U.S. ENERGY CORP.
252,901 COMMON SHARES
SEC FILE NO. 333-6189
PROSPECTUS SUPPLEMENT
DATED JULY 23, 1996
TO
PROSPECTUS DATED JULY 3, 1996
FILED PURSUANT TO RULE 424(b)(3) and 424(c) OF
THE SECURITIES ACT OF 1993, AS AMENDED
This Prospectus Supplement filed under Rule 424(b)(3) and 424(c)
relates to the Prospectus dated July 3, 1996 filed under Rule
424(a) of the Securities Act of 1933, as amended.
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Reference "Business - Legal Proceedings - Sheep Mountain Partners
Arbitration/Litigation" in the Prospectus
On July 3, 1996 the three member arbitration panel (the "Panel")
issued an order confirming the Panel s April 18, 1996 Order and
Award (the "Award") in favor of Registrant and its majority owned
subsidiary Crested Corp. doing business as the joint venture USECC,
in the proceedings initiated by Nukem, Inc. of Stamford, CT
("Nukem") and its 100% owned subsidiary Cycle Resource Investment
Company ("CRIC") concerning the Sheep Mountain Partners ("SMP")
uranium operations in Wyoming. The SMP Partnership was formed in
December 1988 between USECC and Nukem/CRIC to develop and mine
uranium ore from the SMP mines in Wyoming to be milled into uranium
concentrates (U3O8) and market U3O8 worldwide. Disputes arose
between the partners and arbitration proceedings were commenced by
Nukem/CRIC in June 1991. Hearings on a consensual arbitration
involving the parties were commenced on June 27, 1994 and consumed
some 73 hearing days which ended on May 31, 1995.
On April 18, 1996, the Panel awarded USECC a net of approximately
$7,400,000 in damages against Nukem. An amount of $4,800,000 was
also awarded to USECC from funds held in SMP bank accounts for a
total of $12,200,000. Additional amounts of cash and significant
sources of low price uranium may also be available to SMP as a
result of the Award.
USECC petitioned the U.S. District Court for the District of
Colorado (the "Court") for confirmation of the award and Nukem
filed two motions to set aside portions of the Award, alleging that
significant portions of the Award were erroneous. Nukem was
seeking to set aside potentially $16 million which the Panel had
awarded USECC. On May 24, 1996, the Court remanded the Award to
the Panel for consideration of these motions. On July 3, 1996, the
Panel entered a new order essentially affirming its earlier Award.
With respect to the principal claim of error alleged in the Nukem
motions, concerning the award of more than $16 million of damages
and interest to USECC attributable to Nukem's unauthorized use of
SMP uranium supply contracts to obtain rights to purchase U3O8 from
the Commonwealth of Independent States ("CIS"), the Panel affirmed
the amount of its award to USECC. In so doing the Panel stated
that, "There was wrongdoing on the part of Nukem when it used what
were clearly partnership contracts to obtain financial benefits for
itself alone.... Our Award . . . is premised upon wrongdoing by
Nukem and a judgment by us that Nukem ought not to be permitted to
profit from that wrongful conduct." The Panel affirmed the Award
granting SMP the rights to purchase CIS uranium, the uranium
acquired pursuant to those rights and the profits therefrom, which
are impressed with a constructive trust in favor of SMP. The Panel
further stated, "We thus conclude that there is no inconsistency
and no double recovery and no subtraction that ought to be made
from profits already realized...."
<PAGE>
The Panel did correct a portion of the award to reimburse $137,700
to CRIC for U3O8 it purchased, out of a bank account in Riverton,
WY. The Panel also made a correction to have the $136,500
previously awarded to USECC paid out of the First Interstate Bank
of Riverton account rather than the Norwest Bank account in Denver,
CO. USECC called a mathematical error to the Panel s attention
which was made by Nukem after the close of evidence in the amount
of $265,313.83. The Panel did not consider that error because it
was not directed by the Court to do so and it remains for the Court
to resolve that issue.
In addition to the Petition for Confirmation of the Award, USECC
also filed with the Court a petition for appointment of a receiver
for the SMP partnership and motions to dissolve the partnership and
for an order directing distribution of the escrowed proceeds in the
SMP bank accounts. These matters are expected be considered by the
Court in the near future.
The Sheep Mountain Partners Arbitration/Litigation was reported in
Item 3 - Legal Proceedings in Registrant's Form 10-K for fiscal
year ended May 31, 1995, the Award was reported in Registrant's
Form 8-K dated as of April 18, 1996, and the action of the Court
remanding the Award to the Panel for consideration of the Nukem
motions was reported in Registrant's Form 8-K dated as of May 24,
1996.
