicate original this day of July, 1989.
U.S. ENERGY CORP.
ATTEST:
By
John L. Larsen, President
Daniel P. Svilar,
Assistant Secretary
STATE OF Wyoming )
) ss.
COUNTY OF Fremont )
Before me, Lisa L. Lehto, a Notary Public in and for the said
county and state, personally appeared John L. Larsen, who
acknowledged before me that he is the President of U.S. Energy
Corp., a Wyoming corporation, and that he signed the foregoing
Restated Articles of Incorporation as his free and voluntary act
and deed for the uses and purposes therein set forth.
Subscribed and sworn to before me this _____ day of July,
1989.
Notary Public
My commission expires
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
U.S. ENERGY CORP.
Pursuant to the provisions of the Wyoming Business Corporation
Act, U.S. Energy Corp. adopts the following Articles of Amendments
to the Restated Articles of Incorporation of such corporation:
FIRST: The name of the Corporation is U.S. Energy Corp.
SECOND: The following two amendments to the Restated
Articles of Incorporation were adopted by the shareholders of the
Corporation on June 12, 1992, in the manner prescribed by the
Wyoming Business Corporation Act:
The first full paragraph of Article IV of the Restated
Articles of Incorporation is amended to read as follows:
ARTICLE IV
Capital Stock
"The total number of shares of all classes of
capital stock which the Corporation shall have the
authority to issue is 20,100,000 shares, which shall be
divided into two classes as follows:
100,000 shares of preferred stock with a par
value of $.01 per share, and
20,000,000 shares of common stock with a par
value of $.01 per share."
The text of the new Article XI is as follows:
"ARTICLE XI
Voting of Company Securities Held By Majority-Owned Subsidiaries
Notwithstanding Wyoming Statutes Section 17-16-
721(b) or any successor provision, shares of a voting
class of the Corporation's stock that are owned by a
subsidiary of the Corporation may be voted even though
the Corporation holds a majority of the shares entitled
to vote for the directors of the subsidiary holding such
shares; provided, however, that the voting rights held by
any single such majority-controlled subsidiary with
respect to a class of voting stock shall be limited to
40% of the total outstanding shares of that class."
THIRD: The number of shares of the Corporation outstanding
at the time of such adoption was 4,195,166; the number of shares
entitled to vote thereon was 4,195,166; the number of shares
represented at the meeting was 3,734,883.
FOURTH: The designation and number of outstanding shares of
the common stock of the Corporation, which is the only authorized
class of stock entitled to vote thereon, were as follows:
Designation: $.01 Par Value Common Stock
Number of Outstanding Shares: 4,195,166
FIFTH: The number of shares of common stock, $.01 par
value, which was the sole class of stock entitled to vote thereon,
voted on such amendments as follows:
1. To amend the Restated Articles of Incorporation by
amending Article IV:
3,463,685 shares voted for the Amendment;
238,595 shares voted against the Amendment.
2. To amend and supplement the Restated Articles of
Incorporation by adopting a new Article XI:
2,545,617 shares voted for the Amendment;
202,835 shares voted against the Amendment.
The number of votes cast for each amendment was
sufficient for approval of each amendment.
SIXTH: The amendments do not provide for any exchange,
reclassification or cancellation of issued shares.
SEVENTH: The amendments do not effect a change in the amount
of stated capital.
DATED this day of June, 1992.
By:
MAX T. EVANS, Secretary
U.S. ENERGY CORP.
BYLAWS
AS ADOPTED ON APRIL 22, 1992
ARTICLE I
OFFICES
The principal office of U.S. Energy Corp. (the "Corporation")
shall be located in the City of Riverton in the state of incorpo-
ration. The Corporation may have such other offices or relocate
its principal office either within or without the state of incor-
poration as the Board of Directors of the Corporation (the "Board")
may designate or as the business of the Corporation may require.
The registered office of the Corporation in the Articles of
Incorporation (the "Articles") need not be identical with the
principal office in the state of incorporation.
ARTICLE II
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of the share-
holders shall be held each year on a date and at a time and place
to be determined by resolution of the Board, for the purpose of
electing directors and for the transaction of such other business
as may come before the meeting. If the election of directors shall
not be held on the day designated for the annual meeting of the
shareholders, or at any adjournment thereof, the Board shall cause
the election to be held at a special meeting of the shareholders.
Section 2. Special Meetings. Special meetings of the share-
holders for any purpose, unless otherwise provided for by statute,
may be called by the president, the Board or by the president upon
receipt by the Corporations's secretary of one or more written
demands of the holders of not less than one-tenth of all the votes
entitled to be cast at the proposed special meeting, signed and
dated, by such holders, either manually or in facsimile, and
setting forth the purposes for which it is to be held.
Section 3. Place of Meeting. The Board may designate any
place, either within or without the state of incorporation, as the
place of meeting for any annual or special meeting. If no
designation is made, the place of meeting shall be the registered
office of the Corporation in the state of incorporation.
Section 4. Notice of Meeting. Written notice, stating the
place, day and hour of the meeting and, in case of a special
meeting, the purpose or purposes for which the meeting is called,
shall be delivered no fewer than ten (10) and no more than sixty
(60) days before the meeting date. If an annual or special meeting
is adjourned to a different time or place, notice need not be given
of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment; provided however,
notice of the adjourned meeting shall be given to persons who are
shareholders as of any new record date that is fixed with respect
to the adjournment.
Section 5. Fixing of Record Date. For the purpose of de-
termining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, entitled to
demand a special shareholders' meeting, or shareholders entitled to
receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the
Board may fix in advance a date (the "Record Date") for any such
determination of shareholders, which date shall be not more than 70
days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no Record
Date is fixed by the Board, the Record Date for any such purpose
shall be ten days before the date of such meeting or action. The
Record Date determined for the purpose of ascertaining the
shareholders entitled to notice of or to vote at a meeting may not
be less than ten days prior to the meeting.
When a Record Date has been determined for the purpose of a
meeting, the determination shall apply to any adjournment thereof,
except the original record date shall only be effective with
respect to an adjournment or adjournments held within one hundred
twenty (120) days after the date fixed at the original meeting.
Section 6. Quorum. A majority of the votes entitled to be
cast on a matter represented in person or by proxy shall constitute
a quorum at a meeting of shareholders with respect to such matters.
If less than a quorum of the outstanding shares are represented at
a meeting, such meeting may be adjourned without further notice for
a period which may be determined at the time such meeting is
adjourned. At such adjourned meeting, at which a quorum shall be
present, any business may be transacted which might have been
transacted at the original meeting. Once a share is represented
for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting, and for any adjournment
of that meeting unless a new record date is or shall be set for
that adjourned meeting.
Section 7. Voting of Shares. Each outstanding share of
common stock entitled to vote shall be entitled to one vote upon
each matter submitted to a vote at a meeting of shareholders.
Section 8. Proxies. At all meetings of shareholders, a
shareholder may vote by proxy executed, either manually or in
facsimile, by the shareholder or by his duly authorized
attorney-in-fact. Such appointment of a proxy shall be filed with
the secretary of the Corporation before or at the time of the
meeting. No appointment of a proxy shall be valid after 11 months
from the date of its execution, unless a longer period is expressly
provided in the appointment form. Appointments of proxies shall be
in such form as shall be required by the Board and as set forth in
the notice of meeting and/or proxy or information statement
concerning such meeting.
Section 9. Voting of Shares by Certain Holders. Shares
standing in the name of another corporation may be voted by agent
or proxy as the bylaws of such corporation may prescribe or, in the
absence of such provision, as the Board of Directors of such
corporation may determine as evidenced by a duly certified copy of
either the bylaws or corporate resolution.
Neither treasury shares, shares of its own stock held by the
Corporation in a fiduciary capacity nor shares held by another
corporation, if the majority of the shares entitled to vote for the
election of directors of such other corporation is held by the
Corporation (except to the extent permitted by the articles of
incorporation and Wyoming law), shall be voted at any meeting or
counted in determining the total number of outstanding shares at
any given time.
Shares held by an administrator, executor, guardian or con-
servator may be voted by such fiduciary, either in person or by
proxy, without a transfer of such shares into the name of such
fiduciary. Shares standing in the name of a trustee may be voted
by such trustee, either in person or by proxy, but no trustee shall
be entitled to vote shares held by a trustee without a transfer of
the shares into such trust.
Shares standing in the name of a receiver may be voted by such
receiver and shares held by or under the control of a receiver may
be voted by such receiver, without the transfer thereof into the
name of such receiver if authority so to do is contained in an
appropriate order of the court by which the receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred on the
books of the Corporation into the name of the pledgee, and there-
after the pledgee shall be entitled to vote the shares so trans-
ferred.
Section 10. Cumulative Voting. Cumulative voting shall be
permitted in the election of directors, unless otherwise provided
by the Articles and the laws of the state of incorporation.
Section 11. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at
such meeting or any adjournment thereof. If the inspectors shall
not be so appointed or if any of them shall fail to appear or act,
the chairman of the meeting may appoint inspectors. Each
inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector
at such meeting with strict impartiality and according to the best
of his ability. The inspectors shall determine the number of
shares outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising
in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result and do such acts as are
proper to conduct the election or vote with fairness to all
shareholders. On request of the chairman of the meeting or any
shareholder entitled to vote thereat, the inspectors shall make a
report in writing of any challenge, request or matter determined by
them and shall execute a certificate of any fact found by them.
Section 12. Nominations for Election as Directors. Any
shareholder of record for an annual or special meeting of share-
holders at which directors are to be elected may nominate directors
for election at such meeting in opposition to the slate of
candidates for which management has solicited proxies only if a
notice of intent to nominate such proposed nominees has been
submitted to the secretary of the Corporation at the registered
address of the Corporation no later than 25 days and no more than
60 days prior to the meeting at which the shareholder wishes to
submit those persons as nominees for election as directors. In the
event that notice of the meeting at which such nomination is
desired to be submitted is not mailed or otherwise sent to the
shareholders by the Corporation at least 30 days prior to the
meeting, the Corporation must receive the notice of intent to
nominate no later than seven days after notice of the meeting is
mailed or sent to the shareholders by the Corporation. Notices to
the Corporation's Secretary of intent to nominate a candidate for
election as a director must give the name, age, business address
and principal occupation of such nominee and the number of shares
held by such nominee. Within seven days after filing of the
notice, a signed and completed questionnaire relating to the
proposed nominee (which questionnaire will be supplied by the
Corporation to the person submitting the notice) must be filed with
the Secretary of the Corporation. Unless the notice and completed
questionnaire are timely filed, the Chairman, at a shareholders'
meeting, may declare the nomination defective and it may be
disregarded.
Section 13. Reimbursement of Expenses of Successful Proxy
Contest. The Corporation shall reimburse the actual, reasonable
and bona fide expenses of proxy solicitation incurred by any person
who is successful in soliciting proxies in opposition to a
solicitation made on behalf of management after approval of such
reimbursement by shareholders holding at least a majority of the
stock of the Corporation outstanding. For the purposes of this
paragraph, a person is "successful" in soliciting proxies in
opposition to management (1) with respect to a proposal for elec-
tion of directors if such person elects a majority of the class of
directors elected at the meeting; (2) with respect to opposition to
a proposal submitted by management if more proxies were voted
against such management proposal than were voted for such proposal;
and (3) with respect to a shareholder proposal opposed by
management if such proposal is approved by the requisite
shareholder vote. Except as provided in this paragraph, the
Corporation shall not reimburse any expenses of any person
soliciting proxies in opposition to a solicitation made on behalf
of management of the Corporation.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The Board shall manage and direct
the business and affairs of the Corporation in such manner as it
sees fit. Directors shall discharge their duties in such capacity
in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a
manner reasonably believed to be in or at least not opposed to the
best interests of the Corporation. For the purposes of the
preceding sentence, a director, in determining what is reasonably
believed to be in or not opposed to the best interests of the
Corporation, shall consider the interests of the Corporation's
shareholders, and at the director's discretion may consider the
interests of the Corporation's employees, suppliers, creditors and
customers, the economy of the state and nation, the impact of any
action upon the communities in or near which the Corporation's
facilities or operations are located, the long-term interests of
the Corporation and its shareholders, including the possibility
that those interests may be best served by the continued
independence of the Corporation and any other factors relevant to
preserving public or community interests. In addition to the
powers and authorities expressly conferred upon it, the Board may
do all lawful acts which are not directed to be done by the
shareholders by statute, by the Articles or by these Bylaws.
Section 2. Number, Tenure and Qualifications. The number of
directors of the Corporation shall be six. Each director shall
hold office until the next annual meeting of shareholders and until
a successor director has been elected and qualified, or until the
death, resignation or removal of such director. Directors need not
be residents of the state of incorporation or shareholders of the
Corporation.
Section 3. Regular Meetings. A regular meeting of the Board
shall be held, without other notice than this Bylaw, immediately
after and at the same place as an annual meeting of shareholders.
The Board may provide, by resolution, the time and place, either
within or without the state of incorporation, for the holding of
additional regular meetings, without other notice than such
resolution.
Section 4. Special Meetings. Special meetings of the Board
may be called by or at the request of the president or any three
directors. Meetings called by or at the request of the president
may be called for any place, either within or without the state of
incorporation. Meetings called by three directors shall be held at
the registered office of the Corporation in the state of
incorporation.
Section 5. Telephonic Meetings. Members of the Board and
committees thereof may participate and be deemed present at a
meeting by means of conference telephone or any other means of
communications equipment by which all persons participating may
communicate with each other during the meeting.
Section 6. Notice. Notice of any special meeting of the
Board shall be given by telephone, telegraph or written notice sent
by mail. Notice shall be delivered at least two days prior to the
meeting if the meeting is called by or at the request of the
president if given by telephone or telegram or by written notice.
Written, telegraphic or telephonic notice of a meeting called by
three directors shall be delivered personally or by mail to each
director at such director's business or home address at least five
days prior to the meeting.
If notice of a directors' meeting is given by telegram, such
notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail
so addressed with postage thereon prepaid.
Any director may waive notice of any meeting and except as
provided in the following sentence, such waver shall be in writing,
signed either manually or in facsimile, and filed with the minutes
or corporate records. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where
a director objects to holding the meeting or transacting business
at the meeting and does not thereafter vote for or assent to action
taken at the meeting. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board
need be specified in the notice or waiver of notice of such
meeting.
Section 7. Quorum. A majority of the total membership of the
Board shall constitute a quorum for the transaction of business at
any meeting of the Board, but if a quorum shall not be present at
any meeting or adjournment thereof, a majority of the directors
Present may adjourn the meeting without further notice.
Section 8. Action by Consent of All Directors. Any action
required to be taken, or which may be taken at a meeting of the
Board may be taken without a meeting, if the action is taken by all
members of the Board, evidenced by one or more written consents
describing the action taken, signed, either manually or in
facsimile, by each director, and included in the minutes or filed
with the corporate records reflecting the action taken. Actions
taken by written unanimous consent are effective when the last
director signs the consent, unless the consent specifies a
different effective date.
Section 9. Manner of Acting. The act of a majority of the
directors present at a meeting at which a quorum is present shall
be an act of the Board.
The order of business at any regular or special meeting of the
Board shall be:
1. Record of those present.
2. Secretary's proof of notice of meeting, if notice is not
waived.
3. Reading and disposal of unapproved minutes, if any.
4. Reports of officers, if any.
5. Unfinished business, if any.
6. New business.
7. Adjournment.
Section 10. Vacancies. Any vacancy occurring in the Board by
reason of an increase in the number of directors specified in these
Bylaws, or for any other reason, may be filled by the affirmative
vote of a majority of the directors voting on such matter at a duly
convened meeting, or in the event that the directors remaining in
office constitute fewer than a quorum of the Board, by the
affirmative vote of a majority of all directors remaining in
office.
Section 11. Compensation. By resolution of the Board, the
directors may be paid their expenses, if any, for attendance at
each meeting of the Board and may be paid a fixed sum for attend-
ance at each meeting of the Board and a stated salary as director.
No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor or from receiving compensation for any extraordinary or
unusual services as a director.
Section 12. Presumption of Assent. A director of the Corpo-
ration who is present at a meeting of the Board at which action on
any corporate matter is taken shall be deemed to have assented to
an action taken at such meeting unless the director objects at the
beginning of the meeting or promptly upon arrival to holding the
meeting or transacting business at the meeting; the dissent of such
director is entered in the minutes of the meeting; or the director
delivers written notice of such dissent or abstention to the
presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. Such
right to dissent is not available to a director who voted in favor
of such action.
Section 13. Executive or Other Committees. The Board, by
resolution adopted by the greater of a majority of the directors in
office when the action is taken or the number of directors required
by the Articles or Bylaws to take action under Wyoming Statute
Section 17-16-844, may create one or more committees and appoint
members of the Board to serve on them. Each committee shall have
one (1) or more members who serve at the pleasure of the Board.
Any committee designated as an executive committee may exercise the
authority of the Board under Wyoming Statute Section 17-16-801, and
shall have all of the authority of the Board, but unless
specifically authorized by the Board no such committee shall have
the authority of the Board in reference to authorizing
distributions, approving or proposing to shareholders action that
the Wyoming Business Corporation Act requires be approved by
shareholders, filling vacancies on the Board or any of its
committees, amending the Articles pursuant to Wyoming Statute
Section 17-16-1002, adopting, amending or repealing the Bylaws, a
plan of merger not requiring shareholder approval, authorizing or
approving a reacquisition of shares (except according to a formula
method prescribed by the Board), authorizing or approving the
issuance or sale or contract for sale of shares or determining the
designation and relative rights, preferences and limitations of a
class or series of shares (except that the Board may authorize a
committee or a senior executive officer of the Corporation to do so
within limits specifically prescribed by the Board). The
designation of such committees and the delegation thereto of
authority shall not operate to relieve the Board, or any member
thereof, of any responsibility imposed by law.
Any action required to be taken, or which may be taken at a
meeting of a committee designated in accordance with this Section
of the Bylaws, may be taken without a meeting, if the action is
taken by all members of the Committee, evidenced by one or more
written consents, setting forth the action so taken, signed either
manually or in facsimile, by each Committee member and filed with
the Corporate records reflecting the transaction. Such action by
written consent of all entitled to vote shall have the same force
and effect as a unanimous vote of such persons.
Section 14. Resignation of Officers or Directors. Any di-
rector or officer may resign at any time by submitting a resig-
nation in writing. Such resignation takes effect from the time of
its receipt by the Corporation unless a date or time is fixed in
the resignation, in which case it will take effect from that time.
Acceptance of the resignation shall not be required to make it
effective.
Section 15. Removal. A director may be removed by
shareholders at a duly convened meeting called for the purpose of
such removal. The notice for any meeting at which a director is
proposed for removal must specifically state that a purpose of the
meeting is removal of a director. Removal my occur only if the
number of votes opposing such removal is insufficient to elect the
director under cumulative voting.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the Corporation shall be
a president, a secretary and a treasurer, all of whom shall be
executive officers and each of whom shall be elected by the Board.
A Chairman of the Board, Chairman of the Board/Chief Executive
Officer and one or more vice presidents shall be executive officers
if the Board so determines by resolution. Such other officers and
assistant officers, as may be deemed necessary, shall be designated
administrative assistant officers and may be appointed and removed
in accordance with Article IV, Section 11, hereof. Any two or more
offices may be held by the same person, except the offices of
president and secretary.
Section 2. Election and Term of Office. The executive
officers of the Corporation, shall be elected annually by the Board
at its first meeting held after each annual meeting of the
shareholders or at a convenient time soon thereafter. Each
executive officer shall hold office until the resignation of such
officer or a successor shall be duly elected and qualified, until
the death of such executive officer, or until removal of such
officer in the manner herein provided.
Section 3. Removal. Any officer or agent elected or ap-
pointed by the Board may be removed by the Board whenever, in its
judgment, the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the con-
tract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any executive office
because of death, resignation, removal, disqualification or
otherwise may be filled by the Board for the unexpired portion of
the term.
Section 5. Chairman of the Board. If a Chairman of the Board
(the "Chairman") shall be elected by the Board, the Chairman shall
preside at all meetings of the shareholders and of the Board.
Section 6. Chairman of the Board/Chief Executive Officer. A
Chairman of the Board may also be elected as Chief Executive
Officer, in which case such Chairman shall perform the duties
hereinafter set forth in Article IV, Section 7, of these Bylaws.
Section 7. The President. If no Chairman shall be elected as
Chief Executive Officer by the Board, the president shall be the
chief executive officer of the Corporation and, subject to the
control of the Board, shall be in general charge of the affairs of
the Corporation. The president may sign, with the other officer or
officers of the Corporation authorized by the Board, certificates
for shares of the Corporation, deeds, mortgages, bonds, contracts
or other instruments whose execution the Board has authorized,
except in cases where the signing and execution thereof shall be
expressly delegated by the Board or Bylaws to some other officer or
agent of the Corporation, or shall be required by law to be
otherwise signed or executed. Should a Chairman of the Board be
elected, the president shall perform all duties incident to that
office and such other duties as may be assigned by a Chairman or
the Board who is chief executive officer.
Section 8. The Vice President. In the absence of the presi-
dent or in the event of the death or inability or refusal to act of
the president, the vice president shall perform the duties of the
president, and when so acting shall have all the powers of and be
subject to all the restrictions upon the president. In the event
there is more than one vice president, the vice presidents in the
order designated at the time of their election, or in the absence
of any designation, then in the order of their election, shall
perform the duties of the president and, when so acting, shall have
all the powers of and shall be subject to all the restrictions upon
the president. Any vice president may sign, with the other
officers authorized by the Board, certificates for shares of the
Corporation and shall perform such other duties as from time to
time may be assigned by the chief executive officer or the Board.
Section 9. The Secretary. Unless the Board otherwise
directs, the secretary shall keep the minutes of the shareholders'
and directors' meetings in one or more books provided for that
purpose. The secretary shall also see that all notices are duly
given in accordance with the law and the provisions of the Bylaws;
be custodian of the corporate records and the seal of the
Corporation: affix the seal or direct its affixing to all
documents, the execution of which on behalf of the Corporation is
duly authorized; keep a list of the address of each shareholder;
sign with the president or a vice president certificates for shares
of the Corporation, the issuance of which shall have been
authorized by resolution of the Board; have charge of the stock
transfer books of the Corporation and perform all duties incident
to the office of secretary and such other duties as may be assigned
by the chief executive officer or by the Board.
Section 10. The Treasurer. If required by the Board, the
treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the Board
shall determine. The treasurer shall have charge and custody of
and be responsible for all funds and securities of the Corporation,
receive and give receipts for monies due and payable to the
Corporation from any source whatsoever, deposit all such monies in
the name of the Corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions
of the Bylaws and perform all the duties as from time to time may
be assigned by the chief executive officer or the Board.
Section 11. Assistant Officers. The Board may elect (or
delegate to the Chairman or to the president the right to appoint)
such other officers and agents as may be necessary or desirable for
the business of the Corporation. Such other officers shall include
one or more assistant secretaries and treasurers who shall have the
power and authority to act in place of the officer to whom they are
elected or appointed as an assistant in the event of the officer's
inability or unavailability to act in his official capacity. The
assistant secretary or secretaries, when authorized by the
president, may sign with the president or a vice president
certificates for shares of the Corporation which are issued
pursuant to a resolution of the Board. The assistant treasurer or
treasurers shall, if required by the Board, give bonds for the
faithful discharge of their duties in such sums and with such
sureties as the Board shall determine. The assistant secretaries
and assistant treasurers, in general, shall perform such duties as
shall be assigned to them by the secretary or the treasurer,
respectively, or by the chief executive officer.
Section 12. Salaries. The salaries of the executive officers
shall be fixed by the Board and no officer shall be prevented from
receiving such salary by reason of the fact that such officer is
also a director of the Corporation. The salaries of the
administrative assistant officers shall be fixed by the chief
executive officer.
Section 13. Standards of Conduct and Discharge of Duties.
Executive officers of the Corporation shall discharge their duties
in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances and in a manner
reasonably believed to be in or at least not opposed to the best
interests of the Corporation. For the purposes of determining what
is reasonably believed to be in or not opposed to the best
interests of the Corporation, each executive officer shall consider
the interests of the Corporation's shareholders and in such
officer's discretion, may consider the interests of the
Corporation's employees, suppliers, creditors and customers, the
economy of the state and nation, the impact of any action upon the
communities in or near which the Corporation's facilities or
operations are located, the long-term interests of the Corporation
and its shareholders, including the possibility that those
interests may be best served by the independence of the
Corporation, and any other factors relevant to promoting or
preserving public or community interests.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize
any officer or officers, agent or agents, to enter into any con-
tract on behalf of the Corporation and such authority may be
general or confined to specific instances.
Section 2. Checks, Drafts, Etc. All checks, drafts or other
orders for the payment of money, notes or other evidence of in-
debtedness, issued in the name of the Corporation, shall be signed
by such officer or officers, agent or agents, of the Corporation
and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
Section 3. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the
credit of the Corporation in such banks, trust companies or other
depositories as the Board of Directors may select.
Section 4. Loans to Directors. Except as permitted by
Wyoming Statutes Section 17-16-832(c), a Corporation may not lend
money to or guarantee the obligations of a director of the
Corporation unless the particular loan or guarantee is approved by
a majority of the votes represented by the outstanding voting
shares of all classes voting as a single voting group (except the
shares owned or voted under the control of the benefitted director)
or by the Board if it determines that the loan or guarantee
benefits the Corporation and it either approves the specific loan
or guarantee or a general plan authorizing loans and guarantees.
ARTICLE VI
CERTIFICATES FOR SECURITIES
AND THEIR TRANSFER
Section 1. Certificates for Securities. Certificates repre-
senting securities of the Corporation (the "Securities") shall be
in such form as shall be determined by the Board. Certificates for
Securities (the "Certificates") shall state the name of the
corporation, that it is organized under the laws of the State of
Wyoming, the person to whom the Certificate is issued, and the
number and class of shares and the designation of the series, if
any, the Certificate represents. Each Certificate shall be signed
by the chairman of the Board, president or a vice president and by
the secretary, an assistant secretary, treasurer or assistant
treasurer of the Corporation. The signatures of either or both the
chairman, president or vice president and the secretary, assistant
secretary, treasurer or assistant treasurer may be facsimiles .
A Certificate signed or impressed with the facsimile signature
of an officer, who ceases by death, resignation or otherwise to be
an officer of the Corporation before the Certificate is delivered
by the Corporation, is valid as though signed by a duly elected,
qualified and authorized officer.
The name of the person to whom the Securities represented by
a Certificate are issued, the number of Securities, and date of
issue, shall be entered on the Security transfer books of the
Corporation. All Certificates surrendered to the Corporation for
transfer shall be canceled and no new Certificate shall be issued
until the former Certificate for a like number of shares shall have
been surrendered and canceled, except that, in case of a lost,
destroyed or mutilated Certificate, a new one may be issued
therefor upon such terms and indemnity to the Corporation as the
Board may prescribe.
Section 2. Transfer of Securities. Transfer of Securities
shall be made only on the security transfer books of the Corpo-
ration by the holder of record thereof, by the legal representative
of the holder who shall furnish proper evidence of authority to
transfer, or by an attorney authorized by a power of attorney which
was duly executed and filed with the secretary of the Corporation
and a surrender for cancellation of the certificate for such
shares. The person in whose name Securities stand on the books of
the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be determined by
resolution of the Board.
ARTICLE VIII
DIVIDENDS
The Board may declare, and the Corporation may pay in cash,
stock or other property, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its
Articles.
ARTICLE IX
SEAL
The Board shall provide a corporate seal, circular in form,
having inscribed thereon the corporate name, the state of incor-
poration and the word "Seal." The seal on Securities, any corporate
obligation to pay money or any other document may be by facsimile,
or engraved, embossed or printed.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given to any share-
holder, director of the Corporation or member of a committee
thereof under the provisions of these Bylaws or under the
provisions of the Articles or under the provisions of the
applicable laws of the state of incorporation, a waiver thereof in
writing, signed by the person or persons entitled to such notice,
whether before, at or after the time stated therein, shall be
deemed equivalent to the giving of such notice.
ARTICLE XI
INDEMNIFICATION
The Corporation shall have the power to indemnify any direc-
tor, officer, employee or agent of the Corporation or any person
serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise to the fullest extent permitted
by the laws of the state of incorporation.
ARTICLE XII
AMENDMENTS
These Bylaws may be altered, amended, repealed or replaced by
new bylaws by the Board at any regular or special meeting of the
Board.
ARTICLE XIII
UNIFORMITY OF INTERPRETATION
AND SEVERABILITY
These Bylaws shall be so interpreted and construed as to
conform to the Articles and the statutes of the state of incorpo-
ration or of any other state in which conformity may become
necessary by reason of the qualification of the Corporation to do
business in such foreign state, and where conflict between these
Bylaws and the Articles or a statute has arisen or shall arise, the
Bylaws shall be considered to be modified to the extent, but only
to the extent, conformity shall require. If any Bylaw provision or
its application shall be deemed invalid by reason of the said
nonconformity, the remainder of the Bylaws shall remain operable in
that the provisions set forth in the Bylaws are severable.
IN WITNESS WHEREOF, these Bylaws were adopted by the Corpo-
ration's Board of Directors on April 22, 1992.
MAX T. EVANS, Secretary
U.S. ENERGY CORP.
1989 STOCK OPTION PLAN
As Amended September 1, 1992, September 3, 1993 and Janaury 6,
1994
1. Purpose. Restrictions on Amount Available Under the
Plan. This 1989 Stock Option Plan (the "Plan") is intended to
encourage stock ownership by employees, consultants and directors
of U.S. Energy Corp. (the "Corporation"), its divisions and
Subsidiary Corporations, so that they may acquire or increase their
proprietary interest in the Corporation, and to encourage such
employees and directors to remain in the employ of the Corporation
and to put forth maximum efforts for the success of the business.
It is further intended that options granted by the Committee
pursuant to Section 6 of this Plan shall constitute "incentive
stock options" ("Incentive Stock Options") within the meaning of
Section 422A of the Internal Revenue Code of 1986 and the
regulations issued thereunder (the "Code"), and options granted by
the Committee pursuant to Section 7 of this Plan shall constitute
"nonqualified stock options" ("Nonqualified Stock Options").
2. Definitions. As used in this Plan, the following words
and phrases shall have the meanings indicated:
(a) "Disability" shall mean an Optionee's inability to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be
expected to result in death or that has lasted or can be expected
to last for a continuous period of not less than 12 months.
(b) "Fair Market Value" per share as of a particular
date shall mean the last sale price of the Corporation's Common
Stock as reported on a national securities exchange or on the
NASDAQ National Market System or, if last sale reporting quotation
is not available for the Corporation's Common Stock, the average of
the bid and asked prices of the Corporation's Common Stock as
reported by NASDAQ or in the National Quotation Bureau, Inc.'s
"Pink Sheets" or, if such quotations are unavailable, the value
determined by the Committee (as hereinafter defined) in accordance
with their discretion in making a bona fide, good faith
determination of fair market value.
(c) "Parent Corporation" shall mean any corporation
(other than the employer corporation) in an unbroken chain of
corporations ending with the employer corporation if, at the time
of granting an Option, each of the corporations other than the
employer corporation owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(d) "Subsidiary Corporation" shall mean any corporation
(other than the employer corporation) in an unbroken chain of
corporations beginning with the employer corporation if, at the
time of granting an Option, each of the corporations other than the
last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in
one of the other corporations in such chain.
3. Administration. The Plan shall be administered by a
committee (the "Committee"), consisting of not less than two
members of the Board of Directors of the Corporation (the "Board").
The members of the Committee, who shall be selected at a duly
convened meeting of the Board of Directors, shall be persons who
have not been granted or awarded equity securities of the
Corporation under the Plan or any other plan of the Employer or its
affiliates, during the year prior to awards of securities under the
Plan by the Committee. It is the intent of this Plan that the
Committee members shall be "disinterested administrators" as that
term is used in Rule 16b-3(c)(2)(i) promulgated by the Securities
and Exchange Commission. The members of the Committee shall have
all powers, subject to compliance with the Plan, to select officers
and directors for participation in the Plan, and to make all
decisions concerning the timing, pricing and amount of a grant or
award under the Plan.
The Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions of the
Plan, to administer the Plan and to exercise all the powers and
authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Options; to
determine which Options shall constitute Incentive Stock Options
and which Options shall constitute Nonqualified Stock Options; to
determine the purchase price of the shares of Common Stock covered
by each Option (the "Option Price"); to determine the persons to
whom, and the time or times at which, Options shall be granted; to
determine the number of shares to be covered by each Option; to
interpret the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and
provisions of the Option Agreements (which need not be identical)
entered into in connection with Options granted under the Plan; and
to make all other determinations deemed necessary or advisable for
the administration of the Plan. The Committee may delegate to one
or more of its members or to one or more agents such administrative
duties as it may deem advisable, and the Committee or any person to
whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan.
The Board shall fill all vacancies, however caused, in the
Committee. The Board may from time to time appoint additional
members to the Committee, and may at any time remove one or more
Committee members and substitute others. One member of the
Committee shall be selected by the Board as chairman. The
Committee shall hold its meetings at such times and places as it
shall deem advisable. All determinations of the Committee shall be
made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written
consent. The Committee may appoint a secretary and make such rules
and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings.
No member of the Board or Committee shall be liable for any
action taken or determination made in good faith with respect to
the Plan or any Option granted hereunder.
4. Eligibility. Subject to certain limitations hereinafter
set forth, Options may be granted to employees of (including
officers) and consultants to and directors of (whether or not they
are employees) the Corporation or its present or future divisions
and Subsidiary Corporations. In determining the persons to whom
Options shall be granted and the number of shares to be covered by
each Option, the Committee shall take into account the duties of
the respective persons, their present and potential contributions
to the success of the Corporation and such other factors as the
Committee shall deem relevant in connection with accomplishing the
purpose of the Plan. A person to whom an Option has been granted
hereunder is sometimes referred to herein as an "Optionee." An
Optionee shall be eligible to receive more than one grant of an
Option during the term of the Plan, but only on the terms and
subject to the restrictions hereinafter set forth.
5. Stock. The stock subject to Options hereunder shall be
shares of the Corporation's Common Stock, $.01 par value per share
("Common Stock"). Such shares may, in whole or in part, be
authorized but unissued shares or shares that shall have been or
that may be reacquired by the Corporation. The aggregate number of
shares of Common Stock as to which Options may be granted from time
to time under the Plan shall not exceed 550,000. The maximum
number of shares which may be subject to options granted under the
Plan to the officers and directors as a group shall not exceed
275,000 shares of Common Stock. The limitations established by the
preceding sentences shall be subject to adjustment as provided in
Section 8(i) hereof.
In the event that any outstanding Option under the Plan for
any reason expires or is terminated without having been exercised
in full the shares of Common Stock allocable to the unexercised
portion of such Option (unless the Plan shall have been terminated)
shall become available for subsequent grants of options under the
Plan.
6. Incentive Stock Options. Options granted pursuant to
this Section 6 are intended to constitute Incentive Stock Options
and shall be subject to the following special terms and conditions,
in addition to the general terms and conditions specified in
Section 8 hereof. Consultants and directors who are not employees
of the Corporation shall not be entitled to receive Options
pursuant to this Section 6.
The aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Options are exercisable for the first time by
an Optionee during any calendar year may not exceed $100,000.00
Incentive Stock Options granted under this Plan are intended
to satisfy all requirements for incentive stock options under the
Code and, notwithstanding any other provision of this Plan, the
Plan and all Incentive Stock Options granted under it shall be so
construed, and all contrary provisions shall be so limited in scope
and effect and, to the extent they cannot be so limited, they shall
be void.
7. Nonqualified Stock Options. Options granted pursuant to
this Section 7 are intended to constitute Nonqualified Stock
Options and shall be subject only to the general terms and
conditions specified in Section 8 hereof.
8. Terms and Conditions of Options. Each Option granted
pursuant to the Plan shall be evidenced by a written Option
Agreement between the Corporation and the Optionee, which agreement
shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. Each Option Agreement shall state
the number of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall
specifically identify the portion, if any, of the Option which
constitutes an Incentive Stock Option and the portion, if any,
which constitutes a Nonqualified Stock Option.
(c) Option Price. Each Option Agreement shall state the
Option Price, which shall be not less than 100% of the Fair Market
Value of the shares of Common Stock of the Corporation on the date
of grant of the Option except that any option granted under the
Plan to a person owning more than ten percent of the total combined
voting power of the Common Stock shall be at a price of 110% of
such fair market value and shall be for a term of no more than five
years, in the case of Incentive Stock Options, and not less than
80% of the Fair Market Value of the shares of Common Stock of the
Corporation on the date of grant of the Option in the case of Non-
Qualified Stock Options. The Option Price shall be subject to
adjustment as provided in Section 8(i) hereof. The date on which
the Committee adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted.
(d) Method of Exercise and Medium and Time of Payment.
Each exercise of an Option granted hereunder, whether in whole or
in part, shall be by written notice to the Secretary of the
Corporation designating the number of shares as to which the Option
is exercised, and shall be accompanied by payment in full of the
Option Price (in cash, shares or property) for the number of shares
so designated, together with any written statements required by any
applicable securities laws. The Option Price shall be paid in
cash, in shares of Common Stock having a Fair Market Value equal to
such Option Price or in property or in a combination of cash,
shares and property, and may be effected in whole or in part (i)
with monies received from the Corporation at the time of exercise
as a compensatory cash payment, or (ii) with monies borrowed from
the Corporation pursuant to repayment terms and conditions as shall
be determined from time to time by the Committee, in its
discretion, separately with respect to each exercise of Options and
each Optionee; provided, however, that each such method and time
for payment and each such borrowing and terms and conditions of
repayment shall be permitted by and be in compliance with
applicable law. The Board of Directors shall have the sole and
absolute discretion to determine whether or not property other than
cash or Common Stock may be used to purchase the shares of Common
Stock hereunder and, if so, to determine the value of the property
received.
(e) Term and Exercise of Options. Options shall be
exercisable over the exercise period as and at the times the
Committee may determine, as reflected in the Option Agreement;
provided, however, that the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at such
time and under such circumstances as it, in its sole discretion,
deems appropriate. The exercise period shall be determined by the
Committee; provided, however, that such exercise period shall not
exceed ten years from the date of grant of the Option. The
exercise period shall be subject to earlier termination as provided
in Sections 8(f) and 8(g) hereof. An Option may be exercised, as
to any or all full shares of Common Stock as to which the Option
has become exercisable; provided, however, that an Option may not
be exercised at any one time as to fewer than 100 shares (or such
number of shares as to which the Option is then exercisable if such
number of shares is less than 100).
(f) Termination. Except as provided in this Section
8(f) and in Section 8(g) hereof, an Option may not be exercised
unless the Optionee is then an employee or director of or
consultant to the Corporation or a division or Subsidiary
Corporation thereof (or a corporation or a Parent or Subsidiary
Corporation of such corporation issuing or assuming the option in
a transaction to which Section 425(a) of the Code applies), and
unless the Optionee has remained continuously as an employee or
director of or consultant to the Corporation since the date of
grant of the Option. In the event that the Optionee ceases to be
an employee or director of or consultant to the Corporation (other
than by reason of death, Disability or retirement), all Options of
such Optionee that are exercisable at the time of such cessation
may, unless earlier terminated in accordance with their terms, be
exercised within three months after such cessation; provided,
however, that if the employment or consulting relationship of an
Optionee shall terminate, or if a director shall be removed, for
cause, all Options theretofore granted to such Optionee shall, to
the extent not theretofore exercised, terminate forthwith. Nothing
in the Plan or in any Option granted pursuant hereto shall confer
upon an individual any right to continue in the employ of the
Corporation or any of its divisions or Subsidiary Corporations or
interfere in any way with the right of the Corporation or its
shareholders or any such division or Subsidiary Corporation to
terminate such employment or other relationship between the
individual and the Corporation or any of its divisions and
subsidiary corporations.
(g) Death Disability or Retirement of Optionee. If an
Optionee shall die while a director of, or employed by, or a
consultant to, the Corporation or a Subsidiary Corporation thereof,
or within three months after the termination of such Optionee's
employment or directorship or consulting relationship, other than
termination for cause, or if the Optionee's employment or
directorship or consulting relationship, shall terminate by reason
of disability or retirement, all Options theretofore granted to
such Optionee (whether or not otherwise exercisable) may, unless
earlier terminated in accordance with their terms, be exercised by
the Optionee or by the Optionee's estate or by a person who
acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death or Disability of
the Optionee, at any time within one year after the date of death,
Disability or retirement of the Optionee.
(h) Nontransferability. Options granted under the Plan
shall not be transferable other than by will or by the laws of
descent and distribution, and Options may be exercised, during the
lifetime of the Optionee, only by the Optionee or by his guardian
or legal representative.
Any attempted sale, pledge, assignment, hypothecation or
other transfer of an option contrary to the provisions hereof and
the levy of any execution, attachment or similar process upon an
option shall be null and void and without force or effect.
As a condition to the transfer of any shares of Common
Stock issued under this Plan, the Corporation may require an
opinion of counsel, satisfactory to the Corporation, to the effect
that such transfer will not be in violation of the Securities Act
of 1933 or any other applicable securities laws or that such
transfer has been registered under federal and all applicable state
securities laws. Further, the Corporation shall be authorized to
refrain from delivering or transferring shares of Common Stock
issued under this Plan until the Board of Directors determines that
such delivery or transfer will not violate applicable securities
laws and the Optionee has tendered to the Corporation any federal,
state or local tax owed by the Optionee as a result of exercising
the Option, or disposing of any Common Stock, when the Corporation
has a legal liability to satisfy such tax. The Corporation shall
not be liable for damages due to delay in the delivery or issuance
of any stock certificate for any reason whatsoever, including, but
not limited to, a delay caused by listing requirements of any
securities exchange or any registration requirements under the
Securities Act of 1933, the Securities Exchange Act of 1934, or
under any other state or federal law, rule or regulation. The
Corporation is under no obligation to take any action or incur any
expense in order to register or qualify the delivery or transfer of
shares of Common Stock under applicable securities laws or to
perfect any exemption from such registration or qualification.
Furthermore, the Corporation will have no liability to any Optionee
for refusing to deliver or transfer shares of Common Stock if such
refusal is based upon the foregoing provisions of this Paragraph.
(i) Effect of Certain Changes.
(1) If there is any change in the number of shares
of Common Stock through the declaration of stock dividends, or
through recapitalization resulting in stock splits, or combinations
or exchanges of such shares, the number of shares of Common Stock
available for Options, the number of such shares covered by
outstanding Options, and the price per share of such Options, shall
be proportionately adjusted by the Committee to reflect any
increase or decrease in the number of issued shares of Common
Stock; provided, however, that any fractional shares resulting from
such adjustment shall be eliminated.
(2) In the event of the proposed dissolution or
liquidation of the Corporation, in the event of any corporate
separation or division, including, but not limited to, split-up,
split-off or spin-off, or in the event of a merger or consolidation
of the Corporation with another corporation, the Committee may
provide that the holder of each Option then exercisable shall have
the right to exercise such Option (at its then Option Price) solely
for the kind and amount of shares of stock and other securities,
property, cash or any combination thereof receivable upon such
dissolution, liquidation, or corporate separation or division, or
merger or consolidation by a holder of the number of shares of
Common Stock for which such Option might have been exercised
immediately prior to such dissolution, liquidation, or corporate
separation or division, merger or consolidation; or the Committee
may provide, in the alternative, that each Option granted under the
Plan shall terminate as of a date to be fixed by the Committee;
provided, however, that not less than 30 days' written notice of
the date so fixed shall be given to each Optionee, who shall have
the right, during the period of 30 days preceding such termination,
to exercise the Options as to all or any part of the shares of
Common Stock covered thereby, including shares as to which such
Options would not otherwise be exercisable.
(3) Paragraph (2) of this Section 8(i) shall not
apply to a merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not converted
into or exchanged for stock, securities of any other corporation,
cash or any other thing of value. Notwithstanding the preceding
sentence, in case of any consolidation or merger of another
corporation into the Corporation in which the Corporation is the
surviving corporation and in which there is a reclassification or
change (including a change to the right to receive cash or other
property) of the shares of Common Stock (other than a change in par
value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares
into two or more classes or series of shares), the Committee may
provide that the holder of each Option then exercisable shall have
the right to exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of any new
direct or indirect parent of the Corporation), property, cash or
any combination thereof receivable upon such reclassification,
change, consolidation or merger by the holder of the number of
shares of Common Stock for which such Option might have been
exercised.
(4) In the event of a change in the Common Stock of
the Corporation as presently constituted, which is limited to a
change of all of its authorized shares with par value into the same
number of shares with a different par value or without par value,
the shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of the Plan.
(5) To the extent that the foregoing adjustments
relate to stock or securities of the Corporation, such adjustments
shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that each
Incentive Stock Option granted pursuant to this Plan shall not be
adjusted in a manner that causes such option to fail to continue to
qualify as an Incentive Stock Option within the meaning of Section
422A of the Code.
(6) Except as hereinbefore expressly provided in
this Section 8(i), this Optionee shall have no rights by reason of
any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger, or consolidation or spin- off of
assets or stock of another corporation; and any issue by the
Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect,
and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to the
Option. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structures or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or part of its
business or assets.
(j) Rights as Shareholder - Non-Distributive Intent.
Neither a person to whom an Option is granted, nor such person's
legal representative, heir, legatee or distributee, shall be deemed
to be the holder of, or to have any rights of a holder with respect
to, any shares subject to such Option, until after the Option is
exercised and the shares are issued to the person exercising such
Options. Upon exercise of an Option at a time when there is no
registration statement in effect under the Securities Act of 1933
relating to the shares issuable upon exercise and available for
delivery of a prospectus meeting the requirements of Section
10(a)(3) of said Act, shares may be issued to the Optionee only if
the Optionee represents and warrants in writing to the Corporation
that the shares purchased are being acquired for investment and not
with a view to the distribution thereof. No shares shall be issued
upon the exercise of an Option unless and until there shall have
been compliance with any then applicable requirements of the
Securities and Exchange Commission, or any other regulatory
agencies having jurisdiction over the Corporation. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distribution or other rights
for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(i) hereof.
(k) Other Provisions. The Option Agreements authorized
under the Plan shall contain such other provisions, including,
without limitation, (i) the imposition of restrictions upon the
exercise of an Option, and (ii) in the case of an Incentive Stock
Option, the inclusion of any condition not inconsistent with such
Option qualifying as an Incentive Stock Option, as the Committee
shall deem advisable.
(l) Forfeiture Provisions: All shares of Common Stock
purchased on exercise of all Nonqualified Options granted after the
date of this Plan Amendment (and all shares of Common Stock
purchased on exercise of all Nonqualified Options granted prior to
such date provided that the holder consents), shall be subject to
forfeiture back to the Corporation in the event of termination of
employee, director or consultant status with the Corporation on or
before January 5 of the second calendar year after exercise. For
example, Common Stock purchased on September 1, 1993 by exercise of
a Nonqualified Option, will be subject to forfeiture through
January 5, 1995. Provided, that upon exercise of a Nonqualified
Option at a time when there is a registration statement in effect
under the Securities Act of 1933 relating to the shares issuable
upon exercise, the preceding forfeiture provisions of this
paragraph shall immediately terminate.
9. Agreement by Optionee Regarding Withholding Taxes. If
the Committee shall so require, as a condition of exercise, each
Optionee shall agree that:
(a) No later than the date of exercise of any Option
granted hereunder, the Optionee will pay to the Corporation or make
arrangements satisfactory to the Committee regarding payment of any
federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such Option; and
(b) The Corporation shall, to the extent permitted or
required by law, have the right to deduct federal, state and local
taxes of any kind required by law to be withheld upon the exercise
of such Option from any payment of any kind otherwise due to the
Optionee.
The Corporation shall not be obligated to advise any
Optionee of the existence of any such tax or the amount which the
Corporation will be so required to withhold.
10. Term of Plan. Options may be granted pursuant to the
Plan from time to time within a period of ten years from the date
the Plan is adopted by the Board, or the date the Plan is approved
by the shareholders of the Corporation, whichever is earlier.
11. Amendment and Termination of the Plan. The Board at any
time and from time to time may suspend, terminate, modify or amend
the Plan; provided, however, that any amendment that would
materially increase the aggregate number of shares of Common Stock
as to which Options may be granted under the Plan or materially
increase the benefits accruing to participants under the Plan or
materially modify the requirements as to eligibility for
participation in the Plan shall be subject to the approval of the
holders of a majority of the Common Stock issued and outstanding,
except that any such increase or modification that may result from
adjustments authorized by Section 8(i) hereof shall not require
such approval. Except as provided in Section 8 hereof, no
suspension, termination, modification or amendment of the Plan may
adversely affect any Option previously granted, unless the written
consent of the Optionee is obtained.
12. Approval of Shareholders. The Plan shall take effect
upon its adoption by the Board but shall be subject to the approval
of the holders of a majority of the issued and outstanding shares
of Common Stock of the Corporation, which approval must occur
within 12 months after the date the Plan is adopted by the Board.
13. Assumption. The terms and conditions of any outstanding
Options granted pursuant to this Plan shall be assumed by, be
binding upon and inure to the benefit of any successor corporation
to the Corporation and shall continue to be governed by, to the
extent applicable, the terms and conditions of this Plan. Such
successor corporation shall not otherwise be obligated to assume
this Plan.
14. Termination of Right of Action. Every right of action
arising out of or in connection with the Plan by or on behalf of
the Corporation or of any Subsidiary, or by any shareholder of the
Corporation or of any Subsidiary against any past, present or
future member of the Board, or against any employee, or by an
employee (past, present or future) against the Corporation or any
Subsidiary, will, irrespective of the place where an action may be
brought and irrespective of the place of residence of any such
shareholder, director or employee, cease and be barred by the
expiration of three years from the date of the act or omission in
respect of which such right of action is alleged to have risen.
15. Tax Litigation. The Corporation shall have the right,
but not the obligation, to contest, at its expense, any tax ruling
or decision, administrative or judicial, on any issue which is
related to the Plan and which the Board believes to be important to
holders of Options issued under the Plan and to conduct any such
contest or any litigation arising therefrom to a final decision.
IN WITNESS WHEREOF, the foregoing is the 1989 Stock Option
Plan of U.S. Energy Corp., as amended at September 1, 1992 and
September 3, 1993.
U.S. ENERGY CORP.
By:
MAX T. EVANS, Secretary
U. S. ENERGY CORP.
RESTRICTED STOCK BONUS PLAN
Amended February 7, 1994
U.S. Energy Corp. ("USE"), a Wyoming corporation with
executive offices at 877 North 8th West, Riverton, Wyoming, 82501,
adopts this Restricted Stock Bonus Plan effective as of January 6,
1994:
WHEREAS, on May 25, 1990 the USE Board of Directors issued
common shares to certain directors, officers, employees and
consultants for services provided to USE; and
WHEREAS, additional shares were issued to the same individuals
in 1990 and (with the exception of Mr. Herron) in 1993; and
WHEREAS, all shares to date have been issued without
registration under federal securities laws, and subject to
forfeiture in the event various periods of service were not
completed;
NOW THEREFORE, the USE Board of Directors expands and amends
the previously authorized stock issue plan, as follows:
1. There are reserved for issue 550,000 shares of USE $.01
par value common stock under this Restricted Stock Bonus Plan
("Plan"), including all shares issued and to be issued through
January 4, 1994, which is the authorization date for such issue;
and shall control regardless of the date(s) share certificates
therefor are processed and issued.
2. All shares to be issued under the Plan shall be
registered under Form S-8 with the Securities and Exchange
Commission; resale of all shares issued to date and through January
4, 1994, shall be registered for resale through the Reoffer
Prospectus, comprising part of the Form S-8 registration statement;
and resale of future shares to be issued under the Plan shall be
registered under Form S-8, by the filing of post-effective
amendments to the Reoffer Prospectus, as necessary.
3. All shares to be issued after January 4, 1994 shall be
issued only (i) to employees, directors, consultants and others
providing services to USE or its subsidiaries, provided, that no
shares shall be issued in connection with capital formation
activities, (ii) by authority of the USE Board of Directors, (iii)
in accordance with Wyoming law, and (iv) on advice of counsel
regarding possible liabilities for directors, officers and 10
percent share owners, under Section 16 of the Securities Exchange
Act of 1934, as amended.
<PAGE>
4. All shares to be issued after January 4, 1994 shall be
issued (a) to employees of USE, with such forfeiture conditions as
may be established by the Board of Directors from time to time, and
(b) to consultants and other non-employee persons who provide
services to USE, without any forfeiture conditions.
Max T. Evans, Secretary
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Security Agreement') is entered
into by and between The Brunton Company, a corporation formed under
the laws of the state of Wyoming having its principal place of
business at 620 East Monroe, Riverton, Wyoming, 82501 (Creditor)
and U.S. Energy Corp., a corporation formed under the laws of the
state of Wyoming having its principal place of business at 877
North 8th West, Riverton, Wyoming, 82501 (Debtor) with the intent
and agreement that this Security Agreement shall be effective as of
the 30th day of April, 1993.
RECITALS
A. Debtor, has received advances from The Brunton Company,
or has otherwise become indebted to it.
B. In order to formalize the understanding of the Debtor and
Creditor concerning the amounts owed by the Debtor to Creditor,
Debtor desires to make a promissory note in the principal amount of
$211,800, payable to Creditor in 120 monthly payments with the
principal thereof and all accrued interest thereon through April
30, 2003, the principal bearing interest at a rate of 2.5% above
the Chemical Bank of New York's prime rate per annum.
C. Debtor desires to provide a security interest in shares
of Creditor's $.01 par value common stock as described in
Attachment A to secure Debtor's payment obligations to Creditor
under the Note.
AGREEMENT
NOW THEREFORE, In consideration of the terms and conditions
contained herein and of extensions of credit previously, now or
subsequently made to or for the benefit of Debtor by Creditor, the
parties agree as follows:
ARTICLE I
DEFINITIONS
For the purposes of this Security Agreement, the following terms
shall have the meanings set forth below. Other terms contained in
this Security Agreement, and which are not otherwise specifically
defined herein, shall have the meanings given such terms under the
Wyoming Uniform Commercial Code:
1.1 "Collateral" shall mean shares of $.01 par value common stock
of Creditor owned by and registered in the name of Debtor and
evidenced in Attachment A.
1.2 "Debt" shall mean the amounts evidenced by the Note and
secured by the Collateral, in the amounts set forth in the Note.
1.3 "Debt Instruments" shall mean collectively this Security
Agreement (with its Attachments), and the Note, and "Debt
Instrument" shall mean any one of the foregoing.
1.4 "Event of Default" shall mean an event which is an event of
default under this Security Agreement, as defined in Article VIII.
1.5 "Note" shall refer to the Secured Promissory Note of Debtor
affixed as Attachment "B".
1.6 "Obligations" shall mean all of the Debtor's obligations,
liabilities and indebtedness to Creditor or to any Affiliate of
Creditor, of any and every kind or nature whether previously, now
or subsequently owing, arising, due or payable and however
evidenced, created, incurred, acquired, or owned, and whether
arising or existing under written agreement or by operation of law
including, without limitation, all of Debtor's indebtedness,
liabilities and obligations to the Creditor under this Security
Agreement, the Note and the other Debt Instruments.
1.7 "Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust,
unincorporated organization, association, corporation, institution,
entity, party, or government (whether territorial, national,
federal, state, provincial, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division,
agency, body or department thereof).
1.8 "Security Agreement" shall mean this Security Agreement,
including all Attachments hereto and all amendments and
modifications to any of the foregoing.
ARTICLE II
THE DEBT
2.1 "Debt" The Debt shall have the terms and conditions set forth
in this Security Agreement and the Note. The Debt shall be
evidenced by the Note and secured by the Collateral.
ARTICLE III
THE COLLATERAL
3.1 Collateral Debtor grants and assigns to Creditor, a continuing
mortgage, lien and security interest in all of Debtor's right,
title and interest in and to those properties and assets identified
herein as Collateral and concurrently with the execution hereof
delivers the certificates representing the Collateral into the
hands of the Creditor.
3.2 Purpose and Nature of Security Interests The mortgage, lien
and security interest granted in this Article III are granted for
the purposes of, and such Collateral secures and shall in the
future secure:
3.2.1 The due and punctual payment of the Obligations whether
such applicable Obligations are now or subsequently existing under
this Security Agreement, any Debt Instrument, and all increases,
extensions, modifications, and renewals of any of the foregoing;
3.2.2 The payment and performance of all liabilities of every
kind and character, direct or indirect, absolute or contingent, due
or to become due, now existing or in the future arising, whether
joint or several, whether created under this Security Agreement or
any other Debt Instruments to which Creditor and Debtor are
parties, or otherwise. All payments and performances shall be in
accordance with the terms of the Debt Instruments and Debtor shall
promptly reimburse Creditor for any and all amounts expended by
Creditor in accordance with the terms of this Security Agreement
and the other Debt Instruments, as the same may be amended, renewed
or modified in the future, with all such amounts to be included
within the indebtedness secured, together with all interest,
charges and other amounts due from Debtor under any of the
foregoing.
3.3 Not a Sale The Collateral is not to be deemed or construed as
being sold to or purchased by the Creditor. Debtor is and shall
remain absolutely liable for the performance of its Obligations
under the Debt instruments in accordance with the terms of the
Note.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY DEBTOR
Debtor represents and warrants to Creditor that:
4.1 Power and Authorization
4.1.1 Debtor is a corporation with all requisite power to
enter into this Security Agreement and the other Debt Instruments,
to issue the Note and to otherwise carry out and perform all of its
Obligations under the terms of this Security Agreement and the
other Debt Instruments.
4.1.2 This Security Agreement, the Note, and the other Debt
Instruments are valid and binding obligations of the Debtor,
enforceable in accordance with their respective terms, except as
enforceability thereof may be limited under general principles of
equity (regardless of whether the issue of such enforceability is
considered a proceeding in equity or at law) or by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws
relating to or affecting generally the enforcement of creditors'
rights.
4.1.3 The execution and delivery of the Security Agreement,
the Note, the other Debt Instruments, and the consummation of the
transactions herein contemplated, does not and will not: (1)
conflict with or result in a breach of, any of the terms,
provisions, or conditions of any material agreement to which Debtor
is a party, (2) violate, conflict with or result in the breach or
termination of, or otherwise give any party the right to terminate,
or constitute an event which, after the giving of notice or the
passage of time, or both would constitute a default under the terms
of, any material agreement, and which, either separately or in the
aggregate, might materially and adversely affect the operations or
financial condition of Debtor, (3) violate any judgment, order,
injunction, decree or award against or binding upon Debtor, or (4)
violate any law or regulation of the United States or of any
jurisdiction thereof, which is binding on Debtor.
4.2 Validity of the Note, and the Collateral The Collateral is,
and when issued in compliance with the provisions of this Security
Agreement, the Note will be, free of all liens and encumbrances
except those created by the Debt Instruments and each such
instrument shall represent the valid and binding Obligation of
Debtor and shall be enforceable in accordance with its respective
terms, except as enforceability thereof may be limited under
general principles of equity (regardless of whether the issue of
such enforceability is considered a proceeding in equity or at law)
or by applicable bankruptcy, reorganization, insolvency, moratorium
or other laws relating to or affecting generally the enforcement of
creditors' rights..
4.3 First Priority Except for certain rights in favor of lessors
to the Properties, the mortgage, lien and security interest granted
under the Security Agreement constitutes a senior or first priority
mortgage, lien or security interest on all of the Collateral.
ARTICLE V
EVENTS OF DEFAULT
The occurrence of any of the following events or conditions shall
be an event of default (an "Event of Default"), and unless the same
shall have been waived by Creditor in writing or remedied by
Debtor, shall, at the option of the Creditor exercisable by written
notice of default from the Creditor to Debtor, cause all sums of
principal and interest then remaining unpaid on the Note in default
to become immediately due and payable without demand, presentment,
protest or further notice of any kind, all of which are hereby
expressly waived by Debtor:
5.1 Breach of Repayment Obligations A breach by Debtor of any
Obligation under the terms of the Note.
5.2 Breach of Warranty The discovery that any material
representation or warranty of Debtor made in this Security
Agreement or in any other Debt Instrument or in any statement or
certificate at any time given by Debtor in writing pursuant to or
in connection with this Security Agreement or any other Debt
Instrument shall have been false or materially misleading in any
material respect on the date on which it was made.
5.3 Lien on Collateral A writ of execution or attachment or any
similar process shall be issued or levied against all or any part
of the Collateral in which Creditor has a mortgage,lien or security
interest, or any judgment involving monetary damages shall be
entered against Debtor which shall become a mortgage, lien or
security interest on such Collateral or any portion thereof or
interest therein and such execution, attachment or similar process
or judgment is not released, bonded, satisfied, vacated or
permanently stayed within thirty (30) days after its entry or levy.
5.4 Insolvency: Receiver or Trustee Any of the following
circumstances occur:
5.4.1 The adjudication of Debtor as a bankrupt or insolvent,
or the admission by Debtor in writing of its inability to pay its
debts as they mature, or an assignment by Debtor for the benefit of
creditors.
5.4.2 The application for or consent by Debtor to the
appointment of a receiver, trustee or similar officer for it or for
any substantial part of its property or business.
5.4.3 The appointment of such a receiver, trustee or similar
officer without the application or consent of Debtor, which
appointment shall have continued undischarged for a period of
thirty (30) days.
5.4.4 The institution by Debtor (whether by petition,
application, answer, consent or otherwise) of any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under
the laws of any jurisdiction, or the institution of any such
proceedings (by petition, application, or otherwise) against Debtor
which shall have remained undismissed for a period of thirty (30)
days.
5.4.5 The issuance of any judgment, writ of attachment or
execution or similar process or levy against any of the assets of
Debtor which shall not have been discharged, released, vacated,
fully bonded, or permanently stayed within thirty (30) days after
its issue or levy.
ARTICLE VI
REMEDIES UPON EVENT OF DEFAULT
Upon the occurrence of an Event of Default, Creditor may, at its
option, do any one or more of the following:
6.1 Power Over Collateral Either personally or by means of a
court-appointed receiver, exercise all rights and powers of Debtor
in respect to the Collateral or any part thereof.
6.2 Option of U.S. Energy Corp. to Repurchase Brunton Common Stock
Purchaser hereby grants to U.S. Energy Corp. an option to
repurchase all or a part of Brunton Stock which was sold to Brunton
as more fully set out in Paragraph B above, for a period of three
(3) years from the date of this Agreement. The repurchase price
for the Brunton Stock for year one, two and three of the option
shall be $.11 per share, $.132 per share and $.16 per share,
respectively, less any principal amounts paid under Recital B.
U.S. Energy Corp. may exercise this Option by notification to
Brunton and payment within ten (10) days thereafter for the Brunton
Stock they desire to repurchase. It is mutually agreed and
understood that said Seller's Stock Option may be transferred or be
otherwise assigned at the sole discretion of the U. S. Energy Corp.
Board of Directors. U.S. Energy shall be responsible for any fees
associated with the exercise of their respective Option.
6.3 Payment of Claims Without notice to or demand upon Debtor,
make such payments and do such acts as Creditor may deem necessary
to protect its mortgage, lien and security interests in the
Collateral including, without limitation, paying, purchasing,
contesting or compromising any tax, fee, encumbrance, charge or
lien which is prior to or superior to the mortgage, lien or
security interest granted to Creditor, and in exercising any such
powers or authority Creditor may pay all reasonable expenses
incurred, which shall be Obligations.
6.4 UCC Remedies Exercise any and all remedies of a secured party
under the Wyoming Uniform Commercial Code or any other applicable
law.
6.5 Enforcement Expenses All expenses of enforcement of the Debt
Instruments and disposition of the Collateral, including without
limitation, attorneys' fees, costs of segregation, retaking,
holding, preparing for sale, selling and other expenses relating to
disposition or collection of the Collateral shall be paid by Debtor
to Creditor on demand and Creditor may pay or set off such amounts
out of the proceeds obtained by Creditor from the sale or other
disposition of the Collateral.
ARTICLE VII
MISCELLANEOUS
7.1 CHOICE OF LAW AND FORUM IT IS THE INTENTION OF THE PARTIES
HERETO THAT THE INTERNAL LAWS OF THE STATE OF WYOMING U.S.A.,
INCLUDING, WITHOUT LIMITATION, ANY LAWS GOVERNING USURY OR
PERMISSIBLE RATES OF INTEREST SHALL GOVERN THE VALIDITY OF THIS
SECURITY AGREEMENT AND THE DEBT INSTRUMENTS, THE CONSTRUCTION OF
THEIR TERMS, AND THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS
AND DUTIES OF THE PARTIES HERETO. EXCEPT AS SET FORTH BELOW, THE
PARTIES HEREBY AGREE THAT ANY SUIT TO ENFORCE ANY PROVISION OF THIS
SECURITY AGREEMENT OR ANY DEBT INSTRUMENT ARISING OUT OF OR BASED
THEREON OR ON THE BUSINESS RELATIONSHIP BETWEEN ANY OF THE PARTIES
HERETO SHALL BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF WYOMING OR THE DISTRICT COURT FOR THE COUNTY OF
FREMONT, NINTH JUDICIAL DISTRICT, WYOMING, U.S.A. EACH PARTY
HEREBY AGREES THAT SUCH COURTS SHALL HAVE EXCLUSIVE IN PERSONAM
JURISDICTION AND VENUE WITH RESPECT TO EACH SUCH PARTY, AND EACH
PARTY HEREBY SUBMITS TO THE EXCLUSIVE IN PERSONAM JURISDICTION AND
VENUE OF SUCH COURTS. IN ADDITION TO THE FOREGOING, CREDITOR, AT
ITS SOLE OPTION, MAY COMMENCE ANY SUCH SUIT IN ANY JURISDICTION IN
WHICH DEBTOR HAS A RESIDENCE OR WHERE ANY COLLATERAL SECURING THE
REPAYMENT OF THE OBLIGATIONS IS LOCATED.
7.2 Binding upon Successors and Assigns Subject to, and unless
otherwise provided in this Security Agreement, each and all of the
covenants, terms, provisions and agreements contained herein shall
be binding upon, and inure to the benefit of the successors,
executors, heirs, representatives, administrators and assigns of
the parties hereto. Except as otherwise provided herein, all
rights of Creditor hereunder shall be assignable.
7.3 Severability If any one or more provisions of this Security
Agreement shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall be
interpreted so as best to reasonably give effect to the intent of
the parties hereto. The parties further agree to replace any such
unenforceable provisions of this Security Agreement with valid and
enforceable provisions which will achieve, to the extent possible,
the economic, business and other purposes of the void or
unenforceable provisions.
7.4 Entire Agreement This Security Agreement, the Debt
Instruments, the Attachments hereto, and the documents referenced
herein, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof, and
supersede all prior and contemporaneous agreements, understandings,
inducements or conditions, whether express or implied and whether
written or oral, between the parties with respect to the
Obligations. The express terms hereof shall control and supersede
any course of performance or usage of the trade which is
inconsistent with any of the terms hereof.
7.5 Survival All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of
this Security Agreement and the consummation of the Closing
hereunder, and shall terminate only upon the full payment,
satisfaction and performance by Debtor of its Obligations and
indebtedness under this Security Agreement and the other Debt
Instruments.
7.6 Attorneys' Fees Should suit be brought to enforce or
interpret any part of this Security Agreement, the prevailing party
shall be entitled to recover, as an element of the costs of suit
and not as damages, reasonable attorneys' fees (including without
limitation, costs, expenses and fees on any appeal).
7.7 Time Time is of the essence of this Security Agreement.
7.8 Further Assurances Each party agrees to cooperate fully with
the other parties and to execute such further instruments,
documents and agreements, to give such further written assurances
and to take such further actions, as may be reasonably requested by
any other party to better evidence and reflect the transactions
described herein and contemplated hereby, and as necessary to carry
into effect the intents and purposes of this Security Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Security Agreement as of the date stated on the first page
hereof.
CREDITOR:
THE BRUNTON COMPANY
A Wyoming Corporation
620 East Monroe
Riverton, WY 82501
(SEAL)
By:
HAROLD F. HERRON, President
WITNESSED
By:
KEITH G. LARSEN, Assistant Secretary
DEBTOR:
U.S. ENERGY CORP.
A Wyoming Corporation
877 North 8th West
Riverton, WY 82501
By:
JOHN L. LARSEN, President
WITNESSED
By: s/ MAX T. EVANS,
Secretary
<PAGE>
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
Before me, on this day of April, 1993,
personally appeared Harold F. Herron and Keith G. Larsen known to
me, and who acknowledged that they are the President and Assistant
Secretary, respectively, of The Brunton Company, and who executed
this Loan and Security Agreement on behalf of The Brunton Company,
and set its seal hereto.
Witness my hand and official seal.
My Commission Expires:
Notary Public
(NOTARY SEAL)
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
Before me, on this day of April, 1993,
personally appeared John L. Larsen and Max T. Evans, known to me,
and who acknowledged that they are the President and Secretary,
respectively, of U.S. Energy Corp. and who executed this Loan and
Security Agreement on behalf of U.S. Energy Corp., and set its seal
hereto.
Witness my hand and official seal.
My Commission Expires:
Notary Public
(NOTARY SEAL)
Schedule of Attachments
Attachment Identification of Document
A Listing of Collateral
B Secured Promissory Note
<PAGE>
ATTACHMENT A
LISTING OF COLLATERAL
Collateral, as defined in the Loan and Security Agreement between
THE BRUNTON COMPANY (Creditor) and U.S. ENERGY CORP. (Debtor) dated
April 30, 1993, consists of the following:
1. The Brunton Company Stock Certificate numbers 3310 and
3715 representing 2,647,500 shares of the $.01 par value
common stock of The Brunton Company.
<PAGE>
Debtor: U.S. ENERGY
CORP.
Attachment: B
Document defined as the
"Note"
SECURED PROMISSORY NOTE
$211,800 Issued as of the 30th day of April, 1993
Riverton, Wyoming
FOR VALUE RECEIVED, U.S. ENERGY CORP., a Wyoming corporation in
good standing (Debtor), hereby promises to pay to the order of THE
BRUNTON COMPANY a Wyoming Corporation ("Creditor") (in lawful money
of the United States of America, or with equal value as otherwise
expressly permitted herein) at the office of Creditor located at
620 East Monroe, Riverton, Wyoming, 82501., or at such other place
as Creditor or a future holder hereof (Creditor or such other
holder being sometimes referenced herein as ("Holder")) may from
time to time designate in writing, the principal sum of Two Hundred
Eleven Thousand Eight Hundred dollars and No cents ($211,800),
together with interest on the unpaid principal balance hereof, all
as specified below.
This Secured Promissory Note ("Note") has been issued pursuant to
a Loan and Security Agreement, dated as of the 30th day of April,
1993, between Debtor and Creditor (the "Security Agreement"). All
capitalized terms used herein and not otherwise defined herein
shall have the meanings indicated in the Security Agreement.
All interest accruing at the annual percentage rates specified
herein shall be calculated on the basis of a 360-day year and
actual days elapsed, and any such accrued interest which is not
paid when due shall be added to unpaid principal and shall
thereafter bear interest in the same manner as the unpaid principal
balance hereof. Additionally, notwithstanding any provision of
this Note, it is the intent and agreement of Debtor, in the event
any obligation to pay interest specified herein is found to violate
any applicable law or regulation, that this Note shall be construed
or deemed amended so that the interest is reduced to the extent
necessary to comply with such applicable law or regulation.
1. PAYMENTS OF PRINCIPAL AND INTEREST
1.1 Interest Rate and Maturity Date During the term hereof, the
principal amount hereof, from time to time outstanding, shall bear
interest at the rate of 2.5% above the Chemical Bank of New York's
prime rate per annum (the "Standard Rate"). The principal amount,
with accrued interest, shall be paid in 120 monthly payments and
shall be paid in full on April 30, 2003 (the "Maturity Date").
Payment by Debtor to Creditor on the Maturity Date shall be in an
amount equal to the sum of: (1) all accrued interest at the
Standard Rate (defined above) and Default Rate (defined in Section
4.3), as applicable, which has not been previously paid, (2) all
unpaid principal, and (3) Any unpaid late charges and other amounts
chargeable against Debtor.
1.2 Prepayment The indebtedness hereunder may be prepaid in whole
or in part any time (without penalty or premium) (in principal
amounts of $5,000.00 or more), at the election of Debtor.
2. SECURITY
This Note is secured by and entitled to the benefits of the
Security Agreement to which reference is hereby made for a
description of the Collateral securing this Note, and the rights of
the Creditor and any Holder with respect to such Collateral.
Debtor and Creditor hereby acknowledge and agree that this Note
shall be a negotiable instrument within the meaning of Article 3 of
the Wyoming Uniform Commercial Code.
3. EVENTS OF DEFAULT
The occurrence of any of the following shall be deemed to be an
event of default ("Event of Default") hereunder and under the
Security Agreement: (1) failure to cure any default in the payment
of principal or interest due pursuant to the terms hereof within
five (5) days after such default, or (2) the existence of an Event
of Default under the Security Agreement or any other Debt
Instrument.
4. DEFAULT INTEREST
Any amount which is not paid as of the expiration of five (5) days
after its due date shall, together with the remaining unpaid
principal balance hereof, thereafter bear interest at the
alternative rate (rather than the Standard Rate otherwise
applicable hereunder) and in addition to any other amounts payable
hereunder by reason thereof equal to fifteen percent (15%) per
annum (the "Default Rate"), until the Event of Default is fully
cured.
5. MISCELLANEOUS PROVISIONS
5.1 Attorneys' Fees Should suit be brought to enforce, interpret
or collect any part of this Note, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and other costs of enforcement
and collection.
5.2 Choice of Law and Forum THIS NOTE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
WYOMING, U.S.A., INCLUDING, WITHOUT LIMITATION, ANY WYOMING LAWS
GOVERNING USURY OR PERMISSIBLE RATES OF INTEREST. EXCEPT AS SET
FORTH BELOW, DEBTOR HEREBY AGREES THAT ANY SUIT TO ENFORCE ANY
PROVISION OF, OR TO COLLECT THIS NOTE SHALL BE BROUGHT IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF WYOMING OR THE
DISTRICT COURT FOR THE COUNTY OF FREMONT-NINTH JUDICIAL DISTRICT,
WYOMING, U.S.A. EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL
HAVE EXCLUSIVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO
SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE EXCLUSIVE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE
FOREGOING, CREDITOR OR A HOLDER, AT ITS SOLE OPTION, MAY COMMENCE
ANY SUCH SUIT IN ANY JURISDICTION IN WHICH DEBTOR HAS HIS RESIDENCE
OR WHERE ANY COLLATERAL SECURING THIS NOTE IS LOCATED.
5.3 Obligation Unconditional No provision of this Note or of any
other agreement shall alter, impair or render conditional the
payment obligations of Debtor, which are absolute and
unconditional, to pay the principal and interest on this Note, at
the place and at the respective terms herein prescribed. Debtor
shall in all events remain absolutely and unconditionally liable
for the payment and performance of all its obligations under the
Debt Instruments including, but not limited to, Debtor's liability
for any deficiency by reason of the failure of the Collateral to
fully satisfy all amounts due Holder pursuant to the Debt
Instruments in the case of an Event of Default by Debtor.
5.4 Debtor's Waivers Except as expressly provided to the contrary
herein, Debtor (and all guarantors, endorsers and other parties now
or hereafter becoming liable for the payment of this Note) hereby
waive diligence, presentment, protest, demand of payment, notice of
protest, dishonor and nonpayment, and waive the legal effect of
Holder's failure to give all notices not expressly provided for
herein. Debtor expressly agrees that, without in any way affecting
the liability of Debtor hereunder, the Holder may extend the
Maturity Date or the time for payment of any amount due hereunder,
accept additional security, release any party liable hereunder, and
release any security now or hereafter securing this Note. Debtor
further waives, to the full extent permitted by law, the right to
plead any and all statutes of limitation as a defense to any demand
on this Note, or on any agreement now or hereafter securing this
Note.
5.5 Loss or Destruction Upon receipt of evidence reasonably
satisfactory to Debtor of the loss or mutilation of this Note,
Debtor will execute and deliver, in substitution hereof, a
replacement note.
5.6 Severance Every provision of this Note is intended to be
severable. In the event any term or provision hereof is declared
to be illegal or invalid for any reason by a court of competent
jurisdiction , such illegality or invalidity shall not affect the
balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. Creditor and
Debtor further agree to replace any such void or unenforceable
provision of this Note with valid and enforceable provisions which
will achieve, to the fullest extent possible, the economic,
business and other purposes of the void or unenforceable provision.
5.7 Waivers by Holder to be Strictly Limited Any waiver, express
or implied, of any breach or default hereunder shall not be
considered a waiver of any subsequent or different breach or
default. No delay or omission on the part of Holder in exercising
any right under this Note or under any of the documents referenced
herein shall operate as a waiver of such right or of any other
right of the Holder hereunder.
5.8 Modification No provision of this Note may be waived,
modified, or discharged other than by an express writing signed by
the party against whom enforcement of such waiver, modification or
discharge is sought.
DEBTOR: U.S. ENERGY CORP.
JOHN L. LARSEN, President
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
On this day of April, 1993, personally appeared
before me JOHN L. LARSEN who being by me duly sworn did say
that he is the President of U.S. Energy Corp. and duly
acknowledged that said instrument was signed on behalf of said
company by authority of its bylaws or a resolution of its board of
directors and said JOHN L. LARSEN duly acknowledged to me
that said company executed the same.
My Commission Expires:
Notary Public
(NOTARY SEAL)
<PAGE>
Debtor: CRESTED CORP.
Attachment: B
Document defined as the
"Note"
SECURED PROMISSORY NOTE
$76,760 Issued as of the 30th day of April, 1993
Riverton, Wyoming
FOR VALUE RECEIVED, CRESTED CORP., a Colorado corporation in good
standing (Debtor), hereby promises to pay to the order of THE
BRUNTON COMPANY a Wyoming Corporation ("Creditor") (in lawful money
of the United States of America, or with equal value as otherwise
expressly permitted herein) at the office of Creditor located at
620 East Monroe, Riverton, Wyoming, 82501., or at such other place
as Creditor or a future holder hereof (Creditor or such other
holder being sometimes referenced herein as ("Holder")) may from
time to time designate in writing, the principal sum of Seventy-Six
Thousand Seven Hundred Sixty dollars and No cents ($76,760),
together with interest on the unpaid principal balance hereof, all
as specified below.
This Secured Promissory Note ("Note") has been issued pursuant to
a Loan and Security Agreement, dated as of the 30th day of April,
1993, between Debtor and Creditor (the "Security Agreement"). All
capitalized terms used herein and not otherwise defined herein
shall have the meanings indicated in the Security Agreement.
All interest accruing at the annual percentage rates specified
herein shall be calculated on the basis of a 360-day year and
actual days elapsed, and any such accrued interest which is not
paid when due shall be added to unpaid principal and shall
thereafter bear interest in the same manner as the unpaid principal
balance hereof. Additionally, notwithstanding any provision of
this Note, it is the intent and agreement of Debtor, in the event
any obligation to pay interest specified herein is found to violate
any applicable law or regulation, that this Note shall be construed
or deemed amended so that the interest is reduced to the extent
necessary to comply with such applicable law or regulation.
1. PAYMENTS OF PRINCIPAL AND INTEREST
1.1 Interest Rate and Maturity Date During the term hereof, the
principal amount hereof, from time to time outstanding, shall bear
interest at the rate of 2.5% above the Chemical Bank of New York's
prime rate per annum (the "Standard Rate"). The principal amount,
with accrued interest, shall be paid in 120 monthly payments and
shall be paid in full on April 30, 2003 (the "Maturity Date").
Payment by Debtor to Creditor on the Maturity Date shall be in an
amount equal to the sum of: (1) all accrued interest at the
Standard Rate (defined above) and Default Rate (defined in Section
4.3), as applicable, which has not been previously paid, (2) all
unpaid principal, and (3) Any unpaid late charges and other amounts
chargeable against Debtor.
1.2 Prepayment The indebtedness hereunder may be prepaid in whole
or in part any time (without penalty or premium) (in principal
amounts of $5,000.00 or more), at the election of Debtor.
2. SECURITY
This Note is secured by and entitled to the benefits of the
Security Agreement to which reference is hereby made for a
description of the Collateral securing this Note, and the rights of
the Creditor and any Holder with respect to such Collateral.
Debtor and Creditor hereby acknowledge and agree that this Note
shall be a negotiable instrument within the meaning of Article 3 of
the Wyoming Uniform Commercial Code.
3. EVENTS OF DEFAULT
The occurrence of any of the following shall be deemed to be an
event of default ("Event of Default") hereunder and under the
Security Agreement: (1) failure to cure any default in the payment
of principal or interest due pursuant to the terms hereof within
five (5) days after such default, or (2) the existence of an Event
of Default under the Security Agreement or any other Debt
Instrument.
4. DEFAULT INTEREST
Any amount which is not paid as of the expiration of five (5) days
after its due date shall, together with the remaining unpaid
principal balance hereof, thereafter bear interest at the
alternative rate (rather than the Standard Rate otherwise
applicable hereunder) and in addition to any other amounts payable
hereunder by reason thereof equal to fifteen percent (15%) per
annum (the "Default Rate"), until the Event of Default is fully
cured.
5. MISCELLANEOUS PROVISIONS
5.1 Attorneys' Fees Should suit be brought to enforce, interpret
or collect any part of this Note, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and other costs of enforcement
and collection.
5.2 Choice of Law and Forum THIS NOTE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
WYOMING, U.S.A., INCLUDING, WITHOUT LIMITATION, ANY WYOMING LAWS
GOVERNING USURY OR PERMISSIBLE RATES OF INTEREST. EXCEPT AS SET
FORTH BELOW, DEBTOR HEREBY AGREES THAT ANY SUIT TO ENFORCE ANY
PROVISION OF, OR TO COLLECT THIS NOTE SHALL BE BROUGHT IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF WYOMING OR THE
DISTRICT COURT FOR THE COUNTY OF FREMONT-NINTH JUDICIAL DISTRICT,
WYOMING, U.S.A. EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL
HAVE EXCLUSIVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO
SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE EXCLUSIVE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE
FOREGOING, CREDITOR OR A HOLDER, AT ITS SOLE OPTION, MAY COMMENCE
ANY SUCH SUIT IN ANY JURISDICTION IN WHICH DEBTOR HAS HIS RESIDENCE
OR WHERE ANY COLLATERAL SECURING THIS NOTE IS LOCATED.
5.3 Obligation Unconditional No provision of this Note or of any
other agreement shall alter, impair or render conditional the
payment obligations of Debtor, which are absolute and
unconditional, to pay the principal and interest on this Note, at
the place and at the respective terms herein prescribed. Debtor
shall in all events remain absolutely and unconditionally liable
for the payment and performance of all its obligations under the
Debt Instruments including, but not limited to, Debtor's liability
for any deficiency by reason of the failure of the Collateral to
fully satisfy all amounts due Holder pursuant to the Debt
Instruments in the case of an Event of Default by Debtor.
5.4 Debtor's Waivers Except as expressly provided to the contrary
herein, Debtor (and all guarantors, endorsers and other parties now
or hereafter becoming liable for the payment of this Note) hereby
waive diligence, presentment, protest, demand of payment, notice of
protest, dishonor and nonpayment, and waive the legal effect of
Holder's failure to give all notices not expressly provided for
herein. Debtor expressly agrees that, without in any way affecting
the liability of Debtor hereunder, the Holder may extend the
Maturity Date or the time for payment of any amount due hereunder,
accept additional security, release any party liable hereunder, and
release any security now or hereafter securing this Note. Debtor
further waives, to the full extent permitted by law, the right to
plead any and all statutes of limitation as a defense to any demand
on this Note, or on any agreement now or hereafter securing this
Note.
5.5 Loss or Destruction Upon receipt of evidence reasonably
satisfactory to Debtor of the loss or mutilation of this Note,
Debtor will execute and deliver, in substitution hereof, a
replacement note.
5.6 Severance Every provision of this Note is intended to be
severable. In the event any term or provision hereof is declared
to be illegal or invalid for any reason by a court of competent
jurisdiction , such illegality or invalidity shall not affect the
balance of the terms and provisions hereof, which terms and
provisions shall remain binding and enforceable. Creditor and
Debtor further agree to replace any such void or unenforceable
provision of this Note with valid and enforceable provisions which
will achieve, to the fullest extent possible, the economic,
business and other purposes of the void or unenforceable provision.
5.7 Waivers by Holder to be Strictly Limited Any waiver, express
or implied, of any breach or default hereunder shall not be
considered a waiver of any subsequent or different breach or
default. No delay or omission on the part of Holder in exercising
any right under this Note or under any of the documents referenced
herein shall operate as a waiver of such right or of any other
right of the Holder hereunder.
5.8 Modification No provision of this Note may be waived,
modified, or discharged other than by an express writing signed by
the party against whom enforcement of such waiver, modification or
discharge is sought.
DEBTOR: CRESTED CORP.
MAX T. EVANS, President
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
On this day of April, 1993, personally appeared
before me MAX T. EVANS who being by me duly sworn did say
that he is the President of Crested Corp. and duly acknowledged
that said instrument was signed on behalf of said company by
authority of its bylaws or a resolution of its board of directors
and said MAX T. EVANS duly acknowledged to me that said
company executed the same.
My Commission Expires:
Notary Public
(NOTARY SEAL)
CREDIT FACILITY
$300,000.00 August 3, 1993
Riverton, Wyoming
In consideration for making Three Hundred Thousand Dollars
($300,000.00) available from The Brunton Company, 620 East Monroe
Avenue, Riverton, Wyoming 82501, to U.S. Energy Corp., a Wyoming
corporation with offices at 877 North 8th West, Riverton, Wyoming
82501, the Parties agree to the following terms. U.S. Energy Corp.
("Maker") may borrow from The Brunton Company ("Payee") up to
$300,000.00 during the next 90 days. Each borrowing shall be
evidenced by a promissory note duly executed by Maker with a
promise to pay Payee all such draw-downs up to $300,000.00, plus
interest thereon at the rate of ten percent (10%) per annum from
the date of such note(s) and due on or before October 19, 1993
(hereafter "Maturity").
All or any portion of the principal of and accrued interest on
the promissory note(s), may be paid in cash or with securities as
herein provided at the option of Payee. If Payee elects to receive
common stock of U.S. Energy Corp., Maker shall deliver to The
Brunton Company up to 100,000 shares of the $.01 par value common
stock of U.S. Energy Corp. fully paid and nonassessable with
restrictions as to transfer, on the basis of $3.00 per share. It
is understood that if Maker only borrows a portion of the
$300,000.00, then the number of shares that may be issued upon
request of Payee, shall be based on $3.00 per share to pay or apply
to such indebtedness. At any time before Maturity or an offer by
Maker to pay back all or a part of the loan, Payee shall give Maker
notice of its election within five (5) days of such notice from
Payee that it intends to take all or part of the shares of Maker's
stock in lieu of cash to pay on the borrowings. The Borrowings
shall be payable in Maker's stock only upon notice from Payee to
Maker of such election, which notice shall specify how much of the
borrowings are to be paid in stock and how much in cash.
As soon a practicable after Payee's notice, Maker shall cause
the shares to be issued and delivered to Payee and upon further
notice from Payee of its election to have the shares registered,
Maker shall register such common shares under the law to permit the
public sale thereof. Maker shall maintain such registration for so
long as Payee owns Ten Thousand (10,000) or more of such shares.
All legal, accounting and related expenses of such registration
shall be paid shared equally by Payee and Maker.
DATED, this 2nd day of August, 1993.
MAKER
U.S. ENERGY CORP.
JOHN L. LARSEN, President
MAX T. EVANS, Secretary
The terms of the above Credit Facility are accepted this
day of August, 1993.
THE BRUNTON COMPANY
By:
Title:
<PAGE>
PROMISSORY NOTE
$200,000.00 Issued as of the 5th day of August, 1993
Riverton, Wyoming
FOR VALUE RECEIVED, U.S. ENERGY CORP., a Wyoming corporation in
good standing (Debtor), hereby promises to pay to the order of THE
BRUNTON COMPANY a Wyoming Corporation ("Creditor") (in lawful money
of the United States of America, or with equal value as otherwise
expressly permitted herein) at the office of Creditor located at
620 East Monroe, Riverton, Wyoming, 82501., or at such other place
as Creditor or a future holder hereof, the principal sum of Two
Hundred Thousand dollars and No cents ($200,000.00), together with
interest on the unpaid principal balance hereof, all as specified
below.
This Promissory Note ("Note") has been issued pursuant to a Credit
Facility Agreement dated as of the 2nd day of August, 1993, between
Debtor and Creditor (the "Credit Agreement"). All capitalized
terms used herein and not otherwise defined herein shall have the
meanings indicated in the Credit Agreement.
All interest accruing at the annual percentage rates specified
herein shall be calculated on the basis of a 360-day year and
actual days elapsed, and any such accrued interest which is not
paid when due shall be added to unpaid principal and shall
thereafter bear interest in the same manner as the unpaid principal
balance hereof. Additionally, notwithstanding any provision of
this Note, it is the intent and agreement of Debtor, in the event
any obligation to pay interest specified herein is found to violate
any applicable law or regulation, that this Note shall be construed
or deemed amended so that the interest is reduced to the extent
necessary to comply with such applicable law or regulation.
1. PAYMENTS OF PRINCIPAL AND INTEREST
1.1 Interest Rate and Maturity Date During the term hereof, the
principal amount hereof, from time to time outstanding, shall bear
interest at the rate of 10.0% per annum. The principal amount,
with accrued interest, shall be paid pursuant to the Credit
Agreement in either cash, or $.01 par value common stock of Debtor
or a combination thereof at Creditor's option more fully provided
in the Credit Agreement. The principal and interest shall be paid
in full on or before October 19, 1993 (the "Maturity Date").
2. EVENTS OF DEFAULT and DEFAULT INTEREST
The failure to cure any default in the payment of principal and
interest due pursuant to the terms hereof within five (5) days
after such default, shall be deemed to be an event of default
("Event of Default") hereunder and under the Credit Agreement. Any
amount which is not paid as of the expiration of five (5) days
after its due date shall, together with the remaining unpaid
principal balance hereof, thereafter bear interest at the
alternative rate (rather than the Standard Rate otherwise
applicable hereunder) and in addition to any other amounts payable
hereunder by reason thereof equal to twelve percent (12%) per annum
(the "Default Rate"), until the Event of Default is fully cured.
3. MISCELLANEOUS PROVISIONS
3.1 Attorneys' Fees Should suit be brought to enforce, interpret
or collect any part of this Note, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and other costs of enforcement
and collection.
3.2 Choice of Law and Forum THIS NOTE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
WYOMING, U.S.A., INCLUDING, WITHOUT LIMITATION, ANY WYOMING LAWS
GOVERNING USURY OR PERMISSIBLE RATES OF INTEREST. EXCEPT AS SET
FORTH BELOW, DEBTOR HEREBY AGREES THAT ANY SUIT TO ENFORCE ANY
PROVISION OF, OR TO COLLECT THIS NOTE SHALL BE BROUGHT IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF WYOMING OR THE
DISTRICT COURT FOR THE COUNTY OF FREMONT-NINTH JUDICIAL DISTRICT,
WYOMING, U.S.A. EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL
HAVE EXCLUSIVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO
SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE EXCLUSIVE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE
FOREGOING, CREDITOR OR A HOLDER, AT ITS SOLE OPTION, MAY COMMENCE
ANY SUCH SUIT IN ANY JURISDICTION IN WHICH DEBTOR HAS HIS RESIDENCE
OR WHERE ANY COLLATERAL SECURING THIS NOTE IS LOCATED.
DEBTOR: U.S. ENERGY CORP.
ATTEST:
JOHN L. LARSEN, President
MAX T. EVANS, Secretary
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
On this day of August, 1993, personally appeared
before me JOHN L. LARSEN who being by me duly sworn did say
that he is the President of U.S. Energy Corp. and duly
acknowledged that said instrument was signed on behalf of said
company by authority of its bylaws or a resolution of its board of
directors and said JOHN L. LARSEN duly acknowledged to me
that said company executed the same.
My Commission Expires:
Notary Public
(NOTARY SEAL)
<PAGE>
PROMISSORY NOTE
$100,000.00 Issued as of the 13th day of August, 1993
Riverton, Wyoming
FOR VALUE RECEIVED, U.S. ENERGY CORP., a Wyoming corporation in
good standing (Debtor), hereby promises to pay to the order of THE
BRUNTON COMPANY a Wyoming Corporation ("Creditor") (in lawful money
of the United States of America, or with equal value as otherwise
expressly permitted herein) at the office of Creditor located at
620 East Monroe, Riverton, Wyoming, 82501., or at such other place
as Creditor or a future holder hereof, the principal sum of One
Hundred Thousand dollars and No cents ($100,000.00), together with
interest on the unpaid principal balance hereof, all as specified
below.
This Promissory Note ("Note") has been issued pursuant to a Credit
Facility Agreement dated as of the 2nd day of August, 1993, between
Debtor and Creditor (the "Credit Agreement"). All capitalized
terms used herein and not otherwise defined herein shall have the
meanings indicated in the Credit Agreement.
All interest accruing at the annual percentage rates specified
herein shall be calculated on the basis of a 360-day year and
actual days elapsed, and any such accrued interest which is not
paid when due shall be added to unpaid principal and shall
thereafter bear interest in the same manner as the unpaid principal
balance hereof. Additionally, notwithstanding any provision of
this Note, it is the intent and agreement of Debtor, in the event
any obligation to pay interest specified herein is found to violate
any applicable law or regulation, that this Note shall be construed
or deemed amended so that the interest is reduced to the extent
necessary to comply with such applicable law or regulation.
1. PAYMENTS OF PRINCIPAL AND INTEREST
1.1 Interest Rate and Maturity Date During the term hereof, the
principal amount hereof, from time to time outstanding, shall bear
interest at the rate of 10.0% per annum. The principal amount,
with accrued interest, shall be paid pursuant to the Credit
Agreement in either cash, or $.01 par value common stock of Debtor
or a combination thereof at Creditor's option more fully provided
in the Credit Agreement. The principal and interest shall be paid
in full on or before October 19, 1993 (the "Maturity Date").
2. EVENTS OF DEFAULT and DEFAULT INTEREST
The failure to cure any default in the payment of principal and
interest due pursuant to the terms hereof within five (5) days
after such default, shall be deemed to be an event of default
("Event of Default") hereunder and under the Credit Agreement. Any
amount which is not paid as of the expiration of five (5) days
after its due date shall, together with the remaining unpaid
principal balance hereof, thereafter bear interest at the
alternative rate (rather than the Standard Rate otherwise
applicable hereunder) and in addition to any other amounts payable
hereunder by reason thereof equal to twelve percent (12%) per annum
(the "Default Rate"), until the Event of Default is fully cured.
3. MISCELLANEOUS PROVISIONS
3.1 Attorneys' Fees Should suit be brought to enforce, interpret
or collect any part of this Note, the prevailing party shall be
entitled to recover, as an element of the costs of suit and not as
damages, reasonable attorneys' fees and other costs of enforcement
and collection.
3.2 Choice of Law and Forum THIS NOTE SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
WYOMING, U.S.A., INCLUDING, WITHOUT LIMITATION, ANY WYOMING LAWS
GOVERNING USURY OR PERMISSIBLE RATES OF INTEREST. EXCEPT AS SET
FORTH BELOW, DEBTOR HEREBY AGREES THAT ANY SUIT TO ENFORCE ANY
PROVISION OF, OR TO COLLECT THIS NOTE SHALL BE BROUGHT IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF WYOMING OR THE
DISTRICT COURT FOR THE COUNTY OF FREMONT-NINTH JUDICIAL DISTRICT,
WYOMING, U.S.A. EACH PARTY HEREBY AGREES THAT SUCH COURTS SHALL
HAVE EXCLUSIVE IN PERSONAM JURISDICTION AND VENUE WITH RESPECT TO
SUCH PARTY, AND EACH PARTY HEREBY SUBMITS TO THE EXCLUSIVE IN
PERSONAM JURISDICTION AND VENUE OF SUCH COURTS. IN ADDITION TO THE
FOREGOING, CREDITOR OR A HOLDER, AT ITS SOLE OPTION, MAY COMMENCE
ANY SUCH SUIT IN ANY JURISDICTION IN WHICH DEBTOR HAS HIS RESIDENCE
OR WHERE ANY COLLATERAL SECURING THIS NOTE IS LOCATED.
DEBTOR: U.S. ENERGY CORP.
ATTEST:
JOHN L. LARSEN, President
MAX T. EVANS, Secretary
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
On this day of August, 1993, personally appeared
before me JOHN L. LARSEN who being by me duly sworn did say
that he is the President of U.S. Energy Corp. and duly
acknowledged that said instrument was signed on behalf of said
company by authority of its bylaws or a resolution of its board of
directors and said JOHN L. LARSEN duly acknowledged to me
that said company executed the same.
My Commission Expires:
Notary Public
(NOTARY SEAL)
STOCK PURCHASE AGREEMENT
between
CONSUMERS POWER COMPANY
and
U.S. ENERGY CORP.
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .2
2. THE TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 8
(a) Sale and Purchase of Stock of the Company; Repayment
of Intercompany Obligations . . . . . . . . . . . . .8
(b) Stock Purchase Price . . . . . . . . . . . . . . . . .8
(c) Certain Outstanding Obligations . . . . . . . . . . .8
(d) Agency Agreement . . . . . . . . . . . . . . . . . .8
3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . 8
(a) Organization and Standing of Seller . . . . . . . . . 9
(b) Authorization of Transaction . . . . . . . . . . . . .9
(c) Noncontravention . . . . . . . . . . . . . . . . . .9
(d) Organization, Standing, Power and Qualification of
Company and Canyon . . . . . . . . . . . . . . . . .9
(e) Company Capitalization . . . . . . . . . . . . . . 10
(f) Canyon Capitalization . . . . . . . . . . . . . . . 10
(g) Financial Statements . . . . . . . . . . . . . . . 10
(h) Absence of Specified Changes . . . . . . . . . . . 11
(i) Contracts . . . . . . . . . . . . . . . . . . . . . 11
(j) Taxes . . . . . . . . . . . . . . . . . . . . . . . 11
(k) Real Property, Leases; Equipment; Etc . . . . . . . 12
(l) Rights Under Licenses; Software 13
(m) Existing Employment Contracts and Benefits . . . . . 14
(n) Labor Relations . . . . . . . . . . . . . . . . . . 15
(o) Insurance Policies . . . . . . . . . . . . . . . . 15
(p) Compliance With Laws . . . . . . . . . . . . . . . 16
(q) Litigation; Investigations . . . . . . . . . . . . 16
(r) Brokers' Fees . . . . . . . . . . . . . . . . . . . 16
(s) Governmental Consents . . . . . . . . . . . . . . . 16
(t) Absence of Certain Practices . . . . . . . . . . . . 17
(u) Licenses . . . . . . . . . . . . . . . . . . . . . 17
(v) Directors, Officers and Employees . . . . . . . . . 17
(w) Membership in Consolidated Tax Group . . . . . . . . 17
4. REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . 17
(a) Organization, Standing of Buyer . . . . . . . . . . 18
(b) Authorization of Transaction . . . . . . . . . . . 18
(c) Noncontravention . . . . . . . . . . . . . . . . . 18
(d) Governmental Consents . . . . . . . . . . . . . . . 18
(e) Investment Intent of Buyer . . . . . . . . . . . . 19
(f) Brokers' Fees . . . . . . . . . . . . . . . . . . . 19
(g) Financial Statements . . . . . . . . . . . . . . . . 19
(h) No Material Adverse Change . . . . . . . . . . . . . 19
<PAGE>
5. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING . . . . . . . . 19
(a) Buyer's Access to Information . . . . . . . . . . . 19
(b) Conduct of Business in Normal Course . . . . . . . . 20
(c) Consent . . . . . . . . . . . . . . . . . . . . . . 20
(d) Further Assurances . . . . . . . . . . . . . . . . . 20
(e) Resignations and Terminations . . . . . . . . . . . 20
(f) Supplements to Exhibits . . . . . . . . . . . . . . 21
6. INFORMATION TO BE HELD IN CONFIDENCE . . . . . . . . . . 21
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO
PURCHASE THE STOCK . . . . . . . . . . . . . . . . . . . 21
(a) Accuracy of Seller's Representations and Warranties 21
(b) Performance by Seller . . . . . . . . . . . . . . . 21
(c) Governmental Authorizations; Consents . . . . . . . 22
(d) Opinion of Seller's Counsel . . . . . . . . . . . . 22
(e) No Order Preventing Transaction . . . . . . . . . . 23
(f) Cash or Cash Equivalents . . . . . . . . . . . . . . 23
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO
SELL THE STOCK . . . . . . . . . . . . . . . . . . . . . 24
(a) Accuracy of Buyer's Representations and Warranties . 24
(b) Performance by Buyer . . . . . . . . . . . . . . . 24
(c) Governmental Authorizations . . . . . . . . . . . . 24
(d) Opinion of Buyer's Counsel . . . . . . . . . . . . . 24
(e) No Order Preventing Transaction . . . . . . . . . . 25
9. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . 25
(a) Time and Place . . . . . . . . . . . . . . . . . . 25
(b) Deliveries at Closing by Seller . . . . . . . . . . 25
(c) Deliveries at Closing by Buyer . . . . . . . . . . 26
(d) Further Deliveries . . . . . . . . . . . . . . . . 26
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . 26
11. OBLIGATIONS AFTER THE CLOSING . . . . . . . . . . . . . 27
(a) Tax Matters . . . . . . . . . . . . . . . . . . . . 27
(b) Employment of Company Personnel and Employee Plans . 30
(c) Intercompany Services . . . . . . . . . . . . . . . 31
(d) Further Assurances . . . . . . . . . . . . . . . . 32
(e) Hazardous Substances . . . . . . . . . . . . . . . 32
12. TERMINATION . . . . . . . . . . . . . . . . . . . . . . 33
(a) Right to Terminate . . . . . . . . . . . . . . . . 33
(b)Obligations to Cease . . . . . . . . . . . . . . . . 34
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 34
(a) Costs . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Headings . . . . . . . . . . . . . . . . . . . . . . 34
(c) Notices . . . . . . . . . . . . . . . . . . . . . . 35
(d) Assignment and Delegation . . . . . . . . . . . . . 35
(e) Binding Effect . . . . . . . . . . . . . . . . . . 35
(f) Governing Law . . . . . . . . . . . . . . . . . . . 35
(g) Entire Agreement . . . . . . . . . . . . . . . . . 35
(h) Counterparts . . . . . . . . . . . . . . . . . . . 36
(i) Severability . . . . . . . . . . . . . . . . . . . 36
(j) No Prejudice . . . . . . . . . . . . . . . . . . . . 36
(k) Words in Singular and Plural Form . . . . . . . . . 36
(l) Parties in Interest . . . . . . . . . . . . . . . . 36
(m) Amendment and Modification . . . . . . . . . . . . 36
(n) Waiver . . . . . . . . . . . . . . . . . . . . . . . 36
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of the 30th day of June, 1993
between CONSUMERS POWER COMPANY, a Michigan corporation having
its principal office at 212 West Michigan Avenue, Jackson,
Michigan 49201 ("Seller") and U.S. ENERGY CORP., a Wyoming
corporation having its principal office at 877 North 8th West,
Riverton, Wyoming 82501 ("Buyer").
WHEREAS, Seller owns all of the issued and outstanding
capital stock of Plateau Resources Limited. a Utah corporation
(the "Company"), and desires to sell and Buyer desires to
purchase all of such capital stock of the Company; and
WHEREAS, the Company's principal property is a uranium
processing facility which is currently inactive due to the
depressed market prices for uranium; and
WHEREAS, the Company's uranium processing facility is
subject to a Tax Benefit Transfer Agreement (the "TBT", as
hereinafter defined) under which various liabilities can arise
under certain circumstances; and
WHEREAS, the Company is subject to various Environmental
Laws (as hereinafter defined) and to various decommissioning and
reclamation requirements relating to its uranium processing
facility, under which it will be required to expend substantial
sums; and
WHEREAS, the Company is expending substantial sums as
holding costs during the inactivity of its uranium processing
facility; and
WHEREAS, Seller desires to eliminate, insofar as possible,
its exposure to the foregoing costs by selling all of the issued
and outstanding capital stock of the Company, on the terms and
conditions hereinafter set forth; and
WHEREAS, Buyer is willing to assume the foregoing and other
risks associated with ownership of the Company's capital stock,
in the belief that the
market for uranium will improve sufficiently for the Company to
be operated profitably, and desires to purchase all of the
issued and outstanding capital stock of the Company, on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound, do hereby
agree as follows:
1. DEFINITIONS.
"Adjusted Grossed-up Basis" means the adjusted grossed-up basis
of the Stock within the meaning of Treasury Regulation section
1.338(h)(10)-lT(e) and (f).
"Affiliate" means a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled
by, or is under common control with, a specified person.
"Agency Agreement" means the agreement referred to in
Subsection 2(d).
"Agreement" means this agreement, including the exhibits
attached hereto and any material incorporated herein by
reference.
"Allocation" means the proper allocation of the Adjusted
Grossed-up Basis among the assets of the Company in accordance
with Code section 338(b)(5) and the Treasury Regulations
promulgated thereunder.
"Bank Rate" means the prime lending rate of NBD Bank, N.A.
as in effect from time to time.
"Buyer" has the meaning set forth in the preface above.
"Buyer Financial Statements" means the Buyer's audited
consolidated balance sheets and statements of income and expense
for the fiscal years ended May 31, 1991 and May 31, 1992 and
for the first three quarters of the fiscal year ended May 31,
1993.
"Canyon" means Canyon Homesteads, Inc., a Utah corporation
that is a wholly-owned subsidiary of the Company.
"Cash" means cash and cash equivalents (including marketable
securities and short-term investments) calculated in accordance
with GAAP applied on a basis consistent with the preparation of
the Company Financial Statements.
"Closing" means the consummation of the Stock Purchase, and
includes the actions described in Section 9.
"Closing Date" means the later of (i) August 11, 1993, or
(ii) the date which is three (3) business days after the receipt
of the last required governmental approval for the Stock Purchase
and the satisfaction or waiver of all other conditions to
consummation of the Stock Purchase (other than conditions with
respect to actions that Buyer and Seller will take at the
Closing).
"COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock of the Company, which
has no par value.
"Company" means Plateau Resources Limited, a Utah
corporation that is a wholly-owned subsidiary of Seller.
"Company Financial Statements" means the unaudited
consolidated balance sheets of the Company as at December 31,
1991 and December 31, 1992 and the related unaudited statements
of income and expense for the years ended December 31, 1991 and
December 31, 1992.
"Confidentiality Agreement" means the Confidentiality
Agreement between the Company and Buyer dated November 16, 1993.
"Consent" means any registration, filing, application,
notice, consent, permit, approval, Order, authorization,
qualification or waiver required to be made, given or obtained by
Seller, Buyer or the Company in order to consummate the Stock
Purchase or effectuate the necessary transfer or renewal of any
existing license, permit, approval or authorization in connection
therewith.
"Contract" means any contract, agreement, arrangement or
other document to which the Company or Canyon is a party or by
which it or any of its assets is bound, not entered into by the
Company in the ordinary course of its business, under which the
obligation of any party thereto exceeds $50,000 or which
involves payments based on the profits or revenues of the Company
or Canyon.
"Election" means an election made under section 338(h)(10)
of the Code and the Treasury Regulations promulgated thereunder
so that the Stock Purchase shall be treated for tax purposes as a
purchase and sale of the assets of the Company.
"Employee Plan" means an employment contract, collective
bargaining agreement, pension plan, welfare plan, termination,
severance or lay-off plan or arrangement, bonus plan, stock
option plan, health or disability or life insurance policy or
benefit plan, vacation or sick-leave policy, or any other
employee benefit plan or arrangement providing for remuneration
or benefits to employees or terminated employees of the Company
or Canyon, under which the Company or Canyon has liability.
"Environmental Law" means any federal, state or local law,
rule or regulation relating to pollution or protection of human
health or the environment, including but not limited to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 43 USCA section 9601 et seq.; the Resource
Conservation and Recovery Act, 41 USCA section 6901 et seq.; the
Federal Safe Drinking Water Act, 42 USCA section 300f et seq.;
the Federal Clean Air Act, 42 USCA section 7401 et seq.; the
Federal Toxic Substances Control Act, 15 USCA section 2601 et
seq. and the counterparts of such statutes enacted by state or
local governments with jurisdiction over the Company or its
assets.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"GAAP" means United States generally accepted accounting
principles as in effect from time to time.
" Hazardous Substance" means any substance defined or
identified as a pollutant, contaminant, hazardous substance,
hazardous constituent, toxic substance, hazardous waste or
hazardous material under any Environmental Law.
"Income Tax" means any federal, state, local or foreign
income tax, including any interest, penalty or addition thereto,
whether disputed or not.
"Independent Auditor" means an impartial certified public
accounting firm of national standing that is neither Seller's
Auditor nor a firm that provides audit services to Buyer, and is
selected by mutual agreement of Seller and Buyer.
"Interim Balance Sheet" means the unaudited consolidated
balance sheet of the Company as of May 31, 1993.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge without independent
investigation. "Law" means any federal, state, local or foreign
law, rule, regulation or ordinance.
"License" means any license, permit, consent, authorization
or approval from a governmental authority having jurisdiction.
"Multiemployer Plan" has the meaning ascribed to that term
in ERISA section 4001(a)(3) as amended by the Multiemployer
Pension Plan Amendments Act of 1980.
"NLRB" means the National Labor Relations Board
"Order" means any judgment, injunction, writ, decree or
order of any court or governmental entity.
"Pension Plan" means any Employee Plan that is an employee
pension benefit plan, as defined in ERISA section 3(2),
sponsored by the Company or to which the Company made, makes or
is required to make contributions or which provides benefits to
employees or terminated employees of the Company or Canyon.
"RMB" means Rocky Mountain Bank F.S.B. of 2020 Carey Avenue,
Cheyenne, WY 82003 or other bank acceptable to Seller and Buyer
as a party to the Agency Agreement.
"Seller" means Consumers Power Company, a Michigan
corporation.
"Seller's Auditor" means Arthur Andersen & Co.
"Seller's Retirement Plans" means Seller's Pension Plan and
any other retirement plans maintained by Seller for employees of
Seller and its Affiliates.
"Seller's Savings Plan" means Seller's Employees' Savings
and Incentive Plan, as amended.
"Significant Subsidiary" has the meaning ascribed to that
term in Regulation S-X of the Securities Exchange Act of 1934,
as amended.
"Site Characterization Study" means the report of the site
characterization study of the Company's properties prepared by
ICF Kaiser Engineers, Inc. and dated May 15, 1992, a copy of
which has been furnished to Buyer.
"Stock" means all of the Common Stock issued and outstanding
at the time of Closing.
"Stock Purchase" means Buyer's purchase of the Stock from
Seller at the Closing for the Stock Purchase Price in accordance
with the terms of this Agreement.
"Stock Purchase Price" means $100.00.
"Subsidiary" means any corporation with respect to which a
specified corporation or its subsidiary owns a majority of the
common stock or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Survival Period" means the remaining portion of any
applicable statutory period of limitation of actions.
"Tax" means any federal, state, foreign or local tax of any
kind, including any interest, penalty or addition thereto,
whether disputed or not.
"Tax Agreement" means the Agreement for the Allocation of
Income Tax Liabilities and Benefits, dated as of January 1,
1990, as amended, among CMS Energy Corporation and the
corporations, including the Company and Canyon, that are members
of the consolidated group of which CMS Energy Corporation is the
common parent.
"Tax Lessor" means Northern States Power Company, or its
successor under the TBT.
"Tax Liability" means any loss, damage, liability or claim
relating to or for a Tax.
"Tax Return" means any return, report, form, declaration or
other document or information required to be supplied to any
governmental entity in connection with a Tax.
"TBT" means the tax benefit transfer agreement between the
Company and the Tax Lessor, dated July 1, 1982.
"Welfare Plan" means any employee welfare benefit plan, as
defined in ERISA section 3(1), sponsored by the Company or
Canyon or as to which the Company or Canyon makes contributions
or pays benefits or which provides benefits to employees or
terminated employees of the Company or Canyon.
2. THE TRANSACTIONS.
(a) Sale and Purchase of Stock of the Company: Repayment of
Intercompany Obligations. Seller agrees to sell and Buyer agrees
to purchase from Seller, the Stock, on the terms and subject to
the conditions hereinafter set forth, for the Stock Purchase
Price, payable as set forth herein.
(b) Stock Purchase Price. In consideration for the Stock,
Buyer agrees to pay to Seller at the Closing the Stock Purchase
Price in immediately available funds.
(c) Certain Outstanding Obligations.
(1) Immediately prior to the Closing, Seller will repay
to the Company the principal and interest then accrued of the
presently-outstanding loan to Seller by the Company. Such
repayment may be in cash, stock of the Company, or any other
medium permitted by the terms of the loan and by law, or any
combination thereof.
(2) Immediately prior to the Closing, Seller will cause
the Company and Canyon to transfer to Seller all of their right,
title and interest in and under the Tax Agreement. Such transfer
may be in the form of a dividend, a redemption, or a partial
liquidation.
(d) Agency Agreement. At the Closing, Seller, the Company,
Buyer and RMB shall enter into the Agency Agreement in the form
attached hereto as Exhibit 2(d) and the Company shall deposit
with RMB the funds required by the Agency Agreement to be so
deposited.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer that the
statements contained in this Section 3 are correct and complete
as of the date of this Agreement and, except as set forth in
Exhibit 3, will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 3).
(a) Organization and Standing of Seller. Seller is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Michigan.
(b) Authorization of Transaction. Seller has the requisite
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by Seller
has been duly and validly authorized. This Agreement is a valid
and binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as may be limited by
bankruptcy and insolvency laws and by other laws affecting the
rights of creditors generally and except as may be limited by
the availability of equitable remedies.
(c) Noncontravention. The execution and delivery of this
Agreement do not, and the consummation of the transactions
described herein will not (i) violate the Articles of
Incorporation of Seller, the Company or Canyon, respectively, or
the By-laws of Seller, the Company or Canyon, respectively, or
(ii) result in a material breach or default under any mortgage,
deed of trust. indenture, note, bond, license, lease agreement
or other instrument or obligation to which Seller, the Company or
Canyon is a party or by which any of their respective properties
or assets are bound, or (iii) subject to the receipt of the
consents or approvals required as set forth on Exhibit 3(s),
violate any Law or Order by which Seller, the Company or Canyon
or any of their respective properties or assets are bound.
(d) Organization. Standing. Power and Qualification of
Company and Canyon. The Company and Canyon are corporations duly
organized, validly existing and in good standing under the laws
of the State of Utah. The Company is duly qualified and in good
standing as a foreign corporation in the State of Michigan. The
Company and Canyon have all the corporate powers necessary to
own, lease and operate the assets and properties they now own,
lease and operate and to carry on their businesses as now
conducted. Except for the Company's ownership of Canyon stock,
and except as set forth on Exhibit 3(d) hereto, neither the
Company nor Canyon owns, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation,
partnership, business trust or other entity. Seller has
delivered to Buyer complete and accurate copies of the Articles
of Incorporation and the By-laws of the Company and of Canyon,
each as amended to the date hereof.
(e) Company Capitalization. The authorized capital stock of
the Company consists of 85,000 shares of the Common Stock, of
which as of the date hereof 56,000 shares are issued and
outstanding and owned beneficially and of record by Seller. The
Common Stock is the only authorized class of capital stock of
the Company. All of the issued and outstanding shares of the
Common Stock in excess of the number of shares constituting the
Stock will be reacquired and canceled by the Company prior to
the Closing. All of the issued and outstanding shares of the
Common Stock are validly issued, fully paid and nonassessable.
(f) Canyon Capitalization. The authorized capital stock of
Canyon consists of 20,000 shares of common stock, without par
value, of which as of the date hereof 4,478 shares are issued and
outstanding and owned beneficially and of record by the Company.
All of the issued and outstanding shares of common stock of
Canyon are validly issued, fully paid and nonassessable.
(g) Financial Statements.
(1) The Company Financial Statements are attached
hereto as Exhibit 3(g)(1). Each of the consolidated balance
sheets included in the Company Financial Statements fairly
presents the financial position of the Company on a
consolidated basis as of its date and the other statements
included therein fairly present the results of operations for
the periods therein set forth, in each case in accordance with
GAAP consistently applied during the periods involved (except as
otherwise stated therein).
(2) The Interim Balance Sheet is attached hereto as
Exhibit 3(g)(2). The Interim Balance Sheet fairly presents the
financial position of the Company on a consolidated basis as of
its date. The Interim Balance Sheet has been prepared in
accordance with GAAP on a basis consistent with the Company
Financial Statements.
(h) Absence of Specified Changes. Except as disclosed in
Exhibit 3(h), since May 31, 1993 there has not been with respect
to the Company any material adverse change in the financial
position of the Company and Canyon, taken as a whole.
(i) Contracts. Exhibit 3(i) lists all Contracts, each of
which is in full force and effect. Neither Seller nor the
Company nor Canyon has received notice of cancellation of or
intent to cancel any of the Contracts. To the Knowledge of
Seller, there exists no material event of default under any of
the Contracts which would have a material adverse effect on the
business, operations or condition (financial or otherwise) of
the Company or Canyon.
(j) Taxes.
(1) Unless the same are being contested in good faith
by appropriate proceedings, all Tax Returns, reports and
declarations relating to the Company and its operations required
to be filed with any governmental authority have been so filed,
and all amounts shown thereon as due and payable have been paid.
(2) Pursuant to the TBT, attached as Exhibit 3(j)(2),
the Company sold its uranium processing facility and leased it
back, for tax purposes only, under Code section 168(f). The TBT
is in full force and effect and has not been further
supplemented, amended or modified. To the Knowledge of Seller,
there exists no material event of default under the TBT, and no
"disqualifying event" or other event has occurred which has
created in the Company or in Seller any liability for
indemnification thereunder.
(k) Real Property. Leases: Equipment: Etc.
(1) The Company or Canyon owns the real property listed
in Exhibit 3(k)(1)(a). Exhibit 3(k)(1)(b) lists each lease and
sublease pursuant to which the Company or Canyon leases or
sublets real property. Each of the leases and subleases listed
on Exhibit 3(k)(1)(b) is in full force and effect and has not
been further supplemented, amended or modified. To the Knowledge
of Seller, there exists no material event of default under any
of the leases or subleases on Exhibit 3(k)(1)(b). Neither Seller
nor the Company nor Canyon has received any notice of any
material event of default or any event, occurrence, condition or
act, including but not limited to the execution and delivery of
this Agreement and the consummation of the Stock Purchase, which
constitutes or would constitute (with notice or lapse of time or
both) a material event of default in any respect under any of
the leases or subleases on Exhibit 3(k)(1)(b). To the Knowledge
of Seller, the buildings, fixtures and improvements on the real
property covered by the interests described in Exhibits
3(k)(1)(a) and 3(k)(1)(b), and the present uses thereof, comply
in all material respects with all restrictive covenants, deeds
and other restrictions and all zoning laws, ordinances and
regulations of governmental or other authorities having
jurisdiction thereof, including provisions relating to
permissible nonconforming uses, if any, and such premises are not
presently affected, nor to the Knowledge of Seller threatened,
by any condemnation or eminent domain proceeding.
(2) Exhibit 3(k)(2) lists all equipment and tangible
personal property (including ore stockpiles) in the possession
of the Company or Canyon, and identifies the ownership interests
of others therein. Except as set forth in Exhibit 3(k)(2), all
such equipment and tangible personal property are owned by the
Company or Canyon, free and clear of all liens and encumbrances.
(3) Exhibit 3(k)(3) lists all trade names, trademarks,
service marks, patents and copyrights (including any pending
applications for any of the foregoing) owned by the Company or
Canyon, and all licenses and other agreements relating thereto.
Unless specifically noted otherwise herein or in Exhibit
3(k)(3), the Company or Canyon owns or is licensed or otherwise
has the right to use all trade names, trademarks, service marks,
patents and copyrights necessary for their respective businesses
as presently conducted and their use thereof does not, to the
Knowledge of Seller, conflict with or infringe upon or otherwise
violate any rights of others. Except as set forth in Exhibit
3(k)(3), no claim has been asserted by any person against Seller,
the Company or Canyon with respect to the use of any trademark,
trade name, service mark, patent, copyright, know-how or process
used by the Company or Canyon challenging or questioning the
validity or effectiveness of such use or any such license or
agreement and to the Knowledge of Seller, there exists no valid
basis for any such claim.
(1) Rights Under Licenses: Software.
(1) Exhibit 3(1)(1) lists all license agreements under
which the Company or Canyon has obtained rights to use computer
software programs or data owned by others. All such license
agreements are in full force and effect, and to the Knowledge of
Seller, there is no claim either that the Company, Canyon or any
other party to such agreements is in material default thereof.
(2) Except as set forth in Exhibit 3(1)(2), all
software utilized by the Company and Canyon in the conduct of
their respective businesses and which is not set forth on Exhibit
3(1)(1) is owned (or will be owned on the Closing Date) by, or
is licensed to (or will be licensed to) the Company or Canyon,
without any restrictions thereon.
(m) Existing Employment Contracts and Benefits.
(1) Exhibit 3(m)(1) lists all of the Employee Plans.
(2) To the Knowledge of Seller, each Employee Plan (and
each related trust, insurance contract, or fund) complies in
form and in operation in all respects with the applicable
requirements of ERISA and the Code, except where the failure to
comply would not have a material adverse effect on the financial
condition of the Company and Canyon, taken as a whole.
(3) All contributions which are due have been paid to
each Pension Plan.
(4) As of the last day of the most recent prior plan
year, the market value of assets under each Pension Plan (other
than any Multiemployer Plan) equaled or exceeded the present
value of liabilities thereunder (determined in accordance with
then current funding assumptions).
(5) There are no pending, threatened or anticipated
claims against any of the Employee Plans, by any employee or
beneficiary covered under any such Employee Plan, or otherwise
involving any such Employee Plan (other than routine claims for
benefits).
(6) The purpose of the foregoing subsections (1)
through (5) is to represent compliance with legal requirements
and the absence of material claims. No Employee Plans or Employee
Plan assets are being transferred from Seller to Buyer by virtue
of this Agreement.
(n) Labor Relations. Except as set forth on Exhibit 3(n):
(i) the Company and Canyon have paid in full to, or accrued on
behalf of, all employees all wages, salaries, commissions,
bonuses, severance pay and other direct compensation for all
services performed by them to the date hereof and all amounts
required to be reimbursed to such employees; (ii) the Company and
Canyon are in material compliance with all federal, state, local
and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and
wages and hours; (iii) there is no unfair labor practice
complaint against the Company or Canyon pending before the NLRB
or any comparable state, local or foreign agency; (iv) there is
no labor strike, dispute, slowdown or stoppage actually pending
or threatened against or involving the Company or Canyon; (v) no
representation question exists respecting the employees of the
Company or Canyon; and (vi) no grievance which will have a
material adverse effect on the Company or Canyon nor any
arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been
asserted. There are no collective bargaining agreements or other
employee representation agreements which exist or are currently
being negotiated by the Company or Canyon.
(o) Insurance Policies. Exhibit 3(o) lists all insurance
policies providing coverage in favor of the Company or Canyon,
specifying the insurer, amount of coverage and type of insurance
under each. Each such policy is in full force and effect and all
premiums are currently paid or accruals provided for and no
notice of cancellation or termination has been received with
respect to any such policy. Unless otherwise specifically noted
in Exhibit 3(o), coverage of the Company and Canyon under all
such policies will expire at Closing.
(p) Compliance With Laws. To the Knowledge of Seller, the
Company and Canyon have complied with all applicable Laws,
Orders and Licenses, except where the failure to comply would not
have a material adverse effect upon the business, operations, or
condition (financial or otherwise) of the Company and Canyon
taken as a whole.
(q) Litigation: Investigations. Exhibit 3(q) lists all
suits, claims, proceedings, investigations or reviews which are
pending or, to the Knowledge of Seller, threatened against the
Company or Canyon. Except as disclosed in Exhibit 3(q), (i) no
investigation or review by any governmental entity with respect
to the Company or Canyon is pending or, to Seller's Knowledge,
threatened, nor has any governmental entity indicated to Seller
an intention to conduct the same, and (ii) there is no action,
suit or proceeding pending or, to Seller's Knowledge, threatened
against the Company or Canyon at law or in equity, or before any
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, except for
suits, actions, proceedings, investigations and reviews that
would not, if adversely decided, individually or in the
aggregate, result in a material adverse effect upon the business,
operations, or condition (financial or otherwise) of the Company
and Canyon taken as a whole.
(r) Brokers' Fees. Seller has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with
respect to the Stock Purchase for which Buyer would become liable
or obligated.
(s) Governmental Consents. Except as set out in Exhibit
3(s), no consent, authorization or approval of, or filing with,
any federal, state or local governmental department, commission,
board, agency or instrumentality is required to be made or
obtained by Seller, the Company or Canyon in connection with the
Stock Purchase or the transactions contemplated by this
Agreement.
(t) Absence of Certain Practices. To the Knowledge of
Seller, neither the Company nor Canyon nor any director,
officer, agent, employee, or other person acting on behalf of the
Company or Canyon has (i) used any corporate or other funds for
unlawful contributions, payments, gifts, or entertainment, or
made any unlawful expenditures relating to political activity to,
or on behalf of, government officials or others or (ii) accepted
or received any unlawful contributions, payments, gifts or
expenditures.
(u) Licenses. Exhibit 3(u) lists all material Licenses held
by the Company or Canyon, and neither Seller nor the Company nor
Canyon has received notice that any License has been or will be
revoked. Seller has no knowledge of facts or circumstances which
reasonably would lead it to expect the initiation of proceedings
to revoke any material licenses held by the Company or Canyon,
except as described in Exhibit 3(u).
(v) Directors. Officers and Employees. Exhibit 3(v) lists
the names and titles of all directors, officers and employees of
the Company and Canyon.
(w) Membership in Consolidated Tax Group. The Company is
included in the same consolidated federal Income Tax return
group as is Seller.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller that the
statements contained in this Section 4 are correct and complete
as of the date of this Agreement and, except as set forth in
Exhibit 4, will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 4).
(a) Organization. Standing of Buyer. Buyer is a corporation
duly organized, validly existing and in good standing under the
laws of the state of Wyoming.
(b) Authorization of Transaction. Buyer has the requisite
corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by Buyer
has been duly and validly authorized. This Agreement is a valid
and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as may be limited by
bankruptcy and insolvency laws and by other laws affecting the
rights of creditors generally and except as may be limited by
the availability of equitable remedies.
(c) Noncontravention. The execution and delivery of this
Agreement do not, and the consummation of the transactions
described herein will not (i) violate the Articles of
Incorporation or By-laws of Buyer, or (ii) result in a material
breach of or default under any mortgage, deed of trust,
indenture, note, bond, license, lease agreement or other
instrument or obligation to which Buyer is a party or by which
any of its properties or assets are bound, or (iii) subject to
the receipt of the consents or approvals required as set forth
on Exhibit 4(d), violate any Law or Order by which Buyer or any
of its properties or assets are bound.
(d) Governmental Consents. To the Knowledge of Buyer, except
as set out in Exhibit 4(d), no consent, authorization or
approval of, or filing with, any federal, state or local
governmental department, commission, board, agency or
instrumentality is required to be made or obtained by Buyer in
connection with the Stock Purchase.
(e) Investment Intent of Buyer. Buyer represents that it is
acquiring the Stock hereunder for its own account for investment
and not with a view to the distribution thereof.
(f) Brokers' Fees. Buyer has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with
respect to the Stock Purchase for which Seller would become
liable or obligated.
(g) Financial Statements. The Buyer Financial Statements are
attached hereto as Exhibit 4(g). Each of the consolidated
balance sheets included in the Buyer Financial Statements fairly
presents the financial position of Buyer on a consolidated basis
as of its date and the other statements included therein fairly
present the results of operations for the period therein set
forth, in each case in accordance with GAAP consistently applied
during the periods involved (except as otherwise stated
therein).
(h) No Material Adverse Change. Except as disclosed on
Exhibit 4(h), since February 28, 1993 there has not been any
material adverse change in the business, operations, condition
(financial or otherwise), liabilities or assets of Buyer.
5. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.
Buyer and Seller agree that from the date of this Agreement
until the Closing:
(a) Buyer's Access to Information. Buyer and Buyer's
counsel, accountants, representatives and agents shall have full
access, upon reasonable notice and during normal business hours,
to all personnel, offices, properties, books and records of the
Company and Canyon and, upon reasonable notice, shall be
furnished all data concerning the business, finances and
properties of the Company and Canyon that they may reasonably
request.
(b) Conduct of Business in Normal Course. Seller will not
cause the Company and Canyon to: (i) except as otherwise
expressly provided in this Agreement, engage in any practice,
take any action, or enter into any transaction except in a
manner consistent with its prior practices; (ii) except as
described in Section 2(c), declare or pay any dividend or other
distribution in respect of its Common Stock, or, directly or
indirectly, purchase, redeem or otherwise acquire or dispose of
any shares of its Common Stock or any subscriptions, warrants,
options, calls, commitments or rights to acquire any shares of
its Common Stock or take any steps otherwise affecting or
changing the Company's capitalization; or
(iii) amend its Articles of Incorporation or By-Laws.
(c) Consent. Each of the parties hereto shall fully
cooperate with the other party to make, give or obtain promptly
all of the Consents.
(d) Further Assurances. Subject to the terms and conditions
of this Agreement, each of the parties hereto will use its best
efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make
effective the Stock Purchase pursuant to this Agreement
(including satisfaction, but not waiver, of the conditions
precedent set forth in Sections 7 and 8).
(e) Resignations and Terminations. Seller shall use its best
efforts to obtain the written resignations of all directors and
officers of the Company and Canyon prior to the Closing,
effective as of the Closing, and shall terminate the employment
of all of the employees of the Company and Canyon prior to or at
the Closing.
(f) Supplements to Exhibits. Seller and Buyer will
supplement or amend their information in the Exhibits hereto
with respect to any matter hereafter arising which, if existing
or occurring at the date of this Agreement, would have been
required to be set forth or described in such Exhibits. No
supplement or amendment of the Exhibits made by either party
pursuant to this Section shall be deemed to cure any breach of
any representation or warranty made in this Agreement unless the
other party fails to preserve its right to claim such breach by
written notice delivered or mailed to the first party within
ten (10) business days after receipt of the supplement or
amendment.
6. INFORMATION TO BE HELD IN CONFIDENCE.
Buyer agrees that until Closing, Buyer shall abide by the
terms of the Confidentiality Agreement, which shall remain in
effect in accordance with its terms and shall not be superseded
by this Agreement.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO PURCHASE THE
STOCK.
The obligation of Buyer to purchase the Stock is subject to
the satisfaction, at or before the Closing, of the conditions
set out below. The benefit of these conditions is for Buyer only
and may be waived in writing by Buyer at any time in its sole
discretion.
(a) Accuracy of Seller s Representations and Warranties. The
representations and warranties of Seller shall be true and
correct in all material respects as of the date when made and as
of the Closing Date as though made at that time, and Buyer shall
have received a certificate attesting thereto as of the Closing
Date signed by a duly authorized officer of Seller.
(b) Performance by Seller. Seller shall have performed,
satisfied and complied in all material respects with all
covenants, agreements, and conditions required by this Agreement
and Buyer shall have received a certificate to such effect
signed by a duly authorized officer of Seller.
(c) Governmental Authorizations: Consents. The Company and
Seller shall have obtained all Consents which are required for
them to consummate the Stock Purchase.
(d) Opinion of Seller's Counsel. Buyer shall have received
from Seller an opinion of counsel, dated as of the Closing Date,
that except as specifically disclosed in this Agreement or an
exhibit hereto
(1) the Company and Canyon are corporations duly
organized, validly existing and in good standing under the laws
of the State of Utah and have the corporate powers necessary to
own, lease and operate the assets and properties they now own,
lease and operate and to carry on their businesses as now
conducted;
(2) the Company is duly qualified and in good standing
as a foreign corporation in the State of Michigan;
(3) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Michigan and has the requisite corporate power and authority to
enter into this Agreement and the Agency Agreement and to carry
out its obligations thereunder;
(4) the execution, delivery and performance of this
Agreement and the Agency Agreement have been duly and validly
authorized;
(5) this Agreement and Agency Agreement are valid and
binding obligations of Seller, enforceable against Seller in
accordance with their terms, except as may be limited by
bankruptcy and insolvency laws and by other laws affecting
rights of creditors generally and except as may be limited by the
availability of equitable remedies;
(6) the execution and delivery of this Agreement and
the Agency Agreement do not, and the consummation of the
transactions described therein will not (i) violate the Articles
of Incorporation of Seller, the Company or Canyon, respectively,
or the By-laws of Seller, the Company or Canyon, respectively,
or (ii) result in a material breach of or default under any
material agreement to which the Company or Canyon is a party or
by which any of its properties or assets is bound, or (iii)
violate any Law or Order by which Seller, the Company or Canyon
or any of their respective properties or assets may be bound or
subject;
(7) on the transfer and delivery of the Stock to
Buyer, Buyer will receive good title to the Stock free and clear
of all liens, claims, charges, encumbrances, or assessments of
whatever nature; and (8) to the Knowledge of such counsel, (i)
no investigation or review by any governmental entity with
respect to the Company or Canyon is pending or threatened, nor
has any governmental entity indicated to Seller an intention to
conduct the same, and (ii) other than as listed on Exhibit 3(q)
to this Agreement, there is no action, suit or proceeding
pending or threatened against the Company or Canyon at law or in
equity, or before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, except for suits, actions, proceedings,
investigations and reviews that, would not, if adversely decided,
individually or in the aggregate, result in a material adverse
effect on the business, operations or condition (financial or
otherwise) of the Company and Canyon taken as a whole. In
providing such opinion, such counsel shall be entitled to rely
upon certificates of officers of Seller and its Affiliates,
including but not limited to the Company and Canyon.
(e) No Order Preventing Transaction. There shall not be in
effect any Order preventing consummation of the Stock Purchase.
(f) Cash or Cash Equivalents. Immediately prior to Closing,
Seller shall have paid to the Company the principal and interest
of the loan referred to in Section 2(c)(1), and the Company's
assets (including such payment and cash on hand) shall include
$14.2 million in cash or cash equivalents.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO SELL THE
STOCK. The obligation of Seller to sell the Stock is subject to
the satisfaction, at or before the Closing, of the conditions
set out below. The benefit of these conditions is for the Seller
only and may be waived by Seller in writing at any time in it
sole discretion.
(a) Accuracy of Buyer's Representations and Warranties. The
representations and warranties of Buyer shall be true and
correct in all material respects as of the date when made and as
of the Closing Date, as though made at that time, and Seller
shall have received a certificate attesting thereto signed by a
duly authorized officer of Buyer.
(b) Performance by Buyer. Buyer shall have performed,
satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement
and Seller shall have received a certificate of a duly
authorized officer of Buyer to such effect.
(c) Governmental Authorizations. Buyer shall have obtained
all Consents which are required for it to consummate the Stock
Purchase.
(d) Opinion of Buyer's Counsel. The Seller shall have
received from Buyer an opinion of counsel, dated as of the
Closing Date, that
(1) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Wyoming;
(2) the execution, delivery and performance of this
Agreement and the Agency Agreement by Buyer have been duly and
validly authorized;
(3) this Agreement and the Agency Agreement are valid
and binding obligations of Buyer, enforceable against Buyer in
accordance with their terms except as may be limited by
bankruptcy and insolvency laws and by other laws affecting the
rights of creditors generally and except as may be limited by
the availability of equitable remedies; and (4) the execution and
delivery of this Agreement and the Agency Agreement do not, and
the consummation of the transactions described therein will not
(i) violate the Articles of Incorporation or By-laws of Buyer, or
(ii) result in a material breach of or default under any material
agreement to which Buyer is a party or by which any of its
properties or assets is bound, or (iii) violate any Law or Order
by which Buyer or any of its properties or assets may be bound or
subject. In providing such opinion, such counsel shall be
entitled to rely upon certificates of officers of Buyer and its
Affiliates.
(e) No Order Preventing Transaction. There shall not be in
effect any Order preventing consummation of the Stock Purchase.
9. THE CLOSING.
(a) Time and Place. The Closing shall take place at 10:00
a.m. local time, on the Closing Date and shall be held at the
offices of Seller in Jackson, Michigan or at such other time and
place as Seller and Buyer shall mutually agree.
(b) Deliveries at Closing by Seller. At the Closing, Seller
shall deliver to Buyer against payment specified in Section 2(c)
the following:
(i) certificates representing all of the Stock,
endorsed in blank or accompanied by duly executed assignment
documents;
(ii) the written resignations of all members of
the Board of Directors and officers of the Company and Canyon;
(iii) the certificates required by Section 7(a)
and Section 7(b);
(iv) the legal opinion required by Section 7(d);
(v) all Company records that are not maintained at
the Company, including but not limited to the minute books, stock
books, stock ledger and corporate seals.
(c) Deliveries at Closing by Buyer. At the Closing, Buyer
shall deliver to Seller the following:
(i) the payment specified in Section 2(c);
(ii) the certificates required by Section 8(a) and
Section 8(b);
(iii) the legal opinion required by Section 8(d)
hereof.
(d) Further Deliveries. Each of Seller and Buyer shall
deliver all other documents, instruments and writings required to
be delivered by either of them at or prior to the Closing Date
pursuant to this Agreement, including but not limited to fully
executed counterparts of the Agency Agreement.
10. SURVIVAL OF REPRESENTATIONS. WARRANTIES COVENANTS AND
AGREEMENTS.
None of the representations and warranties of Seller
concerning the Company or Canyon shall survive the Closing.
Except as otherwise specifically provided for herein, the
representations and warranties, covenants and agreements of Buyer
and Seller included or provided for herein shall survive the
Closing (except to the extent the party for whose benefit they
were made knew or had reason to know of any misrepresentation or
breach at the time of Closing) and continue in full force and
effect for a period of twelve (12) months following the Closing
Date; provided, however, that to the extent any breach of a
representation, warranty, covenant or agreement (including the
post-closing obligations set forth in Section 11) involves any
Tax Liability, the right to assert such claims and any indemnity
obligation shall survive until the expiration of the Survival
Period; and provided further, that if, prior to the expiration of
the Survival Period, Buyer or Seller, as the case may be, shall
have been notified of a claim for indemnity hereunder and such
claim shall not have been finally resolved before the expiration
of the Survival Period, any representation, warranty, covenant or
agreement that is the basis for such claim shall continue to
survive and shall remain a basis for indemnity as to such claim
until such claim is finally resolved. All statements contained
herein, in the exhibits, and in the certificates delivered
pursuant to Sections 9(b)(iii) and 9(c)(ii) shall be deemed
representations and warranties for all purposes of this
Agreement.
11. OBLIGATIONS AFTER THE CLOSING.
(a) Tax Matters.
(1) Tax Returns. Seller shall file, on behalf of the
Company, all Tax Returns for the periods ending on or before the
Closing Date, and shall pay all Taxes with respect to the Company
for all periods ending on or before the Closing Date. Buyer or
the Company shall be responsible for filing all Tax Returns
relating to the Company, and the payment of all Taxes with
respect thereto, for all periods ending after the Closing Date.
(2) Tax Agreement. The Company and Canyon, as members
of the consolidated group of which CMS Energy Corporation is the
common parent, are parties to the Tax Agreement. As stated in
Section 2(c)(2), immediately prior to the Closing the Company and
Canyon will transfer all of their right, title and interest in
and under the Tax Agreement to Seller. Accordingly, the Company
and Canyon shall neither be obligated to make nor entitled to
receive any payments under the Tax Agreement after the Closing.
(3) Section 338(h) (10) Election.
(i) Seller and Buyer intend that the Stock
Purchase be treated for tax purposes as a purchase and sale of
the assets of the Company. Accordingly, Seller and Buyer agree
that, as promptly as practicable following the Closing Date, they
will take all actions necessary and appropriate (including filing
such forms, returns, elections and other documents as may be
required) to effect and preserve a timely Election with respect
to the purchase of the Stock and to file their Tax Returns on a
basis consistent with such Election. In connection with the
Election, Seller and Buyer agree that, prior to the Closing Date,
they will act together in good faith to determine and agree upon
the amount of the Adjusted Grossed-up Basis and to agree upon the
final Allocation. Attached as Exhibit ll(a)(3) is a preliminary
Allocation upon which Seller and Buyer have tentatively agreed;
neither, however, shall be bound to any Allocation other than the
final Allocation contemplated by this subsection (i). Seller
agrees to calculate gain or loss, if any, resulting from the
Election in a manner consistent with the final Allocation (except
to the extent otherwise provided by Treasury Regulation section
1.338(b)-2T(c)(2)) and not to take any position inconsistent with
the final Allocation in any Tax Return or otherwise. Buyer agrees
to adhere to the final Allocation and not to take any position
inconsistent with the final Allocation in any Tax Return or
otherwise. If, prior to the Closing Date, the parties are unable
to agree upon either the final Allocation or the amount of the
Adjusted Grossed-up Basis, then, as promptly as practicable
following the Closing Date, any matter as to which the parties
are in dispute shall be resolved by the Independent Auditor,
whose determination shall be binding and conclusive on the
parties. The fees and expenses of the Independent Auditor shall
be shared equally by Seller and Buyer.
(ii) In connection with Buyer's determinations
under clause (i) above, upon execution of this Agreement, Buyer
shall have the right, at reasonable times and upon reasonable
notice, to have access to, and to copy and use, all information
of Seller and the Company relevant to such determinations. Buyer
shall hold this information in strict confidence and shall use
the information solely in connection with the reason for which it
was requested.
(4) Access to Information. Each of Buyer and Seller
will provide the other, and Buyer shall cause the Company to
provide Seller, with the right, at reasonable times and upon
reasonable notice, to have access to, and to copy and use, any
records or information and personnel which may be relevant in
connection with the preparation of any Tax Returns, any audit or
other examination by any authority, or any judicial or
administrative proceedings relating to the Company's liability
for Taxes. The party requesting assistance hereunder shall
reimburse the other party for reasonable expenses incurred in
providing such assistance. Any information obtained pursuant to
this Section shall be held in strict confidence and shall be used
solely in connection with the reason for which it was requested.
(5) Tax Indemnification. In accordance with the terms
and procedures set forth in Section 10 and l(a)(7), (A) Seller
agrees to indemnify Buyer, Buyer's Affiliates and the Company,
and their respective successors and assigns, against and hold
them harmless from (i) any liabilities for Income Taxes of the
Company and Canyon for all periods through the Closing Date
(treating the Closing Date as the last day of any applicable
period whether or not the Closing Date is in fact the last day of
such period); and (ii) any liabilities for Taxes of Seller and
its Tax Affiliates, other than the Company and Canyon, for any
period whatsoever; and (B) Buyer and the Company jointly and
severally agree to indemnify Seller, Seller's Affiliates, and
their respective successors and assigns, against and hold them
harmless from (i) any liabilities for Income Taxes and all other
Taxes of the Company and Canyon for all periods following the
Closing Date (treating the date next following the Closing Date
as the first day of any applicable period whether or not such
date is in fact the first day of such period); (ii) any
liabilities for Taxes of Buyer and its Tax Affiliates for any
period whatsoever; (iii) any liabilities by reason of or in any
way arising out of any event occurring after the Closing
(including but not limited to any "disqualifying event") that
results in any liability or loss under the TBT; and (iv) any
liabilities by reason of or in any way arising out of a
defective, invalid or ineffective Election.
(6) Tax Benefit Transfer. Buyer shall execute and
deliver to Tax Lessor, within sixty (60) days after the Closing
Date, Buyer's written consent in the form attached hereto as
Exhibit ll(a)(6)(i) to take the property subJect to the TBT.
Buyer further agrees to file with its timely filed Federal Income
Tax Return for the taxable year in which the Closing Date occurs,
and provide to the Tax Lessor for filing with the Tax Lessor's
tax return for such year, a written statement pursuant to
Treasury Regulation section c.168(f)(8)-2(a)(5), in the form
attached hereto as Exhibit ll(a)(6)(ii).
(7) Tax Audits. Each party shall have the right, at its
own expense, to control any audit or determination by any
authority, initiate any claim for refund or amended return, and
contest, resolve and defend against any assessment, notice of
deficiency, or other adjustment or proposed adjustment of Taxes
for any taxable period for which that party (or any of its
Affiliates) is responsible for filing a Tax Return; provided,
however, that neither party shall have the right to agree to any
assessment, deficiency, settlement, or other adjustment or
proposed adjustment of Taxes that would adversely affect the
interests of the other party without such other party's written
consent, which consent shall not be unreasonably withheld.
(b) Employment of Company Personnel and Employee Plans.
(1) Employment of Former Personnel. Buyer (and after
the Closing, the Company) shall have no obligation to offer
Company employment to former employees of the Company. Seller
shall indemnify and hold Buyer and the Company harmless from all
liability for claims, expenses and attorneys' fees for failure to
hire such former employees.
(2) Savings and Retirement Plans. Effective as of the
Closing, the Company and its employees shall no longer accrue
benefits under Seller's Savings Plan or Seller's Retirement Plans
or any Pension Plan and Seller and the Company shall have taken
all action on or prior to the Closing Date to achieve this
result, including Plan terminations and distributions, which
shall comply with ERISA where applicable.
(3) Other Plans. Seller shall be solely responsible
for, and cause its insurance carriers or benefits plans to be
responsible for, the satisfaction of all claims for benefits
brought by or in respect of any person who was an employee of the
Company immediately prior to the Closing under any Employee Plan,
which claims are based on occurrences prior to the Closing,
regardless of when notices of such claims were filed.
(4) COBRA Provisions. Buyer and Seller recognize that
the Company employees whose employment is to be terminated at or
prior to Closing may be entitled to elect COBRA health care
continuation coverage as a result of such termination. If Buyer
or the Company or Canyon, after the Closing, hires any such
employee who has elected such COBRA coverage, then Buyer or the
Company or Canyon, as the case may be, shall immediately cover
such employee with its own health care plan, without regard to
and without exclusion for any preexisting condition.
(c) Intercompany Services. All intercompany services
currently provided by Seller or its Affiliates to the Company or
by the Company to Seller or its Affiliates shall cease as of the
Closing Date.
(d) Further Assurances. Subject to the terms and conditions
hereof, Seller agrees that after the Closing Date it will execute
and deliver such documents to Buyer as may be necessary to
effectively vest in Buyer good title to the Stock and to
consummate the transactions contemplated hereby.
(e) Hazardous Substances.
(i) Buyer acknowledges, based on information known
to it or obtained from Seller, publicly available sources, the
Site Characterization Study, and its own examination of the
Company's and Canyon's properties, that such properties contain
uranium ore, uranium mill tailings, and may contain Hazardous
Substances. SELLER MAKES NO REPRESENTATION AS TO THE ACCURACY OR
COMPLETENESS OF ANY OF SUCH INFORMATION AND SHALL HAVE NO
LIABILITY WHATEVER FOR ANY MATERIAL CONTAINED THEREIN OR OMITTED
THEREFROM. BUYER SHALL BE RESPONSIBLE FOR VERIFYING AND ASSESSING
ALL SUCH INFORMATION, AND SHALL ACT OR REFRAIN FROM ACTING ON
SUCH INFORMATION AT BUYER'S OWN RISK.
(ii) From and after the Closing Buyer shall
perform or ensure the performance, at no expense to Seller or its
Affiliates, of any and all studies, remedial actions, other
response actions or other activities necessary to comply with the
Environmental Laws, the Uranium Mill Tailings Radiation Control
Act, the Atomic Energy Act of 1954, as each may be amended, or
any other Law, Order or License regulating nuclear material,
radioactive substances or Hazardous Materials on the property of
or produced or released by the Company.
(iii) Without in any way limiting any other
provision of this Agreement, Buyer agrees to assume, from and
after the Closing, all responsibility for and indemnify and save
harmless Seller and its Affiliates and their respective
directors, officers, employees and agents from and against all
losses, liabilities, claims, demands, payments, actions, legal
proceedings, recoveries, costs, expenses, fines, penalties,
attorney fees, settlements, judgments, orders and decrees of
every nature and description brought or recovered against, or
incurred by, Seller, Buyer, their respective Affiliates or their
respective directors, officers, employees or agents, or any
combination of them, by reason of or in any way arising out of
(1) the presence in, on, under or about or emanating from or
passing through any Company property of any Hazardous Substance
or radioactive material, (2) Buyer's failure to comply in full
with the provisions of Section 11(e)(ii), or (3) the violation or
alleged violation of any Environmental Law, or Order thereunder,
by the Company or by Buyer, by any of their Affiliates or by
their respective directors, officers, employees or agents.
Without limiting the foregoing, Buyer shall at the request of
Seller defend at Buyer's expense any suit or proceeding brought
against Seller, its Affiliates, their respective directors,
officers, employees or agents for any of the above-named reasons.
12. TERMINATION.
(a) Right to Terminate. Notwithstanding anything to the
contrary set forth in this Agreement, this Agreement may be
terminated and the transactions contemplated herein abandoned at
any time prior to the Closing:
(i) by mutual consent of the Boards of Directors
of Buyer and Seller;
(ii) by either Buyer or Seller if the Closing
shall not have occurred by December 31, 1993, provided however,
that the right to terminate this Agreement under this Section
12(a (ii) shall not be available to a party whose failure to
fulfill any obligation under this Agreement has been the cause
of, or resulted in, the failure of the Closing to occur on or
before such date;
(iii) by either Buyer or Seller if a court of
competent jurisdiction shall have issued an Order permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such Order shall have become
final and nonappealable;
(iv) by Seller if Buyer has breached its
representations and warranties in any material respect or has
failed to comply in any material respect with any of its
covenants or agreements, Seller has notified Buyer of the breach
or failure, and the breach or failure has continued without cure
for a period of thirty (30) days after such notice; or
(v) by Buyer if Seller has breached its
representations and warranties in any material respect, or has
failed to comply in any material respect with any of its
covenants or agreements, Buyer has notified Seller of the breach
or failure, and the breach or failure has continued without cure
for a period of thirty (30) days after such notice.
(b) Obligations to Cease. In the event that this Agreement
shall be terminated pursuant to Section 12(a) hereof, all
obligations of the parties hereto under this Agreement shall
terminate and there shall be no liability of any party hereto to
any other party except (i) for the obligations with respect to
confidentiality contained in Section 6, (ii) as set forth in
Section 13(a), and (iii) that nothing herein will relieve any
party from liability for any willful breach of this Agreement.
13. MISCELLANEOUS.
(a) Costs. Buyer and Seller shall each pay its own costs and
expenses incurred by it in negotiating and preparing this
Agreement and in closing and carrying out the transactions
contemplated by this Agreement, whether or not the Closing shall
occur.
(b) Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of
this Agreement.
(c) Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall
be deemed to have been duly given on the date of service if
personally served or on the third day after mailing if mailed to
the party to whom notice is to be given, by first class mail,
postage prepaid ant addressed as follows:
To Seller: Consumers Power Company
212 W. Michigan Avenue
Jackson, MI 49201
Attention: Secretary
With a copy to: Roger T. Berg (same address)
To Buyer: U.S. Energy Corp.
877 North 8th West
Riverton, WY 82501
With a copy to: R. Scott Lorimer (same address)
(d) Assignment and Delegation. Neither Buyer nor Seller
shall assign any rights or delegate any duties hereunder without
the prior written consent of the other. Any purported assignment
or delegation without such consent shall be void and not merely
voidable.
(e) Binding Effect. Subject to Section 13(d), this Agreement
shall be binding upon and inure to the benefit of the successors
and assigns of the parties.
(f) Governing Law. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of Utah
as applied to contracts made and to be performed entirely in the
State of Utah.
(g) Entire Agreement. With respect to the Stock Purchase,
this Agreement, the Agency Agreement and the Confidentiality
Agreement set forth the entire understanding and agreement of the
parties, and supersede any and all other understandings,
negotiations or agreements between Seller and Buyer.
(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all
of which together shall constitute a single agreement.
(i) Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable, the same
shall not affect any other provision of this Agreement, but this
Agreement shall be construed in a manner which, as nearly as
possible, reflects the original intent of the parties.
(j) No Prejudice. This Agreement has been jointly prepared
by the parties hereto and the terms hereof shall not be construed
in favor of or against any party on account of its participation
in such preparation.
(k) Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the
plural, and vice versa, as the sense may require.
(1) Parties in Interest. Nothing expressed or implied in
this Agreement is intended or shall be construed to confer upon
or give to any person, firm or corporation other than the parties
hereto any rights or remedies under or by reason of this
Agreement or any transaction contemplated hereby.
(m) Amendment and Modification. This Agreement may be
amended or modified only by written agreement executed by the
parties hereto.
(n) Waiver. At any time prior to the Closing, either party
hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (ii) waive
any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance by the other party
with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party granting such extension
or waiver. No such waiver or failure to insist upon strict
compliance with any obligation, covenant, agreement or condition
shall operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
CONSUMERS POWER COMPANY (SELLER) U.S. ENERGY CORP. (BUYER)
By: s/ Frederick W. Buckman By: s/ John L. Larsen
Title: President and Chief Title: President
Executive Officer<PAGE>
STOCK PURCHASE AGREEMENT
Amendment No. 1
This Amendment No. 1, dated as of July 23, 1993 to the Stock
Purchase Agreement dated as of June 30, 1993 (the "Agreement"),
is entered into as of July 23, 1993 by and between CONSUMERS
POWER COMPANY, a Michigan corporation ("Seller"), and U.S. ENERGY
CORP., a Wyoming corporation ("Buyer").
1. In order to obtain NRC approval of the transfer of
control of the NRC source material license for the Shootaring
Uranium Processing Facility to Buyer, Plateau Resources Limited
("Company") has entered into a trust agreement with Rocky
Mountain Bank F.S.B. ("RMB") in the form appended hereto as
Exhibit 2(c)(4) (the "Trust").
2. The parties therefore agree that the form of the Agency
Agreement appended to the Agreement as Exhibit 2(d) is hereby
deleted and the form of Agency Agreement appended hereto as
Exhibit 2(d) Rev. 1 is hereby substituted therefore.
3. If the NRC does not release the Company's existing
decommissioning and reclamation surety (in the form of standby
Letter of Credit No. 45340 for the benefit of the US Nuclear
Regulatory Commission, supported by a Certificate of Deposit) at
NBD Bank, NA at or before the Closing, and the Trust is funded,
Buyer agrees that the "cash equivalents" referred to in Section
7(f) of the Agreement may include both the funds transferred to
RMB to fund the Trust and the amount of the Company's
decommissioning and reclamation surety at NBD, NA (presently Two
Million, Three Hundred Fifty-three Thousand, Three Hundred
Thirty-three Dollars $2,353,333).
In all other respects the terms and conditions of the
Agreement remain effective.
CONSUMERS POWER COMPANY (SELLER) U.S. ENERGY CORP. (BUYER)
By: s/ Frederick W. Buckman By: s/ John L. Larsen
Title: President and Chief Title: President
Executive Officer
<PAGE>
STOCK PURCHASE AGREEMENT
Amendment No. 1
This Amendment No. 1, dated as of July 23, 1993 to the Stock
Purchase Agreement dated as of June 30, 1993 (the "Agreement"),
is entered into as of July 23, 1993 by and between CONSUMERS
POWER COMPANY, a Michigan corporation ("Seller"), and U.S. ENERGY
CORP., a Wyoming corporation ("Buyer").
1. In order to obtain NRC approval of the transfer of
control of the NRC source material license for the Shootaring
Uranium Processing Facility to Buyer, Plateau Resources Limited
("Company") has entered into a trust agreement with Rocky
Mountain Bank F.S.B. ("RMB") in the form appended hereto as
Exhibit 2(c)(4) (the "Trust").
2. The parties therefore agree that the form of the Agency
Agreement appended to the Agreement as Exhibit 2(d) is hereby
deleted and the form of Agency Agreement appended hereto as
Exhibit 2(d) Rev. 1 is hereby substituted therefore.
3. If the NRC does not release the Company's existing
decommissioning and reclamation surety (in the form of standby
Letter of Credit No. 45340 for the benefit of the US Nuclear
Regulatory Commission, supported by a Certificate of Deposit) at
NBD Bank, NA at or before the Closing, and the Trust is funded,
Buyer agrees that the "cash equivalents" referred to in Section
7(f) of the Agreement may include both the funds transferred to
RMB to fund the Trust and the amount of the Company's
decommissioning and reclamation surety at NBD, NA (presently Two
Million, Three Hundred Fifty-three Thousand, Three Hundred
Thirty-three Dollars $2,353,333).
In all other respects the terms and conditions of the
Agreement remain effective.
CONSUMERS POWER COMPANY (SELLER) U.S. ENERGY CORP. (BUYER)
By: s/ Frederick W. Buckman By: s/ John L. Larsen
__________________________________
______________________________
Title: President and Chief President
Executive Officer
<PAGE>
AGENCY AGREEMENT
This AGENCY AGREEMENT is made this 11th day of August, 1993, by
and between CONSUMERS POWER COMPANY, a Michigan corporation of
212 West Michigan Avenue, Jackson, MI 49201 ("CPC"), PLATEAU
RESOURCES LIMITED, a Utah corporation with mailing address of
P.O. Box 2111, Ticaboo, Lake Powell, UT 84533 ("Plateau"), ROCKY
MOUNTAIN BANK, FEDERAL SAVINGS BANK, a commercial bank organized
and existing under the laws of the United States, being a member
of the Federal Deposit Insurance Corporation, having full and
complete trust powers, and having an office and place of business
at 2020 Carey Avenue, Cheyenne, WY 82003 ("RMB") and U.S. ENERGY
CORP., a Wyoming corporation of 877 North 8th West, Riverton, WY
82501 ("USE'
WHEREAS, Plateau owns the Shootaring Uranium Processing
Facility in Garfield County, UT and other uranium properties
(which Facility and other uranium properties are hereinafter
referred to as the "Plateau Properties") which are currently in a
standby mode and will eventually be decommissioned and reclaimed,
with or without a prior period of operation; and
WHEREAS, CPC owns all of the issued and outstanding shares
of capital stock of Plateau and has entered into a Stock Purchase
Agreement with USE dated as of June 30, 1993 (the "SPA") in which
CPC has agreed to sell all of said shares to USE; and
WHEREAS, USE's purchase of the Plateau shares is subject to
the Tax Benefit Transfer Agreement ("TBT", as defined in the
SPA), and in lieu of seeking a release of CPC's indemnity given
to Plateau in connection therewith for the benefit of the Tax
Lessor (as defined in the SPA), the parties desire to establish a
fund to secure the payment by Plateau of sums, the failure to pay
which would trigger CPC's indemnity obligation; and
WHEREAS, the parties also desire to establish a fund to
secure the payment of losses, liabilities, claims, etc. covered
by Section ll(e) of the SPA; and
WHEREAS, Plateau and RMB have entered into a Surety Trust
Agreement dated as of July 23, 1993 to provide financial
assurance of the payment of future costs to decommission and
reclaim the Plateau Properties as required by the U.S. Nuclear
Regulatory Commission ("NRC"); and
WHEREAS, USE intends to cause Plateau to either operate the
Plateau Properties or maintain them on standby until at least
June 30. 1997: and
WHEREAS, CPC, Plateau and USE desire to have RMB (RMB or any
successor appointed hereunder being referred to herein as the
"Agent") administer, invest, disburse and maintain custody of the
funds established pursuant to this Agreement for the purposes
described above, as a fiduciary, and RMB is willing to do so
under the terms and conditions of this Agreement;NOW, THEREFORE,
for Ten Dollars ($10.00) and other consideration, the parties
agree as follows:
1. Investment Property
(a) Immediately upon the Closing (as defined in the SPA), Plateau
shall transfer to the custody of the Agent cash in the amount of
Four Million Eight Hundred Thousand Dollars ($4,800,000) (which
sum, together with any additions thereto and earnings thereon,
and net of any losses and disbursements therefrom, and any
Permitted Investments in which such sum may be invested at any
time, is hereinafter referred to as the "Investment Property~B),
to be held and administered, invested, reinvested and disbursed
by the Agent in a fiduciary capacity in accordance with the terms
and conditions of this Agreement.
(b) If any monthly accounting rendered in accordance with Section
4 hereof shows the total Investment Property to be less than the
amount required to be maintained for TBT Surety purposes pursuant
to Section 2 hereof, then Plateau shall immediately transfer to
the Agent a sum sufficient to make up the deficiency, which sum
shall thereupon be added to the Investment Property.
2. Surety Accounts
The Agent agrees to accept custody of the Investment Property and
to establish and maintain separate accounts therefor (the "Surety
Accounts") for the following purposes:
(a) TBT Surety
To provide a fund for the payment of the amount payable to the
Tax Lessor should a disqualifying event occur under the TBT. Said
amount diminishes quarterly during the term of the TBT in
accordance with the schedule annexed hereto as Exhibit AA-1.
(b) Section ll(e) Surety
To provide a fund for the payment of amounts that may become
payable by reason of the performance of activities or the
occurrence of events for which USE, as between itself and CPC,
has assumed responsibility under Section ll(e) of the SPA; and
also for the payment of income and other taxes on the Investment
Property and the fees and expenses of the Agent that are
reimbursable under the terms of this Agreement.
3. Permitted Investments
(a) The Agent agrees to invest and reinvest the Investment
Property in Permitted Investments as directed from time to time
during the term of this Agreement by CPC and USE, in written
instructions (which may be in counterparts) signed by an officer
of each of them. As used herein, the term "Permitted Investments"
shall mean:
(1) Direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United
States of America; or
(2) Open market commercial paper, with a maturity of not longer
than ninety (90) days, of any corporation incorporated under the
laws of the United States of America or any state thereof, rated
"prime-l" or its equivalent by Moody's Investors Service, Inc. or
"A-1" or its equivalent by Standard & Poor's Corporation; or
(3) Bankers' acceptances or certificates of deposit issued by any
bank rated "Aa" or "AA" or better by Moody's Investors Service,
Inc. or Standard & Poor's Corporation and having a maximum
maturity of one (1) year; or
(4) Repurchase agreements of any bank rated "A" or better by
Moody's Investors Service, Inc. or Standard & Poor's Corporation,
in respect of the repurchase of obligations of the type described
in clause (a) above which shall at all times have a market value
(exclusive of accrued interest) not less than one hundred three
percent (103%) of the full amount of the repurchase agreement and
provided that such repurchase obligations shall be segregated
from other obligations owed by the bank; or
(5) Federally insured demand deposit accounts with banks having
capital, surplus and undivided profits of at least One Billion
Dollars ($1,000,000,000) that are members of the Federal Reserve
System of the United States of America; or
(6) The Trust for U.S. Treasury Obligations managed by Federated
Securities Corp. (the "Federated Trust Fund".
(b) Notwithstanding the foregoing, in the absence of written
instructions from CPC and USE, the Agent shall invest the
Investment Property in obligations of the type described in
Section 3(a)(6) hereof.
(c) No Permitted Investment in which any of the Investment
Property is invested shall have a maturity greater than one (1)
year from date of purchase. The average maturity, calculated on a
weighted average basis, of all of the Permitted Investments in
which Investment Property is invested shall not exceed six (6)
months.4. Management of Accounts
(a) The Agent shall not be required to physically segregate any
of the Investment Property, except as necessary to make
distributions therefrom.
(b) Notwithstanding the provisions of subsection (a) of this
Section 4, the Agent shall maintain records, which shall be
available for examination by CPC, USE or Plateau at any time
during the Agent's normal business hours, segregating the
Investment Property and transactions relating thereto according
to the Special Accounts and separately categorizing all entries
for taxes and the Agent's fees and reimbursable administrative
expenses.
(c) Realized income, gains and losses on Investment Property
shall be allocated on the records established pursuant to
subsection (b) of this Section 4 to the particular Permitted
Investments as to which they are realized.
(d) Any excess in the TBT Surety Account over the TBT
disqualification amount shall be transferred each quarter, as the
scheduled TBT disqualification amount changes, to the Section
ll(e) Surety Account on the records of the Agent.
(e) Within ten (10) business days after the end of each calendar
month, the Agent shall render to CPC, USE and Plateau an
accounting showing the beginning and ending balances,
transactions, fees and expenses for such month, segregated and
categorized as provided in subsection (b) of this Section 4, and
subdivided by type of Permitted Investment.
5. Reports
(a) On the last day of each calendar quarter through June 30,
1997, USE and Plateau shall certify to CPC and the Agent, in the
form appended hereto as Exhibit AA-2, that no disqualifying event
under the TBT has occurred and shall attest to the then-current
TBT disqualification value.
(b) Agent shall promptly notify the other parties hereto of any
assessments, claims or charges (other than those which are of the
types covered in the monthly accountings rendered pursuant to
Section 4(e) hereof) of which it becomes aware, that affect this
Agreement or the Investment Property.
6. Fees and Expenses
(a) The Agent shall receive a fee of Eight Hundred Dollars ($800)
per month, from and after the date of the Closing, payable
annually in advance, as compensation for the ordinary
administrative services to be rendered hereunder, plus a fee of
Thirty-five Dollars ($35) per investment transaction made by the
Agent hereunder, payable monthly in arrears. The fees shall be
paid by disbursement from the Surety Accounts when due.
Transaction fees shall be allocated to the Surety Account for
which the transaction was made. Administrative fees shall be
allocated to the Section ll(e) Surety Account.
(b) In addition to the foregoing fees, the Agent shall be
reimbursed for all reasonable and necessary out-of-pocket direct
expenses incurred by it in discharging its duties under this
Agreement. Such expenses may include (but are not limited to)
charges of outside attorneys and accountants, courier service,
long-distance communications, and Federated Trust Fund investment
advisory fees.
7. Distributions
(a) The Agent shall make a distribution from the appropriate
Surety Account within ten (10) business days after receipt of a
Notice and Requisition in either of the forms appended hereto as
Exhibits AA-3 and AA-4, duly executed on behalf of the
appropriate parties and attaching the documentation, if any,
referenced on the form.
(b) In the event the Agent receives a Notice and Requisition for
a distribution from the Section ll(e) Surety Account that exceeds
the balance then remaining in the Section ll(e) Surety Account,
then the Agent shall honor the Notice and Requisition, but only
to the extent of the Section ll(e) Surety Account balance.
(c) The Agent shall distribute to itself, from the appropriate
Surety Accounts, such sums as are necessary to pay its fees and
reimbursable expenses from time to time as provided herein.
(d) Upon its succession by a successor Agent as provided in
Section 10 hereof, the Agent shall transfer the entire Investment
Property to the successor Agent after deduction of any unpaid
fees and reimbursable expenses then owing to the Agent.
(e) Upon termination of this Agreement, the Agent shall surrender
to Plateau the entire remaining Investment Property after
deduction of any unpaid fees and reimbursable expenses then owing
to the Agent.
8. Standard of Care
(a) The Agent's duties under this Agreement are only such as are
specifically provided herein, and the Agent shall incur no
liability whatsoever to the other parties hereto, or any of them,
except for the Agent's negligence or wilful misconduct.
(b) The Agent shall be fully protected in acting in accordance
with any written instructions, or any Notice and Requisition
given to it hereunder and believed by it to have been duly
executed by the proper parties and accompanied by any necessary
documents.(c) Should any dispute arise with respect to
disbursement, ownership or right of possession of the Investment
Property, the Agent may retain the Investment Property in its
possession, without liability to anyone, until the dispute is
resolved by agreement of the other parties hereto or by the final
order, decree or judgment of a court or other tribunal of
competent jurisdiction and time for appeal has expired and no
appeal has been perfected, but the Agent shall have no duty
whatsoever to institute or defend any such proceedings.
(d) The Agent and its affiliates may, without having to account
therefor to any other party hereto, accept deposits from, extend
credit (on a secured or unsecured basis) to and generally engage
in any kind of banking, trust or other business with any such
party or any of its affiliates as if it were not acting as the
Agent, and may accept fees and other consideration for services
in connection therewith.
(e) The Agent shall have in effect, as evidenced by a copy of the
policy delivered to each of CPC, USE and Plateau, prior to the
transfer to the Agent of any of the Investment Property, a Trust
Department Errors and Omissions Reimbursement Policy of insurance
with aggregate limit of liability in the amount of at least One
Million Dollars ($1,000,000), in form and substance, and with an
insurance company or companies, satisfactory to CPC, USE and
Plateau. The Agent shall maintain such Policy in effect
throughout the term of this Agreement, and shall promptly furnish
to each of CPC, USE and Plateau a copy of each amendment or
endorsement to such Policy.
9. Notices
Notices, reports and other correspondence hereunder shall be sent
to the parties at their addresses, and to the attention of such
persons, as are set forth in the forms appended hereto as
Exhibits, as the same may be amended from time to time, or to
such other addresses, to the attention of such persons, as shall
have been disclosed to the parties by notice hereunder. Notices,
reports and other correspondence shall be personally delivered,
or sent by first-class, registered or certified mail or courier
service, in each case prepaid, or by such other means as the
parties unanimously agree from time to time.
10. Resignation or Termination of Agent
(a) The Agent may resign at any time by giving written notice
thereof to all of the other parties hereto. Such resignation
shall not become effective until a successor Agent shall have
been appointed and shall have accepted such appointment in
writing. If an instrument of acceptance by a successor Agent
shall not have been delivered to the Agent within thirty (30)
days after the giving of such notice of resignation, the Agent
may at the expense of the other parties hereto petition any court
of competent jurisdiction to appoint a successor Agent.(b) With
the consent of USE, CPC may terminate the services of the Agent
upon 120 days' written notice, and prior to the effective
termination date shall designate in writing to the Agent the name
and address of a successor Agent.
(c) CPC and USE, upon thirty (30) days~ written notice to the
Agent, may terminate the services of the Agent on account of the
Agent's breach of any of the terms of this Agreement. Such notice
shall designate the name and address of a successor Agent.
(d) In connection with any such resignation or termination, the
Agent shall cooperate fully with the other parties to effectuate
the transfer of Investment Property to a successor Agent,
including but not limited to rendering a final accounting to the
other parties.
11. Security Interests
The parties shall promptly execute and deliver such further
instruments and documents, and take such further action, as CPC
and USE may mutually agree is necessary or desirable to perfect
and protect the security interest of each of them in the
securities in which the Investment Property is invested during
the term of this Agreement.
12. Termination of Agreement
This Agreement shall automatically terminate on the later of June
30, 1997 and the date the NRC notifies Plateau in writing that
the source material license for Plateau's Shootaring uranium
processing facility is terminated. Plateau shall promptly furnish
a copy of such written notification to each of the other parties
hereto.
13. Successors and Assigns
Any attempted assignment or subcontracting of this Agreement or
any part thereof by the Agent, without the prior written consent
of the other parties hereto, shall be void and of no effect.
Subject to the foregoing, this Agreement shall inure to the
benefit of, and be binding upon, the successors and assigns of
the parties hereto.
14. Rights of Third Parties
This Agreement is intended for the benefit of the parties hereto
and is not intended to grant any rights to any third parties
unless otherwise specifically stated herein.
15. Governing Law
This Agreement shall be governed by and construed in accordance
with the laws of the state in which the Agent has its principal
place of business.IN WITNESS WHEREOF, the parties have executed
this Agreement by their duly authorized representatives,
effective as of the date first stated above.
<PAGE>
NRC
SURETY TRUST AGREEMENT
This NRC SURETY TRUST AGREEMENT, (the "Agreement"), entered into as
of this 23rd day of July, 1993 by and between Plateau Resources
Limited, a Utah corporation, the "Grantor" and Rocky Mountain Bank
Federal Savings Bank, a commercial bank organized and existing
under the laws of the United States, being a member of the Federal
Deposit Insurance Corporation, having its place of business at 2020
Carey Avenue, Cheyenne, WY 82003, the "Trustee."
WHEREAS, the United States Nuclear Regulatory Commission,
(NRC), an agency of the United States Government, pursuant to the
Atomic Energy Act of 1954, as amended, the Energy Reorganization
Act of 1974, and the Uranium Mill Tailings Radiation Control Act of
1978, has promulgated regulations in Title 10, Chapter 1 of the
Code of Federal Regulations, Part 40, Appendix A, Criteria 9 and
10. These regulations, applicable to the Grantor, require that a
licensee of a uranium recovery facility shall provide assurance
that funds will be available when needed in accordance with the
approved Reclamation and Decommissioning Plan and also for any
long-term surveillance and control of the uranium recovery
facility.
WHEREAS, Consumers Power Company and U.S. Energy Corp. have
entered into a Stock Purchase Agreement dated as of June 30, 1993,
as amended, in which Consumers Power Company has agreed to sell all
of the issued and outstanding capital stock of Grantor to U.S.
Energy Corp. subject, among other things, to NRC's approval of the
transfer; and
WHEREAS, in contemplation of such transfer, the Grantor has
elected to establish a trust to provide all or part of such
financial assurance for the facilities identified herein; and
WHEREAS, the Grantor, acting through its duly authorized
officers, has selected the Trustee to be the trustee under this
Agreement, and the Trustee is willing to act as trustee; and
NOW, THEREFORE, the Grantor and the Trustee agree as follows:
Section 1. Definitions. As used in this Agreement:
(a) The term "Grantor" means the NRC licensee who enters into
this Agreement and any successors or assigns of the Grantor.
(b) The term "Trustee" means the Trustee who enters into this
Agreement and any successor Trustee.
Section 2. Identification of Uranium Recovery Facilities and Cost
Estimates
This Agreement pertains to the facilities and NRC-approved cost
estimates identified in license number SUA-1371 and shown in
Schedule A.
Section 3. Establishment of Fund. The Grantor and the Trustee
hereby establish a NRC Surety Trust Fund (the "Fund") for the
benefit of NRC. The Grantor and the Trustee intend that no third
party have access to the Fund except as herein provided.
Section 4. Payments Comprising the Fund. Payments made to the
Trustee for the Fund shall consist of cash or securities acceptable
to the Trustee. The Fund is established initially as consisting of
the property, which is acceptable to the Trustee, described in
Schedule B attached hereto. Such property and any other property
subsequently transferred to the Trustee is referred to as the Fund,
together with all earnings and profits thereon, less any payments
or distributions made by the Trustee pursuant to this Agreement.
The Fund shall be held by the Trustee, IN TRUST, as hereinafter
provided. The Trustee shall not be responsible nor shall it
undertake any responsibility for the amount or adequacy of the
Fund, nor any duty to collect from the Grantor, any payments
necessary to discharge any liabilities of the Grantor established
by NRC.
Section 5. Payment for Reclamation, Decommissioning, and Long-Term
Surveillance and Control. The Trustee shall make payments from the
Fund as NRC shall direct, in writing, to provide for the payment of
the costs of reclamation, decommissioning, and long-term
surveillance and control of the facilities covered by this
Agreement. The Trustee shall reimburse the Grantor or other
persons as specified by the NRC from the Fund for reclamation,
decommissioning and long-term surveillance and control
expenditures, in such amounts as the NRC shall direct in writing.
In addition, the Trustee shall refund to the Grantor such amounts
as the NRC specifies in writing. Upon refund , such funds shall no
longer constitute part of the Fund as defined herein .
Section 6. Trustee Management. The Trustee shall invest and
reinvest the principal and income of the Fund and keep the Fund
invested as a single fund, without distinction between principal
and income, in accordance with general investment policies and
guidelines described in Schedule B attached hereto. In investing,
reinvesting, exchanging, selling, and managing the Fund, the
Trustee shall discharge its duties with respect to the Fund solely
in the interest of the beneficiary and with the care, skill,
prudence, and diligence under the circumstances then prevailing
which persons of prudence, acting in a like capacity and familiar
with such matters, would use in the conduct of an enterprise of a
like character and with like aims; except that:
(i) Securities or other obligations of the Grantor, or any
other owner or operator of the facilities, or any of their
affiliates as defined in the Investment Company Act of 1940, as
amended, 15 U.S.C. 80a-2.(a), shall not be acquired or held, unless
they are securities or other obligations of the Federal or a State
government; and
(ii) The Trustee is authorized to invest the Fund in time or
demand deposits of the Trustee, to the extent insured by an agency
of the Federal or State government; and
(iii) The Trustee is authorized to hold cash awaiting
investment or distribution uninvested for a reasonable time and
without liability for the payment of interest thereon.
Section 7. Express Powers of Trustee. Without in any way limiting
the powers and discretions conferred upon the Trustee by the other
provisions of this Agreement or by law, the Trustee is expressly
authorized and empowered:
(a) To sell, exchange, convey, transfer, or otherwise dispose
of any property held by it, by public or private sale. No person
dealing with the Trustee shall be bound to see to the application
of the purchase money or to inquire into the validity or expediency
of any such sale or other disposition;
(b) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry out the
powers herein granted;
(c) To register any securities held in the Fund in its own
name or in the name of a nominee and to hold any security in bearer
form or in book entry, or to combine certificates representing such
securities with certificates of the same issue held by the Trustee
in other fiduciary capacities, or to deposit or arrange for the
deposit of such securities in a qualified central depository even
though, when so deposited, such securities may be merged and held
in bulk in the name of the nominee of such depository with other
securities deposited therein by another person, or to deposit or
arrange for the deposit of any securities issued by the United
States Government, or any agency or instrumentality thereof, with
a Federal Reserve bank, but the books and records of the Trustee
shall at all times show that all such securities are part of the
Fund.
(d) To deposit any cash in the Fund in interest-bearing
accounts maintained or savings certificates issued by the Trustee,
in its separate corporate capacity, or in any banking institution
affiliated with the Trustee, to the extent insured by an agency of
the Federal or State government; and
(e) To compromise or otherwise adjust all claims in favor of
or against the Fund.
Section 8. Taxes and Expenses. All taxes of any kind that may be
assessed or levied against or in respect of the Fund and all
brokerage commissions incurred by the Fund shall be paid from the
Fund. All other expenses incurred by the Trustee in connection
with the administration of this Trust, including fees for legal and
accounting services rendered to the Trustee, the compensation of
the Trustee to the extent not paid directly by the Grantor, and all
other proper charges and disbursements of the Trustee shall be paid
from the Fund.
Section 9. Annual Valuation. The Trustee shall annually, at least
30 days before the anniversary date of establishment of the Fund,
furnish to the Grantor and to the NRC a statement confirming the
value of the Trust. Any securities in the Fund shall be valued at
market value as of no more than 60 days before the anniversary date
of the establishment of the Fund. The failure of the Grantor to
object in writing to the Trustee within 90 days after the statement
has been furnished to the Grantor and the NRC shall constitute a
conclusively binding assent by the Grantor, barring the Grantor
from asserting any claim or liability against the Trustee, with
respect to matters disclosed in the statement.
Section 10. Advice of Counsel. The Trustee may from time to time
consult with counsel, who may be counsel to the Grantor, with
respect to any question arising as to the construction of this
Agreement or any action to be taken hereunder. The Trustee shall
be fully protected, to the extent permitted by law, in acting upon
the advice of counsel.
Section 11. Trustee Compensation. The Trustee shall be entitled
to reasonable compensation for its services as agreed upon in
writing from time to time with the Grantor. (See Schedule C.)
Section 12. Successor Trustee. The Trustee may resign or the
Grantor may replace the Trustee, but such resignation or
replacement shall not be effective until the Grantor has appointed
a successor Trustee and this successor accepts the appointment.
The successor trustee shall have the same powers and duties as
those conferred upon the Trustee hereunder. Upon the successor
trustee's acceptance of the appointment, the Trustee shall assign,
transfer, and pay over to the successor trustee the funds and
properties then constituting the Fund. If for any reason the
Grantor cannot or does not act in the event of the resignation of
the Trustee, the Trustee may apply to a court of competent
jurisdiction for the appointment of a successor trustee or for
instructions. The successor trustee shall specify the date in
which it assumes administration of the trust in a writing sent to
the Grantor, the NRC and the present Trustee by certified mail 10
days before such change becomes effective. Any expenses incurred
by the Trustee as a result of any of the acts contemplated by this
Section shall be paid as provided in Section 8.
Section 13. Instructions to the Trustee. All orders, requests,
and instructions to the Trustee shall be in writing, signed by such
persons as designated by the Grantor. The Trustee shall be fully
protected in acting without inquiry in accordance with the
Grantor's orders, requests, and instructions. All orders, requests
and instructions by the NRC to the Trustee shall be in writing,
signed by the NRC, or its designees, and the Trustee shall act and
shall be fully protected in acting in accordance with such orders,
requests, and instructions. The Trustee shall have the right to
assume, in the absence of written notice to the contrary, that no
event constituting change or a termination of the authority of any
person to act on behalf of the Grantor or NRC hereunder has
occurred. The Trustee shall have no duty to act in the absence of
such orders, requests and instructions from the Grantor or the NRC,
except as provided for herein.
Section 14. Amendment of Agreement. This Agreement may be amended
by an instrument in writing executed by the Grantor, the Trustee,
and the NRC or by the Trustee and the NRC, if the Grantor ceases to
exist.
Section 15. Irrevocability and Termination. Subject to the right
of the parties to amend this Agreement as provided in Section 14,
and subject to the exception that this Trust shall automatically
terminate if the Stock Purchase Agreement is terminated prior to
the Closing pursuant to Section 12(a) of the SPA, this Trust shall
be irrevocable and shall continue until terminated at the written
agreement of the Grantor, the Trustee, and the NRC or by the
Trustee and the NRC, if the Grantor ceases to exist. Upon
termination of the Trust, all remaining trust property less final
trust administration expenses, shall be delivered to the Grantor.
Section 16. Immunity and Indemnification. The Trustee shall not
incur personal liability of any nature in connection with any act
or omission, made in good faith, in the administration of this
Trust, or in carrying out any directions by the Grantor or the NRC
issued in accordance with this Agreement. The Trustee shall be
indemnified and saved harmless by the Grantor or from the Trust
Fund, or both, from and against any personal liability to which the
Trustee may be subjected by reason of any act or conduct in its
official capacity, including all expenses reasonably incurred in
its defense in the event the Grantor fails to provide such defense.
Section 17. Choice of Law. This Agreement shall be administered,
construed, and enforced according to the laws of the State of
Wyoming.
Section 18. Interpretation. As used in this Agreement, words in
the singular include the plural and words in the plural include the
singular. The descriptive headings for each Section of this
Agreement shall not affect the interpretation or the legal efficacy
of this Agreement.
IN WITNESS WHEREOF the parties have caused this Agreement to be
executed by their respective officers duly authorized and their
corporate seals to be hereunto affixed and attested as of the date
first above written.
PLATEAU RESOURCES LIMITED, GRANTOR
By:
Title:
ROCKY MOUNTAIN BANK,
FEDERAL SAVINGS BANK, TRUSTEE
ATTEST: By:
Title:
(seal)<PAGE>
ACKNOWLEDGEMENT
STATE OF )
)
COUNTY OF )
On this day of July, 1993, before me,
personally came , known,
who, being by me duly sworn did depose and say that she/he resides
at
that, she/he is of
, the corporation described in and
which executed the above instrument; that he/she knows the seal of
said Corporation, that the seal affixed to such instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that she/he signed her/his name
thereto by like order.
Notary Public
My Commission Expires:
ACKNOWLEDGEMENT
STATE OF )
)
COUNTY OF )
On this day of July, 1993, before me,
personally came , known,
who, being by me duly sworn did depose and say that she/he resides
at
that, she/he is of
, the corporation described in and
which executed the above instrument; that he/she knows the seal of
said Corporation, that the seal affixed to such instrument is such
corporate seal; that it was so affixed by order of the Board of
Directors of said corporation, and that she/he signed her/his name
thereto by like order.
Notary Public
My Commission Expires:
<PAGE>
SCHEDULE A
This Agreement demonstrates financial assurance for the following
cost estimates(s) for the following uranium recovery facility(ies):
U. S . NUCLEAR
REGULATORY COST ESTIMATES
COMMISSION NAME OF ADDRESS OF DEMONSTRATED BY
LICENSE NUMBER FACILITY FACILITY THIS AGREEMENT
SUA-1371 Shootaring P. O. Box 2111 The cost estimate
of
Canyon Ticaboo $2,353,333 was last
Uranium Lake Powell, submitted for
approval
Processing Utah 84533-2111 on March 11, 1993.
Facility
<PAGE>
SCHEDULE B
The Fund is established initially as consisting of not less than
$2,400,000 in direct obligations or obligations the principal of
and interest on which are unconditionally guaranteed by, the United
States of America.
<PAGE>
SCHEDULE C
TRUSTEE'S FEES
(a) The Trustee shall receive a fee of Four Hundred Dollars
($400.00) per month, from and after the date of the Closing of
the Stock Purchase Agreement dated as of June 30, 1993 as
amended, payable monthly in advance, as compensation for the
ordinary administrative services to be rendered hereunder,
plus a fee of Thirty-five Dollars ($35.00) per investment
transaction made by the Trustee hereunder, payable monthly in
arrears. The fees shall be paid by disbursement from the NRC
Surety Trust Account when due.
(b) In addition to the foregoing fees, the Trustee shall be
reimbursed for all reasonable and necessary out-of-pocket
direct expenses incurred by it in discharging its duties under
this Agreement. Such expenses may include (but are not
limited to) charges of outside attorneys and accountants,
courier service, long-distance communications, and Federated
Trust Fund investment advisory fees.
