SEC File No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
Registration Statement Under Securities Act of 1933
U.S. ENERGY CORP.
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(Exact Name of registrant as specified in its charter)
Wyoming
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(State or other jurisdiction of incorporation)
1090
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(Primary Standard Industrial Classification Code Number)
83-0205516
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(I.R.S. Employer Identification No.)
877 North 8th West, Riverton, Wyoming 82501
Tel. 307/856-9271
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(Address and telephone of registrant's principal executive offices)
Daniel P. Svilar
877 North 8th West, Riverton, Wyoming 82501
Tel. 307/856-9271
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(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.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant the file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1993 check the following box. X
<PAGE>
Calculation of Registration Fee
Proposed Proposed
Title of each maximum maximum Amount
class of Amount offering aggregate of
securities to to be price offering regis.
be registered registered per unit price fee
Warrant(1) Up to 11(2) N/A N/A (5)
Common Stock
$0.01 par 252,901 shares(3) $20.50 $5,184,470(4) $1,788.00
(1) The Warrant entitles the holder to purchase 200,000 shares of
Registrant's common stock $0.01 par value, for $5.00 per share at any
time prior to 12:00 o'clock midnight January 9, 1997.
(2) One Warrant is currently outstanding, but that Warrant may be
divided into or combined with up to ten other warrants which carry
the same (proportional) rights upon presentation. The Warrant is
being registered under the Securities Act of 1933 solely to
accommodate the registration of the Warrant Shares for sale to the
public.
(3) 200,000 shares of common stock (the "Warrant Shares") are to be
issued by Registrant upon exercise of the Warrants by current
nonaffiliated shareholders of the Registrant; 52,901 shares of common
stock are held by 30 employees of Registrant, none of which are
directors or officers of Registrant (see the "Selling Shareholders");
all of the shares are being registered for sale to the public.
(4) Pursuant to Rule 457(c), the registration fee is based on the
average high and low prices of Registrant's common stock (traded on
NASDAQ/NMS) as of June 11, 1996.
(5) Pursuant to Rule 457(g) no separate registration fee is required
with respect to the Warrants.
<PAGE>
Cross Reference Sheet
under Rule 501(1)e
Information Required in the Prospectus
Item 1. Forepart of Registration Facing page, outside front
Statement and Outside Front Cover cover of Prospectus
Item 2. Inside Front and Outside Inside front and outside
Back Cover Pages of Prospectus back Prospectus cover
Item 3. Summary Information, Summary of the Offering;
Risk Factors, and Ratio of Risk Factors
Earnings to Fixed Charges
Item 4. Use of Proceeds Not applicable
Item 5. Determination of Not applicable
Offering Price
Item 6. Dilution Not applicable
Item 7. Selling Security Holders Holders of the Warrants;
Selling Shareholders
Item 8. Plan of Distribution Plan of Distribution
Item 9. Description of Securities Description of Securities
to be Registered
Item 10. Interests of Named Not applicable
Experts and Counsel
Item 11. Information With Respect Business and Properties
to the Registrant
Item 12. Disclosure of Commission Not applicable
Position on Indemnification for
Securities Act Liabilities
<PAGE>
Preliminary Prospectus Subject to Completion
June ____, 1996
U.S. ENERGY CORP.
252,901 COMMON SHARES
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The securities offered by this Prospectus are 252,901 shares (the
"Common Shares") of common stock, par value $0.01 per share
("Common Stock"), of U.S. Energy Corp., a Wyoming corporation
("Registrant", "Company" or "USE"). Of the total Common Shares,
200,000 shares (the "Warrant Shares") are to be issued upon the
exercise of that certain Warrant To Purchase 200,000 Common
Shares of U.S. Energy Corp. dated as of January 9, 1996 (the
"Warrant") granted to Shamrock Partners Ltd., 111 Veterans
Square, Media, Pennsylvania ("Holder"), as compensation for
services to the Company as a financial consultant and advisor.
The Warrant entitles the Holder to purchase at any time or from
time to time until 12:00 O'clock Midnight, Mountain Time, on
January 9, 1997 (the "Expiration Date"), 200,000 shares of Common
Stock of Registrant a price of $5.00 per share. The Warrant may
be divided or combined with up to ten (10) other warrants which
carry the same (proportional) rights ("Warrants"), but the Holder
of the Warrant and the holders of any such other Warrants
(collectively the "Holders of the Warrants") may not sell or
otherwise transfer the Warrant or Warrants for a period which
exceeds the Expiration Date of the Warrant. Accordingly, the
Warrant is being registered solely to accommodate the
registration of the Warrant Shares for sale to the public
following their issuance upon exercise of the Warrant or
Warrants. The remaining 52,901 Common Shares offered by this
Prospectus for sale to the public are held by 30 employees of the
Company, none of whom are directors or officers of the Company
(the "Selling Shareholders").
These are Speculative Securities.
Such Securities Involve a High Degree of Risk.
See "Risk Factors" starting on page 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION,OR ANY STATE SECURITIES COMMISSION.
NOR HAS THE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
The Warrant Shares will be offered from time to time by the
Holders of the Warrants following issuance upon exercise of the
Warrants. The remaining 52,901 Common Shares held by the Selling
Shareholders will be offered from time to time by the Selling
Shareholders. It is expected that all of the Common Shares will
be offered at market prices from time to time. Registrant's
Common Stock is traded on the NASDAQ/NMS quotation system. As of
June 11, 1996, the closing bid price for Registrant's Common
Stock was $20.625 per share. See "Market for USE Common Stock
and Related Stockholder Matters." There are no underwriting
arrangements known to Registrant. Any selling discounts or
commissions will be paid by the sellers of the Common Shares.
See "Plan of Distribution". The Company will pay the cost of the
registration estimated at $10,000 for registering the Warrant and
Common Shares.
Except for the $5.00 per share exercise price for the Warrant
Shares, the Company will not receive any proceeds from the sale
of the Common Shares.
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The date of this Prospectus is June ____, 1996.
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Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
The Common Shares have been registered for sale to public, by the
filing of the Registration Statement (of which this Prospectus is
a part) with the Securities and Exchange Commission
("Commission") under the Securities Act of 1933, as amended
("1933 Act"). No one is authorized to give any information, or
make any representation on behalf of the Company, the Warrant
Holders or the Selling Shareholders 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.
<PAGE>
Neither delivery of this Prospectus nor sale of the securities
offered hereby, shall create an implication that there has been
no change in the information set forth herein since date of this
Prospectus. The Prospectus will be supplemented to reflect any
material changes in the Company or its business in the course of
the offering.
AVAILABLE INFORMATION
Registrant 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.
This Prospectus does not contain all of the information set forth
in the Registration Statement and its exhibits, covering the
Common 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 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
Registrant is in the general minerals business of acquiring,
exploring, developing and/or selling or leasing of mineral
properties and, from time to time, mining and marketing of
minerals. The Company is now engaged in two principal mineral
sectors: uranium and gold. Its minerals business with respect to
uranium and gold can be characterized as in the development stage
according to the Commission's definition of that term. Interests
are held in other mineral properties (principally molybdenum),
but are either non-operating interests or undeveloped claims.
The Company also carries on a small oil and gas operation. Other
USE business segments are commercial operations (real estate and
general aviation) and construction operations.
Most USE operations are conducted through a joint venture with
Crested Corp., a majority-owned Colorado corporation
("Crested"),and various joint subsidiaries of USE and Crested.
The joint venture with Crested is hereafter referred to as
"USECC."
Manufacturing and/or marketing of professional and recreational
outdoor products was conducted through The Brunton Company
("Brunton"), a wholly-owned USE subsidiary. On February 16, 1996
Registrant sold all of the shares of Brunton to Silva Production
AB for $4,300,000 plus 45% of the net profits before taxes
derived from the sale of Brunton products for four years and
three months.
The sale will eliminate Brunton's manufacturing and/or marketing
of professional and recreational outdoor products from the
commercial segment of Registrant's business as of January 31,
1996, except to the extent that there are net profit payments
from Silva over the next four years, of which there can be no
assurance. For the fiscal year ended May 31, 1995 and for the
nine months ended February 29, 1996, Brunton's sales provided 49%
and 26%, respectively, of net revenues of USE before
reclassification to reflect Brunton as discontinued operations
with respect to the Company (see "Business and Properties -
Brunton" for details of this transaction, and Risk Factor 2 for
additional information on the impact of this transaction).
USE was incorporated in Wyoming in 1966. All operations are in
the United States. Principal executive offices are located at
877 North 8th West, Riverton, Wyoming 82501, telephone (307) 856-
9271.
The Offering
Securities Offered (1) 252,901 shares
of Common Stock(2)
USE Common Stock Outstanding
Before and After Offering 6,666,309 shares(3)
NASDAQ/NMS Symbol "USEG"
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(1) See "Description of Securities." (2) See "Plan of
Distribution." (3) Assumes issuance of all 200,000 Warrant
Shares upon exercise of the Warrants by the Holders of the
Warrants.
<PAGE>
Risk Factors
An investment in the Common Shares involves substantial risks,
including the risks of USE's failure to obtain necessary capital
to put its principal mineral properties into production, a
recurrence of low uranium prices, litigation and competition.
See "RISK FACTORS" beginning on the next page.
Issuance of the Warrant Shares
The Warrant Shares, consisting of 200,000 shares of Registrant's
Common Stock, will be issued by Registrant from time to time upon
exercise of the Warrant or those Warrants that result from the
division and/or recombination of the Warrant currently held by
Shamrock Partners Ltd. See "Description of Securities -
Warrants" for information concerning the terms of the Warrants.
Only one Warrant is outstanding on the date of this Prospectus,
but the Holder has requested that the Warrant be divided into six
Warrants covering an aggregate of 200,000 Warrant Shares to be
registered in the following manner:
Rafi Khan 145,000 Warrant Shares
Shamrock Partners, Ltd. 10,000 Warrant Shares
Shamrock Partners International, Inc. 20,000 Warrant Shares
The Leasing Group, Inc. 8,400 Warrant Shares
Diana L. Manes 4,300 Warrant Shares
Andrew Z. Furtak 12,300 Warrant Shares
When the Warrant has been so divided, the Holders of the Warrants
may not sell or otherwise transfer the Warrants for a period
which exceeds the Expiration Date of the Warrants.
Issuance of Other Common Shares
The remaining 52,901 Common Shares are held by employees of the
Company, none of whom are directors or officers of the Company
(see "Selling Shareholders". Of these 32,901 shares were issued
as bonus compensation to Company employees pursuant to a
resolution of the Company's Board of Directors at a meeting held
on December 22, 1995 and 20,000 Common Shares were issued to
Keith G. Larsen pursuant to letter agreement dated December 21,
1994 as replacement for 20,000 shares of the Company's Common
Stock purchased by him on the open market and loaned to the
Company to complete the acquisition by the Company of Ticaboo
Development, Inc., a Utah corporation ("TDI") pursuant to an
Agreement and Plan of Reorganization dated September 2, 1994
among the Company, TDI and Gladys L. May, Kenneth E. May and
Vicki Juhl Guier.
<PAGE>
RISK FACTORS
Prospective investors should note that the Company's business is
subject to certain risks, including the following:
1. Working Capital Requirements. Registrant's cash requirements
for fiscal 1997 are the funding of on-going general and
administrative expenses, including legal costs incurred as a
result of the Sheep Mountain Partners ("SMP")
arbitration/litigation proceedings described below; mine and mill
development and holding costs of the Sutter gold property
described below; holding (standby) costs for the uranium mill
owned by Plateau Resources Limited, a 100% subsidiary of the
Company ("Plateau"), in southeastern Utah; SMP mines care and
maintenance costs; and costs to acquire uranium oxide which the
Company may be obligated to deliver under the SMP contracts. As
a result of the disputes between the SMP partners (see "Business
and Properties - Legal Proceedings - Sheep Mountain Partners
Arbitration/Litigation), Registrant and Crested have been
delivering certain of the U3O8 concentrates required to fill
various delivery requirements on long-term U3O8 contracts with
domestic utilities. Recently, Nukem, Inc. ("Nukem") and its 100%
subsidiary Cycle Resource Investment Corporation ("CRIC") have
made most of the SMP deliveries of U3O8. It is not known how
long this arrangement will continue. The capital requirements to
fill Registrant's and Crested's portion of the remaining
commitments in fiscal 1997 will depend on the timing of payments
to the Registrant and Crested by Nukem/CRIC under the arbitration
award, whether SMP will be wound up and dissolved as a
partnership and its assets distributed to partners
Registrant/Crested and Nukem/CRIC, and whether a receiver is
appointed by the court to oversee SMP contract delivery
obligations pending dissolution of SMP.
The primary source of Registrant's capital resources for the of
first half fiscal 1997, will be (i) cash on hand February 29,
1996; (ii) Registrant's share of cash received from the sale of
the Wind River Estates Mobile Home Park by USECC (see "Certain
Relationships and Related Transactions - Transactions with
Arrowstar Investments, Inc."); (iii) possible sale of equity or
interests in investment properties or other affiliated companies;
(iv) sale of equipment; (v) proceeds from the resolution of the
SMP arbitration/litigation; (vi) sale of royalties or interests
in mineral properties; (vii) proceeds from the sale of uranium
under the SMP contracts, and (viii) borrowings from financial
institutions. Construction revenues from the Company's 50.9%
subsidiary, Four Nines Gold, Inc. ("FNG"), fees from oil
production, rentals of various real estate holdings and equipment
and the sale of aviation fuel are also expected to provide cash.
Registrant's working capital increased during the nine months
ended February 29, 1996 by $1,115,000 to working capital of
$1,137,000 principally due to the sale of the 812,432 shares of
the Company's common stock in June and July 1995, resulting in
net proceeds to Registrant of $2,842,200. Registrant's other
investing activities provided $1,183,600 during the nine months
ended February 29, 1996. This increase in cash was a result of
proceeds from the sale of assets, $77,700 and the sale of
Brunton, $3,300,000. These increases in cash were partially
offset by investments in affiliates due to Registrant funding the
activities of Plateau and Registrant and Crested funding their
interest in SMP, as well as funding their 90% subsidiary, Energx,
Ltd. ("Energx") in the oil and gas business, Plateau and Sutter
Gold Mining Company ("SGMC"). Additionally, the Registrant and
its affiliates (1) purchased $1,021,100 of additional equipment
(2) developed mineral properties, $349,200 and (3) developed gas
properties $23,400 during the nine months ended February 29,
1996.
Monthly operating expense to hold properties and fund general and
administrative expense is estimated at $300,000 to $350,000 for
the first half of fiscal 1997. Revenues from commercial
operations are expected to provide approximately $110,000
monthly. Operating expense estimates reflect elimination of most
legal expenses associated with the SMP arbitration/litigation
proceedings, because an Order and Award was entered by the
arbitration panel on April 18, 1996 (see "Business and Properties
- - Legal Proceedings - Sheep Mountain Partners Arbitration/
Litigation").
Working capital in addition to funds on hand at February 29, 1996
and funds provided from the award in the SMP
arbitration/litigation and the sale of the Wind River Estates
Mobile Home Park will be required to fund the mine and mill
permitting and the construction of a gold processing mill and
mine development of SGMC. Registrant and Crested are currently
seeking means of financing the construction of the SGMC gold
processing mill and mine development, but there can be no
assurance that such financing can be arranged.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for additional information on working
capital requirements and capital resources. See also Risk Factor
2 below.
2. Loss of Future Operating Income Due to Brunton Sale. In
fiscal 1995, 49% of Registrant's net revenues were provided by
Brunton's professional and outdoor recreational product sales
(26% in the nine months ended February 29, 1996 before
reclassification to reflect Brunton as discontinued operations
with respect to the Company). Brunton was sold in February 1996.
The inability to include Brunton's operations with Registrant's
other operating revenues in the future could result in continued
operating losses for Registrant, unless Registrant is able to
develop other profitable businesses, such as Registrant's uranium
business or the construction business of FNG, to replace profits
from Brunton. Continued operating losses without offsetting
replacements of working capital will adversely affect the
Company's ability to continue its operations as described in this
Prospectus. See also Risk Factor 1 above and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
3. Sutter Gold - No Current Mining Operations or Gold
Production. As of May 31, 1995, USE and Crested have invested
more than $11,000,000 in capitalized costs (in addition to
approximately $3,000,000 in costs that have been expensed) to
acquire, permit and develop a gold property in California, held
through a subsidiary, Sutter Gold Mining Company. This
investment represents a significant portion of USE's consolidated
assets. There is no assurance current efforts will be successful
in financing the mill construction and mine development costs
needed to put the property into full production. If third-party
financing cannot be obtained and USE is unable to fund
development and production costs from internally generated funds
over the next two years the property may be sold at a loss. See
"Business and Properties - Gold - Lincoln Project (California)".
4. Additional Shares to Market; Possible Dilution. In addition
to the Common Shares registered for sale by the Holders of the
Warrants and the Selling Shareholders, as described in this
Prospectus, Registrant registered 457,780 shares of its Common
Stock under the 1933 Act for sale by certain shareholders on Form
S-3 (SEC File No. 333-1967), which was declared effective by the
Commission on April 4, 1996.
Registrant also sold 812,432 shares of its common stock (the
"Placement Shares") to private investors in June and July 1995.
As compensation for their services as Placement Agent, on a best
efforts basis, for the Placement Shares, Registrant granted RAF
Financial Corporation ("RAF") and Robert Long ("Long"), one of
its officers, warrants to purchase 81,243 shares of USE common
stock for $4.80 per share until July 25, 2000 (the "RAF
Warrants"). The Placement Shares, the RAF Warrants and 81,243
shares of USE common stock underlying the RAF Warrants (the "RAF
Shares") were registered under the 1933 Act for resale by the
holders of such Placement Shares and by RAF and Long,
respectively, by Registrant filing its Registration Statement on
Form S-3 with the Commission (SEC File No. 33-64773) which was
declared effective by the Commission on February 28, 1996. RAF
and Long exercised their RAF Warrants on March 7, 1996 and May 1,
1996, respectively, which generated aggregate cash proceeds t the
Company of $389,966. The public sale of the 457,780 shares of
Registrant's Common Stock by certain shareholders, the 812,432
Placement Shares and the 81,243 RAF Shares as well as the 252,901
Common Shares to be sold pursuant to this Prospectus may depress
the market price for the Company's common stock.
Registrant may also issue additional common stock in a private
placement or a public offering pursuant to the 1933 Act if needed
for future working capital (see Risk Factor 1 above). The
issuance of such additional shares could result in dilution to
the equity of outstanding shareholders of Registrant, depending
on the price at which such shares are issued and sold, and would
result in some dilution to the voting power of the outstanding
shares of Registrant's common stock.
5. Project Delay. Registrant's minerals business is subject to
the risk of unanticipated delays in developing and permitting its
uranium and gold projects. Such delays may be caused by
fluctuations in commodity prices (see Risk Factor 6), mining
risks (see Risk Factor 9), difficulty in arranging needed
financing, unanticipated permitting requirements or legal
obstruction in the permitting process by project opponents. In
addition to adding to project capital costs (and possibly
operating costs), such delays, if protracted, could result in a
write off of all or a portion of the carrying value of the
delayed project and/or could trigger certain reclamation
obligations sooner than planned.
6. Commodity Price Fluctuations. The ability of the Company to
develop and operate its uranium and gold projects profitably can
be significantly affected by changes in the market price of
uranium and gold, respectively. Until very recently, the spot
market price for uranium concentrates has been depressed since
1988 and has been below $8.00 per pound as recently as 1992.
(See Business and Properties - Uranium - Uranium Market
Information" for additional information on the uranium markets
and pricing.) Uranium prices are subject to a number of factors
beyond Registrant's control including imports of uranium from
Russia and other CIS countries, the amount of uranium produced
and sold from the blending of highly enriched uranium recovered
from U. S. and Russian nuclear weapons to produce lower enriched
uranium for nuclear fuel, the build up by utilities of uranium
fuel inventories and the sale of excess inventories into the
market, the rate of consumption of uranium inventories by
utilities, the rate of uranium production in the United States,
Canada, Australia and elsewhere by other producers and the rate
of new construction of nuclear generating facilities, verses the
rate of shutdown and decommissioning of older nuclear generating
facilities, particularly in the United States.
Market prices for uranium concentrates in the United States have
recovered to between $16.25 and $16.50 per pound as of May 31,
1996. The Company believes that if the price remains at this
level or higher, United States utilities will seek long term
price stabilizing uranium supply contracts. If the Company is
able to obtain long term uranium supply contracts with assured
prices exceeding $18.00 per pound, that should be sufficient to
operate Plateau's Utah uranium properties profitably. It should
also be sufficient to proceed with development of the Green
Mountain Mining Venture ("GMMV") Jackpot Mine and operation of
the Sweetwater uranium mill, although there can be no assurance
that Kennecott Uranium Company ("Kennecott"), which controls the
management committee of GMMV, would be of the same opinion.
There also can be no assurance that this recent upward price
movement will continue. USE would be adversely affected if the
United States utilities with nuclear power plants do not seek
long term uranium supply contracts during the balance of the
1990s. 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 and USE
could be required to reclaim or restore such properties sooner
than planned (see Risk Factor 11).
The market price of gold has fluctuated widely and is affected by
numerous factors beyond the Company's control, including
international economic trends, currency exchange fluctuations,
expectations for inflation, the extent of forward sales of gold
by other producers, consumption patterns (such as purchases of
gold jewelry and the development of gold coin programs),
purchases and sales of gold bullion holdings by central banks or
other large gold bullion holders or dealers and global or
regional political events, particularly in major gold-producing
countries such as South Africa and some of the CIS (Commonwealth
of Independent States - formerly the Soviet Union) countries.
Gold market prices are also affected by worldwide production
levels, which have increased in recent years, but currently
appear to be decreasing somewhat. The aggregate effect of these
factors, all of which are beyond the Company's control, is
impossible for the Company to predict. In addition, the market
price of gold has on occasion been subject to rapid short-term
changes because of market speculation. As of June 11, 1996 the
Comex spot price of gold was $384.20 per ounce.
7. Proposed Federal Legislation. The U.S. Congress has, in
legislative sessions in recent years, actively considered several
proposals for major revision of the General Mining Law, which
governs mining claims and related activities on federal public
lands. If any of the recent proposals become law, it could
result in the imposition of a royalty upon production of minerals
from federal lands and new requirements for mined land
reclamation and other environmental control measures. It remains
unclear whether the current Congress will pass such legislation
and, if passed, the extent such new legislation will affect
existing mining claims and operations. The effect of any
revision of the General Mining Law on the Company's operations
cannot be determined conclusively until such revision is enacted;
however, such legislation could materially increase the carrying
costs of the Green Mountain mineral properties, the SMP
properties and some of Plateau's mineral properties which are
located on federal unpatented mining claims, and could increase
both the capital and operating costs for such projects and impair
the Company's ability to hold or develop such properties, as well
as other mineral prospects on federal unpatented mining claims.
8. Exploration Risks. Mineral exploration, particularly for
gold, is highly speculative in nature, involves many risks and
frequently is nonproductive. There can be no assurance that the
Company's efforts at the Sutter Gold Project to identify
additional gold ore reserves will be successful. Moreover,
substantial expenditures are required to establish additional ore
reserves through drilling, to determine metallurgical processes
to extract the metal from the ore and to construct mining and
processing facilities. During the time required to establish
additional ore reserves, determine suitable metallurgical
processes and construct such mining and processing facilities,
the economic feasibility of production may change because of
fluctuating gold prices (see Risk Factor 6).
9. Mining Risks and Insurance. The business of uranium and gold
mining generally is subject to a number of risks and hazards,
including environmental hazards, industrial accidents, explosions
and rock falls, earthquakes, flooding, interruptions due to
weather conditions and other acts of God. Such risks could
result in damage to or destruction of Registrant's mineral
properties and production facilities, as well as to properties of
others in the area, personal injury, environmental damage and
process and production delays, causing Registrant monetary losses
and possible legal liability. While the Company maintains, and
intends to continue to maintain, liability, property damage and
other insurance consistent with industry practice, no assurance
can be given that such insurance will continue to be available,
be available at economically acceptable premiums or be adequate
to cover any resulting liability.
10. Title to Properties. Nearly all the uranium mining
properties held by GMMV, SMP, and Plateau are on federal
unpatented claims. Unpatented claims are located upon federal
public land pursuant to procedure established by the General
Mining Law (see also Risk Factor 7). Requirements for the
location of a valid mining claim on public land depend on the
type of claim being staked, but generally include discovery of
valuable minerals, erecting a discovery monument and posting
thereon a location notice, marking the boundaries of the claim
with monuments, and filing a certificate of location with the
county in which the claim is located and with the U. S. Bureau of
Land Management ("BLM"). If the statutes and regulations for the
location of a mining claim are complied with, the locator obtains
a valid possessory right to the contained minerals. To preserve
an otherwise valid claim, a claimant must also annually pay
certain rental fees to the federal government (currently $100 per
claim) and make certain additional filings with the county and
the BLM. Failure to pay such fees or make the required filings
may render the mining claim void or voidable. Because mining
claims are self-initiated and self-maintained, they possess some
unique vulnerabilities not associated with other types of
property interests. It is impossible to ascertain the validity of
unpatented mining claims solely from public real estate records
and it can be difficult or impossible to confirm that all of the
requisite steps have been followed for location and maintenance
of a claim. If the validity of an unpatented mining claim is
challenged by the government, the claimant has the burden of
proving the present economic feasibility of mining minerals
located thereon. Thus, it is conceivable that during times of
falling metal prices, claims which were valid when located could
become invalid if challenged. Disputes can also arise with
adjoining property owners for encroachment or under the doctrine
of extralateral rights (see Risk Factor 16).
11. Reclamation and Environmental Liabilities. Registrant's
projects and 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 and the
Comprehensive Environmental Response Compensation Liability Act.
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 will
impact USE. Similar laws in California affect SGMC operations
and in Utah will affect Plateau's operations. In addition,
Registrant's uranium mill in Utah and the GMMV mill in Wyoming
are subject to jurisdiction of the Nuclear Regulatory Commission
("NRC").
To Registrant's knowledge, it is in compliance in all material
respects with current environmental regulations. To the extent
that production by SMP, GMMV or SGMC is delayed, interrupted or
discontinued due to need to satisfy present or future laws or
regulations which relate to environmental protection, future USE
earnings could be adversely affected. For additional information
concerning the effect such environmental laws and regulations
have on the Company's capital expenditures, see "Business and
Properties - Environmental and Notes F and K to the Company's
Consolidated Financial Statements.
USE is a joint venturer in the GMMV, which entity is responsible
for mine reclamation, environmental restoration and
decommissioning associated with mineral properties on Green
Mountain, in south central Wyoming, and the nearby Sweetwater
Mill. 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 Company's Consolidated
Financial Statements, and the notes to the Company's unaudited
Consolidated Financial Statements for fiscal quarter ended
February 29, 1996, for further information. Current bonds and
funds in escrow are deemed adequate for reclamation and
decommissioning liabilities associated with the Shootaring Mill
in Utah.
USE and Crested have assumed the reclamation obligations,
environmental liabilities and contingent liabilities for employee
injuries, from mining the SMP properties 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 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 concentrates produced from its
properties to USE and Crested for reclamation work. The status
of this commitment could be impacted by the ultimate resolution
of the arbitration/litigation with Nukem/CRIC (see Business and
Properties-Legal Proceedings-Sheep Mountain Partners Arbitration/
Litigation).
The GMMV and Sweetwater Mill reclamation liabilities are self
bonded by Kennecott pursuant to written agreements with the NRC
and the State of Wyoming, and accordingly these liabilities are
not recorded in the USE or Crested financial statements. The SMP
and Plateau reclamation liabilities were recorded at $1,451,800
and $2,500,000 respectively (total $3,951,800) in the audited USE
Consolidated Financial Statements. 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.
12. Possible Losses on Uranium Contracts. As of May 31, 1995,
SMP held contracts for delivery of an estimated 5.5 million
pounds of U3O8 to domestic utilities from 1996 through 2000. The
arbitration panel found that another contract for 980,000 pounds
of U3O8 to be delivered from 1996 to 2000 was to be assigned to
SMP by Nukem/CRIC. See "Business and Properties - Legal
Proceedings - Sheep Mountain Partners Litigation/ Arbitration".
Actual quantities of U3O8 purchased by utilities over that period
of time may vary by 10 to 25 percent, as provided in the
contracts (see "Business and Properties - Uranium - Sheep
Mountain Partners - SMP Marketing"), and profit or loss to SMP on
the deliveries will depend on the cost of inventory. Profits on
such future deliveries cannot be predicted, however, management
of the Company does not anticipate any material losses from the
sales of U3O8 pursuant to these contracts. As of the date of
this Prospectus, the prices under the one remaining base
escalated contract exceed the current market price, however,
there can be no assurance this situation will not change in the
future.
Increases in the spot market price would increase USE's and
Crested's cost of delivering on certain of the SMP contracts
prior to the time that their uranium properties are in
production, thus reducing potential profits or possibly producing
losses, while spot market price decreases would be likely to
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 losses) on any
SMP contracts during fiscal 1995. For the nine months ended
February 29, 1996 Registrant recorded a gross profit of $350,000
from mineral sales transactions.
13 Competition. There is keen competition in the domestic
minerals industry and the oil and gas business for properties and
capital. USE's competitors include a number of major mining and
oil and gas companies, most of which are larger than USE in all
respects. In the production and marketing of uranium
concentrates there are more than 10 major international entities
(some of which are government controlled) that are significantly
larger and better capitalized than USE. Although the Registrant
presently is not engaged in the mining or milling of uranium, and
therefore should not be counted in the top ten uranium producers,
the Registrant's competitive stature may improve significantly at
such time as it commences uranium mining and production.
The location and composition of mineral ore bodies are of great
importance to the competitive position of a mining company.
Producers of high-grade ore with readily extractable minerals are
in an 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. As
a result, owners of producing properties, particularly if
purchase contracts for the production are in place, generally
enjoy substantial competitive advantages over organizations that
propose to develop non-producing properties. Competition is also
keen in the search for mineral properties and prospects and in
the employment and retention of qualified personnel.
USE believes that with the recent improvements in market prices
for uranium concentrates, it will be able to compete with other
uranium producers, primarily because it holds significant uranium
resources in place, along with the necessary mining and milling
facilities, all of which it acquired for little or no cost.
Applications have been submitted to upgrade the mill licenses to
operating levels, however, delays in final permitting may be
encountered, as the uranium refining industry is closely
regulated by the NRC.
Nonetheless, USE expects competition from larger producers in
Canada, Australia and Africa, as well as from U.S. in situ
producers of uranium and other producers that recover uranium as
a byproduct of other mineral recovery processes, and from uranium
recovered from the de-enrichment of highly enriched uranium
obtained from the dismantlement of U.S. and Russian nuclear
weapons and sold in the market by the United States Enrichment
Corporation and/or the United States Department of Energy, as
well as from imports to the United States of uranium from the
Commonwealth of Independent States (formerly the Soviet Union).
See "Business and Properties - Uranium - Uranium Market
Information" and "NUEXCO Exchange Value".
USE's affiliate FNG encounters strong competition with a number
of larger civil engineering construction firms in the western
United States.
14 Reserves Estimates. While the ore reserve estimates at GMMV
Round Park ore deposit in Wyoming and SGMC's Lincoln project in
California have been reviewed by independent consultants, such
ore reserve estimates are necessarily imprecise and depend to
some extent on statistical inferences drawn from limited
drilling, which may, on occasion, prove unreliable. Should the
Company encounter mineralization or formations at any of its
mines or projects different from those predicted by drilling,
sampling and similar examinations, ore reserve estimates may have
to be adjusted and mining plans may have to be altered in a way
that could adversely affect the Company's operations. Moreover,
short-term operating factors relating to the ore reserves, such
as the need for sequential development of ore bodies and the
processing of new or different ore grades, may adversely affect
the Company's profitability in any particular accounting period.
15 Variable Revenues and Recent Losses. Due to the nature of
USE's 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 from fiscal 1992
through fiscal 1995. Further, USE realized a net gain in fiscal
1992 of $613,000, but net losses were realized from fiscal 1993
through fiscal 1995 (in the respective amounts of $221,900,
$3,370,800 and $2,070,600).
16 Bullfrog Litigation. Registrant, Crested, Parador Mining
Company, Inc. ("Parador") and H. B. Layne Contractor, Inc.
("Layne") are defendants and counter- or cross-claimants in
certain litigation in the District Court of Nye County, Nevada,
brought by Bond Gold Bullfrog Inc. ("BGBI") in July 1991. BGBI
(now known as Barrick Bullfrog, Inc.) is an affiliate of Barrick
Corp., a large international gold producer headquartered in
Toronto, Canada. The litigation primarily concerns extralateral
rights associated with two patented mining claims owned by
Parador and initially leased to a predecessor of BGBI, which
claims are in and adjacent to BGBI's Bullfrog open pit and
underground mine. USE and Crested assert certain interests in
the claims under an April 1991 assignment and lease from Parador,
which is subject to the lease to BGBI's predecessor.
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
claims leased to BGBI by Layne.
BGBI seeks to quiet title to its leasehold interest in the
subject claims, alleging that Parador's 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
asserts 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.
A partial or bifurcated trial to the court of the extralateral
rights issues was held on December 11 and 12, 1995. The purpose
of the hearing was to determine whether the Bullfrog orebody is a
"vein, lode or ledge" as described in the General Mining Law and,
if so, whether the facts of the case warrant the application of
the doctrine of extralateral rights as set forth in such statute.
Although the Court sat as both the finder of fact and law with
respect to such issues, the Court concluded that the questions
are ultimately one of law which must be decided based on the
testimony and exhibits introduced at the trial concerning the
description of the orebody. Registrant and defendants Crested
Corp. and Parador presented five experts in the field of geology,
including the person who was responsible for the discovery of the
gold deposit at the mine. All five experts opined that the
deposit was a lode and it apexed on a portion of Parador's two
mining claims. The defendant Layne presented a single witness
who testified that there was no apex within the Parador claims.
The Court nevertheless found that Parador had failed to meet its
burden of proof and therefore Parador, Registrant and Crested
have no right, title and interest in the minerals lying beneath
the claims of Layne pursuant to extralateral rights. The Court
entered a partial judgment in favor of Layne and ordered that
Parador pay Court costs to Layne. Defendants intend to appeal
the Court's ruling as erroneous as a matter of law at such time
as it is appropriate to do so.
The partial trial did not address any of the other issues pending
in the litigation other than those required to decide the
question of whether the doctrine of extralateral rights is
applicable to this case. All other claims and counterclaims
remain pending before the Court and no hearing date has been set
for those issues.
If USE's and Crested's position concerning extralateral rights is
ultimately sustained, substantial additional revenues and income
may be received by USE and Crested from royalties payable with
respect to gold produced from the Bullfrog Mine. If, however,
the final decision of the appellate court is adverse to USE and
Crested, an award of damages against USE and Crested in any
substantial amount by this Court could have a material adverse
effect on the ability of USE and Crested to carry on their
business in the manner described in this Prospectus.
17. Potential Issuance of Preferred Stock. Under the USE
Restated Articles of Incorporation, as amended ("Restated
Articles") and as permitted by the Wyoming Business Corporation
Act ("WBCA"), the Registrant's 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
Company's Common Stock could adversely affect common stockholder
participation in future earnings through dividends that otherwise
would be available for distribution to holders of the Common
Stock, including those purchasing the Common Shares.
Such preferred stock also could inhibit a takeover of the
Company. 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.
18. Potential Anti-Takeover Effects of Staggered Board.
Registrant's Board of Directors is presently divided into three
classes of two directors each. Pursuant to the USE Restated
Articles 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."
THE COMPANY
Registrant is in the general minerals business of acquiring,
exploring, developing and/or selling or leasing of mineral
properties and, from time to time, mining and marketing of
minerals. The Company is now engaged in two principal mineral
sectors: uranium and gold. Its minerals business with respect to
uranium and gold can be characterized as in the development stage
according to the Commission's definition of that term. Interests
are held in other mineral properties (principally molybdenum),
but are either non-operating interests or undeveloped claims.
The Company also carries on a small oil and gas operation. Other
USE business segments are commercial operations (real estate and
general aviation) and construction operations.
Most operations are conducted through a joint venture with
Crested Corp., a majority-owned Colorado Corporation ("Crested")
and various joint subsidiaries of USE and Crested. The joint
venture with Crested is referred to as "USECC." Construction
operations are carried on primarily through USE's 50.9%
subsidiary Four Nines Gold, Inc. ("FNG"). USE and Crested's oil
and gas operations in Montana and Wyoming are carried on through
Energx Ltd. ("Energx"), a 90% subsidiary of the Company and
Crested.
Prior to February 16, 1996 the Company engaged in the
manufacturing and/or marketing of professional and recreational
outdoor products through The Brunton Company, a wholly-owned
subsidiary ("Brunton"). On February 16, 1996 Registrant sold all
of the shares of Brunton to Silva Production AB for $4,300,000
plus 45% of the net profits before taxes derived from the sale of
Brunton products for four years and three months. The sale will
eliminate Brunton's manufacturing and/or marketing of
professional and recreational outdoor products from the
commercial segment of Registrant's business, except to the extent
that there are net profit payments from Silva over the next four
years, of which there can be no assurance. For the fiscal year
ended May 31, 1995 and for the nine months ended February 29,
1996 (before reclassification to reflect Brunton as discontinued
operations with respect to the Company), Brunton's sales provided
approximately 49% and 26%, respectively, of net revenues of USE.
On the other hand, the February 1996 receipt of approximately
$2,900,000 in net cash from the sale (and future payments on
Silva's $1,000,000 promissory note and any profits payments) will
enhance the Company's financial condition and medium term
liquidity as well as providing additional resources to put the
Company's Utah uranium mill into operation and develop the
Company's uranium and gold properties.
The sale was prompted in part by Registrant's desire to focus on
its core business of acquiring and developing mineral properties
and mining and marketing minerals, particularly uranium and gold.
Registrant plans to consolidate all of its uranium assets into a
single subsidiary and finance the startup of its mines and mill
operations with debt or equity funding. Of course, there can be
no assurance uranium prices will remain at their current level,
that Registrant will succeed in its efforts to obtain long-term
uranium supply contracts required to operate its uranium
properties profitably, or that the required financing will be
available to put such properties into operation.
USE was incorporated in Wyoming in 1966. All operations are in
the United States. Principal executive offices are located at
877 North 8th West, Riverton, WY 82501, telephone (307) 856-9271.
The Company 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 majority owned subsidiary
of USE in fiscal 1993.
Except for approximately 1,400 ounces of gold recovered in fiscal
1992 in a bulk sampling program at the Sutter gold property in
California, the Company has not received revenues from the mining
of either uranium or gold during its five fiscal years ended May
31, 1995 or the nine months ended February 29, 1996. Mineral
revenues have been received from sales of mineral properties,
advance royalties in respect of the Company's interests in an
undeveloped molybdenum property that was sold to AMAX Inc. in
1980, and from sales of uranium under certain of the utility
supply contracts held by Sheep Mountain Partners ("SMP"), as a
result of USE and Crested delivering their one-half share or all
of the uranium and receiving sales proceeds therefrom. The
majority of profits on these deliveries have been retained by SMP
in an interest bearing account which is to be distributed by a
panel of arbitrators. See "Business and Properties - Legal
Proceedings - Sheep Mountain Partners Arbitration/Litigation."
Commencement of uranium mining from the Jackpot (Round Park)
deposit in Wyoming may result in utility supply contracts for
Green Mountain Mining Venture ("GMMV"), of which USE and Crested
are joint venture partners with Kennecott Uranium Company
("Kennecott"), and/or commencement of mining operations from the
properties held by Plateau Resources Limited ("Plateau"), a
wholly-owned subsidiary of USE, in Utah may result in utility
supply contracts for Plateau. There can be no assurance,
however, that such mining operations will commence, or that new
utility supply contracts will result.
<PAGE>
The following tables set forth certain selected historical
financial data with respect to the Company for the periods
indicated. It is derived from and should be read in conjunction
with the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
May 31,
-------------------------------------------------------------
1994 1993 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current assets $ 3,866,600 $ 1,650,300 $ 3,260,500 $ 7,302,300
Current liabilities 1,291,700 1,592,100 681,900 816,000
Working capital 2,574,900 58,200 2,578,600 6,486,300
Total assets 33,090,300 24,037,200 24,583,000 20,500,100
Long-term
obligations(1) 16,612,500 2,900,000 4,540,400 3,244,100
Shareholders' equity 12,559,100 15,063,200 14,982,900 15,045,500
</TABLE>
<TABLE>
<CAPTION>
May 31, 1995(3) February 29, 1996(3)
(unaudited) (unaudited)
--------------- ------------------
<S> <C> <C>
Current assets $ 3,390,100 $ 2,228,700
Current liabilities 3,368,200 1,091,000
Working capital 21,900 1,137,700
Total assets 33,384,500 34,950,900
Long-term
obligations(1)(2) 15,769,600 15,416,400
Shareholders' equity 12,168,400 16,007,700
</TABLE>
(1) Includes $3,951,800, $3,951,800, $1,695,600, $1,695,600, and
$725,900 of reclamation liabilities, and additional amounts of
other accrued liabilities, on uranium properties at May 31, 1995,
1994, 1993, 1992, and 1991, respectively. See Notes F and K to
the Consolidated Financial Statements for Registrant's fiscal
year ended May 31, 1995.
(2) See Notes 4 and 5 to the unaudited Condensed Consolidated
Financial Statements for fiscal quarter and nine months ended
February 29, 1996.
(3) Reflects the reclassification for amounts associated with
the operations of Brunton as discontinued because Brunton was
sold by Registrant as of January 31, 1996. See Notes 1 and 3 to
the unaudited Condensed Consolidated Financial Statements for the
fiscal quarter and nine months ended February 29, 1996.
<TABLE>
<CAPTION>
Years Ended May 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 9,148,000 $ 8,776,300 $ 9,045,500 $ 6,353,600 $ 9,569,100
Income (loss) before
equity in income
(loss) of affiliates,
provision for
income taxes and
extraordinary item (2,281,500) (3,587,900) (103,100) 819,200 6,082,900
Equity in (loss) of
affiliates (442,300) (390,700) (444,700) (324,900) (96,100)
Net income (loss) (2,070,600) (3,370,800) (221,900) 613,200 6,164,900
Income (loss) per
share before
extraordinary item $ (.42) $ (.70) $ (.05) $ .09 $ .93
Extraordinary item -- -- -- .06 .62
----------- ----------- ----------- ----------- -----------
Income (loss) per
share before
cumulative effect
of accounting change (.42) (.70) (.05) .15 1.55
Cumulative effect at
June 1, 1993 of income
tax accounting change -- (.06) -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)
per share $ (.42) $ (.76) $ (.05) $ .15 $ 1.55
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Cash dividends
per share $ -0- $ -0- $ -0- $ -0- $ -0-
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
February 29 February 28 February 29, February 28,
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $ 1,875,600 $ 1,386,300 $ 8,151,800 $ 3,638,500
Loss before equity in
loss of affiliates
and provision for
income taxes (1,290,900) (218,400) (1,882,500) (1,551,200)
Equity in loss
of affiliates - net (115,700) (128,100) (281,600) (304,900)
Loss from continuing
operations (1,074,400) (270,300) (1,765,400) (1,437,700)
Income (loss) from
discontinued operations
net of income taxes (9,200) (58,100) 308,900 121,900
Gain on disposal of
discontinued operations
net of income taxes 2,295,700 -- 2,295,700 --
Income (loss) from
discontinue operations 2,286,500 (58,100) 2,604,600 121,900
Net income (loss) 1,212,100 (328,400) 839,200 (1,315,800)
Loss from continuing
operations per share (.17) (.06) (.28) (.29)
Net income (loss) per share $ .19 $ (.07) $ .14 $ (.27)
Cash dividends per share -0- -0- -0- -0-
</TABLE>
<PAGE>
BUSINESS AND PROPERTIES
Uranium
Registrant has interests in several uranium properties in Wyoming
and Utah and in uranium processing mills in Sweetwater County,
Wyoming ("Sweetwater Mill") and in southeastern Garfield County,
Utah ("Shootaring Mill"). All the uranium bearing properties are
located in areas which have produced significant amounts of
uranium in the 1970s and 1980s.
The property interests are:
Unpatented lode mining claims on Green Mountain (Fremont County,
Wyoming), including 105 claims on which the Round Park
(Jackpot)uranium deposit is located, and the Sweetwater Mill,
(approximately 23 miles south of the proposed Jackpot Mine).
These assets are held by the Green Mountain Mining Venture
("GMMV"), owned 50 percent by the Company and USECC, and 50
percent by Kennecott Uranium Company ("Kennecott"), a subsidiary
of Kennecott Corporation. All claims are accessible by county
and United States Bureau of Land Management ("BLM") access roads.
Exploration and delineation of the principal uranium resources in
the proposed Jackpot Mine into the deposit have been
substantially completed. The BLM has prepared a final
Environmental Impact Statement ("EIS") for the proposed mine and,
following a period of public comment on the preliminary and final
EIS, on April 24, 1996 the BLM signed the Record of Decision
approving the Jackpot Mine Plan of Operations. The proposed
Jackpot Mine has had no previous operators, and would be a new
mine when opened. The Big Eagle Mine and related claim groups
(which are near the proposed Jackpot Mine and 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
Corporation ("PMC") starting in the late 1970s.
Unpatented lode mining claims, underground and open pit uranium
mines and mining equipment in the Crooks Gap area, located on
Sheep Mountain in 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 USECC, and Nukem, Inc. ("NUKEM"), through its
wholly-owned subsidiary Cycle Resource Investment Corporation
("CRIC"). The Sheep Mountain Mines 1 and 2 are accessible by
county and private roads and were first operated by Western
Nuclear, Inc. in the late 1970s.
The SMP 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.
The Tony M Mine and the Frank M property are underground uranium
deposits in San Juan County, Utah located on Utah state mining
leases. These properties are accessible by county roads.
The Tony M mine was originally developed by Plateau at the time
Plateau was owned by Consumers Power Company, a Michigan public
utility. Significant areas of uranium mineralization have been
accessed and delineated by the prior owner's underground
workings. When the Tony M Mine was in production, while Plateau
was owned by Consumers Power Company, it produced ore containing
from three to eight pounds of uranium concentrates per ton. Some
of this ore was processed at the Shootaring Mill into U3O8, the
saleable product. The Company has a contract with Nuclear Fuels
Services calling for transfer of the Tony M mine and the Frank M
properties to the Company upon approval by the State of Utah of a
new bond securing Plateau's obligations to reclaim these
properties. In addition, the nearby Shootaring Mill, low grade
uranium ore stockpiled at the Tony M mine and at the mill, and
related mill support facilities, are held by Plateau.
Plateau also owns the Velvet Mine and the nearby Wood Mine
complex in the Lisbon Valley area in southeastern Utah. The
Velvet Mine was fully developed and permitted by its prior owner
and is approximately 178 miles by road to the Shootaring Mill.
The Wood Mine complex was formerly an operating mine with a
remaining undeveloped resource. Access to this would be by
extending a drift approximately 2,500 feet from the former Wood
Mine. The Wood Mine property is not permitted at this time, but
the Company does not expect difficulty in obtaining a new permit
because the surface facilities would occupy the site that is
already disturbed from previous operations.
Green Mountain Project
GMMV. In fiscal 1990, USE and Crested sold 50 percent of their
interests in certain unpatented lode mining claims on Green
Mountain (hereafter, "Green Mountain Claims), and certain other
rights, to Kennecott for $15,000,000 cash (Registrant's share of
the proceeds was $12,600,000, and the balance was Crested's). In
fiscal 1991, Registrant and USECC ("USE Parties") and Kennecott
formed the GMMV to develop, mine and mill uranium ore from the
Green Mountain Claims, and market uranium oxide concentrates
(U3O8) to utilities using nuclear power to generate electricity.
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). Kennecott will also 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 the next
$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 (including Kennecott's commitment to
fund the initial $50,000,000 of GMMV expenditures), so that in
effect the interest held by each party collateralizes its
performance. 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 (Jackpot)
uranium deposit, currently believed to be the most significant
mineralized resource on Green Mountain. These 105 claims were
formerly owned solely by USE. Pursuant to an agreement between
USE and Crested, cash flow from production of uranium out of
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 (Jackpot) deposit is developed and placed
into production and may be accessed through the proposed tunnels
at the Jackpot Mine.
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 and has continued as
project manager since then. 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, acquisition and monitoring of the Sweetwater
Mill and application to the U. S. Nuclear Regulatory Commission
("NRC") to convert the Sweetwater Mill license from standby to an
operating license. For fiscal 1996, GMMV plans to complete a
sediment dam, sediment basin and drainage diversion ditch, build
a fuel storage facility and other support facilities and make
improvements to existing facilities.
Properties and Mine Plan. GMMV owns a total of 443 Green
Mountain Claims, including the 105 claims on which the Round Park
(Jackpot) 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 (Jackpot) deposit, and USECC has constructed two portals for
the Jackpot Mine declines. Roads and utilities have been put in
place, which are believed to be 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 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 mineral rights to the underlying
unpatented lode mining claims.
The Round Park (Jackpot) mining claims contain a deposit of
uranium which has been estimated by USECC 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 expects to mine this
deposit from the Jackpot Mine, which will be driven underground
from the south side of Green Mountain. 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.
Registrant expects mine development costs will not exceed
$25,000,000 to begin production from the Round Park (Jackpot)
deposit. However, cost estimates may change as exploration and
initial development progress. Pursuant to the GMMV agreement,
Kennecott has agreed to fund the initial $50,000,000 in
development costs including reclamation costs. To date such
expenditures total approximately $16,000,000. Additional costs
would be funded by operations and/or by cash assessments on the
venturers.
Sweetwater Mill. In fiscal 1993, 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; 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.
Mill holding costs are paid by GMMV and funded by Kennecott as
part of its $50 million funding commitment.
Kennecott, as mill operator, has initiated discussions and
appropriate filings with the 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 United States Environmental Protection Agency ("EPA") has
advised Kennecott, as operator of the GMMV, that if Kennecott
would level the tailings within the existing tailings impoundment
and install a new liner with leak detection capability the EPA
would allow the use of the existing 60 acre tailings cell for
milling operations. The Company anticipates that this would
result in substantial cost savings to GMMV and reduce the time
required for the Sweetwater Mill to resume operations.
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
processed in excess of 4,200 tpd for sustained periods. 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 will be
approximately $24,100,000 once the Jackpot Mine Permit is granted
by the WDEQ. None of the GMMV future reclamation and closure
costs are reflected in Registrant's Consolidated Financial
Statements (see Note K to USE Consolidated Financial Statements).
UNOCAL has 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
consist of 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 $16,322,900 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 the GMMV is 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 appear
to be within the $50,000,000 development commitment of Kennecott
for GMMV. These costs are not expected to increase materially if
the mill is not put into 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. Last, the GMMV will set
aside a portion of operating revenues to fund reclamation and
environmental liabilities when mining and milling operations are
finally 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 contributions
would be required only if the liabilities cannot be satisfied by
Kennecott 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.
Permitting. 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. Following preparation of a final EIS by the BLM,
including a series of public meetings and a period for receipt of
written comments on both the preliminary and final EIS, on April
24, 1996 the BLM signed the Record of Decision ("ROD") approving
the Jackpot Mine Plan of Operations. With the entry of the ROD,
the WDEQ is expected to issue the operating permit for the
Jackpot Mine in June 1996. Until this Permit is granted, no
further construction of mine facilities is allowed; no further
underground mine development can occur, and the Round Park
(Jackpot) Deposit cannot be mined.
The Jackpot Mine Plan of Operations and a combination of the
alternatives analyzed in the EIS will allow for the disposal of
mine waste rock in the Big Eagle Mine pits and the upgrading of
existing roads and the construction of new haul road segments for
transport of ore to the Sweetwater Mill. These roads will be
subject to modification in alignment necessary to minimize or
avoid adverse impacts to riparian and cultural resources.
Prior to initiation of mining operations, GMMV proposes further
underground exploration in the area; if this exploration fails to
identify uranium resources with future development potential, the
project will not proceed. If uranium resources with development
potential are discovered, GMMV proposes to begin mining in the
mid-to late-1990s.
The mine plan estimates that the Jackpot Mine will produce about
3,000 tons of uranium ore per day and will have an expected mine
life of 13 to 22 years. It will utilize the existing Big Eagle
Mine facilities located about two miles west of the Jackpot Mine
site. As many as 250 workers will be required during mining
operations. The maximum area of new disturbance required for the
project will be 289 acres. This disturbance will include 118
acres for mine site development and 171 acres for transportation
corridor construction and/or improvement. When uranium reserves
have been depleted, the mine portals will be plugged and the
ground surface recontoured and reclaimed to blend with the
natural landscape. Also, surface structures will be removed,
roads closed per landowner or BLM request, and disturbed areas
reclaimed.
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 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 of the uranium
operations in which it owns an interest, are in compliance with
these rules.
During the fiscal year ending May 31, 1995, expenditures by GMMV
to comply with provisions of the mine permits and licenses, or
otherwise to protect the environment, were approximately
$200,000, of which approximately 50 percent were for capital
expenditures. There ultimately will be an effect on USE earnings
from environmental compliance expenditures by GMMV, 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 cash flow
during the next two years, as Kennecott will fund the first
$50,000,000 of costs of GMMV, of which only about $15,799,100 had
been expended as of GMMV's year end at December 31, 1995.
Concerning Kennecott. Kennecott Corporation is a wholly-owned
United States 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.
Registrant is not aware 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 parent Kennecott Corporation. Accordingly,
performance by Kennecott Uranium Company of its development
commitment under the GMMV joint venture agreement is not assured.
Shootaring Canyon Mill
Acquisition of Plateau Resources. In August 1993, Registrant
purchased from Consumers Power Company ("CPC"), all of the
outstanding stock of Plateau, which 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.
Registrant paid nominal cash consideration for the Plateau stock,
but as additional consideration, Registrant has agreed:
(a) to perform or cause Plateau to perform 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.
At closing, Plateau transferred $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 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 an agreement between Plateau and
the third-party. 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.
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 the Company, in light of potential NRC objections to
selling Plateau to the USECC joint venture. Subsequent to
closing, in September 1993, the Company 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. The Company has also applied to the NRC to
convert the source materials license from standby to operational.
Plateau owns approximately 90,000 tons of uranium mineralized
material ore stockpiled at the mill site and approximately
172,000 tons of mineralized material stockpiled at the Tony M
Mine.
USE intends to cause Plateau to continue maintenance activities
pending evaluation of resuming Shootaring Mill operations to
process uranium ores to concentrates. NRC and DOGM approval will
be required prior to commencing such operations.
Ticaboo Townsite
Plateau also owns all of the outstanding stock of Canyon
Homesteads, Inc. ("Canyon"), a Utah corporation, which developed
the Ticaboo, Utah townsite 3.5 miles south of the Shootaring
mill. The Ticaboo site includes a 66 room motel, convenience
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 being operated as a commercial
enterprise. USE and Crested plan to further develop the
townsite, and have been seeking financial partners. Interim
funding for limited improvements on the commercial operations was
provided by a private corporation affiliated with a John L.
Larsen, Chairman of the Board, President and Chief Executive
Officer of USE. See "Certain Relationships and Related
Transactions - Transactions with Arrowstar Investments, Inc.".
Sheep Mountain Partners ("SMP")
Partnership. SMP is a Colorado general partnership formed on
December 21, 1988 between 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 the partners of SMP. These disputes resulted in litigation
and subsequent arbitration from which an Order and Award was
issued on April 18, 1996. See "Legal Proceedings - Sheep
Mountain Partners Arbitration/Litigation".
In February 1988, USE and Crested acquired uranium mines, mining
equipment and mineralized properties (Sheep Mountain Mines) at
Crooks Gap in south-central Fremont County, Wyoming, from Western
Nuclear, Inc. (a subsidiary of Phelps-Dodge Corporation). USE
and Crested, doing business as USECC, mined and sold uranium ore
from one of the underground mines in fiscal 1988 and 1989.
Production ceased in fiscal 1989, because uranium could be
purchased from the spot market at prices below SMP mining and
milling costs. These Crooks Gap properties are adjacent to the
Green Mountain Project.
The Company and Crested sold 50 percent of their interests in the
Crooks Gap 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 provided one-half of $350,000 (later reduced to $315,000)
to purchase equipment from Western Nuclear, Inc.; the Company
and Crested also contributed their interests in three uranium
supply contracts to SMP and agreed to be responsible for property
reclamation obligations. The SMP Partnership 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, credit lines and
contributions.
SMP was directed by a management committee, with three members
appointed by USECC, and three members appointed by Nukem/CRIC.
The committee has not met since 1991 because of the SMP
arbitration/litigation.
Properties. SMP owns 77 unpatented lode mining claims on the
Crooks Gap properties, including two open-pit and five
underground uranium mines and an inventory of uranium ore.
Production from the properties is subject to sliding-scale
royalties payable to Western Nuclear, Inc.; the rates are from
one to four percent on recovered uranium concentrates.
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. An ion-exchange plant is located near
the SMP properties, but is held by USECC and not SMP.
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"). 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 conducted an exploration
program on a portion of these properties, and has advised the
Company that it 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 two uranium mills 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. The Company, on behalf of USECC, has submitted a plan to
the NRC to decommission this facility. However, management is
reviewing the economics of relicensing this facility as part of a
potential in-situ leach uranium mining operation.
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 by SMP
for certain expenditures on the properties. During the pendency
of the SMP arbitration/litigation Nukem/CRIC refused to allow SMP
to pay USECC for care and maintenance and other work performed
since the spring of 1991. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources at May 31, 1995 - Capital
Requirements - SMP". As part of the Order and Award made on
April 18, 1996, the Arbitration Panel awarded USECC $2,065,989
for Nukem/CRIC's 50% share of care and maintenance expenses for
the SMP properties plus interest of $446,834 to March 31, 1996
and per diem cost of $616 thereafter. 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.
SMP 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 seven
long-term contracts (five remaining) for sales of uranium to
eight domestic utilities. Under the marketing agreement SMP was
to have paid Nukem 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. As part of its April 18, 1996 Order
and Award the Arbitration Panel awarded Nukem $612,500 for
USECC's 50% share of such marketing fees plus $216,460 for
interest on unpaid fees and per diem costs of $170 from March 31,
1996.
SMP's uranium supply contracts are either 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 delivery of 130,000 pounds of
uranium concentrates through 1997. Prices of uranium for
deliveries under the base-price escalated 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 903,200
to 1,213,800 pounds of uranium annually from 1996 to 2000, which
amounts may be increased or decreased by specified percentages.
Through fiscal 1995, USE and its affiliates have satisfied most
of these contracts with uranium concentrates previously produced
by SMP, borrowed from others, or purchased on the open market.
The future role of Nukem in making deliveries under these
contracts on behalf of SMP cannot be assured notwithstanding the
April 18, 1996 Order and Award. See "Legal Proceedings - Sheep
Mountain Partners Arbitration/Litigation."
Permits. Permits to operate existing 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
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.
Uranium Market Information. In 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). Many of these operations are now in standby mode due to
recent low prices for U3O8. There are currently 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. Several members of the Commonwealth of Independent
States ("CIS"), also export uranium to the western markets
although the amount of such exports to the United States and
European markets is currently limited.
Uranium is primarily used in nuclear reactors that heat water to
drive turbines that generate electricity. There are presently
some 542 commercial nuclear power plants worldwide either
operating, under construction or planned. Of them, 45 are under
construction and 53 are planned. Current worldwide consumption
is about 150 million pounds of U3O8 per year, but worldwide
production is only about 82 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 is also developing into a significant uranium consumer,
due to announced plans for rapid expansion of nuclear power
programs in Japan, Korea, Taiwan and the Russian Federation.
This region accounts for most of the 98 power plants which are
ordered or under construction.
Pursuant to Suspension Agreements signed in October 1993 between
the United States Department of Commerce ("DOC") and certain of
the Republics of the CIS, to rectify prior damage to domestic
United States uranium producers from dumping sales of U3O8 by
certain CIS republics, 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 six 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
1991 11.70 8.35
1992 9.05 7.75
1993 10.05 7.75
1994 10.20 9.25
1995 11.00 9.50
1996 16.50 11.85
US NEV was $16.50 as of May 31, 1996.
NUEXCO's restricted market values ("U.S. NEV") 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 one to three years.
There also is an active spot market, through which approximately
5 to 10 percent of uranium concentrate needs are satisfied.
While total demand in 1995 exceeded domestic production, there
remains a near-term supply of U3O8 equivalent from domestic
producers' inventory, and from unrestricted (i.e., not under
quotas) foreign producers current production and inventory. The
Company expects these and other factors (e.g., weapons grade
uranium conversions) will moderate price increases, which
otherwise might be expected from the shortfall of United States
production meeting demand, in spite of increasing interest from
U.S. utilities in renewing long-term contracts at higher than
spot market prices. To date in fiscal 1996, spot market prices
have increased approximately 40% from May 31, 1995.
Gold
Lincoln Project (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 in a mining joint venture known as the Sutter
Gold Venture ("SGV"). The entire interest of SGV is now owned by
USECC Gold L.L.C., a Wyoming limited liability company ("USECC
Gold). Until the end of fiscal 1994, Seine River Resources Inc.,
a Vancouver Stock Exchange listed company ("SRRI"), which is not
affiliated with USE or its subsidiaries was a joint venture party
in SGV. USECC Gold is a subsidiary of Sutter Gold Mining
Company, a Wyoming corporation ("SGMC").
SGMC expects to commence additional exploration and mine
development as soon as it is able to raise sufficient funding.
Although SGMC is in discussions regarding funding proposals,
there can be no assurance that such proposals will result in
actual funding. See "Permits and Future Plans."
USECC Gold and SRRI had intended to operate SGV as equal 50
percent venturers. However, because of SRRI defaults on its
obligations, USE and Crested 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 which USE and Crested acquired in
lieu of foreclosure (see Note F to the USE Consolidated Financial
Statements). SRRI's 10% interest was delivered to USE and
Crested in fiscal 1994.
Subsequent to the end of fiscal 1994, the Sutter Gold Venture was
terminated, USE and Crested formed SGMC, and agreed to exchange
their interests in USECC Gold for common stock of SGMC and
founders stock was issued to various individuals. As of May 31,
199 a private placement of 896,364 shares was made to a small
group of investors. SGMC is owned 74 percent by USE, 9 percent
by Crested and 17 percent by private investors; USECC Gold is a
subsidiary of SGMC.
During fiscal years 1992 through 1995, 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. SGMC (through its subsidiary USECC Gold) holds
approximately 14 acres of surface and mineral rights (owned), 436
acres of surface rights (leased), 158 acres of mineral rights
(leased), and 380 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 at from 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 $418,200 for the two
fiscal years ending May 31, 1997, including $77,400 for payments
on two parcels (14 acres) purchased in 1994; payment of advance
royalties and lease rental payments due in 1995 and 1996 on other
surface and mineral properties, totalling $340,840; 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
February 1998), 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 or minimum payments are made. Other leases may be
extended for various periods on terms similar to those contained
in the original leases. Production royalties are from four to
six percent. 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 to the Lincoln Project when the
project was owned by Meridian Minerals Company ("Meridian"). In
return for its conveyance of such leases Amador United received a
right of first refusal to buy the Lincoln Project 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 to 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.
A separate holder of four of the properties that were assembled
by Meridian into the Lincoln Project holds a 5 percent net
profits interest on production from such properties, which was
granted by Meridian when it acquired the properties. The "net
profits" generally will be determined in the same manner as the
Amador United net profits interest (i.e., gross mineral revenues
less an amount equal to 105 percent of numerous categories of
costs and expenses). An additional 0.5 percent net smelter
return royalty is held by a consultant to a lessee prior to
Meridian's acquisition of the properties, which 0.5 percent
interest covers the same four properties in the Lincoln Project.
There has been an estimated $16,000,000 of spending to date in
the Lincoln Project by Meridian and USECC Gold. Since fiscal
1991, USE and Crested have expended $11,373,000 to acquire the
Lincoln Project and for mine development, mining and processing
bulk samples of mineralization, exploration, feasibility studies,
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. The amount of such
expenditures during the 1996 fiscal year was approximately
$637,300.
Current estimates call for up to $15 million of additional
investment to put the properties into full production. Payment
of any amount to Amador United and the other holders of net
profits interests will only occur after the Lincoln Project has
generated gross revenues in excess of the amount invested plus
interest. 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 objected to the notices given, however,
USE and Crested believe these objections are without merit.
Geology and Reserves. The minerals consulting firm Pincock,
Allen & Holt ("PAH") prepared a prefeasibility study of the
Lincoln Project in fiscal 1994. 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.
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 tonnages for the stated reserves would be increased.
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 could be in excess of 96
percent. PAH has estimated the recovery rate as 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, 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) need to 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. 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 to permit ore haulage up the
decline by conveyor, thus eliminating ore haulage on the surface
from mine portal to the mill.
Concurrently with production mining, SGMC intends to maintain an
aggressive underground development program to delineate (on an on-
going basis) two to three years of developed ore in sight.
Preliminary estimates are that SGMC will require up to $15
million financing to construct the mill and prepare the mine for
full scale production, and for interim holding costs. The mill
design is being finalized and will be reviewed by PAH or another
engineering firm , and SGMC expects to follow PAH's or such other
firm'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 less
than 15,000 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 are entitled to receive annual advance royalties
of 50,000 pounds of molybdenum, or cash equivalent (one-half to
each). AMAX Inc. (which merged with Cyprus Minerals Company and
was renamed Cyprus Amax Minerals Company in November, 1993)
delineated a deposit of molybdenum containing approximately 146
million tons of mineralization averaging 0.43% molybdenum
disulfide on the properties.
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 1995, USE recognized $85,500 of
advance royalty revenue under this arrangement. These royalties
are shown in the Consolidated Statements of Operations as a
component of gains from restructuring mineral properties
agreements. See Note F to the USE Consolidated Financial
Statements. The royalty payments reduce the operating royalties
(six percent of gross production proceeds) which would otherwise
be due from Cyprus Amax from production. There is no obligation
to repay the advance royalties if the property is not placed in
production. The Agreement with AMAX also provides that USE and
Crested are to receive $2,000,000 (one-half to each), at such
time as the Mt. Emmons properties are put into production and, 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. The Company has asserted that the reported
merger of AMAX into Cyprus Minerals Company was a sale of AMAX's
interest in the properties which would entitle USE and Crested to
such payment. Cyprus Amax has rejected such assertion and the
Company is considering its remedies.
Subsequent to May 31, 1994, USE and Crested reached agreement
with Cyprus Amax to forego six quarters of advance royalties
(starting fourth quarter calendar 1994) as payment for the option
exercise price for certain real estate in Gunnison, Colorado
owned by Cyprus Amax and the subject of a purchase option held by
USE and Crested. The option exercise price is valued at
$266,250. USE and Crested exercised their option in August, 1994
and subsequently sold that property for $970,300 in cash and
notes receivable. The advance royalties are to resume in the
second quarter of calendar 1996.
Molybdenum Market Information
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 and the rate of production of foreign and
domestic primary and by-product producers, world-wide economic
conditions particularly in the steel industry, the U.S. dollar
exchange rate, and other factors such as the rate of consumption
of molybdenum in 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 November 1993, when the
companies merged.
Worldwide demand for molybdenum in calendar 1995 was reportedly
220 million pounds, its highest level ever. Production for that
period was about 220 million pounds. There is however, excess
capacity from the primary molybdenum mines which are currently
not producing. In addition, by-product molybdenum (primarily
from Chilean copper mining companies) has a major impact on
available supplies. It is unlikely that any major new primary
deposits will be developed during fiscal 1997.
Molybdenum prices on the open spot market increased
substantially, from $3.35 per pound of technical molybdic oxide
(the principal product) in September 1994, to $15.50 - $17.50 per
pound in February 1995. However, by May 31, 1996 prices had
declined to $3.00 - $3.35 per pound.
Parador Mining (Nevada)
The Company 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 (now known as Barrick
Bullfrog, Inc.). The Company and Crested 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 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 BGBI had defaulted in its lease and that Parador had
terminated the lease. BGBI denies that it has defaulted. A
partial trial to the court in December 1995 resulted in a
decision that Parador had failed to meet its burden of proof to
establish that its claims are entitled to assert extralateral
rights and that Registrant, Parador and Crested have no right,
title or interest in the adjacent BGBI claims. Registrant
intends to appeal this ruling as erroneous as a matter of law at
such time as it is appropriate to do so. See Risk Factor 16 and
"Legal Proceedings - BBGI Litigation".
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; four 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 owned 45% by USE, 45% by Crested, and 10% by the
Assiniboine and Sioux Tribes, signed in October 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. In the fourth quarter of calendar 1995 Energx drilled
and tested three exploratory wells, in conjunction with NuGas
Resources U.S. Inc. ("NuGas"). These three were all dry holes.
Energx (and NuGas) plan to drill and test five more exploratory
wells in July 1996. 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. The Agreement is renewable for successive five year
terms, provided Energx drills another five exploration wells
during each term. The first three dry holes would be funded by
NuGas.
With additional fee and Tribal allotted acreage assembled by
Energx and NuGas, and the 170,000 acres subject to a farmout
agreement with Placid Oil (see below), Energx and NuGas now have
positions in approximately 500,000 contiguous acres within the
Fort Peck Indian Reservation. The Tribes will not participate in
the fee acreage.
During the initial exploration program, proceeds from production
will be allocated to NuGas to recoup the initial eight wells'
drilling and completion expense (except for up to three dry
holes, see "NuGas Resources (U.S.) Inc. Agreement"), Thereafter,
net revenues will be allocated 40 percent to the Tribes and 60
percent to Energx and NuGas. Pursuant to United States Law, only
the Tribes may own beneficial interests in reservation minerals;
Energx' and NuGas' share of net revenues is compensation for
operating services.
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. Two major gas
transmission systems cross the Fort Peck Reservation (Northern
Border and Williston Basin).
NuGas Resources (U.S.) Inc. Agreement. By the Joint Venture
Agreement ("JVA") with Energx dated July 18, 1994, NuGas is
obligated to Energx to drill and complete (or abandon) at NuGas'
sole expense, eight exploratory shallow gas wells on the Fort
Peck Reservation (three before December 31, 1994, now extended to
late fall 1995, and five more by July 1, 1996), to earn a one-
half interest in Energx' rights under the Fort Peck Shallow Gas
Agreement. Well gathering, gas dehydration and related equipment
costs will be shared equally by NuGas and Energx. Energx will
not be required to contribute to the costs of drilling the first
eight exploratory wells.
NuGas has contributed $100,000 to pay for costs of acquiring
leases and easements on non-Tribal lands contiguous to Tribal
lands, 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
postponed the drilling of the initial exploratory wells until
late in the fall of 1995.
NuGas and Energx each will receive 50 percent of proceeds from
gas produced and sold from 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 is the operator of record.
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 500 shallow gas wells and
produces 30,000,000 cubic feet of gas per day.
Farmout Agreement. In October 1995, Placid Oil Company, a
subsidiary of Occidental Petroleum and other parties (hereafter
together referred to as "Placid"), signed a Farmout Agreement
with Energx and NuGas. Under the agreement, Energx and NuGas as
operator have the right to drill and complete shallow gas wells
on approximately 170,000 acres of non-Tribal lands within the
Fort Peck Indian Reservation, at the sole expense of the
operator. The Farmout Agreement contemplates three phases: (i)
drilling and completion (or abandonment) of three test wells on
widely dispersed drilling locations; (ii) subject to performance
of (i), continuous drilling and completion (or abandonment) of
option wells, also on widely dispersed drilling locations; and
(iii) subject to performance of (i), continuous drilling and
completion (or abandonment) of additional wells on blocks not
covered by (i) and (ii). The first three wells are to be drilled
on specific sections within the 170,000 acres.
Drilling of the first test well commenced in October 1995; the
last of the three wells is to be drilled and completed (or
abandoned) within 45 days of the commencement of drilling the
first well. Upon completion of the last test well, and on or
before June 1, 1996, the operator has the option to continue
drilling on the acreage until March 31, 1997, with not more than
30 days to elapse between completion (or abandonment) date for a
well and commencement of drilling of the next well, until all the
acreage has been fully developed.
On or before the March 31, 1997 Farmout Agreement termination
date, the operator shall make an election as to each lease in the
acreage that is undeveloped or which covers lands not included in
a producing unit from the drilling of test or option wells, to
(i) continuously drill wells so as to fully develop the lease on
160 acre units, (ii) pay Placid $35.00/acre rental on the desired
acreage, or (iii) forego the subject acreage and reassign it back
to Placid.
In addition to lessor royalties, Placid will receive a 6 percent
overriding royalty interest on the acreage developed under the
Farmout Agreement. Operator will reimburse Placid for delay
rentals on the acreage until placed into production.
Energx has agreed with NuGas that NuGas' payment of all drilling
and completion (or abandonment) costs on the three test wells
under the Farmout Agreement will constitute performance by NuGas
as to the first three wells required under the Energx/NuGas
agreement. In turn, the Tribes have agreed that drilling and
completion (or abandonment) of the three test wells under the
Farmout Agreement will be accepted in lieu of drilling the first
three test wells required under the Fort Peck Shallow Gas
Agreement. Energx will be an equal participant with NuGas in
paying for the Farmout Agreement option wells' drilling and
completion (or abandonment) costs and production proceeds
therefrom.
Wind River Basin, Wyoming - Monument Butte Prospect.
Approximately 13,000 acres of BLM leases (10 year term) in
Fremont County, WY are now held by Energx, and are believed to be
prospective of shallow coalbed methane and conventional
stratigraphic natural gas and oil deposits. Acreage in this part
of the basin has been leased by major oil and gas companies in
the past, but very little of the Energx acreage has been drilled.
Energx expects to 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). Energx expects to fund future
operations by a combination of private equity financing and by
seeking industry and private investor participation on prospects.
However, due to depressed gas prices in calendar 1995, equity
financing as well as joint venture industry participation of
natural and coalbed methane gas projects has been difficult to
obtain. Accordingly, in fiscal 1996 Energx is monitoring its
acreage positions (other than Fort Peck) to evaluate whether to
continue paying the acreage holding costs and/or drill to earn
acreage rights (as applicable), or to turn operations over to
another company in the industry in exchange for an overriding
royalty from future production payable to Energx.
Brunton.
On February 16, 1996 Registrant completed the sale of 8,267,450
shares of common stock, $0.01 par value, (the "Stock") of Brunton
to Silva Production AB, a closely held Swedish corporation
("Silva"), pursuant to the terms of a Stock Purchase Agreement
dated January 30, 1996 (the "Agreement") by and between
Registrant and Silva. Brunton is engaged in the manufacture and
marketing of professional and recreational outdoor products and
at the time of its sale Brunton was 100% owned by Registrant.
The sale was prompted in part by Registrant's desire to focus on
its core business of acquiring and developing mineral properties
and mining and marketing minerals, particularly uranium and gold.
The Stock constitutes all of the issued and outstanding shares of
Brunton owned by Registrant as of the date of the sale including
90,750 shares held in Brunton's treasury.
The purchase price for the Stock was $4,300,000, which was a
negotiated price based on an Adjusted Shareholder's Equity in
Brunton (as defined in the Agreement) as of January 31, 1996 of
$2,399,103. Registrant received $300,000 upon execution and
delivery of the Agreement, approximately $3,000,000 by wire
transfer from Silva at closing and an agreement by Silva to pay
Registrant $1,000,000 in three annual installments of $333,333
together with interest at the rate of 7% per annum, such
installments to be paid on February 15, 1997, February 15, 1998
and February 15, 1999.
In addition, Silva agreed that, in the operation of Brunton,
Silva will cause the existing Brunton products and operations
(including lasers and other new products being developed by
Brunton at the time of the sale) to be a separate profit center
and to pay Registrant 45% of the net profits before taxes derived
from that profit center for a period of four years and three
months commencing February 1, 1996. The first such net profits
payment will be made on or before July 15, 1997 for the period
from February 1, 1996 through April 30, 1997, if net profits are
earned for such period. Additional net profits payments will be
made, on July 15, 1998, July 15, 1999 and July 15, 2000, if net
profits are earned for the corresponding twelve month period.
There can be no assurance that Brunton will earn net profits for
any such period and therefore there can be no assurance that any
such net profits payment will be received by Registrant.
The assets of Brunton that were acquired by Silva through the
purchase of the Stock consist of certain real estate housing
Brunton's headquarters and manufacturing operations in Riverton,
Wyoming; Brunton's working capital; equipment, inventory,
machinery, personal property and all of Brunton's intellectual
property rights. Certain items of equipment and personal
property were withheld by the Registrant from the Agreement and
transferred from Brunton to Registrant, by mutual agreement with
Silva, for Registrant's assumption of the indebtedness thereon.
Such items include and depreciated mining equipment, real estate
not used in Brunton operations, and miscellaneous other
equipment, as well as 225,556 shares of Registrant's common
stock, par value $0.01 per share, and options to purchase 150,000
shares of Registrant's common stock for $3.50 per share; 160,000
shares of Crested Corp. common stock, par value $0.001, and
options to purchase (from Crested Corp.) 300,000 shares of
Crested Corp. common stock for $0.40 per share, all of which were
previously owned by Brunton. 125,556 shares of USE (and options
to purchase 75,000 shares of USE), plus 60,000 shares of Crested
(and options to purchase 150,000 shares of Crested) were
transferred to Plateau in partial payment of debt owed to Plateau
by USECC. The remaining 100,000 USE shares (and options to
purchase 75,000 USE shares), plus 100,000 Crested shares (and
options to purchase 150,000 shares of Crested) were transferred
to SGMC.
Also at closing, the Registrant paid Brunton $171,685 for accrued
rentals on mining equipment owned by Brunton and transferred to
Registrant at closing, and the Registrant paid off $273,000 in
bank debt previously incurred by Brunton in connection with a
loan to the Registrant.
The sale will eliminate Brunton's manufacturing and/or marketing
of professional and recreational outdoor products from the
commercial segment of Registrant's business, except to the extent
that there are net profit payments from Silva over the next four
years, of which there can be no assurance. For the fiscal year
ended May 31, 1995, Brunton's sales provided 49% of net revenues
of USE (26% for the nine months ended February 29, 1996 before
reclassification to reflect Brunton as discontinued operations
with respect to the Company). The inability to include Brunton's
operations with Registrant's other operating revenues in the
future could result in continued operating losses for Registrant,
unless Registrant is able to develop other profitable businesses,
such as Registrant's uranium business or FNG's construction
business, to replace profits from Brunton. Continued operating
losses without offsetting replacements of working capital will
adversely affect USE's ability to continue its operations as
described in this Prospectus. See also Risk Factor 2 above and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources at
February 29, 1996 (unaudited)" and Results of Operations".
On the other hand, receipt in February 1996 of approximately
$2,900,000 in net cash from the sale (and future payments on
Silva's $1,000,000 promissory note and any profits payments) will
enhance the Company's financial condition and medium term
liquidity as well as providing additional resources to put the
Company's Plateau uranium mill into operation and develop the
Company's uranium and gold properties.
Real Estate and Other Commercial Operations
Registrant owns varying interests, alone and with Crested, in
affiliated companies engaged in real estate, transportation, and
commercial businesses. The affiliated organizations include
Western Executive Air, Inc. ("WEA") and Canyon Homesteads, Inc.
(through Plateau). Activities of these subsidiaries in these
business sectors include ownership and management of a commercial
office building, the townsite of Jeffrey City, Wyoming and the
townsite and commercial facilities in Ticaboo, Utah. Until it
was sold in April 1996, USECC also owned and managed a mobile
home park in Riverton, Wyoming. See "Certain Relationships and
Related Transactions - Transactions with Arrowstar Investments,
Inc.". WEA owns and operates an aircraft fixed base operation
with fuel sales and flight instruction and maintenance in
Riverton, Wyoming.
USECC
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. The preceding property is mortgaged to the
State of Wyoming as security for future reclamation work on the
SMP properties.
USECC also owns a fixed base aircraft operation at the Riverton
Municipal Airport, including a 10,000 square foot aircraft hangar
and 7,000 square feet of 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.
In November 1995, USECC exercised an option to acquire a 7,200
square foot hangar at the Riverton airport, for $75,000, from a
private Wyoming corporation affiliated with John L. Larsen,
Chairman, President and Chief Executive Officer of the Company.
See "Certain Relationships and Related Transactions -
Transactions with Arrowstar Investments, Inc.".
USE and Crested also 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, 290 city lots and/or tracts other
properties at the Jeffrey City townsite in south-central Wyoming.
Nearly 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. In
the interim Registrant and Crested have sold 17 lots for an
aggregate of $32,000 during fiscal 1996. In addition, in April
25, 1996, the Registrant and Crested entered into an agreement
with a non-related party to sell 10 six-plex townhouses located
in Jeffrey City for $500,000, conditioned upon purchaser
obtaining financing for the full amount within 60 days. Full
real estate title will be transferred to the purchaser upon
closing, however, if purchaser removes the townhouses, purchaser
must reclaim the land and the real property where the townhouses
were located will be assigned and conveyed back to USE and
Crested by quitclaim deed for full consideration of $10.00.
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 Mt. Emmons molybdenum properties near Crested Butte,
Colorado, USECC acquired an option from AMAX (now Cyprus Amax) to
purchase (until June, 2002) approximately 57 acres for $200,000
in Mountain Meadows Business Park, Gunnison, Colorado. See
"Molybdenum" above. The property is zoned commercial and
industrial, and is adjacent to Western State College. In fiscal
1995, USECC and Cyprus Amax agreed on exercise of the option by
USE and Crested agreeing to forego six quarters of advance
royalties from Cyprus Amax (the option purchase price was
$200,000), plus payment of certain expenses i.e. real property
taxes from 1987 and other expenses amounting to $19,358.
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.
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 paid
$345,000 cash and $625,300 in three year nonrecourse promissory
notes, of which $137,900 was paid during fiscal 1995. The
remaining note bears interest at 7.5% per annum. 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 $822,460).
Pangolin paid $10,000 for the option; on option exercise and
closing, Pangolin paid $46,090 in cash and $776,370 by two
nonrecourse promissory notes (each with principal and unpaid
interest due on the third anniversary of closing except for
$35,000 on the first anniversary). At closing, 22.19 acres were
deeded to Pangolin; different parcels of the remaining acreage
secure the notes, and will be released for principal payments in
the course of development. The sale was accounted for as an
installment sale and thus the gain on sale was deferred, to be
recorded as the notes are paid.
Both notes ($145,500 and $630,870) will require annual payments
of accrued interest: the larger note accrues interest at 7.5
percent; the initial interest rate on the smaller note was 7.5
percent through August 28, 1995 and 12 percent thereafter (with a
$35,000 principal payment on the first anniversary).
Utah Properties. Canyon Homesteads, Inc. (a Plateau subsidiary)
owns a majority interest in a joint venture which holds the
Ticaboo Townsite in Ticaboo, Utah (see "Uranium-Shootaring Canyon
Mill - Ticaboo Townsite, above). In fiscal 1994, a swimming pool
was built at the motel. In fiscal 1995, USE agreed to acquire
the minority interest in the joint venture from a nonaffiliate.
Further recreational improvements to the townsite are planned for
fiscal 1996, to develop a commercial operation directed to Lake
Powell tourists. However, as the anticipated joint venture
partners did not fund development plans in fiscal 1995, (and the
proposed joint ventures for such purpose were not formed), and
USE and Crested have not been successful in finding other sources
of development funding, limited interim funding has been provided
by Arrowstar Investments, Inc. See "Certain Relationships and
Related Transactions - Transactions with Arrowstar Investments,
Inc.".
Construction
Four Nines Gold, Inc. On May 5, 1995 FNG was awarded a 14 month
$2,584,434 contract by the City of Lead, South Dakota for
municipal road and drainage construction, and rock slide area
stabilization. As of April 30, 1996, change orders by the City
of Lead have increased the contract to $3,609,604 and FNG had
performed 88% percent of the contract, billing $3,208,408 (after
$75,000 retainage by the City of Lead against completion of the
project), of which $3,133,408 had been paid. FNG continues to
expect the contract to be profitable
On September 13, 1995 FNG was awarded a separate construction
contract for $618,270 by the United States Department of the
Interior, Bureau of Reclamation, for the Minor Laterals, North
Canal, Stage 5, Belle Fourche Unit, South Dakota. The work
consists of constructing 3.81 miles of pipeline, approximately
1.4 miles of gravel-surfaced road, removing existing reinforced
concrete hydraulic structures and constructing miscellaneous
concrete structures which include four inlets. As of April 30,
1996 FNG had completed 92% of the contract, billing $535,515 and
having received payment for $385,808. This contract may result
in a small loss to FNG.
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.
Research and Development
Registrant has incurred no research and development
expenditures, either on its own account or sponsored by
customers, during the past three fiscal years.
Environmental
Registrant's 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 and regulations in
California affect SGMC operations and in Utah, will effect
Plateau's operations.
To the Company's knowledge, currently it is in compliance in all
material respects with existing environmental regulations. To
the extent that production by SMP, GMMV or SGMC is delayed,
interrupted or discontinued due to need to satisfy existing or
new provisions which relate to environmental protection, future
USE earnings could be adversely affected.
Crooks Gap. An inoperative ion exchange facility at Crooks Gap
currently holds a NRC license for possession of uranium
operations byproducts. 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. However,
management of USE and Crested are reviewing the economics of
relicensing this facility as part of a potential in-situ leach
uranium mining operation.
Other Environmental Costs. Actual costs for compliance with
environmental laws may vary considerably from estimates,
depending upon such factors as changes in environmental laws and
regulation (e.g., the new Clean Air Act), and conditions
encountered in minerals exploration and mining. Registrant does
not anticipate that expenditures 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 adverse impact on the Registrant's competitive
position.
Employees
USE has 54 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 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 are obligated to pay $100 per claim annually in
order to preserve the right to possession of unpatented mining
claims. In addition to annual rental fee obligations there are a
number of technical requirements which must be met to establish a
valid mining claim. Satisfaction of these technical requirements
cannot be assured. See Risk Factors 7 and 10.
Legal Proceedings
Sheep Mountain Partners Arbitration/Litigation
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 also "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 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 asked 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 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, including an application to
stay judicial process and compel arbitration and to dismiss
certain of plaintiff's claims. The defendants also filed an
answer and counterclaims against plaintiffs, claiming plaintiffs
breached the SMP Agreement and misappropriated a partnership
opportunity by providing certain information about SMP to
Kennecott and entering into the GMMV with Kennecott involving the
Green Mountain uranium properties. The defendants also claim
that plaintiffs wrongfully sold an interest in SMP to Kennecott
through the GMMV without CRIC's consent and without providing
CRIC a right of first refusal to purchase such interests; that
Registrant breached the uranium marketing agreement between CRIC
and SMP, which had been assigned by CRIC to Nukem, by agreeing
with Kennecott in the GMMV that Kennecott could market all the
uranium from Green Mountain, thereby depriving Nukem of
commissions to be earned under such marketing agreement; that
Registrant and Crested interfered with certain SMP supply
contracts, costing CRIC legal fees and costs; that CRIC and Nukem
are entitled to be indemnified for purchases of uranium made on
behalf of SMP; that Registrant and Crested failed to perform
their obligations under an Operating Agreement with SMP in a
proper manner, resulting in additional costs to SMP; that
Registrant and Crested overcharged SMP for certain services under
the SMP Partnership Agreement and refused to allow SMP to pay
certain marketing fees to Nukem under the Uranium Marketing
Agreement; that Registrant and Crested breached the SMP
Partnership Agreement by failing to maintain a toll milling
agreement with Pathfinder Mines Corporation, thereby rendering
SMP's uranium resources worthless; and that Registrant and
Crested have engaged in vexatious litigation against CRIC and
Nukem. Defendants also requested damages (including punitive,
exemplary and treble damages under RICO, 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 (the "Panel") with respect to
any and all post-December 21, 1988 disputes, claims and
controversies (including those brought in the 1991 arbitration
proceedings, the U.S. District Court proceeding and the Colorado
State Court proceeding described below), that any party may
assert against the other. 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
Panel enters an order and award in the arbitration proceeding.
In connection with agreeing to proceed to arbitration as stated
above, the Registrant and Crested affirmed the Sheep Mountain
Partners partnership, and proceeded on common law damages and
other claims in the arbitration. Approximately $18 million cash,
comprising part of the damages claimed by plaintiffs, was placed
in escrow by agreement of the parties pending resolution of the
disputes.
The arbitration evidentiary proceedings were completed on May 31,
1995, following which the parties filed with the arbitrators
proposed findings of fact and conclusions of law and proposed
order, award, briefs of law and responses to the other party's
submittals. NUKEM and CRIC sought damages against USECC in the
amount of $47,122,535. For its claims, USECC sought damages of
approximately $258 million from Nukem and CRIC, which amount
USECC requested be trebled under the Racketeer Influenced and
Corrupt Organizations Act ("RICO") and similar state law
provisions.
On April 18, 1996 the arbitration Panel entered an Arbitration
Order and Award (the "Order"). The Panel found in favor of the
Registrant and Crested on certain claims made by the Registrant
and Crested (including the claims for reimbursement of standby
maintenance expense and other expenses on the SMP mines), and in
favor of Nukem/CRIC and against the Registrant and Crested on
certain other claims.
The Registrant and Crested were awarded monetary damages of
approximately $7.4 million, which amount is after deduction of
monetary damages which the panel awarded in favor of Nukem/CRIC
and against the Registrant and Crested. An additional amount of
approximately $4.8 million was awarded by the Panel to the
Registrant and Crested, to be paid out of cash funds held in SMP
bank accounts, which accounts have been accruing operating funds
from SMP since the arbitration/litigation proceedings were
commenced. It is anticipated that such payment out of the SMP
bank accounts will be made in the first quarter of fiscal 1997.
The Panel ordered that one utility supply contract for 980,000
pounds of uranium oxide held by Nukem/CRIC belonged to SMP, and
ordered such contract assigned to SMP. The contract expires in
2000.
The fraud and RICO claims of the Registrant and Crested against
Nukem and CRIC were dismissed.
The timing and assurance of payment by Nukem/CRIC to the
Registrant and Crested of the $7.4 million monetary damages is
presently uncertain. On April 30, 1996 Nukem/CRIC filed with the
Panel two motions to correct the arbitration award, claming to
have discovered errors and inconsistencies in two of the 36
claims addressed in the Order that they allege improperly
increased the award of damages to Registrant and Crested by an
aggregate amount exceeding $14 million. They have also written a
letter to the bank holding most of the SMP escrowed proceeds
instructing the bank to take no action with respect to releasing
funds from the SMP escrow account without prior notification to
them. On May 15, 1996, Registrant and Crested filed the Order
(under seal with respect to certain portions containing
commercially sensitive information) with the United States
District Court for the District of Colorado (the "Court") and a
petition for confirmation of the Order. At a hearing on May 24,
1996 the Court remanded the Order to the Panel for limited review
of the motions filed by Nukem/CRIC. The petition for
confirmation of the Order and motions filed by Registrant and
Crested for dissolution of SMP, for the appointment of a receiver
to oversee the obligations of SMP to make delivery of uranium
concentrates to utilities and supervise the formal dissolution of
SMP, and for an order directing distribution of the escrowed
proceeds, were stayed by the Court pending a ruling by the Panel
on the two motions filed by Nukem/CRIC. The impact of the
arbitration Order cannot be determined until the Panel rules on
the Nukem/CRIC motions to correct the award and the Court
considers such ruling. The motions filed by Registrant and
Crested to confirm the Order and Award and appointment of a
receiver have been stayed pending such ruling.
The Panel did not order SMP dissolved. The Registrant and
Crested have filed a motion with the Court seeking judicial
dissolution of SMP. Pending a favorable ruling on that motion
the Registrant and Crested may seek to reach an agreement with
Nukem/CRIC on dissolution of SMP. If a dissolution is not
achievable through negotiation, the Registrant and Crested may
renew its motion for judicial intervention and the appointment of
a receiver by the courts, to wind up the partnership affairs and
distribute assets after payment of liabilities. The timing and
ultimate resolution of the partnership dissolution matter
presently is uncertain. Pending such resolution, the Registrant
and Crested are hopeful that delivery obligations under the
various SMP utility supply contracts can be met through the
cooperation of Nukem/CRIC.
Colorado State Court Proceeding. On September 16, 1991, USE and
Crested filed Civil Action No. 91CV7082 in Denver District Court
against SMP, 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
The Company and Crested are defendants and counter- or cross-
claimants in certain litigation in the District Court of Nye
County, Nevada, brought by Bond Gold Bullfrog Inc. ("BGBI") in
July 1995. BGBI (now known as Barrick Bullfrog, Inc.) is an
affiliate of Barrick Corp., a large international gold producer
headquartered in Toronto, Canada. The litigation primarily
concerns extralateral rights associated with two patented mining
claims owned by Parador Mining Company Inc. ("Parador") and
initially leased to a predecessor of BGBI, which claims are in
and adjacent to BGBI's Bullfrog open pit and underground mine.
USE and Crested assert certain interests in the claims under an
April 1991 assignment and lease with Parador, which is subject to
the lease to BGBI's predecessor.
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
claims leased to BGBI by a third party.
BGBI seeks to quiet title to its leasehold interest in the
subject claims, alleging that Parador's 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 asserts 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.
A partial or bifurcated trial to the court of the extralateral
rights issues was held on December 11 and 12, 1995. The purpose
of the hearing was to determine whether the Bullfrog orebody is a
"vein, lode or ledge" as described in the General Mining Law and,
if so, whether the facts of the case warrant the application of
the doctrine of extralateral rights as set forth in such statute.
Although the Court sat as both the finder of fact and law with
respect to such issues, the Court concluded that the questions
are ultimately one of law which must be decided based on the
testimony and exhibits introduced at the trial concerning the
description of the orebody. Registrant and defendants Crested
Corp. and Parador presented five experts in the field of geology,
including the person who was responsible for the discovery of the
gold deposit at the mine. All five experts opined that the
deposit was a lode and it apexed on a portion of Parador's two
mining claims. The defendant Layne presented a single witness
who testified that there was no apex within the Parador claims.
The Court nevertheless found that Parador had failed to meet its
burden of proof and therefore Parador, Registrant and Crested
have no right, title and interest in the minerals lying beneath
the claims of Layne pursuant to extralateral rights. The Court
entered a partial judgment in favor of Layne and ordered that
Parador pay Court costs to Layne. Defendants intend to appeal
the Court's ruling as erroneous as a matter of law at such time
as it is appropriate to do so.
The partial trial did not address any of the other issues pending
in the litigation other than those required to decide the
question of whether the doctrine of extralateral rights is
applicable to this case. All other claims and counterclaims
remain pending before the Court and no hearing date has been set
for those issues.
If USE's and Crested's position concerning extralateral rights is
ultimately sustained, substantial additional revenues and income
may be received by USE and Crested from royalties payable with
respect to gold produced from the Bullfrog Mine. If, however,
the final decision of the appellate court is adverse to USE and
Crested, an award of damages against USE and Crested in any
substantial amount by this Court could have a material adverse
effect on the ability of USE and Crested to carry on their
business in the manner described in this Prospectus.
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 1994 and 1995, and the nine
months ended February 29, 1996.
High Low
Fiscal year ended May 31, 1996
First quarter ended 8/31/95 $5.67 $4.13
Second quarter ended 11/30/95 5.38 3.13
Third quarter ended 2/29/96 19.00 3.50
Fourth quarter ended 5/31/96 25.00 13.00
Fiscal year ended 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
Fourth quarter ended 5/31/95 7.55 4.63
Fiscal year ended 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
(b) Holders
At June 5, 1996, the closing bid price was $21.625 per share and
there were 722 shareholders of record for USE common stock.
USE has not paid any cash dividends with respect to its common
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources at February 29, 1996 (unaudited)
The following is Management's Discussion and Analysis of those
significant factors which have affected Registrant's liquidity,
capital resources and results of operations during the periods
covered in the Consolidated Financial Statements included with
this Prospectus.
Liquidity and Capital Resources
Working capital increased during the nine months ended February
29, 1996 by $1,115,800 to working capital of $1,137,700. Cash
and cash equivalents increased by $918,500 to $1,279,100 during
the period ended February 29, 1996. This increase was the
result of financing activities and Registrant's sale of a
subsidiary.
In June and July 1995, the Registrant sold 812,432 restricted
common shares in a private placement for net proceeds of
$2,842,200 The Registrant registered these shares with the SEC
during the Quarter ended February 29, 1996 for resale by the
holders of such shares. In connection with this private
placement, warrants to purchase 81,243 common shares at $4.80 per
share, 40,622 of which were exercised in March of 1996, were
issued to the selling agent. The balance of the warrants are
exercisable through July 25, 2000.
The Registrant investing activities provided $1,183,600 during
the nine months ended February 29, 1996. This increase in cash
was a result of proceeds from the sale of assets $77,700 and the
sale of the Brunton Company, $3,300,000. These increases in cash
were partially offset by investments in affiliates due to the
Registrant and its subsidiary Crested funding Sheep Mountain
Partners ("SMP"), Plateau Resources Limited ("Plateau"), Energx,
Ltd. ("Energx") and the Sutter Gold Mining Company ("SGMC"). As
the Registrant 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 the Registrant and Crested for
all the operating costs. Due to disputes existing between the
SMP partners, the Registrant and Crested have not been reimbursed
for care and maintenance costs expended on the SMP mineral
properties since the spring of 1991. Additionally, the
Registrant and its affiliates (1)purchased $1,021,100 of
additional equipment (2) developed mineral properties, $349,200
and (3) developed gas properties $23,400 during the nine months
ended February 29, 1996.
During the quarter ended February 29, 1996 the Registrant sold
all of its 100% interest in The Brunton Company to Silva A.B. of
Sweden. Gross proceeds from the sale were $4,300,000 of which
$3,300,000 was paid in cash and $1,000,000 in a Promissory Note
which is payable in three payments of $333,333 on February 15,
1997, 1998 and 1999. The Note from Silva bears interest at 7%
per annum which is due with the principal payments. Other
conditions of the sale were the assumption of certain accounts
payable, accounts receivable, and a Note in the amount of
$279,104 with a bank, and the return of certain equipment and
aircraft which secures the Note. Another condition to the
closing was the retirement of this debt.
Additionally, The Brunton Company returned to the Registrant
160,000 shares of Crested common stock and 225,556 shares of
Registrant's common stock along with options to purchase 150,000
shares of Registrants common stock and 300,000 shares of Crested
common stock. The Registrant, upon return of these shares,
transferred 100,000 shares and 125,556 shares of the common stock
to SGMC and Plateau respectively, along with 75,000 options to
purchase Registrant's Common Stock to each transferee.
Additionally, the Registrant transferred 60,000 shares and
100,000 shares of Crested common stock to Plateau and SGMC
respectively, along with 150,000 options to purchase common
shares of Crested to each transferee. The transfer of such stock
and options to Plateau was made in partial payment of debt owed
to Plateau by USECC. The net gain recognized after the transfer
of assets, assumption of debt and receivables, along with tax
provisions, was $2,295,700.
Other changes in working capital were a decrease in accounts
payable and accrued expenses of $1,444,900 and a decrease in
lines of credit by $1,140,000. The Registrant and Crested have a
line of credit for $1,000,000, with $0 outstanding as of
February 29, 1996. Four Nines Gold ("FNG"), has $79,000
outstanding on its line of credit.
The primary requirements for the Registrant's working capital
continue to be the funding of on-going administrative expenses,
the mine and mill development and holding costs of SGMC; holding
costs of Plateau; and uranium (U3O8) delivery costs and property
holding costs of SMP. As a result of the disputes between the
SMP partners (see "Legal Proceedings - Sheep Mountain Partners
Arbitration/Litigation), the Registrant 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 have made most of the SMP deliveries of U3O8. It is
not known how long this arrangement will continue. The capital
requirements to fill the Registrant's and Crested's portion of
the remaining commitments in fiscal 1996 will depend on the spot
market price of uranium and on the outcome of the arbitration
proceedings involving Nukem/CRIC.
The primary source of the Registrant's capital resources for the
remainder of fiscal 1996, will be (i) cash on hand; (ii) possible
sale of equity or interests in investment properties or
affiliated companies; (iii) sale of equipment; (iv) resolution of
pending arbitration/litigation; (v) sale of future royalties or
interests in mineral properties; (vi) proceeds from the sale of
uranium under the SMP contracts, (vii) and borrowings under
existing lines of credit. Construction revenues from FNG, fees
from oil production, rentals of various real estate holdings and
equipment, aircraft chartering and the sale of aviation fuel will
also provide cash.
Existing working capital is sufficient to hold and maintain
existing mineral properties, obtain and maintain required permits
for operation and development of such properties and pay
administration costs for the balance of fiscal 1996 and beyond.
Additional working capital to that on hand at February 29, 1996
will be required, however, for the construction of a gold
processing mill and mine development for SGMC and the development
of Plateau's properties. The Registrant and Crested are
currently seeking financing for the construction of the SGMC gold
processing mill and mine development. The funding of SMP care
and maintenance costs may require additional funding, depending
on the timing of payments from the Order and Award with respect
to the SMP arbitration. See "Legal Proceedings - Sheep Mountain
Partners Arbitration/Litigation".
Results of Operations
Three and Nine Months Ended February 29, 1996 Compared to Three
and Nine Months Ended February 28, 1995
Revenues for the nine month and three month periods ended
February 29, 1996 increased by $4,513,300 and $489,300,
respectively, primarily due to an increase in mineral sales, a
mineral option, and an increase in construction contract
revenues.
Revenues from mineral sales and option were $3,116,700 and
$942,400 for the nine and three months ended February 29, 1996.
There were no similar U3O8 deliveries or option activities for
the same period in the prior year.
Construction contract revenues for the nine and three months
ended February 29, 1996 increased by $2,450,000 and $523,400
respectively from profitable contracts awarded late in fiscal
1995 to the Registrant's subsidiary FNG.
Management fees and other revenues increased by $168,400 and
decreased by $62,300 for the nine and three months ended February
29, 1996. The increase is primarily as a result of increased
revenues generated by operations of a motel, convenience store
and restaurant at the Registrant's town of Ticaboo in southern
Utah.
The costs of mineral sales were $2,766,700 for the nine months
and $942,400 for the three months ended February 29, 1996, for
which there were no corresponding costs during the same period in
1995. Cost and expenses associated with mineral operations
decreased by $403,100 and $108,400, respectively, for the nine
and three months ended February 29, 1996, compared to the nine
and three months ended February 28, 1995, primarily as a result
of a decrease in legal costs in connection with the SMP
arbitration. The cost of construction activities increased by
$1,779,200, and $437,900, respectively for the nine month and
three month periods ended February 29, 1996 compared to the same
periods in 1995 as a result of increased contract work.
General and administrative expenses increased by $496,700 and
decreased by $340,600, respectively for the nine and three months
ended February 29, 1996 compared to the comparable 1995 periods.
The increase was due to additional expenses associated with the
FNG's contracts. Additionally, interest expense which is
included in general and administrative expense increased by
$46,200 during the nine months ended February 29, 1996 as
compared to the same period in 1995. General and administration
expenses also increased due to the Christmas bonus paid in stock
to certain employees during the quarter ended February 29, 1996
and to the shares of stock issued in February 1996 under
Registrant's Restricted Stock Bonus Plan. The total of these
stock issuances was compensation of $297,400. Officers and
directors were not issued any stock compensation (see Note 6 to
the USE Condensed Consolidated Financial Statements for the Three
and Nine Months Ended February 29, 1996). Commercial operations
expenses remained relatively constant.
Operations for the nine months and three months ended February
29, 1996 resulted in a loss from continuing operations of
$1,765,400 and $1,074,400, respectively, as compared to a loss of
$1,437,700 and $270,300 during the same periods of the previous
year. During the nine months and quarter ended February 29, 1996
the Registrant recorded a gain of $2,295,700 net of $50,000 in
taxes, on the sale of Brunton. No such gain was recognized in
the prior year's periods. Due to the discontinuance of operations
from Brunton during the quarter ended February 29, 1996, all
income from Brunton is shown as discontinued operations on the
Statements of Operations for the quarter and nine months ended
February 29, 1995. During the nine months and quarter ended
February 29, 1996 the Registrant recognized income of $308,900
and a loss of $9,200, respectively, from Brunton's discontinued
operations as compared to a gain of $121,900 and a loss of
$58,100 for the corresponding periods of the prior year. The
Registrant therefore recognized a net income of $839,200 ($0.14
per share) compared to a loss of $1,315,800 ($0.27 per share) for
the nine month period and net income of $1,212,100 ($0.19 per
share) compared to a loss of $328,400 ($0.07 per share) for the
three month period, of the previous year.
Liquidity and Capital Resources at May 31, 1995
Working Capital Components. Net cash used in operating
activities and investing activities was $2,479,700 and $537,300,
respectively for fiscal 1995. For the year, these activities
resulted in a net cash decrease of $630,400. Cash provided by
financing activities was $2,386,600. This was due primarily to
the draw down of an operating line with a commercial bank of
$960,000 and a private placement in November 1994 of 400,000
shares of the Company's common stock at $3.00 per share. The
Company was obligated to either buy back the stock in October
1995 at $3.50 per share or issue an additional share of stock for
every three shares purchased during the private placement, and
register both the private placement and additional shares by
February 28, 1996. Subsequent to May 31, 1995, the Company
issued the additional 133,336 common shares.
Working capital decreased during the fiscal year ended May 31,
1995 by $2,552,900 to $22,000 (from $2,574,900 at May 31, 1994).
The principal components of the decrease were a $630,400 decline
in cash and cash equivalents, a $1,553,900 increase in accounts
payable and accrued expenses, and a $1,366,000 increase in lines
of credit. These were partially offset by increases in accounts
receivable of $539,400, and in inventory of $142,700.
Cash was primarily used in operations and investing activities
during the period. Cash was used in the development of mining
properties, primarily SGMC's Lincoln gold project ($455,100),
development of the Energx gas properties ($218,200), purchases
and modification of property and equipment ($178,900) and the
continued investment in affiliates, primarily SMP ($830,500).
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 $878,500 in fiscal 1995.
Capital Requirements - General: The primary requirements for
USE's working capital during fiscal 1996 are expected to be the
costs associated with SGMC property leases and payment on
purchased properties, and development activities of SGMC; care
and maintenance costs of SMP; care and maintenance of the Plateau
uranium properties in Utah; 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 - SGMC: SGMC'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 with respect to currently
defined reserves, capital resources in addition to those
currently on hand, will be needed to expand reserves, complete
mine development and construct a mill facility. The timing of
these expenditures will depend upon internal cash flow or
additional financing or finding a joint venture partner. The
holding costs are estimated at $418,200 for the two fiscal years
ending May 31, 1997.
Capital Requirements - SMP: There are no current plans to mine
the SMP Crooks Gap properties during fiscal 1996. However, USE
and Crested will continue to preserve the ore bodies 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 of $15,037,800 as of August 1995,
these funds are restricted and subject to a decision by the
Arbitration Panel. 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 $4,521,600 at May 31, 1995.
Until resolved, USECC will have to continue funding SMP's care
and maintenance expenditures. Such expenditures were $878,500 in
fiscal 1995. The dispute between the SMP participants should
largely be resolved in fiscal 1996.
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. However,
during fiscal 1995 all of the deliveries to fill the SMP
contracts were made by Nukem/CRIC. It is uncertain what the
protocol will be on future SMP deliveries. 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 1996 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 1996.
Capital Requirements - Plateau: During fiscal 1995 the annual
care and maintenance costs for the Shootaring Mill were $465,900.
It is anticipated that these costs will continue until the mill
is either placed into production or ,decommissioned and will be a
cash drain to USE 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. Energx holds several
gas leases and in fiscal 1995 was participating in two gas
ventures. One venture on the Fort Peck Indian Reservation in
Montana with NuGas, a Canadian firm, requires NuGas to fund the
drilling of the first eight wells. Therefore, capital
expenditures by USE on this venture are not anticipated to be
significant in 1996. The second venture, in Montana, required
that Energx, as a condition of its earn-in to the venture, fund
the drilling of seven exploratory wells. However, in September
1995 Energx terminated its interest in this second venture.
Long-Term Debt and Other Obligations: Long-term debt at May 31,
1995, was $1,161,400, the current portion of which is $232,900
(see Note G to the USE audited Consolidated Financial
Statements).
Reclamation Costs. Prior to fiscal 1995, 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 resolution
of the arbitration/litigation with Nukem/CRIC.
Reclamation obligations on the contiguous Big Eagle properties
and the Sweetwater Mill are estimated at approximately
$23,960,000. These obligations have been assumed by the GMMV
venturers and secured by a bank letter of credit provided by
Kennecott. The major part of the reclamation and environmental
costs associated with the Sweetwater Mill are not expected to be
paid 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 posted with the U. S. Nuclear Regulatory Commission and
a $4,800,000 cash deposit which will be available for the
resolution of any environmental or nuclear claims if Plateau does
not begin decommissioning the mill complex prior to June 1997.
See "Uranium - Shootaring Canyon Mill."
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 a material amount of USE funding in
fiscal 1996.
See Note K to the USE audited Consolidated Financial Statements
for further information regarding reclamation and environmental
costs, and the funding thereof.
Capital Resources: The primary source of USE capital resources
for fiscal 1996 will be cash on hand, a private placement of the
Company's common stock, 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.
In June and July 1995, the Company sold 812,432 restricted common
shares in a private placement for net proceeds of $2,827,300
($4.00 per share). Resale of these shares by the private
investors will be registered with the SEC in November 1995. In
connection with this private placement, warrants to purchase
81,243 common shares at $4.80 per share were issued to the
selling agent. The registration statement also will cover resale
of the common shares underlying the warrants. These warrants are
exercisable through July 28, 2000 and both the warrants and the
underlying shares of common stock issuable upon exercise of such
warrants will be included in the Company's Form S-3 registration
statement.
Additional capital will be needed to develop and build the mine
and mill complex for the SGMC Lincoln Project. SGMC presently is
seeking financing for the Project (see - "Description of Business-
Gold"). If such financing cannot be obtained, USE and Crested
will be forced to either sell the Lincoln Project or continue
funding SGMC's property holding costs. Continued funding of such
costs could cause USE and Crested to look for other short-term
working capital resources.
To fund the Energx drilling on the Fort Peck Reservation as well
as other locations USE plans to seek a joint venture partner or
obtain financing through banking institutions or the public
market.
Funding of SMP care and maintenance costs may require additional
advances by USECC, depending on the outcome of the SMP
arbitration/litigation. See "Legal Proceedings - Sheep Mountain
Partners Arbitration/Litigation." Although USE management is of
the opinion that the SMP arbitration/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 may also
cause short-term liquidity requirements.
In fiscal 1995, USE had a $1,000,000 commercial bank credit line.
Borrowings of $960,000 under the credit line were outstanding at
May 31, 1995. In July 1995, the Company paid off this line of
credit with some of the funds from the private placement of USE
common shares and renegotiated the line for an additional twelve
months. As of September 1, 1995, the entire $1,000,000 of the
new line was available.
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 significant extent 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.
USE and USECC received a notification of tax deficiency from the
Internal Revenue Service for fiscal years ended May 31, 1989,
1990 and 1991. USE filed a response to the proposed deficiency,
and has requested an administrative appeal of the initial
examiner's deficiency finding. To date, USE has received a
preliminary indication that a major portion of the findings have
been resolved in favor of USE. However, no written confirmation
has been received as of Prospectus 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 or results of operations. 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.
USE believes available cash, operating revenues, borrowing under
its current line of credit and subsequent financing activities
will be adequate to fund working capital requirements. However,
with the exception of GMMV, USE will require additional sources
of funding or joint venture partners to continue its development
of and investment in its various mineral ventures, as stated
above.
Results of Operations
Fiscal 1995 Compared To Fiscal 1994
The revenues increased slightly in fiscal 1995 to $9,148,000
(compared to $8,776,300 in fiscal 1994), and total costs and
expenses declined slightly in fiscal 1995 to $11,429,500
(compared to $12,364,200 in fiscal 1994). This resulted in a
reduction (from a loss of $3,370,800 in fiscal 1994) in the net
operating loss by $1,300,200 to a loss of $2,070,600 in fiscal
1995. The improvement in operations can be attributed to two
major events, the sale of property and the consolidation of
Brunton's statement of operations. (Brunton's operation were not
consolidated in 1994 as the acquisition of Brunton occurred in
May 1994.)
Gain on sales of assets increased by $1,229,600 during fiscal
1995 compared to the corresponding period of the prior year. The
increase is due to the sale of certain real estate in Colorado
for $951,600; receipt by Plateau of an option payment of $100,000
for certain properties in Utah; and sale by Energx of an interest
in a gas property for $195,900. During fiscal 1994, there were
only sales of miscellaneous equipment for $52,800.
There were no mineral sales in fiscal 1995, as a result of the
SMP arbitration, to compare with the $3,732,500 in revenues from
the sale of U3O8 in fiscal 1994. However, this had no
significant effect on the net operating losses because of the
corresponding reduction in the cost of sales. 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 the remainder of time required for the SMP dispute
resolution, all deliveries have been made by Nukem. Once the
arbitration proceedings are concluded, deliveries will be made in
accordance with the decision of the arbitration panel.
The consolidated statement of operations for fiscal 1995 of
Brunton is reflected as recreational product sales of $4,452,300.
This increase in revenues was offset by increases in cost of
goods sold, and general and administrative and interest expenses
as a result of the consolidation. This resulted in a net effect
of $296,400 to the fiscal 1995 consolidated operations. Legal,
accounting and related expenses of the Brunton acquisition were
approximately $50,000. Although the revenues from Brunton were
not consolidated for fiscal 1994, Brunton had revenues of
$4,118,800 during that period, and a net operating income of
$386,700.
In fiscal 1995, $1,069,600 was incurred in legal, arbitration
fees and expert fees incurred in connection with the SMP
arbitration/litigation, compared to $576,500 in fiscal 1994.
Such expense will be reduced in fiscal 1996.
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 most of the advance royalties. Advance
royalties of 50,000 pounds of molybdic oxide (or its cash
equivalent) remains payable. During fiscal 1994, the final
$500,000 was amortized on the long term note, so there was
consequently no amortization of such debt in fiscal 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
in lieu of cash payment of the advance royalty.
Construction operation revenues for the year ended May 31, 1995
decreased by $1,303,000 from the previous 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.
Late in fiscal 1995, FNG was awarded this contract which is
projected to be profitable. Long term growth and profits for the
construction segment is based on FNG's ability to competitively
bid for work and at the same time remain profitable. It is
anticipated that FNG will grow, however, there will be periods of
time that show declines in revenue, as was experienced during
fiscal 1995.
On June 1, 1993, USE implemented SFAS No. 109. See Footnote 2 to
the USE Consolidated Financial Statements. The cumulative effect
for the year ended May 31, 1994, of this tax accounting change
was a decrease of net income of $267,000. No provision for
income taxes was necessary in fiscal 1995.
Interest income increased to $479,900 from $328,700 for the
previous year as a result of higher overall interest rates on
invested cash.
Interest expense increased to $279,000 from $117,000 due to
higher borrowing levels related to the line of credit and overall
higher interest rates.
Fiscal 1994 Compared To Fiscal 1993
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 (which closed
at the end of fiscal 1994), increased general and administrative
expenses associated with SGMC, general and administrative
expenses (including permitting costs) associated with Plateau,
and the write down of a note receivable to market prior to its
assumption by Crested. 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 and increased maintenance cost of heavy mining
equipment due to underground development work on the SMP
properties.
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 in an
operating profit of $317,500 for construction contract activities
for the year.
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. See Business - Oil and Gas
- - Energx."
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.
Effects of Changes in Prices
Mining operations and the acquisition, development and sale 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 sales advantageous.
Conversely, a price decline facilitates acquisitions of
properties containing 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 the acquisition of the
Sweetwater Mill and the Shootaring 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,
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 sustained increase in the spot
market price above the contract prices.
USE believes SGMC's Lincoln Mine will be profitable with gold
prices over $290 per ounce. The price of gold has remained
relatively stable over the past year between $370 and $410 per
ounce.
Molybdenum and Oil. Changes in prices of molybdenum and
petroleum are not expected to materially affect USE with respect
to either its molybdenum advance royalties or its fees associated
with oil production. A significant sustained increase in the
price of molybdenum could increase the likelihood that the Mt.
Emmons properties will be developed, but such an increase is not
anticipated in fiscal 1996.
DIRECTORS AND EXECUTIVE OFFICERS
Business Experience and Other Directorships of Directors and
Nominees.
John L. Larsen, 64, Chairman, Chief Executive Officer and
President. Mr. Larsen has been principally employed as an
officer and director of the Company and Crested for more than the
past five years. He is also a director of the Company's
subsidiary, Ruby Mining Company ("Ruby") and of The Brunton
Company. Crested and Ruby have registered equity securities
under the Securities Exchange Act of 1934.
Max T. Evans, 71, director and Secretary. Mr. Evans has been
principally employed as an officer and chief geologist of the
Company and Crested for more than the past five years. He is
President and a director of Crested. Mr. Evans received B.S. and
M.S. degrees in geology from Brigham Young University.
Harold F. Herron, 42, director and Vice President. Mr. Herron
has been the Company's Vice-President since January 1989. From
1976, Mr. Herron has been an employee of Brunton, a manufacturer
and/or marketer of compasses, binoculars and knives, which the
Company sold to Silva Production AB in February 1996. Initially,
he was Brunton's sales manager, and since 1987 he has been its
President. Mr. Herron is a director of Ruby and Northwest Gold,
Inc., 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.
David W. Brenman, 40 has been a director of the Company since
January 1989. Since September 1988, Mr. Brenman has been a self-
employed financial consultant. In that capacity, Mr. Brenman has
assisted the Company 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 registered equity securities
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, 69, has been a Company director since May 1990.
From January 1990 until mid-fiscal 1993, Mr. Anderson was a
geologist for the Company. Mr. Anderson was Manager of
Exploration and Development for Pathfinder Mines Corporation, a
major domestic uranium mining and milling corporation, from 1976
until his 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, 46, has been a Company director since 1989. Mr.
Bebout is a director and President of NUCOR, Inc. ("NUCOR"), a
privately-held corporation that provides exploration and
development drilling services to the mineral and oil and gas
industries, since 1987. Prior to that time, Mr. Bebout was Vice
President of NUCOR from 1984. Mr. Bebout is also an officer,
director and owner of other privately-held entities involved in
the resources industry.
Information Concerning Executive Officers Who Are Not Directors
The following information is provided pursuant to Item 401 of
Reg. S-B, regarding the executive officers of the Company who are
not also directors.
Daniel P. Svilar, age 67, has been General Counsel for USE and
Crested for more than the past five years. He also has served as
Secretary and a director of Crested, and Assistant Secretary of
USE. His positions of General Counsel to, and as officers of the
companies, are at the will of each board of directors. There are
no understandings between Mr. Svilar and any other person
pursuant to which he was named as officer or General Counsel. He
has no family relationships with any of the other executive
officers or directors of USE or Crested, except his nephew Nick
Bebout is a USE director. During the past five years, Mr. Svilar
has not been involved in any Reg. S-B Item 401(d) proceeding.
Robert Scott Lorimer, age 45, has been Controller and Chief
Accounting Officer for USE and Crested for more than the past
five years. Mr. Lorimer also has been Chief Financial Officer
for both companies since May 25, 1991, and their Treasurer since
December 14, 1990. He serves at the will of the Boards of
Directors. There are no understandings between Mr. Lorimer and
any other person, pursuant to which he was named an officer, and
he has no family relationship with any of the other executive
officers or directors of USE or Crested. During the past five
years, he has not been involved in any Reg. S-B Item 401(d)
listed proceeding.
Family Relationships.
Harold F. Herron, a director and vice-president, is the son-in-
law of John L. Larsen, a principal shareholder, Chairman,
President and CEO. Nick Bebout, a director, is a nephew of
Daniel P. Svilar, a principal shareholder and General Counsel.
There are no other family relationships among the executive
officers or directors of the Company.
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
$100,000 cash in any of the three fiscal years ended May 31,
1995. The table includes compensation paid such persons by
Crested and Brunton for such persons' services to such
subsidiaries.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
-----------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <S> <C> <C>
John L. Larsen 1995 $144,023 $2,751 -- $9,000(1) -0- -- $13,361
CEO 1994 148,239 7,028 -- 9,600(1) -0- -- 14,394
President 1993 164,968 4,016 -- 7,200(1) 100,000(2) -- 16,718
Daniel P. Svilar 1995 112,615 2,076 -- 8,100(1) -0- -- 11,008
Asst. Secretary 1994 112,753 64,984 -- 8,640(1) -0- -- 17,300
1993 108,000 2,001 -- 6,480(1) -0- -- 12,862
Harold F. Herron 1995 117,238 2,033 -- -- -0- -- 6,626
Vice President 1994 105,983 18,268 -- -- -0- -- 9,743
1993 99,469 12,617 -- -- -0- -- 3,626
R. Scott Lorimer 1995 112,403 2,098 -- 5,681(1) -0- -- 10,989
Treasurer 1994 92,799 43,461 -- 6,181(1) -0- -- 13,260
1993 78,921 2,196 -- 4,548(1) -0- -- 9,400
</TABLE>
(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) Dollar values for ESOP contributions and 401K matching
contributions.
<PAGE>
Executive Compensation Plans and Employment Agreements
To provide incentive to Mr. Larsen for his efforts in having
Green Mountain Mining Venture (" 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 1996.
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 a 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
with respect 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
annually). 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. As of this
Prospectus date, the Company is unaware of any proposed hostile
takeover.
The Company 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"). An ESOP has been adopted
to encourage ownership of USE Common Stock by employees, and to
provide a source of retirement income to them. Because the
persons performing duties for Crested are employees of USE, they
benefit from the ESOP and the other compensation plans of USE, as
described below. 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 USE Common Stock. Messrs.
Larsen, Herron and Evans are the trustees of the ESOP.
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 37,204 shares to the ESOP for
fiscal 1995, all of which were contributed under the money
purchase pension plan. At the time the shares were contributed,
the market price was $5.375 per share, for a total contribution
valued at $199,971.50 which has been funded by the Company.
Crested and the Company are each responsible for one-half of that
amount (i.e., $99,985.75), 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 37,204 shares issued to the ESOP for fiscal 1995 included
2,276 shares allocated to John L. Larsen's account, 1,422 shares
allocated to Max T. Evans' account, 582 shares allocated to
Harold F. Herron's account, 2,048 shares allocated to Daniel P.
Svilar's account, and 2,045 shares allocated to R. Scott
Lorimer's account, for a total of 8,373 shares allocated to
accounts for all executive officers as a group (five persons).
Shares forfeited by terminated employees who were not fully
vested were reallocated to plan participants and included 159,
100, 40, 143 and 143 shares to the accounts of Messrs. Larsen,
Evans, Herron, Svilar and Lorimer, respectively. 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 1996 have not been made
with respect to any participant in the ESOP.
The maximum loan outstanding during fiscal 1995 under a loan
arrangement between the Company and the ESOP, was $1,014,300 at
May 31, 1995 for loans made in fiscal 1992 and 1991. Interest
owed by the ESOP was not booked by the Company. Crested pays one-
half of the amounts contributed to the ESOP by USE. Because the
loans are expected to be repaid by contributions to the ESOP,
Crested may be considered to indirectly owe one-half of the loan
amounts to USE.
Stock Option Plan. The Company has a combined incentive stock
option/non-qualified stock option plan, reserving an aggregate of
550,000 shares of Common Stock for issuance upon exercise of
options granted thereunder. Awards under the plan are made by a
committee of two or more persons selected by the Board (presently
Messrs. Herron, Bebout and Brenman). The committee establishes
the exercise periods and exercise prices for options granted
under the plan. The Board ultimately ratifies the actions of the
committee. Total grants to officers and directors as a group may
not exceed 275,000 shares.
Options expire no later than ten years from the date of grant,
and upon termination of employment, except in cases of death,
disability or retirement. Subject to the ten year maximum
period, upon the death, retirement or permanent and total
disability of an optionee, options are exercisable for three
months (in case of retirement or disability) or one year (in case
of death) after such event. In fiscal 1994, conditions relating
to periods of Company service before vesting of stock purchased
on exercise of the non-qualified options were removed.
For fiscal 1995, no qualified or non-qualified options were
granted.
The following table shows unexercised options, how much thereof
were exercisable, and the dollar values for in-the-money options,
at May 31, 1995.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End($)
Shares Value
Acquired on Realized Exercisable/ Exercisable
Name Exercise (#) ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------
John L. Larsen, -0- -0- 100,000 $388,000(1)
CEO, President exercisable exercisable and
unexercised
100,100 $248,248(2)
exercisable exercisable and
unexercised
Max T. Evans, -0- -0- 57,200 $141,856(2)
Secretary exercisable exercisable and
unexercised
Harold F. Herron, -0- -0- 11,000 $27,280(2)
Vice President exercisable exercisable and
unexercised
Daniel P. Svilar -0- -0- 66,000 $163,680(2)
Asst. Secretary exercisable exercisable and
unexercised
R. Scott Lorimer -0- -0- 29,700 $73,656(2)
Treasurer exercisable exercisable and
unexercised
(1) Equal to $5.38 closing bid on last trading day in FY 1995,
less $2.00 per share option exercise price, multiplied by all
shares exercisable.
(2) Equal to $5.38 closing bid on last trading day in FY 1994,
less $2.90 per share option exercise price, multiplied by all
shares exercisable.
<PAGE>
Restricted Stock Plans. The Company and Crested have issued
stock bonuses to various executive officers and directors of the
Company 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, Lorimer and all executive officers as a group (four
persons) received 20,400, 12,750, 18,360, 12,240 and 63,750
shares of Common Stock, respectively, under this restricted stock
plan through fiscal 1995. Additional bonuses of 20% of the
original shares (7,500) will be issued annually through fiscal
1997. The expenses relating to these stock issuances are shared
equally by the Company and Crested.
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 the Company 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 the Company.
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.
Other Options and Shares Compensation Proposals
As of December 22, 1995, the Registrant's board of directors
amended the Registrant's 1989 Incentive Stock Option Plan,
without shareholder approval, to increase the number of options
issuable to employees (not including executive officers or
directors of the Registrant) from the present 275,000 options up
to the increased number of 700,000 options. All such newly
authorized options will be nonqualified under IRS regulations.
Under the Plan as amended, the board of directors has issued
nonqualified options to purchase a total of 360,000 shares,
subject to continued employment and exercisable at 20% per year,
to employees; the exercise price of the options is $4.00 (the
fair market price at December 22, 1995), subject to the market
price of the shares being above $8.00 per share for 30 days after
grant date.
The board of directors also has proposed, subject to approval by
the shareholders at the next annual meeting, a stock award
program for the executive officers and directors of the
Registrant, for the award of common shares to each individual, as
of March 1 of each year of continued employment. The first award
is tentatively set to be March 1, 1997, in amounts of 20,000
shares for from three to 5 years per officer or director,
however, no awards shall be made until a formal plan is adopted
and approved by the shareholders and then only upon further
decision of the compensation committee as to other features of
the plan (including payment of taxes for the grantees with pay
back arrangements) which may be desirable. The stock award plan
will conform to the Commission's proposed Rule 16b-3 for purposes
of complying with Sections 16(a) and (b) of the Exchange Act
regarding shortswing profit prohibitions.
The board of directors expects both the amended 1989 Incentive
Stock Option Plan, and (subject to shareholder approval) the
stock award program for officers and directors, to be registered
with the Commission on Form S-8 in calendar 1996.
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 the Company. Any loans or
surety arrangements for directors which are in excess of $50,000
will require Board rather than Executive Committee approval. The
Company 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.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Crested Involving Sheep Mountain Partners
("SMP"). In fiscal 1989, the Company 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 with CRIC
and Nukem, necessary mine maintenance has been funded by USECC
alone without reimbursement from SMP. For fiscal 1995 and eleven
months of fiscal 1996, the Company has advanced Crested's share
of SMP property maintenance in the aggregate amount of
approximately $402,700 none of which has been reimbursed by SMP
or Crested.
Transactions with Crested Involving Plateau. In August 1993,
the Company entered into an agreement to acquire all the issued
and outstanding common stock of Plateau Resources Limited
("Plateau"), a Utah corporation. Plateau owns a uranium
processing mill and support facilities and certain other real
estate assets in southeastern Utah. The Company paid nominal
cash consideration for the Plateau stock and agreed to assume all
environmental liabilities and reclamation bonding obligations.
Prior to closing the agreement, Plateau transferred $2,500,000
cash to fund the NRC Surety Trust Agreement to pay future costs
of mill decommissioning, site reclamation and long-term site
surveillance. Plateau also transferred $4,800,000 cash to an
Agency Agreement to indemnify the seller against possible
environmental or nuclear claims. At the date of acquisition
Plateau held an additional $6.9 million of unencumbered cash to
be used for care and maintenance costs on the mill and other
assets acquired. Most of the unencumbered cash has been used for
care and maintenance costs and loaned to the Company for
development of certain properties held by the Company and
Crested. Although Crested has no ownership in Plateau, Directors
of the Company and Crested have agreed to divide equally one-half
of the obligations incurred in excess of the total $14.2 million
described above and will share in one-half of all cash flows
derived from operations of these assets.
Plateau also owns all of the outstanding stock of Canyon
Homesteads, Inc. ("Canyon"), a Utah corporation, which developed
the Ticaboo, Utah townsite 3.5 miles south of the mill. The
Ticaboo site includes a 66 room motel, convenience 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 being operated as a commercial enterprise.
The Company and Crested plan to further develop the townsite, and
have been seeking financial partners.
Transactions with Arrowstar Investments Inc. In April 1995,
Canyon entered into an agreement with First-N-Last LLC ("FNL", a
Utah limited liability company), to develop and operate certain
assets in Utah near the Ticaboo townsite. Under the agreement,
Canyon contributed to FNL an operating service station and boat
storage operation, and Arrowstar Investments, Inc. ("Arrowstar",
the other member of FNL) agreed to contribute up to $150,000
cash. Arrowstar also agreed to contribute to FNL up to another
$50,000 as needed. The purpose of FNL is to remodel the
contributed assets, build a convenience store and gift shop, and
operate the upgraded facility. Profits were to be allocated 90
percent to Arrowstar until recovery of its cash investment, then
75 percent to Arrowstar until it had received $215,000 cash
(including investment), and 50 percent to Arrowstar and 50
percent to Canyon thereafter. Arrowstar is a private
corporation; the spouse of John L. Larsen (a principal
stockholder, Chairman of the Board, President and Chief Executive
Officer of Registrant) in joint tenancy with his three sons (who
are not affiliates of the Company or Crested) are directors and
shareholders of Arrowstar. Plateau (and the Company, as its sole
shareholder) approved the arrangement because neither Plateau nor
USE had (nor could they acquire on favorable terms) the funds
required to upgrade the facility.
In June 1995, USECC signed a six year option to acquire from
Arrowstar a 7,200 square foot hangar at the Riverton Regional
Airport. The option purchase price originally was agreed to be
$110,000; subsequently, Arrowstar and USE agreed the purchase
price would be $75,000 which was the value of the hangar and
leasehold determined by an independent market value appraisal.
USECC exercised the option as of November 1, 1995 and paid
$30,000 against the purchase price. The balance was to be paid
by a promissory note of USECC for $45,000 payable over five years
with interest at the rate of 10% per annum on the unpaid balance.
Arrowstar acquired the property for cash from the prior owner in
1992, at which time neither the Company or Crested had any
interest in acquiring the property. USECC expects to use the
facility in connection with expanded municipal airport traffic in
the coming years and in the interim for airplane and vehicle
storage purposes.
On April 26, 1996 USECC sold its Wind River Estates Mobile Home
Park (including various personal property) in Riverton, Wyoming
to Arrowstar for $804,000, the appraised value. The total
purchase price consists of $500,000 cash; Arrowstar's unsecured
10% promissory note due 2006 for $56,000; cancellation of the
promissory note that USECC gave Arrowstar in connection with the
purchase of the hangar described above, which note was valued at
$47,934 including accrued interest; and $161,378.34 by Arrowstar
assigning to USECC its entire interest in First-N-Last L.L.C.
with respect to the Ticaboo assets described above.
Additionally, USECC credited Arrowstar $38,687 against the
purchase price for the Wind River Estates mobile home park for
goodwill due to Arrowstar's investing in First-N-Last at the time
that neither Plateau nor USE or Crested had the funds required to
upgrade the facility.
Transactions with Directors. Three of the Company'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 the Company 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.
In fiscal 1995, Harold F. Herron, son-in-law of John L. Larsen,
purchased a house from the Company for $260,000, the appraised
value of the property, and was reimbursed by the Company for
leasehold improvements totaling $22,830, incurred by him while he
was living in and caring for the house prior to its sale.
Other Information. The Company 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 the Company (as
manager of USECC's commercial operations, uranium fuels marketing
director, and as chief pilot, respectively) and Mr. Larsen's
brother, now deceased was employed as drilling superintendent.
Mr. Larsen's son-in-law Harold F. Herron is an officer and
director of the Company, and president and a director of Brunton.
Collectively, the five individuals received $512,000 in cash
compensation (paid by the Company, Crested and Brunton) for those
services during the fiscal year ended May 31, 1995, which amount
includes $117,441 cash compensation paid Mr. Herron (principally
in his capacity as president of Brunton, and also for his service
as a Company vice president, see Executive Compensation above).
The foregoing compensation expense (excluding compensation paid
by Brunton to Mr. Herron, and one of Mr. Larsen's sons as a
Brunton officer) was shared by the Company and Crested, in
accordance with the compensation arrangements for all employees.
The Company and Crested provide management and administrative
services for affiliates under the terms of various management
agreements. Revenues from services by the Company to affiliates
other than Crested were $88,300 in fiscal 1995 and $80,300 in
fiscal 1994. The Company provides all employee services required
by Crested. In exchange Crested is obligated to the Company for
its share of the costs for providing such employees.
Transactions Involving USECC. The Company and Crested conduct
the bulk of their activities through their equally-owned joint
venture, USECC. From time to time the Company 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 the Company and
Crested. The party extending funds is subsequently reimbursed by
the other venturer. The Company had a note receivable of
$4,163,315 from Crested at May 31, 1995 ($3,792,800 during fiscal
1994).
Debt Associated with USE's ESOP. During the year ended May 31,
1995, the Company made a contribution of 37,204 shares of Common
Stock to the ESOP. Because Crested engages the Company's
employees to discharge substantially all of its functions, these
contributions benefited Crested. As a result, Crested owes the
Company $99,985.75 for one-half of the Company's contribution to
the ESOP. Regular and substantial contributions by the Company
to the ESOP are required to maintain the ESOP in effect. In
fiscal 1994 the Company contributed 46,332 shares of Common Stock
to the ESOP, for one-half of which Crested owes the Company
$92,664.
Loans to Three Directors. In fiscal 1992 the Company 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, the Company loaned Mr. John L. Larsen $147,000 and further
agreed to consolidation of such new loan with outstanding
indebtedness of $99,008 owed the Company 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 the USE
stock prices depressed from such persons selling their shares to
meet personal obligations. The loan maturities were extended to
October 30, 1996. At May 31, 1995, the Larsen family
indebtedness totaled $496,830 (of which $348,130 was secured by
120,600 shares of the Company's Common Stock); the family's
indebtedness was $432,200 at May 31, 1994 (of which $322,800 was
secured by 120,600 shares of the Company's Common Stock). The
preceding amounts do not include the loan to Mr. Herron, see
below.
In fiscal 1995, the Company 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 the Company'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 the USE stock
prices depressed from Mr. Herron selling his shares to meet
personal obligations.
<PAGE>
Security Ownership of Certain Beneficial Owners
and Management
The following lists (i) all record holders who, as of May
24, 1996, beneficially owned more than five percent of the
outstanding shares of Common Stock, as reported in filings with
the Commission or as otherwise known to the Company, and (ii)
share ownership of directors and executive officers. Except as
otherwise noted, each holder exercises the 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
------------------------------------------------------------------
Voting Rights Dispositive Rights Total Percent
Name and address ------------------- ------------------ Beneficail of
of beneficial owner Sole Shared Sole Shared Ownership Class(1)
- -------------------- ---- ------ ---- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
John L. Larsen(2)* 592,432 688,871 548,136 926,542 1,495,079 22.4%
201 Hill Street
Riverton, WY 82501
Max T. Evans(3)* 119,577 676,259 93,589 913,931 1,020,270 15.6%
1410 Smith Road
Riverton, WY 82501
Harold F. Herron(4)* 99,176 180,093 94,251 417,765 512,016 7.9%
3425 Riverside Road
Riverton, WY 82501
Daniel P. Svilar(5)* 154,371 532,626 116,163 532,626 686,997 10.5%
357 Indiana Street
Hudson, WY 82515
Michael D. Zwickl(6) 61,069 510,359 61,069 510,359 571,428 8.8%
137 North Beech Street
Casper, WY 82601
Kathleen R. Martin(7) -0- 510,359 -0- 510,359 510,359 7.9%
309 North Broadway
Riverton, WY 82501
Crested Corp. 510,359 510,359 510,359 -0- 510,359 7.9%
877 North 8th West
Riverton, WY 82501
U.S. Energy Corp. ESOP(8) 165,900 -0- 403,572 -0- 403,572 6.2%
877 North 8th West
Riverton, WY 82501
R. Scott Lorimer(9)* 57,181 -0- 29,702 -0- 57,181 **
11 Korell Court
Riverton, WY 82501
Don C. Anderson(10)* 26,155 -0- 8,155 -0- 26,155 **
875 Rio Virgin Drive, #247
St. George, UT 84770
Nick Bebout(11)* 10,550 11,111 9,550 11,111 21,661 **
4424 Skylane Diver
Riverton, WY 82501
David W. Brenman(12)* 7,750 -0- 6,750 -0- 7,750 **
1775 Sherman Street
Suite 1001
Denver, CO 80203
</TABLE>
* USE director and/or officer.
** Less than one percent.
(1) Percent of class is computed by dividing the number of shares
beneficially owned including any options held by the reporting
person or group, by the number of shares outstanding plus the
shares underlying the options held by that person or group.
(2) Mr. Larsen exercises sole voting powers over 242,036 directly
owned shares, 106,000 shares held in joint tenancy with his wife,
20,400 shares subject to forfeiture, 200,100 shares underlying
options and 23,896 shares held in the U.S. Energy Corp. Employee
Stock Ownership Plan ("ESOP") account established for his
benefit. The directly owned shares 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 522,971
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 510,359 shares held by Crested and 12,612 shares held
by Ruby. Mr. Larsen shares voting and dispositive rights over
such shares with the other directors of those corporations. Mr.
Larsen shares voting powers over the unallocated ESOP shares in
his capacity as an ESOP Trustee with the other ESOP Trustees.
Shares over which sole dispositive rights are exercised consist
of directly owned shares, joint tenancy 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 403,572 shares held by the ESOP, the shares held by Crested
and Ruby. 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 36,389 directly owned shares which are held in joint
tenancy with his wife, 12,750 shares subject to forfeiture,
57,200 shares underlying options and 13,238 shares held in the
ESOP account established for his benefit. Shares for which Mr.
Evans holds sole dispositive powers consist 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 and dispositive powers over unallocated ESOP shares
with the other ESOP Trustees.
(4) 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 4,925 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 12,612 shares held by Ruby and 1,581
shares held by Northwest Gold, Inc. ("NWG") and the 165,900
unallocated ESOP shares. Shared dispositive rights are exercised
over the shares held by the ESOP, and the shares held by Ruby and
NWG. Mr. Herron exercises shared dispositive and voting powers
over the shares held by Ruby and NWG as a director of those
companies with the other directors of those companies. He
exercises shared voting powers over unallocated ESOP shares in
his capacity as an ESOP Trustee with the other ESOP Trustees.
The shares shown as beneficially owned by Mr. Herron do not
include 3,030 shares owned directly by his wife who exercises the
sole voting and dispositive powers over those shares.
(5) Mr. Svilar exercises sole voting powers over 28,884 directly
owned shares, 379 shares held in an individual retirement account
("IRA") established for his benefit, 7,700 shares held in joint
tenancy with his wife, 1,000 shares held as custodian for his
minor child under the Wyoming Uniform Transfers to Minors Act
(the Minor's shares), 18,360 shares subject to forfeiture, 66,000
shares underlying options and 19,848 shares held in the ESOP
account established for his benefit. He holds sole dispositive
power over his directly held shares, IRA shares, joint tenancy
shares, Minor's 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 510,359 shares held by Crested, over which he
exercises shared voting and dispositive powers as a Crested
director with the other Crested directors, and 22,267 shares held
by a nonaffiliated company of which Mr. Svilar is a partner.
(6) Mr. Zwickl exercises sole voting and dispositive powers over
4,000 directly held shares, 4,444 shares held in an IRA
established for his benefit and 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 510,359 shares held by Crested with the other
Crested directors.
(7) Consists of shares held by Crested over which Mrs. Martin
exercises shared voting and dispositive powers as a director or
Crested with the other Crested directors. The shares shown as
beneficially owned by Mrs. Martin do not include 220 shares owned
directly by her husband who exercises the sole voting and
dispositive powers over those shares.
(8) The ESOP holds 403,572 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.
(9) Mr. Lorimer exercises sole voting powers over the listed
shares which consist of 2 directly held shares, 12,240 shares
subject to forfeiture, 29,700 shares underlying options and
15,239 shares held in the ESOP account established for his
benefit. Mr. Lorimer exercises sole dispositive powers over his
directly held shares and the shares underlying his options.
(10) Includes 5,100 directly held shares, 3,055 shares in an IRA
established for his benefit and 18,000 shares subject to
forfeiture. Mr. Anderson exercises sole voting rights with
respect to the 26,155 shares, and sole dispositive rights over
the directly held shares and shares held in his IRA.
(11) Consists of 9,500 shares held directly, 50 shares held in
joint tenancy with his wife, 1,000 shares subject to forfeiture
and 11,111 shares held by a privately held company of which Mr.
Bebout is an officer, director and principal shareholder. Mr.
Bebout exercises shared investment and voting powers with respect
to the shares held by the private company. He exercises sole
voting and investment powers over the directly held shares and
joint tenancy shares.
(12) Consists of 6,750 shares held directly and 1,000 shares
subject to forfeiture. Mr. Brenman exercises sole voting powers
over the 7,750 listed shares and sole dispositive powers over the
6,750 directly held shares.
DESCRIPTION OF SECURITIES
The Company's 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 Common Stock are entitled to receive
dividends when and as declared by the Board of Directors out of
funds legally available therefor.
Holders of 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 Company's 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 Company's Articles and the Wyoming Management
Stability Act, shares of Common Stock held by Crested (510,359)
may be voted by Crested, shares of Common Stock held by Plateau
(125,556) may be voted by Plateau and shares of Common Stock held
by SGMC (100,000) may be voted by SGMC 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 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 common stock (including the Common
Shares offered for sale by this Prospectus) have been fully paid
and are nonassessable.
Preferred Stock. The Company's 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 Wyoming
Business Corporation Act, 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.
Warrants. The Warrants consist of (i) that certain Warrant to
Purchase 200,000 Common Shares of U.S. Energy Corp. dated January
9, 1996 (the "Warrant") that Registrant granted to Shamrock
Partners Ltd, 111 Veterans Square, Media, Pennsylvania ("Holder")
as compensation for services to Registrant as a financial
consultant and advisor, on a nonexclusive basis, under a one year
agreement between Registrant and Holder also dated January 9,
1996; (ii) up to ten (10) other warrants which carry the same
(proportional) rights ("Warrants") that may be substituted upon
surrender of the Warrant for division or recombination. The
Warrant or such substitute Warrants entitle the holders ("Holders
of the Warrants") to purchase an aggregate of 200,000 shares of
Registrant's common stock at any time or from time to time until
12:00 o'clock Midnight, Mountain Time, on January 9, 1997 (the
"Expiration Date") at a price of $5.00 per share. The Holder or
Holders of the Warrants are not entitled to any rights of a
shareholder in the Company by virtue of holding the Warrants.
The Warrant carries certain rights to registration under the 1933
Act as more specifically described in the Warrant, but if the
Company so registers the Warrants solely to accommodate the
registration of the Warrant Shares, as Registrant has done by
filing the Registration Statement, of which this Prospectus is a
part, with the Commission in accordance with the 1933 Act and the
regulations pursuant thereto, the Holder or Holders of the
Warrants may not sell or otherwise transfer the Warrants for a
period of 24 months after the effective date of such Registration
Statement, which period prevents such sale or transfer of the
Warrants prior to their Expiration Date. The Warrants are
governed by and construed in accordance with the laws of Wyoming.
PLAN OF DISTRIBUTION
When issued by Registrant upon exercise of the Warrants, the
Warrant Shares will be offered from time to time by the Holders
of the Warrants or their agents at market prices from time to
time. Selling commissions will be paid by the sellers of the
Warrant Shares. Except for the Warrant exercise price of $5.00
per share to be paid upon exercise of the Warrants, no sales
proceeds will be paid to the Company or any subsidiary of the
Company from the sale of the Warrant Shares. The remaining
52,901 Common Shares which are being registered for sale to the
public by the filing of the Registration Statement, of which this
Prospectus is a part, with the Commission in accordance with the
1933 Act and the regulations pursuant thereto, will be offered
from time to time by the Selling Shareholders or their agents at
market prices from time to time. Selling commissions will be
paid by the Selling Shareholders. No sales proceeds will be paid
to the Company or any subsidiary of the Company from the sale of
these Common Shares. The Common Shares may be offered from time
to time by the Holders of the Warrants or the Selling
Shareholders (i) in transactions in the over-the-counter market,
automated inter-dealer system on which the Company's Common Stock
is then listed, in negotiated transactions or a combination of
such methods of sale, and (ii) at market prices prevailing at the
time of sale, at prices related to such prevailing market prices,
or at negotiated prices. The Holders of the Warrants or the
Selling Shareholders may effect such transactions directly with
the broker-dealers. Such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the
Holders of the Warrants and/or the purchasers of the Common
Shares for whom such broker-dealers may act as agents or to whom
they may sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary
commissions). Sales of the Common Shares may be made pursuant to
this Prospectus or pursuant to Rule 144 adopted under the 1933
Act.
No underwriting arrangements exist as of the date of this
Prospectus. Upon being advised of any underwriting arrangements
that may be entered into by the Holders of the Warrants or the
Selling Shareholders after the date of this Prospectus, the
Company will prepare and file a post-effective amendment to this
Registration Statement including a supplement to this Prospectus
to disclose the name of such underwriters and such arrangements.
Expense of any sales pursuant to this Prospectus will be borne by
the Holders of the Warrants or the Selling Shareholders, except
that the Company is paying certain of the expenses, which are
estimated at $10,000, of registering the Common Shares under the
1933 Act and under the laws of one state selected by the Holder,
consisting of all costs incurred in connection with the
preparation of the Registration Statement (except for any fees of
counsel for the Holders of the Warrants). The Holders of the
Warrants or the Selling Shareholders will pay or assume brokerage
commissions, or underwriting discounts, incurred in the sale of
the Common Shares, which commissions or discounts are not being
paid or assumed by the Company.
HOLDERS OF THE WARRANTS
Only one Warrant is outstanding on the date of this Prospectus
and the Holder of that Warrant is Shamrock Partners, Ltd. The
Holder has requested that the Warrant be divided into six
Warrants covering an aggregate of 200,000 Warrant Shares. The
names of the Holders of the Warrants after such division and the
amount of Registrant's Common Stock owned by such Holders of the
Warrants (including Warrant Shares to be issued upon exercise of
such Warrants) prior to and after the offering are set forth
below:
No. of Shares of
Shares of Common Common
Common Stock Shares to be Stock to be
Owned Prior Offered by Owned After
Name to Offering this Prospectus Offering
- ----------------------- ------------ --------------- ------------
Rafi Khan 154,000 145,000 9,000
Shamrock Partners, Ltd. 12,039 10,000 2,039
Shamrock Partners
International, Inc. 20,000 20,000 20,000
The Leasing Group, Inc. 8,400 8,400 8,400
Diana L. Manes 4,300 4,300 4,300
Andrew Z. Furtak 12,300 12,300 12,300
None of the Holders of the Warrants have held any position,
office or have had any material relationship with Registrant or
any of its affiliates within the past three years except for the
investment banking consulting agreement that Registrant entered
into with Shamrock Partners, Ltd., on a nonexclusive basis for a
one year term, effective January 9, 1996, subject to renewal.
The Warrant was granted to Shamrock Partners, Ltd. As
compensation for its services under that agreement.
SELLING SHAREHOLDERS
The following is a listing of the Selling Shareholders, the
amount of Common Shares to be offered for each such Selling
Shareholder's account and the amount of USE's Common Stock owned
by each Selling Shareholder prior to the offering and to be held
by such Selling Shareholder after completion of the offering.
Except as noted below, none of the Selling Shareholders (i) has
had any position, office or other material relationship with the
Registrant or any of its affiliates within the past three years,
or (ii) to the knowledge of the Company, will own one percent or
more of the Company's outstanding common stock after completion
of the offering. It is anticipated each Selling Shareholder will
own none of the Common Shares hereby offered, after completion of
the offering.
<PAGE>
No. of
No. of No. of Shares of
Common Shares Shares of USE USE Common
to be Offered Common Stock Stock to be
by Selling Owned Prior Owned After
Name Shareholder to Offering* Offering
---- ------------- ------------- -----------
Keith G. Larsen(1) 21,774 111,603 89,829
Mark J. Larsen(2) 1,577 115,196 113,619
George F. Smith(3) 2,135 40,532 38,397
Michael E. Sweeney(4) 2,949 55,875 52,926
Richard P. Larsen(1) 1,774 55,627 53,853
Thomas M. Evans(2) 941 23,651 22,710
Kenneth J. Webber(2) 1,478 31,571 30,093
M. Shane Larsen(2) 994 30,879 29,885
Albert E. Dearth(5) 2,083 10,066 7,983
N. Hal Clyde(2) 1,106 7,133 6,027
Glenn Dooley(6) 113 113 -0-
Hershel R. Dike(2) 906 4,421 3,515
Jeff T. Harding(2) 1,066 4,472 3,406
Paul J. Hemschoot, Jr.(2) 974 974 -0-
Noel Holbert(2) 1,062 6,753 5,691
Mitch M. LeClair(2) 1,047 4,607 3,560
Bruno J. Masson (2) 261 261 -0-
Sharon Miller(2) 723 4,033 3,310
Steven P. Morrill(2) 884 1,438 554
Bryon G. Mowry(2) 122 122 -0-
Pat G. Reeb(2) 986 4,099 3,113
Steven D. Richmond(2) 986 2,383 1,397
Marilyn Sampson(2) 401 672 271
Mark Smith(2) 1,049 6,681 5,632
James E. Steinhoff(2) 1,018 6,622 5,604
John Turner(2) 87 87 -0-
Randall R. Van Vleet(2) 1,741 19,724 17,983
Helen D. VonFeldt(2) 501 3,228 2,727
Stanley S. Wegner(2) 996 6,428 5,432
Daryl P. Winters(2) 1,167 1,952 785
* Includes shares held directly, shares held in the USE
Employee Stock Ownership Plan (the "ESOP") account
established for the benefit of employee shares held jointly
and shares held directly by immediate family members in the
same household.
(1) USE employee and director of Northwest Gold, Inc., an
affiliate of USE.
(2) USE employee.
(3) USE employee and director of Ruby Mining Company, an
affiliate of USE.
(4) USE employee, director of Four Nines Gold, Inc.; President
and director of Sutter Gold Mining Company and Vice
President of USECC Gold Limited Liability Company, all
affiliates of the Company.
(5) USE employee; President, Chief Operating Officer and
director of Plateau Resources Limited, a 100% subsidiary of
USE.
(6) USE employee; Vice President of Plateau Resources Limited, a
100% subsidiary of USE.
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 and K to the USE
consolidated financial statements.
The balance sheet of the Green Mountain Mining Venture as of
December 31, 1995 and 1994, and the related statements of
operations, changes in venture partners' capital and cash flows
for the years ended December 31, 1995, 1994 and 1993 and the
period from inception to December 31, 1995 included in the
registration statement of which this Prospectus is a part, have
been audited by Coopers & Lybrand LLP, independent accountants,
as indicated in their report with respect thereto and are
included in said registration statement in reliance upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Stephen E. Rounds, Denver, Colorado, has acted as special counsel
to USE in connection with this offering.
<PAGE>
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
U.S. Energy Corp.:
We have audited the accompanying consolidated balance sheets of
U.S. Energy Corp. (the "Company") (a Wyoming corporation) and
affiliates as of May 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended May 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of U.S.
Energy Corp. and affiliates as of May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the
three years in the period ended May 31, 1995, in conformity with
generally accepted accounting principles.
As discussed further in Notes E, F and K, the Company and its 52%-
owned subsidiary, Crested Corp., (together referred to as "USECC")
are involved in litigation and arbitration with their 50/50 partner
in Sheep Mountain Partners ("SMP"), Nukem, Inc. and its subsidiary
Cycle Resource Investment Corporation ("CRIC"). USECC, CRIC and
Nukem have filed claims and counterclaims against each other
alleging violations of the SMP Partnership Agreement among other
various allegations. As a consequence of this litigation and
arbitration, USECC has been required to fund all of the
expenditures to maintain the SMP mineral properties on standby,
resulting in advances to SMP of $4,521,600. USECC has expensed its
equity portion of these advances as of May 31, 1995. Recovery of
the remaining investment and advances of $2,481,600 is dependent
<PAGE>
upon the outcome of the litigation and arbitration, which is
uncertain at this time. Most of the litigation claims were
consensually submitted to binding arbitration. The evidentiary
stage of the arbitration proceedings are concluded and damage
claims have been submitted to the arbitration panel. USECC is
seeking damages in excess of $200 million. Nukem and CRIC are
seeking damages of approximately $48 million. The resolution of
these matters is not anticipated until December 1995. Counsel for
the Company has indicated that an evaluation of the likelihood of
an unfavorable outcome or any estimate of the amount or range of
potential loss is premature at this time given the state of the
proceedings. Accordingly, the accompanying financial statements do
not reflect any adjustments that might result from this litigation
and arbitration.
As discussed in Notes B and H to the consolidated financial
statements, effective June 1, 1993, the Company changed its method
of accounting for income taxes.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 28, 1995.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
May 31,
------------------------------
1995 1994
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 551,300 $ 1,181,700
Accounts and notes receivable (Note C):
Trade, net of allowance of $51,000
and $32,600 for doubtful accounts 1,484,100 1,009,800
Related parties, net of
allowance of $1,600 and
$1,600 for doubtful accounts 231,600 166,500
Inventory (Note B) 1,567,300 1,424,600
Current portion long-term
notes receivable (Note F) 74,400 --
Other 149,300 84,000
------------ ------------
TOTAL CURRENT ASSETS 4,058,000 3,866,600
INVESTMENTS AND ADVANCES (Notes E and F):
Affiliates 3,244,600 2,807,900
Restricted investments 7,757,400 7,728,500
------------ ------------
11,002,000 10,536,400
PROPERTIES AND EQUIPMENT
(Notes B, C, D and F):
Land and mobile home park 2,771,900 2,803,100
Buildings and improvements 6,010,800 5,918,800
Aircraft and other equipment 6,104,000 6,047,600
Developed oil properties,
full cost method 1,769,800 1,769,800
Undeveloped gas properties 422,000 207,900
Mineral properties and mine
development costs 10,121,700 9,505,000
------------ ------------
27,200,200 26,252,200
Less accumulated depreciation,
depletion and amortization (9,700,800) (8,874,000)
------------ ------------
17,499,400 17,378,200
------------ ------------
</TABLE>
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Continued)
<TABLE>
<CAPTION>
May 31,
-------------------------
1995 1994
---- ----
OTHER ASSETS:
<S> <C> <C>
Accounts and notes receivable:
Real estate sales and other (Note F) 945,700 28,700
Affiliates and related parties 25,000 25,000
Employees (Note C) 505,100 366,000
Buildings and improvements held for sale 7,500 758,200
Long-term deferred compensation (Note J) 5,100 17,300
Deposits and other 117,200 113,900
------------ ------------
1,605,600 1,309,100
------------ ------------
$34,165,000 $33,090,300
------------ ------------
------------ ------------
</TABLE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
May 31,
-----------------------------
1995 1994
---- ----
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 2,276,100 $ 722,200
Lines of credit (Note G) 1,527,000 161,000
Current portion of long-term
debt (Note G) 232,900 408,500
------------ ------------
TOTAL CURRENT LIABILITIES 4,036,000 1,291,700
LONG-TERM DEBT (Note G) 928,500 1,109,100
RECLAMATION LIABILITY (Notes F and K) 3,951,800 3,951,800
OTHER ACCRUED LIABILITIES (Note F) 10,818,700 11,284,600
DEFERRED TAX LIABILITY (Note H) 183,300 267,000
</TABLE>
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
(Continued)
<CAPTION>
May 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES (Note K)
MINORITY INTERESTS 708,200 1,326,400
FORFEITABLE COMMON STOCK,
$.01 par value; issued 187,820 and
169,300, shares, respectively,
forfeitable until earned
(Notes C and J) 1,370,100 1,300,600
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 5,262,794 and 4,693,090
shares, respectively 52,500 46,800
Additional paid-in capital 18,629,000 16,784,800
Accumulated deficit (3,256,400) (1,185,800)
Treasury stock at cost,
769,943 and 713,276
shares, respectively (2,242,400) (2,072,400)
Unallocated ESOP contribution (1,014,300) (1,014,300)
------------ ------------
12,168,400 12,559,100
------------ ------------
$34,165,000 $33,090,300
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended May 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Mineral sales (Note E) $ -- $ 3,732,500 $ 2,690,800
Construction contract revenues 1,303,400 2,606,400 2,026,500
Commercial operations 1,253,200 1,165,100 894,400
Recreational product sales
(Notes A and B) 4,452,300 -- --
Oil sales 194,500 183,700 286,300
Gain on sales of assets (Note F) 1,282,400 52,800 326,000
Gain on sale of investments -- -- 408,600
Gain from restructuring mineral
properties agreements (Note F) 85,500 626,800 2,105,800
Interest 479,900 328,700 78,200
Management fees and other
(Note C) 96,800 80,300 228,900
------------ ------------ ------------
9,148,000 8,776,300 9,045,500
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of minerals sold -- 3,895,400 2,617,600
Mineral operations 1,654,300 1,129,000 659,900
Construction costs 1,038,300 2,288,900 1,760,400
Commercial operations 2,070,100 1,989,400 1,573,000
Cost of recreational
products sold 2,407,000 -- --
Oil production 78,100 89,800 122,400
General and administrative 3,606,100 2,696,800 1,955,300
Abandonment of mining claims -- -- 378,700
Gas operations 206,600 157,800 --
Loss on sale of investments 90,000 -- --
Interest 279,000 117,100 81,300
------------ ------------ ------------
11,429,500 12,364,200 9,148,600
------------ ------------ ------------
LOSS BEFORE MINORITY INTEREST
IN LOSS, EQUITY IN LOSS OF
AFFILIATES AND INCOME TAXES (2,281,500) (3,587,900) (103,100)
MINORITY INTEREST IN LOSS OF
CONSOLIDATED SUBSIDIARIES 653,200 874,800 325,900
EQUITY IN LOSS OF AFFILIATES (442,300) (390,700) (444,700)
------------ ------------ ------------
</TABLE>
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
<CAPTION>
Year Ended May 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
LOSS BEFORE INCOME TAXES $(2,070,600) $(3,103,800) $ (221,900)
INCOME TAXES (Note H) -- -- --
------------ ------------ ------------
LOSS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (2,070,600) (3,103,800) (221,900)
CUMULATIVE EFFECT AT JUNE 1, 1993
OF INCOME TAX ACCOUNTING CHANGE
(Notes B and H) -- (267,000) --
------------ ------------ ------------
NET LOSS $(2,070,600) $(3,370,800) $ (221,900)
------------ ------------ ------------
------------ ------------ ------------
LOSS PER SHARE AMOUNTS:
Loss before cumulative
effect of accounting change $ (.42) $ (.70) $ (.05)
Cumulative effect at
June 1, 1993 of income
tax accounting change -- (.06) --
------------ ------------ ------------
NET LOSS PER SHARE $ (.42) $ (.76) $ (.05)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,977,050 4,431,469 4,248,848
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
(Accumulated
Additional Deficit)/ Unallocated Total
Common Stock Paid-In Retained Treasury Stock ESOP Shareholders'
Shares Amount Capital Earnings Shares Amount Contribution Equity
--------- ------- ----------- ----------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1992 4,163,201 $41,600 $14,749,600 $ 2,406,900 435,301 $(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 2,185,000 435,301 (1,200,900) (1,014,300) 15,063,200
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Accumulated
Additional Deficit)/ Unallocated Total
Common Stock Paid-In Retained Treasury Stock ESOP Shareholders'
Shares Amount Capital Earnings 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 2,185,000 435,301 (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 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) 713,276 $(2,072,400) $(1,014,300) $12,559,100
--------- ------- ----------- ----------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- ------- ----------- ----------- -----------
The accompanying notes to consolidated financial statements
are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
(Accumulated
Additional Deficit)/ Unallocated Total
Common Stock Paid-In Retained Treasury Stock ESOP Shareholders'
Shares Amount Capital Earnings Shares Amount Contribution Equity
--------- ------- ----------- ----------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1994 4,693,090 $46,800 $16,784,800 $(1,185,800) 713,276 $(2,072,400) $(1,014,300) $12,559,100
Funding of ESOP 37,204 400 199,600 -- -- -- -- 200,000
Issuance of common
stock through private
placement (Note J) 400,000 4,000 1,196,000 -- 56,667 (170,000) -- 1,030,000
Issuance of common
stock to third party
for services rendered 5,000 -- 23,100 -- -- -- -- 23,100
Issuance of common stock
for exercised option 107,500 1,100 345,700 -- -- -- -- 346,800
Issuance of common stock
to buyout third party
in property venture 20,000 200 79,800 -- -- -- -- 80,000
Net loss -- -- -- (2,070,600) -- -- -- (2,070,600)
--------- ------- ----------- ----------- ------- ----------- ----------- -----------
Balance May 31, 1995 5,262,794 $52,500 $18,629,000 $(3,256,400) 769,943 $(2,242,400) $(1,014,300) $12,168,000
--------- ------- ----------- ----------- ------- ----------- ----------- -----------
--------- ------- ----------- ----------- ------- ----------- ----------- -----------
</TABLE>
Shareholders' Equity at May 31, 1995 does not include 187,820 shares
currently issued but forfeitable if certain conditions are not met by the
recipients. However, both the "Outstanding Shares at August 25, 1995" 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 717,026 shares of common stock held by a majority-owned
subsidiary, which, in consolidation, are treated as treasury shares.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended May 31,
------------------------------------------
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(2,070,600) $(3,370,800) $ (221,900)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Minority interest in loss of
consolidated subsidiaries (653,200) (874,800) (325,900)
Depreciation, depletion
and amortization 766,200 720,200 908,400
Abandoned mining claims -- -- 378,700
Gain from restructuring
mineral properties
agreements -- (500,000) (2,000,000)
Equity in loss from affiliates 442,300 390,700 444,700
Gain on sale of assets (1,282,400) (52,800) (326,000)
(Gain) loss on sale of
marketable equity securities 90,000 -- (408,600)
Common stock issued to fund ESOP 200,000 185,300 183,400
Non-cash compensation 69,500 75,900 55,600
Common stock exchanged
for services 23,100 34,300 --
Other (318,200) (149,900) (246,400)
Net changes in:
Accounts receivable (539,400) 468,700 (406,800)
Inventory (142,700) (9,100) 407,300
Other assets (68,600) (4,000) 62,200
Accounts payable and
accrued expenses 1,553,900 (573,700) 557,900
Other liabilities (465,900) (415,400) --
Deferred tax liability (83,700) 267,000 --
----------- ----------- -----------
NET CASH USED IN
OPERATING ACTIVITIES (2,479,700) (3,808,400) (937,400)
----------- ----------- -----------
</TABLE>
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<CAPTION>
Year Ended May 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in purchase
of subsidiaries -- 7,193,500 --
Development of mining properties (455,100) (796,300) (740,500)
Development of gas properties (218,200) (207,900) --
Proceeds from sale of
property and equipment 854,300 149,700 848,800
Proceeds from sale of investments 199,300 -- 611,200
Purchases of property
and equipment (178,900) (855,800) (656,700)
Changes in notes receivable 91,800 73,700 (173,400)
Investments in affiliates (830,500) (760,500) (1,108,600)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (537,300) 4,796,400 (1,219,200)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance
of common stock 1,376,800 -- 137,500
Proceeds from long-term debt 626,400 368,400 914,600
Net proceeds from lines of credit 1,366,000 -- --
Repayments of long-term debt (982,600) (654,300) (202,700)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,386,600 (285,900) 849,400
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (630,400) $ 702,100 $(1,307,200)
CASH AND CASH EQUIVALENTS,
Beginning of year 1,181,700 479,600 1,786,800
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
End of year $ 551,300 $ 1,181,700 $ 479,600
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(Continued)
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<CAPTION>
Year Ended May 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 242,100 $ 114,200 $ 79,100
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
Non-cash investing and financing activities:
Notes received for sale of assets $ 1,550,000 $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
Issuance of common stock
to acquire affiliate $ 80,000 $ 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 officers and employees
for services rendered $ -- $ 104,400 $ --
----------- ----------- -----------
----------- ----------- -----------
Change in valuation of
reclamation liability $ -- $ (243,800) $ --
----------- ----------- -----------
----------- ----------- -----------
Conversion of SRRI
receivable to investment
upon SRRI loan default $ -- $ 1,857,800 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
<TABLE>
U.S. ENERGY CORP. AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<CAPTION>
Year Ended May 31,
------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Undeveloped mining properties
contributed to the Green
Mountain Mining Venture $ -- $ 243,800 $ --
----------- ----------- -----------
----------- ----------- -----------
Acquisition of USE common
stock in exchange for
shareholder notes receivable $ -- $ 445,300 $ --
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Significant assets acquired and liabilities assumed
in 1994 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, 1995, 1994 AND 1993
A. BUSINESS ORGANIZATION AND DESCRIPTION:
U.S. Energy Corp. (the "Company" or "USE") was incorporated in
the State of Wyoming on January 26, 1966. The Company engages in
the acquisition, exploration, holding, 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"), (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 1995, 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, "SGMC").
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>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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%), SGMC
(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, SGMC and Crested for
both 1995 and 1994. The accompanying consolidated statements of
operations include USE, Brunton, Plateau, Energx, FNG, USECC, SGMC
and Crested for fiscal 1995, and USE, Plateau, Energx, FNG, USECC,
SGMC and Crested for fiscal 1994. 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. The accompanying
consolidated statement of operations for fiscal 1993 includes USE,
FNG, USECC, SGMC and Crested.
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.
Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Investments
The Company adopted Statement of Financial Accounting
Standards No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities" in fiscal 1995. Based
on the provisions of SFAS No. 115, the Company accounts for
investments as held-to-maturity. Held-to-maturity securities are
measured at amortized cost and are carried at the lower of
aggregate cost or fair market value.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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,
-----------------------
1995 1994
---------- ----------
Outdoor Recreational Products:
Raw materials $ 385,100 $ 508,900
Work in process 201,100 161,600
Finished goods 895,000 664,600
Other 86,100 89,500
---------- ----------
$1,567,300 $1,424,600
---------- ----------
---------- ----------
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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
The Company capitalizes all costs incidental to the
acquisition, exploration, holding 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 cost 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.
Statement of Financial Accounting Standards No. 121 ("SFAS No.
121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued in March 1995. The
provisions of SFAS No. 121 require the Company to evaluate the
carrying value of its long-term assets when certain events occur
that may effect the realizability of its assets. SFAS No. 121 is
required to be adopted in fiscal 1996. The Company has not
determined the impact, if any, the adoption of SFAS No. 121 will
have on its financial position or results of operations.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 and uranium are recognized upon delivery.
Revenues are recognized from the rental of certain assets as they
are rented. Revenue from commercial operations are recognized as
goods and services are delivered. Oil sales revenue is recognized
as the oil is produced (see Notes D and F.)
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 No. 109 ("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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 Loss Per Share
Net 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, because they were antidilutive.
Reclassifications
Certain reclassifications have been made in the 1994 and 1993
financial statements to conform to the classifications used in
1995.
C. RELATED-PARTY TRANSACTIONS:
In November 1993, USE and Brunton executed an Agreement and
Plan of Share 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 was
therefore 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 is obligated to the Company for its
share of the costs for providing such employees. Revenues from
services by the Company to affiliates other than Crested were
$88,300, $80,300 and $113,000 in fiscal 1995, 1994 and 1993,
respectively.
At May 31, 1995, the Company's President and immediate family
were indebted to the Company in the amount of $609,000, of which
$460,300 is represented by notes secured by 150,600 shares of the
Company's common stock.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
On August 19, 1994, the Company sold a house in Riverton,
Wyoming, to Harold F. Herron, Vice President of the Company for an
amount equal to a current independent appraisal. At the same time
the Company loaned to Mr. Herron the sum of $112,170 secured by
30,000 shares of the Company's common stock for a period of five
years. This amount is included in the $609,000 discussed above.
As of May 31, 1995, 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, 1995. This note is eliminated in consolidation.
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, 1995.
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, 1995
and 1994 (Note B).
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 to the Company from Crested. The
receipt of these shares increased the Company's ownership in
Crested to 52.9%. Therefore, both the balance sheets and
statements of operation have been consolidated with the Company for
all years presented.
On June 14, 1995, USECC signed a six year option to acquire a
7,200 square foot hangar at the Riverton Regional Airport, for
$110,000, from a private company affiliated with a director of USE
and Crested.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 properties and ventures 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 restricted investments are in place to secure
various decommissioning costs, reclamation and holding costs.
Investments are comprised of debt securities issued by the U. S.
Treasury that mature at varying times from three months to one year
from the original purchase date. As of May 31, 1995, the cost of
debt securities was a reasonable approximation of fair market
value.
The Company's investment in and advances to affiliates are as
follows:
Consolidated Carrying Value at May 31,
Ownership 1995 1994
------------- ---------- ----------
Equity Method:
GMMV 50.0% $ 724,800 $ 724,800
Ruby Mining Company 26.7% 38,200 40,700
SMP (Note F) 50.0% 2,481,600 2,042,400
---------- ----------
$3,244,600 $2,807,900
---------- ----------
---------- ----------
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Equity income (loss) from investments and writedowns of
investments accounted for by the equity method are as follows:
Year Ended May 31,
------------------------------------
1995 1994 1993
--------- --------- ----------
SMP (Note F) $(439,200) $(514,800) $(532,000)
Brunton (Note B)
(consolidated
beginning in 1995) -- 140,500 85,600
Ruby Mining Company (3,100) (16,400) 1,700
GMMV -- -- --
--------- --------- ---------
$(442,300) $(390,700) $(444,700)
--------- --------- ---------
--------- --------- ---------
There are 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 provided funding to SMP in the amount of $4,521,600 for
standby mine care and maintenance, the rental of certain mining
equipment and administrative costs as of May 31, 1995. These
advances are included in the above investment account net of the
Company's equity share of SMP's expenses. The Company considers
the $4,521,600 to be a receivable from SMP. Whether or not the
$4,521,600 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 903,200 to 1,213,800 pounds of
uranium annually from 1996 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, 1995.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Revenues from such uranium sales of $2,893,800 and $2,690,800 have
been included in the accompanying consolidated statements of
operations for the years ended May 31, 1994 and 1993, which would
normally have been sales of SMP. All sales contracts were filled
by Nukem in 1995, and as a result, no revenues from uranium sales
were recognized during 1995. The cash from uranium sales is
accumulating in SMP's bank accounts which as of May 31, 1995
amounted to $7,505,000.
GMMV expenses certain general and administrative, maintenance
and holding costs. However, the Company has not recognized equity
losses in GMMV 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 $727,000 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 and Ruby Mining Company ("Ruby)
for 1995 and GMMV, SMP, Brunton and Ruby for 1994 and 1993.
Condensed combined balance sheets do not include Brunton for 1994
as Brunton's balance sheet was consolidated with USE as of May 31,
1994.
<TABLE>
CONDENSED COMBINED BALANCE SHEETS - EQUITY INVESTEES
<CAPTION>
May 31,
----------------------------
1995 1994
------------ ------------
<S> <C> <C>
Current assets $ 8,408,500 $ 720,700
Non-current assets 49,211,100 48,795,700
------------ ------------
$ 57,619,600 $ 49,516,400
------------ ------------
------------ ------------
Current liabilities $ 7,312,700 $ 6,529,000
Other long-term debt 30,782,900 23,621,600
Excess in assets 19,524,000 19,365,800
------------ ------------
$ 57,619,600 $ 49,516,400
------------ ------------
------------ ------------
</TABLE>
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
<TABLE>
CONDENSED COMBINED STATEMENTS OF OPERATIONS - EQUITY INVESTEES
<CAPTION>
Year Ended May 31,
------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 368,300 $ 4,570,500 $ 3,604,800
Less costs and
expenses (1,402,400) (7,336,800) (8,500,500)
----------- ----------- -----------
Net loss $(1,034,100) $(2,766,300) $(4,895,700)
----------- ----------- -----------
----------- ----------- -----------
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. 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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
GMMV has incurred $14,316,300 in the development and
operations of the above uranium mineral properties through May 31,
1995. 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 $727,000 at May 31, 1995, 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 last
quarterly amortization of $250,000 for a non-interest bearing loan
from AMAX in lieu of advance royalties, was recognized in the first
quarter of fiscal 1994.
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. If AMAX sells the
properties, the Company and Crested will receive 15% of the first
$25 million received by AMAX.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 $85,500, $126,800 and $105,800 of revenue from
the advance royalty payments in fiscal 1995, 1994 and 1993,
respectively.
In fiscal 1995, USECC and Cyprus Amax agreed on exercise of
the option by USE and Crested agreeing to forego six quarters of
advance royalties from Cyprus Amax (the option purchase price was
$200,000). See "Minerals - 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 otherwise encumbered and was sold in fiscal
1995.
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 paid $345,000
cash and $625,300 in three year nonrecourse promissory notes, of
which $137,900 was paid during fiscal 1995. 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 remaining note bears interest at 7.5% per annum.
The second option covers 472.5 acres of ranch land northwest
of the City of Gunnison, Colorado (purchase price $822,460).
Pangolin paid $10,000 for the option; on option exercise and
closing, Pangolin paid $46,090 in cash and $776,370 by two
nonrecourse promissory notes (each with principal and unpaid
interest due on the third anniversary of closing except for $35,000
on the first anniversary). At closing, 22.19 acres were deeded to
Pangolin; different parcels of the remaining acreage secure the
notes, and will be released for principal payments in the course of
development. The sale was accounted for as an installment sale and
thus the gain on sale was deferred to be recorded as the notes are
paid.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Sutter Gold Mining Company
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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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. During fiscal 1995, 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,
"SGMC").
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.
SGMC is in the development stage at May 31, 1995, 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 $10,374,400
at May 31, 1995.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 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 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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 $6,018,700 at yearend. Together with the $4,800,000
indemnification reserve, these estimated obligations are recorded
as Other Accrued Liabilities of $10,818,700 in the accompanying
consolidated financial statements.
On August 25, 1994, Plateau signed a letter of intent with an
unrelated third party to sell part interest in Canyon Homesteads,
Inc. ("CHI"), 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 was to be $6,000,000. The party
had made a non refundable earnest payment of $100,000 to Plateau to
be credited to the purchase price, with the remainder to be paid in
cash from the purchaser and out of operations, at specified times.
In fiscal 1995 the purchaser defaulted, and as a result, the
$100,000 was recognized as income in fiscal 1995.
CHI entered into a joint venture with Arrowstar Investments,
Inc. ("AII") to develop on a 50/50 basis, certain properties at the
Ticaboo Townsite. AII is owned by certain shareholders of the
Company. As of May 31, 1995, the Company has recorded $112,400
related to AII's initial funding commitment to the joint venture
which is included in accounts receivable trade on the accompanying
Balance Sheet.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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%) and the Assiniboine and Sioux Tribes (10%).
During fiscal 1995, Energx sold a 50% interest in the leases
on the Fort Peck Indian Reservation for the sum of $200,000 plus
$100,000 to be used only for the acquisition and consolidation of
additional leases, and for committing to drill 8 exploratory wells.
This resulted in a gain of $197,000 being recorded on this
undeveloped property sale. Energx is in the lease acquisition
stage on this property. No exploratory wells have been drilled to
date.
G. DEBT:
During fiscal 1995, USE and Crested obtained a $1,000,000 line
of credit from a bank. The line of credit accrued interest at the
banks prime rate plus .5% (8.5% initially) and matured on July 23,
1995. The weighted average interest rate for 1995 for the line of
credit was 9.82%. $960,000 is outstanding as of May 31, 1995.
Subsequently this line was repaid with funds received in the July
8, 1995 private placement. The Company has renegotiated this
$1,000,000 line of credit and extended the maturity date to July
23, 1996. The line of credit is secured by certain real property
and a share of the net proceeds of production from certain oil and
gas wells. No amounts are currently outstanding on this line of
credit.
The Company's debt also includes the $500,000 revolving line
of credit of Brunton with a commercial bank. The line of credit
accrues interest at 1% above prime and expires in August, 1995. As
of May 31, 1995, $387,000 was outstanding on the line of credit.
Brunton also has a $200,000 line of credit that matures in August
1995. No amounts are outstanding as of May 31, 1995. Both of the
Brunton lines of credit were renegotiated for $500,000 and $250,000
respectively to mature August 2, 1996 with interest at 1% over bank
index rate. The weighted average for these lines for 1995 was
9.35%. FNG holds a $200,000 line of credit with a commercial bank.
This line of credit accrues interest at 2.25% over the bank's prime
rate and expires on February 28, 1996, $180,000 was outstanding as
of May 31, 1995. The weighted average rate for 1995 for this line
of credit was 10.29%
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Brunton has two installment notes bearing interest at 8.25%
secured generally by all the assets of Brunton. FNG also has
various installment notes bearing interest from 7.5% to 11.75%
which are secured by FNG equipment with maturity dates through
1997.
The components of debt as of May 31, 1995 and 1994 are as
follows:
</TABLE>
<TABLE>
<CAPTION>
May 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Installment note - secured by equipment,
interest at 8%, matures February 1996 $ 84,600 $ 220,200
Installment notes - secured by real estate,
interest at 7.9% - 8%, matures 1998-2004 270,500 287,600
Brunton installment notes 722,700 770,000
FNG installment notes 57,200 157,800
Notes payable - other 26,400 82,000
---------- ----------
1,161,400 1,517,600
Less current portion (232,900) (408,500)
---------- ----------
$ 928,500 $1,109,100
---------- ----------
---------- ----------
</TABLE>
Principal requirements on debt for the five years after May
31, 1995 are as follows: 1996 - $232,900; 1997 - $121,100; 1998 -
$107,100; 1999 - $200,500; 2000 - $344,100 and thereafter $155,700.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
H. INCOME TAXES:
The Company adopted SFAS 109 during fiscal 1994.
The components of deferred taxes as of May 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
May 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 50,400 $ 26,300
Deferred gain on sale of assets 143,900 85,000
Net operating loss carryforwards 6,535,200 4,601,100
Capital loss carryforwards 182,100 452,000
Tax Credits 325,000 325,000
Other 33,000 36,000
---------- ----------
Total deferred tax assets 7,269,600 5,525,400
---------- ----------
Deferred tax liabilities:
Accelerated depreciation for tax (1,073,400) (1,112,900)
Development and exploration costs (2,095,700) (2,039,900)
---------- ----------
Total deferred tax liabilities (3,169,100) (3,152,800)
---------- ----------
4,100,500 2,372,600
Valuation allowance (4,283,800) (2,639,600)
---------- ----------
Net deferred tax liability $ (183,300) $ (267,000)
---------- ----------
---------- ----------
</TABLE>
The Company has established a valuation allowance of
$4,224,900 against deferred tax assets due to the losses incurred
by the Company in fiscal 1995, 1994 and 1993. The Company's
ability to generate future taxable income to utilize the NOL and
capital loss carryforwards is uncertain.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
For the year ended May 31, 1993, the tax effect of deferred
taxes resulting from timing differences in the recognition of
revenues and expenses for tax and financial statement purposes were
as follows.
May 31,
1993
---------
Gain on sale of property and equipment $ (81,800)
Operating loss carryforwards for
income tax reporting purposes (311,200)
Deferred compensation expense (55,600)
Exploration and development costs 437,700
Depreciation 54,000
Other (43,100)
---------
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:
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------
1995 1994 1993
---------- ----------- -------
<S> <C> <C> <C>
Expected federal income tax $ (704,000) $(1,055,300) $ --
Utilization of capital
loss carryforward (269,900) -- --
Net operating losses not
previously benefitted (670,300) -- --
Valuation allowance 1,644,200 1,055,300 --
---------- ----------- --------
Income tax provision $ -- $ -- $ --
---------- ----------- --------
---------- ----------- --------
</TABLE>
There were no taxes payable as of May 31, 1995, 1994 or 1993.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
At May 31, 1995, the Company and its subsidiaries had available,
for federal income tax purposes, net operating loss carryforwards of
approximately $19,221,000 which will expire from 1996 to 2010 and
investment tax credit carryforwards of $325,000 which, if not used, will
expire from 1996 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', which includes USECC, 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 the sale of minerals and
the acquisition, exploration, holding development and sale of mineral
bearing properties although the Company has no producing mines. Other
reportable industry segments included commercial operations, primarily
manufacturing and distribution of outdoor recreation products, real
estate activities and operation of an airport fixed base operation and
construction operations. The following is information related to these
industry segments:
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
<TABLE>
<CAPTION>
Year Ended May 31, 1995
------------------------------------------------------
Commercial Construction
Minerals Operations Operations Consolidated
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 85,500 $5,705,500 $1,303,400 $ 7,094,400
----------- ---------- ----------
----------- ---------- ----------
Interest and
other revenues 2,053,600
-----------
Total Revenues $ 9,148,000
-----------
-----------
Operating (loss) profit $(1,568,800) $1,228,400 $ 265,100 $ (75,300)
----------- ---------- ----------
----------- ---------- ----------
Interest and
other revenues 2,053,600
General corporate
and other expenses (3,606,600)
Equity in loss
of affiliates (442,300)
-----------
Loss before income taxes $(2,070,600)
-----------
-----------
Identifiable assets
at May 31, 1995 $18,518,300 $9,074,300 $ 292,700 $27,885,300
----------- ---------- ----------
----------- ---------- ----------
Investments
in affiliates 3,244,600
Corporate assets 3,035,100
-----------
Total assets
at May 31, 1995 $34,492,700
-----------
-----------
Capital expenditures $ 455,100 $ 186,400 $ 28,100
----------- ---------- ----------
----------- ---------- ----------
Depreciation, depletion
and amortization $ -- $ 637,600 $ 116,500
----------- ---------- ----------
----------- ---------- ---------- U.S. ENERGY CORP. AND AFFILIATES
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
<TABLE>
<CAPTION>
Year Ended May 31, 1994
-------------------------------------------------------
Commercial Construction
Minerals Operations Operations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
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)
Loss before income taxes
and cumulative effect $(3,103,800)
-----------
-----------
Identifiable assets
at May 31, 1994 $17,745,200 $8,898,400 $ 371,200 $27,014,800
----------- ---------- ----------
----------- ---------- ----------
Investments
in affiliates 2,807,900
Corporate assets 3,267,600
-----------
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
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
<TABLE>
<CAPTION>
Year Ended May 31, 1993
-------------------------------------------------------
Commercial Construction
Minerals Operations Operations Consolidated
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
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 extraordinary 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
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
During fiscal 1994 and 1993, approximately 14% and 44% of
mineral revenues were from amortization of principal on the AMAX
notes and annual advance royalties of molybdenum from AMAX. During
fiscal 1994 and 1993, 86% and 56%, respectively, of mineral
revenues were from sales of uranium. There were no uranium sales
during fiscal 1995.
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.
Commercial operations for 1995 include the operations of Brunton.
J. SHAREHOLDERS' EQUITY:
In March 1995, the Company completed a private placement of
400,000 shares of stock at $3.00 per share. The majority of the
proceeds were from employees of the Company. This offering carried
terms by which the Company, at its option, would either redeem the
common shares sold from each investor, at a cash redemption price
of $3.50 per share or issue one additional common share for each
three shares originally purchased. Management of the Company
intends to issue the additional common shares (133,333 shares).
The Company is obligated to register all shares issued in
connection with this private placement by January 1996.
In June and July, 1995 the Company sold common stock at $4.00
per share (812,432 shares, net proceeds to the Company of
$2,827,300). In connection with this private placement, warrants
to purchase 81,243 USE common shares at $4.80 per share are to be
issued to the selling agent. These warrants are exercisable
through July 25, 2000.
The Board of Directors adopted the U.S. Energy Corp. 1989
Stock Option Plan (the "Option Plan") for the benefit of USE's key
employees. The Option Plan, later amended reserves 550,000 shares
of the Company's $.01 par value common stock for issuance under the
Option Plan. During fiscal 1992, the Company issued options to
certain of its executive officers, Board members and others.
371,200 non-qualified options were issued at purchase prices
ranging from $2.00 per share to $2.90 per share. The options will
expire on April 14, 2002 and April 30, 2002. During fiscal 1995,
options were exercised for the purchase of 7,500 shares.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 1995, 1994 and 1993, the
Board of Directors of USE contributed 37,204, 46,332 and 49,087,
shares to the ESOP at prices of $5.38, $4.00 and $3.75 per share,
respectively. The Company is responsible for one-half of these
contributions amounting to $100,000, $92,500 and $91,700 in fiscal
1995, 1994 and 1993, 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 1996.
The Board of Directors of both the Company and Crested issue
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, 1995, 1994 and 1993, the Company had
compensation expense of $200,000, $116,700 and $271,700,
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 40,300 USE $ 9.75 $392,925
June 1990 66,300 USE 11.00 729,300
November 1990
(stock dividend) 10,660 USE N.A. N.A.
June 1990 25,000 Crested 1.06 26,562
December 1990 7,500 Crested .50 3,750
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
January 1995 18,520 USE 3.75 69,450
January 1995 6,500 Crested .19 1,219
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
No shares were earned out in fiscal 1993 or 1995; however,
5,000 shares of USE stock were earned out and released to a third
party in fiscal 1994. During fiscal 1993, the Company's Board of
Directors amended the stock bonus plan. As a result, the earn out
dates of certain individuals were extended until retirement, which
is the earn out date of the amended stock bonus plan. The amended
plan grants a stock-bonus of 20% of the previous plan per year for
five years. Also included in forfeitable common stock are 15,000
shares to directors which are vesting at 20% a year beginning in
November 1992, of which 9,000 are earned out but not released as of
May 31, 1995.
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 this affiliate options for
150,000 common shares at $3.50 per share. None of these options
have been exercised as of May 31, 1995.
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
Sheep Mountain Partners (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 to the Green
Mountain Mining Venture (GMMV) the 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>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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
seek 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. Certain of 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, agreed with the Company and
Crested that the majority of the claims post the formation of SMP
on December 21, 1988, 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 hearing commenced
on June 27, 1994 before a three member AAA arbitration panel.
After 73 hearing days and some 15,000 pages of testimony, the
parties rested their cases on May 31, 1995. Per order of the
Panel, the parties filed their proposed Findings of Fact and
Conclusions of Law, Award and a brief of the law on August 7, 1995.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Each side shall submit responsive proposed findings of fact and
conclusions of law, responsive proposed award and reply briefs by
September 21, 1995. The Panel will make its Order and Award within
90 days thereafter, unless the period of time is extended.
Nukem and CRIC are seeking $47,172,535 against USE and USECC
and the right to purchase USECC's interest in SMP for $2,350,000.
USE and Crested are seeking the dissolution of the SMP Partnership,
the return of the Sheep Mountain Mining properties and damages
against Nukem and CRIC in excess of $200,000,000 with requests that
they be trebled under RICO and COCCA. USECC has denied all the
allegations made by CRIC and denied any liability. The Company and
counsel believe that an evaluation of the likelihood of an
unfavorable outcome and any estimate of the amount or range of
potential loss is premature at this time given to the state of the
proceedings. The resolution of these matters by the arbitration
panel is expected by December 1995 or early calendar 1996. The
Company also expects to vigorously pursue all pre-SMP Partnership
claims which have been reserved by the parties before the Federal
Court once the arbitration proceedings are completed.
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
Luxembourg 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. After
various negotiating sessions the parties reached agreement in June
1995 to settle the case by entering into an amendment to the
original agreement to increase the price per pound of U3O8 delivered
to IPC and provide for 3 deliveries totalling 486,443 lbs. U3O8 in
1995, 1996 and 1997. The first delivery of 226,443 lbs. U3O8 was
made on June 30, 1995. This amendment to the IPC contract will be
subject to the decision of the Arbitration Panel.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
Declaratory Judgment Action on Extralateral Rights. On July
30, 1991, Bond Gold Bullfrog, Inc. ("BGBI") filed Civil Action No.
11877 in the District Court of the Fifth Judicial District, Nye
County, Nevada naming USE, Crested, Parador Mining Company, Inc.
("Parador") and H.B. Layne Contractor, Inc. (Layne) as defendants.
The complaint primarily concerns extralateral rights associated
with two patented mining claims (the "Claims") owned by Parador
which were initially leased to a predecessor of BGBI and
subsequently, the residuals of that lease were assigned and leased
by Parador to USE and Crested. Parador, USE and Crested answered
the complaint, filed a counterclaim against the Plaintiff and a
cross claim against Layne. Pursuant to the Nevada Rules of Civil
Procedure, the parties through their attorneys have met and
prepared a report outlining various matters required by the Nevada
Rules regarding discovery and depositions. Parador has notified
BGBI that it has terminated the lease to a predecessor of BGBI of
its two patented claims (being part of the Bullfrog Open Pit Mine).
On or about June 30, 1993, Layne filed a motion for summary
judgment against Parador, USE and Crested claiming there is no
issue of material fact and Layne is entitled to judgment as a
matter of law. Parador, USE and Crested are preparing a response
to this motion. Pursuant to the Assignment and Lease of Mining
Claims entered into as of April 1, 1991 between USE, Crested and
Parador, USE and Crested are to receive 50% of damages or
production royalties due Parador from production of precious metals
out of the mined lode or veins dipping down from where the lode
apexes on Parador's mining claims. USE agreed to advance $200,000
to cover attorney and other costs and fees which may be first
recovered out of production royalties or damages. Any expenditures
over $200,000 shall be borne solely by USE and Crested. If Bond
Gold should produce precious metals from within the boundaries of
Parador's Claims which are not related to extralateral rights,
Parador shall receive 100% of the royalties. If USE and Crested
mine precious metals from the Claims, Parador shall receive a
royalty of 40% NSR. Depositions have been taken in the case and
Layne has filed the above Motion for Summary Judgment. The parties
agreed to stay the motion until discovery is completed. The Court
set the trial on the issue of extralateral rights for July 17,
1995, but recently notified the parties that because of a conflict,
the case will not be heard until December 11, 1995.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
As of May 31, 1995, the Company has recorded estimated
reclamation obligations, including standby costs, of $14,770,500,
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 $23,960,000 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 SGMC 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, 1995 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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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).
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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
$16,322,900 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.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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.
SGMC
The Company and Crested currently own 100% of SGMC, 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, 1995.
Any reclamation liability for SGMC properties which currently exist
is insignificant.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(continued)
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 $10,818,700 as of May 31, 1995, 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.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
<TABLE>
ASSETS
<CAPTION>
February 29, May 31,
1996 1995
------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,279,100 $ 360,600
Accounts receivable
Trade 425,300 709,700
Related parties 312,000 231,600
Inventory 86,200 86,100
Current portion long-term
notes receivables 38,300 74,400
Other 87,800 86,100
Net Current Assets of
Discontinued Operations -- 1,841,600
------------ ------------
TOTAL CURRENT ASSETS 2,228,700 3,390,100
INVESTMENTS AND ADVANCES
Affiliates 4,159,500 3,244,600
Restricted 8,056,900 7,757,400
------------ ------------
12,216,400 11,002,000
PROPERTIES AND EQUIPMENT 28,101,900 27,079,200
Less accumulated depreciation,
depletion and amortization (10,176,900) (9,659,400)
------------ ------------
17,925,000 17,419,800
OTHER ASSETS:
Accounts and notes receivable:
Real estate and other 1,905,600 912,700
Affiliates and related parties 25,000 25,000
Employees 525,500 505,100
Buildings and improvements
held for sale 7,500 7,500
Deferred compensation, long-term -- 5,100
Deposits and other 117,200 117,200
------------ ------------
2,580,800 1,572,600
------------ ------------
$ 34,950,900 $ 33,384,500
------------ ------------
------------ ------------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Condensed Consolidated Balance Sheets
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
February 29, May 31,
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES: (Unaudited) (Unaudited)
Accounts payable and
accrued expenses $ 622,100 $ 2,067,000
Income taxes payable 50,000 --
Line of credit -- 1,140,000
Current portion of long-term debt 418,900 161,200
----------- -----------
TOTAL CURRENT LIABILITIES 1,091,000 3,368,200
LONG-TERM DEBT (See Note 4) 651,300 277,500
RECLAMATION LIABILITY (See Note 5) 3,951,800 3,951,800
OTHER ACCRUED LIABILITIES (See Note 5) 10,546,300 10,818,700
DEFERRED TAX LIABILITY 267,000 183,300
NET NONCURRENT LIABILITIES OF
DISCONTINUED OPERATIONS -- 538,300
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 949,300 708,200
Common stock, 187,817
shares forfeitable 1,486,500 1,370,100
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, 6,379,066 and 5,262,794 62,300 52,500
Additional paid-in capital 21,619,300 18,629,000
Retained earnings (deficit) (2,417,200) (3,256,400)
Treasury stock, 769,943
shares, at cost (2,242,400) (2,242,400)
Unallocated ESOP contribution (1,014,300) (1,014,300)
----------- -----------
16,007,700 12,168,400
----------- -----------
$34,950,900 $33,384,500
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
February February
------------------------ -------------------------
29, 1996 28, 1995 29, 1996 28, 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Mineral sales
and option $ 942,400 $ -- $ 3,116,700 $ --
Oil sales 55,200 47,400 137,300 138,200
Commercial revenues 161,100 178,700 684,400 741,500
Gain on restructuring
mining properties
agreements -- -- -- 85,500
Construction contract
revenues 552,500 29,100 3,369,600 919,600
Gain on sale of assets 24,100 975,000 68,300 1,288,900
Interest 125,700 79,200 391,400 249,100
Management and
other fees 14,600 76,900 384,100 215,700
---------- ---------- ----------- -----------
1,875,600 1,386,300 8,151,800 3,638,500
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Costs of mineral sales 942,400 -- 2,766,700 --
Mineral operations 190,900 299,300 602,400 1,005,500
Construction costs 474,400 36,500 2,569,700 790,500
Abandoned gas leases -- -- 328,700 --
General and
administrative 959,200 618,600 1,965,800 1,469,100
Commercial operations 490,300 580,100 1,558,600 1,670,500
Oil production 36,700 24,100 68,100 52,700
Loss on sale
of investments -- -- -- 89,900
Interest 72,600 46,100 174,300 111,500
---------- ---------- ----------- -----------
3,166,500 1,604,700 10,034,300 5,189,700
---------- ---------- ----------- -----------
</TABLE>
(Continued)
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
(Continued)
<CAPTION>
Three Months Ended Nine Months Ended
February February
------------------------ --------------------------
29, 1996 28, 1995 29, 1996 28, 1995
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Loss before
Equity In Loss
of Affiliates,
Provision for
Income Taxes (1,290,900) (218,400) (1,882,500) (1,551,200)
Minority Interest in
Loss of Consolidated
Subsidiaries 332,200 76,200 398,700 418,400
Equity in Loss of
Affiliates-net (115,700) (128,100) (281,600) (304,900)
Provision for
Income Taxes -- -- -- --
---------- ---------- ----------- -----------
Loss from Continuing
Operations (1,074,400) (270,300) (1,765,400) (1,437,700)
---------- ---------- ----------- -----------
Discontinued Operations
(Note 8)
Income from Discontinued
Operations Net of
Income Taxes of $0 (9,200) (58,100) 308,900 121,900
Gain on Disposal of
Subsidiary Operations
in Discontinued
Segment Net of Income
Taxes of $50,000 2,295,700 -- 2,295,700 --
---------- ---------- ----------- -----------
Income (Loss) from
Discontinued Operations 2,286,500 (58,100) 2,604,600 121,900
---------- ---------- ----------- -----------
NET INCOME (LOSS) $1,212,100 $ (328,400) $ 839,200 $(1,315,800)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
(Continued)
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
Condensed Consolidated Statements of Operations
(Unaudited)
(Continued)
<CAPTION>
Three Months Ended Nine Months Ended
February February
------------------------ --------------------------
29, 1996 28, 1995 29, 1996 28, 1995
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE
Loss from Continuing
Operations $ (.17) $ (.06) $ (.28) $ (.29)
Income (Loss) from
Discontinued
Operations .00 (.01) .05 .02
Gain on Disposal
of Subsidiary
Operating in
Discontinued
Segment .36 -- .37 --
---------- ---------- ----------- -----------
NET INCOME (LOSS)
PER SHARE $ .19 $ (.07) $ .14 $ (.27)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 6,364,089 5,012,216 6,142,925 4,877,776
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended
February
---------------------------
29, 1996 28, 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 839,200 $(1,315,800)
Adjustments to reconcile
net income to net cash used
in operating activities:
Minority interest in loss
of consolidated subsidiaries (398,700) (418,400)
Depreciation, depletion
and amortization 623,900 577,300
Non-cash compensation 297,400 69,500
Abandoned mineral leases 328,700 --
Equity in loss of affiliates 281,600 304,900
(Gain) on sale assets (68,300) (1,288,900)
(Gain) on sale of subsidiary (2,345,700) --
Net assets disposed of in connection
with sale of subsidiary (1,939,000) --
Loss (gain) on sale of investments -- 89,900
Cumulative effect of accounting changes -- (83,800)
Change in deferred income taxes 83,700 (36,000)
Net changes in components
of working capital 640,500 282,600
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,656,700) (1,818,700)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in affiliates (556,700) (476,800)
Investments in other (299,500) (198,400)
Purchase of property and equipment (1,021,100) (141,000)
Proceeds from sale of assets 77,700 969,100
Proceeds from sale of subsidiary 3,300,000 --
Development of mining properties (349,200) (341,400)
Development of gas properties (23,400) (147,700)
Change in notes receivable 55,800 (128,200)
Proceeds from sale of investments -- 199,300
Deposits and other -- (3,300)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 1,183,600 (268,400)
----------- -----------
</TABLE>
(Continued)
See notes to condensed consolidated financial statements.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
<TABLE>
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended
February
---------------------------
29, 1996 28, 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common stock 2,842,200 868,100
Cancellation of stock for services (23,100) --
Company stock purchased by
consolidated affiliate -- (120,000)
Additions to long-term debt 1,348,500 1,740,800
Payment on long-term debt (2,966,700) (802,800)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,200,900 1,686,100
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 727,800 (401,000)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 551,300 1,181,700
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 1,279,100 $ 780,700
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES:
Income tax paid $ -- $ 118,900
----------- -----------
----------- -----------
Interest paid $ 221,200 $ 175,000
----------- -----------
----------- -----------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of unowned portion of
affiliate with Company stock $ -- $ 80,000
----------- -----------
----------- -----------
NOTES RECEIVABLE OBTAINED IN
CONNECTION WITH SALE OF SUBSIDIARY $ 1,000,000 $ --
----------- -----------
----------- -----------
</TABLE>
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 Sheets as of February
29, 1996 and May 31, 1995, the Condensed Consolidated Statements of
Operations for the three and nine months ended February 29, 1996
and February 28, 1995, and the Condensed Consolidated Statements of
Cash Flows for the nine months ended February 29, 1996 and February
28, 1995, have been prepared by the Registrant without audit. In
the opinion of the Registrant, the accompanying financial
statements contain all adjustments (consisting of only normal
recurring accruals and reclassifications for amounts associated
with the discontinued operations of The Brunton Company ("Brunton")
which was sold by the Registrant as of January 1996) necessary to
present fairly the financial position of Registrant as of February
29, 1996 and May 31, 1995, the results of operations for the three
and nine months ended February 29, 1996 and February 28, 1995 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, 1995 Form 10-K. The
results of operations for the periods ended February 29, 1996 and
February 28, 1995 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: Energx Ltd. (90%), Crested (51.9%), USECC Gold
Limited Liability Company (100%), Plateau Resources Limited (100%)
and Four Nines Gold, Inc. (50.9%). The Consolidated Financial
Statements reflect the operations of Brunton as discontinued
because Brunton was sold as of January 31, 1996. The 1995
Consolidated Financial Statements have been reclassified for
amounts associated with the discontinued operations of Brunton.
Brunton manufactures and sells outdoor recreation products. All
material intercompany profits and balances have been eliminated.
4) Debt as of February 29, 1996 consists of various
equipment and other property loans totaling $351,900 and debt
attributable to consolidated affiliates of $718,300 on Four Nines
Gold. Certain inter-affiliate loans were eliminated through
consolidation.
<PAGE>
U.S. ENERGY CORP. AND AFFILIATES
Notes to Condensed Consolidated Financial Statements
(Continued)
5) 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.
In addition, Plateau has recorded additional obligations of
$10,546,301 for the estimated holding and maintenance costs needed
until the mill is placed in service or decommissioning begins.
6) During the nine months ended February 29, 1996, the
Registrant completed a private placement of 812,432 of restricted
common shares which resulted in net proceeds to the Company of
$2,842,200. The Registrant also cancelled 5,000 shares of its
common stock which had previously been issued for professional
services. On January 5, 1996, the Registrant issued 32,901 shares
of common stock to certain of its employees for a Christmas bonus,
which represented $180,626 in compensation, one half of which was
paid by Crested. No officers or directors received such stock. On
February 21, 1996 the Registrant issued 7,700 shares under the
Deferred Compensation Plan for a total compensation of $116,385.50
one half of which was paid by Crested.
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.
8) The Registrant has reflected the operations of Brunton as
discontinued in each of the accompanying consolidated financial
statements presented because the Registrant sold its 100% interest
in Brunton to Silva A.B. of Sweden (Silva) during the third quarter
of 1996. The purchase price paid by Silva was $4,300,000 and was
in the form of $3,300,000 of cash and a $1,000,000 Promissory Note.
This note will be paid to the Registrant in three annual equal
installments of $333,333 beginning February 15, 1996 and will
accrue interest at 7%. The sale of Brunton resulted in a gain of
approximately $2,295,700.
Sales from Brunton's operations were $244,100 and $2,819,100
for the three and nine months ended February 29, 1996,
respectively, and $1,089,900 and $3,259,200 for the three and nine
months ended February 28, 1995, respectively.
The effective income tax rate for discontinued operations
differs from the U.S. statutory tax rate primarily as a result of
the utilization of net operating loss carryforwards.
<PAGE>
Report of Independent Accountants
To the Members of the Management Committee of
Green Mountain Mining Venture
Riverton, Wyoming
We have audited the accompanying balance sheet of Green Mountain
Mining Venture (A Joint Venture in the Development Stage) as of
December 31, 1994 and 1993, and the related statements of
operations, changes in Venture partners' capital, and cash flows
for the years ended December 31, 1994, 1993 and 1992, and the
period from inception (June 1, 1990) to December 31, 1994. These
financial statements are the responsibility of the Venture's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Green
Mountain Mining Venture as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for the years ended
December 31, 1994, 1993 and 1992, and the period from inception
(June 1, 1990) to December 31, 1994, in conformity with generally
accepted accounting principles.
Salt Lake City, Utah
April 10, 1995
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
BALANCE SHEET
as of December 31, 1994 and 1993
------------
1994 1993
----------- -----------
Assets:
Property and equipment (Note 3):
Mineral properties and mine
development costs $21,887,857 $21,604,663
Buildings 24,815,009 24,815,009
----------- -----------
Total assets $46,702,866 $46,419,672
----------- -----------
Liabilities and Partners' Capital:
Due to USECC $ 62,386 $ 102,182
Reclamation liabilities (Note 3) 23,619,000 23,619,000
----------- -----------
Total liabilities 23,682,386 23,722,182
----------- -----------
Commitments (Note 3)
Partners' capital:
Kennecott Uranium Company 11,510,240 11,348,745
USECC 11,510,240 11,348,745
----------- -----------
23,019,480 22,697,490
----------- -----------
Total liabilities and
partners' capital $46,702,866 $46,419,672
----------- -----------
The accompanying notes are an integral part of these financial
statements.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
STATEMENT OF OPERATIONS
for the years ended December 31, 1994, 1993 and 1992,
and the period from inception (June 1, 1990)
to December 31, 1994
------------
Period from
inception to
December 31,
1994 1993 1992 1994
___________ ___________ ___________ ____________
Costs and expenses:
Maintenance and
holding costs $ 1,877,528 $ 1,982,005 $ 2,061,349 $ 5,921,782
Marketing costs 85,676 83,977 69,445 247,598
___________ ___________ ___________ ____________
Net loss $ 1,963,194 $ 2,065,982 $ 2,130,794 $ 6,169,380
___________ ___________ ___________ ____________
The accompanying notes are an integral part of these financial statements.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
STATEMENT OF CHANGES IN VENTURE PARTNERS' CAPITAL
for the years ended December 31, 1994, 1993 and 1992,
and the period from inception (June 1, 1990)
to December 31, 1994
__________
<TABLE>
<CAPTION>
Period from
inception to
December 31,
1994 1993 1992 1994
___________ ___________ ___________ ____________
<S> <C> <C> <C> <C>
Balance at beginning of period:
Kennecott Uranium Company $ 11,348,745 $ 11,049,433 $ 10,478,378 $ -
USECC 11,348,745 11,049,433 10,478,378 -
Capital contributions (Note 1):
Kennecott Uranium Company 1,143,097 1,332,303 1,636,452 14,594,930
USECC 1,143,097 1,332,303 1,636,452 14,594,930
Net loss:
Kennecott Uranium Company (981,602) (1,032,991) (1,065,397) (3,084,690)
USECC (981,602) (1,032,991) (1,065,397) (3,084,690)
Balance at end of period:
Kennecott Uranium Company 11,510,240 11,348,745 11,049,433 11,510,240
USECC 11,510,240 11,348,745 11,049,433 11,510,240
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
STATEMENT OF CASH FLOWS
for the years ended December 31, 1994, 1993 and 1992,
and the period from inception (June 1, 1990)
to December 31, 1994
____________
<TABLE>
<CAPTION>
Period from
inception to
December 31,
1994 1993 1992 1994
__________ __________ __________ ____________
<S> <C> <C> <C> <C>
Cash flows used in operating activities:
Net loss $(1,963,194) $(2,065,982) $(2,130,794) $(6,169,380)
Increase (decrease) in due to USECC (34,782) 51,947 - 17,165
___________ ___________ ___________ ___________
Net cash used in operating activities (1,997,986) (2,014,035) (2,130,794) (6,152,215)
___________ ___________ ___________ ___________
Cash flows used in investing activities:
Cost of buildings, mineral properties
and mine development (283,194) (666,975) (698,298) (7,355,866)
Increase (decrease) in due to USECC (5,014) 16,404 (443,812) 45,221
___________ ___________ ___________ ___________
Net cash used in investing activities (288,198) (650,571) (1,142,110) (7,310,645)
___________ ___________ ___________ ___________
Cash flows from financing activities:
Capital contributions 2,286,194 2,664,606 3,272,904 13,462,860
___________ ___________ ___________ ___________
Net change in cash and cash equivalents $ - $ - $ - $ -
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Cash and cash equivalents:
At beginning of period $ - $ - $ - $ -
At end of period - - - -
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
NOTES TO FINANCIAL STATEMENTS
1. Organization of the Joint Venture:
Green Mountain Mining Venture ("GMMV" or the "Venture") is a
joint venture with a 30 year life, formed by U.S. Energy Corp.
("USE"), Crested Corp. ("Crested") and Kennecott Uranium
Company ("Kennecott"), the Venture partners, to develop mining
claims and produce uranium from the Green Mountain properties
located in south-central Wyoming. Kennecott has a 50%
interest in GMMV, and USE and Crested ("USECC") collectively
have a 50% interest. GMMV was formed June 1, 1990, with each
partner contributing its portion of the Green Mountain
properties. Thereafter, the partners are required to
contribute funds based upon their respective participating
interests, subject to certain provisions as provided for in
the joint venture agreement.
Kennecott has agreed to contribute the first $50 million of
operating and development expenses. Through December 31,
1994, Kennecott has contributed $13,462,808 to the Venture for
operating and development expenses. During this period, 50%
of the capital contributions made by Kennecott are allocated
to USECC. The cash flows from the Venture will be allocated
50% to Kennecott and 50% to USECC. The allocation of the
USECC portion of cash flows will be determined by the
ownership interests of USE and Crested in the various GMMV
properties.
Effective October 29, 1992, Kennecott replaced USECC as
manager of the Venture. Kennecott contracts with USECC to
perform work on behalf of the Venture.
Through December 31, 1994, the activities of the Venture have
consisted primarily of the development and maintenance of the
Green Mountain properties. Additional development is required
prior to the commencement of commercial production. Such
commencement is not expected to occur until uranium prices
increase significantly above current levels. Therefore, the
Venture is considered to be in the development stage as
defined in Statement of Financial Accounting Standards No. 7.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
NOTES TO FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies:
Mineral properties contributed to the Venture were recorded
at the partners' historical cost at the date of contribution.
Costs incurred in the acquisition of mineral properties are
deferred until the properties are put into operation,
sold or abandoned. Mine development costs incurred either
to expand the capacity of operating mines, develop new ore
bodies or develop mine areas substantially in advance of
production are capitalized and will be charged to operations
on the units-of-production method over the estimated reserves
to be recovered. Mine development costs incurred to maintain
production will be included in operating costs and expenses.
Maintenance and holding costs are expensed as incurred.
The cost of mining equipment, less estimated salvage value
will be depreciated on the units-of-production method over
the estimated reserves to be recovered or on the straight-
line method over the estimated life of the equipment,
whichever is shorter. The cost of buildings will be
depreciated on the straight-line method. Costs of repairs
and maintenance are expensed as incurred. Expenditures that
substantially extend the useful lives of assets are
capitalized. When assets are retired or otherwise disposed
all applicable costs and accumulated depreciation are removed
from the accounts and any resulting gain or loss is
recognized currently.
No provision has been made for federal, state and local
income taxes, credits, or benefits since tax liabilities are
the responsibility of the individual partners.
3. Buildings, Mineral Properties and Mine Development Costs:
USECC conducts operations at the mine site on behalf of the
Venture. All accounts payable are due to USECC for costs
incurred by USECC in the normal course of business on behalf
of GMMV. Through December 31, 1994 Kennecott had reimbursed
USECC for substantially all development costs incurred.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
NOTES TO FINANCIAL STATEMENTS, Continued
3. Buildings, Mineral Properties and Mine Development Costs,
Continued:
Building, mineral property and mine development costs
incurred by each of the Venture partners are as follows:
Period from
inception
Year Ended Year Ended Year Ended through
December 31, December 31, December 31, December 31,
1994 1993 1992 1994
___________ ___________ ___________ ___________
USECC $ 145,712 $ 296,869 $ 319,110 $ 4,698,908
Kennecott 137,482 370,106 379,188 2,656,958
___________ ___________ __________ ___________
Total $ 283,194 $ 666,975 $ 698,298 $ 7,355,866
In December 1990, GMMV acquired additional mineral properties
in exchange for the assumption of reclamation liabilities
associated with those properties of $7.3 million. In 1992,
GMMV acquired an established uranium processing mill (the
Sweetwater Mill) in exchange for the assumption of reclamation
liabilities associated with this property of $16.3 million.
Such amounts represent the estimated costs at the acquisition
date to reclaim these properties. Kennecott, on behalf of
GMMV, is self-bonded in the amount of $24.3 million, which is
payable to the Wyoming Department of Environmental Quality and
the U.S. Nuclear Regulatory Commission in the event GMMV does
not properly reclaim the above properties or violates the
Wyoming Environmental Quality Act. If production does not
commence before the year 1900, the seller is liable for the
first $8 million of the reclamation costs at the Sweetwater
Mill.
The Venture properties contain approximately 16 square miles,
of which 8,860 acres are unpatented lode mining claims and
1,280 acres are state leases subject to a royalty of 5% of the
gross value of uranium bearing ore mined and removed from
said lands. The state leases will expire August 1996 and
May 1901. All fees required to hold the unpatented mining
claims have been paid to the state of Wyoming for the period
ended December 31, 1994.
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
NOTES TO FINANCIAL STATEMENTS, Continued
3. Buildings, Mineral Properties and Mine Development Costs,
Continued:
At December 31, 1994 and 1993, costs capitalized as property
and equipment are composed of the following:
1994 1993
___________ ___________
Acquisition costs $39,347,000 $39,347,000
Development costs 7,355,866 7,072,672
___________ ___________
$46,702,866 $46,419,672
___________ ___________
Acquisition costs include the partners' initial contribution
of $15,727,000 of mineral properties and buildings recorded at
the contributing partners' historical cost and $23,619,000 of
mineral properties and buildings acquired in exchange for the
assumption of reclamation liabilities noted above.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Legal $ 6,000*
Audit 2,000*
SEC and
state fees 2,000*
$10,000*
* 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.
Item 15. Recent Sales of Unregistered Securities.
(a)(1) In August, 1993 Registrant sold a $300,000 convertible
promissory note to The Brunton Company, which note was
subsequently converted (on October 19, 1993) to 100,000 shares of
common stock of the Registrant at $3.00 per share.
(2) From November 28, 1995 to March 31, 1995 Registrant sold
400,000 restricted shares of its common stock, principally to its
officers and employees or members of their immediate families out
of a total 400,000 shares offered.
(3) From June 8, 1995 July 28, 1995, Registrant sold 812,432
restricted shares of its common stock to accredited investors at
$4.00 per share, out of 1,750,000 shares offered.
(4) On September 15, 1994, Registrant delivered 20,000 shares
of its Common Stock, that Registrant borrowed from Keith G.
Larsen, to Gladys L. May (13,334 shares), Kenneth E. May (3,333
shares) and Vicki Juhl Guier (3,333) shares in exchange for a
total of 9,000 common shares of Ticaboo Development, Inc.
("TDI"), a Utah Corporation, pursuant to an Agreement and Plan of
Reorganization dated September 2, 1994 (the "Agreement") among
Registrant, TDI and TDI's three shareholders named above. The
20,000 shares of Registrant's Common Stock was acquired by Keith
G. Larsen (who is not an affiliate of Registrant) in open market
transactions and was used by Registrant to acquire all of the
outstanding shares of TDI pursuant to the terms of the Agreement.
In December 21, 1994 Registrant issued to Keith G. Larsen 20,000
restricted shares of its Common Stock to replace the 20,000 free
trading shares borrowed from him to complete the transaction
described above.
(5) In March 1996 Registrant issued the Warrant to Shamrock
Partners, Ltd. as compensation for services as a financial
consultant and advisor under an agreement dated January 9, 1996.
(6) In January 1996 Registrant issued an aggregate of 32,901
shares of its common stock to 30 employees as a Christmas bonus
for services performed during the 1995 calendar year.
(b)(1), (2), (4), (5) and (6). No underwriters were involved in
transactions (a)(1), (2), (4), (5) and (6). RAF Financial
Corporation was placement agent for the (a)(3) private offering,
receiving a 10 percent sales commission and a 3 percent
nonaccountable expense allowance on shares sold, and warrants to
purchase 10 percent of total shares sold.
(c)(1) See above.
(2) Shares were offered at $3.00.
(3) Shares were offered at $4.00.
(4) See (a)(4) above.
(5) See (a)(5) above.
(6) See (a)(6) above.
(d)(1), (4), (5) and (6). The securities referenced in (a)(1),
(4), (5) and (6) were offered and sold in reliance on the section
4(2) exemption from section 5 registration.
(d)(2) and (3). The common stock issued and sold in the
private placements were offered and have been sold in reliance on
the section 4(2) exemption from registration, and Rule 506 of
Regulation D thereunder. Total nonaccredited purchasers in the
two private placements were 34; the balance of investors were
accredited persons. Further, Registrant believes the two
placements were different offerings, not subject to integration
under Commission criteria.
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 Page No.
Report of Independent Public Accountants 101-102
Consolidated Balance Sheets
May 31, 1995 and 1994- 103-105
February 29, 1996 152-153
Consolidated Statements of Operations
for the Years Ended May 31, 1995 and 1994, 106-107
Nine Months Ended February 29, 1996
and February 28, 1995 154-156
Consolidated Statements of Shareholders'
Equity for the Years Ended
May 31, 1995, 1994 and 1993 108-110
Consolidated Statements of Cash Flows for
the Years Ended May 31, 1995, 1994 and 1993 111-114
Nine Months Ended February 29, 1996
and February 28, 1995 157-158
Notes to Consolidated Financial Statements
for the Years Ended May 31, 1995, 1994 and 1993 115-151
Nine Months Ended February 29, 1996 159-160
(2) Financial Statement Schedules
(i) Registrant and Affiliates - Not applicable
(ii) Financials and Schedules of Affiliates
(a) Green Mountain Mining Venture
Report of Independent Public Accountants 161
Balance Sheet - December 31, 1994 and 1993 162
Statement of Operations for the Period
from June 1, 1990 (Date of Inception)
through December 31, 1994 163
Statement of Changes in Partners'
Capital for the Period from
June 1, 1990 (Date of Inception)
through December 31, 1994 164
Statement of Cash Flows for
the Period from June 1, 1990
(Date of Inception) through December 31, 1994 165
Notes to Financial Statements 166-169
(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.
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 following SMP financial statements will be
filed under cover of an amendment.
<PAGE>
Balance Sheets - May 31, 1995 and 1994
Statements of Operations - Years Ended
May 31, 1995, 1994 and 1993
Statements of Changes in Partners' Capital
Years Ended May 31, 1995, 1994 and 1993
Statements of Cash Flows - Years Ended
May 31, 1995, 1994 and 1993
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.
(b) Exhibits.
Exhibit No. Reference
3.1 USE Restated Articles of Incorporation [4]
3.1(a) USE Articles of Amendment to
Restated Articles of Incorporation [2]
3.2 USE Bylaws, as amended through April 22, 1992 [2]
4.1 Warrant to Purchase 200,000 Common Shares of USE 180
4.2 USE 1989 Incentive Stock Option Plan,
as amended through 1/94 187
4.3 USE Restricted Stock Bonus Plan,
as amended through 2/94 199
5.1 Opinion of Stephen E. Rounds, Esq. *
10.1 USECC Joint Venture Agreement - Amended [5]
10.2 Management Agreement with USECC [3]
10.4 Contract for Sale of Stock of Brunton
to Silva A.B. [13]
10.5 Assignment and Lease - Parador [3]
<PAGE>
10.6 Employment Agreement - Daniel P. Svilar [4]
10.7 Airport Ground Lease - City of Riverton [3]
10.8 Executive Officer Death Benefit Plan [4]
10.9 Big Eagle Acquisition Agreement with PMC [6]
10.11 Sweetwater Mill Acquisition Agreement [3]
10.12 Ft. Peck Agreement - Drilling
and Production Services [3]
10.13 USE/Seine River Letter Agreement - SGV [8]
10.14 Agreement to Sell SGV Interest to Crested [3]
10.18 Master Agreement - Mt. Emmons/AMAX [9]
10.20 Promissory Notes - ESOP/USE [10]
10.21 Self Bond Agreement - Crooks Gap Properties [5]
10.22 Security Agreement - ESOP Loans [11]
10.27 Mineral Properties Agreement
Congo Area - PMC [4]
10.28 Memorandum of Joint Venture Agreement - GMMV [4]
10.29 Memorandum of Partnership Agreement - SMP [5]
10.32 Employee Stock Ownership Plan [5]
10.33 1989 Stock Option Plan [5]
10.34 Form of Stock Option and Schedule - 1989 Plan [4]
10.35 Severance Agreement (Form) [2]
10.36 1992 Stock Compensation Plan
Non-Employee Directors [2]
10.37 Executive Compensation (John L. Larsen) [2]
10.38 Executive Compensation
(Non-qualified Options) [2]
10.39 ESOP and Option Plan Amendments (1992) [2]
10.40 Plateau Acquisition -
Stock Purchase Agreement and Related Exhibits [7]
<PAGE>
10.41 Option and Sales Agreements
Gunnison Property Parcel A [1]
10.42 Option and Sales Agreements
Gunnison Property Parcel B [1]
10.43 Option Agreement - USE and Arrowstar
Aircraft Hanger [1]
10.44 Amendment to Contract with Arrowstar or Hangar 200
10.45 Contract for Sale of Wind River Estates [12]
10.46 Contract for sale of Jeffrey City Six-Plex [12]
10.47 Development Agreement with First N-Last 206
10.48 Operating Agreement with First-N-Last 214
22.1 Subsidiaries of Registrant [2]
23.1 Consent of Arthur Andersen, LLP 236
23.2 Consent of Coopers & Lybrand *
23.3 Consent of Stephen E. Rounds, Esq. *
* To be filed by Amendment
[1] Incorporated by reference from the like-numbered exhibit
to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1995.
[2] Incorporated by reference from the like-numbered exhibit
to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1992.
[3] Incorporated by reference from the like-numbered exhibit
to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1991.
[4] Incorporated by reference from the like-numbered exhibit
to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1990.
[5] Incorporated by reference from the like-numbered exhibit
to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1989.
[6] Incorporated by reference from the like-numbered exhibit
to the Registrant's Form 10-Q for the period ended
February 28, 1991.
<PAGE>
[7] Incorporated by reference from exhibit A to the
Registrant's Form 8-K reporting an event of August 11,
1993.
[8] Incorporated by reference from exhibit 28.1 to the
Registrant's Form 8-K reporting an event of October 12,
1990.
[9] Incorporated by reference from the like-numbered exhibit
to a Schedule 13D filed by AMAX on or about August 3,
1987.
[10] Incorporated by reference from exhibit 2 to Amendment No.
6 of a Schedule 13D filed by John L. Larsen, reporting an
event of May 28, 1991.
[11] Incorporated by reference from exhibit 3 to Amendment No
4. of a Schedule 13D filed by John L. Larsen, reporting an
event of January 2, 1990.
[12] Incorporated by reference from an exhibit to the
Registrant's Post-Effective Amendment No. 1 to Form S-3,
SEC File No. 333-1967.
[13] Incorporated by reference from the like-numbered exhibit
to the Registrant's Form 8-K, reporting an event of
February 26, 1996.
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:
(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 on Form S-
1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Riverton, Wyoming, on June 14, 1996.
U.S. ENERGY CORP.
(Registrant)
Date: June 14, 1996 By: s/ John L. Larsen
------------------------------
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.
Date: June 14, 1996 By: s/ John L. Larsen
------------------------------
JOHN L. LARSEN, President
and Director
Date: June 12, 1996 By: s/ Max T. Evans
------------------------------
MAX T. EVANS, Director
Date: June 14, 1996 By: s/ Harold F. Herron
------------------------------
HAROLD F. HERRON, Director
Date: June 14, 1996 By: s/ Nick Bebout
------------------------------
NICK BEBOUT, Director
Date: June ____, 1996 By:
------------------------------
DON C. ANDERSON, Director
Date: June ____, 1996 By:
-------------------------------
DAVID W. BRENMAN, Director
Date: June 14, 1996 By: s/ Robert Scott Lorimer
------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
and Chief Accounting Officer
EXHIBIT 4.1
Void After 12:00 O'clock Midnight., Mountain Time, on January 9,
1997
WARRANT TO PURCHASE 200,000 COMMON SHARES
U.S. ENERGY CORP.
This is to Certify That, FOR VALUE RECEIVED, SHAMROCK
PARTNERS, LTD. of 111 Veterans Square, Media, PA 19063
("Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from U.S. ENERGY CORP. ("Company"), a Wyoming
corporation, at any time until 12:00 O'clock Midnight, Mountain
Time, on January 9, 1997 ("Expiration Date"), 200,000 Common
Shares of the Company at a price of $5.00 per share, the
("Purchase Price") during the period this Warrant is exercisable.
(a) Exercise of Warrant. This Warrant may be exercised at
any time or from time to time until the Expiration Date or if the
Expiration Date is a day on which banking institutions are
authorized by law to close, then on the next succeeding day which
shall not be such a day, by presentation and surrender hereof to
the Company or at the office of its stock transfer agent, if any,
with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Purchase Price for the number of
shares specified in such Form. The Company agrees not to merge,
reorganize or take any action that would terminate this Warrant
unless provisions are made as part of such merger, reorganization
or other action which would provide the holders of this Warrant
with an equivalent of this Warrant as specified in Section (i)
hereof; provided, however, that if reasonably required by the
other party or parties to such merger, reorganization or other
action, the Company may accelerate the Expiration Date to a date
prior to such merger, reorganization or other action, provided
further, however, that the Company shall give the Holder written
notice of such acceleration at least 30 days prior to such
accelerated Expiration Date. The Company agrees to provide notice
to the Holder that any tender offer is being made for the
Company's Common Shares no later than three business days after
the day the Company becomes aware that any tender offer is being
made for outstanding Common Shares of the Company. Upon receipt
by the Company of this Warrant at the office of the Company or at
the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Purchase Price, the Holder
shall be deemed to be the holder of record of the Common Shares
issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that
certificates representing such Common Shares shall not then be
actually delivered to the Holder.
<PAGE>
(b) Reservation of Shares. The Company hereby agrees that
at all times there shall be reserved for issuance and delivery
upon exercise of this Warrant such number of Common Shares as
shall be required for issuance or delivery upon exercise of this
Warrant.
(c) Substitution or Replacement of Warrant. This Warrant
may be divided or combined with up to ten other Warrants which
carry the same rights upon presentation hereof at the office of
the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed
by the Holder hereof. Notwithstanding the foregoing, this Warrant
shall not be divided in such manner that there are, at any time
that this Warrant is outstanding, more than ten Holders of this
Warrant and any other Warrants that carry the same rights as this
Warrant. The term "Warrant" as used herein includes any warrants
issued in substitution for or replacement of this Warrant, or
into which this Warrant may be divided or exchanged. Upon receipt
by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new
Warrant of like tenor and date. Subject to such right of
indemnification, any such new Warrant executed and delivered
shall constitute an additional contractual obligation on the part
of the Company, whether or not this Warrant so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by
anyone.
(d) Rights of the Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the
Company, either at law or equity, and the rights of the Holder
are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth
herein.
(e) Notices to Holder. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any
dividend or make any distribution upon the Common Shares or (ii)
if the Company shall offer to the holders of Common Shares for
subscription or purchase by them any shares of stock of any class
or any other rights or (iii) if any capital reorganization of the
Company, reclassification of the capital stock of the Company,
consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company to another corporation,
or voluntary or involuntary dissolution, liquidation or winding
up of the Company shall be effected, then, in any such case, the
<PAGE>
Company shall cause to be delivered to the Holder, at least
10 days prior to the date specified in (x) or (y) below, as the
case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to
be taken for the purpose of such dividend, distribution or
rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any
is to be fixed, as of which the holders of Common Shares of
record shall be entitled to exchange their Common Shares for
securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger,
conveyance, dissolution. liquidation or winding up.
(f) Reclassification, Reorganization or Merger. In case of
any reclassification, capital reorganization or other change of
outstanding Common Shares of the Company (other than a change in
par value, or from par value to no par value, or from no par
value to par value, or as a result of an issuance of Common
Shares by way of dividend or other distribution or of a
subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is
the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of
outstanding Common Shares of the class issuable upon exercise of
this Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or
substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and
amount of shares of stock and other securities and property which
the Holder would have received upon such reclassification,
capital reorganization or other change, consolidation. merger,
sale or conveyance had this Warrant been exercised prior to the
consummation of such transaction. Any such provision shall
include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for
in this Warrant. The foregoing provisions of this Section (f)
shall similarly apply to successive reclassifications, capital
reorganizations and changes of Common Shares and to successive
consolidations, mergers, sales or conveyances. In the event the
Company spins off a subsidiary by distributing to the
shareholders of the Company as a dividend or otherwise the stock
of the subsidiary, the Company shall reserve for the life of this
Warrant, shares of the subsidiary to be delivered to the Holders
of the Warrants upon exercise to the same extent as if they were
owners of record of the Warrant Shares on the record date for
payment of the shares of the subsidiary.
<PAGE>
(g) Registration Under the Securities Act of 1933.
(1) Within 45 days after receipt of a written request
by the then Holder(s) of the Warrant, provided the request
is made after August 29, 1996, the Company will file, no
more than once, a registration statement under the
Securities Act of 1933, as amended, registering the Warrant
Shares. The Company will use its best efforts to cause such
registration statement to become effective.
(2) If at any time during the period commencing March
9, 1996, and ending January 9, 1997, the Company should file
a registration statement (which term shall not include any
registration statement filed on Forms S-8 or S-4) under the
Securities Act of 1933, as amended (the "Act"), which
relates to a current offering of securities of the Company
(other than solely in exchange for properties, assets or
stock of other individuals or corporations), such
registration statement and the prospectus included therein
shall also, at the written request to the Company from the
Holder(s) of the Warrants, relate to, and meet the
requirements of the Act with respect to any public offering
of the Warrant Shares so as to permit the public sale
thereof in compliance with the Act. The Company shall give
notice to the Holder(s) of its intention to file a
registration statement under the Act relating to a current
offering of the aforesaid securities of the Company prior to
the filing of such registration statement, and the written
request provided for in the first sentence of this
subsection shall be made by the Holder(s) to file such
registration statement. Neither the delivery of such notice
by the Company nor of such request by the Holder(s) shall in
any way obligate the Company to file such registration
statement and notwithstanding the filing of such
registration statement, the Company may, at any time prior
to the effective date thereof, determine not to proceed to
effectiveness with such registration statement, without
liability to the Holder(s). The Company shall pay all
expenses (with the exception of any selling commissions
relating to the sale of the Warrant Shares which shall be
paid by the sellers thereof) of any such registration
statement.
(3) In addition, the Company will cooperate with the
then Holder(s) of the Warrant Shares in preparing and
signing any registration statement, in addition to the
registration statements discussed above, required in order
to sell or transfer the Warrant Shares and will sign and
supply all information required therefor.
<PAGE>
(4) When, pursuant to subsection (1), (2), or (3) of
this Section, the Company shall take any action to permit a
public offering or sale or other distribution of the Warrant
Shares, the Company shall:
(A) Supply to the selling Holder(s) two executed
copies of each registration statement and a reasonable
number of copies of the preliminary, final and other
prospectus in conformity with requirements of the Act
and the Rules and Regulations promulgated thereunder
and such other documents as the Holders shall
reasonably request.
(B) Take all actions necessary to register or
qualify for sale the Warrant Shares in up to one state
selected by the Holder. The Company shall bear the
complete cost and expense (other than any selling
commissions relating to the sale of the Warrant Shares,
which shall be paid by the seller thereof) of such
registrations or qualifications except those filed
under subsection (g)(3) which shall be at the Holder's
cost and expense.
(C) Keep effective such registration statement
until the first of the following events occur: (i) 12
months have elapsed after the effective date of such
registration statement or (ii) all of the registered
Warrant Shares issued by the Company either before or
after the effective date of such registration statement
has been publicly sold under such registration
statement.
(5) The Holder(s) shall supply such information as the
Company may reasonably require from such Holder(s), or any
underwriter for any of them, for inclusion in such
registration statement or post effective amendment.
(6) The Company's agreements with respect to the
Warrant Shares in this Section will continue in effect
regardless of the exercise or surrender of this Warrant.
(7) If the Company registers the Warrants under (g)(2)
above, solely to accommodate the registration of the Warrant
Shares, the Holder(s) agree not to sell or otherwise
transfer the Warrants pursuant to the Registration Statement
for a period of 24 months after the effective date. Such
lock-up shall not extend to the Warrant Shares purchased on
exercise of the Warrants.
<PAGE>
(8) Any notices or certificates by the Company to the
Holder(s) and by the Holder(s) to the Company shall be
deemed delivered if in writing and delivered personally or
sent by certified mail, return receipt requested, to the
Holder, addressed to him at his address as set forth on the
Warrant or stockholder register of the Company, or, if the
Holder has designated, by notice in writing to the Company,
any other address, to such other address, and, if to the
Company, addressed to it at 877 North 8th West, Riverton,
Wyoming 82501. The Company may change its address by written
notice to Holders.
(h) Transfer to Comply with the Securities Act of 1933.
The Company may cause the following legend, or one similar
thereto, to be set forth on the Warrant and on each certificate
representing Warrant Shares or any other security issued or
issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for
distribution to the public pursuant to Section (g) hereof; unless
legal counsel for the Company is of the opinion as to any such
certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not
be offered for sales sold or otherwise transferred
except pursuant to an effective registration statement
made under the Securities Act of 1933 (the "Act") and
under any applicable state securities law, or pursuant
to an exemption from registration under the Act and
under any applicable state securities law, the
availability of which is to be established to the
satisfaction of the Company."
(i) Applicable Law. This Warrant shall be governed by, and
construed in accordance with, the laws of the state of Wyoming.
Dated as of January 9, 1996.
U.S. ENERGY CORP.
By: s/ John L. Larsen
--------------------------------
JOHN L. LARSEN, President
<PAGE>
PURCHASE FORM
Dated: ________, 19_____
The undersigned hereby irrevocably elects to exercise the Warrant
to the extent of purchasing 200,000 shares of Common Shares of
U.S. Energy Corp. and hereby makes payment of $1,000,000 in
payment of the actual Purchase Price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name: __________________________________________________________
(Please typewrite or print in block letters)
Address: _______________________________________________________
Signature: _____________________________________________________
ASSIGNMENT FORM
Dated: ________, 19_____
FOR VALUE RECEIVED, _____________________________________________
hereby sells, assigns and transfers unto ________________________
Name: __________________________________________________________
(Please typewrite or print in block letters)
Address: _______________________________________________________
the right to purchase Common Shares represented by this Warrant
to the extent of ____________________ Common Shares as to which
such right is exercisable and does hereby irrevocably constitute
and appoint _____________________________________________________
_________________________________________________________________
attorney, to transfer the same on the books of the Company with
full power of substitution in the premises.
Signature: ____________________________
Name: _________________________________
Title:
________________________________________
EXHIBIT 4.2
U.S. ENERGY CORP.
1989 STOCK OPTION PLAN
As Amended September 1, 1992, September 3, 1993
and January 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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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,
<PAGE>
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).
<PAGE>
(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.
<PAGE>
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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
(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.
<PAGE>
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.
<PAGE>
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
EXHIBIT 4.3
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.
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.
s/ Max T. Evans
- -------------------------------
Max T. Evans, Secretary
EXHIBIT 10.44
OPTION AGREEMENT AMENDMENT
This Option Agreement Amendment entered into at Riverton, WY this
1st day of November, 1995, by and between U.S. Energy Corp. and
Crested Corp. d/b/a USE/CC Joint Venture, a Wyoming co-
partnership ("USECC") and Arrowstar Investments, Inc., a Wyoming
corporation ("Arrowstar").
WITNESSETH:
WHEREAS, Arrowstar owns a 7,200 square foot hangar located
on a leasehold at the Riverton Regional Airport, more fully
described in that certain Lease Agreement between the City of
Riverton and Richard Gilpatrick d/b/a RENTCO dated August 29,
1991, which was assigned to Arrowstar on December 28, 1992 and is
attached hereto as Exhibit "A", (said hangar and leasehold is
hereinafter referred to collectively as the "Premises")
WHEREAS, USECC and Arrowstar entered into that certain
Option Agreement dated June 14, 1995 (the "Option Agreement") by
which Arrowstar granted USECC a six year option to purchase the
Premises for a minimum price of $110,000 or a greater value
depending on market conditions to be mutually agreed upon by both
parties;
WHEREAS, an independent appraisal of the Premises conducted
by Charles Walton, Certified General Real Estate Appraiser,
determined that the market value of the Premises as of September
8, 1995 was $75,000.00;
WHEREAS, USECC and Arrowstar have agreed to amend the Option
Agreement to reduce the minimum price to purchase the Premises
from $110,000 to $75,000; and
WHEREAS, USECC has notified Arrowstar that it desires to
exercise the option and purchase the Premises for the minimum
price and otherwise on the terms set forth in this Option
Agreement Amendment.
NOW THEREFORE, for consideration of $10.00 and other
consideration, including the mutual understandings set forth
above, the parties agree as follows:
1. The Option Agreement is hereby amended to grant USECC an
option to purchase the Premises for a minimum price of $75,000.
<PAGE>
Option Agreement Amendment
- ---------------------------
Page 2
2. Upon exercise of the Option, USECC shall pay Arrowstar the
sum of $30,000 and deliver to Arrowstar a promissory note for
$45,000 substantially in the form of Exhibit B hereto.
Contemporaneously therewith Arrowstar shall deliver to USECC an
assignment of the Lease Agreement covering the Premises and a
quit claim deed conveying the hangar located thereon. Arrowstar
has previously obtained the consent of the City of Riverton to
the assignment of the Lease to USECC, doing business as Western
Executive Air, Inc.
ARROWSTAR INVESTMENTS, INC. USECC
BY U.S. ENERGY CORP.
s/ Mark Larsen s/ Hal Herron
- ----------------------------- ------------------------------
Mark Larsen, President Hal Herron, Vice President
USECC BY CRESTED CORP.
s /Max t. Evans
------------------------------
Max T. Evans, President
<PAGE>
PROMISSORY NOTE
$45,000.00 Debtor:USE/CC Joint Vent
ure
- ---------- --------------------
November 1, 1995
Riverton, Wyoming
FOR VALUE RECEIVED, USE/CC JOINT VENTURE (Debtor), a Wyoming co-
partnership between U.S. ENERGY CORP., a Wyoming corporation and
CRESTED CORP., a Colorado corporation, hereby promises to pay to
the order of ARROWSTAR INVESTMENTS INC., a Wyoming corporation
("Creditor") in lawful money of the United States of America, at
the office of Creditor located at 877 North 8th West, Riverton,
Wyoming, 82501, or at such other place as Creditor or a future
holder hereof (Creditor or such other holder being referenced
herein as "Holder") may from time to time designate in writing,
the principal sum of Forty Five Thousand dollars and No cents
($45,000.00), together with interest on the unpaid principal
balance hereof, all as specified below.
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 Monthly Payments. During the term hereof,
the principal amount hereof, from time to time outstanding, shall
bear interest at the rate of ten percent (10.0%) per annum (the
"Standard Rate"). The principal amount, with accrued interest,
shall be due in 60 monthly installments of $500.00 each, due on
or before the first day of each month, beginning October
1, 1995, with the entire outstanding balance payable in full on
November 1, 2000 (the "Maturity Date"). The installment payments
that are timely made shall be credited to interest and principal
in accordance with the attached loan amortization schedule,
Exhibit A.
1.2 Prepayment. The indebtedness hereunder may be prepaid in
whole or in part any time, without penalty or premium, at the
election of Debtor. Any partial prepayment shall be applied
first to interest accrued to the date of such prepayment and then
to installments of principal in inverse order of maturity.
<PAGE>
USECC Joint Venture
Promissory Note
Page 2
2. EVENTS OF DEFAULT
The failure to make any payment of principal or interest due
pursuant to the terms hereof shall be deemed to be an event of
default ("Event of Default") hereunder.
3. DEFAULT INTEREST
Upon the occurrence of an Event of Default, Holder shall promptly
notify Debtor and any amount which is not paid as of the
expiration of five (5) days after receipt of such notice shall,
together with the remaining unpaid principal balance hereof,
thereafter bear interest at the alternative rate (rather than the
Standard Rate otherwise applicable hereunder) equal to thirteen
(13%) per annum (the "Default Rate"), until the Event of Default
is fully cured.
4. MISCELLANEOUS PROVISIONS
4.1 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.
4.2 Choice of Law and Forum. This Note shall be construed and
enforced in accordance with the 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.
4.3 Notices. Any notice to be given by Holder to Debtor shall
be in writing and delivered or mailed by registered or certified
mail to the offices of Debtor at 877 North 8th West, Riverton, WY
82501 or to such other address as Debtor shall advise by notice
given to Holder in accordance with the terms hereof. Any notice
to be given by Debtor to Holder shall be in writing and delivered
or mailed by registered or certified mail to the address where
payments are to be made in accordance with the terms of this
Note.
<PAGE>
USECC Joint Venture
Promissory Note
Page 3
4.4 Debtor's Waivers. Except as expressly provided to the
contrary herein, Debtor (and all guarantors, endorsers and other
parties 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 security, release any party liable
hereunder, and release any security now or hereafter securing
this Note.
4.5 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.
4.6 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.
4.7 Waivers. Any waiver, express or implied, of any Event of
Default hereunder shall not be considered a waiver of any
subsequent or different Event of Default. No delay or omission
on the part of Holder in exercising any right under this Note
shall operate as a waiver of such right or of any other right of
the Holder hereunder.
4.8 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.
DEBTORS:
USE/CC Joint Venture. USECC/Joint Venture
By U.S. Energy Corp. By Crested Corp.
s/ Hal Herron s/ Max T. Evans
Hal Herron, Vice President Max T. Evans, President
<PAGE>
USECC Joint Venture
Promissory Note
Page 4
ACKNOWLEDGEMENT
STATE OF WYOMING )
)ss.
COUNTY OF FREMONT )
Before me on November 1, 1995, personally appeared Hal
Herron known to me to be a Vice President of U.S. Energy Corp.
and Max T. Evans, known to me to be the President of Crested
Corp., both of whom acknowledged that they executed this
Promissory Note for and on behalf of USE/CC Joint Venture.
(NOTARY SEAL)
s/ Thomas M. Evans
------------------------------
Notary Public
My Commission Expires: 11/16/99
EXHIBIT 10.47
Agreement to Develop
The Ticaboo Convenience Store Service Station
And
Boat Storage Operation
THIS AGREEMENT is entered into at Riverton, Wyoming and
effective as of the 5th day of April, 1995 by and between Canyon
Homesteads, Inc. ("CHI"), a Utah corporation with executive
offices at 877 North 8th West, Riverton, Wyoming 82501 and
Arrowstar Investments, Inc. ("Arrowstar") a Wyoming corporation,
with executive offices at 877 North 8th West, Riverton, Wyoming
82501.
Recitals
WHEREAS, CHI leases (in its name as trustee for the Ticaboo
Townsite Joint Venture, hereafter "TTJV") land from the State of
Utah in Garfield County, Utah pursuant to "Special Use Lease
Agreement No. 399" dated July 3, 1978 (hereafter, "Special Use
Lease"), and pursuant to Development Leases and Base Leases
issued by the State Of Utah covering land under the Special Use
Lease, whereon buildings and other improvements more fully
described below (hereafter, such assets are referred to as the
"Townsite"); and
WHEREAS, CHI is responsible for the development of the
Ticaboo Townsite and the day to day management of the Ticaboo
Townsite which incudes a motel, restaurant/lounge, RV park,
mobile home park, home sites and other businesses; and
WHEREAS, CHI believes that in order to attract a
developer(s) to promote and develop the Ticaboo Townsite, it was
necessary to establish a recreational base; and
WHEREAS, In 1994, CHI reopened the motel, built a swimming
pool and leased the restaurant to a third party and after the
1994 tourist season (March through October), it became apparent
that additional services were needed to make the Ticaboo Townsite
profitable and more desirable to attract potential developers to
finance, construct, and establish the recreation resort townsite;
and
WHEREAS, CHI has spent over a year, seeking individuals or
company who would be interested in developing a convenient store
service station and boat storage site; and
WHEREAS, because of the business risks and seasonal tourist
trade, CHI has been unsuccessful in finding a company or
individual willing to risk an investment that may be abandoned
after one to two years of testing the seasonal tourist trade; and
<PAGE>
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 2
WHEREAS, CHI and Arrowstar are willing to assume the
business risks of a recreational development business; and
WHEREAS, CHI and Arrowstar desire to incorporate an Utah
limited liability company (name if available First-N-Last, LLC)
on a 50/50 basis to finance and develop the Ticaboo Service
Station and Boat Storage Operation to service the emerging
destination recreation resort townsite of Ticaboo; and
WHEREAS, CHI has applied to the State of Utah School and
Institutional Trust Land Administration ("Utah SITLA") for
approval of the assignments of an interest in related Development
Leases and Base Lease, in accordance with this Agreement, and the
Utah SITLA has indicated to CHI that the application will be
approved.
NOW THEREFORE, in consideration of the mutual promises set
forth herein and for other good and valuable consideration, the
receipt, sufficiency and legal adequacy of which are hereby
acknowledged, the Parties agree as follows:
1. FORMATION OF LLC.
CHI shall contribute its equity interest in the Ticaboo
Convenience Store Service Station and Boat Storage Site and
Operation ("Certain Ticaboo Townsite Assets"), more particularly
described on Exhibit A attached hereto, and made a part of this
Agreement and Arrowstar shall contribute cash of One Hundred
Fifty Thousand Dollars ($150,000.00). The formation of the Utah
limited liability company (name if available First-N-Last, LLC)
("LLC") shall be completed within 10 working days by CHI upon the
signing of this Agreement. The LLC will also have the sole and
exclusive right to establish a convenient store in the Ticaboo
Hotel.
2. MEMBERSHIP INTERESTS.
(a) General. Each party initially shall have a 50
percent membership interest in the LLC, subject to: (i) a special
allocation to Arrowstar of 90 percent of distributed cash from
operations until the "First" Working Capital Arrowstar
contributed and accrued interest has been paid and then 75
percent of distributed cash profits from operations until
$215,000.00 has been paid; (ii) reduction in Arrowstar's interest
for failure to pay or arrange for the initial working capital
pursuant to paragraph 3.(a); and (iii) reduction of either
party's interest for failure to make additional cash
contributions to when called by Management Committee, or the
admission of additional member, provided that the special
allocation under (i) shall not be changed without Arrowstar's
prior consent.
<PAGE>
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 3
(b) Transfer and Right of First Refusal. The proposed
sale or other transfer of any outstanding membership interests in
the LLC shall be subject to the nontransferring party's right of
first refusal to purchase the subject interest (for the same
consideration, or if for non-cash consideration, then a
reasonably equivalent amount of cash consideration). Notice
shall be given (by the party proposing transfer) to the
nontransferring party, at least 30 days prior to proposed
transfer, describing the amount of membership interest, purchase
price (including terms), and the proposed transferee (including
financial ability to meet the responsibilities of membership).
Exercise of right of first refusal shall be first by
the nontransferring party giving response notice of intent to
exercise the right to the party giving original notice, on or
before the close of business on the thirtieth day after original
notice is received. The membership interest must be purchased on
or before the close of business on the thirtieth day after
original notice is received. If either the response notice of
intent to exercise is not given, or is given but the membership
interest is not purchased within the time provided, there shall
be no right of first refusal for the nontransferring party to
purchase the subject interest (however, all subsequent transfers
of such, and other, membership interests shall be subject to such
right of first refusal). Transfers of membership interests to
party affiliates shall not be subject to this subparagraph (b).
(c) CHI's right to purchase Arrowstar's Membership
Interest. Notwithstanding any other provision of this Agreement,
if CHI needs to purchase Arrowstar's Membership Interest for any
reason, Arrowstar agrees to sell its Membership Interest for the
fair market value. For purposes of this Agreement fair market
value shall be determined by an appraiser acceptable to Arrowstar
and said appraisal shall be paid for by CHI. In no event shall
the fair market value be less than Arrowstar's initial Capital
Account until such time as Arrowstar has received $215,000.00 in
profits.
(d) Qualification of Transferees. In addition to the
restriction of subparagraph (b), no outstanding membership
interest in the LLC may be sold or otherwise transferred to a
third party without consent of the nontransferring party (if they
hold a majority of the membership interests), in which event the
transferee shall not become a member but shall receive an
interest in profits or other compensation by way of income and
right to the return of contributions to which the transferring
member otherwise would be entitled.
<PAGE>
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 4
3. WORKING CAPITAL.
(a) First $50,000.00. Arrowstar shall contribute or
arrange for the loan of up to $50,000.00 to the LLC (the loan may
be secured with the LLC's assets) to fund the initial program and
budget.
(b) Cash Calls. After amounts available under (a) are
spent, the Operating Manager of the LLC shall submit (before the
last day of each month) a billing for estimated cash requirements
for the next month, based on the current adopted program and
budger. Within 10 days after recipt of each bill, each each
Member of the LLC shall advance its proportionate share of the
estivmated amount.
4. MANAGEMENT COMMITTEE.
(a) General. The LLC shall be managed by an Operating
Manager selected by the Management Committee according to the
Operating Agreement. Initially, the Operating Manager shall be
CHI. The management committee for the LLC will be responsible
for setting the goals, objectives and policies, formulating the
business strategy and establishing the annual budget (including a
minimum 3 year forecast). The Operating Manager, subject to the
overall direction and ultimate authority of the Management
Committee, will be responsible for daily operations (including
without limitation supervision of architects and building and
landscape contractors, insurance and security, management and
marketing and commercial operations). CHI shall prepare monthly
or quarterly reports, as directed by the Management Committee,
showing status of and budgets and such other information
requested by the Management Committee.
(b) Representation. CHI and Arrowstar shall have
equal representation (two seats each) on the Management
Committee, for so long as CHI and Arrowstar have equal membership
interests in the LLC. The initial committee members are as
follows:
(i) Arrowstar's committee members will be
Keith Larsen and Mark Larsen; and
(ii) CHI's committee members will be Al Dearth and
Scott Lorimer.
In the event a part's membership interest in the LLC
becomes less than 40 percent, that party shall be entitled to one
seat on the Management Committee; if its membership interest
becomes less than 20 percent, that party shall be entitled to no
seat on the Management Committee. The 75 percent special
allocation to Arrowstar shall not be taken into account for
purposes of representation.
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 5
5. ARROWSTAR AND CONFLICT OF INTEREST.
Arrowstar is owned by Jack Larsen, Chairman and President of
U.S. Energy Corp. ("USE") and Chairman of Plateau Resources,
Ltd., and his sons Richard Larsen, Keith Larsen and Mark Larsen
all employees of USE. Plateau Resources, Ltd. is a wholly owned
subsidiary of U.S. Energy Corp. Therefore, there is the
possibility for a conflict of interest or the appearance of a
conflict of interest to exist between Arrowstar, USE, Plateau and
CHI. However, given the facts that at this time Arrowstar is the
only company willing to invest in the Ticaboo Service Station and
Boat Storage business, time is of the essence because development
must be completed by no later than May 1995 (beginning of 1995
tourist season) and CHI does not wish to invest in this
development; CHI believes any potential conflict is manageable
and CHI should enter into an agreement with Arrowstar to develop
Ticaboo Service Station and Boat Storage Sties.
6. REPRESENTATIONS AND WARRANTIES.
(a) Of CHI. This Agreement has been duly authorized
by the directors and shareholder of CHI, a Utah corporation in
good standing. TTJV is sole lessee or owner of the Townsite
assets. CHI is sole owner of TTJV. CHI has not received any
notice of default of provisions of the Special Use Lease, or
Development Leases or Base Leases thereunder, or other agreements
under which Townsite assets are leased or used. Subject to
approval by the Utah SITLA of the assignment of the Special Use
Lease and related Development Leases and Base Leases, Canyon has
full authority to convey certain Townsite assets under Section 1
of this Agreement, and all such assets are free and clear of any
encumbrance (except taxes for prior periods which are not
delinquent). There are no pending or threatened actions, suits,
claims or proceedings by any person (including environmental and
other public administrative agencies) with respect to the certain
Townsite assets.
(b) Of Arrowstar. Execution, delivery and performance
of this Agreement has been duly authorized by the directors and
shareholders of Arrowstar, a Wyoming corporation in good
standing. Arrowstar acknowledges having been provided the
opportunity to inspect the Certain Ticaboo Townsite Assets and
review all files of CHI regarding the Certain Ticaboo Townsite
Assets. Arrowstar understands that the profitable development of
the Certain Ticaboo Townsite Assets is not assured, whether due
to unanticipated construction costs, lack of market, or other
factors.
<PAGE>
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 6
7. FIDUCIARY DUTIES OF THE PARTIES. Each party hereto, and
the affiliates of each party, agrees that fiduciary duties are
owed to the LLC and its members, such that all Parties and
affiliates will act on behalf of the LLC for benefit of that
entity, and further agree that all profits that can be derived
from dealings by the Parties and their affiliates with the LLC
and/or its assets, shall be made only in and through the LLC for
the benefit of its members. No party or its affiliates shall
make profits for their own accounts from doing any kind of
business with the LLC and/or its assets, without the knowledge
and consent of the other party. Notwithstanding the preceding,
pursuant to Section 48-2b-125(l) of the Utah Limited Liability
Company Act, only the Operating Manager shall have the right to
bind the LLC.
8. OPERATING AGREEMENT TO CONTROL. In the event of any
conflict between this Agreement and the Operating Agreement, the
Operating Agreement shall control.
9. NO PARTNERSHIP OR AGENCY. CHI and Arrowstar
acknowledge that, by virtue of this Agreement and the
transactions contemplated hereby, CHI and Arrowstar are not the
agents or partners of each other, and nothing contained in this
Agreement shall be construed to create between CHI and Arrowstar
the relationship of principal and agent, joint venturers, co-
partners or any other similar relationship, the existence of
which is hereby expressly disclaimed by the Parties here to.
Neither Party shall have the authority to act for or assume any
obligation or responsibility on behalf of the other Party, except
as expressly set forth herein. Each Party shall indemnify,
defend and hold harmless the other Party, its directors,
officers, employees, and agents from and against any and all
losses, claims, damages or liabilities, including reasonable
attorney's fees, arising out of any act of any assumption of
liability by the indemnifying Party or any of its directors,
officers, employees, and agents done or undertaken, or apparently
done or undertaken, on behalf of the other Party, except pursuant
to authority expressly granted herein or as otherwise agreed upon
in writing between the Parties.
10. GENERAL PROVISIONS.
(i) Binding Agreement. This Agreement shall be
binding upon and shall inure to the benefit of the heirs, legal
representative, successors and assigns, as applicable, of the
respective Parties hereto, and any entities resulting from the
reorganization, consolidation or merger of any Party hereto.
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 7
(ii) Headings. The headings used in this Agreement are
inserted for reference purposes only and shall not be deemed to
limit or affect in any way the meaning or interpretation of any
of the terms or provisions of the Agreement.
(iii) Time of the Essence. Time is of the essence
of this Agreement. Any deadline hereunder which falls on a
weekend day or holiday shall instead fall on the next following
business day.
(iv) Severability. The provisions of this Agreement
are severable, and should any provision hereof be found to be
void, voidable or unenforceable, such void, voidable or
unenforceable provision shall not affect any other portion or
provision of this Agreement.
(v) Waiver. Any waiver by any Party hereto of any
breach of any kind or character whatsoever by any other party,
whether such waiver be direct or implied, shall not be construed
as a continuing waiver or consent to any subsequent breach of
this Agreement on the part of the other party.
(vi) Modification. This Agreement may not be modified
except by an instrument in writing signed by the Parties hereto.
(vii) Governing Law. This Agreement shall be
interpreted, construed and enforced according to the laws of the
State of Utah.
(viii) Attorney's Fees. In the event any action or
proceeding is brought by either Party against the other under
this Agreement, the prevailing Party shall be entitled to recover
attorney's fees and costs in such amount as the court may adjudge
reasonable, whether incurred before, during or after such
proceeding is commenced and conducted. Notwithstanding the
preceding, the collecting attorney must be able to swim the
mighty Colorado, across the widest and deepest point, with cement
line boots and hands tied behind his or her back or in the
alternative the attorneys must get the Parties to work together
to resolve their differences.
(ix) Notices. Any notice, consent, request, objection
or communication to be given by either Party to this Agreement
shall be in writing and shall be either delivered personally, by
certified mail or by Airborne, Federal Express or other
commercial overnight delivery service addressed as follows:
If to CHI: Canyon Homesteads, Inc..
877 North 8th West
Riverton, Wyoming 82501
<PAGE>
Agreement to Develop Ticaboo
Service Station & Boat Storage Operation
Page 8
If to Arrowstar: Arrowstar Investments, Inc.
877 North 8th West
Riverton, Wyoming 82501
(x) Counterparts. This Agreement may be executed in
any number of counterparts, each of which, when executed and
delivered, shall be deemed an original, but all of which shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement is executed to be effective as
of the date first stated above.
CANYON HOMESTEADS INC.
s/ A. E. Dearth
- -----------------------------------------
A. E. DEARTH, President
ARROWSTAR INVESTMENTS, INC.
s/ Mark J. Larsen
- ------------------------------------------
MARK J. LARSEN, President
EXHIBIT 10.48
OPERATING AGREEMENT
FOR
FIRST-N-LAST L.L.C.,
A UTAH LIMITED LIABILITY COMPANY
Article I
Definitions
In this Operating Agreement, the following terms shall have
the meanings defined below, unless another meaning is stated in
the text of the Operating Agreement.
"Articles of Organization" are the Articles of Organization
for First-N-Last Limited Company filed with the Utah Division of
Corporations and Commercial Code of the Department of Commerce on
or about the 20th of April, 1995.
"Capital Account" at any time shall be the Capital
Contribution to the Company by a Member, as adjusted under
Article VIII.
"Capital Contribution" is any Member's contribution to
Company capital, in cash or property.
"Initial Capital Contribution" is any Member's contribution
to Company capital, in cash or property.
"Capital Interest" is the proportion (expressed as a
percentage) which a Member's positive Capital Account bears to
the aggregate of all positive Capital Accounts of all Members
with positive balances.
"Code" is the Internal Revenue Code of 1986, as amended.
"Act" or "Utah Act" is the Utah Limited Liability Company
Act.
"Company" is First-N-Last L.L.C.
"Deficit Capital Account" is any deficit balance in a
Member's Capital Account as of the end of the taxable year, after
giving effect to the following adjustments:
Operating Agreement
First-N-Last L.L.C.
Page 2
1. credit to such Capital Account any amount which such
Member is obligated to restore under Sec. 1.704-1(b)(ii)(c) of
the Treasury Regulations, as well as any addition thereto
pursuant to the next to last sentence of Sections 1.704-2(g)(1)
and (i)(5) of such Regulations, after taking into account
thereunder any changes during such year in partnership minimum
gain (as determined in accordance with Section 1.704-2(d) of such
Regulations) and in the minimum gain attributable to any partner
nonrecourse debt (as determined under Section 1.704-2(i)(3) of
such Regulations; and
2. debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
The foregoing Deficit Capital Account is intended to comply
with Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and 1.704-2
and shall be interpreted in conformity therewith.
"Distributable Cash" is all cash, revenues and funds
received by the Company, less the sum of the following to the
extent paid or set aside by the Company: (i) all principal and
interest payments on Company debt, and all other sums paid to
lenders; (ii) all cash expenditures incurred in connection with
regular Company business; and (iii) such Reserves as the Manager
deems prudent to proper operation of the Company business.
"Economic Interest" is a Member's or Economic Interest
Owner's share of Company Net Profits or Net Losses or
distributions of assets, or any combination of such, pursuant to
this Operating Agreement and the Act, but shall not include any
right to participate in management of Company business or
affairs, or the right to vote on, consent to or otherwise
participate in an decision of Members.
"Economic Interest Owner" is the owner of an Economic
Interest, who is not also a Member.
"Entity" is any general of limited partnership, limited
liability company, corporation, joint venture, trust, business
trust, cooperative, or other form of domestic or foreign business
organization.
"Fiscal Year" is the Company's fiscal year, which shall be
the 12 months ending May 31.
"Gifting Member" is a Member or Economic Interest Owner who
gifts or otherwise transfers without consideration (by operation
of law or otherwise, except with respect to bankruptcy) all or
any part of a Membership Interest or Economic Interest.
Operating Agreement
First-N-Last L.L.C.
Page 3
"Majority Interest" is the Interest(s) of Member(s) which
exceeds 50 percent of the aggregate of all Capital Interests.
"Member" is each party who executes this Operating Agreement
as a Member, and each of the parties who thereafter become
Members. To the extent the Operating Manager has purchased
Membership Interests in the Company, it shall have all rights of
a Member with respect to such Membership Interests. If a Person
is a Member immediately prior to acquisition by such Person of an
Economic Interest, such rights as a Member shall extend to the
acquired Interest.
"Net Profits" and "Net Losses" are Company income, gain,
loss, deductions and credits, determined in accordance with
generally accepted accounting principles under the accrual method
of accounting, determined as of the close of each fiscal year on
the Company informational tax return filed for federal income tax
purposes.
"Operating Manager" initially under this Agreement shall
refer to Canyon Homesteads, Inc. ("CHI"), a Utah corporation, or
any other person(s) who succeeds it in such capacity.
"Person" is an individual or Entity, and his or her heirs,
executors, or administrators, and his or her or its successors
and assigns.
"Reserves" are such amounts of funds, determined with
respect to an appropriate fiscal period, which have been set
aside or allocated during the period for Company working capital,
taxes, insurance, service of debt and other costs and expenses
incident to the business of the Company.
"Selling Member" is a Member or Economic Interest Owner who
sells, assigns or otherwise transfers for consideration all or a
portion of such Interest.
"Transferring Member" includes a Selling Member and a
Gifting Member.
"Treasury Regulations" include all proposed, temporary and
final regulations under the Code, whenever promulgated.
Operating Agreement
First-N-Last L.L.C.
Page 4
ARTICLE II
Formation
2.1 Formation. On or about April 20, 1995 the Company was
organized under Utah law.
2.2 Name. The name of the Company is First-N-Last L.L.C.
2.3 Principal Place of Business. The principal place of
Company business in Utah is in Ticaboo, Garfield County, Utah
which location (and the registered office of the Company) may be
changed by the Members from time to time.
2.4 Registered Office and Registered Agent. The Company's
initial registered office and registered agent are as stated in
the Articles of Organization.
2.5 Term. The term of Company existence shall be
perpetual, unless the Company is sooner dissolved under this
Agreement or the Act.
ARTICLE III
Business
3.1 Permitted Business. The business of the Company shall
be any lawful business, including but not limited to the holding
and development of a convenience store service station and boat
storage operation at Ticaboo.
ARTICLE IV
Members
The names and addresses of the initial two Members at
execution date of the original Operating Agreement are:
Canyon Homesteads, Inc. Arrowstar Investments
Inc.
877 North 8th West 877 North 8th West
Riverton, Wyoming 82501 Riverton, Wyoming 82501
The Initial Capital contributions, are set forth in Article
VII.
Operating Agreement
First-N-Last L.L.C.
Page 5
ARTICLE V
Rights and Duties of Management Committee and the Operating Mana
ger
5.1 Management Committee. The business and affairs of the
Company shall be managed overall by its Management Committee,
which shall have the ultimate authority to determine the goals,
objectives and polices for the Company; formulate the development
and overall business strategy for the Company; and establish the
annual budget for Company business (including a minimum 3 year
forecast). For so long as the initial Members have equal
Membership Interests (50 percent each) from the two initial
Members; if a representative cannot attend a meeting, an
alternate may serve. The special allocation to Arrowstar
Investments Inc. ("Arrowstar") of 75 percent of profits and
losses under Article VIII shall be disregarded in determining the
initial Members' representation rights.
If a Member's Membership Interest becomes less than 40
percent, that Member shall be entitled to one representative on
the Management Committee; if the Membership Interest becomes less
than 20 percent, that Member shall be entitled to no
representative and shall become an Economic Interest Owner. The
preceding changes in representation rights shall become effective
immediately on change in Membership Interest owned.
All decisions of the Management Committee shall be decided
by majority vote of the representatives.
The Management Committee shall hold regular meetings at
least quarterly in Riverton, Wyoming or other mutually agreed
places, on 10 days notice of such regular meetings.
Additionally, either Member may call a special meeting on five
days' notice to the other Member(s). If an emergency situation,
reasonable notice will be sufficient for a special meeting. If
only one Member's representatives are present, the meeting shall
be rescheduled, but at a rescheduled meeting a quorum will exist
if one Member is represented.
Every notice of a meeting shall include an itemized agenda
prepared by the Operating Manager in case of a regular meeting,
or by the calling Member in case of a special meeting, but any
matter may be considered at any meeting if deliberation on such
ex-agenda matter is consented to by the Members.
Operating Agreement
First-N-Last L.L.C.
Page 6
Minutes of each meeting shall be prepared by the Operating
Manager, who shall distribute drafts within 10 days after each
meeting. The minutes, when signed by all Members, shall be the
official record of proceedings for that meeting and of decisions
made by the Management Committee, and shall be binding on the
Operating Manager. Reasonable meeting attendance costs for
Member representatives shall be paid by the Company.
If necessary under the circumstances, a telephone conference
wherein all representatives can participate may be held in lieu
of an actual meeting, provided all decisions are reduced to
writing and confirmed by all Members.
The authority of the Management Committee shall be delegated
to the Operating Manager. The Management Committee shall provide
overall direction and guidance to the Operating Manager, who will
be responsible for implementing approved courses of action and
budgets for the Company and its business, including without
limitation the specific duties set forth in Section 5.2. The
Operating Manager may be replaced by majority vote of the
Management Committee.
5.2 Operating Manager Duties and Powers. The Operating
Manager shall conduct all duties and activities on behalf of the
Company in good faith and in the best interests of the Company.
Subject to this Operating Agreement and the general oversight and
direction of the Management Committee, the Operating Manager
shall have the full authority to carry out the day-to-day
management of the Company and conduct all operations, including
(without limitation) the following powers and duties to:
(a) Supervise the preparation of all plans for
construction of improvements to the convenience store service
station and boat storage site at Ticaboo.
(b) Supervise the day-to-day activities of the
convenience store service station and boat storage operations at
Ticaboo.
(c) Prepare and submit all reports to Utah regulatory
agencies and other authorities, as required by State of Utah
leases and otherwise.
Operating Agreement
First-N-Last L.L.C.
Page 7
(d) Monitor all construction of improvements, to the
extent necessary to conform operations to budget and contracts
with general contractors, and to the extent possible keep all
Company assets free and clear of all liens and encumbrances,
except those existing when particular assets are acquired. The
Operating Manager shall release or discharge mechanic's or
materialmen's liens in a diligent manner.
(e) Obtain and maintain all insurance policies as
directed by the Management Committee and regulatory agencies.
(f) Purchase or otherwise acquire all inventories,
materials, supplies, equipment, utility and transportation
services required for Company operations in all phases, such
purchases and acquisitions to be made on the best terms
available, taking into account all circumstances.
(g) Make or arrange for all payments required by
leases (including the Special Use Lease and Base Lease),
licenses, permits, contracts and other agreements related to
Company assets; pay all taxes, assessments and like charges on
operating activities and assets (except taxes for which Members
are sole responsible); apply for all necessary permits, licenses
and approvals; and comply with applicable federal, state and
local laws and regulations (and notify the Management Committee
of substantial alleged violations thereof).
(h) If authorized by the Management Committee, contest
in the courts or other forums the validity or amount of any
taxes, assessments, charges or levied fines, if deemed by the
Operating Manager to be unlawful, unjust, unequal or excessive,
or otherwise take steps it deems reasonable to procure a
cancellation, reduction, or adjustment thereof. However, the
Operating Manager shall not permit or allow title to any Company
assets to be lost as a result of nonpayment of taxes, assessments
or like charges.
(i) Sell or otherwise dispose of Company assets in the
ordinary course of business as approved by the Management
Committee, and pay all just bills for goods and services provided
to Company when due, but without prior authorization of the
Management Committee, all checks for more than $5,000.00 shall
require the signature of a representative of each Member.
(j) Keep and maintain all required accounting and
financial records pursuant to the Accounting Procedure attached
to this Operating Agreement, in accordance with customary
accounting methods used in the service industry.
Operating Agreement
First-N-Last L.L.C.
Page 8
(k) Keep the Management Committee advised of all
operations by submitting in writing to the Management Committee:
(1) monthly progress reports, including statements of
expenditures and comparisons of such expenditures to the budget
for the period; (2) periodic summaries of all data acquired in
the course of operations (results of marketing surveys and any
other kind of information potentially useful in measuring the
success of any operations or evaluating a business strategy); (3)
copies of routine reports concerning operations; (4) within 60
days after completion of any budget or particular program, a
detailed final report with comparisons between actual and budget
expenditures, and comparisons between objectives and results of
the programs; and (6) any other reports reasonably requested by
the Management Committee.
(l) Except as required otherwise by the above, conduct
all operations and incur all expenses and acquire all assets,
only pursuant to approved programs and budgets, to be prepared
and submitted by the Operating Manager in reasonable detail as to
scope, direction and nature (with fiscal basis) to the Management
Committee. The initial program and budget shall be submitted
within 60 days of formation of the Company; thereafter an annual
program and budget shall be submitted by July 30 of each year
(the Company fiscal year ends May 31), with the first annual
budget to be submitted by July 30, 1995.
The Management Committee will evaluate and decide
whether to adopt the proposed program and budget, or determine to
amend the proposal, within 30 days of submission. The Management
Committee shall determine the final Program and Budget, and
notify all Members of such. Each Member shall have the
opportunity to contribute to the Program and Budget capital
requirements, in proportion to their Membership Interest
(disregarding the 90 and 75 percent special allocations to
Arrowstar), or in a lesser amount, or not at all, in which cases
its Membership Interest shall be recalculated as provided herein.
However, if a Member fails to notify the Management Committee of
its election, such Member shall be deemed to have elected to
contribute in full proportion to is Membership Interest as of the
beginning of the period covered by the program and budget.
In the event of a material departure from an adopted
program and budget, the Operating Manger shall notify the
Management Committee. If the capital expenditures in an approved
budget are exceeded by more than 20 percent, then the excess over
20 percent (unless directly caused by an emergency or unexpected
but warranted expenditure, or unless otherwise authorized by the
Management Committee and incorporated into an amended program and
Operating Agreement
First-N-Last L.L.C.
Page 9
budget) shall be borne by and for the sole account of the
Operating Manger. Budget overruns of 20 percent or less shall be
borne by Members according to their Membership Interests as of
the date when the overrun occurs.
(m) The Operating Manager shall undertake all other
activities reasonably necessary to fulfill the foregoing.
5.3 Resignation. Upon one month notice to the Management
Committee, the Operating Manager may resign, in which event the
other Member may elect to become the new Operating Manager. If
there are then more than two Members, then the nonresigning
Members shall decide amongst themselves who shall take the
position, according to majority vote by percentage Membership
Interest. In addition, if any of the following occur, the
Operating Manager shall be deemed to have offered to resign,
which offer shall be effective if accepted by the other Member(s)
within 90 days of the offer:
(a) The Operating Manger fails to perform a material
obligation imposed upon it under this Agreement, and fails to
cure same within 30 days after notice from the other Member(s) or
the Operating Committee.
(b) A receiver, liquidator or trustee for a
substantial part of the Operating Manager's assets is appointed
and not made ineffective or discharged within 60 days thereafter.
(c) The Operating Manager commences a voluntary case
under any applicable bankruptcy, insolvency or similar law, or
consents to the entry of an order for relief in an involuntary
case under any such law, or to the appointment of or taking
possession by a receiver or similar official of any substantial
part of its assets; or makes a general assignment for the benefit
of creditors.
5.4 Liability for Certain Acts. The Operating Manager
shall perform its duties in good faith, in a manner reasonably
believed to be in the best interest of the Company, with such
care as an ordinarily prudent person would use in similar
circumstances. The Operating Manager shall not be liable to the
Company or any Member for loss or damage, unless due to fraud,
deceit, gross negligence or willful conduct, or breach of this
Operating Agreement by the Manger.
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First-N-Last L.L.C.
Page 10
5.5 No Exclusive Responsibilities to Company; No
Profiteering. The Operating Manger is not required to devote
full time to Company business, and may engage in other business
interests, provided such do not compete with the Company directly
or indirectly. No Member is entitled to share in a Manager's or
another Member's business by virtue of this Operating Agreement,
provided, that the preceding shall not ever be construed to allow
the Operating Manager to make any profits for its or its
affiliates' accounts from doing any kind of business with the
Company or its assets, unless such profits are made with the
prior consent of all Members.
5.6 Indemnity. To the full extent allowed by the Act, the
Company shall indemnify the Operating Manager.
5.7 Manager Compensation. The Operating Manager shall be
compensated for its services and reimbursed for its costs
hereunder in accordance with the Accounting Procedure attached to
and incorporated by reference into their Operating Agreement.
ARTICLE VI
Rights and Obligations of Members
6.1 Limitation of Liability. The liability of each Member
shall be limited as set forth in this Operating Agreement and the
Act.
6.2 Company Debt Liability. A Member shall not be
personally liable for any debts or losses of the Company beyond
or in addition to its respective Capital Contributions, except
under Section 6.7 or as otherwise required by law.
6.3 List of Members. The Manger shall provide any Member a
list of names, addresses and Membership and Economic Interests
for all Members, on written request.
6.4 Approval of Sale of All Assets. The Members have the
right, by affirmative vote of Members holding a majority of all
Membership Interests, to approve the sale, exchange or other
disposition of all, or substantially all, of the Company's assets
(other than in the ordinary course of business) which is to occur
as part of a single transaction or plan.
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First-N-Last L.L.C.
Page 11
6.5 Company Books. In accordance with Section 11.10, the
Manager shall maintain and preserve, during the term of the
Company and for five years thereafter, all accounts, books, and
other documents of the Company. On reasonable request, each
Member and Economic Interest Owner shall have the right, during
ordinary business hours, to inspect and copy such Company
documents at the expense of the requestor. Further, each Member
shall have the right to inspect the books and records of each
Member as they relate to business conducted by each Member with
the Company in any manner.
6.6 Priority and Return of Capital. Except as may be
expressly provided in Article IX, no Member or Economic Interest
Owner shall have priority over any other Member or Economic
Interest Owner, either as to the return of Capital Contributions
or as to Net Profits, Net Losses or distributions; provided that
this Section shall not apply to loans (as distinguished from
Capital Contributions) which a Member or Economic Interest Owner
has made to the Company.
6.7 Liability of a Member to the Company.
(a) If a Member has received the return of any part of
its contribution without violation of this Agreement or the Act,
it is liable to the Company thereafter for the amount of the
returned contribution, plus interest, but only to the extent
necessary to discharge the Company's liability to creditors who
extended credit or whose claims arose before the return of the
capital contribution.
(b) A Member holds as trustee for the Company any
money or other property wrongfully paid or conveyed to the Member
on account of its capital contribution.
ARTICLE VII
Contributions to the Company and Capital Accounts
7.1 Members' Capital Contributions.
(a) Initial Capital Contributions. On formation of
the Company, the Members have each contributed the following:
CHI contributes its equity interest in the Ticaboo Service
Station and Boat Storage Operation and Arrowstar shall contribute
cash or cash equivalent of One Hundred Fifty Thousand Dollars
($150,000). For purposes of this subparagraph only, the value of
each such contribution is agreed to be $150,000.00.
Operating Agreement
First-N-Last L.L.C.
Page 12
(b) Cash Working Capital.
(1) First $50,000.00. Member Arrowstar, if
necessary, shall contribute or arrange for the loan of up to
$50,000.00 to the Company (the loan may be secured with Company
assets), as determined by the Management Committee, to fund the
initial program and budget.
(2) Cash Calls. After amounts available under
(1) are spent, the Operating Manager shall submit (before the
last day of each month) a billing for estimated cash requirements
for the next month, based on the current adopted program and
budget. Within 10 days after receipt of each billing, each
Member shall advance its proportionate share of the estimated
amount. Time is of the essence for paying such billings. If the
amount billed for estimated cash requirements was less than the
actual amounts spent during that month, the Operating Manager may
bill Members for the difference (so long as less than allowed
under the 20 percent overrun test of Section 5.2(l), and Members
shall pay their share of the difference within 10 days of receipt
of billing. All advances, and all expenditures, shall be made
from the one banking account to be maintained by the Company,
unless and until additional banking accounts are authorized by
the Operating Committee.
(3) Failure to Meet Cash Calls. A Member that
fails to meet cash calls in the amount and at the times specified
by (2) above, shall be in default, and the amounts of the
defaulted cash call shall bear interest from the date due at an
annual rate equal to two percentage points over the Chaser
Manhattan prime rate. The non-defaulting Member shall have the
rights, remedies and elections specified under Article VIII.
7.2 Capital Accounts.
(a) A separate Capital Account will be maintained for
each Member, which will be increased by (1) the amount of money
contributed by such Member to the Company; (2) the fair market
value of property contributed by such Member to the Company (net
of liabilities secured by such contributed property that the
Company is considered to assume or take subject to under Code
Section 752); (3) allocations to such Member of Net Profits; and
(4) allocations to such Member of income described in Code
Section 705(a)(1)(B). Each Member's Capital Account will be
decreased by (1) the amount of money distributed to such Member
by the Company; (2) the fair market value of property distributed
Operating Agreement
First-N-Last L.L.C.
Page 13
to such Member (net of liabilities secured by such property, that
such Member is considered to assume or take subject to); (3)
allocations to such Member of expenditures described in Code
Section 705(a)(2)(B); and (4) allocations to the Member's account
of Net Losses.
(b) In the event of a permitted sale or exchange of a
Membership Interest or an Economic Interest in the Company, the
Capital Account of the transferor shall become the Capital
Account of the transferee to the extent it relates to the
transferred Membership Interest or Economic Interest in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv).
(c) The Manner in which Capital Accounts are to be
maintained pursuant to this Section, is intended to comply with
the requirements of Code Section 704(b) and accompanying Treasury
Regulations. If the Company's accountants believe the manner in
which capital Accounts are to be maintained should be modified in
order to comply with the Code and Treasury Regulations, then the
Capital Accounts accounting shall be modified, provided that no
such change shall materially alter the economic agreement among
the Members.
(d) On liquidation of the Company (or any Member's
membership Interest or Economic Interest Owner's Economic
Interest), liquidating distributions will be made in accordance
with the positive Capital Account balances of the members and
Economic Interest Owners, as determined after taking into account
all Capital Account adjustments for the Company's taxable year
during which the liquidations occurs. Liquidations proceeds will
be paid within 60 days of the end of the taxable year (or if
later, within 120 days after the date of the liquidation). The
Company may offset damages for breach of the Operating Agreement
by a Member or Economic Interest Owner whose interest is
liquidated, against the amount otherwise distributable to such
Member.
(e) Except as otherwise required in the Utah Act, and
subject to the provisions of this Agreement, no Member or
Economic Interest Owner shall have any liability to restore all
or any portion of a deficit balance in its Capital Account.
7.3 Withdrawal or Reduction of Contributions to Capital.
(a) A Member shall not receive out of the Company's
property any part of its Capital Contribution until all Company
liabilities, except liabilities to Members on account of Capital
Contributions, have been paid or sufficient property remains in
the Company to pay them.
Operating Agreement
First-N-Last L.L.C.
Page 14
(b) A Member, irrespective of the nature of its
Capital Contribution, only has the right to demand and receive
cash in return for its Capital Contribution.
7.4 Distributions. Except for liquidating distributions
under Section 7.2(d), all distributions of cash shall be made to
Members pro rata in proportion to their respective Membership
Interest. Distributable Cash shall be distributed by the
Operating Manager, provided, that with respect to determining
Distributable Cash available for distribution during the period
that the special allocation of operating profits to Arrowstar
under Section 8.1 is in effect, the Members agree that the
Operating Manager shall only hold back such funds for Reserves as
can be demonstrated as needed for Reserves, as defined under
Article I of this Agreement.
7.5 Limitation on Distributions. No distribution shall be
paid unless, after the distribution, the assets of the Company
exceed all liabilities, except liabilities to Members on account
of their contributions.
ARTICLE VIII
Membership Interests
8.1 Initial Membership Interest; Allocation of Profits and
Losses from Operations. The Members shall have the following
Membership Interests, to which Company net profits and net losses
for each fiscal year will be allocated: Canyon Homesteads, Inc.
50 percent, Arrowstar Investments, Inc. 50 percent, subject to a
special allocation to Arrowstar of 90 percent of profits and
losses from Company operations until Arrowstar receives cash
equal to the amount of the First Cash Working Capital Arrowstar
contributed and accrued interest pursuant to Subparagraph
7.1(b)(1) and then 75 percent of profits and losses from Company
operations until Arrowstar receives cash equal to $215,000.00.
8.2 Special Allocations to Capital Accounts.
Notwithstanding Section 8.1:
(a) No allocations of loss, deduction and/or
expenditures described in Section 705(a)(2)(B) of the Code shall
be charged to the Capital Accounts of any Member is such
allocation would cause such Member to have a Deficit Capital
Account. The amount of such a loss, deduction and/or Code
Section 705(a)(2)(b) expenditure shall instead be allocated to
any Members which would not have a Deficit Capital Account as a
Operating Agreement
First-N-Last L.L.C.
Page 15
result of the allocation, in proportion to their respective
Capital Contributions, or, if no such Members exist, then to the
Members in accordance with their interests in Company profits
pursuant to Section 8.1.
(b) In the event any Member unexpectedly receives any
adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Treasury Regulations,
which create or increase a Deficit Capital Account of such
Member, then items of Company income and gain (consisting of a
pro rata portion of each item of Company income, including gross
income, and gain for such year, and if necessary, for subsequent
years) shall be specially allocated to such Member in an amount
and manner sufficient to eliminate, to the extent required by the
Treasury Regulations, the Deficit Capital Account so created as
quickly as possible. It is intended that this subsection be
interpreted to comply with the alternate test for economic effect
in Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations.
(c) If a Member would have a Deficit Capital Account
at the end of any Company taxable year which is in excess of the
sum of any amount that such Member is obligated to restore to the
Company under Section 1.704-1(b)(2)(ii)(c) and such Member's
share of minimum gain as defined in Section 1.704-2(g)(1) (which
is also treated as an obligation to restore under 1.704-
1(b)(2)(ii)(d)), the Capital Account of such Member shall be
specially credited with items of Membership income (including
gross income) and gain in the amount of such excess as quickly as
possible.
(d) Notwithstanding any other provision of this
Section 8.2, if there is a net decrease in the Company's minimum
gain per Section 1.704-2(d) of the Treasury Regulations in a
taxable year, then the Capital Accounts of each Member shall be
allocated items of income (including gross income) and gain for
such year (and if necessary for subsequent years) equal to that
Member's share of the net decrease in Company minimum gain. This
subsection is intended to comply with the minimum gain chargeback
requirement of Section 1.704-2 and shall be interpreted
consistently therewith. If in any taxable year that the Company
has a net decrease in the Company's minimum gain, if the minimum
gain chargeback requirement would cause a distortion in the
economic arrangement among the Members and it is not expected
that the Company will have sufficient other income to correct
that distortion, the Operating Manager may (and shall if directed
by the Management Committee) seek to have the Internal Revenue
Service waive the minimum gain chargeback requirement in
accordance with Section 1.704-2(f)(4).
Operating Agreement
First-N-Last L.L.C.
Page 16
8.3 Changes to Membership Interests. A Member's Membership
Interest shall be changed as follows:
(a) On a Member's election under Article VII to
contribute less to an adopted program and budget than the
percentage reflected by its Membership Interest, as follows: The
Membership Interest shall be recalculated at the time of such
election, by dividing (1) the sum of (a) the value of the Initial
Capital Contribution, plus (b) the total of all further Capital
Contributions, plus (c) the amount (if any) the Member elects to
contribute to the current adopted program budget; by (2) the sum
of (a), (b) and (c) for all Members; then multiplying the result
by 100. The Membership Interests of the other Members then
becomes the difference between 100 percent and the recalculated
Membership Interest of the subject Member.
(b) On a Member's default in making its agreed-upon
contribution to an adopted program and budget, followed by an
election by the other Member, as follows: If a Member defaults
in paying a contribution or cash call required by an approved
program and budget, or otherwise, the Member shall be in default.
If the default is not cured within 10 days of receipt of a
default notice from the non-defaulting member, the non-defaulting
Member may elect from the following remedies:
(1) The non-defaulting Member may advance the
defaulted contribution on behalf of the defaulting Member, and
treat the same as a demand loan with interest at two points over
prime at Chase Manhattan Bank, secured by a lien on the
defaulting Member's Membership Interest for the amount of the
loan with interest (plus reasonable attorney's fees and other
costs of collection). The defaulting Member shall execute such
document loan will be due on or before the thirtieth day after
demand is made.
(2) The non-defaulting Member may elect by giving
notice to the defaulting Member, to have the defaulting Member's
Membership Interest reduced, by dividing (a) all the Member's
Capital Contributions, by (b) Capital Contributions by all
Members, including any amount contributed by the non-defaulting
Member's Membership Interest by 50 percent (or such other number
as represents the Membership Interest if it has been, prior to
the current default, recalculated due to defaults). The
Membership Interest of the non-defaulting Member shall thereupon
become the difference between 100 percent and the defaulting
Member's recalculated Membership Interest. Provided, that the
defaulting Member can cure the default by paying the full amount,
plus annual interest at two points above Chase Manhattan Bank
Operating Agreement
First-N-Last L.L.C.
Page 17
prime, plus attorney's fees and other reasonable costs, in 30
days after default notice is given, without recalculation of its
Membership Interest. If cure is between 30 and 60 days after
notice, the curing defaulting Member's Membership Interest
be 90 percent of the pre-default amount; if cure is between 61
and 90 days, such Interest shall be 75 percent of the pre-default
amount; and if cure is between 91 and 120 days, such Interest
shall be 60 percent of the pre-default amount. All other rights
at law or equity of the non-defaulting Member shall be unaffected
by proceedings under this subsection (2).
(3) If a Member defaults by failure to perform an
obligation other than involving the payment of money (a "non-
monetary default"), and the defaulting Member fails to cure or
being and finish curative actions within 30 days after notice
from the non-defaulting Member, the non-defaulting Member may:
(a) terminate this Agreement; (b) purchase the defaulting
Member's Membership for 75 percent of fair market value
determined by an independent appraiser selected by the Management
Committee, notwithstanding any thing to the contrary in this
Operating Agreement, in the case of Arrowstar in no event shall
75 percent of the fair market value be less than Arrowstar's
initial Capital Account until such time as Arrowstar has received
$215,000.00 in profits; or (c) cure the default and charge the
cure cost to the defaulting Member's Capital Account and credit
such cost to the non-defaulting Member's Capital Account, in
which event the defaulting Member's Membership Interest shall be
recalculated in the same manner as under Section 8.3(a). Any
exercise of the preceding rights shall not limit or affect the
non-defaulting Member's rights at law and equity. All remedies
shall be cumulative. Election of one or more remedies shall not
cause waiver of any other remedies available.
(4) Transfer of less than all a Member's
Membership Interest.
ARTICLE IX
Dissolution and Termination
9.1 Dissolution. The Company shall be dissolved upon
occurrence of any of the following events:
(a) By unanimous written consent of Members;
(b) At such time that more than 79 percent of the
Capital Interests and interests in Company profits are owned by
Economic Interest Owners; or
Operating Agreement
First-N-Last L.L.C.
Page 18
(c) Upon the death, retirement, resignation,
expulsion, bankruptcy or dissolution of a Member or occurrence of
any other event which terminates the continued membership of a
Member in the Company (a "Withdrawal Event"), unless the business
of the Company is continued by consent of all the remaining
Members within 90 days after the Withdrawal Event, and there are
at that time, at least two other Members.
Notwithstanding anything to the contrary in this
Operating Agreement, if a Member or Members owning Capital
Interests in the aggregate constituting not less than two-thirds
of such Interest vote to dissolve the Company at a meeting of the
Management Committee, then all the Members shall agree in writing
to dissolve the Company as soon as possible thereafter. Upon
dissolution according to any of the preceding subparagraphs, and
upon filing of necessary documents of intent to dissolve the
Company with the Utah Secretary of State, the Company shall cease
to carry on its business except as necessary to wind it up, but
its separate existence shall continue until formal dissolution is
effected by issue of certificate therefor by the Secretary of
State or by court order.
9.2 Winding up, Liquidation and Distribution of Assets.
(a) Upon dissolution, an accounting shall be made by
the Company's independent accountants of the Company accounts,
assets, liabilities and operations, from the date of the last
accounting until dissolution date. The Operating Manger shall
immediately proceed to wind up the Company's affairs.
(b) If the Company is dissolved and its affairs are to
be would up, the Operating Manager shall:
(1) Sell or otherwise liquidate all Company
assets as promptly as practicable (unless assets should be
distributed in kind to Members);
(2) Allocate any profit or loss resulting from
sales to Capital Accounts of Members and Economic Interest
Owners;
(3) Discharge all Company liabilities, including
liabilities to Members and Economic Interest Owners who are
creditors, to the extent otherwise permitted by law, other than
liabilities to Members and Economic Interest Owners for
distributions, and establish such Reserves as may be reasonably
necessary to provide for contingent or fixed liabilities of the
Company and such Reserves shall be deemed Company expenses, for
purposes of Capital Accounts calculations); and
Operating Agreement
First-N-Last L.L.C.
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(4) Distribute the remaining assets in the
following order:
(i) If any assets are to be distributed in
kind, the net fair market value shall be determined by
independent appraisal or by Members' agreement. Such assets
shall be deemed to have been sold as of the date of dissolution
for fair market value, and the Capital Accounts shall be adjusted
to reflect a deemed sale, so as to comply with the deemed sale
(ii) The positive balance (if any) of each
Member's and Economic Interest Owner's Capital Account (after
taking into account all Capital Account adjustments for the
taxable year when the liquidation occurs) shall be distributed to
Members, in cash or in kind, with in kind assets being valued at
fair market value. Such distributions to Members in respect of
Capital Accounts, shall be made in accordance with the time
requirements stated by the Treasury Regulations.
(c) Notwithstanding anything to the contrary in this
Operating Agreement, upon a liquidation within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g), if any Member
has a Deficit Capital Account (after giving effect to all
contributions, distributions, allocations and other Capital
Account adjustments for all taxable years, including the year
when the liquidation occurs), such Member shall have no
obligation to make any Capital Contribution, and the negative
balance of such Member's Capital Account shall not be considered
a debt owed by such Member to the Company or any other Person
whatsoever.
(d) Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed
terminated, and thereafter necessary documents shall be prepared
and filed with the Utah Secretary of State to cause the Company
to cease to exist.
ARTICLE X
Additional Members and Transfers
10.1 Additional Members. So long as the Membership
Interests of the initial two Members are both 50 percent, no
additional Members shall be admitted without the consent of both
Members, and otherwise new Members may be admitted upon vote of
the Management Committee.
Operating Agreement
First-N-Last L.L.C.
Page 20
10.2 Transferability. Except as specifically provided
herein, neither a Member nor an Economic Interest owner shall
have the right to (i) sell, assign, pledge, hypothecate,
transfer, exchange or otherwise transfer for consideration
(hereafter, "sell"), or (ii) gift or otherwise transfer for no
consideration (whether or not by operation of law, except in the
case of bankruptcy), all or any part of its Membership Interest
or Economic Interest:
(a) Right of First Refusal. A Member which desires to
sell all or any part of its Membership Interest or Economic
Interest to a third party purchaser, shall give 30 days prior
written notice to the nontransferring Member(s) of its (their)
right of first refusal to purchase such Interest for the same
consideration and on the same terms as offered a third party, and
describe the amount of Interest to be sold and the identify the
proposed transferee (including financial ability to meet the
responsibilities of ownership). Exercise of the right of first
refusal shall be first by the nontransferring members giving
response notice of intent to exercise the right to the member
giving original notice, on or before the close of business on the
thirtieth day after original notice is received. The Interest
must be purchased on or before the close of business on the
thirtieth day after original notice is received. If either the
response notice of intent to exercise is not given, or is given
but the Interest is not purchased within the time provided, there
shall be no right of first refusal for the nontransferring party
to purchase the Interest (however, all subsequent transfers of
such, and other, Interest shall be subject to such right of first
refusal). Transfers of Interests to Member affiliates shall not
be subject to this subparagraph.
(b) CHI's right to purchase Arrowstar's Membership
Interest. Notwithstanding any other provision of the Operating
Agreement, if CHI needs to purchase Arrowstar's Membership
Interest for any reason, Arrowstar agrees to sell its Membership
Interest for the fair market value. For purposes of this
Agreement fair market value shall be determined by an appraiser
acceptable to Arrowstar and said appraisal shall be paid for by
CHI. In no event shall the fair market value be less than
Arrowstar's initial Capital Account until such time as Arrowstar
has received $215,000.00 in profits.
(c) No Transferee a Member Without Unanimous Consent.
Notwithstanding any other provision of the Operating Agreement,
if all remaining Members do not approve by unanimous written
consent of the proposed sale of gift of a transferring Member's
Membership Interest or Economic Interest to a transferee or donee
Operating Agreement
First-N-Last L.L.C.
Page 21
which is not a Member immediately prior to proposed date of sale
or gift, then the transferee or donee shall have no right to
participate in management of the Company or to become a Member.
Instead, such transferee or donee shall be an Economic Interest
Owner.
ARTICLE XI
Miscellaneous
11.1 Binding Agreement. This Operating Agreement shall be
binding upon and shall inure to the benefit of the heirs, legal
representative, successors and assigns, as applicable, of the
respective Parties hereto, and any entities resulting from the
reorganization, consolidation or merger of any Party hereto.
11.2 Headings. The headings used in this Operating
Agreement are inserted for reference purposes only and shall not
be deemed to limit or affect in any way the meaning or
interpretation of any of the terms or provisions of the Operating
Agreement.
11.3 Severability. The provisions of this Operating
Agreement are severable, and should any provision hereof be found
to be void, voidable or unenforceable, such void, voidable or
unenforceable provision shall not affect any other portion or
provision of this Operating Agreement.
11.4 Waiver. Any waiver by any Party hereto of any breach
of any kind or character whatsoever by any other party, whether
such waiver be direct or implied, shall not be construed as a
continuing waiver or consent to any subsequent breach of this
Operating Agreement on the part of the other party.
11.5 Amendments. This Operating Agreement only can be
amended in writing signed by all Members.
11.6 Governing Law. This Operating Agreement shall be
interpreted, construed and enforced according to the laws of the
State of Utah.
11.7 Attorney's Fees. In the event any action or proceeding
is brought by either Party against the other under this Operating
Agreement, the prevailing Party shall be entitled to recover
attorney's fees and costs in such amount as the court may adjudge
reasonable, whether incurred before, during or after such
proceeding is commenced and conducted. Notwithstanding the
preceding, the collecting attorney must be able to swim the
mighty Colorado, across the widest and deepest point, with cement
Operating Agreement
First-N-Last L.L.C.
Page 22
line boots and hands tied behind his or her back or in the
alternative the attorneys must get the Parties to work together
to resolve their differences.
11.8 Counterparts. This Operating Agreement may be
executed in any number of counterparts, each of which, when
executed and delivered, shall be deemed an original, but all of
which shall together constitute one and the same instrument.
11.9 Notices. Any notice, consent, request, objection or
communication to be given by either Party to this Operating
Agreement shall be in writing and shall be either delivered
personally, by certified mail or by Airborne, Federal Express or
other commercial overnight delivery service to the address of the
Members as appearing on the books of the Company.
11.10 Books and Records. Accounting records shall be kept
in accordance with the Accounting Procedure attached to this
Operating Agreement. Books and records required by Utah Act
Section 48-2b-119 shall be kept by the Operating Manger.
IN WITNESS WHEREOF, this Operating Agreement is executed in
Riverton, Wyoming on April 20, 1995. Counterpart execution is
permitted.
CANYON HOMESTEADS INC.
s/ A. E. Dearth
- ---------------------------------------
A.E. DEARTH, President
ARROWSTAR INVESTMENTS, INC.
s/ Mark J. Larsen
- ---------------------------------------
Company
Mark J. Larsen, President
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
_____________________________________________________
As independent public accountants, we hereby consent to the use
of our reports and to all references to our firm included in or
made a part of this registration statement.
Denver, Colorado
June 13, 1996
