[GRAPHIC OMITTED]
(COMPANY LOGO)
U.S. ENERGY CORP.
MINERALS PLAZA, GLEN L. LARSEN BUILDING
877 NORTH 8TH WEST
RIVERTON, WYOMING 82501
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, DECEMBER 4, 1998
TO THE SHAREHOLDERS OF U.S. ENERGY CORP:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of U.S. Energy
Corp., a Wyoming corporation (the "Company" or "USE"), will be held at the
Company's Ticaboo Motel (3 miles from the Shootaring Uranium Mill) located 12
miles north on State Highway 276 from the Bullfrog Marina on Lake Powell, also
accessible 65 miles south of Hanksville, Utah on State Highway 95 which turns
into State Highway 276, on Friday, December 4, 1998 at 11:00 a.m., local time,
or at any adjournments thereof (the "Meeting"), for the purpose of acting upon:
1. The election of two directors to serve until the third succeeding
annual meeting of shareholders, and until their successors have been
duly elected or appointed and qualified;
2. Amending the Incentive Stock Option Plan to extend its term to June
15, 2008 and to increase the number of shares of Common Stock
authorized to be issued on exercise of options (from 975,000 shares to
2,750,000 shares).
3. Such other business as may properly come before such meeting.
Only shareholders of record at the close of business on Friday, October 23,
1998 will be entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof. The Company's transfer books will not be closed for the
Meeting.
A list of shareholders entitled to vote at the Meeting will be available
for inspection by any record shareholder at the Company's principal executive
offices in Riverton, Wyoming. The inspection period begins two days after the
date this Notice is given and ends at the conclusion of the Meeting.
By Order of the Board of Directors
s/ Max T. Evans
MAX T. EVANS, Secretary
Please date, sign and return your Proxy so that your shares may be voted as
you wish, and to assure quorum. The prompt return of your signed Proxy,
regardless of the number of shares you hold, will aid the Company in reducing
the expense of additional Proxy solicitation. The giving of such Proxy does not
affect your right to vote in person should you attend the Meeting.
YOUR VOTE IS IMPORTANT
Dated: November 6, 1998
<PAGE>
U.S. ENERGY CORP.
MINERALS PLAZA, GLEN L. LARSEN BUILDING
877 NORTH 8TH WEST
RIVERTON, WYOMING 82501
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, DECEMBER 4, 1998
The enclosed Proxy is solicited on behalf of the Board of Directors (the
"Board") of U.S. Energy Corp. (the "Company" or "USE") for use at the Annual
Meeting of Shareholders to be held at 11:00 a.m. local time on Friday, December
4, 1998 (the "Meeting"). It is expected that the Notice of Meeting, Proxy
Statement and Proxy will be mailed to record shareholders on or about November
6, 1998.
REVOCABILITY OF PROXY
The Proxy may be revoked at any time, to the extent it has not been
exercised, by: (i) written revocation; (ii) executing a later-dated Proxy and
delivering it to the Company; (iii) requesting (in writing) a return of the
Proxy; or (iv) the shareholder voting in person at the Meeting.
VOTING OF PROXY
If the enclosed Proxy is executed and returned, it will be voted as
indicated by the shareholder on the proposals. Unless otherwise instructed to
the contrary in the Proxy, the appointees named in the Proxy will:
1. VOTE FOR the management nominees to the Board; and
2. VOTE in favor of amending the Incentive Stock Option Plan to extend
its term and increase the number of shares available under the Plan.
3. VOTE in accordance with their best judgment on any other matters that
may properly come before the Meeting.
As of the date of the Notice of Meeting and Proxy Statement, the management
of the Company has no knowledge of other matters that may be brought before the
Meeting.
SOLICITATION
The costs of preparing, assembling and mailing the Notice of Meeting, Proxy
Statement, Proxy, (collectively the "Proxy Materials") as well as solicitations
of the Proxies and miscellaneous costs with respect to the same, will be paid by
the Company. The solicitation is to be made by use of the mails. The Company may
also use the services of its directors, officers and employees to solicit
Proxies, personally or by telephone and telegraph, at no additional salary or
compensation. The Board does not expect to use specially engaged employees or
paid solicitors, although it reserves the right to do so.
The Company intends to request banks, brokerage houses and other such
custodians, nominees and fiduciaries to forward copies of the Proxy Materials to
those persons for whom they hold shares and request authority for the execution
of the Proxies. The Company will reimburse the nominee holders for reasonable
out-of-pocket expenses incurred by them in so doing.
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VOTING SECURITIES
Only holders of record of shares of the Company's $.01 par value common
stock (the "Common Stock"), at the close of business on Friday, October 23,
1998, will be entitled to vote at the Meeting. On the record date, the Company
had 7,763,068 shares of Common Stock outstanding and entitled to vote. The
Company has no other class of voting securities outstanding. Each share of
Common Stock is entitled to one vote, in person or by proxy, on all matters
other than the election of directors, with respect to which cumulative voting is
provided. Cumulative voting generally allows each holder of shares of Common
Stock to multiply the number of shares owned by the number of directors being
elected, and to distribute the resulting number of votes among nominees in any
proportion that the holder chooses.
A majority of the issued and outstanding shares of Common Stock,
represented in person or by Proxy, constitutes a quorum at any shareholders'
meeting.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following is a list of all record holders who, as of October 23, 1998
beneficially owned more than five percent of the outstanding shares of Common
Stock, as reported in filings with the Securities Exchange Commission (the
"SEC") or as otherwise known to the Company. Except as otherwise noted, each
holder exercises the sole voting and dispositive powers over the shares listed
opposite the holder's name, excluding the shares subject to forfeiture and those
held in ESOP accounts established for the employee's benefit. Dispositive powers
over the forfeitable shares held by employees and non-employee directors who are
not officers is shared by the Company's Board of Directors. Voting and
dispositive powers over forfeitable shares held by the Company's five executive
officers ("Officers Forfeitable Shares") are shared by the Company's
non-employee directors (Messrs. Anderson, Bebout, Brenman and Fraser). The ESOP
Trustees exercise voting powers over non-allocated ESOP shares and dispositive
powers over all ESOP shares. 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.
See "Certain Other Transactions".
2
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
-------------------------------------------------------------------------------------------------
Name and address Voting Rights Dispositive Rights Total Percent
of beneficial owner Sole Shared Sole Shared Beneficial Ownership of Class(1)
- ------------------- ---- ------ ---- ------ -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
John L. Larsen(2) 691,649 981,338 662,263 1,353,673 2,065,362 25.6%
201 Hill Street
Riverton, WY 82501
Max T. Evans(3) 160,455 793,726 160,455 1,064,211 1,254,952 16.0%
1410 Smith Road
Riverton, WY 82501
Daniel P. Svilar(4) 216,900 512,359 192,396 512,359 770,109 9.7%
580 S. Indiana Street
Hudson, WY 82515
Michael D. Zwickl(5) 65,839 512,359 65,839 512,359 578,198 7.5%
137 North Beech Street
Casper, WY 82601
Kathleen R. Martin(6) -0- 512,359 -0- 512,359 512,359 6.6%
309 North Broadway
Riverton, WY 82501
Crested Corp. 512,359 -0- 512,359 -0- 512,359 6.6%
877 North 8th West
Riverton, WY 82501
Harold F. Herron(7) 158,298 293,979 152,067 666,314 849,394 10.8%
3425 Riverside Road
Riverton, WY 82501
U.S. Energy Corp. ESOP(8) 155,811 -0- 426,296 -0- 426,296 5.7%
877 North 8th West
Riverton, WY 82501
Kennedy Capital
Management, Inc. 528,748 -0- 528,748 -0- 528,748 6.9%
10829 Olive Boulevard
St. Louis, MO 63141
__________
<FN>
(1) Percent of class is computed by dividing the number of shares
beneficially owned plus any options held by the reporting person, by the number
of shares outstanding plus the shares underlying options held by that person.
(2) Mr. Larsen exercises sole voting powers over 243,663 directly owned
shares, 106,000 shares held in joint tenancy with his wife, 312,600 shares
underlying options and 29,386 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. He exercises shared voting rights over 155,811 shares held by the
ESOP, which have not been allocated to accounts established for specific
beneficiaries and shares held by corporations of which Mr. Larsen is a director
consisting of 512,359 shares held by Crested Corp. ("Crested"), 125,556 shares
held by Plateau Resources Limited ("Plateau"), 175,000 shares held by
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Sutter Gold Mining Company ("SGMC"), and 12,612 shares held by Ruby Mining
Company ("Ruby"). Mr. Larsen shares the voting 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 426,296 shares held by the ESOP, 101,850 shares
held by employees and a non-employee director of the Company which are subject
to forfeiture ("Forfeitable Shares"), the shares held by Crested, Plateau, SGMC
and Ruby. The shares listed under "Total Beneficial Ownership" also include
49,426 shares beneficially held by Mr. Larsen which are subject to forfeiture.
The Company's non-employee directors exercise shared voting and dispositive
powers over such shares. The shares shown as beneficially owned by Mr. Larsen do
not include 42,350 shares owned directly by his wife, who exercises the sole
investment and voting powers over those shares.
(3) Mr. Evans exercises sole voting and dispositive powers over 4,895
directly owned shares, 36,389 shares held in joint tenancy with his wife, 11,971
shares held in an Individual Retirement Account ("IRA") for his benefit and
107,200 shares underlying options. Shares over which Mr. Evans exercises shared
voting rights consist of the shares held by Crested, Plateau and the unallocated
ESOP shares. He exercises shared dispositive rights over the shares held by
Crested, Plateau and the ESOP. Mr. Evans shares voting and dispositive powers
over the shares held by Crested and Plateau with the remaining directors of
those companies and over the ESOP shares with the other ESOP Trustees. The
shares listed under "Total Beneficial Ownership" also include 30,036 shares
beneficially held by Mr. Evans which are subject to forfeiture. The Company's
non-employee directors exercise shared voting and dispositive powers over such
shares.
(4) Mr. Svilar exercises sole voting powers over 22,567 directly owned
shares, 27,450 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"), 141,000 shares underlying options and 24,504 shares held
in the ESOP account established for his benefit. He holds sole dispositive power
over his directly held shares, joint tenancy shares, Minor's shares and the
shares underlying his options. As a director of Crested, Mr. Svilar exercises
shared voting and dispositive rights over the 512,359 shares held by Crested
with the other directors of Crested. The shares listed under "Total Beneficial
Ownership" also include 40,850 shares beneficially held by Mr. Svilar which are
subject to forfeiture. The Company's non-employee directors exercise shared
voting and dispositive powers over such shares.
(5) Mr. Zwickl exercises sole voting and dispositive powers over 8,770
directly held shares, 3,444 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 512,359 shares held by Crested with the other Crested directors.
(6) Consists of shares held by Crested over which shared voting and
dispositive powers are exercised with the other Crested directors.
4
<PAGE>
(7) Mr. Herron exercises sole voting powers over 52,486 directly
owned shares, 12,000 shares held for his minor children under the Wyoming
Uniform Transfers to Minors Act (the "Minor's shares"), 86,000 shares underlying
options, 6,231 shares held in the ESOP account established for his benefit and
1,581 shares held by Northwest Gold, Inc. ("NWG"). Sole dispositive powers are
exercised over the directly held shares, the Minor's shares, the shares
underlying options and the shares held by NWG. Mr. Herron exercises sole voting
and investment powers over the NWG shares as NWG's sole director. Mr. Herron
exercises shared voting rights over 125,556 shares held by Plateau, 12,612
shares held by Ruby and the 155,811 unallocated ESOP shares. Shared dispositive
rights are exercised over the shares held by Plateau, Ruby, all ESOP shares and
the 101,850 Forfeitable Shares. Mr. Herron exercises shared dispositive and
voting powers over the shares held by Plateau and Ruby as a director of those
companies with the other directors of those companies and over the ESOP shares
in his capacity as an ESOP Trustee with the other ESOP Trustees. The shares
listed under "Total Beneficial Ownership" also include 31,013 shares
beneficially held by Mr. Herron which are subject to forfeiture. The Company's
non-employee directors exercise shared voting and dispositive powers over such
shares. The shares shown as beneficially owned by Mr. Herron do not include
2,895 shares owned directly by his wife who exercises the sole voting and
dispositive powers over those shares.
(8) The ESOP holds 426,296 shares, 155,811 of which have not been allocated
to accounts of individual plan beneficiaries. The Trustees exercise the voting
rights over the unallocated shares an dispositive rights over all ESOP shares.
Plan participants exercise voting rights over allocated shares.
</FN>
</TABLE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to the Bylaws, the Company's directors are divided into three
classes, each consisting of two persons so far as is practicable. Directors are
elected until the third succeeding annual meeting and until their successors
have been duly elected or appointed and qualified or until death, resignation or
removal. The term of directors Harold F. Herron and David W. Brenman will expire
at the Meeting and they have been nominated for re-election. The current
directors of the Company are:
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<TABLE>
<CAPTION>
Other Meeting at
Name, age and positions with Director which term
designation with the Company since will expire
- ----------- ---------------- ----- -----------
<S> <C> <C> <C>
John L. Larsen (67) Chairman and CEO 1966 2000
(nominee) (c)(d)(e) Annual Meeting
Keith G. Larsen (36) President 1997 2000
(continuing director) (c) Annual Meeting
Harold F. Herron (45) Vice President 1989 1998
(continuing director) (a)(b)(c)(e) Annual Meeting
David W. Brenman (42) (b)(d) 1989 1998
(continuing director) Annual Meeting
Don C. Anderson (72) (a) 1990 1999
(continuing director) Annual Meeting
Nick Bebout (48) (b)(c) 1989 1999
(continuing director) Annual Meeting
H. Russell Fraser (57) (b)(c)(d) 1996 1999
(continuing director) Annual Meeting
<FN>
(a) Member of the nominating committee.
(b) Member of the compensation/stock option committee.
(c) Member of the executive committee.
(d) Member of the audit committee.
(e) ESOP trustee.
</FN>
</TABLE>
As noted under "Voting Securities", cumulative voting is allowed in the
election of directors.
Management recommends that the shareholders vote for the re-election of Mr.
Herron and Mr. Brenman to the Board of Directors.
Executive officers of the Company are elected by the Board at annual
directors' meetings, which follow each Annual Shareholders' Meeting, to serve
until the officer's successor has been duly elected and qualified, or until
death, resignation or removal by the Board.
FAMILY RELATIONSHIPS.
HAROLD F. HERRON, a director and Vice-President, is the son-in-law of John
L. Larsen, a principal shareholder, Chairman and CEO. Keith G. Larsen, a
director and President, is a son of John L. Larsen. 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.
6
<PAGE>
BUSINESS EXPERIENCE AND OTHER DIRECTORSHIPS OF DIRECTORS AND NOMINEES.
JOHN L. LARSEN has been principally employed as an officer and director of
the Company and Crested Corp. for more than the past five years. He is also a
director of the Company's subsidiary, Ruby Mining Company ("Ruby"). Crested and
Ruby have registered equity securities under the Securities Exchange Act of 1934
(the "Exchange Act"). Mr. Larsen is Chief Executive Officer and Chairman of the
board of directors of Plateau Resources, Limited and of Sutter Gold Mining
Company, and he is a director of Yellow Stone Fuels Corp.
KEITH G. LARSEN has been principally employed by the Company and Crested
for more than the past five years as uranium fuels marketing director. On
November 25, 1997, he was appointed as a director of the Company and elected
President and Chief Operating Officer, replacing John L. Larsen as President.
John L. Larsen remains Chairman of the Board and Chief Executive Officer.
HAROLD F. 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. Brunton was a wholly owned Company
subsidiary until Brunton was sold in February 1996. Initially, he was Brunton's
sales manager, and was its President from 1987 to April 1998, and has since been
appointed Brunton's Chairman. Mr. Herron is a director of Ruby and NWG, which
have registered equity securities under the Exchange Act. He is also an officer
and director of Plateau. 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 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 has been a Company director since May 1990. From January
1990 until mid-fiscal 1993, Mr. Anderson was the Manager of the Geology
Department 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 has been 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.
7
<PAGE>
H. RUSSELL FRASER has been chairman of the board and chief executive
officer of Fitch Investors Services, L.P. for more than the past five years.
Fitch Investors Services, L.P., New York, New York, is a nationwide stock and
bond rating and information distribution company. From 1980- 1989, Mr. Fraser
served as president and chief executive officer of AMBAC, the oldest municipal
bond issuer in the United States. Under his direction, AMBAC's assets grew to
more than $1 billion at year-end 1988 from $35 million at the beginning of 1980,
while statutory net income after taxes increased to $57 million in 1988 from a
loss in 1979.
Before joining AMBAC, Mr. Fraser was senior vice president and director of
fixed-income research at Paine Webber, Inc. While a member of the board of
directors at Paine Webber, Mr. Fraser participated in both the corporate and
public finance departments and headed Paine Webber's trading and sales for all
corporate bond products. Previously, he managed corporate ratings at Standard &
Poor's, supervising research analysis of corporate bonds, preferred stock, and
commercial paper. During his tenure at S&P he started commercial paper ratings
'A-1' through 'A-3', initiating the plus and minus qualifiers and rating the
first two financial guaranty companies, AMBAC and MBIA. Mr. Fraser holds a B.S.
in finance and economics from the University of Arizona. He is a member of the
Municipal Analysts Group of New York and founder of the Fixed Income Analysts
Society.
Mr. Fraser is President and a director of American Capital Access, Inc., a
bond rating company in New York, New York.
ADVISORY BOARD
In fiscal 1998, the Board of Directors established an Advisory Board to be
comprised of individuals with experience in the area of business, financial
services, national elected office, and other areas. The members of the Advisory
Board meet quarterly to review topics of interest or concern to the Board of
Directors, and report to the Board of Directors the findings and recommendations
of the Advisory Board. The Advisory Board doe not include any directors or
officers of the Company, and none of the findings or recommendations of the
Advisory Board will be binding upon the Company. The Chairman of the Advisory
Board is the Honorable Alan K. Simpson, former U.S. Senator for Wyoming.
SECURITY OWNERSHIP OF NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of September 25, 1998, the shares of
Common Stock, and the $.001 par value common stock of the Company's 52%-owned
subsidiary, Crested, held by each director and nominee, and by all officers and
directors as a group. Unless otherwise noted, the listed record holder exercises
sole voting and dispositive powers over the shares reported as beneficially
owned, excluding the shares subject to forfeiture and those held in ESOP
accounts established for the employee's benefit. Dispositive powers over the
forfeitable shares held by employees and a non-employee director, is shared by
the Company's Board of Directors. Voting and dispositive powers are shared by
the Company's non-employee directors (Messrs. Anderson, Bebout, Brenman and
Fraser) over forfeitable shares held by the Company's five executive officers.
The ESOP Trustees exercise voting powers over unallocated ESOP shares and
dispositive powers over all ESOP shares. It should be noted that voting and
dispositive powers for certain shares are shared by two or more
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<PAGE>
of the listed holders. Such shares are reported opposite each holder having a
shared interest therein, but are only included once in the shareholdings of the
group presented in the table.
<TABLE>
<CAPTION>
Company Common Stock Crested Common Stock
------------------------------------ -------------------------------------
Amount and Percent Amount and Percent
Nature of of Nature of of
Beneficial Ownership Class(1) Beneficial Ownership Class(1)
-------------------- -------- -------------------- --------
<S> <C> <C> <C> <C>
John L. Larsen 2,065,362(2) 25.6% 5,579,182(10) 54.1%
Keith G. Larsen 241,063(3) 3.0% 5,300,297(11) 51.4%
Harold F. Herron 849,394(2) 10.8% 5,424,999(12) 52.6%
Don C. Anderson 302,953(4) 3.9% 5,300,297(11) 51.4%
Nick Bebout 309,904(5) 4.0% 5,300,297(11) 51.4%
David W. Brenman 298,798(6) 3.8% 5,300,297(11) 51.4%
H. Russell Fraser 301,298(6) 3.9% 5,300,297(11) 51.4%
Max T. Evans 1,254,952(2) 16.0% 264,236(13) 2.6%
Daniel P. Svilar 770,109(2) 9.7% 281,850(14) 2.6%
R. Scott Lorimer 152,033(8) 1.9% 15,000(15) *
All officers and
directors as a
group (ten persons) 3,547,342(9) 38.5% 5,946,085(16) 57.7%
<FN>
* Less than one percent.
(1) Percent of class is computed by dividing the number of shares
beneficially owned plus 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) See footnotes for this person to the table presented under the heading
"Principal Holders of Voting Securities".
(3) Consists of 1,774 directly held shares, 8,000 shares held for his minor
children under the Wyoming Uniform Transfers to Minors Act (the "Minor's
shares"), 11,939 shares held in an ESOP account established for his benefit,
117,500 shares underlying options and 101,850 shares subject to forfeiture. Mr.
K. Larsen exercises sole voting powers over his directly held shares, the ESOP
shares, 8,820 shares subject to forfeiture, the Minor's shares and the shares
underlying his options. Sole dispositive powers are exercised over the directly
held shares, Minor's shares and the shares underlying his options. He shares
dispositive powers over the 101,850 held by employees and a non-
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<PAGE>
- -employee director of the Company which are subject to forfeiture ("Forfeitable
Shares"), with the other directors of the Company.
(4) Consists of 6,740 directly held shares, 3,055 shares held in an IRA
established for Mr. Anderson's benefit, 213,658 shares subject to forfeiture and
12,500 shares underlying options. Mr. Anderson exercises sole voting and
dispositive power over the directly held shares, IRA shares and the shares
underlying his options. He exercises sole voting power over 21,000 shares he
holds which are subject to forfeiture. Mr. Anderson exercises shared dispositive
powers over the 101,850 Forfeitable Shares with the other directors of the
Company. As a non-employee director, Mr. Anderson exercises shared voting and
dispositive rights over 178,808 shares held by executive officers which are
subject to forfeiture ("Officers' Forfeitable Shares"), with the other
non-employee directors.
(5) Consists of 16,696 shares held directly, 50 shares held in joint
tenancy with his wife, 12,500 shares underlying options and 213,658 shares
subject to forfeiture. Mr. Bebout exercises sole voting and dispositive powers
over the directly held shares, the joint tenancy shares and the shares
underlying his options. He exercises shared dispositive powers over the 101,850
Forfeitable Shares with the other directors of the Company and as a non-employee
director, Mr. Bebout exercises shared voting and dispositive rights over the
178,808 Officers' Forfeitable Shares, with the other non-employee directors.
(6) Consists of 5,640 shares held directly, 12,500 shares underlying
options and 213,658 shares subject to forfeiture. Mr. Brenman exercises sole
voting and dispositive powers over the directly held shares and the shares
underlying his options. Mr. Brenman exercises shared dispositive powers over the
101,850 Forfeitable Shares with the other directors of the Company. As a
non-employee director, Mr. Brenman exercises shared voting and dispositive
rights over the 178,808 Officers' Forfeitable Shares, with the other
non-employee directors.
(7) Consists of 4,140 directly held shares, 4,000 shares held in an IRA for
Mr. Fraser's benefit, 12,500 shares underlying options and 213,658 shares
subject to forfeiture. Mr. Fraser exercises sole voting and dispositive rights
over the directly held shares, the IRA shares and the shares underlying his
options. Mr. Fraser exercises shared dispositive powers over the 101,850
Forfeitable Shares with the other directors of the Company. As a non-employee
director, Mr. Fraser exercises shared voting and dispositive rights over the
178,808 Officers' Forfeitable Shares, with the other non-employee directors.
(8) Consists of 385 directly held shares and 104,700 shares underlying
options over which Mr. Lorimer exercises sole voting and dispositive rights, and
19,715 shares held in the ESOP account established for his benefit over which he
exercises sole voting rights. The shares listed under "Total Beneficial
Ownership" also include 27,233 shares beneficially held by Mr. Lorimer which are
subject to forfeiture. The Company's non-employee directors exercise shared
voting and dispositive powers over such shares.
10
<PAGE>
(9) Consists of 1,463,423 shares over which the group members exercise sole
voting rights, including 919,000 shares underlying options and 47,556 shares
allocated to ESOP accounts established for the benefit of group members. The
listed shares include 1,362,587 shares, including 919,000 shares underlying
options, over which group members exercise sole dispositive rights. Shared
voting and dispositive rights are exercised with respect to 1,160,146 and
1,532,481 shares (including 280,658 shares subject to forfeiture), respectively.
(10) Consists of 5,300,297 Crested shares held by the Company, 100,000
shares held by SGMC, 60,000 shares held by Plateau and 53,885 shares held by
Ruby with respect to which shared voting and dispositive powers are exercised as
a director with the other directors of those Companies, and 65,000 forfeitable
shares held by employees, over which Mr. J. Larsen exercises shared dispositive
powers with the remaining Crested directors.
(11) Consist of the Crested shares held by the Company with respect to
which shared voting and dispositive powers are exercised as a director with the
other directors of the Company.
(12) Consists of 6,932 directly held shares and 3,885 shares held by NWG
over which Mr. Herron exercises sole voting and investment powers, and the
Crested shares held by the Company, Ruby and Plateau, with respect to which
shared voting and dispositive powers are exercised as a USE, Plateau and Ruby
director with the other directors of those companies. Mr. Herron is the sole
director of NWG.
(13) Consists of 139,236 directly held shares over which Mr. Evans
exercises sole voting and dispositive rights, 60,000 shares held by Plateau,
with respect to which shared voting and dispositive powers are exercised as a
director with the other directors of Plateau, and 65,000 forfeitable shares held
by employees, over which Mr. Evans exercises shared dispositive powers with the
remaining Crested directors.
(14) Consists of 216,850 directly held shares, over which Mr. Svilar
exercises sole voting and dispositive powers and 65,000 forfeitable shares held
by employees, over which Mr. Svilar exercises shared dispositive powers with the
remaining Crested directors.
(15) Consists of 15,000 shares which are subject to forfeiture. Mr. Lorimer
exercises sole voting power over such shares, while the Crested directors share
the dispositive powers over the shares.
(16) Consists of 381,903 shares over which the group members exercise sole
voting rights, including 15,000 shares subject to forfeiture. The listed shares
include 366,903 shares over which group members exercise sole dispositive
rights. Shared voting and dispositive rights are exercised with respect to
5,514,182 and 5,579,182 shares (including 65,000 shares subject to forfeiture),
respectively.
</FN>
</TABLE>
11
<PAGE>
Each director beneficially holds the 2,400,000, 2,040,000 and 255,000,000
shares of Ruby, NWG and Four Nines Gold, Inc. ("FNG") common stock,
respectively, held by the Company. They exercise shared voting and dispositive
powers over those shares as Company directors with the other Company directors.
Those shares represent 26.7%, 7.6%, and 50.9% of the outstanding shares of Ruby,
NWG, and FNG, respectively. John L. Larsen beneficially holds 272,500,000 shares
of FNG common stock (54.4% of the outstanding shares), which includes
255,000,000 shares held by the Company, 5,000,000 held by USECC Joint Venture
and 5,000,000 shares held by Crested, over which Mr. Larsen shares voting and
dispositive powers with the remaining directors of the Company and Crested.
Harold F. Herron beneficially holds 2,400,500, 2,597,500, and 265,000,000 shares
of the common stock of Ruby, NWG, and FNG, respectively, representing 26.7%,
9.7%, and 52.9%, respectively, of those classes of stock. Daniel P. Svilar
beneficially owns 14,000,000 shares of the common stock of FNG (4,000,000 shares
directly in joint tenancy with other family members), representing 2.8% of that
class. None of the other directors or officers directly hold any other shares of
stock of Ruby, NWG or FNG. All executive officers and directors of the Company
as a group (8 persons) hold 2,400,500, 2,597,500, and 284,500,000 shares of the
stock of Ruby, NWG, and FNG, representing 26.7%, 9.7%, 60.0% and 56.2% of the
outstanding shares of those companies, respectively.
The Company has reviewed Forms 3, 4 and 5 reports concerning ownership of
Common Stock in the Company, which have been filed with the SEC under Section
16(a) of the Exchange Act, and received written representations from the filing
persons. Based solely upon review of the reports and representations, Messrs. J.
Larsen, Herron and Lorimer each had one late filing. The Company believes no
other director, executive officer, beneficial owner of more than ten percent of
the Common Stock, or other person subject to obligations, failed to file such
reports on a timely basis during fiscal 1998.
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following information is provided pursuant to Item 401 of Reg. S-K,
regarding the executive officers of the Company who are not also directors.
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following information is provided pursuant to Item 401 of Reg. S-K,
regarding the executive officers of the Company who are not also directors.
MAX T. EVANS, age 73, has been Secretary for USE and President of Crested
for more than the past five years. Mr. Evans had been a director of USE for more
than the past five years, prior to April 17, 1997. He is also an officer and
director of Plateau. He serves at the will of each board of directors. There are
no understandings between Mr. Evans and any other person pursuant to which he
was named as an officer. He has no family relationships with any of the other
executive officers or directors of USE or Crested. During the past five years,
Mr. Evans has not been involved in any Reg. S-K Item 401(d) proceeding.
12
<PAGE>
DANIEL P. SVILAR, age 69, 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-K Item 401(f) proceeding.
ROBERT SCOTT LORIMER, age 47, has been Controller and Chief Accounting
Officer for both USE and Crested for more than the past five years. Mr. Lorimer
also has been Chief Financial Officer for both these companies since May 25,
1991, their Treasurer since December 14, 1990, and Vice President Finance since
April 1998. He serves at the will of each board of directors. There are no
understandings between Mr. Lorimer and any other person, pursuant to which he
was named as an officer, and he has no family relationship with any of the other
executive officers or directors of USE or Crested. During the past five years,
he has not been involved in any Reg. S-K Item 401(f) listed proceeding.
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 $100,000 cash in any of the three fiscal years
ended May 31, 1998. The table includes compensation paid such persons by Crested
for 1996, 1997 and 1998, and Brunton for 1996 for such persons' services to such
subsidiaries.
13
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted All Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Options/ Payouts sation
Position Year Salary($) Bonus($) ($) ($) SARs(#) ($) ($)(3)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John L. Larsen 1998 $190,700 $732,000 -- $ -- -0- -- $16,000
CEO and 1997 131,200 -0- -- 98,158(1) -0- -- 13,500
Chairman 1996 148,600 -0- -- -- -0- -- 15,566
Keith G. Larsen(4) 1998 $120,200 $ -0- -- -- -0- -- $12,000
President
and COO
Daniel P. Svilar 1998 $134,300 $ -0- -- $ -- -0- -- $13,400
General Counsel 1997 109,700 3,400 -- 81,454(1) -0- -- 11,300
and Assistant 1996 124,153 -0- -- -- -0- -- 14,009
Secretary
Harold F. Herron 1998 $ 36,400 $ -0- -- $ -- -0- -- $ 3,600
Vice President 1997 31,900 990 -- 120,858(2) -0- -- 3,300
1996 113,600 -0- -- -- -0- -- 4,037
R. Scott Lorimer 1998 $132,300 $ -0- -- $ -- -0- -- $13,200
Treasurer 1997 100,300 3,200 -- 54,299(1) -0- -- 10,300
and CFO 1996 110,100 -0- -- -- -0- -- 13,749
_____
<FN>
(1) Includes bonus shares of USE common stock equal to 40% of original
bonus shares issued FY 1990, multiplied by $10.875, the closing bid price on
issue dates. Also includes shares issued under 1996 Stock Award Program
multiplied by $10.875, the closing bid price on the issue dates. These shares
are subject to forfeiture on termination of employment, except for retirement,
death or disability.
(2) Includes bonus shares equal to 100% of original bonus shares issued FY
1990, multiplied by $10.875, the closing bid price on issue date. Also includes
shares issued under the 1996 Stock Award Program multiplied by $10.875, the
closing bid price on the issue date. These shares are subject to forfeiture on
termination of employment, except for retirement, death or disability.
(3) Dollar values for ESOP contributions and 401K matching contributions.
(4) Keith G. Larsen was not an executive officer of USE prior to fiscal
1998.
</FN>
</TABLE>
14
<PAGE>
EXECUTIVE COMPENSATION PLANS AND EMPLOYMENT AGREEMENTS
To provide an incentive to Mr. Larsen to develop the GMMV into a producing
operation 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. In December, 1997, Mr.
Larsen agreed to relinquish all of his rights under this bonus arrangement
related to GMMV.
In December 1997, the Company paid Mr. Larsen a bonus of $732,000 ($615,000
after taxes) in recognition of his service to the Company and work in acquiring
Kennecott as a joint venture partner in 1990 for $15,000,000 in cash plus a
$50,000,000 commitment to USECC to develop the Green Mountain properties; the
negotiations of Mr. Larsen in acquiring Plateau Resources Ltd. with the
Shootaring Mill and the most recent negotiations for USECC to enter into the
Acquisition Agreement to acquire Kennecott's interest in the GMMV resulting in
the signing bonus of $4,000,000 to the Company and Crested. The bonus was
recommended by the Compensation Committee, taking into account pay levels at
comparable corporations in the mining industry, and was approved by the Board of
Directors. The Companies and Mr. Larsen agreed that the bonus is further in full
settlement of the $1,000,000 bonus to Mr. Larsen authorized by the Board of
Directors in 1993 which was conditioned on the spot price of uranium
concentrates and cash distributions from the GMMV to the Company.
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
15
<PAGE>
years following termination, the terminated individual will not compete with USE
in most of the western United States in regards to exploration and development
activities for uranium, molybdenum, silver or gold. For such non-compete
covenant, such person will be paid monthly over a three year period an agreed
amount for the value of such covenants. 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 Proxy Statement 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.
In June 1998, the Company and Crested paid cash bonuses totaling $325,000
(net after taxes) to four officers for their extraordinary efforts since 1992 in
the litigation and arbitration proceedings with Nukem, Inc. As of the date the
bonuses were paid, these efforts had resulted in the Company and Crested
receiving approximately $8,000,000 from Nukem and CRIC, net of the legal and
related costs incurred by the Company. These bonuses were recommended by the
Compensation Committee of the Board of Directors in the following amounts:
$50,000 for John L. Larsen, $25,000 for Keith G. Larsen, and $125,000 each for
Daniel P. Svilar and R. Scott Lorimer.
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP"). An ESOP has been adopted to
encourage ownership of the Common Stock by employees, and to provide a source of
retirement income to them. The ESOP is a combination stock bonus plan and money
purchase pension plan. It is expected that the ESOP will continue to invest
primarily in the Common Stock. Messrs. Larsen, Herron and Evans are the 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's Common Stock.
The Company made a contribution of 49,470 shares to the ESOP for fiscal
1998, all of which were contributed under the money purchase pension plan. At
the time the shares were contributed, the market price was $6.57 per share, for
a total contribution with a market value of 324,655 (which has been funded by
the Company). Crested and the Company are each responsible for one-half of that
amount (i.e., $162,327.50) and Crested currently owes its one-half to the
Company. 10,659 of the shares were allocated to the ESOP accounts of the
executive officers.
Employee interests in the ESOP are earned pursuant to a seven year vesting
schedule; after three years of service, the employee is vested to 20% of the
ESOP account, and thereafter at 20%
16
<PAGE>
per year. Any portion which is not vested is forfeited upon termination of
employment, other than by retirement, disability, or death.
The maximum loan outstanding during fiscal 1998 under a loan arrangement
between the Company and the ESOP was $1,014,300 at May 31, 1998 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.
The loan was reduced by $183,785 plus interest of $168,574.84 through the
contribution of shares by the ESOP to the ESOP in 1996. There was no similar
reduction, however, for fiscal 1997 or fiscal 1998.
STOCK OPTION PLAN. The Company has an incentive stock option plan ("ISOP"),
reserving an aggregate of 975,000 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, Brenman and Fraser) and ratified by the Board of Directors.
Options expire no later than ten years from the date of grant, and upon
termination of employment for cause. Subject to the ten year maximum period,
upon termination, unless terminated for cause, options are exercisable for three
months or in the case of retirement, disability or death, for one year.
For information about options issued prior to fiscal 1998, please see Note
J to the USE consolidated Financial Statements for fiscal year ended May 31,
1998, which are contained in the 1998 Annual Report to Shareholders accompanying
this Proxy Statement. In fiscal 1997, options to purchase 106,100 shares
(previously issued to employees in 1992 and 1996) were exercised. None of the
exercised options had been held by officers or directors.
The Board of Directors approved (on September 25, 1998) the issuance (to
officers, employees, and non-employee directors and an advisory board member) of
options to purchase 837,500 shares of USE Common Stock; the options have an
exercise price of $2.00 per share (the closing NASDAQ/NMS stock market price of
USE stock on September 25, 1998 was $1.50), and the options will expire in June
2008. The options issued to officers included 112,500 to John L. Larsen, 87,500
to Keith G. Larsen, 75,000 to Harold F. Herron, 75,000 to Daniel P. Svilar,
75,000 to R. Scott Lorimer, and 50,000 to Max T. Evans. Outside directors Nick
Bebout, H. Russell Fraser, Don C. Anderson and David W. Brenman, and Advisory
Board Member Alan K. Simpson, each received an option for 12,500 shares, with
the same exercise price. The options to employees and officers will be converted
to qualified stock options if Proposal Two is approved at the 1998 Annual
Meeting of Shareholders.
The following table shows unexercised options, how much thereof were
exercisable, and the dollar values for in-the-money options, at May 31, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End (#) FY-End($)
Acquired Value Exercisable/ Exercisable
Name on Exercise (#) Realized($) Unexercisable Unexercisable
- ---- --------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
John L. Larsen, -0- -0- 100,000 $444,000(1)
CEO exercisable exercisable and
unexercised
100,100 $354,354(2)
exercisable exercisable and
unexercised
Keith G. Larsen -0- -0- 10,000 $24,400(3)
President exercisable exercisable and
unexercised
Max T. Evans, -0- -0- 57,200 $202,488 (2)
Secretary exercisable exercisable and
unexercised
Harold F. Herron, -0- -0- 11,000 $38,940(2)
Vice President exercisable exercisable and
unexercised
Daniel P. Svilar -0- -0- 66,000 $233,640(2)
Assistant Secretary exercisable exercisable and
unexercised
R. Scott Lorimer -0- -0- 29,700 $105,138(2)
Treasurer exercisable exercisable and
unexercised
<FN>
(1) Equal to $6.44 closing bid on last trading day in FY 1998 less $2.00 per share option exercise
price, multiplied by all shares exercisable.
(2) Equal to $6.44 closing bid on last trading day in FY 1998, less $2.90 per share option exercise
price, multiplied by all shares exercisable.
18
<PAGE>
(3) Equal to $6.44 closing bid on last trading day in FY 1998, less $4.00 per share option exercise
price, multiplied by all shares exercisable.
</FN>
</TABLE>
1996 STOCK AWARD PROGRAM. The Company has an annual incentive compensation
arrangement for the issuance of up to 67,000 shares of Common Stock each year
(from 1997 through 2002) to executive officers of the Company, in amounts
determined each year based on earnings of the Company for the prior fiscal.
Shares are issued annually, but each officer to whom shares are to be
issued must be employed by the Company as of the issue date of the grant year,
and the Company must have been profitable in the preceding fiscal year. The
officers will receive up to an aggregate total of 67,000 shares per year for the
years 1997 through 2002, although if in prior years, starting in 1997, fewer
than 67,000 USE shares are awarded in any year, the unissued balance of the
67,000 share maximum will be available for issue in subsequent years (through
2007). One-half of the compensation expense under the Program is the
responsibility of Crested. The Board of Directors determines the date each year
when shares are to be issued.
Each allocation of shares is issued in the name of the officer, and will be
earned out (vested) over 5 years, at the rate of 20% as of May 31 of each year
following the date of issue. However, none of the vested shares shall become
available to or come under the control of the officer until termination of
employment by retirement, death or disability. Upon termination, the share
certificates will be released to the officer; until termination, the
certificates are held by the Treasurer of the Company. Voting rights are
exercised over the shares by the non-employee directors of the Company;
dividends or other distributions with respect to the shares will be held by the
Treasurer for the benefit of the officers.
The number of shares to be awarded each year out of such 67,000 shares
aggregate limit is determined by the Compensation Committee, based on criteria
including the Company's earnings per share for the prior fiscal year. Other
factors may be taken into consideration by the Compensation Committee. The total
shares issued are divided among the officers based on the following percentages:
John L. Larsen 29.85%, Daniel P. Svilar 22.39%, Max T. Evans 17.91%, Harold F.
Herron 14.93% and R. Scott Lorimer 14.93%. The Company was not profitable in
fiscal 1997, so no shares were issued for that year. For fiscal 1998, the
Compensation Committee awarded 67,000 shares to the officers. The award was
based on the revenues of the Company ($11,558,500) in fiscal 1998, and the
finding by the Compensation Committee that but for the $1,500,000 expense which
resulted from a writedown of the investment in the gold property in California,
the Company would have reported a $515,800 profit for fiscal 1998.
Under a previous equity incentive program, 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. The executive officers, as a
group received 97,650 shares of Common Stock through fiscal 1997.
19
<PAGE>
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, John L. Larsen, Daniel
P. Svilar and R. Scott Lorimer are the only Company officers who are able to
participate in this retirement plan. The fiscal 1994 acquisition of Brunton by
the Company, and the sale of Brunton in 1996, have 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.
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.
Non-employee directors are compensated for services with $400 per month,
payable each year by the issue of shares of USE Common Stock based on the
closing stock market price as of January 15. In 1998, 2,560 shares were issued
to non-employee directors for service in 1997. Separately, Mr. Fraser, a
director, and the Honorable Alan K. Simpson, Chairman of the Advisory Board,
each received 2,500 shares of USE Common Stock for services in fiscal 1998. The
2,500 shares issued to Mr. Fraser were in addition to shares issued under the
monthly service plan.
In fiscal 1990, 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 arrangements would benefit the Company. The Company loaned
$25,000 to David W. Brenman under this plan in 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 30, 1999 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.
PROPOSAL TWO
To approve amendments to the 1989 Stock Option Plan to (i) reset its 10
year term (which expires in 1999) to June 15, 2008, and (ii) increase the number
of shares of Common Stock available for purchase upon exercise of options under
the Plan, from the current 975,000 shares, up to 2,750,000 shares. The Stock
Option Plan has been renamed (subject to approval of this Proposal Two) the
"1998 Stock Option Plan."
738,900 qualified options presently are issued and outstanding under the
old Plan (see "Stock Option Plan" above). These qualified options will not be
affected by Proposal Two. Under Section 422 of the Internal Revenue Code,
qualified options permit deferral of income recognition for
20
<PAGE>
federal income tax purposes until the option holder sells the stock which was
bought on option exercise. In contrast, the holder of stock bought on exercise
of a nonqualified option will recognize income (and have to pay income tax) when
the option is exercised; the income is the difference between market price and
exercise price.
The Compensation Committee of the Board of Directors recommended, and the
Board of Directors approved nonqualified options to purchase 837,500 shares of
USE Common Stock, with an option exercise price of $2.00 per share. These
options could not have been issued as qualified, because of the limited number
of authorized shares remaining under the old Plan. If this Proposal Two is
approved at the Annual Meeting, 775,000 of these nonqualified options, which
were issued to employees (including officers) of USE, will be converted to
qualified options under the new 1998 Plan. The remaining options to purchase
62,500 shares were issued (12,500 each) to the four non-employee directors and
to the Chairman of the Advisory Committee as nonqualified options, and that
status will not change.
The options were issued to provide additional incentive to key employees to
remain with USE and continue working to add value to the Company.
Management of the Company recommends the shareholders vote for Proposal
Two.
COMMITTEES AND MEETING ATTENDANCE
During the fiscal year ended May 31, 1998 there were nine Board meetings
and three Executive Committee meetings. The Executive Committee acts in place of
the Board between meetings of the Board. Each current member of the Board
attended at least 75% of the combined Board meetings and meetings of committees
on which the director serves. From time to time, the Board and Executive
Committee act by unanimous written consent pursuant to Wyoming law. Such actions
are counted as meetings for purposes of disclosure under this paragraph.
An Audit Committee has also been established by the Board. The Audit
Committee did not meet in fiscal 1998, although members of the Audit Committee
met informally at various times during the year. The Audit Committee reviews the
Company's financial statements and accounting controls, and contacts the
independent public accountants as necessary to ensure that adequate accounting
controls are in place and that proper records are being kept. The Audit
Committee also reviews the audit fees of the independent public accountants.
The Compensation Committee reviews, approves and makes recommendations on
the Company's compensation policies, practices and procedures. During the year
ended May 31, 1998, the members of the Compensation Committee discussed
compensation matters on an individual basis.
A Management Cost Apportionment Committee was established by USE and
Crested in 1982, for the purpose of reviewing the apportionment of costs between
USE and Crested. John L. Larsen, Max T. Evans and Scott Lorimer are members of
this Committee.
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The Board of Directors has a Nominating Committee, which did not meet
during the most recently completed year. The Nominating Committee will consider
nominees recommended by security holders for consideration as potential
nominees. Anyone wishing to submit a potential nominee for consideration as a
management nominee for the 1999 Annual Meeting must provide the nominee's name
to the Nominating Committee not later than June 9, 1999, together with a
completed questionnaire, the form of which will be supplied by the Company on
request.
CERTAIN OTHER TRANSACTIONS
TRANSACTIONS WITH YELLOW STONE FUELS CORP. Yellow Stone Fuels Corp.,
hereafter ("YSFC") was organized on February 17, 1997 in Ontario, Canada. As of
February 17, 1997, YSFC acquired all the outstanding shares of Common Stock of
Yellow Stone Fuels, Inc. (a Wyoming corporation which was organized on June 3,
1996) in exchange for YSFC issuing the same number of shares of YSFC Stock to
the former shareholders of Yellow Stone Fuels, Inc. ("YFI"). YSFC and its
wholly-owned subsidiary Yellow Stone Fuels, Inc. will hereafter be referred to
collectively as YSFC.
On May 15, 1997, YSFC, a 12.7% owned affiliate of USE and a 12.7% owned
affiliate of Crested, entered into a line of credit arrangement with USECC. As
of May 31, 1998, YSFC owed USECC $440,000, which included $40,000 of accrued
interest. This note bears interest at 10% and is due on December 31, 1998. In
lieu of paying the note in cash on or before its maturity date, YSFC may convert
this debt, at its option, into YSFC shares of common stock at $1.00 per share of
debt and interest. However, if YSFC defaults in paying the note by December 31,
1998, the note is convertible into a number of shares which will give USE and
Crested a combined 51% ownership interest in YSFC. As part consideration for the
loan, USE and Crested entered into a Voting Trust Agreement having an initial
term of 24 months or until the loan facility is paid, with USE and Crested
having voting control of more than 50% of the outstanding shares of YSFC. The
majority of the remaining outstanding YSFC shares are owned by family members of
John L. Larsen, Chairman of USE.
In fiscal 1998, YSFC sold 1,219,000 shares of Common Stock in a private
placement, at $2.00 per share; net proceeds to YSFC were $2,034,100. The
placement agent was RAF Financial Corp. (now American Fronteer Financial
Corporation). The securities are restricted from resale under Rule 144. In
connection with the private placement, in September 1997 USE entered into an
Exchange Rights Agreement with YSFC and RAF, pursuant to which USE agreed that
the investors in the YSFC private offering would have the opportunity to
exchange all or a part of their YSFC shares for shares of Common Stock of USE,
if YSFC is not listed on and its Common Stock is not available for quotation on,
the Nasdaq National Market System by March 16, 1999. The number of USE shares
which a YSFC investor would be entitled to receive by exchanging YSFC shares,
would equal the amount invested in the original purchase of the YSFC shares
(plus 10% annual interest), divided by the average market price of USE shares
for the five trading days before notice of exchange is given to the YSFC
shareholders.
Warrants to purchase YSFC shares, issued to RAF (and now held by American
Fronteer) in partial compensation for placement services, would be exchangeable
for warrants to purchase shares of USE Common Stock. The Warrants are
exercisable to purchase 121,900 shares of YSFC
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Common Stock, at $2.00 per share. These Warrants would be exchanged for new
Warrants to purchase shares of USE Common Stock, equal to $243,800 divided by
the same market prices for USE shares. The exercise price for the new Warrants
would equal the same USE share market prices used to issue the exchange shares
of USE to the YSFC shareholders. The original Warrants expire (and any new
Warrants will expire) in 2002. The new Warrants will be exercisable for
unrestricted (registered) shares.
The exchange transaction would be registered with the SEC under the
Securities Act of 1933, such that the exchanging YSFC shareholders would receive
unrestricted (registered) shares of USE. The number of USE shares which may be
issued under the Exchange Rights Agreement is presently not determinable. USE
expects that even if all the YSFC shares were exchanged in May 1999 for shares
of USE, pursuant to the Exchange Rights Agreement, the resulting increase in the
outstanding shares of USE would constitute less than 5% of the total outstanding
shares of USE on a proforma basis, assuming USE share prices move back to the
$8-$9 range of early fiscal 1998. However, if share prices remain at current low
levels ($1.50 at September 22, 1998), such new shares issued could constitute
more than 5% of the outstanding shares on a proforma basis.
To date, YSFC is not listed on the Nasdaq National Market System ("NMS"),
but YSFC is pursuing a possible listing on a Canadian stock exchange in fiscal
1999.
TRANSACTIONS WITH DIRECTORS. Two of the Company's directors, Messrs. Larsen
and Herron, and one of Crested's directors, Max T. Evans, are trustees of the
ESOP. Mr. Larsen is also a director of Crested. 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.
Harold F. Herron, son-in-law of John L. Larsen, has been living in and
caring for a house owned by the Company until such time as the property was
sold. In fiscal 1995, Mr. Herron purchased the house for $260,000, the appraised
value of the property, and was reimbursed by the Company for leasehold
improvements totaling $22,830. The Company accepted a promissory note in the
amount of $112,170 with interest compounded annually at 7% due on September 6,
1999 as a result of this transaction. This note is secured by 30,000 shares of
USE common stock owned by Mr. Herron.
OTHER INFORMATION. The Company has adopted a stock repurchase plan under
which it may purchase up to 500,000 shares of its Common Stock at market prices
from time to time. The shares purchased would be retired and canceled. The board
of Directors believes that the repurchase plan
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is in the best interest of all shareholders while the stock is trading at low
prices relative to the book value per share.
In May 1998, the Company issued a warrant to purchase 200,000 shares of USE
Common Stock to Robin J. Kindle, an employee of USE and a son-in-law of John L.
Larsen. The exercise price is $7.50 per share, and the warrant expires in May
2001.
Three of John L. Larsen's sons and three sons-in-law are employed by the
Company or subsidiaries (as President, President of YSFC, Vice President, chief
pilot, landman, and manager of the Ticaboo operations). Mr. Larsen's son-in-law
Harold F. Herron is an officer and director of the Company, and Chairman of
Brunton. Collectively, the six individuals and John L. Larsen received
$1,418,605 in total (gross) cash compensation ($1,301,605 net after taxes) for
services in fiscal 1998, including the $732,000 bonus paid to John L. Larsen in
fiscal 1998. See "Executive Compensation Plans and Employment Agreements."
The Company and Crested provide management and administrative services for
affiliates under the terms of various management agreements. Revenues from
services by the Company and Crested from unconsolidated affiliates were $857,600
in fiscal 1998 and $397,700 in fiscal 1997. The Company provides all employee
services required by Crested, which is obligated to the Company for its share of
the costs for providing such employees.
CERTAIN INDEBTEDNESS
TRANSACTIONS INVOLVING USECC. The Company and Crested conduct most 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 $6,547,100 from Crested at May 31, 1998 ($6,023,400 at May 31, 1997).
LOANS TO FOUR DIRECTORS. As of May 31, 1998 three of USE's and one of
Crested's directors owed the Company $487,000 as follows (each loan is secured
with shares of Common Stock of the Company owned by the individual): Harold F.
Herron $11,000 (1,000 shares); David W. Brenman $25,000 (4,000 shares) and Max
T. Evans $37,400 (7,500 shares). Four information on Mr. Brenman's loan see
"Directors' Fees and Other Compensation" above. The outstanding amounts on the
remaining loans represent various loans made to the individuals over a period of
several years. These loans mature December 31, 1998 and bear interest at 10% per
year. For information on an additional loan to Mr. Herron, see below. In
addition, at May 31, 1997, John L. Larsen and members of his immediate family
were indebted to the Company for $745,300 secured by 160,000 shares of the
Company's Common Stock. In fiscal 1998, John L. Larsen repaid $431,900 of the
family debt, so the family debt at May 31, 1998 was $226,100. See "Executive
Compensation Plans and Employment Agreements." The preceding amounts do not
include the loan to Mr. Herron, see below.
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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. See Transactions with Directors above.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has audited the Company's financial statements
for the fiscal year ended May 31, 1998. Such firm has audited the Company's
financial statements since 1990. A representative of Arthur Andersen LLP may be
present at the meeting and if present, will be available to respond to
appropriate questions, and will be provided the opportunity to make a statement
at the Meeting. There have been no disagreements between the Company and Arthur
Andersen LLP concerning any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which were not
resolved to the satisfaction of Arthur Andersen LLP.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the 1998 Annual Report to Shareholders, including financial
statements, has been forwarded to all record shareholders entitled to vote at
the Meeting. If any recipient of this Proxy Statement has not received a copy of
that Annual Report, please notify Max T. Evans, 877 North 8th West, Riverton, WY
82501, telephone (307) 856-9271, and the Company will send a copy.
SHAREHOLDERS' PROPOSALS
The next Annual Meeting of Shareholders is expected to be held in November
of 1999. Shareholder proposals to be presented at the next Annual Meeting of
Shareholders must be received in writing by the Company at its offices in
Riverton, Wyoming, addressed to the President, no later than June 9, 1999.
OTHER MATTERS
The Board does not know of any other matters which may properly come before
the Meeting. However, if any other matters properly come before the Meeting, it
is the intention of the appointees named in the enclosed form of Proxy to vote
said Proxy in accordance with their best judgment on such matters.
Your cooperation in giving these matters your immediate attention, and in
returning your Proxy promptly, will be appreciated.
By Order of the Board of Directors
U.S. ENERGY CORP.
/s/ Max T. Evans
MAX T. EVANS, Secretary
Dated: November 6, 1998
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PROXY U.S. ENERGY CORP. PROXY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned shareholder of U.S.
Energy Corp. (the "Company") in the amount noted below, hereby constitutes and
appoints Messrs. John L. Larsen and Max T. Evans, or either of them with full
power of substitution, as attorneys and proxies, to appear, attend and vote all
of the shares of stock standing in the name of the undersigned at the Annual
Meeting of the Company's shareholders to be held at the Company's Ticaboo Motel,
Ticaboo, Utah on Friday, December 4, 1998 at 11:00 a.m., local time, or at any
adjournments thereof upon the following:
(INSTRUCTION: Mark only one box as to each item.)
1. Election of Directors:
__ FOR the nominees listed below __ AGAINST the nominees listed below
__ ABSTAIN
Harold F. Herron David W. Brenman
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE, PLEASE DRAW A LINE THROUGH
THE NAME OF THAT NOMINEE.
2. To adopt an amendment to the current Incentive Stock Option Plan for
employees.
__ FOR __ AGAINST __ ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
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PROXY U.S. ENERGY CORP. PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. THE SHARES REPRESENTED
HEREBY WILL BE VOTED AS SPECIFIED HEREON WITH RESPECT TO THE ABOVE PROPOSALS.
WHERE NO VOTE IS SPECIFIED, THE PROXYHOLDER WILL CAST VOTES FOR THE ELECTION OF
MANAGEMENT'S NOMINEES AND, IN THEIR DISCRETION, ON ANY OTHER MATTERS THAT MAY
COME BEFORE THE MEETING.
Sign your name exactly as it appears on the mailing label below. It is
important to return this Proxy properly signed in order to exercise your right
to vote, if you do not attend in person. When signing as an attorney, executor,
administrator, trustee, guardian, corporate officer, etc., indicate your full
title as such.
(Sign on this line - joint holders may sign appropriately)
__________________ _____________________________________
(Date) (Number of Shares)
PLEASE NOTE: Please sign, date and place this Proxy in the
enclosed self-addressed, postage prepaid envelope and
deposit it in the mail as soon as possible.
Please check if you are planning to attend the meeting __
If the address on the mailing label is not correct, please
provide the correct address in the following space.
____________________________________________________________
____________________________________________________________
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