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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended May 31, 1995 or
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[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
____________ to ____________
Commission file number 0-8773
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CRESTED CORP.
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(Exact Name of Registrant as Specified in its Charter)
Colorado 84-0608126
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 North 8th West
Riverton, WY 82501
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (307) 856-9271
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001 PAR VALUE
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO _____
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of September 7, 1995, computed by reference to the average of
the bid and asked prices for the Registrant's common stock as reported by NASDAQ
for the week then ended, was approximately $937,237.
Class Outstanding at September 7, 1995
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Common Stock, $0.001 par value 10,208,094 shares
Documents incorporated by reference: Portions of the documents listed below
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have been incorporated by reference into the indicated parts of this report as
specified in the responses to the item numbers involved:
1995 Annual Meeting Proxy Statement for the fiscal year ended May 31, 1995,
into Items 10-13 of Part III of the filing.
Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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PART I
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ITEM 1. DESCRIPTION OF BUSINESS
(A) GENERAL.
Crested Corp. ("Crested", "Company" or "Registrant") is in the general
minerals business of acquiring, developing, exploring and/or selling or leasing
mineral properties and, from time to time, mining and marketing of minerals.
Crested is now engaged in two principal mineral sectors: uranium and gold.
Interests are held in other mineral properties (principally molybdenum), but are
either non-operating interests or undeveloped claims. Crested is also engaged in
commercial operations (real estate and general aviation).
Most of Crested operations are conducted through a joint venture with U.S.
Energy Corp. ("USE", its parent company) and various joint subsidiaries of USE
and Crested. The joint venture with USE is hereafter referred to as "USECC".
Crested was incorporated in Colorado on September 18, 1970. All operations
are in the United States. Principal executive offices are located at 877 North
8th Street West, Riverton, Wyoming 82501, telephone (307) 856-9271.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
(1) The Registrant operates in two business segments: (i) minerals and
(ii) commercial operations. See Footnote I to the Consolidated Financial
Statements. The Registrant engages in other miscellaneous activities such as oil
and gas exploration, development and production. The principal products of the
operating units within each of the reportable industry segments are:
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS PRINCIPAL PRODUCTS
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<S> <C>
Minerals Sales and leases of mineral properties and, from
time to time, the production and/or marketing of
uranium, gold and molybdenum.
Commercial Operations Operation and rental of real estate, operation of
an aircraft fixed base operation (including
airplane charter service, aircraft fuel sales,
flight instruction and aircraft maintenance), and
provision of various contract services, including
managerial services for subsidiary companies;
operations (through Plateau Resources Limited, a
wholly-owned subsidiary of USE) of a motel and
rental real estate in Utah.
</TABLE>
(2) The Registrant is not required to include interim financial
statements.
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NET REVENUES BY CRESTED SEGMENT
Percentage contributions by the two Crested segments in the last three
fiscal years were:
<TABLE>
<CAPTION>
Percentage of Net Revenue During Year Ended
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May 31, May 31, May 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Minerals 4% 76% 74%
Commercial Operations 35% 12% 11%
</TABLE>
(C) NARRATIVE DESCRIPTION OF BUSINESS BY INDUSTRY SEGMENT (INCLUDING ITEM 2 -
PROPERTIES DISCLOSURE).
Crested is principally engaged in the general minerals business. This
segment involves the acquisition, exploration, sale or leasing and/or
development of minerals and mining properties, with primary interests in
uranium, gold and molybdenum properties in the western United States. Crested
also holds oil and gas interests in Montana and Wyoming.
MINERALS
URANIUM
Crested has interests in several uranium properties in Wyoming and Utah,
including uranium processing mills in Sweetwater County, Wyoming ("Sweetwater
Mill") and in southeastern Garfield County, Utah ("Shootaring Mill"). Crested is
holding these interests in anticipation of renewed demand for uranium
concentrates ("U\\3\\O\\8\\") by public utilities in the United States that
operate nuclear powered electrical generation facilities.
All the uranium properties are located in areas which have produced significant
amounts of uranium in the 1970s and 1980s.
The property interests are:
Unpatented lode mining claims on Green Mountain (Fremont County, Wyoming),
including 105 claims on which the Round Park uranium deposit is located, and the
Sweetwater Mill, (23 miles south of Green Mountain). These assets are held by
the Green Mountain Mining Venture ("GMMV"), owned 50 percent by USE and USECC,
and 50 percent by Kennecott Uranium Company ("Kennecott"), a subsidiary of
Kennecott Corporation. 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 Round Park
deposit have been substantially completed and the BLM has prepared a draft
Environmental Impact Statement for the proposed mine. 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 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 are 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
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Mountain Partners partnership ("SMP"), the partners of which are USE and
Crested, doing business as the USECC Joint Venture, and Nukem, Inc. ("NUKEM")
through its wholly-owned subsidiary Cycle Resource Investment Corporation
("CRIC"). The Sheep Mountain Mines 1 and 2 are accessible by county and private
roads and were first operated by Western Nuclear, Inc. in the late 1970s.
The above properties contain uranium mineralization in sandstones of Tertiary
age, as is typical of most Wyoming uranium deposits. Electric power to all the
above Wyoming properties is furnished by either Pacific Power & Light or Hot
Springs Rural Electric Association.
The Tony M and Frank M Mines are underground uranium mines located on unpatented
lode mining claims in San Juan County, Utah. These mines are accessible by
county roads. The mines (originally developed by Plateau Resources Limited, a
Utah corporation ("Plateau") at the time Plateau was owned by Consumers Power
Company, a Michigan public utility), the nearby Shootaring Mill, low grade
uranium ore stockpiled at the mill, and related mill support facilities, are
held by Plateau, which is a wholly-owned USE subsidiary in which Crested owns a
contingent interest. Significant areas of uranium mineralization have been
accessed and delineated by the prior owner's underground workings. When the
above uranium mines are in production, they produce ore containing about four to
eight pounds of uranium concentrates per ton and this ore must be processed at a
mill into U\\3\\O\\8\\, the saleable product.
There can be no assurance of renewed market demand for uranium concentrates,
that would result in sufficient price increases for concentrates, to warrant
commencement of mining and milling operations on any of the foregoing
properties.
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
(Crested's share of the proceeds was $2,400,000, and the balance was USE's). In
fiscal 1991, USE 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 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 $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 uranium deposit, currently believed to be the most
significant mineralized resource on Green Mountain. These 105 claims were
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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 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
and 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 443 Green Mountain Claims, including the 105
claims on which the Round Park uranium deposit is located. Surface rights are
owned by the United States Government under management by the BLM. In addition,
other uranium mineralization has been delineated in the Phase 2 and Whiskey Peak
deposits on these properties, which formerly belonged to USE and Crested. These
deposits are undeveloped.
Drilling and exploration work has been conducted on the Round Park deposit, and
USECC has constructed two portals for the Jackpot Mine declines. 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 mining claims contain a deposit of uranium which has been
estimated by USECC to contain 52 million pounds of U\\3\\O\\8\\ averaging .23%
uranium oxide using a grade-thickness cut-off of .6 (i.e., deposit areas were
excluded unless deposit bed thickness at intercept, times intercept grade of
uranium mineralization, exceeded .6). GMMV plans to mine this deposit from the
Jackpot Mine, which will be driven underground from the south side of Green
Mountain when the market for uranium oxide
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concentrates improves. The first of several mineralization horizons is about
2,300 feet down from the top of Green Mountain.
The mine plan provides for two declines to be driven from the side of Green
Mountain, extending about 10,400 feet into the deposit; one decline will be used
for ventilation and transportation of personnel, and the other will convey ore,
rock and waste out of the mine.
Crested expects mine development costs will not exceed $25,000,000 to begin
production from the Round Park deposit. However, cost estimates may change as
exploration and initial development progress. Pursuant to the GMMV agreement,
Kennecott has agreed to fund the initial $50,000,000 in development costs
including reclamation costs. Additional costs would be funded by operations
and/or by cash assessments on the venturers.
SWEETWATER MILL. 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.
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 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 at times. The mill is one of the newest uranium milling facilities in the
United States, and has been maintained in good condition. UNOCAL has reported
that the mill buildings and equipment have historical costs of $10,500,000 and
$26,900,000, respectively.
As consideration for the Sweetwater Mill, GMMV agreed to indemnify UNOCAL
against certain reclamation and environmental liabilities, which indemnification
obligations are guaranteed by Kennecott Corporation (parent of Kennecott Uranium
Company). GMMV has agreed to be responsible for compliance with mill
decommissioning and land reclamation laws, for which the environmental and
reclamation bonding requirements are approximately $23,960,000. None of the GMMV
future reclamation and closure costs are reflected in the Crested Consolidated
Financial Statements (see Note K to Crested Consolidated Financial Statements).
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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,
Crested believes it is unlikely Crested would have to pay for such costs
directly. First, based on current estimates of cleanup and reclamation costs
(reviewed annually by the oversight agencies), such costs may be within the
$50,000,000 development commitment of Kennecott Uranium Company for GMMV. These
costs are not expected to increase materially if the mill is not put into
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 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 to Kennecott Corporation only would be required if the liabilities
cannot be satisfied within the initial $50,000,000 development commitment, and
then only to the extent there are insufficient funds from the accumulated
reclamation reserve. In addition, if and to the extent such liabilities resulted
from UNOCAL's mill operations, and payment of the liabilities was required
before February 1, 2001 and before mill production resumes, then up to
$8,000,000 of that amount would be paid by UNOCAL, before Kennecott Corporation
would be required to pay on its guarantee. However, notwithstanding the
preceding, the extent of any ultimate Crested liability for contribution to mill
cleanup costs cannot be predicted.
PERMITS. In March 1993, GMMV applied to the WDEQ for a Permit to Mine the Round
Park deposit through the Jackpot Mine, for up to 22 years; this document
presently is under review and a hearing has been set on the permit before the
Wyoming Environmental Quality Council ("EQC") for the week of
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September 18, 1995. Until this Permit is granted, no further construction of
mine facilities is allowed; no further underground mine development can occur,
and the Round Park Deposit cannot be mined.
Initial environmental studies have been submitted to appropriate governmental
regulators, and are being reviewed. Applications to appropriate water have been
made, and an NPDES permit has been obtained (expiring December 31, 1997).
Additional surface water, weather and wetland studies have also been initiated.
In 1993, the BLM, as manager of federal lands, determined that the potential
effects of the Jackpot Mine (and associated work areas and roads) on surface and
ground waters, air quality, animal habitat and local fauna at Green Mountain
should be presented and analyzed by an environmental impact statement ("EIS"). A
draft EIS has been prepared by the BLM (funded by the GMMV) and published for
public comment. A final EIS is expected to be submitted to the WDEQ in the near
future. Following the WDEQ technical review of the Jackpot Mine plan, the Permit
Application will be presented for public comment. After the EIS record of
decision by the BLM, the Permit to Mine would be issued by the WDEQ (with any
amendments to conditions required after public hearings and final WDEQ review).
Also in 1993, an application was submitted to the BLM for upgrading roads to the
Sweetwater Mill. This application is still under review as part of the EIS.
Uranium was mined on Green Mountain in the 1970s and 1980s. USE and Crested do
not anticipate any adverse environmental impacts from the Jackpot Mine which
cannot be mitigated to acceptable levels. Accordingly, the Permit to Mine the
Round Park deposit through the Jackpot Mine portal is expected to be issued by
the WDEQ in due course, subject to delays from objections and appeals of WDEQ
decision by possible project opponents.
The Environmental Protection Agency has promulgated final rules for radon
emissions. These regulations affect the mining and milling of uranium and may
require substantial expenditures for compliance. GMMV 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. Crested believes all of the uranium
operations in which it owns an interest, are in compliance with these rules.
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.
Crested has no knowledge of any guarantee by Kennecott Corporation or RTZ of the
performance by Kennecott Uranium Company of Kennecott Uranium Company's
development commitment under the GMMV joint venture agreement. Further, Crested
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.
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SHOOTARING CANYON MILL
ACQUISITION OF PLATEAU RESOURCES. On August 11, 1993, USE purchased from
Consumers Power Company ("CPC"), all outstanding stock of Plateau, a Utah
corporation. Plateau 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.
USE paid nominal cash consideration for the Plateau stock, but as additional
consideration, USE 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 Crested 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 USE,
in light of potential NRC objections to selling Plateau to the USECC joint
venture. Subsequent to closing, in September 1993, USE and Crested agreed that
after Plateau's unencumbered cash has been depleted, USE and Crested each will
assume one-half of Plateau's obligations, and share equally in Plateau operating
cash flows, pursuant to the USECC Joint Venture.
SHOOTARING MILL AND FACILITIES. The Shootaring Mill is located in south-eastern
Utah, approximately 13 miles north of Lake Powell, and 50 miles south of
Hanksville, Utah via State Highway 276, then four miles west on good gravel
roads. The entire facility occupies 18.9 acres of a 264.52 acre plant site. The
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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
Crested expects either license renewal or extension of its expiration date in
due course.
Plateau owns approximately 90,000 tons of low grade uranium ore stockpiled at
the mill site.
USE has informed Crested that it intends to cause Plateau to continue
maintenance activities pending evaluation of resuming Shootaring Mill operations
to process uranium ores to concentrates in anticipation of increased concentrate
prices. NRC and DOGM approval will be required prior to commencing such
operations.
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 mill. The Ticaboo site includes a 66 room motel, general
store, laundromat facility, 98 single family home sites, 151 mobile home sites,
and 26 recreational vehicle sites (all with utility access). The townsite is
located on a State of Utah lease near Lake Powell, and is 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 are being provided by a private company affiliated
with a director of Crested and USE. See Part III, Item 12 "Certain Relationships
and Related Transactions."
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 matters are in arbitration and a decision
is expected by December 1995 or early in calendar 1996. See Item 3 - "Legal
Proceedings."
In February 1988, USE and Crested acquired uranium mines and mining equipment
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.
USE 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.; USE 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
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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 arbitration/litigation pending between the parties.
PROPERTIES. SMP owns 77 unpatented lode mining claims on the Crooks Gap
properties, including two open-pit and five underground uranium mines, mining
equipment, and an inventory of uranium ore. An ion-exchange plant is located
near the SMP properties, but is held by USECC and not SMP. Production from the
properties is subject to sliding-scale royalties payable to Western Nuclear,
Inc.; the rates are from one to four percent on recovered uranium concentrates.
Two Wyoming State leases (one for minerals covering 640 acres, and one for
surface use covering 142 acres) expired in early 1994, and will not be renewed.
Various structures and equipment are located on the properties: three operating
and three non-operating mine headframes with hoists; maintenance shops; offices;
and other buildings, equipment and supplies.
SMP also has interests in 59 unpatented mining claims, one State mineral lease
and one State surface use lease, which have been conveyed to Pathfinder Mines
Corporation ("PMC"). The conveyance originally was made to induce PMC to mill
ore produced from the properties, at PMC's mill. These properties contain a
previously-mined open-pit uranium mine (the Congo pit) and three underground
mines. PMC has the right to mine a portion of these properties (the Congo area),
by open-pit or in-situ techniques to certain depths, without royalty or other
obligations to SMP. PMC has the responsibility for reclamation work needed
thereon as a result of its activities. If PMC mines any portion of the
properties outside the Congo area, a 3% royalty is owed to SMP. Conversely, SMP
has the right to mine portions of the claims and leases outside the Congo area
(and specified surrounding zones) by underground mining techniques, subject to a
3% royalty to PMC. PMC has completed an exploration program on a portion of
these properties, and advises it presently does not intend any further
development. The 59 claims and two leases may be reacquired from PMC by SMP. PMC
has decommissioned and dismantled its 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. USE 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.
Nukem/CRIC have refused to allow SMP to pay USECC for care and maintenance and
other work performed since the spring of 1991. 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
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<PAGE>
remaining) for sales of uranium to eight domestic utilities. SMP had paid annual
nonaccountable fees of $300,000 for marketing to Nukem, but SMP ceased making
such payments in the spring of 1991, when Nukem/CRIC refused to authorize
payment of care and maintenance costs.
SMP's uranium supply contracts either are base-price escalated or market-related
(referring to how price is determined for uranium to be delivered). Base-price
escalated contracts set a floor price which is escalated over the term of the
contract to reflect changes in the GNP price deflator. The current base-price
escalated contract of SMP requires deliveries of 130,000 pounds of uranium
concentrates per year through 1997. The amounts deliverable under the contract
may be increased or decreased by the utility, in amounts from 10% to 25%. Prices
of uranium for deliveries under the base-escalated price contract currently
exceed prices at which uranium can be purchased in the spot market.
Under the market-related contracts, the purchaser's cost depends on quoted
market prices and the price at which a willing seller will sell its U\\3\\O\\8\\
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, Crested and its affiliates have satisfied most of these
contracts with either uranium previously produced by SMP, borrowed from others,
or purchased on the open market. A number of disputes have arisen among USECC
and Nukem/CRIC, and USECC initiated litigation against Nukem, CRIC and certain
of their affiliates, which, by stipulation of the parties, is to be resolved by
binding arbitration. See Item 3 - "Legal Proceedings."
Nukem's performance under the SMP utility supply contracts has been in dispute
since fiscal 1993, and the cooperation of Nukem to assure deliveries to
customers pending resolution of the SMP disputes, is not assured.
PERMITS. Permits to operate current mines on SMP properties have been issued by
the State of Wyoming. Amendments are needed to open new mines within the permit
area. As a condition to 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 in standby mode due to current low prices for
U\\3\\O\\8\\. 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. The market deteriorated as the Commonwealth of Independent States
("CIS"), increased exports to the western uranium spot market, which slowed down
the reduction of western inventories.
Uranium is primarily used in nuclear reactors that heat water to drive turbines
that generate electricity. There are presently some 546 commercial nuclear power
plants worldwide either operating, under construction or planned. Of them, 72
are under construction and 52 are planned. Current worldwide consumption is
about 150 million pounds of U\\3\\O\\8\\ per year, but worldwide production is
only about 75
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<PAGE>
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
72 power plants which are ordered or under construction.
Pursuant to Suspension Agreements signed in fiscal 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 U\\3\\O\\8\\ by certain CIS republics, all spot sales of U\\3\\O\\8\\
delivered into the U.S. now reflect quota restrictions on U\\3\\O\\8\\ 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 U\\3\\O\\8\\ sales during
Crested's past five fiscal years are shown below. NUEXCO Exchange Values are
reported monthly and represent NUEXCO's judgment of the price at which spot and
near term transactions for significant quantities could be concluded. NEVs for
fiscal 1993 are higher for U.S. transactions, due to the impact of CIS import
restrictions since late 1992. These prices ("US NEV") were reported by NUEXCO
for spot sales in the restricted U.S. market.
<TABLE>
<CAPTION>
NUEXCO EXCHANGE VALUE
---------------------
Years Ended US $/pound of U\\3\\O\\8\\
--------------------------
May 31, High Low
----------- ---- ---
<S> <C> <C>
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
</TABLE>
US NEV was $11.85 as of July 31, 1995.
On August 31, 1993, NUEXCO made a public release that clarified its definition
of the NEV with reference to restricted and unrestricted terminology, so that
the restricted market values apply to all products and services delivered in the
U.S. as well as non-CIS origin products and services delivered outside the U.S.
In the U.S., uranium is generally supplied to electric utilities under medium to
long-term supply agreements, which require deliveries more than one year after
entry into the contract. These agreements are designed to provide both the
producer-supplier and the customer with comfort as to the amount of uranium
desired and the availability of supply at a predictable price. Utilities
generally seek supply contracts at least two to three years before their needs
occur. It is expected that a large portion of U.S. demand will be secured by
electric utilities entering into contracts in the next two to four years. There
also is an active spot market, through which approximately 5 to 10 percent of
uranium concentrate needs are satisfied.
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<PAGE>
NUEXCO reports that through the first six months of 1995, U.S. utilities bought
22,100,000 pounds U\\3\\O\\8\\ equivalent in the spot and near term market, and
another 64,000,000 pounds U\\3\\O\\8\\ equivalent was purchased under
outstanding long-term contracts. A portion of the spot and near term market
sales may have supplied purchases under long-term contracts. While total demand
in 1994 exceeded domestic production, there remains a near-term supply of
U\\3\\O\\8\\ equivalent from domestic producers' inventory, and from
unrestricted (i.e., not under quotas) foreign producers current production and
inventory. Crested 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, into fiscal 1996,
in spite of increasing interest from U.S. utilities in renewing long-term
contracts at higher than spot market prices. To date in fiscal 1995, long-term
contract prices have increased moderately.
GOLD
LINCOLN PROJECT (CALIFORNIA)
SUTTER GOLD MINING COMPANY. In fiscal 1991, Crested acquired an interest in the
Lincoln Project (including the underground Lincoln Mine) in the Mother Lode
Mining District of Amador County, California. This property, formerly held by
the Sutter Gold Venture ("SGV"), a mining joint venture, is now wholly owned by
USECC Gold L.L.C., a Wyoming limited liability company. Until the end of fiscal
1994, Seine River Resources Inc. (a Vancouver Stock Exchange listed company
which is not affiliated with Crested or its affiliates, "SRRI") was a joint
venture party in SGV. USECC Gold is a subsidiary of Sutter Gold Mining Company,
a Wyoming corporation ("SGMC").
USECC Gold expects to commence additional exploration and mine development as
soon as funding is provided through a joint venture or other source. Although
USECC Gold is in discussions with possible joint venture partners, there can be
no assurance that sufficient funding will be made available. It is unlikely,
therefore, that this property will be placed into production during the 1996
fiscal year. 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 had
acquired (through USECC Gold) by the end of fiscal 1993 a 90 percent aggregate
equity interest in the Lincoln Project (and the interests in USECC Gold were
owned 88.89 percent by USE, and 11.11 percent by Crested). By the end of fiscal
1994, SRRI owed USE and Crested $1,970,507 for SGV property holding costs,
permitting costs and mine maintenance expense incurred and paid for by USE and
Crested since March 1992, including interest and management fees charged by USE
and Crested. As of May 23, 1994 SRRI agreed to assign its remaining 10 percent
interest in SGV to USE as payment for the $1,970,507 owed USE and Crested.
However, only the $1,389,272 of costs and expenses paid for by USE and Crested
was recorded; $581,235 for interest and management fees was written off as
uncollectible. SRRI also issued 400,000 common shares of stock and delivered
them to USE as final payment of any deficiencies for pre-fiscal 1994
indebtedness (owed by SRRI to SGV) which had been secured with SRRI's interest
in SGV and which USE and Crested acquired in lieu of foreclosure (see Note F to
the Crested 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 Sutter Gold Mining Company, and agreed to exchange their
interests in USECC Gold for common stock of Sutter Gold Mining Company
(hereafter, "SGMC"). SGMC is owned 89 percent by USE and 11 percent by Crested;
USECC Gold is a subsidiary of SGMC.
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<PAGE>
SGMC continues to seek an industry partner or other means to obtain the capital
necessary for additional exploration, mine development, construction of a gold
mill and related facilities, and startup capital to put the gold mine into full
production at an initial rate of 300 tons per day.
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), 362 acres of surface rights
(leased), 217 acres of mineral rights (leased), and 374 acres of mineral rights
(owned), all on patented mining claims near Sutter Creek, Amador County,
California. The properties are located in the western Sierra Nevada Mountains 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 coming
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 November 1995), and
require rental fees, advance production royalties, real property taxes and
insurance. Leases expiring before 2010 will generally be extended, so long as
minerals are continuously produced from the property that is subject to the
lease. Other leases may be extended for various periods on terms similar to
those contained in the original leases. Production royalties are from four to
seven percent, and up to 20 percent for some areas of high-grade ore. The
various leases have different methods of calculating royalty payments (net
smelter return, gross proceeds, and net profits interest).
Amador United Gold Mines ("Amador United") was a prior owner of certain leases
which it conveyed to the Lincoln Project when owned by Meridian Minerals, in
return for which Amador United received a right of first refusal to buy the
Lincoln Project 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
15
<PAGE>
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 profits interest is held by a consultant to a lessee prior to
Meridian's acquisition of the properties, which 0.5 percent interest covers the
same properties in the Lincoln Project.
There have been an estimated $15,000,000 of investments to date in the Lincoln
Project by Meridian and USECC Gold, and current estimates call for up to
$17,974,000 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. Lease royalties burdening the Lincoln Project
properties are in addition to Amador United's net profits interest.
In connection with SRRI's transfer of interests in the Lincoln Project to USE
and Crested at formation of the SGV, and thereafter upon USE's and Crested's
acquisition of SRRI's remaining interests in SGV due to default by SRRI, Amador
United was provided notice of its right of first refusal to acquire such
interests for amounts equal to USE's and Crested's advances to SRRI. Amador
United has made technical objections to the notices given, however, USE and
Crested believe these objections are without merit.
Since fiscal 1991, USE and Crested expended $12,305,000 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 1995 fiscal year was $675,100.
GEOLOGY AND RESERVES. The minerals consulting firm Pincock, Allen & Holt ("PAH")
has prepared a prefeasibility study of the Lincoln Project. PAH reviewed core
drilling data on the Lincoln Zone on 100-foot centers from the surface, and
drilling on the Comet Zone from both surface and underground. PAH also reviewed
data from drilling on the Keystone Zone from surface on 200-foot centers. Total
data is from 162 exploration core holes (surface and underground), with total
footage of 64,700 feet. PAH based its estimate of proven reserves on mineralized
material within 25 feet of sample information; probable reserves were based on
material located between 25 and 50 feet of sample information. In nearly all
cases, the veins (approximately 17 in number, though at some points several
veins appear to briefly converge) in the three areas sampled are believed by PAH
to extend well beyond these limits.
Using a cutoff grade of 0.25 ounces of gold per ton in place, PAH estimates the
Lincoln Project contains 194,740 tons of proven and probable reserves grading
0.57 ounces of gold per ton. If operating economics indicate a lower cutoff
grade is feasible, the 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
16
<PAGE>
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 $17,974,000 financing to
construct the mill and prepare the mine for full scale production, and for
interim holding costs. The mill design has been reviewed by PAH, and SGMC
expects to follow PAH's recommendations in building the recovery circuits. The
mill will be constructed to allow a 500 ton per day operations, but initially
equipped so as to handle 300 tons per day throughput. Exclusive of attached lab
and other support facilities, the central mill building is expected to cover
approximately 20,000 square feet, and will be constructed with interior
mezzanine levels to hold different banks of equipment. Adequate power is
available at the boundaries of the Lincoln Project from the local utility; water
also is available from a utility if needed, although the Lincoln Mine is
expected to produce adequate water for mining and milling operations.
SGMC is in discussions with possible joint venture partners, to provide
additional funding, but there can be no assurance that sufficient funding will
be made available to proceed with mine development.
17
<PAGE>
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 Mineral
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 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, Crested recognized $42,700 of
advance royalty revenue under this arrangement. These royalties are shown in the
Statements of Operations as a component of gains from restructuring mineral
properties agreements. See Note F to the Crested 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 its option in August, 1994 and subsequently sold that
property for $970,300 in cash and notes receivable. The advance royalties will
resume in mid-fiscal 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 1994 was reportedly 220 million
pounds, its highest level ever. Production for that period was about 210 million
pounds, but is projected to increase to 220 million pounds in 1995 as excess
capacity of the primary producers is put back into production. 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 1995.
18
<PAGE>
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 mid-August 1995 prices
had declined to $4.25 to $5.00 per pound.
PARADOR MINING (NEVADA)
USE and Crested are sublessees and assignees from Parador Mining Co., Inc.
("Parador"), on certain rights under two patented mining claims located in the
Bullfrog Mining District of Nye County, Nevada. The claims are immediately
adjacent to and part of a gold mine operated by Bond Gold Bullfrog, Inc.
("BGBI"), a non-affiliated third party. They have also been assigned certain
extralateral rights associated with the claims and certain royalty rights
relating to a prior lease on those properties. The lease to USE and Crested is
for a ten year primary term, is subject to a prior lease to BGBI on the
properties, and allows USE and Crested to explore for, develop and mine minerals
from the claims. If USE and Crested conduct activities on the claims, they are
entitled to recover costs out of revenues from extracted minerals. After
recovering any such costs, USE and Crested will pay Parador a production royalty
of 50 percent of the net value of production sold from the claims.
USE, Crested and Parador have informed BGBI that payments are owed to them
pursuant to extralateral rights on the claims. BGBI in turn has initiated legal
proceedings to establish the rights of the various parties in the claims.
Thereafter, Parador notified BGBI that BGBI had defaulted in its lease and that
Parador had terminated the lease. BGBI denies that it has defaulted. The case
was set for July 1995 but because of a conflict, the Judge reset the case for
December 11-14, 1995. See Item 3 - "Legal Proceedings."
OIL AND GAS.
FORT PECK LUSTRE FIELD (MONTANA). USECC conducts oil production operations at
the Lustre Oil Field on the Ft. Peck Indian Reservation in north-eastern
Montana; five wells are producing, and USE and Crested receive a fee based on
oil produced. USE is the operator of record. No further drilling is expected in
this Field. This fee and certain real property of USE and Crested, have been
pledged or mortgaged as security for a $1,000,000 line of credit from a bank.
ENERGX, LTD. FORT PECK GAS PROJECT. Energx, LTD., a Wyoming corporation 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. Energx intends to drill and test
three exploratory wells, and otherwise develop the area in conjunction with
NuGas Resources U. S. Inc. ("NuGas"). 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), the Agreement now covers approximately 500,000 contiguous acres within
the Fort Peck Indian Reservation.
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), Thereafter, net
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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.I.) INC. AGREEMENT. By the Joint Venture Agreement ("JVA") of
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 have 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 will be
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 late August 1995, Placid Oil Company, a subsidiary of
Occidental Petroleum and other parties (hereafter together referred to as
"Placid"), submitted a Farmout Agreement to Energx and NuGas which is currently
under review. Under the proposed agreement, Energx and NuGas as operator will
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.
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Drilling of the first test well is to commence 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, et al.
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 30,000 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.
BIG HORN COUNTY, MONTANA - BIG HORN PROSPECT. On October 24, 1994 Energx signed
a Prospect Participation Agreement with Harrington & Bibler, Inc. ("H&B"),
Kalispell, Montana, by which Energx had the right to acquire 53 percent of H&B's
coalbed methane rights in approximately 24,000 contiguous acres in Big Horn
County, Montana. H&B has represented it holds a minimum 81 percent net revenue
interest in the leases covered by the Prospect Participation Agreement.
Approximately another 24,000 acres were acquired jointly with H&B. Energx'
rights to earn were subject to Energx drilling and completion through setting of
production casing, at Energx expense, seven wells down to the first coalbed
methane producing horizon (but not more than 1,000 feet).
All the acreage is prospective of coalbed methane gas. The drilling schedule
required under the Prospect Participation Agreement was to have been completed
by June 30, 1995. No wells have been drilled by Energx to date. However, due to
lack of access agreements from surface interest owners, the BLM (at Energx's
request) has suspended expiration of the leases targeted for drilling, and in
turn granted an extension of the drilling schedule for the seven wells. Current
status of surface access to the acreage surrounding three of the wells presently
is uncertain.
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No drilling schedule has been established for the other 12,500 acres, whereon
drilling and completion costs would have been shared equally by Energx and H&B.
In early September 1995, Energx elected to cease paying delay rentals on all
acreage covered by the Prospect Participation Agreement, thereby terminating the
agreement, and resigned as operator of the project.
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 will
be 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.
COMMERCIAL OPERATIONS
REAL ESTATE AND OTHER COMMERCIAL
Crested owns varying interests, alone and with USE, in affiliated companies
engaged in real estate, transportation, and engineering 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 a variety of real estate operations (ownership and
management of a commercial office building, ownership and management of a
trailer home park in Riverton, Wyoming, and ownership and management of town
sites and a motel facility in Ticaboo, Utah). WEA owns and operates an aircraft
fixed base operation with fuel sales, charter planes and flight school in
Riverton, Wyoming.
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. USECC also owns and operates Wind River Estates, a 100-unit trailer
park on 19.7 acres in Riverton. The preceding two properties are mortgaged to
the State of Wyoming as security for future reclamation work on the SMP
properties.
USECC owns a fixed base aircraft operation at the Riverton Municipal Airport,
including a 10,000 square foot aircraft hangar and associated offices and
facilities. This operation is located on land leased from the City of Riverton,
for a term ending December 16, 2005, with an option to renew on mutually
agreeable terms for five years. The annual rent is presently $1,156 (adjusted
annually to reflect changes in the Consumer Price Index), plus a $0.02 fee per
gallon of fuel sold.
On June 14, 1995, USECC signed a six year option to acquire a 7,200 square foot
hangar at the Riverton airport, for $110,000, from a private company affiliated
with a director of USE and of Crested. See Part III, Item 12, "Certain
Relationships and Related Transactions." The purchase price under the option
agreement is a minimum $110,000, subject to upward adjustment for market values
for similar improved commercial real estate in Riverton.
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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, 600 city lots and other properties at the Jeffrey
City townsite in south-central Wyoming. More than 4,000 people resided in
Jeffrey City in the early 1980s, when the nearby Crooks Gap and Big Eagle
uranium mining projects were active. The townsite may be utilized for worker
housing as the Jackpot Mine and Sweetwater Mill are put into operation.
COLORADO PROPERTIES. In connection with the AMAX transaction for the 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. 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. See "Minerals-
Molybdenum" above. Thereafter, Crested (together with USE) 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 repaid 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.
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).
CANYON HOMESTEADS, INC.
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 Minerals - Uranium-Shootaring Mill and Facilities, 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
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been provided by a private company (Arrowstar Investments, Inc.) controlled by
USE affiliates. See Part III information ("Certain Transactions").
RESEARCH AND DEVELOPMENT
Crested has incurred no research and development expenditures, either on its own
account or sponsored by customers, during the past three fiscal years.
ENVIRONMENTAL
Crested 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 Crested. Similar laws in
California affect SGMC operations. Utah statutes will effect Plateau's
operations.
To Crested'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 meet additional
provisions which relate to environmental protection, future Crested earnings
could be adversely affected.
CERTAIN PERMITS, COSTS
A number of legislative proposals and regulations have been introduced in
Congress and in the legislative bodies of various states which, if enacted,
would significantly affect the minerals industry. For example, in fiscal 1993
the Mining Law of 1872 was revised to change methods of acquiring and
maintaining mining claims on public lands, by requiring the payment of an annual
fee of $100 per claim for assessment rather than performing $100 worth of work
on each unpatented mining claim. This law already has affected Crested, as a
number of unpatented claims were dropped in fiscal 1993 due to high holding
costs. A limited number of such claims are currently held.
Status and estimated future costs for permits not previously disclosed in this
Report follow:
CROOKS GAP. An inoperative ion exchange facility at Crooks Gap currently holds a
NRC license for possession of uranium operations byproducts. To date, a notice
of minor violations was received from the NRC, which USE has resolved. USE has
applied to the NRC for permission to decommission and decontaminate the plant,
dispose low level waste into the Sweetwater Mill tailings cell, and keep intact
such of the facility as does not require dismantling. Costs for this two year
effort (once approved by the NRC) are not expected to exceed $150,000.
Management of USE and Crested are reviewing the economics of relicensing this
facility as part of a potential in-situ leach uranium mining operation.
GMMV. 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 Crested's
earnings from environmental compliance expenditures by GMMV, since GMMV
operations will be accounted for by the equity method. GMMV's expenses for
compliance with
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environmental laws (as well as other matters) are not expected to materially
affect Crested's cash flow during the next two years, as Kennecott will fund the
first $50,000,000 of costs of GMMV.
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.
Crested does not anticipate that expenditures of SMP, GMMV and SGMC to comply
with laws regulating the discharge of materials into the environment, or which
are otherwise designed to protect the environment, will have any substantial
impact on the Crested's competitive position.
EMPLOYEES
Crested has no full-time employees. Crested uses approximately 50 percent of the
time of USE employees (54 full-time), 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 Crested are unpatented mining claims,
valid title to which depends upon numerous factual matters. Due to changes in
the 1872 Mining Law, Crested and/or its co-venturers is obligated to pay $100
annual per claim 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.
ITEM 3. 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 "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.
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Plaintiffs requested that the court order rescission of the SMP Agreement and
related contracts, and ask the court to determine the amounts payable to CRIC by
USECC as a result of any such rescission order to place the parties in status
quo. USE and Crested also requested that the court order defendants to make a
complete accounting to them concerning the matters alleged in the Amended
Complaint. They requested an award of damages (including punitive, exemplary
and treble damages, interest, costs and attorneys' fees) in an amount to be
determined at trial. Plaintiffs further requested imposition of a constructive
trust on all property of SMP held by defendants, and on profits wrongfully
realized by defendants on transactions with SMP.
The defendants filed various motions, an answer and counterclaims against
plaintiffs, claiming plaintiffs misappropriated a partnership opportunity by
being involved with Kennecott on the Green Mountain uranium properties.
Defendants also requested damages (including punitive, exemplary and treble
damages, interest costs and attorney fees).
STIPULATED ARBITRATION. In fiscal 1994, the plaintiffs and defendants agreed to
proceed with exclusive, binding arbitration before a panel of three arbitrators
with respect to any and all post-December 21, 1988 disputes, claims and
controversies (including those brought in the 1991 arbitration proceedings, the
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 arbitrators enter an
order and award in the arbitration proceeding.
In connection with agreeing to proceed to arbitration as stated above, the
plaintiffs have affirmed the Sheep Mountain Partners partnership, and are
proceeding on common law damages and other claims in the arbitration.
Approximately $15 million cash, comprising part of the damages claimed by
plaintiffs, has been placed in escrow by agreement of the parties pending
resolution of the disputes. Both parties are claiming substantial additional
damages.
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 awards on August 7, 1995. Nukem and CRIC
have alleged, among other things, that USECC violated its fiduciary duty to SMP;
transferred USECC's interest in SMP to Kennecott in violation of the SMP
partnership agreement; breached the Uranium Marketing Agreement between USECC
and Nukem; failed to perform under the Operating Agreement for the Sheep
Mountain properties, and overcharged SMP. NUKEM and CRIC seek damages against
USECC in the amount of $47,122,535.
For its claims, USECC is seeking damages against Nukem and CRIC in an amount
exceeding $200 million, which amount USECC requested be trebled under RICO and
similar state law provisions.
The award of the arbitrators is expected by December 1995 or early in calendar
1996. As in most litigation, there is no assurance of the outcome.
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).
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BGBI LITIGATION
On July 30, 1991, Bond Gold Bullfrog, Inc. ("BGBI") filed Civil Action No. 11877
in the District Court of the Fifth Judicial District of Nye County, Nevada,
naming USE, Crested, USECC, Parador and H. B. Layne Contractor, Inc. ("Layne"),
as defendants. The complaint primarily concerns extralateral rights associated
with two patented mining claims owned by Parador and initially leased to a
predecessor of BGBI. USE and Crested assert certain interests in the claims
under an April 1991 assignment and lease with Parador, which claims are in and
adjacent to BGBI's Bullfrog open pit and underground mine.
The BGBI complaint alleges Layne owns 20 unpatented mining claims adjacent to or
in the vicinity of the subject claims, which 20 claims are allegedly under lease
by Layne to BGBI. BGBI seeks a declaratory judgment on any extralateral rights
of defendants to the various claims at the Bullfrog Mine. Parador, USE and
Crested had previously advised BGBI that they are entitled to royalty payments
with respect to extralateral rights of the subject claims on minerals produced
at the Bullfrog Mine, claiming that the lode or vein containing the gold
mineralization apexes on the Parador claims and dips under the Layne claims.
BGBI also seeks to quiet title to its leasehold interest in the subject claims,
alleging that 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.
USE and Crested believe that they have rightfully acquired interests in
extralateral rights concerning the subject claims, and have filed an answer,
counterclaim against BGBI and cross-claim against Layne asserting rights to
royalties and other obligations due from BGBI.
The parties have held discovery conferences, exchanged exhibits and scheduled
depositions. USE and Crested filed a motion for summary judgment, which was
denied, and Layne has filed a motion for summary judgment against USE, Crested
and Parador which is pending. This litigation is not expected to have a material
adverse impact on Crested, regardless of its outcome. If Crested's USE's
position concerning extralateral rights is sustained, substantial additional
revenues and income may be received by Crested and Crested from royalties
payable with respect to gold produced from the Bullfrog Mine. Trial of the
extralateral rights issues is scheduled for December 11-14, 1995.
ILLINOIS POWER COMPANY LITIGATION
On October 29, 1993, Illinois Power Company ("IPC") filed Civil Action No. 93-
2247 in United States District Court, Central District of Illinois, naming USE,
Crested, USECC, CRIC, Nulux Nukem Luxemburg GmbH ("Nulux") Dresdner Bank, and
SMP, seeking a declaratory judgment that IPC was
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entitled to terminate the 1988 uranium supply contract between IPC (a utility)
and USECC. Under this contract, IPC agreed to purchase a total of 1.2 million
pounds of uranium in increments from 1990 to 2000 with an option for an
additional 479,440 pounds U\\3\\O\\8\\. Contract prices started at $20.00 per
pound plus escalator provisions, and currently are substantially over spot
market prices.
The Dresdner Bank was dismissed from the case in fiscal 1994. The remaining
defendants filed Motions for Summary Judgment. Following the hearing on May 27,
1994, the Court granted defendants' motions to dismiss IPC's complaint, and
granted summary judgment on all of the defendants' counterclaims against IPC. A
trial to the court on the amounts of plaintiffs' damages was set for October 23,
1995. But in June 1995, the parties settled by amending the IPC contract (with
IPC affirming the validity of the contract), to provide for SMP delivery of
486,443 pounds of uranium concentrates over a three year period, at prices
substantially in excess of current spot market prices. The first delivery of
226,443 pounds U\\3\\O\\8\\ was made on June 30, 1995 and the monies were placed
in escrow. IPC's payments on the contract as it is performed will be escrowed,
with escrowed payments to go to the prevailing party or as otherwise directed by
the arbitrators in the SMP arbitration. Payments after the SMP dispute is
resolved, will be made as directed by the arbitrators in their award.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On November 23, 1994 Crested sent a proxy statement and proxy to its
shareholders of record on October 28, 1994, for the Annual Meeting of
Shareholders held on December 16, 1994.
(b) Proxies for the meeting were solicited under Regulation 14 of the
Securities Exchange Act of 1934; there was no solicitation in opposition to
management's slate, and nominees John L. Larsen, Max T. Evans, Daniel P. Svilar,
Michael D. Zwickl and Kathleen R. Martin were elected as directors to hold
office until the next annual meeting or until their successors are elected and
qualified. Voting results were:
<TABLE>
<CAPTION>
Director Name Votes For Votes Withheld
------------- --------- --------------
<S> <C> <C>
John L. Larsen 8,294,187 33,650
Max T. Evans 8,297,812 30,025
Daniel P. Svilar 8,310,812 17,025
Michael D. Zwickl 8,309,287 18,550
Kathleen R. Martin 8,308,287 19,550
</TABLE>
INFORMATION CONCERNING EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS.
The following information is provided pursuant to Instruction 3, Item 401 of
Reg. S-K, regarding certain of the executive officers of Crested who are not
also directors.
ROBERT SCOTT LORIMER, age 44, 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 these 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 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.
28
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
---------------------------------------------------------------------
(A) MARKET INFORMATION.
------------------
The principal trading market for the Registrant's Common Stock, $.001 par
value, is the over-the-counter market. Prices are reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). The
range of high and low bid quotations for the Common Stock is set forth below for
each quarter in the two most recently completed fiscal years. Retail markup or
markdown, or commissions, are not reflected.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Fiscal year ended May 31, 1995
------------------------------
Fourth quarter ended 5/31/95 $.46 $.25
Third quarter ended 2/28/95 .28 .12
Second quarter ended 11/30/94 .31 .18
First quarter ended 8/31/94 .41 .34
Fiscal year ended May 31, 1994
------------------------------
Fourth quarter ended 5/31/94 $.31 $.28
Third quarter ended 2/28/94 .28 .28
Second quarter ended 11/30/93 .44 .25
First quarter ended 8/31/93 .47 .34
</TABLE>
(b) Holders.
(b)(1) At September 7, 1995, there were 2,090 stockholders of record for
Crested common stock.
(b)(2) Not applicable.
(c) Crested has not paid any cash dividends with respect to its common stock.
There are no contractual restrictions on Crested's present or future ability to
pay cash dividends, however, Crested intends to retain any earnings in the near
future for operations.
29
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
<TABLE>
<CAPTION>
May 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Current assets $ 512,600 $ 282,800 $ 432,500 633,300 $1,594,900
Current liabilities 5,518,500 555,000 1,573,100 770,300 786,800
Working capital (5,005,900) (272,200) (1,140,600) (137,000) 808,100
Total assets 9,363,900 8,092,900 7,398,200 7,640,700 7,345,100
Long-term obligations/(1)/ 853,700 4,688,700 1,169,400 2,104,000 3,002,400
Shareholders' equity 2,991,700 2,849,200 4,527,900 4,766,400 3,555,900
</TABLE>
_______
(1) Incudes $725,900, $725,900, $847,800, $847,800, and $725,900 of accrued
reclamation costs on uranium properties for fiscal 1995, 1994, 1993, 1992,
and 1991 respectively.
<TABLE>
<CAPTION>
For Years Ended May 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 1,160,200 $ 2,870,000 $3,164,600 $2,667,500 $3,359,500
Income (loss) before
equity in loss of
affiliates, provision
for income taxes and
extraordinary item (1,031,100) (1,297,600) 41,300 678,100 419,000
Equity in (loss) of
affiliates (262,100) (382,900) (324,500) (276,900) (170,600)
Net income (loss) (1,293,200) (1,680,500) (283,200) 401,200 248,400
Income per share before
extraordinary item $ (.13) $ (.16) $ (.03) $ .03 $ .02
Extraordinary item -- -- -- .02 .01
------ ------ ------ ------ ------
Net income (loss)
per share $ (.13) $ (.16) $ (.03) $ .05 $ .03
------ ====== ====== ====== ======
Cash dividends per share -0- -0- -0- -0- -0-
</TABLE>
______
* Less than one cent.
30
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
---------------------
The following is Management's Discussion and Analysis of significant
factors that have affected the Crested's liquidity, capital resources and
results of operations during the periods included in the accompanying financial
statements.
The Company has generated significant losses in the last two years, which
have primarily been driven by the activities in the mineral segment and oil and
gas operations. The Company is in the process of developing and/or holding
investments in gold, uranium, and oil and gas properties that are currently not
generating any operating revenues, but for which the Company has high
expectations. These properties require expenditures for development, care and
maintenance, holding fees, corporate overhead and administrative expenses, etc.
In addition, legal expenses associated with the litigation and arbitration
surrounding the SMP Partnership and the inability of the Company to utilize
funds generated by that Partnership have compounded the Company's operating and
cash flow situation. Nevertheless, the Company believes that it will meet its
obligations in the coming year, as further discussed below.
LIQUIDITY AND CAPITAL RESOURCES AT MAY 31, 1995
WORKING CAPITAL COMPONENTS. Net cash used in operating and investing
activities was $139,000 and $333,100, respectively for fiscal 1995. Cash
provided by financing activities was $394,200. For the year, these activities
resulted in a net decrease of $77,900 in cash.
Working capital decreased during the fiscal year ended May 31, 1995 by
$4,733,700 to a working capital deficit of $5,005,900 (from a working capital
deficit of $272,200 at May 31, 1994). The principal components of the decrease
were increases in both accounts payable by $743,700 and current portion of debt
by $3,739,800.
Cash was primarily used in operations and investing activities during the
period. Cash provided from financing activities of $394,200 resulting from an
increase in debt and from the sale of assets of $190,900 was offset by cash used
in the continued investment in affiliates, primarily SMP, of $600,800, and on-
going operations.
Due to disputes among the SMP partners, Crested and USE have not been
reimbursed for care and maintenance costs for the SMP properties since the
spring of 1991. Such costs were approximately $878,400 in fiscal 1995.
CAPITAL REQUIREMENTS - GENERAL: The primary requirements for Crested's
working capital during fiscal 1996 are expected to be the costs associated with
development activities of SGMC, care and maintenance costs of SMP, 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,
31
<PAGE>
Crested and USE anticipate building the gravity process system initially,
estimated to cost less than $3,000,000. Crested and USE have already purchased a
used semiautogeneous grinding mill and other equipment for the front end of the
facility. Crested and USE participate in SGMC on a one ninth - eight ninths
basis respectively.
Although pre-production mine development and underground exploration is
substantially complete, capital resources in addition to those currently held on
hand, will be needed to complete mine development and construct a mill facility.
The timing of these expenditures will depend upon internal cash flow or
additional financing.
CAPITAL REQUIREMENTS - SMP: There are no current plans to mine the SMP
Crooks Gap properties during fiscal 1996, however, Crested and USE will continue
to preserve the ore body and develop concepts to reduce care and maintenance
costs, including driving a decline to reduce pumping costs (which also would
reduce future mining costs by reducing hoisting costs). Although funds are
available in SMP's bank account of $15,037,793 as of August 1995, these funds
are restricted and since early 1991 SMP has not paid Crested and USE 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.
Notwithstanding disputes between the SMP partners, Crested and USE have
delivered an agreed-upon portion of the uranium concentrates required to fill
contract delivery requirements on certain long-term U\\3\\O\\8\\ contracts since
July 1, 1991. However, during 1995 all of the deliveries to fill the SMP
contracts were made by Nukem/CRIC. It is uncertain what protocol with Nukem
will be in place for 1996 and thereafter. If the SMP partners are unable to
agree on how to separately effect contract performance for the various SMP
customers, resulting delivery delays and/or incomplete deliveries could
adversely affect the contracts, and therefore Crested.
CAPITAL REQUIREMENTS - GMMV: Operations of GMMV are not requiring
Crested's capital resources, as the initial $50,000,000 of expenses on the GMMV
properties is being paid by Kennecott. Crested and USE 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 Crested during fiscal 1996.
CAPITAL REQUIREMENTS - PLATEAU: On August 11, 1993, USE purchased all the
outstanding shares of Plateau Resources Limited ("Plateau"). Plateau owns
various real estate developments in and around Ticaboo, Utah and the Shootaring
Uranium Mill. Although Crested has no ownership in Plateau, the Directors of
Crested and USE have agreed to divide equally one-half of the obligations
incurred in excess of the total $14.2 million which was held by Plateau at the
time of the USE acquisition. For a more detailed discussion of the Plateau
transaction please refer to Note F. of the financial statements.
CAPITAL REQUIREMENTS - ENERGX: Another requirement of Crested's and USE's
working capital is the continued funding of Energx overhead expenses and
drilling operations. Energx held several gas leases and participates in two gas
ventures. One venture in 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 for Energx by Crested on this venture
are not anticipated to be significant in 1996. The second venture in northern
Wyoming requires 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 this second venture.
32
<PAGE>
LONG-TERM DEBT AND OTHER OBLIGATIONS: Debt at May 31, 1995 was $4,589,400,
including $480,000 on the Company's line of credit, of $4,109,400 (see Note G to
the Crested Consolidated Financial Statements). Of the debt, $4,053,500 is due
to USE as a result of advances that USE made on behalf of Crested in the various
mining operations which the companies participate jointly.
RECLAMATION COSTS. Prior to fiscal 1995, Crested and USE 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, one half of which amount is shown on Crested'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. Crested and USE 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 Crested
and USE for reclamation work. The status of this commitment could be impacted by
the ultimate settlement of the litigation with SMP.
Reclamation obligations on the contiguous Big Eagle properties and the
Sweetwater Mill, estimated at approximately $23,960,000, have been assumed by
the GMMV venturers, and secured by a bank letter of credit provided by
Kennecott. The reclamation and environmental costs associated with the
Sweetwater Mill will not commence prior to conclusion of mining activities on
Green Mountain. As uranium is processed through the Mill, a reclamation reserve
will be funded on a per unit of production basis. Up to $8,000,000 (in 1990
dollars) in any reclamation costs which may be incurred prior to commencement of
production or 2001 will be paid for by UNOCAL.
Reclamation obligations of Plateau are covered by a $2,500,000 cash bond to
the U.S. Nuclear Regulatory Commission and a $4,800,000 cash deposit for the
resolution of any environmental or nuclear claims. See Item 1-Business-Uranium.
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 Crested funding in fiscal 1996,
because such costs are not anticipated to be incurred for many years.
See Note K to the Crested consolidated financial statements regarding
reclamation and environmental costs, and the funding thereof.
CAPITAL RESOURCES: The primary source of Crested capital resources for
fiscal 1996 will be sale of certain marketable securities and various
miscellaneous non-core assets, and proceeds from various financing activities,
including from the Company's majority stockholder, USE, who just completed a
private placement of that company's common stock. Fees from oil production (Ft.
Peck Lustre Field, Montana), rentals of real estate holdings and equipment,
aircraft chartering and aviation fuel sales, also will provide cash.
Additional sources of capital will be needed to develop and build the mine
and mill complex for the Lincoln Project, for which capital costs SGMC presently
is seeking financing by joint venture partner or public offering of equity.
Currently the Company and USE are negotiating with an established gold mining
company, by which this mining company would expend $2,000,000 toward exploration
and development and have the option to acquire a two thirds interest in the
venture with the expenditure of an additional $10,000,000 on the project. There
is no certainty as to the outcome of these negotiations.
33
<PAGE>
Continued funding of such costs could cause Crested and USE to incur short term
working capital deficits.
To fund the Energx drilling on the Fort Peck Reservation as well as other
locations Crested and USE plan 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 funding,
depending on the outcome of the SMP arbitration/litigation. Although management
is of the opinion that the SMP arbitration/litigation will be resolved in favor
of Crested and USE, which will result in funds being available to repay Crested
and USE for advances to SMP, this outcome is not assured. In any event, further
delays (at least into the third quarter of fiscal 1996) in resolution of the
litigation are expected, and may cause short term liquidity requirements.
Crested believes available working capital, operating revenues and
anticipated financing operations will continue to be adequate to fund working
capital requirements. However, with the exceptions of GMMV and Plateau, Crested
will require continued support from USE and additional sources of funding to
continue its development of and investment in its various mineral ventures, as
stated above.
Although Crested and USE currently are not in production on any mineral
properties, development work continues on several of their major investments.
Crested and USE are not using hazardous substances and known pollutants to any
great degree in these activities. Consequently, recurring costs for managing
hazardous substances, and capital expenditures for monitoring hazardous
substances or pollutants have not been significant. Likewise, Crested and USE
does not have properties which require current remediation. Crested and USE are
not aware of any claims for personal injury or property damages that need to be
accrued or funded.
Crested has received a notification of tax deficiency from the Internal
Revenue Service for fiscal years ended May 31, 1989, 1990 and 1991. Crested has
filed a response to the proposed deficiency, and has requested an administrative
appeal of the initial examiner's deficiency finding. To date, Crested has
received a preliminary indication that a major portion of the findings has been
resolved in favor of Crested. No written confirmation has been received as of
the date of filing. Crested is confident the matters will be resolved favorably
at the administrative appeals level. Until such time, if ever, as the
deficiency claim goes to Tax Court after exhaustion of administrative hearings,
management is of the opinion that this dispute is not a legal proceedings
matter.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED FISCAL 1994
Revenues for fiscal 1995 declined $1,710,600 to $1,160,200 from fiscal
1994, due to mineral sales revenues of $1,866,300 and to a gain from
restructuring mineral properties of $250,000 both recorded in fiscal 1994 with
no corresponding revenues in fiscal 1995, and a reduction in the management fees
of $80,800. This decline was partially off set by an increase in gain from the
sale of assets of $489,700.
There were no mineral sales in fiscal 1995, as a result of the SMP
arbitration, to compare with the $1,866,300 in revenues from the sale of
U\\3\\O\\8\\ 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
34
<PAGE>
such deliveries, due to disputes with the other SMP partners; under agreements
reached on an interim basis for remainder of time required for the SMP dispute
resolution, all deliveries have been made by Nukem and CRIC. Once the
arbitration proceedings are concluded, deliveries will be made in accordance
with the award. The arbitration outcome cannot be predicted.
In fiscal 1995, $1,069,600 in legal expense was incurred by Crested and USE
in connection with the SMP arbitration/litigation of which Crested was obligated
for 50% or $534,800. This compared to $576,500 in fiscal 1994 of which Crested's
share was $288,250. Such expenses should 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
advance royalties. Advance royalties of 50,000 pounds of molybdic oxide (or its
cash equivalent) remains payable. During fiscal 1994, the final $250,000 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 for the advance
royalty.
Gains from the sale of assets increased by $489,700 during fiscal 1995
compared to the corresponding period of the prior year. The increase is due to
sales for $495,000 of certain real estate in Colorado. During 1994, there were
only sales of miscellaneous equipment for $5,300. As a result of certain of the
sales of assets during 1995 being partially financed by USE and Crested, the
amount shown on the Statement of Operations exceeds the amount of gain shown on
the Statement of Cash Flows. Accounts and notes receivable have been adjusted
accordingly.
FISCAL 1994 COMPARED FISCAL 1993
Overall, while revenues declined only slightly (by $293,800) in fiscal 1994
to $2,870,800 (compared to $3,164,600 for the prior year), costs and expenses
increased substantially (by $1,045,100) in fiscal 1994 to $4,168,400 (compared
to $3,123,300 for 1993). Although operating losses were recorded for some
activities, as discussed below, two items contributed significantly to the
overall operating loss of $1,680,500 for the year. First, general and
administrative expense increased by $201,400 to $701,600 (compared to $500,200),
reflecting increased general and administrative expenses associated with Sutter
Gold. Second, costs associated with mineral operations, which are producing no
revenues, increased by $945,600 to $2,512,200 (compared to $1,566,600 for the
prior year). This increase is due primarily to an increase in cost of
U\\3\\O\\8\\ sold of $628,900 accompanied by increased costs related 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 U\\3\\O\\8\\ in accordance with SMP utility supply
contracts, however an operating loss of $332,500 for the year was recognized due
to contracted price being lower than the price at which USE could acquire the
U\\3\\O\\8\\ and increased maintenance costs on properties and equipment.
During the quarter ended August 31, 1993, Crested implemented Statement of
Financial Accounting Standard No. 109 ("Accounting for Income Taxes", hereafter
"SFAS 109"). There was no cumulative effect of this tax accounting change.
35
<PAGE>
Oil sales revenues (recorded for services provided by Crested as operator
of the Ft. Peck Lustre Field) dropped by $51,300 to $91,900 (compared to
$143,200 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
$78,900 to 1994 overall loss through the equity loss from affiliates.
EFFECTS OF CHANGES IN PRICES
Mining operations and the acquisition, development and disposition of
mineral properties are significantly affected by changes in mineral commodity
prices. As prices for a particular mineral increase, prices for prospects for
that mineral also increase, making acquisitions of such properties more costly
and difficult, and dispositions advantageous and easier. Conversely, a mineral
commodity price decline facilitates acquisitions of properties for that mineral,
but makes sales of such properties more difficult and less attractive.
Operational impacts of changes in mineral commodity prices are common in the
mining industry.
Changes in the prices of uranium and gold affect the Registrant to the
greatest extent, as its principal holdings are of prospects for those minerals.
When uranium prices were relatively high in fiscal 1988, the Registrant and USE
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% - 33% in 1990, due to the lowest prices for
uranium since the market developed in the 1960s.
Changes in uranium prices directly affect the profitability of SMP's
uranium supply agreements with electric utilities. Certain of those agreements
become advantageous to the Registrant 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 uranium spot
market prices during fiscal 1989-1991. Those fixed-price contracts, which have
contract prices exceeding current spot market rates, are currently advantageous
to the Registrant, as the uranium to fill them can be readily obtained at
favorable prices. Although such contracts benefit SMP and the Registrant in a
falling market, a corresponding adverse impact would not be anticipated in the
event of substantially increased prices. SMP would produce uranium from its
Crooks Gap properties to fill those contracts, in the event of a prolonged
increase in the spot market price above the contract prices.
With the acquisition of its interest in SGV and its Lincoln Mine, gold
prices directly affect the Registrant. Crested believes SGV'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 $390 per ounce.
Changes in prices of molybdenum and petroleum are not expected to
materially affect the Registrant with respect to either its molybdenum advance
royalties or its fees associated with oil production. A significant increase in
the price of molybdenum would be expected to increase the likelihood that the
Mt. Emmons properties will be developed by AMAX.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
Financial statements meeting the requirements of Regulation S-X for the
Registrant and its affiliate, USECC, follow immediately. Financial statements
of GMMV are included as schedules and immediately follow the index at Item
14(a)(2).
36
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To the Board of Directors and Shareholders of
Crested Corp.:
We have audited the accompanying consolidated balance sheets of Crested Corp.
(the "Company"), a Colorado corporation, and affiliate 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 Crested Corp. and affiliate 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 majority
shareholder, U.S. Energy Corp. (together referred to as "USECC") are involved in
litigation and arbitration with their 50/50 partner in Sheep Mountain Partners
("SMP"), Nukem Inc. ("Nukem") and its subsidiary Cycle Resource Investment
Corporation ("CRIC"). USECC, Nukem and CRIC have filed various 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
attributable to the Company of $2,192,500. The Company has expensed its equity
portion of these advances as of May 31, 1995. Recovery of the remaining
investment and advances of $1,172,600 is dependent upon the outcome of the
litigation, 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.
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. In addition, as discussed in Notes B and E to the consolidated financial
statements, effective June 1, 1994, the Company changed its method of accounting
for certain investments.
ARTHUR ANDERSEN LLP
Denver, Colorado,
August 28, 1995.
37
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 24,400 $ 102,300
Accounts and notes receivable
Trade, net of allowance of $16,100
and $16,300 for doubtful accounts 49,700 51,400
Affiliates, net of allowance of $800 and
$800 for doubtful accounts 115,600 82,600
Current portion of long-term receivables (Notes C and F)
Related parties 196,500 --
Other 71,100 --
Inventory and other 55,300 46,500
----------- -----------
TOTAL CURRENT ASSETS 512,600 282,800
LONG-TERM RECEIVABLES:
Related parties (Note C) -- 624,800
Other (Note F) 657,900 --
INVESTMENTS (Notes C and E):
Investments in affiliates 5,393,300 3,620,100
Land (Note F) -- 490,800
----------- -----------
5,393,300 4,110,900
PROPERTIES AND EQUIPMENT (Notes B, C, D and F):
Land and mobile home park 1,307,500 1,322,800
Buildings and improvements 2,149,700 2,149,700
Aircraft and other equipment 1,624,600 1,617,900
Developed oil properties, full cost method 886,800 886,900
Undeveloped mining properties 85,400 83,700
----------- -----------
6,054,000 6,061,000
Less accumulated depreciation,
depletion and amortization (3,311,700) (3,075,000)
----------- -----------
2,742,300 2,986,000
OTHER ASSETS 57,800 88,400
----------- -----------
$ 9,363,900 $ 8,092,900
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
38
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 819,100 $ 185,400
Accounts payable to affiliates 110,000 --
Line of credit 480,000 --
Current portion of long-term debt
to affiliates and others (Note G) 4,109,400 369,600
----------- -----------
TOTAL CURRENT LIABILITIES 5,518,500 555,000
LONG-TERM DEBT TO AFFILIATES (Note G) -- 3,835,000
ACCRUED RECLAMATION COSTS (Note K) 725,900 725,900
DEFERRED GAIN ON SALE OF ASSETS (Note C) 127,800 127,800
COMMITMENTS AND CONTINGENCIES (Note K)
SHAREHOLDERS' EQUITY (Note J):
Preferred stock, $.001 par value;
authorized, 100,000 shares;
none issued or outstanding -- --
Common stock, $.001 par value;
authorized, 20,000,000 shares;
issued, 10,208,094 and 10,201,594 shares 10,200 10,200
Additional paid-in capital 6,354,000 6,352,800
Accumulated deficit (4,807,000) (3,513,800)
Unrealized holding gain on investments (Note E) 1,434,500 --
----------- -----------
2,991,700 2,849,200
----------- -----------
$ 9,363,900 $ 8,092,900
=========== ===========
</TABLE>
The accompanying notes to consoliated financial statements are an integral part
of these balance sheets.
39
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Mineral sales (Note E) $ -- $ 1,866,300 $ 1,276,800
Commercial operations 407,900 352,300 358,400
Oil sales 97,300 91,900 143,200
Gains from restructuring mineral
properties agreements (Note F) 42,700 313,400 1,052,900
Gain on sale of assets (Note F) 495,000 5,300 136,100
Interest 18,100 19,800 30,100
Management fees and other (Note C) 99,200 221,800 167,100
----------- ----------- -----------
1,160,200 2,870,800 3,164,600
----------- ----------- -----------
COSTS AND EXPENSES:
Mineral operations 827,200 2,512,200 1,566,600
Commercial operations 828,200 888,800 806,900
Oil production 39,000 44,900 61,200
Interest 59,100 20,900 5,400
General and administrative 437,800 701,600 500,200
Abandonment of mining claims -- -- 183,000
----------- ----------- -----------
2,191,300 4,168,400 3,123,300
----------- ----------- -----------
(LOSS) INCOME BEFORE EQUITY IN LOSS
OF AFFILIATES AND INCOME TAXES (1,031,100) (1,297,600) 41,300
EQUITY IN LOSS OF AFFILIATES (Note E) (262,100) (382,900) (324,500)
----------- ----------- -----------
LOSS BEFORE INCOME TAXES (1,293,200) (1,680,500) (283,200)
INCOME TAXES (Note H) -- -- --
----------- ----------- -----------
NET LOSS $(1,293,200) $(1,680,500) $ (283,200)
=========== =========== ===========
PER SHARE AMOUNTS:
NET LOSS PER SHARE $ (.13) $ (.16) $ (.03)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 10,204,212 10,197,712 10,043,066
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
40
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Stock Paid-In Accumulated Holding Gain Shareholders'
----------------
Shares Amount Capital Deficit on Investments Equity
------ ------ ------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1992 10,028,594 $10,000 $6,306,500 $(1,550,100) $ -- $ 4,766,400
Issuance of common stock to
officers and employees
for services rendered 6,500 -- 1,400 -- -- 1,400
Issuance of common stock
to affiliate for cash 160,000 200 43,100 -- -- 43,300
Net loss -- -- -- (283,200) (283,200)
---------- ------- ---------- ----------- -------------- -----------
Balance, May 31, 1993 10,195,094 10,200 6,351,000 (1,833,300) -- 4,527,900
Issuance of common stock to
officers and employees
for services rendered 6,500 -- 1,800 -- -- 1,800
Net loss -- -- -- (1,680,500) -- (1,680,500)
---------- ------- ---------- ----------- -------------- -----------
Balance, May 31, 1994 10,201,594 10,200 6,352,800 (3,513,800) -- 2,849,200
Issuance of common stock to
officers and employees
for services rendered 6,500 -- 1,200 -- -- 1,200
Cumulative effect of change
in accounting principle
(Note E) -- -- -- -- 937,600 937,600
Unrealized holding gain
on investments (Note E) -- -- -- -- 496,900 496,900
Net loss -- -- -- (1,293,200) -- (1,293,200)
---------- ------- ---------- ----------- -------------- -----------
Balance, May 31, 1995 10,208,094 $10,200 $6,354,000 $(4,807,000) $ 1,434,500 $ 2,991,700
========== ======= ========== =========== ============== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
41
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,293,200) $(1,680,500) $ (283,200)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation, depletion, and amortization 259,100 252,900 350,200
Gain from restructuring mineral
properties agreements -- (250,000) (1,000,000)
Equity in loss of affiliates 262,100 382,900 324,500
Abandonment of mining claims -- -- 183,000
Non-cash compensation 135,200 130,700 124,700
Gain on sale of assets (495,000) (5,300) (136,100)
Loss (gain) on sale of investments 8,700 -- (46,400)
Net changes in:
Accounts and notes receivable (31,300) 48,100 (82,500)
Inventory and other (8,800) (5,100) (25,700)
Accounts payable and accrued expenses 1,024,200 (78,100) 701,600
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (139,000) (1,204,400) 110,100
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable equity securities 23,400 -- 68,200
Change in investments, other (1,500) 67,800 (87,500)
Increase in long-term receivables from related parties (16,100) (449,900) (52,500)
Proceeds from third party debt 68,900 -- --
Proceeds from notes receivables from related parties 19,900 43,000 --
Development of mining claims (1,700) (2,500) (1,700)
Proceeds from sale of property and equipment 190,900 13,700 522,100
Purchases of property and equipment (16,100) (119,300) (84,900)
Investments in affiliates (600,800) (996,800) (709,800)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (333,100) (1,444,000) (346,100)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- -- 43,300
Proceeds from line of credit 480,000 -- --
Increase in long-term debt from affiliates -- 2,408,300 --
Proceeds from non-affiliated debt 75,100 365,700 135,900
Payments on long-term debt from affiliates (160,900) (218,000) (92,600)
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 394,200 2,556,000 86,600
----------- ----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (77,900) (92,400) (149,400)
CASH AND CASH EQUIVALENTS, Beginning of year 102,300 194,700 344,100
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, End of year $ 24,400 $ 102,300 $ 194,700
=========== =========== ===========
(continued)
</TABLE>
The accompany notes to consolidated financial statements are an integral part of
these statements.
42
<PAGE>
CRESTED CORP. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended May 31,
-------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 49,700 $ 20,900 $ 5,300
========== ========== =========
Income taxes paid $ -- $ -- $ --
========== ========== =========
Noncash investing and financing activities:
Issuance of common stock to officers
and employees for services rendered $ 1,200 $ 1,800 $ 1,400
========== ========== =========
Note receivable on sale of property $1,125,100 $ $ --
========== ========== =========
Unrealized holding gain on investments $1,434,500 $ -- $ --
========== ========== =========
Offset of account receivable from related
party against payable to parent $ 434,000 $ -- $ --
========== ========== =========
Accrued reclamation costs transferred
to Green Mountain Mining Venture $ -- $ (121,900) $ --
========== ========== =========
Conversion of SRRI receivable to
investment upon loan default $ -- $ 206,400 $ --
========== ========== =========
Undeveloped mining properties transferred
to Green Mountain Mining Venture $ -- $ 121,900 $ --
========== ========== =========
Conversion of accounts payable to affiliates
to long-term debt to affiliates $ -- $1,384,500 $ --
========== ========== =========
Assumption of shareholder note payable
to USE for USE common stock $ -- $ 260,600 $ --
========== ========== =========
Property transferred from affiliate
in exchange for debt assumed $ -- $ 195,400 $ --
========== ========== =========
Acquisition of USE common stock in exchange
for long-term receivable from related party $ -- $ 72,700 $ --
========== ========== =========
Conversion of remaining SRRI receivable to
reduction in long-term debt to affiliates $ -- $ 317,500 $ --
========== ========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
43
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
A. BUSINESS ORGANIZATION AND OPERATIONS:
Crested Corp. (the "Company" or "Crested") was incorporated in the State of
Colorado on September 18, 1970. It engages in the acquisition, exploration,
sale and/or development of mineral properties, mining and marketing of minerals.
Principal mineral interests are in uranium, gold and molybdenum. However, none
are producing at the present time. Currently, the Company holds various real
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 and U.S. Energy Corp. ("USE"), a 52% shareholder of the Company
(see Note J), are engaged in two ventures to develop certain uranium properties,
one a joint venture with Kennecott Uranium Company ("Kennecott") known as Green
Mountain Mining Venture ("GMMV"), 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 USE formed USECC Gold Limited Liability Company ("USECC
Gold"), and with Seine River Resources Inc. ("SRRI") formed the Sutter Gold
Venture ("SGV") to develop certain gold properties located in California. USECC
Gold acquired SRRI's remaining interest in SGV during fiscal 1994 and owns 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") (see Note F).
The Company's working capital has been impacted by its litigation with
Nukem and CRIC, which is discussed in Note K. Expenditures made on behalf of
SMP, and a portion of which are unreimbursed by Nukem/CRIC, have increased the
Company's advances to SMP to $2,192,500 at May 31, 1995. Recovery of the
Company's advances and improvement in its liquidity position are dependent on
the outcome of this litigation. This matter also impacted the Company's ability
to pay its obligations to its affiliates, primarily USE. As of may 31, 1995, a
substantial portion, or $4,163,500 of the Company's working capital is owed to
USE. USE management has given assurance that they will not demand payment of
these advances in the next fiscal year.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Crested and affiliate (USECC Joint
Venture ("USECC")) include the accounts of the Company and one-half of the
account balances of USECC, a joint venture through which the Company and its
controlling shareholder USE, conduct the bulk of their operations. USECC has
interests in uranium mining ventures (see Notes E and F), and owns real estate
and other equipment (see Note D). USECC is owned equally by the Company and
USE.
44
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
Investments in other joint ventures and 20% to 50% owned companies are
accounted for by the equity method. Investments in companies of less than 20%
are accounted for by the cost method. All material intercompany profits,
transactions and balances have been eliminated.
INVENTORY
Inventory consists of aviation fuel and associated aircraft supplies. The
inventory is carried at the lower of cost or market.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTIES AND EQUIPMENT
Land, buildings, improvements and other equipment are carried at the
Company's share of cost.
Depreciation of buildings and improvements and other equipment is provided
by the straight-line and declining-balance methods over the estimated useful
lives of three to forty five years.
The Company capitalizes all costs associated with the acquisition,
exploration and development of mineral properties as incurred. 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 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 USE have acquired substantial mining property assets and
associated facilities at minimal cash cost, primarily through the assumption of
reclamation and environmental liabilities. These assets are owned by various
ventures accounted for by the equity method. The market value of these assets
and most of 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 and gas properties are
provided by the units of production method based on the estimated recoverable
reserves.
45
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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. 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.
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 available-for-sale securities. Available-
for-sale securities are measured at fair value, with unrealized holding gains
and losses excluded from earnings and reported as a net amount in a separate
component of shareholders' equity.
REVENUE RECOGNITION
Advance royalties which are payable only from future production or which
are non-refundable are recognized as revenue when received. Revenue from
commercial operations are recognized as goods and services are delivered. Oil
sale revenue is recognized as the oil is produced (see Notes D and F).
NET LOSS PER SHARE
Net loss per share is computed using the weighted average of common shares
outstanding during each period. Stock options outstanding have been excluded
because they are antidilutive.
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 bases
of assets, liabilities and carry forwards. There was no cumulative effect on
the financial statements for this change because the Company did not recognize
any benefit of its net operating loss 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 expected to be
realized.
The Company previously followed Accounting Principles Board Opinion No. 11
whereby deferred income taxes are provided to reflect the tax effect of timing
differences.
46
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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:
The Company does not have employees, but utilizes USE's employees and pays
for one-half of the costs of these employees under the USECC Agreement. 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 of USE stock 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 or $100,000, $92,700, and $91,700 in fiscal 1995, 1994 and 1993,
respectively.
As of May 31, 1995, the Company had notes receivable due from certain USE
employees of $196,500, which bear interest at 10% and come due in fiscal 1996.
A portion of these notes receivable are collateralized by 50,000 shares of USE
stock which are owned by a director of the Company.
As of May 31, 1994, the Company had a long-term receivable from an
affiliate of $434,000. This receivable relates to the Company's share of
expenditures made by USECC on behalf of the affiliate for capital expenditures
and operating costs. In 1995, this receivable was transferred to USE to offset
part of the Company's payable to USE (see Note G).
As of May 31, 1993, the Company had a non-recourse promissory note
receivable of $72,700 due from a shareholder which was non-interest bearing and
was repaid in fiscal 1994 with the USE common stock that collateralized the
note. The Company also assumed a non-recourse promissory note payable from this
shareholder to USE for $260,600. The $260,600 is included in notes payable -
U.S. Energy in Footnote G. This note is secured by 60,000 shares of USE common
stock and is due October 30, 1995.
The Company and USE provide management and administrative services for
affiliates under the terms of various management agreements. Revenues from
these services for the Company were $99,200, $180,000, and $61,300 in fiscal
1995, 1994 and 1993, respectively.
In November 1992, the Company entered into a sale agreement, and sold
certain machinery and equipment to an affiliate. This machinery and equipment
is being rented from the affiliate on a month-to-month basis for $6,800 and is
charged to commercial operations in the accompanying consolidated statement of
operations. The Company has deferred the gain of $127,800 on this sale.
In April 1993, the Company received a $76,800 advance from an affiliate and
sold 160,000 shares of stock to this affiliate for $.27 per share, which
approximated market value. The advance was in the form of a note to be repaid
by April 2003, with interest at 2.5% above prime. The note was repaid with
interest during fiscal 1994. As further consideration for the note, the Company
granted the
47
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
affiliate options for 300,000 common shares at $.40 per share. These options are
exercisable over a five year period.
See Note J with respect to stock grants to employees of USE who provide
services to the Company, and for discussion of issuance of Company stock to an
affiliate for cancellation of certain payables to the affiliate.
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 and
office space; certain aircraft; holds interests in various minerals operations
including SMP and GMMV; conducts oil and gas operations; and transacts all
operating and payroll expenses, except for specific expenses which are allocated
directly to each venturer. The joint venture agreement also provides for the
allocation of certain operating expenses to other affiliates. Condensed
financial information of USECC, of which 50% is proportionately consolidated by
the Company, follows:
CONDENSED BALANCE SHEETS - USECC
<TABLE>
<CAPTION>
May 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Current assets $ 475,500 $ 1,755,100
Properties and equipment 9,399,000 9,416,300
Undeveloped mineral properties 27,900 24,500
Accumulated depreciation (4,151,900) (3,678,500)
Other long-term assets 3,874,700 2,398,700
----------- -----------
$ 9,625,200 $ 9,916,100
=========== ===========
Current liabilities $ 2,714,200 $ 592,800
Notes payable -- 84,500
Reclamation liability 1,532,700 1,451,800
Venturers' capital 5,378,300 7,787,000
----------- -----------
$ 9,625,200 $ 9,916,100
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF OPERATIONS - USECC
<TABLE>
<CAPTION>
Year Ended May 31,
------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $ 2,225,600 $ 5,012,100 $ 2,015,100
Costs and expenses (4,453,600) (8,463,200) (3,909,500)
----------- ----------- -----------
Net loss $(2,228,000) $(3,451,100) $(1,894,400)
=========== =========== ===========
</TABLE>
48
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
E. INVESTMENTS:
The Company's investments in affiliates are as follows:
<TABLE>
<CAPTION>
Carrying Value at May 31,
-----------------------------------------
Ownership 1995 1994
--------- ---- ----
<S> <C> <C> <C>
Equity Method Investments:
GMMV 25% $ 116,300 $ 116,300
SGMC 11% 1,156,800 1,119,300
SMP (Note F) 25% 1,172,600 953,000
ENERGX Ltd. 45% 191,900 110,300
Other Investments:
USE 11% 2,743,200 1,316,200
Others various 12,500 5,000
----------- -----------
$ 5,393,300 $ 3,620,100
=========== ===========
</TABLE>
As discussed in Note B to the financial statements, effective June 1, 1994,
the Company changed its method of accounting for its investments. The net
aggregate unrealized holding gain for available-for-sale securities had a non-
equity investments at May 31, 1995 was $1,434,500. The Company recognized an
unrealized effect of $937,600 as of June 1, 1994, related to the adoption of
SFAS 115. The aggregate fair market value of these investments increased
$496,900 from June 1, 1994 to May 31, 1995.
Equity in loss from investments accounted for by the equity method are as
follows:
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SGMC $ (37,500) $ (54,500) $ (58,500)
SMP (Note F) (219,600) (257,400) (266,000)
ENERGX, LTD. (5,000) (71,000) --
--------- --------- ---------
$(262,100) $(382,900) $(324,500)
========= ========= =========
</TABLE>
There is currently litigation and arbitration proceedings with the
Company's partner in the SMP partnership, as discussed further in Note K.
Because of the litigation and arbitration, the Company has been required to
advance $2,192,500 to SMP 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 $2,192,500 to be a
receivable from SMP. Whether or not the $2,192,500 of advances are realized will
depend on the outcome of the litigation and arbitration with Nukem and its
wholly-owned subsidiary CRIC (see Note K).
49
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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. 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 $15,037,800.
Condensed combined financial statements of the Company's equity investees
include GMMV, SMP, Energx, Ltd. and SGMC for fiscal 1995 and 1994, and GMMV, SMP
and SGMC for 1993. GMMV and SGMC are in the development stage and have not
commenced operations. 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
million of development and operating costs of this joint venture. The Company's
investment in GMMV of $116,300 in the accompanying consolidated balance sheets
is substantially lower than its equity basis in GMMV. SGMC is considered an
equity investment because of the control exerted by USE and the Company.
CONDENSED COMBINED BALANCE SHEETS:
EQUITY INVESTEES
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current assets $ 8,380,300 $ 733,600
Non-current assets 60,003,500 59,003,200
----------- -----------
$68,383,800 $59,736,800
=========== ===========
Current liabilities $ 7,921,000 $ 6,916,500
Reclamation liabilities 30,782,900 23,621,600
Excess in assets 29,679,900 29,198,700
----------- -----------
$68,383,800 $59,736,800
</TABLE> =========== ===========
50
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
CONDENSED COMBINED STATEMENTS OF OPERATIONS:
EQUITY INVESTEES
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues $ 563,200 $ 16,100 $ 20,800
Costs and expenses (1,935,000) (3,357,500) (5,432,800)
----------- ----------- -----------
Net loss $(1,371,800) $(3,341,400) $(5,412,000)
=========== =========== ===========
</TABLE>
F. MINERAL TRANSACTIONS AND MINING PROPERTIES:
GMMV
During fiscal 1990, the Company and USE 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 the
mineral properties were contributed to GMMV, a portion of the Green Mountain
Properties was owned by USE and the remainder was owned by the USECC joint
venture.
The Boards of Directors of the Company and USE adopted a method of
apportioning the initial consideration of $15,000,000, on a ratio of 16% to the
Company and 84% to USE. This division was based on analyses of the projected
cash flows from the properties contributed by USE and USECC and other criteria.
Kennecott committed to fund 100% of the first $50 million of development
costs and operating expenses of the GMMV joint venture. Kennecott will also pay
additional amounts if certain future operating margins are achieved. USE and
USECC participate in cash flows of the GMMV in accordance with their ownership
of the mining claims prior to the formation of GMMV. Because USE owned all of
the claims on that portion of the Green Mountain Properties where the Round Park
uranium deposit was delineated, the Company has no interest in GMMV's cash flow
from the ore produced in mining operations on the Round Park properties, which
have been scheduled for initial development.
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 $116,300 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 and
pursuit of mining permits continues in anticipation of future uranium price
increases.
SMP
During fiscal 1989, USE and the Company, through USECC, entered into an
agreement to sell a 50% interest in their Sheep Mountain properties, to Nukem's
subsidiary Cycle Resource Investment Corporation ("CRIC"). USECC and CRIC each
contributed their 50% interests in the properties to a
51
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
newly formed partnership, Sheep Mountain Partners. SMP was established to
further develop and mine the uranium claims on Sheep Mountain, to market uranium
and acquire additional uranium sales contracts. USECC agreed to assign three
uranium delivery contracts with four domestic utilities to SMP. USECC, however,
remained responsible for certain environmental reclamation liabilities on these
contracts. Certain disputes have arisen among USECC, CRIC and its parent Nukem,
Inc. over the formation and operation of SMP. 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 USE conveyed interests in mining claims
to AMAX Inc. ("AMAX") in exchange for cash, advance and production 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 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 USE, 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 USE. If
AMAX sells the properties, the Company and USE will receive 15% of the first $25
million received by AMAX.
In addition, AMAX pays the Company and USE jointly 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 $42,700, $63,400, and $52,900 of
revenues 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. This resulted in a gain for the Company of $491,100.
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.
52
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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 $96,090 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.
SUTTER GOLD MINING COMPANY
During fiscal 1991, the Company acquired an interest in Sutter Gold Venture
("SGV"), a joint venture formalized to acquire various mineral leases and to
develop and mine gold from these properties in California. The Company acquired
one-ninth of the interest of USE in SGV, in exchange for its agreement to pay
one-ninth of USE's acquisition and operating costs for its interest in the joint
venture, plus accrued interest, as described below.
USE acquired its indirect interest in SGV for: (i) $4.5 million of the $5
million 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 operating and holding
costs of SGV. SRRI, the co-venturer in SGV, provided $500,000 of the property
purchase price, and agreed to pay $2 million to USE to equalize the investments
of USE and SRRI in SGV. USE and SRRI agreed that they would each initially hold
50% interests in SGV.
SRRI issued a $2 million note to USE, bearing interest at 10% per annum.
The note provided that $500,000 of principal and accrued interest was due on
April 12, 1991, and the balance of $1.5 million was due October 12, 1991, with
interest. If the installments were not paid when due, the interests of USE and
SRRI in SGV were to be adjusted to equal the percentage of the $5 million
purchase price of SGV's properties that each of them provides.
The Company's purchase price for its interest in SGV was: (i) $500,000
(one-ninth of the $4.5 million provided by USE for the purchase of the SGV
properties) with interest; (ii) an agreement to pay USE $55,556 (one-ninth of
the initial $500,000 of expenses of SGV which USE agreed to pay) with interest;
and (iii) an agreement to fund one-ninth of the operating and holding costs and
liabilities imposed on the USE-Company interest in SGV. In exchange, the Company
received one-ninth of USE's interest in SGV, which initially entitled the
Company to a 5.6% interest in the project. The Company was also entitled to one-
ninth of any payments on the $2 million note issued by SRRI to USE.
In exchange for 475,000 shares of SRRI's common stock (one-ninth to the
Company and eight-ninths to USE) SRRI was granted an extension of the due date
for the initial $500,000 note payment 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-USE interest to 60%.
Thereafter, SRRI failed to make the $1.5 million principal payment to USE that
was due on October 12, 1991, of which the Company was to receive one-ninth of
any payment on the note. As a result of the default by SRRI, its 40% interest in
SGV was reduced to 10%. In May 1994, the Company, USE and SRRI reached an
agreement by which SRRI gave up all rights, title and interest in SGV and
delivered 400,000 shares of its common stock for a forgiveness of all accounts
and notes payable by SRRI
53
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
to the Company and USE. The Company and USE share SRRI's forfeitures on a one-
ninth basis for the Company and eight-ninths for USE. Therefore, the Company's
indirect interest in SGV, now SGMC, was adjusted to 11% or one-ninth. The
Company's funding obligations for SGV have also increased to 11%.
Since inception, the Company and USE have funded $6,383,900 in development
and holding costs. These costs were funded by the Company and USE on a one-
ninth/eight-ninths basis, respectively. As of May 31, 1995, the Company's total
investment in SGMC had a carrying value of $1,156,800.
SGMC remains 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.
PLATEAU RESOURCES LIMITED
Effective August 11, 1993, USE 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. At the present time,
Plateau has applied to renew its source materials license with the United States
Nuclear Regulatory Commission ("NRC"). USE 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 USE for development of certain properties held by USE and the Company.
Although the Company has no ownership in Plateau, Directors of the Company and
USE 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.
On August 25, 1994, Plateau Resources Limited, a wholly owned subsidiary of
USE signed a letter of intent with a third party to sell part interest in Canyon
Homesteads, Inc., a wholly owned subsidiary of Plateau, and to develop the
Ticaboo Townsite, in south central Utah and other resort properties near Lake
Powell. The total purchase price for the one-half interest in Canyon Homesteads
was to be $6,000,000. The party 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. The
purchaser defaulted, as a result, the $100,000 was recognized as income in
fiscal 1995 by USE.
54
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
G. DEBT:
The Company has a line of credit with a commercial bank. The line bears
interest at a variable rate (10.5% as of May 31, 1995). The weighted average
interest rate for 1995 was 9.82%. The line of credit had an outstanding balance
for the Company and USE jointly of $960,000 as of May 31, 1995, of which
Crested's 50% portion is $480,000. This line of credit was due and paid in full
as of July 23, 1995 with proceeds from USE's private placement which closed in
August 1995. Subsequently, the Company and USE renegotiated the line of credit
for $1,000,000, due July 23, 1996. There is $0 outstanding on the new line of
credit as of report date.
Debt consists primarily of a note to USE which was the result of a
conversion of the accounts payable to USE as of May 31, 1994, to a long-term
note. The remaining debt is primarily due to the acquisition of equipment. All
debt is classified as current as of May 31, 1995.
<TABLE>
<CAPTION>
May 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Notes payable - U.S. Energy, non-interest
bearing, $260,600 due on October 30, 1995
(Note C), remaining balance due May 31, 1996 $ 4,053,500 $4,053,500
Notes payable - Other, interest
ranging from 8% to 9.5%, payable
in monthly installments ranging from
$10,400 to $12,400, matures through
January 1996 55,900 151,100
----------- ----------
Total $ 4,109,400 $4,204,600
=========== ==========
</TABLE>
H. INCOME TAXES:
The Company adopted SFAS No. 109 in fiscal 1994. There was no cumulative
effect of this change in accounting principle.
55
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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 $ 29,600 $ 17,800
Deferred gain on sale of assets 154,900 43,500
Net operating loss carryforwards 3,261,500 2,314,000
Tax credits 83,000 83,000
Capital loss carryforwards 182,100 451,500
----------- -----------
Total deferred tax assets 3,711,100 2,909,800
Deferred tax liabilities:
Accelerated depreciation for tax (504,300) (462,500)
Development and exploration costs (255,000) (243,000)
----------- -----------
Total deferred tax liabilities (759,300) (705,500)
----------- -----------
Net deferred tax assets - all non-current 2,951,800 2,204,300
Valuation Allowance (2,951,800) (2,204,300)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
At May 31, 1995, the Company had available, for federal income tax
purposes, net operating loss carryforwards of approximately $9,633,000 which
expire in 2005 through 2010 and investment tax credit carryforwards of
approximately $83,000 which, if not used, will begin to expire in 1998. The
Company has established a valuation allowance for the full amount of the net
deferred tax assets due to the recurring losses of the Company and the
uncertainty of the Company's ability to generate future taxable income to
utilize the NOL carryforwards. As of May 31, 1995, the valuation allowance had
increased $636,100.
For the year ended May 31, 1993, the tax effects of deferred taxes
resulting from timing differences in the recognition of revenues and expenses
for tax and financial statement purposes were as follows:
56
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended May 31,
------------------
1993
----
<S> <C>
Operating loss carryforwards for
tax reporting purposes $ (89,800)
Gain on sale of property and equipment (74,800)
Depreciation 50,000
Deferred compensation expense (49,300)
Exploration and development costs 44,900
Other 119,000
----------
Deferred income taxes $ --
==========
</TABLE>
For fiscal years 1995, 1994 and 1993, the Company incurred losses for both
book and tax purposes. The income tax provision 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 benefit $(439,700) $(571,300) $ (96,200)
Capital loss carryforward (269,900) -- --
Other (37,900) -- (96,200)
Valuation allowance 747,500 571,300 --
--------- --------- ---------
Income taxes $ -- $ -- $ --
========= ========= =========
</TABLE>
There were no taxes payable as of May 31, 1995, 1994 or 1993.
The Internal Revenue Service ("IRS") has audited the Company's tax returns
through fiscal 1986, and its income tax liabilities are settled through that
year. The IRS has audited the Company's and USECC's 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, believes that no significant
liabilities will result from the findings.
I. SEGMENTS AND MAJOR CUSTOMERS:
The Company's primary business activities include the sales of minerals and
the acquisition exploration, holding, development and sale of mineral bearing
properties. No properties are currently producing. The second reportable
industry segment is commercial operations, primarily real estate activities and
operations of an airport fixed base operation. The following is information
related to industry segments.
57
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended May 31, 1995
---------------------------------------
Commercial
Minerals Operations Consolidated
-------- ---------- ------------
<S> <C> <C> <C>
Revenues $ 42,700 $ 407,900 $ 450,600
========== ==========
Interest and other revenues 709,600
-----------
Total Revenues $ 1,160,200
===========
Operating loss $ (784,500) $ (420,300) $(1,204,800)
========== ==========
Interest and other revenues 709,600
General corporate and other expenses (535,900)
Equity loss in affiliates (262,100)
-----------
Loss before income taxes $(1,293,200)
===========
Identifiable assets at May 31, 1995 $ 96,100 $2,714,300 $ 2,810,400
========== ==========
Investments in affiliates 5,393,300
Corporate assets 1,160,200
-----------
Total assets at May 31, 1995 $ 9,363,900
===========
Capital expenditures $ 1,700 $ 16,100
========== ==========
Depreciation, depletion and
amortization $ -- $ 259,100
========== ==========
</TABLE>
58
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended May 31, 1994
----------------------------------------
Commercial
Minerals Operations Consolidated
-------- ---------- ------------
<S> <C> <C> <C>
Revenues $2,179,700 $ 352,300 $ 2,532,000
========== ==========
Interest and other revenues 338,800
-----------
Total Revenues $ 2,870,800
===========
Operating loss $ (332,500) $ (536,500) $ (869,000)
========== ==========
Interest and other revenues 338,800
General corporate and other expenses (767,400)
Equity loss in affiliates (382,900)
-----------
Loss before income taxes $(1,680,500)
===========
Identifiable assets at May 31, 1994 $ 94,400 $2,872,200 $ 2,966,600
========== ==========
Investments in affiliates 3,620,100
Corporate assets 1,506,200
-----------
Total assets at May 31, 1994 $ 8,092,900
===========
Capital expenditures $ 2,500 $ 119,300
========== ==========
Depreciation, depletion and
amortization $ -- $ 238,600
========== ==========
</TABLE>
59
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
Year Ended May 31, 1993
----------------------------------------
Commercial
Minerals Operations Consolidated
-------- ---------- ------------
<S> <C> <C> <C>
Revenues $2,329,700 $ 358,400 $ 2,688,100
========== ==========
Interest and other revenues 476,500
-----------
Total Revenues $ 3,164,600
===========
Operating income (loss) $ 580,100 $ (448,500) $ 131,600
========== ==========
Interest and other revenues 476,500
General corporate and other expenses (566,800)
Equity loss in affiliates (324,500)
-----------
Loss before income taxes $ (283,200)
===========
Identifiable assets at May 31, 1993 $ 213,700 $2,804,600 3,018,300
========== ==========
Investments in affiliates 2,466,500
Corporate assets 1,913,400
-----------
Total assets at May 31, 1993 $ 7,398,200
===========
Capital expenditures $ 1,700 $ 84,900
========== ==========
Depreciation, depletion and
amortization $ -- $ 209,600
========== ==========
</TABLE>
In fiscal 1994 and 1993, approximately 14% and 45%, respectively, of
mineral revenues were from amortization of the AMAX note and molybdenum advance
royalties. During fiscal 1994 and 1993, 86%, and 55%, respectively, of mineral
revenue were from sales of minerals. There were no mineral sales in fiscal 1995.
Commercial revenues in the statements of operations consist of mining
equipment, office and other real property rentals, charter flights and fuel
sales.
J. SHAREHOLDERS' EQUITY:
During fiscal 1995, 1994, 1993, 1991 and 1990, the Boards of Directors
of both the Company and USE, from time to time, issued stock bonuses to certain
directors, employees and third parties. Such shares are forfeitable to the
Company and USE until earned. The Company is responsible for one-half of the
compensation expense related to these issuances (see Note C). Compensation
expense relating to the stock bonuses is recognized over the various earn-out
periods. As of May 31, 1995, 1994 and 1993, the Company had compensation
expense of $35,300, $52,300, and $160,700 respectively, resulting from these
issuances. Additional information related to these stock issuances is set forth
in the following table.
60
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
<TABLE>
<CAPTION>
Issue Number Issue Total
Date of Shares Issuer Price Compensation
----- --------- ------ ----- ------------
<S> <C> <C> <C> <C>
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
</TABLE>
No shares were earned out in fiscal 1993 or 1992; 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.
In April 1993, the Board of Directors of the Company authorized the Company
to issue 160,000 shares of its common stock at $.27 per share to an affiliate
for cash in an effort to increase the Company's operating capital. The Company
also granted this affiliate options for 300,000 common shares at $.40 per share.
These options are exercisable over a five year period.
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 USE. CRIC claimed that the
Company and USE 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 USE
misappropriated a business opportunity of SMP. CRIC seeks damages and certain
equitable remedies from the Company and USE, in an amount to be determined and
seeks to expel the Company and USE from the SMP Partnership. The Company and
USE 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.
61
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
FEDERAL COURT ACTION CONCERNING SMP. On July 3, 1991, the Company and USE
-----------------------------------
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
USE to induce their entry into the agreements forming SMP and seek rescission,
damages and other relief. The Company and USE 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 USE.
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 USE
to stay the above arbitration initiated by CRIC and also ordered the Company and
USE to amend their complaint. On April 6, 1992, the Company and USE 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 USE 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 USE that the majority of the litigation 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 rester 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. 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 USE/CC 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 not expected until 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, USE, CRIC,
SMP, Nukem Luxembourg GmbH ("NULUX") and the Dresdner Bank, seeking a
declaratory
62
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
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 U\\3\\O\\8\\ delivered to IPC and provide for 3 deliveries
totalling 486,443 lbs. U\\3\\O\\8\\ in 1995, 1996 and 1997. The first delivery
of 226,443 lbs. U\\3\\O\\8\\ was made on June 30, 1995 by Nukem on behalf of
SMP. This amendment to the IPC contract will be subject to the decision of the
Arbitration Panel.
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.
63
<PAGE>
CRESTED CORP. AND AFFILIATE
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 or 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. For the obligations recorded
on acquired properties, including site-restoration, closure and monitoring
costs, actual expenditures for reclamation will occur over a number of years,
and since these properties are all considered future production properties,
those expenditures, particularly the closure costs, may not be incurred for many
years. The Company also does not believe that any significant capital
expenditures to monitor or reduce hazardous substances or other environmental
impacts are currently required. As a result, the near term reclamation
obligations are not expected to have a significant impact on the Company's
liquidity.
As of May 31, 1995 and 1994, the Company has recorded estimated reclamation
obligations, including standby costs, of $725,900, 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 25% equity investor,
has recorded a $23,960,000 liability for future reclamation and closure costs.
See GMMV discussion below for likelihood of liabilities being incurred by the
Company. 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 SGMC, and the recent purchaser of 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:
64
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
SMP
---
The Company and USE 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, ($725,900 or 50% of which is recorded in the accompanying balance
sheet), 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 USE 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 USE for reclamation work, as the
uranium is produced from the properties. The current arbitration proceedings
with Nukem and CRIC could result in changes to these agreements between the
parties.
GMMV
----
During fiscal 1991, the Company and USE acquired developed minerals
properties on Green Mountain known as the Big Eagle Property. In connection
with that acquisition, the Company and USE 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 USE
transferred a one-half interest in them to Kennecott, and Kennecott, the Company
and USE contributed the Big Eagle properties to GMMV, which assumed the
reclamation and other environmental liabilities. Kennecott obtained a
commercial bank letter of credit as security for the performance of the
reclamation obligations for the benefit of GMMV.
During fiscal 1993, GMMV entered into an agreement to acquire the
Sweetwater uranium mill and related properties from UNOCAL. GMMV's
consideration for the acquisition of the Sweetwater Mill Property was the
assumption of all environmental liabilities and reclamation bonding obligations.
The environmental obligations of GMMV are guaranteed by Kennecott Corporation
(parent of Kennecott Uranium Company, the other joint venture partner).
However, UNOCAL also agreed that if GMMV incurs expenditures for environmental
liabilities prior to the earlier of commercial production by GMMV or February 1,
2001 (which liabilities are not due solely to the operations of GMMV), UNOCAL
will reimburse GMMV the first $8,000,000 of such expenditures. Any such
reimbursement may be recovered by UNOCAL from 20% of future cash flows from sale
of uranium concentrates processed through the mill. In any event, until such
time as environmental and reclamation undertakings are liquidated against
Kennecott Corporation, such costs are not deemed expenditures under Kennecott's
$50,000,000 development commitment (although bond costs may be charged against
this development commitment).
The reclamation and environmental liabilities assumed by GMMV concern two
categories: (1) cleanup of an inactive open mine pit site near the Mill,
including water (heavy metals and other contaminants) and tailings (heavy metals
and other dust contaminant abatement and erosion control) associated with the
pit, and (2) decontamination and cleanup and disposal of the Mill building and
equipment and tailings cells after Mill decommissioning. Current liabilities
for such efforts have been established at approximately $16,314,000 by the
Wyoming Department of Environmental Quality for mine pit site matters
(exercising EPA-delegated jurisdiction to administer the Clean Water Act and the
Clean Air Act, and directly administering Wyoming statutes on mined land
reclamation), and by the NRC for decontamination and cleanup of the Mill and
Mill tailings cells. The EPA has continuing jurisdiction
65
<PAGE>
CRESTED CORP. AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995, 1994 AND 1993
(CONTINUED)
under the Resource Conservation and Recovery Act, pertaining to any hazardous
materials which may be on site when cleanup work is started.
Although Crested 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, Crested believes it is unlikely Crested will have to
pay for such costs directly. First, based on current estimates of cleanup and
reclamation costs (reviewed annually by the oversight agencies), such costs may
be within the $50,000,000 development commitment of Kennecott Uranium Company
for GMMV. These costs are not expected to increase materially, if the Mill is
not put into full operation. Second, to the extent GMMV is required to spend
money on reclamation and environmental liabilities related to previous Mill and
site operations during ownership by Minerals Exploration Company (a UNOCAL
subsidiary), UNOCAL has agreed to fund up to $8,000,000 of such costs (provided
such costs are incurred before February 1, 2001 and before Mill production
resumes), which would be recoverable only out of future Mill production (see
above). Third, payment of the GMMV reclamation and environmental liabilities
related to the mill is guaranteed by Kennecott Corporation, parent of Kennecott
Uranium Company. Last, GMMV will set aside a portion of operating revenues to
fund reclamation and environmental liabilities once mining and milling
commences. To date, ongoing Mill maintenance expense is funded by Kennecott as
part of its development commitment.
Kennecott Corporation will be entitled to contribution from the Crested
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 Crested 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 USE 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 are insignificant.
66
<PAGE>
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 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 BENEFITS
The Company and USE 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 of up to
five years thereafter.
67
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Not applicable.
PART III
In the event a definitive proxy statement containing the information being
incorporated by reference into this Part III is not filed within 120 days of May
31, 1995, the Registrant will file such information under cover of a Form 10-
K/A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The information required by Item 10 with respect to directors and certain
executive officers is incorporated herein by reference to Registrant's Proxy
Statement for the 1995 Annual Meeting of Shareholders. The information
regarding the remaining executive officer is contained in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The information required by Item 11 is incorporated herein by reference to
the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The information required by Item 12 is incorporated herein by reference to
the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The information required by Item 13 is incorporated herein by reference to
the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders.
68
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, REPORTS
----------------------------------------------------------------------
AND FORM 8-K.
------------
(a) The following financial statements are filed as a part of this Report as
Item 8:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
(1) Financial Statements
Registrant and Affiliate
Report of Independent Public Accountants...................................................37
Consolidated Balance Sheets - May 31, 1995 and 1994.....................................38-39
Consolidated Statements of Operations
for the Years Ended May 31, 1995, 1994 and 1993............................................40
Consolidated Statements of Shareholders'
Equity for the Years Ended May 31, 1995, 1994 and 1993.....................................41
Consolidated Statements of Cash Flows
for the Years Ended May 31, 1995, 1994 and 1993.........................................42-43
Notes to Consolidated Financial
Statements..............................................................................44-68
(ii) Affiliate Financials as Schedules
(a) Green Mountain Mining Venture
Report of Independent Public Accountants.........................................74
Balance Sheet - December 31, 1994 and 1993.......................................75
Statement of Operations for the Period from June 1, 1990
(Date of Inception) through December 31, 1994....................................76
Statement of Changes in Partners' Capital for the Period from
June 1, 1990 (Date of Inception) through December 31, 1994.......................77
Statement of Cash Flows for the Period from June 1, 1990
(Date of Inception) through December 31, 1994....................................78
Notes to Financial Statements.................................................79-82
</TABLE>
(b) Sheep Mountain Partners
The Registrant's partner in SMP, Nukem/CRIC, have 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 at which Nukem/CRIC pays
for purchases of uranium for SMP; or (ii) the price which CRIC charges
SMP for the uranium.
69
<PAGE>
As a result, the independent public accountants have informed the
Registrant and USE that they have been unable to complete their audit
of SMP, and are unable to render a report on SMP's financial
statements. The Registrant and SMP's independent public accountants
are seeking to resolve these uncertainties so that SMP's financial
statements may be finalized and filed. When these matters are
resolved, the SMP financial statements will be filed under cover of a
Form 10-K/A.
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.................................*
*To be filed under cover of a Form 10-K/A.
All other schedules have been omitted because the information is not
applicable or because the information is included in the financial
statements.
70
<PAGE>
(3) Exhibits Required to be Filed.
<TABLE>
<CAPTION>
Exhibit Sequential
No. Title of Exhibit Page No.
--------- ----------------------------------------------------- --------
<S> <C> <C>
3.1 Restated Articles of Incorporation........................................[1]
3.4 By-Laws...................................................................[2]
10.2 Management Agreement - USE - CC...........................................[3]
10.3 Joint Venture Agreement - Registrant and USE..............................[2]
10.4 U.S. Energy Corp. Employee Stock Ownership Plan...........................[2]
10.5 Assignment and Lease - Parador............................................[3]
10.6 Employment Agreement - Daniel P. Svilar...................................[2]
10.7 Executive Officer Death Benefit Plan......................................[2]
10.8 U.S. Energy Corp. 1989 Stock Option Plan..................................[2]
10.9 Big Eagle Acquisition Agreement with PMC..................................[4]
10.10 Ft. Peck Agreement - Drilling and Production Services.....................[3]
10.11 Agreement to Purchase SGV Interest from USE...............................[5]
10.12 USE/SRRI Letter Agreement - SGV...........................................[6]
10.13 USE/SRRI Amendment to Letter Agreement - SGV..............................[7]
10.14 Loan and Security Agreement - SRRI/USE....................................[8]
10.15 SRRI Promissory Note - Property Purchase..................................[9]
10.16 SRRI Promissory Note - SGV Operating Expenses.............................[3]
10.17 Sweetwater Mill Acquisition Agreement.....................................[3]
10.18 Self Bond Agreement - Crooks Gap Properties...............................[1]
10.21 Master Agreement - Mt. Emmons/AMAX Inc...................................[10]
10.23 Crooks Gap Property Acquisition Agreement................................[11]
10.25 Milling Agreement - Pathfinder Mines Corporation.........................[11]
10.26 Memorandum of Partnership Agreement - GMMV................................[2]
10.27 Mineral Properties Agreement - Congo Area - PMC...........................[2]
10.29 Memorandum of Partnership Agreement - SMP.................................[1]
10.30 Plateau Acquisition - Stock Purchase Agreement and Related Exhibits..... [12]
10.41 Option and Sales Agreements - Gunnison Property Parcel A................83-94
10.42 Option and Sales Agreements - Gunnison Property Parcel B...............95-103
21 Subsidiaries of Registrant................................................104
</TABLE>
71
<PAGE>
By Reference
------------
[1] Incorporated by reference from the like-numbered exhibits to the
Registrant's Form 10-K for the year ended May 31, 1989.
[2] Incorporated by reference from the like-numbered exhibits to the
Registrant's Form 10-K for the year ended May 31, 1990.
[3] Incorporated by reference from the like-numbered exhibits to the
Registrant's Form 10-K for the year ended May 31, 1991.
[4] Incorporated by reference from the like-numbered exhibit to the
Registrant's Form 10-Q for the period ended February 28, 1991.
[5] Incorporated by reference from Exhibit 28.1 to the Registrant's Form 8-K
reporting an event of December 14, 1990.
[6] Incorporated by reference from Exhibit 28.2 to the Registrant's Form 8-K
reporting an event of December 14, 1990.
[7] Incorporated by reference from Exhibit 28.3 to the Registrant's Form 8-K
reporting an event of June 1, 1991.
[8] Incorporated by reference from Exhibit 28.4 to the Registrant's Form 8-K
reporting an event of June 1, 1991.
[9] Incorporated by reference from Exhibit 28.5 to the Registrant's Form 8-K
reporting an event of June 1, 1991.
[10] Incorporated by reference from the like-numbered exhibits of AMAX's
Schedule 13D filed on or about August 3, 1987.
[11] Incorporated by reference from the like-numbered exhibits of
Registrant's Form 10-K for the year ended May 31, 1988.
[12] Incorporated by reference from exhibit A to the U.S. Energy Corp. Form
8-K reporting an event of August 11, 1993.
(b) Reports filed on Form 8-K.
During the fourth quarter of the fiscal year ended on May 31, 1994, the
Registrant did not file any reports on Form 8-K.
(c) Required exhibits follow the signature page and are listed above under
Item 14 (a)(3).
(d) Required financial statement schedules are listed and attached hereto in
Item 14(a)(2).
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CRESTED CORP.
(Registrant)
Date: August 30 , 1995 By: /s/ John L. Larsen
---------- ---------------------------------
JOHN L. LARSEN,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: August 30 , 1995 By: /s/ John L. Larsen
------- ---------------------------------
JOHN L. LARSEN, Director
Date: September 7 , 1995 By: /s/ Max T. Evans
------- ---------------------------------
MAX T. EVANS, Director
Date: September 7 , 1995 By: /s/ Daniel P. Svilar
------- ---------------------------------
DANIEL P. SVILAR, Director
Date: September _______, 1995 By: _________________________________
MICHAEL D. ZWICKL, Director
Date: September _______, 1995 By: _________________________________
KATHLEEN R. MARTIN, Director
Date: September 5 , 1995 By: /s/ Robert Scott Lorimer
------- ---------------------------------
ROBERT SCOTT LORIMER,
Principal Financial Officer
Chief Accounting Officer
73
<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
74
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
BALANCE SHEET
as of December 31, 1994 and 1993
______
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
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) 23,620,000 23,620,000
----------- -----------
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
----------- -----------
23,020,480 22,697,490
----------- -----------
Total liabilities and partners' capital $46,702,866 $46,419,672
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements
75
<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
___________
<TABLE>
<CAPTION>
Period from
inception to
December 31,
1994 1993 1992 1994
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
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 $1,963,204 $2,065,982 $2,130,794 $6,169,380
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these financial statements
76
<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
77
<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 $(1,963,204) $(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 (288,208) (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
78
<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.
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
79
<PAGE>
GREEN MOUNTAIN MINING VENTURE
(A Joint Venture in the Development Stage)
NOTES TO FINANCIAL STATEMENTS, Continued
________
2. Summary of Significant Accounting Policies, Continued:
------------------------------------------
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.
80
<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:
<TABLE>
<CAPTION>
Period from
Year ended Year ended Year ended inception through
December 31, December 31, December 31, December 31,
1994 1993 1992 1994
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
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
======== ======== ======== ==========
</TABLE>
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 2000, 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 2001. All fees required to hold the unpatented
mining claims have been paid to the state of Wyoming for the period ended
December 31, 1994.
81
<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:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Acquisition costs $39,347,000 $39,347,000
Development costs 7,355,866 7,072,672
----------- -----------
$46,702,866 $46,419,672
=========== ===========
</TABLE>
Acquisition costs include the partners' initial contribution of
$15,727,000 of mineral properties and buildings recorded at the
contributing partners' historical cost and $23,620,000 of mineral
properties and buildings acquired in exchange for the assumption of
reclamation liabilities noted above.
82
<PAGE>
EXHIBIT 10.41
OPTION AGREEMENT
(Parcel A)
THIS OPTION AGREEMENT (the "Agreement") is made and entered into effective
this 21st day of November, 1994, by and between Pangolin Corporation, a
California corporation ("Buyer"), and U.S. Energy Corp./Crested Corp.
("Seller").
WITNESSETH:
WHEREAS, Seller is the owner of certain real property located in the City of
Gunnison, Gunnison County, Colorado (the "Property") more particularly described
on Exhibit A attached hereto, subject to verification by survey and title
inspection;
WHEREAS, Buyer desires to obtain an option to purchase the Property from Seller;
and
WHEREAS, upon the terms, covenants and conditions contained in this Agreement,
Seller is willing to grant such option to Buyer.
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, Buyer and Seller agree as follows:
1. Grant. Seller hereby grants to Buyer an option to purchase fee title
to the Property and all rights appurtenant thereto (including without
limitation, water rights or shares, mineral rights, governmental approvals,
utility hook-ups, licenses, leases, easements and rights of way) upon the terms,
covenants and conditions set forth in this Agreement (the "Option").
2. Term. The Option hereby granted is for a term commencing on the date
of this Agreement and expiring at midnight (Mountain) 60 days from the date
hereof (the "Option Period").
3. Purchase Price. Buyer tenders herewith the nonrefundable, full option
purchase price of Ten Thousand Dollars ($10,000). Upon exercise of this Option,
the total purchase price for the Property shall be One Million Dollars
($1,000,000), or $17,337 per acre subject to adjustment to reflect the exact
acreage which shall be determined in accordance with the survey described in
paragraph 4(i) below (the "Purchase Price"). Any funds paid for this Option
shall be applied to the Purchase Price paid at Closing. The Purchase Price shall
be paid as follows:
(i) $10,000 as the option purchase price delivered upon the
execution of this Agreement by Seller; plus
(ii) $490,000 payable in cash at the "Closing" (as hereafter
defined). Upon such payment, Seller shall deed the first 19.25 acres of the
Property to Buyer, free and clear of
83
<PAGE>
any liens or encumbrances, these acres to be valued at the rate of 150% of
the $17,337 per acre (subject to adjustment in accordance with the survey
of the Property) purchase price (or $26,000 per acre). The Buyer shall
designate the specific property to be deeded on a 90/10 non-commercial to
commercial acreage ratio. "Commercial acreage" for purposes of this
Agreement shall mean that 10.44 acres fronting on Highway 135 presently
zoned commercial. The remainder of the Property shall be considered for
purposes of this Agreement non-commercial; plus
(iii) $500,000 evidenced by a purchase money promissory note and
trust deed encumbering that portion of the Property not conveyed to Buyer
free and clear pursuant to subparagraph 3 (ii) above, in favor of Seller to
be delivered at the Closing containing the following specific terms in
addition to other standard or statutory terms (including Seller's rights as
a secured party to foreclose thereon under applicable law in the event of
default):
(a) Interest only payments at the rate of seven and one-half
percent (7.5%) per annum payable annually on the anniversary of the
Closing, with any accrued but unpaid interest due and payable in full
upon final payment of the principal balance of the Note.
(b) Partial Lien Release provision requiring Seller to release
or make request to the public trustee for reconveyance of whole or
fractional acreage upon payment of principal under the Note at the
rate of $50,000 per acre for commercial acreage and $19,200 per acre
for non-commercial acreage. Buyer shall designate the property to be
released at the time of payment of the principal.
(c) Payment of the entire principal balance and all accrued but
unpaid interest on the third (3rd) anniversary of the date of Closing,
without prepayment penalty.
(d) Seller shall promptly consent in writing to any plat maps,
subdivisions or other instruments necessary for rezoning, subdivision,
annexation, recordation, or other development requirements, and to
release without prepayment any acreage that is needed for public
improvements; i.e. roads, sidewalks, utility easements, parks or
trails. Such consent may not be unreasonably withheld or delayed.
(e) Nonrecourse provision.
The trust deed and promissory note to be executed, delivered and recorded in
connection with the foregoing purchase money financing shall be on State of
Colorado approved forms, as modified for the provisions contained herein.
84
<PAGE>
4. Survey, Property and Title Inspection.
(i) Within 20 calendar days of the execution of this Agreement by
both parties, Seller, at its expense, shall obtain and deliver to Buyer a
certified survey which shall identify any encroachments or property
boundary discrepancies and shall determine the actual legal description of
the Property which legal description shall be consistent with the
description attached to this Agreement as Exhibit "A" and the understanding
of the parties (the "Survey"). By the Closing, Seller shall provide Buyer
with a certified survey of all lots platted on the Property. Buyer shall
prior to the termination of the Option Period give Seller written
objections and proposed modifications to the Survey. If Buyer has not given
Seller written notice of its objections within the Option Period, the
Survey shall be deemed to have been accepted by Buyer as the legal
description for the Property. If the Survey and the resulting legal
description of the Property do not vary materially from the description of
the Property represented in Exhibit "A", Buyer may not object to the Survey
except for reasonable objections based upon reasonable development
requirements for the remainder of the Property or upon requirements of
Buyer's lender or applicable regulatory or governmental authorities.
(ii) Seller hereby grants to Buyer and persons designated by Buyer
the right and permission at any time to enter upon the Property to inspect,
appraise and verify surveys thereof. Seller shall also make available to
Buyer for inspection all records of operations on the Property, including
all records and documents concerning water and mineral rights, governmental
permits, surveys, engineering studies, water surveys or data, seismic
studies, environmental studies, designs, plats, maps, licenses and
allotments. Buyer agrees that it will not interfere, in any material
respect, with Seller's use of the Property in conducting such inspections.
(iii) Within 20 calendar days of the execution of this Agreement by
both parties, Seller, at its expense, shall obtain and deliver to Buyer a
commitment for the issuance of a policy of title insurance with extended
coverage on the Property, with copies of all documents identified as
exceptions therein. Buyer shall prior to the termination of the Option
Period give Seller written objections to the status of title. If Buyer has
not given Seller written notice of its objections within the Option Period,
the commitment for title insurance shall be deemed to have been accepted by
Buyer and Buyer shall accept such a title policy in compliance therewith as
satisfaction of Seller's commitment in that respect hereunder. If Buyer
reasonably objects to any item or exception in the commitment, Seller shall
remove or cure such objection or exception prior to Closing. To the extent
that such objectionable items can be removed by the payment of the amount
of any such lien or encumbrance, Seller agrees to have
85
<PAGE>
the proceeds paid by Buyer at Closing applied to such liens in order to
obtain their removal. In the event Seller fails to cure any such objections
or exceptions, Buyer may refuse to Close and the Closing date shall be
extended until such objection or exception is cured or Buyer terminates
this Agreement, at its discretion, whereupon Seller shall reimburse the
Option purchase price to Buyer. In the event that this Option is not
exercised by Buyer, all such evidences of title shall be immediately
returned to Seller.
5. Exercise of Option. Buyer may exercise the Option at any time from and
after the date hereof and prior to the expiration of the Option Period by giving
to Seller notice of exercise in writing by certified mail, postage prepaid
thereon at the address indicated in paragraph 14(ix) of this Agreement, which
notice must be postmarked on or before the expiration of the Option Period, or
by hand-delivery or courier service. Within 10 calendar days of the date of this
Agreement, Buyer shall designate a Gunnison County, Colorado escrow agent (the
"Escrow Agent") and identify a closing date to be not later than 60 calendar
days after the date Seller executes this Agreement.
6. Title. At Closing, Seller shall execute and deliver to Buyer a good
and sufficient warranty deed conveying fee simple title to the Property to
Buyer, subject only to those easements, rights of way, reservations,
restrictions, encumbrances and other matters accepted or not objected to or
waived by Buyer. The parties shall agree upon mutually acceptable escrow
instructions for the Escrow Agent to protect the Buyer and Seller.
7. Title Insurance. At Closing, Seller shall furnish to Buyer, at
Seller's expense, an owner's policy of title insurance, in extended coverage
form, in the amount of the Purchase Price, insuring title in Buyer subject to
standard printed exceptions and those easements, rights of way, reservations,
restrictions, encumbrances and other matters accepted or not objected to or
waived by Seller.
8. Closing. In the event of exercise of this Option, the closing
contemplated herein (the "Closing") shall occur at the offices of the Escrow
Agent or at such other location agreed upon by Buyer and Seller on the date
designated by the Buyer under paragraph 5 above. Buyer and Seller agree to each
pay one half of the standard reasonable recording, documentation and closing
fees of the Escrow Agent, other than the cost of the title insurance policy
which shall be paid by Seller. Real property taxes, utility and other charges or
assessments for the current year, rents and profits shall be prorated as of the
date of Closing. Any greenbelt rollback taxes for periods prior to Closing shall
be allocated to and paid by Seller at Closing. All other taxes, including
documentary taxes, if any, and all assessments, mortgage liens, encumbrances or
charges against the Property of any nature, shall be paid by Seller at Closing,
unless waived or assumed by Buyer.
86
<PAGE>
9. Risk of Loss. All risk of loss and destruction of the Property and
expenses and insurance shall be born by Seller until the date of Closing.
10. Possession. Seller shall deliver possession of the Property to Buyer
on the date of Closing, unless otherwise agreed to by Buyer and Seller.
11. Representations. Warranties Covenants and Conditions.
(i) As of the date hereof and as of the date of Closing, Seller
hereby represents and warrants to Buyer that (a) Seller has all requisite
power and authority to enter into this Agreement and all documents
contemplated hereby (collectively, the "Purchase and Sale Documents"); (b)
there are no claims, actions, suits or other proceedings pending with
respect to the Property or against Seller which would affect the Property
or Seller's ability to convey the same as required hereunder, (c) the
Property complies with all applicable laws and regulations and will pass
all applicable governmental inspections; (d) Seller owns marketable fee
simple title to the Property not encumbered by any interest in a third
party which is not of record; (e) Seller is not in default of any
obligations secured by the Property or under any leases with respect to the
Property; (f) Seller has received no demands from any governmental agency
that the Property contains any hazardous or toxic substance or that any
such substance has been discharge from or onto the Property, and the
Property has not been used as a processing, storage or handling facility
for any "hazardous substance", as defined in any government statute, code
or regulation, and there are no hazardous substances existing anywhere on
or running onto or off of the Property, except as disclosed by Seller to
Buyer in writing within 20 days of the date of this Agreement (Seller
agrees to fully indemnify, defend and save Buyer harmless from any loss or
injury suffered by Buyer in the event such hazardous substances are
discovered to have existed on the Property as of Closing which have not
been disclosed by Seller in accordance herewith, which obligation of Seller
shall survive Closing), (g) the Property is in full compliance with, and
Seller has received no notice from any federal, state, county, municipal or
other governmental body or agency of any violation of any law, ordinance,
rule or regulation applicable to the Property, or of any proposed, pending
or outstanding changes or violations of existing zoning or use regulations,
and (h) the Property and all improvements and fixtures thereon are in good
working order, without material defects.
(ii) Buyer hereby represents and warrants to Seller that Buyer has
all requisite power and authority to enter into the Purchase and Sale
Documents.
(iii) All covenants, warranties and representations contained in
this Agreement shall survive Closing and the delivery of the consideration
and deed and shall not be merged
87
<PAGE>
therein; provided, however that as to representations made herein, said
survival shall be applicable only as to the truth thereof at the time of
Closing, but not as to any time subsequent to Closing. (iv) At Closing,
Seller shall provide to Buyer an Affidavit to satisfy Internal Revenue
requirements, stating that the Seller is not a foreign person (as that term
is defined in Section 1445 of the Internal Revenue Code) and providing
Seller's employer identification number. In the event that Seller does not
provide such an Affidavit, Buyer shall withhold from the Purchase Price
such amount as may be required by the Internal Revenue Service and pay such
amount to the Internal Revenue Service as required by applicable law.
(v) Seller shall provide such information and shall be
responsible for filing such reports as shall be required under the
reporting requirements of the Tax Reform Act of 1986, and shall indemnify
and hold harmless Buyer should it fail to comply.
(vi) Buyer's obligation to close under this Agreement shall be
subject to its receipt of a general warranty deed in recordable form, and
the full performance by Seller of all covenants imposed on it hereunder,
and full satisfaction of all other conditions to closing set forth herein.
(vii) Seller's obligation to close under this Agreement shall be
subject to its receipt of the Purchase Price as required hereunder, and the
full performance by Seller of all covenants imposed on it hereunder, and
full satisfaction of all other conditions to closing set forth herein.
12. Brokerage. Seller and Buyer represent and warrant to each other that
they have not agreed to pay any brokerage or finder's fee or commissions with
respect to the sale of the Property, except as disclosed herein, and agree to
hold each other harmless from any claim by a third person to any brokerage
commission or finder's fee. Seller has agreed to pay V. L. Olsen & Company a
finder's fee of three percent (3%) of the principal portion of the Purchase
Price, and hereby directs and authorizes Buyer to deduct 3 % of each payment of
the Purchase Price from the payments to be made to Seller and pay such deducted
amount to or for the benefit of V. L. Olsen & Company.
13. Termination of Option. If this Option has not been exercised on or
before the expiration of the Option Period, the Option shall expire. In such
event, or if Buyer has exercised the Option but chooses to terminate under the
provisions of paragraph 4 or otherwise fails to close, this Agreement shall
terminate in which event Seller, if not in default hereunder, shall retain the
Option purchase price previously received from Buyer as full consideration for
the granting of this Option. Further, since the ascertainment of damages from a
failure to close would be difficult
88
<PAGE>
and burdensome for the parties, the Seller shall retain the Option purchase
price as full and complete liquidated damages for failure to close if this
Option is exercised. Seller shall not be entitled to make any further claim
against Buyer.
14. General Provisions.
(i) Binding Agreement. This Agreement shall be binding upon and
shall inure to the benefit of the heirs, legal representatives, successors
and assigns, as applicable, of the respective parties hereto, and any
entities resulting from the reorganization, consolidation or merger of any
party hereto.
(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
this 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 Colorado.
(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.
(ix) Notice. 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:
89
<PAGE>
If to Buyer, to: Pangolin Corporation
Suite 218
Deer Valley Plaza
1351 Deer Valley Road South
Park City, Utah 84060
With a copy to: Steven W. Dougherty, Esq.
Anderson & Karrenberg
700 Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101-2006
If to Seller, to: U.S. Energy Corp./Crested Corp.
877 N. 8th West
Riverton, Wyoming 82501
(x) Recording. This Agreement shall not be recorded in the county
land records. However, the Buyer may record notice of this Agreement in
such records.
(xi) 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.
15. Assignment. Buyer may, at its option and with written notice to
Seller, assign its rights hereunder to any person or entity who shall assume all
obligations hereunder. Upon such assignment, Buyer shall no longer be obligated
hereunder, whereupon all references herein to Buyer shall be deemed to refer to
said assignee only. Seller shall thereafter attorn to such assignee as buyer
under this Agreement.
16. No Partnership or Agency. Seller and Buyer acknowledge that, by virtue
of this Agreement and the transactions contemplated hereby, Seller and Buyer are
not the agents or partners of each other, and that the transactions contemplated
hereby do not constitute any joint venture or partnership between Seller and
Buyer.
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IN WITNESS WHEREOF, Buyer and Seller have executed this Option Agreement on
the date first above written.
BUYER:
Pangolin Corporation
By ___s/Kitty Bennion__________
Its __Vice President___________
SELLER:
U.S. Energy Corp./Crested Corp.
By ___s/Michael E. Sweeney_____
Its __Vice President___________
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EXHIBIT "A"
MOUNTAIN MEADOWS BUSINESS PARK
(PARCEL A)
The East one half of the Northwest one quarter (E1/2 NW1/4), Section 36,
Township 50 North, Range 1 West, of the New Mexico Principal Meridian, Gunnison
County, Colorado, shown on the attached Zoning and Land Use Plat--Mountain
Meadows Business Park as the commercial, industrial, business and
office/medical/multi-family tracts containing in total 57.68 acres, more or
less, together with that area embraced within the proposed right-of-way for
Colorado Street and the undedicated portion of Spencer Avenue, which alignments
are also shown ont he attached plat.
EXCEPTING THEREFROM:
1. That portion of the subject property conveyed to the County of Gunnison in
right of way deed recorded May 29, 1948 in Book 278 at Page 196 more
particularly described as follows:
Beginning at a point on the south boundary of the NW1/4 of said Section 36,
from which point the east quarter corner of said Section 36 bears North 89
degrees 58' East a distance of 3961.7 feet, more or less; thence South 89
degrees 56' West a distance of 0.8 feet to the Southwest corner E1/2 NW1/4
of said Section 36; thence North 0 degrees 10' West a distance of 2646.0
feet along the west boundary of said W1/2 NW1/4; thence south 89 degrees
46' East along the north boundary of the NW1/4 of Section 36 a distance of
5.2 feet; thence south 0 degrees 04' East a distance of 2646.0 feet, more
or less to the point of beginning.
2. That portion of the subject property conveyed to the State Department of
Highways in deed recorded May 14, 1974 in Book 469 at Page 190 more
particularly described as follows:
Beginning at a point on the south line of the SE1/4 NW1/4 of Section 36,
from which the W1/4 corner of Section 36 bears S 89 degrees 53'30" West a
distance of 1,322.1 feet; thence North 0 degrees 04' West a distance of
309.2 feet; thence North 1 degrees 22' East a distance of 200.1 feet;
thence North 0 degrees 04' West a distance of 800.4 feet; thence North 0
degrees 54' West a distance of 687.6 feet to the east right of way line of
SH 135 (May 1973); thence South 0 degrees 04' East along said right of way
line, a distance of 1,997.2 feet to the south line of the SE1/4 NW1/4 of
Section 36; thence North 89 degrees 59'30" East along said line, a distance
of 5.0 feet, more or less to the point of beginning.
3. That portion of the subject property conveyed to NDC Colorado, a Nebraska
General Partnership, in the warranty deed recorded August 27, 1985 in Book
621 at Page 19 more particularly described as follows:
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A tract of land located in the E1/2 NW1/4 of Section 36, Township 50 North,
Range 1 West, N.M.P.M. more particularly described as follows:
Commencing at the center of said Section 36, thence N89 degrees 38'33" W
1315.71 feet along the south line of the E1/2 of the NW1/4 of said Section
36 to a point on the east line of a parcel of land conveyed to the State
Department of Highways in a deed recorded May 14, 1974 in Book 469 at Page
190 in the records of the Clerk and Recorder of Gunnison County, Colorado,
said point also being the southwest corner of the Meadows Subdivision--
Phase I and the POINT OF BEGINNING; thence along the east line of said
tract of land the following three (3) courses:
1. Thence N00 degrees 16'01"E 309.20 feet;
2. Thence N01 degrees 42'01"E 200.10 feet;
3. Thence N00 degrees 16'01"E 687.18 feet to a point of curve; thence
78.62 feet along the arc of a curve to the right having a Delta of 90
degrees 05'26" and a radius of 50.00 feet to a point of tangency;
thence S89 degrees 38'33"E 436.22 feet along the north boundary of the
tract to the northeast corner of the tract;
Thence S00 degrees 12'24"W 446.55 feet;
Thence S89 degrees 38'33"E 35.00 feet;
Thence S00 degrees 12'24"W 390.00 feet;
Thence N89 degrees 38'33"W 163.00 feet;
Thence S00 degrees 12'24"W 410.00 feet to the southeast corner of the
tract, said tract corner being on the south line of the E1/2 NW1/4 of
said Section 36; thence N89 degrees 38'33"W 364.62 feet to the POINT
OF BEGINNING, containing 13.08 acres.
4. That portion of the subject property conveyed to the County of
Gunnison in the deed recorded January 8, 1985 in Book 613 at Page 868
more particularly described as follows:
A tract of land within the City of Gunnison, State of Colorado and
also within the SE1/4 NW1/4 of Section 36, Township 50 North, Range 1
West, New Mexico Principal Meridian, more particularly described as
follows:
Beginning at a Point which is the intersection of the eastwest center
line of said Section 36 and the westerly boundary of Block 51 of the
FIRST ADDITION TO GUNNISON, thence the following courses around the
herein described tract:
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1. NORTH 410.00 feet;
2. Easterly on a line parallel to the east-west center line of said
Section 36 a distance of 424.98 feet;
3. SOUTH 410.00 feet to the said east-west center line of Section
36;
4. Westerly along said east-west center line 424.98 feet to the
Point of Beginning.
This tract contains 4.00 acres more or less. Bearings used herein are
relative to the center line of Iowa street as defined by city of
Gunnison monuments on Main Street assumed to run NORTH.
5. That portion of the subject property conveyed to the City of Gunnison,
a Colorado municipal corporation in the warranty deed and grant of
easement recorded September 11, 1985 in Book 621 at Page 477 more
particularly described as follows:
A part of E1/2, NW1/4, Sec. 36, T50N, R1W, N.M.P.M., located in the
City of Gunnison, County of Gunnison, State of Colorado, more
particularly described as follows:
Commencing at the Center of said Section 36; thence N89 degrees
28'27"W 823.10 feet along the north line of said NW1/4 to the POINT OF
BEGINNING; thence S00 degrees 12'24"W 403.89 feet parallel with the
east line of said NW1/4; thence N89 degrees 28'27"W 495.26 feet
parallel with the north line of said NW1/4 to a point on the east line
of a parcel of land conveyed to the County of Gunnison in right of way
deed recorded May 29, 1948, in Book 278 at Page 196; thence N00
degrees 16'01"E 403.89 feet along said east line to a point on the
north line of said NW1/4; thence S89 degrees 8'27"E 494.83 feet along
the north line of said NW1/4; to the POINT OF BEGINNING, containing
4.59 acres, hereby dedicates the above described parcel of land to the
City of Gunnison to satisfy the public land dedication requirement for
the Meadows Subdivision--Phase I. The portion of this parcel in excess
of the amount required to satisfy the land dedication requirement of
the Meadows Subdivision--Phase I shall be a credit against any land
dedication for public purposes required by the City of Gunnison for
future subdivisions within the 75.96 acres.
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EXHIBIT 10.42
OPTION AGREEMENT
(Parcel B)
THIS OPTION AGREEMENT (the "Agreement") is made and entered into this 21st
day of November, 1994, by and between Pangolin Corporation, a California
corporation ("Buyer"), and U.S. Energy Corp./Crested Corp. ("Seller").
WITNESSETH:
WHEREAS, Seller is the owner of certain real property located in Gunnison
County, Colorado (the "Property") more particularly described on Exhibit A
attached hereto, subject to verification by survey and title inspection;
WHEREAS, Buyer desires to obtain an option to purchase the Property from
Seller; and WHEREAS, upon the terms, covenants and conditions contained in this
Agreement, Seller is willing to grant such option to Buyer.
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, Buyer and Seller agree as
follows:
1. Grant. Seller hereby grants to Buyer an option to purchase fee title
to the Property and all rights appurtenant thereto (including without
limitation, water rights or shares, mineral rights, governmental approvals,
utility hook-ups, licenses, leases, easements and rights of way) upon the terms,
covenants and conditions set forth in this Agreement (the "Option").
2. Term. The Option hereby granted is for a term commencing on the date
of this Agreement and expiring at midnight (Mountain) 90 days from the date
hereof (the "Option Period").
3. Purchase Price. Buyer tenders herewith the nonrefundable, full option
purchase price of Ten Thousand Dollars ($10,000). Upon exercise of this Option,
the total purchase price for the Property shall be Eight Hundred Fifty One
Thousand Nine Hundred Twenty Dollars ($851,920), or $1,803 per acre subject to
adjustment to reflect the exact acreage which shall be determined in accordance
with the survey described in paragraph 4(i) below (the "Purchase Price"). Any
funds paid for this Option shall be applied to the Purchase Price paid at
Closing. The Purchase Price shall be paid as follows:
(i) $10,000 as the option purchase price delivered upon the execution
of this Agreement by Seller; plus
(ii) $40,000 payable in cash at the "Closing" (as hereafter defined).
Upon Closing and payment of the cash portion of the Purchase Price, Seller
shall deed 22.19 acres,
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as designated by Buyer at that time, to Buyer free and clear of any liens
or encumbrances, these acres to be valued at the rate of 125% of the $1,803
per acre (subject to adjustment in accordance with the survey of the
Property) purchase price (or $2,253.75 per acre); plus
(iii) $150,000 evidenced by a purchase money promissory note and trust
deed encumbering 66.56 acres of the Property, as designated by Buyer at the
time of Closing, in favor of Seller to be delivered at the Closing
containing the following specific terms in addition to other standard or
statutory terms (including Seller's rights as a secured party to foreclose
thereon under applicable law in the event of default):
(a) Requiring payment in full of the principal balance and all
interest accrued thereon at the rate of seven and one-half percent
(7.5 %) per annum, on the 90th day after the date of Closing; provided
that if such note paid in full by that date, Buyer shall not be in
default thereunder if Buyer makes a principal payment of $35,000 on
the first anniversary of the date of closing and if such note is paid
in full on the third (3rd) anniversary of the date of Closing, with
interest accruing from the 90th day after the date of closing until
paid in full at the rate of twelve percent (12%) per annum. There
shall be no prepayment penalty. All accrued but unpaid interest shall
be due and payable in full upon final payment of the principal balance
of the Note.
(b) Partial Lien Release provision requiring Seller to release
or make request to the public trustee for reconveyance of whole or
fractional acreage upon payment of principal under the Note at the
rate of 125% of the $1,803 per acre (subject to adjustment in
accordance with the survey of the Property) purchase price (or
$2,253.75 per acre). Buyer shall designate the property to be released
at the time of payment of the principal.
(c) Seller would promptly consent in writing to any plat maps,
subdivisions or other instruments necessary for rezoning, subdivision,
annexation, recordation, or other development requirements, and to
release without prepayment any acreage that is needed for public
improvements; i.e. roads, sidewalks, utility easements, parks or
trails. Such consent may not be unreasonably withheld or delayed.
(e) Nonrecourse provision; plus
(iv) $651,920 evidenced by a purchase money promissory note and trust
deed encumbering that portion of the Property not conveyed free and clear
pursuant to subparagraph 3 (ii) above and not subject to the trust deed
described in subparagraph 3(iii) above, in favor of Seller to be delivered
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at the Closing containing the following specific terms in addition to other
standard or statutory terms (including Seller's rights as a secured party
to foreclose thereon under applicable law in the event of default):
(a) Interest only payments at the rate of seven and one-half
percent (7.5%) per annum payable annually on the anniversary of the
date of Closing, with any accrued but unpaid interest due and payable
in full upon final payment of the principal balance of the Note.
(b) Partial Lien Release provision requiring Seller to release
or make request to the public trustee for reconveyance of whole or
fractional acreage upon payment of principal under the Note at the
rate of 125% of the $1,803 per acre (subject to adjustment in
accordance with the survey of the Property) purchase price (or
$2,253.75 per acre). Buyer shall designate the property to be released
at the time of payment of the principal.
(c) Payment of entire principal balance and all accrued but
unpaid interest due and payable on the third (3rd) anniversary of the
date Seller executes this Agreement, without prepayment penalty
(d) Seller would promptly consent in writing to any plat maps,
subdivisions or other instruments necessary for rezoning, subdivision,
annexation, recordation, or other development requirements, and to
release without prepayment any acreage that is needed for public
improvements; i.e. roads, sidewalks, utility easements, parks or
trails. Such consent may not be unreasonably withheld or delayed.
(e) Nonrecourse provision.
The trust deed and promissory note to be executed, delivered and recorded in
connection with the foregoing purchase money financing shall be on State of
Colorado approved forms, as modified for the provisions contained herein.
4. Survey. Property and Title Inspection.
(i) Sufficiently prior to Closing to permit Buyer's review thereof,
Seller, at its expense, shall obtain and deliver to Buyer a certified
survey which shall identify any encroachments or property boundary
discrepancies and shall determine the actual legal description of the
Property which legal description shall be consistent with the drawing
attached to this Agreement as Exhibit "A" and the understanding of the
parties (the "Survey"). Buyer shall prior to the termination of the Option
Period give Seller written objections and proposed modifications to the
Survey. If Buyer has not given Seller written notice of its objections
within the Option Period, the Survey shall be deemed to have been
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accepted by Buyer as the legal description for the Property. If the Survey
and the resulting legal description of the Property do not vary materially
from the description of the Property represented in Exhibit "A", Buyer may
not object to the Survey except for reasonable objections based upon
reasonable development requirements for the remainder of the Property or
upon requirements of Buyer's lender or applicable regulatory or
governmental authorities.
(ii) Seller hereby grants to Buyer and persons designated by Buyer the
right and permission at any time to enter upon the Property to inspect,
appraise and verify surveys thereof. Seller shall also make available to
Buyer for inspection all records of operations on the Property, including,
but not limited to, all records and documents concerning water and mineral
rights, governmental permits, surveys, engineering studies, water surveys
or data, seismic studies, environmental studies, designs, plats, maps,
licenses and allotments. Buyer agrees that it will not interfere, in any
material respect, with Seller's use of the Property in conducting such
inspections.
(iii) Within 20 calendar days of Buyer's written notice to Seller,
Seller, at its expense, shall obtain and deliver to Buyer a commitment for
the issuance of a policy of title insurance with extended coverage on the
Property, with copies of all documents identified as exceptions therein.
Buyer shall prior to the termination of the Option Period give Seller
written objections to the status of title. If Buyer has not given Seller
written notice of its objections within the Option Period, the commitment
for title insurance shall be deemed to have been accepted by Buyer and
Buyer shall accept such a title policy in compliance therewith as
satisfaction of Seller's commitment in that respect hereunder. If Buyer
reasonably objects to any item or exception in the commitment, Seller shall
remove or cure such objection or exception prior to Closing. To the extent
that such objectionable items can be removed by the payment of the amount
of any such lien or encumbrance, Seller agrees to have the proceeds paid by
Buyer at Closing applied to such liens in order to obtain their removal. In
the event Seller fails to cure any such objections or exceptions, Buyer may
refuse to Close and the Closing date shall be extended until such objection
or exception is cured or Buyer terminates this Agreement, at its
discretion, whereupon Seller shall reimburse the Option purchase price to
Buyer. In the event that this Option is not exercised by Buyer, all such
evidences of title shall be immediately returned to Seller.
5. Exercise of Option. Buyer may exercise the Option at any time from and
after the date hereof and prior to the expiration of the Option Period by giving
to Seller notice of exercise in writing by certified mail, postage prepaid
thereon at the address indicated in paragraph 14(ix) of this Agreement, which
notice must be postmarked on or before the expiration of the Option Period, or
by
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hand-delivery or courier service. Within 10 calendar days of the date Seller
executes this Agreement, Buyer shall designate a Gunnison County, Colorado
escrow agent (the "Escrow Agent") and identify a closing date to be not later
than 90 calendar days after the date Seller executes this Agreement.
6. Title At Closing, Seller shall execute and deliver to Buyer a good and
sufficient warranty deed conveying fee simple title to the Property to Buyer,
subject only to those easements, rights of way, reservations, restrictions,
encumbrances and other matters accepted or not objected to or waived by Buyer.
The parties shall agree upon mutually acceptable escrow instructions for the
Escrow Agent to protect the Buyer and Seller.
7. Title Insurance. At Closing, Seller shall furnish to Buyer, at
Seller's expense, an owner's policy of title insurance, in extended coverage
form, in the amount of the Purchase Price, insuring title in Buyer subject to
standard printed exceptions and those easements, rights of way, reservations,
restrictions, encumbrances and other matters accepted or not objected to or
waived by Seller.
8. Closing. In the event of exercise of this Option, the closing
contemplated herein (the "Closing") shall occur at the offices of the Escrow
Agent or at such other location agreed upon by Buyer and Seller on the date
designated by the Buyer under paragraph 5 above. Buyer and Seller agree to each
pay one half of the standard reasonable recording, documentation and closing
fees of the Escrow Agent, other than the cost of the title insurance policy
which shall be paid by Seller. Real property taxes, utility and other charges or
assessments for the current year, rents and profits shall be prorated as of the
date of Closing. Any greenbelt rollback taxes for periods prior to Closing shall
be allocated to and paid by Seller at Closing. All other taxes, including
documentary taxes, if any, and all assessments, mortgage liens, encumbrances or
charges against the Property of any nature, shall be paid by Seller at Closing,
unless waived or assumed by Buyer.
9. Risk of Loss. All risk of loss and destruction of the Property and
expenses and insurance shall be born by Seller until the date of Closing.
10. Possession. Seller shall deliver possession of the Property to Buyer
on the date of Closing, unless otherwise agreed to by Buyer and Seller.
11. Representations Warranties Covenants and Conditions.
(i) As of the date hereof and as of the date of Closing, Seller hereby
represents and warrants to Buyer that (a) Seller has all requisite power
and authority to enter into this Agreement and all documents contemplated
hereby (collectively, the "Purchase and Sale Documents"); (b) there are no
claims, actions, suits or other proceedings pending with respect to the
Property or against Seller which would affect the Property
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or Seller's ability to convey the same as required hereunder, (c) the
Property complies with all applicable laws and regulations and will pass
all applicable governmental inspections; (d) Seller owns marketable fee
simple title to the Property not encumbered by any interest in a third
party which is not of record; (e) Seller is not in default of any
obligations secured by the Property or under any leases with respect to the
Property; (f) Seller has received no demands from any governmental agency
that the Property contains any hazardous or toxic substance or that any
such substance has been discharge from or onto the Property, and the
Property has not been used as a processing, storage or handling facility
for any "hazardous substance", as defined in any government statute, code
or regulation, and there are no hazardous substances existing anywhere on
or running onto or off of the Property, except as disclosed by Seller to
Buyer in writing within 30 days of the date of this Agreement (Seller
agrees to fully indemnify, defend and save Buyer harmless from any loss or
injury suffered by Buyer in the event such hazardous substances are
discovered to have existed on the Property as of Closing which have not
been disclosed by Seller in accordance herewith, which obligation of Seller
shall survive Closing), (g) the Property is in full compliance with, and
Seller has received no notice from any federal, state, county, municipal or
other governmental body or agency of any violation of any law, ordinance,
rule or regulation applicable to the Property, or of any proposed, pending
or outstanding changes or violations of existing zoning or use regulations,
and (h) the Property and all improvements and fixtures thereon are in good
working order, without material defects.
(ii) Buyer hereby represents and warrants to Seller that Buyer has all
requisite power and authority to enter into the Purchase and Sale
Documents.
(iii) All covenants, warranties and representations contained in this
Agreement shall survive Closing and the delivery of the consideration and
deed and shall not be merged therein; provided, however that as to
representations made herein, said survival shall be applicable only as to
the truth thereof at the time of Closing, but not as to any time subsequent
to Closing.
(iv) At Closing, Seller shall provide to Buyer an Affidavit to satisfy
Internal Revenue requirements, stating that the Seller is not a foreign
person (as that term is defined in Section 1445 of the Internal Revenue
Code) and providing Seller's employer identification number. In the event
that Seller does not provide such an Affidavit, Buyer shall withhold from
the Purchase Price such amount as may be required by the Internal Revenue
Service and pay such amount to the Internal Revenue Service as required by
applicable law.
(v) Seller shall provide such information and shall be responsible for
filing such reports as shall be required under
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the reporting requirements of the Tax Reform Act of 1986, and shall
indemnify and hold harmless Buyer should it fail to comply.
(vi) Buyer's obligation to close under this Agreement shall be subject
to its receipt of a general warranty deed in recordable form, and the full
performance by Seller of all covenants imposed on it hereunder, and full
satisfaction of all other conditions to closing set forth herein.
(vii) Seller's obligation to close under this Agreement shall be
subject to its receipt of the Purchase Price as required hereunder, and the
full performance by Seller of all covenants imposed on it hereunder, and
full satisfaction of all other conditions to closing set forth herein.
12. Brokerage. Seller and Buyer represent and warrant to each other that
they have not agreed to pay any brokerage or finder's fee or commissions with
respect to the sale of the Property, except as disclosed herein, and agree to
hold each other harmless from any claim by a third person to any brokerage
commission or finder's fee. Seller has agreed to pay V. L. Olsen & Company a
finder's fee of three percent (3%) of the principal portion of the Purchase
Price, and hereby directs and authorizes Buyer to deduct 3 % of each payment of
the Purchase Price from the payments to be made to Seller and pay such deducted
amount to or for the benefit of V. L. Olsen & Company.
13. Termination of Option. If this Option has not been exercised on or
before the expiration of the Option Period, the Option shall expire. In such
event, or if Buyer has exercised the Option but chooses to terminate under the
provisions of paragraph 4 or otherwise fails to close, this Agreement shall
terminate in which event Seller, if not in default hereunder, shall retain the
Option purchase price previously received from Buyer as full consideration for
the granting of this Option. Further, since the ascertainment of damages from a
failure to close would be difficult and burdensome for the parties, the Seller
shall retain the Option purchase price as full and complete liquidated damages
for failure to close if this Option is exercised. Seller shall not be entitled
to make any further claim against Buyer.
14. General Provisions.
(i) Binding Agreement. This Agreement shall be binding upon and shall
inure to the benefit of the heirs, legal representatives, successors and
assigns, as applicable, of the respective parties hereto, and any entities
resulting from the reorganization, consolidation or merger of any party
hereto.
(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 this
Agreement.
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(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 Colorado.
(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.
(ix) Notice. 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 Buyer, to: Pangolin Corporation
Suite 218
Deer Valley Plaza
1351 Deer Valley Road South
Park City, Utah 84060
With a copy to: Steven W. Dougherty, Esq.
Anderson & Karrenberg
700 Bank One Tower
50 West Broadway
Salt Lake City, Utah 84101-2006
If to Seller, to: U.S. Energy Corp./Crested Corp.
877 N. 8th West
Riverton, Wyoming 82501
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(x) Recording. This Agreement shall not be recorded in the county land
records. However, the Buyer may record notice of this Agreement in such
records. (xi) 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.
15. Assignment. Buyer may, at its option and with written notice to
Seller, assign its rights hereunder to any person or entity who shall assume all
obligations hereunder. Upon such assignment, Buyer shall no longer be obligated
hereunder, whereupon all references herein to Buyer shall be deemed to refer to
said assignee only. Seller shall thereafter attorn to such assignee as buyer
under this Agreement.
16. No Partnership or Agency. Seller and Buyer acknowledge that, by virtue
of this Agreement and the transactions contemplated hereby, Seller and Buyer are
not the agents or partners of each other, and that the transactions contemplated
hereby do not constitute any joint venture or partnership between Seller and
Buyer.
IN WITNESS WHEREOF, Buyer and Seller have executed this Option Agreement on
the date first above written.
BUYER:
Pangolin Corporation
By ___s/ Kitty Bennion_________
Its __Vice President___________
SELLER:
U.S. Energy Corp./Crested Corp.
By ___s/ Michael E. Sweeney____
Its __Vice President___________
103
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM MAY 31, 1995 AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRITY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 24,400
<SECURITIES> 2,755,700
<RECEIVABLES> 182,200
<ALLOWANCES> 16,900
<INVENTORY> 55,300
<CURRENT-ASSETS> 512,600
<PP&E> 6,054,000
<DEPRECIATION> 3,311,700
<TOTAL-ASSETS> 9,363,900
<CURRENT-LIABILITIES> 5,518,500
<BONDS>
<COMMON> 10,200
<OTHER-SE> 2,981,500
<TOTAL-LIABILITY-AND-EQUITY> 9,363,900
<SALES> 97,300
<TOTAL-REVENUES> 1,160,200
<CGS> 39,000
<TOTAL-COSTS> 867,200
<OTHER-EXPENSES> 1,265,00
<LOSS-PROVISION>
<INTEREST-EXPENSE> 59,100
<INCOME-PRETAX> (1,293,200)
<INCOME-TAX>
<INCOME-CONTINUING> (1,293,200)
<DISCONTINUED>
<EXTRAORDINARY>
<CHANGES>
<NET-INCOME> (1,293,200)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
