-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLhnUIGxhbOICSKpBBLHX+3NON9vKSoD6ScpPIOXZtNuRqMSuiKGQmmVei3Tyquq c/dIXmtg2JHaiEZo9QxJ5w== 0000101594-96-000030.txt : 19960726 0000101594-96-000030.hdr.sgml : 19960726 ACCESSION NUMBER: 0000101594-96-000030 CONFORMED SUBMISSION TYPE: S-8 POS PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960718 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US ENERGY CORP CENTRAL INDEX KEY: 0000101594 STANDARD INDUSTRIAL CLASSIFICATION: 3829 IRS NUMBER: 830205516 STATE OF INCORPORATION: WY FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: S-8 POS SEC ACT: 1933 Act SEC FILE NUMBER: 033-74154 FILM NUMBER: 96596197 BUSINESS ADDRESS: STREET 1: 877 NORTH 8TH WEST STREET 2: GLEN L LARSEN BLDG CITY: RIVERTON STATE: WY ZIP: 82501 BUSINESS PHONE: 3078569271 MAIL ADDRESS: STREET 1: 877 NORTH 8TH WEST CITY: RIVERTON STATE: WY ZIP: 82501 FORMER COMPANY: FORMER CONFORMED NAME: WESTERN STATES MINING INC DATE OF NAME CHANGE: 19851229 POS AM 1 FORM S-8 POST-EFFECTIVE AMND #1 SEC File No. 33-74154 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 POST EFFECTIVE AMENDMENT NO. 1 FORM S-8 REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933 U.S. ENERGY CORP. - - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Wyoming 83-0205516 - - --------------------------------------- ----------------------- (State or other jurisdiction (I.R.S. Employer incorporating or organization) Identification No.) 877 North 8th West, Riverton, Wyoming 82501 - - ---------------------------------------- ----------------------- (Address of Principal Executive Offices) (Zip Code) 1989 Stock Option Plan; Restricted Stock Bonus Plan Outside Directors Compensation Plan - - ------------------------------------------------------------------- (Full title of plan) Daniel P. Svilar, 877 North 8th West, Riverton, WY 82501 - - ------------------------------------------------------------------- (307) 856-9271 - - ------------------------------------------------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General instruction G, check the following box. [ ] Calculation of Registration Fee Title of each Proposed Proposed class of maximum maximum Amount securities Amount offering aggregate of to be to be price offering regis. registered registered per share price fee - - -------------------------------------------------------------------------- Common stock, 425,000 $4.00(2) $1,700,000(3) $586.21 par value shares(1) $0.01 per share Common stock, 20,000(4) $17.00(4) $ 340,000(4) $117.24 par value $0.01 per share Totals 445,000 $2,030,000 $703.45 (1) Amendment to Registrant's 1989 Incentive Stock Option Plan increasing the number of shares issuable under the Plan by 425,000. (2) Based on the per share option exercise price for options issued on December 22, 1995. (3) Aggregate offering price is based on total options multiplied by ($4.00) the per share option exercise price. Pursuant to Rule 457(h)(1), the registration fee is calculated on the exercise price for the option. (4) Based on the average ($17.00) of the NASDAQ/NMS closing bid and ask prices on July 16, 1996 for a share of registrant's common stock. The aggregate offering price is based on 20,000 shares issued and issuable under the Non-Employee Directors Compensation Plan, multiplied by the average price on July 16, 1996. The registration fee is calculated on the average price, pursuant to Rule 457(c). U.S. ENERGY CORP. --------------------------------------- REOFFER PROSPECTUS FOR 1,019,770 COMMON SHARES OFFERED FOR THE ACCOUNT OF SELLING SECURITY HOLDERS See "Selling Security Holders." --------------------------------------- See "Certain Considerations Relating to an Investment in USE" for certain matters relevant to owning USE Shares. --------------------------------------- THE SECURITIES TO BE SOLD PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------------------------- U.S. Energy Corp. ("USE") has filed a S-8 Registration Statement with the Securities and Exchange Commission ("Commission"), registering 925,000 USE common shares issuable under the USE 1989 Incentive Stock Option Plan, 550,000 USE common shares issuable under the 1992 Restricted Stock Bonus Plan, 30,000 common shares issuable under the 1992 Stock Compensation Plan for Outside Directors and 100,000 common shares issuable under a Nonqualified Option issued to the Registrant's President and Chief Executive Officer. This Reoffer Prospectus covers resale of such number of the 15,000 common shares as the Outside Directors may own at the time of sale of shares, 827,000 shares underlying options held by officers, directors, employees and a consultant and 177,770 common shares issued through January 4, 1996 under the 1992 Restricted Stock Bonus Plan pursuant to this Prospectus. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered hereby, by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such an offer, or solicitation of an offer. The date of this Prospectus is July 18, 1996. AVAILABLE INFORMATION USE is subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other statements and information with the Commission. The reports and other documents so filed can be inspected and copied at the Commission's public reference room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's public reference facilities at Commission regional offices located at: 7 World Trade Center, 13th Floor, New York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such documents can be obtained at prescribed rates by writing to the Securities and Exchange Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. This Prospectus does not contain all of the information set forth in the Registration Statement covering the USE Shares offered hereby, certain portions of which have been omitted pursuant to Commission rules and regulations. Statements herein concerning any such other information are not necessarily complete. In each instance where reference is made herein to such other information, reference is made to the copies of such documents filed as exhibits to the Registration Statement. Each such statement is qualified in its entirety by such reference. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE This Prospectus incorporates by reference documents not presented herein or delivered herewith. Documents relating to USE are available without charge upon request to Secretary, U.S. Energy Corp., 877 North 8th West, Riverton, Wyoming 82501. Telephone requests may be directed to Sharon Miller at (307) 856-9271. See "Incorporation of Certain Information by Reference" for a description of documents so incorporated. The following documents are incorporated herein by reference: USE latest annual report on Form 10-K (for fiscal year ended May 31, 1995), and the latest USE prospectus filed under Commission Rule 424(b) pursuant to the Securities Act of 1933; all other reports filed by USE pursuant to Section 13(a) or 14(d) of the Exchange Act since the filing of the Form 10-K report (for the fiscal year ended May 31, 1995). All documents subsequently filed with the Commission by USE, pursuant to Sections 13(a), 13(c) 14 or 15(d) of the Exchange Act, prior to termination of the offering hereby, shall be deemed to be incorporated by reference into this Reoffer Prospectus. SELLING SECURITY HOLDERS This Reoffer Prospectus includes common shares issued to the Outside directors pursuant to the Outside Directors Plan filed with the Registration Statement on Form S-8, Shares underlying options issued under the 1989 Incentive Stock Option Plan, as amended, and shares issued under the 1992 Restricted Stock Bonus Plan, as amended. No. of No. of No. of Shares of Shares to Shares of USE USE Common be Offered Common Stock Stock to be by Selling Owned Prior Owned After Name Shareholder to Offering* Offering John L. Larsen 220,500 (1) 592,432 391,932 Chairman, Pres. Max T. Evans 69,950 (2) 119,577 49,627 Director, Secretary Harold F. Herron 20,900 (3) 99,176 78,276 Director, Vice Pres. Daniel P. Svilar 84,360 (4) 173,138 88,778 General Counsel Robert S. Lorimer 41,940 (5) 57,181 15,241 Treasurer, CFO Don C. Anderson 22,000 (6) 26,155 4,155 Director Nick Bebout 7,750 (7) 21,661 13,911 Director David W. Brenman 5,000 (8) 5,250 250 Director Michael E. Sweeney 89,000 (9) 125,875 36,875 Employee Leslie W. Larsen 11,220 (10) 57,440 46,200 Employee (Deceased) George F. Smith 98,820 (11) 152,892 54,072 Employee John W. Powell 7,980 (12) 15,468 7,488 Employee Kenneth W. Webber 58,550 (13) 81,571 23,021 Employee Richard P. Larsen 57,980 (14) 116,161 58,181 Employee Keith G. Larsen 77,980 (15) 193,724 115,744 Employee M. Shane Larsen 29,560 (16) 55,879 26,319 Employee Mark J. Larsen 70,000 (17) 115,196 45,196 Employee Randall Van Vleet 17,980 (18) 29,724 11,744 Employee Thomas M. Evans 25,000 (19) 48,651 23,651 Employee Herrick K. Lidstone 3,300 (20) 3,300 -0- Consultant * Includes shares held directly, shares held in escrow by the Registrant which are forfeitable unless certain employment conditions are met, shares held in the USE Employee Stock Ownership Plan (the "ESOP") account established for the benefit of the employee, shares held jointly, shares held directly by immediate family members in the same household and shares underlying options held by various individuals. (1) Includes 200,100 option shares and 20,400 forfeitable stock bonus shares (issued through January 4, 1996). (2) Includes 57,200 option shares and 12,750 forfeitable stock bonus shares (issued through January 4, 1996). (3) Includes 11,000 option shares and 9,900 restricted shares (issued in 1990, none issued thereafter through January 4, 1996). (4) Includes 66,000 option shares and 18,360 forfeitable stock bonus shares (issued through January 4, 1996). (5) Includes 29,700 option shares, and 12,240 forfeitable shares (issued through January 5, 1996). (6) Includes 5,000 restricted shares, which have been issued to Mr. Anderson as an outside director (1,000 shares are forfeitable until the Registrant's 1996 Annual Meeting of Shareholders) and 17,000 forfeitable shares (issued through January 4, 1996). (7) Includes 7,750 restricted shares, of which 5,000 have been issued to Mr. Bebout as an outside director (1,000 shares are forfeitable until the Registrant's 1996 Annual Meeting of Shareholders). (8) Includes 5,000 restricted shares issued to Mr. Brenman as an outside director (1,000 shares are forfeitable until the Registrant's 1996 Annual Meeting of Shareholders). (9) Includes 70,000 option shares and 19,000 forfeitable shares issued through January 4, 1996). (10) Includes 11,220 restricted shares issued through January 4, 1996. (11) Includes 89,700 option shares and 9,120 forfeitable shares (issued through January 4, 1996). (12) Includes 7,980 forfeitable shares issued through January 4, 1996. (13) Includes 50,000 option shares and 8,550 forfeitable shares (issued through January 4, 1996). (14) Includes 50,000 option shares and 7,980 forfeitable shares (issued through January 4, 1996). (15) Includes 70,000 option shares and 7,980 forfeitable shares (issued through January 4, 1996). (16) Includes 25,000 option shares and 4,560 forfeitable shares (issued through January 4, 1996). (17) Includes 70,000 option shares. (18) Includes 10,000 option shares and 7,980 forfeitable shares (issued through January 4, 1996). (19) Includes 25,000 option shares. (20) Includes 3,300 option shares. Risk Factors An investment in the Shares involves substantial risks, including the risks of USE's failure to obtain necessary capital to put its principal properties into production, a recurrence of low uranium prices, litigation and competition. See "RISK FACTORS". RISK FACTORS Prospective investors should note that the business of USE is subject to certain risks, including the following: 1. Working Capital Requirements. Registrant's cash requirements for fiscal 1997 are the funding of on-going general and administrative expenses, including legal costs incurred as a result of the Sheep Mountain Partners ("SMP") arbitration/litigation proceedings described below; mine and mill development and holding costs of the Sutter gold property described below; holding (standby) costs for the uranium mill owned by Plateau Resources Limited, a 100% subsidiary of the Company ("Plateau"), in southeastern Utah; SMP mines care and maintenance costs; and costs to acquire uranium oxide which the Company may be obligated to deliver under the SMP contracts. As a result of the disputes between the SMP partners (see "Business and Properties - Legal Proceedings - Sheep Mountain Partners Arbitration/Litigation), Registrant and Crested have been delivering certain of the U3O8 concentrates required to fill various delivery requirements on long-term U3O8 contracts with domestic utilities. Recently, Nukem, Inc. ("Nukem") and its 100% subsidiary Cycle Resource Investment Corporation ("CRIC") have made most of the SMP deliveries of U3O8. It is not known how long this arrangement will continue. The capital requirements to fill Registrant's and Crested's portion of the remaining commitments in fiscal 1997 will depend on the timing of payments to the Registrant and Crested by Nukem/CRIC under the arbitration award, whether SMP will be wound up and dissolved as a partnership and its assets distributed to partners Registrant/Crested and Nukem/CRIC, and whether a receiver is appointed by the court to oversee SMP contract delivery obligations pending dissolution of SMP. The primary source of Registrant's capital resources for the of first half fiscal 1997, will be (i) cash on hand February 29, 1996; (ii) Registrant's share of cash received from the sale of the Wind River Estates Mobile Home Park by USECC (see "Certain Relationships and Related Transactions - Transactions with Arrowstar Investments, Inc."); (iii) possible sale of equity or interests in investment properties or other affiliated companies; (iv) sale of equipment; (v) proceeds from the resolution of the SMP arbitration/litigation; (vi) sale of royalties or interests in mineral properties; (vii) proceeds from the sale of uranium under the SMP contracts, and (viii) borrowings from financial institutions. Construction revenues from the Company's 50.9% subsidiary, Four Nines Gold, Inc. ("FNG"), fees from oil production, rentals of various real estate holdings and equipment and the sale of aviation fuel are also expected to provide cash. Registrant's working capital increased during the nine months ended February 29, 1996 by $1,115,000 to working capital of $1,137,000 principally due to the sale of the 812,432 shares of the Company's common stock in June and July 1995, resulting in net proceeds to Registrant of $2,842,200. Registrant's other investing activities provided $1,183,600 during the nine months ended February 29, 1996. This increase in cash was a result of proceeds from the sale of assets, $77,700 and the sale of Brunton, $3,300,000. These increases in cash were partially offset by investments in affiliates due to Registrant funding the activities of Plateau and Registrant and Crested funding their interest in SMP, as well as funding their 90% subsidiary, Energx, Ltd. ("Energx") in the oil and gas business, Plateau and Sutter Gold Mining Company ("SGMC"). Additionally, the Registrant and its affiliates (1) purchased $1,021,100 of additional equipment (2) developed mineral properties, $349,200 and (3) developed gas properties $23,400 during the nine months ended February 29, 1996. Monthly operating expense to hold properties and fund general and administrative expense is estimated at $300,000 to $350,000 for the first half of fiscal 1997. Revenues from commercial operations are expected to provide approximately $110,000 monthly. Operating expense estimates reflect elimination of most legal expenses associated with the SMP arbitration/litigation proceedings, because an Order and Award was entered by the arbitration panel on April 18, 1996 (see "Business and Properties - Legal Proceedings - Sheep Mountain Partners Arbitration/ Litigation"). Working capital in addition to funds on hand at February 29, 1996 and funds provided from the award in the SMP arbitration/litigation and the sale of the Wind River Estates Mobile Home Park will be required to fund the mine and mill permitting and the construction of a gold processing mill and mine development of SGMC. Registrant and Crested are currently seeking means of financing the construction of the SGMC gold processing mill and mine development, but there can be no assurance that such financing can be arranged. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on working capital requirements and capital resources. See also Risk Factor 2 below. 2. Loss of Future Operating Income Due to Brunton Sale. In fiscal 1995, 49% of Registrant's net revenues were provided by Brunton's professional and outdoor recreational product sales (29% in the six months ended November 30, 1995). Brunton was sold in February 1996. The inability to include Brunton's operations with Registrant's other operating revenues in the future could result in continued operating losses for Registrant, unless Registrant is able to develop other profitable businesses, such as Registrant's uranium business or FNG's construction business, to replace profits from Brunton. Continued operating losses without offsetting replacements of working capital will adversely affect USE's ability to continue its operations as described in this Prospectus. See also Risk Factor 1 above and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Registrant's 1995 Form 10-K. 3. Litigation/Arbitration - Sheep Mountain Partners. Because of USE and Crested litigation/arbitration against Nukem/CRIC, their partner in the Sheep Mountain Partners Partnership ("SMP"), USE and Crested have been required to fund $4,521,600 in standby mine maintenance and related costs (including $136,500 for the purchase of U3O8) of the SMP mines in Fremont County, Wyoming, from June 1991 through May 31, 1995. Another $326,700 was spent on such costs in the six months ended November 30, 1995. USE and Crested are sought to recover these amounts from Nukem and CRIC, along with interest which has not been booked on the financial statements of the Registrant and Crested. Recovery by USE and Crested of their funds advanced to the SMP partnership will depend on the timing of payment on awards in the litigation/arbitration, which timing presently is uncertain but is expected to be in calendar 1996. See Item 3 - "Legal Proceedings - Sheep Mountain Partners Arbitration/Litigation" in Registrant's 1995 Form 10-K, and the audited USE Consolidated Financial Statements contained in Registrant's 1995 Form 10-K, "Legal Proceedings" in USE's Form 10-Q for the quarter ended February 29, 1996 and Forms 8-K reporting events of May 24, 1996 and July 3, 1996. On July 3, 1991, USE and Crested ("plaintiffs") filed a complaint 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 the SMP Partnership Agreement and various related agreements. Plaintiffs also claim CRIC and Nukem have wrongfully pursued a plan to obtain ownership of the USE-Crested interests in SMP through various means, including overcharging SMP for uranium "sold" to SMP by defendants. Plaintiffs further allege that defendants refused to provide a complete accounting with respect to dealings in uranium with and on behalf of SMP, and that certain defendants misappropriated SMP property and engaged in other wrongful acts relating to the acquisition of uranium by SMP. Plaintiffs requested that the court order rescission of the SMP Partnership Agreement and related contracts, and asked the court to determine the amounts payable to CRIC by USECC as a result of any such rescission order to place the parties in status quo. USE and Crested also requested that the court order defendants to make a complete accounting to them concerning the matters alleged in the amended complaint. They requested an award of damages (including punitive, exemplary and treble damages under the Racketeer Influenced and Corrupt Organization Act ("RICO") and its Colorado State equivalent, interest, costs and attorneys' fees) in an amount to be determined at trial. Plaintiffs further requested imposition of a constructive trust on all property of SMP held by defendants and on profits wrongfully realized by defendants on transactions with SMP. The defendants filed various motions, including an application to stay judicial process and compel arbitration and motions to dismiss certain of plaintiffs' claims. The defendants also filed an answer and counterclaims against plaintiffs, claiming plaintiffs breached the SMP Agreement and misappropriated a partnership opportunity by providing certain information about SMP to Kennecott and entering into the GMMV with Kennecott involving the Green Mountain uranium properties. The defendants also claim that plaintiffs wrongfully sold an interest in SMP to Kennecott through the GMMV without CRIC's consent and without providing CRIC a right of first refusal to purchase such interests; that Registrant breached the uranium marketing agreement between CRIC and SMP, which had been assigned by CRIC to Nukem, by agreeing with Kennecott in the GMMV that Kennecott could market all the uranium from Green Mountain, thereby depriving Nukem of commissions to be earned under such marketing agreement; that Registrant and Crested interfered with certain SMP supply contracts, costing CRIC legal fees and costs; that CRIC and Nukem are entitled to be indemnified for purchases of uranium made on behalf of SMP; that Registrant and Crested failed to perform their obligations under an Operating Agreement with SMP in a proper manner, resulting in additional costs to SMP; that Registrant and Crested overcharged SMP for certain services under the SMP Partnership Agreement and refused to allow SMP to pay certain marketing fees to Nukem under the Uranium Marketing Agreement; that Registrant and Crested breached the SMP Partnership Agreement by failing to maintain a toll milling agreement with Pathfinder Mines Corporation, thereby rendering SMP's uranium resources worthless; and that Registrant and Crested have engaged in vexatious litigation against CRIC and Nukem. Defendants also requested damages (including punitive, exemplary and treble damages under RICO, interest costs and attorney fees). See the further information set forth below in this Risk Factor, concerning the damages requested by defendants. After more than three years of pretrial motions and discovery the plaintiffs and defendants agreed in November 1994 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, 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 proceedings. On April 18, 1996 the arbitration panel entered its Arbitration Order and Award. Although future limited proceedings are contemplated regarding clarification of the timing of payments, the panel overall found in favor of the Registrant and Crested on several monetary claims, and other issues. See "Material Changes". 4. Sutter Gold - No Current Mining Operations or Gold Production. As of May 31, 1995, USE and Crested have invested more than $11,000,000 in capitalized costs (in addition to approximately $3,000,000 in costs that have been expensed) to acquire, permit and develop a gold property in California, held through a subsidiary, Sutter Gold Mining Company. This investment represents a significant portion of USE's consolidated assets. There is no assurance current efforts will be successful in financing the mill construction and mine development costs needed to put the property into full production. If third-party financing cannot be obtained and USE is unable to fund development and production costs from internally generated funds over the next two years the property may be sold at a loss. See Item 1 "Description of Business - Gold - Lincoln Project (California)" in Registrant's 1995 Form 10-K. 5. Project Delay. Registrant's minerals business is subject to the risk of unanticipated delays in developing and permitting its uranium and gold projects. Such delays may be caused by fluctuations in commodity prices (see Risk Factor 7), mining risks (see Risk Factor 10), difficulty in arranging needed financing, unanticipated permitting requirements or legal obstruction in the permitting process by project opponents. In addition to adding to project capital costs (and possibly operating costs), such delays, if protracted, could result in a write off of all or a portion of the carrying value of the delayed project and/or could trigger certain reclamation obligations sooner than planned. 6. Commodity Price Fluctuations. The ability of the Company to develop and operate its uranium and gold projects profitably can be significantly affected by changes in the market price of uranium and gold, respectively. Until very recently the spot market price for uranium concentrates has been depressed (less than $15.00 per pound) since 1988 and has been below $8.00 per pound as recently as 1992. (See Item 1, "Description of Business - Uranium - Uranium Market Information" in Registrant's 1995 Form 10-K for additional information on the uranium markets and pricing.) Uranium prices are subject to a number of factors beyond Registrant's control including imports of uranium from Russia and other CIS countries, the amount of uranium produced and sold from the blending of highly enriched uranium recovered from U. S. and Russian nuclear weapons to produce lower enriched uranium for nuclear fuel, the build up by utilities of uranium fuel inventories and the sale of excess inventories into the market, the rate of consumption of uranium inventories by utilities, the rate of uranium production in the United States, Canada, Australia and elsewhere by other producers and the rate of new construction of nuclear generating facilities, verses the rate of shutdown and decommissioning of older nuclear generating facilities, particularly in the United States. Market prices for uranium concentrates in the United States have recovered to between $16.25 and $16.50 per pound as of May 31, 1996. The Company believes that if the price remains at this level or higher, United States utilities will seek long term price stabilizing uranium supply contracts. If the Company is able to obtain long term uranium supply contracts with assured prices exceeding $18.00 per pound, that should be sufficient to operate the Company's Utah uranium properties profitably. It should also be sufficient to proceed with development of the GMMV Jackpot Mine and operation of the Sweetwater uranium mill, although there can be no assurance that Kennecott, which controls the management committee of GMMV, would be of the same opinion. There also can be no assurance that this recent upward price movement will continue. USE would be adversely affected if the United States utilities with nuclear power plants do not seek long term uranium supply contracts during the balance of the 1990s. Although the extent of such adverse impact cannot be predicted, if uranium prices remained so depressed through the 1990s that USE's properties and facilities were not put into operation, the book value of such assets might decrease and USE could be required to reclaim or restore such properties sooner than planned (see also Risk Factor 12). The market price of gold has fluctuated widely and is affected by numerous factors beyond the Company's control, including international economic trends, currency exchange fluctuations, expectations for inflation, the extent of forward sales of gold by other producers, consumption patterns (such as purchases of gold jewelry and the development of gold coin programs), purchases and sales of gold bullion holdings by central banks or other large gold bullion holders or dealers and global or regional political events, particularly in major gold-producing countries such as South Africa and some of the CIS countries. Gold market prices are also affected by worldwide production levels, which have increased in recent years. The aggregate effect of these factors, all of which are beyond the Company's control, is impossible for the Company to predict. In addition, the market price of gold has on occasion been subject to rapid short-term changes because of market speculation. As of June 20, 1996 the Comex spot price of gold was $384.20 per ounce. 7. Proposed Federal Legislation. The U.S. Congress has, in legislative sessions in recent years, actively considered several proposals for major revision of the General Mining Law, which governs mining claims and related activities on federal public lands. If any of the recent proposals become law, it could result in the imposition of a royalty upon production of minerals from federal lands and new requirements for mined land reclamation and other environmental control measures. It remains unclear whether the current Congress will pass such legislation and, if passed, the extent such new legislation will affect existing mining claims and operations. The effect of any revision of the General Mining Law on the Company's operations cannot be determined conclusively until such revision is enacted; however, such legislation could materially increase the carrying costs of the Green Mountain mineral properties, the SMP properties and some of Plateau's mineral properties which are located on federal unpatented mining claims, and could increase both the capital and operating costs for such projects and impair the Company's ability to hold or develop such properties, as well as other mineral prospects on federal unpatented mining claims. 8. Exploration Risks. Mineral exploration, particularly for gold, is highly speculative in nature, involves many risks and frequently is nonproductive. There can be no assurance that the Company's efforts at the Sutter Gold Project to identify additional gold ore reserves will be successful. Moreover, substantial expenditures are required to establish additional ore reserves through drilling, to determine metallurgical processes to extract the metal from the ore and to construct mining and processing facilities. During the time required to establish additional ore reserves, determine suitable metallurgical processes and construct such mining and processing facilities, the economic feasibility of production may change because of fluctuating gold prices (see Risk Factor 7). 9. Mining Risks and Insurance. The business of uranium and gold mining generally is subject to a number of risks and hazards, including environmental hazards, industrial accidents and rock falls, flooding, interruptions due to weather conditions and other acts of God. Such risks could result in damage to or destruction of Registrant's mineral properties and production facilities, as well as to properties of others in the area, personal injury, environmental damage and process and production delays, causing Registrant monetary losses and possible legal liability. While the Company maintains, and intends to continue to maintain, liability, property damage and other insurance consistent with industry practice, no assurance can be given that such insurance will continue to be available, be available at economically acceptable premiums or be adequate to cover any resulting liability. 10. Title to Properties. Nearly all the uranium mining properties held by GMMV, SMP, and Plateau are on federal unpatented claims. Unpatented claims are located upon federal public land pursuant to procedure established by the General Mining Law (see also Risk Factor 8). Requirements for the location of a valid mining claim on public land depend on the type of claim being staked, but generally include discovery of valuable minerals, erecting a discovery monument and posting thereon a location notice, marking the boundaries of the claim with monuments, and filing a certificate of location with the county in which the claim is located and with the U. S. Bureau of Land Management ("BLM"). If the statutes and regulations for the location of a mining claim are complied with, the locator obtains a valid possessory right to the contained minerals. To preserve an otherwise valid claim, a claimant must also annually pay certain rental fees to the federal government (currently $100 per claim) and make certain additional filings with the county and the BLM. Failure to pay such fees or make the required filings may render the mining claim void or voidable. Because mining claims are self-initiated and self- maintained, they possess some unique vulnerabilities not associated with other types of property interests. It is impossible to ascertain the validity of unpatented mining claims solely from public real estate records and it can be difficult or impossible to confirm that all of the requisite steps have been followed for location and maintenance of a claim. If the validity of an unpatented mining claim is challenged by the government, the claimant has the burden of proving the present economic feasibility of mining minerals located thereon. Thus, it is conceivable that during times of falling metal prices, claims which were valid when located could become invalid if challenged. Disputes can also arise with adjoining property owners for encroachment or under the doctrine of extralateral rights (see Risk Factor 17). 11. Reclamation and Environmental Liabilities. Registrant's projects and operations are subject to various federal, state and local laws and regulations regarding the discharge of materials into the environment or otherwise relating to the protection of the environment, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response Compensation Liability Act. With respect to mining operations conducted in Wyoming, Wyoming's mine permitting statutes, Abandoned Mine Reclamation Act and industrial development and siting laws and regulations will impact USE. Similar laws in California affect SGMC operations and in Utah will affect Plateau's operations. In addition, Registrant's uranium mills are subject to jurisdiction of the Nuclear Regulatory Commission ("NRC"). To Registrant's knowledge, it is in compliance in all material respects with current environmental regulations. To the extent that production by SMP, GMMV or SGMC is delayed, interrupted or discontinued due to need to satisfy present or future laws or regulations which relate to environmental protection, future USE earnings could be adversely affected. For additional information concerning the effect such environmental laws and regulations have on the Company's capital expenditures, see Registrant's 1995 Form 10-K. USE is a joint venturer in the GMMV, which entity is responsible for mine reclamation, environmental restoration and decommissioning associated with mineral properties on Green Mountain, in south central Wyoming, and the nearby Sweetwater Mill. Future costs to comply with these obligations are now estimated at approximately $25,000,000. If actual costs are higher, USE could be adversely impacted. There is no assurance the properties will generate sufficient revenues to fund reclamation, restoration and decommissioning costs in excess of current estimates. See Note K to the audited USE Consolidated Financial Statements in Registrant's 1995 Form 10-K, and the notes to the unaudited USE Consolidated Financial Statements in Registrant's Form 10-Q for fiscal quarter ended February 29, 1996 for further information. Current bonds and funds in escrow are deemed adequate for reclamation and decommissioning liabilities associated with the Shootaring Mill in Utah. USE and Crested have assumed the reclamation obligations, environmental liabilities and contingent liabilities for employee injuries, from mining the SMP properties and other properties in the Sheep and Green Mountain Mining Districts. The reclamation obligations, which are established by governmental regulators, were most recently set at $1,451,800, which amount is shown on USE's balance sheet as a long-term obligation. To assure the reclamation work will be performed, regulatory agencies require posting of a bond or other security. USE and Crested satisfied this requirement with respect to SMP properties by mortgaging their executive office building and a trailer park, both located in Riverton, Wyoming. A portion of the funds for the reclamation of SMP's properties was to have been provided by SMP, which agreed to pay up to $.50 per pound of uranium concentrates produced from its properties to USE and Crested for reclamation work. The status of this commitment could be impacted by the ultimate resolution of the arbitration/litigation with Nukem/CRIC (see Risk Factor 3 above). The GMMV and Sweetwater Mill reclamation liabilities are self bonded by Kennecott pursuant to written agreements with the NRC and the State of Wyoming, and accordingly these liabilities are not recorded in the USE or Crested financial statements. The SMP and Plateau reclamation liabilities were recorded at $1,451,800 and $2,500,000 respectively (total $3,951,800) in the audited USE Consolidated Financial Statements. See the USE 1995 Form 10-K. A cash bond of approximately $40,000 is posted for miscellaneous reclamation costs at the Sutter gold property (carried under "Other Assets-Deposits and Other" on the USE financial statements). Reclamation and environmental obligations for the oil and gas properties held by USE are deemed insignificant and manageable in the ordinary course of business. 12. Possible Losses on Uranium Contracts. As of May 31, 1995, SMP held contracts for delivery of an estimated 5.5 million pounds of U3O8 to domestic utilities from 1996 through 2000. The arbitration panel found that another contract worth an estimated 810,000 pounds to be delivered form 1996 to 2000 was to be assigned to SMP by Nukem/CRIC. See "Material Changes". Actual quantities of U3O8 purchased by utilities over that period of time may vary by 10 to 25 percent, as provided in the contracts (see Item 1 "Description of Business - Uranium - Sheep Mountain Partners - SMP Marketing" in Registrant's 1995 Form 10-K), and profit or loss to SMP on the deliveries will depend on the cost of inventory. Profits on such future deliveries cannot be predicted, however, management of the Company does not anticipate any material losses from the sales of U3O8 pursuant to these contracts. As of the date of this Prospectus, the prices under the one remaining base escalated contract exceed the current market price, however, there can be no assurance this situation will not change in the future. Increases in the spot market price would increase USE's and Crested's cost of delivering on certain of the SMP contracts prior to the time that their uranium properties are in production, thus reducing potential profits or possibly producing losses, while spot market price decreases would be likely to increase profits on such contracts. USE recorded a loss of $162,900 in fiscal 1994 on deliveries of its portion of certain of the SMP contracts, as the cost of uranium exceeded the contracted price. Due to the SMP dispute, earlier arrangements between the partners to deliver their shares of the SMP contracts in spite of the dispute were abandoned, and USE made no deliveries (and therefore recorded no revenues or losses) on any SMP contracts during fiscal 1995. For the nine months ended February 29, 1996 Registrant recorded a gross profit of $350,000 from mineral sales transactions. For information on the status of the contracts in SMP, see "Material Changes". 13. Competition. There is keen competition in the domestic minerals industry and the oil and gas business for properties and capital. USE's competitors include a number of major mining and oil and gas companies, most of which are larger than USE in all respects. In the production and marketing of uranium concentrates there are more than 10 major international entities (some of which are government controlled) that are significantly larger and better capitalized than USE. Although the Registrant presently is not engaged in the mining or milling of uranium, and therefore should not be counted in the top ten uranium producers, the Registrant's competitive stature may improve significantly at such time as it commences uranium mining and production. The location and composition of mineral ore bodies are of great importance to the competitive position of a mining company. Producers of high-grade ore with readily extractable minerals are in an advantageous position. Producers of one mineral may be able to efficiently recover other minerals as by-products, with significant competitive impact on primary producers. Substantial capital costs for equipment and mine-works are often needed. As a result, owners of producing properties, particularly if purchase contracts for the production are in place, generally enjoy substantial competitive advantages over organizations that propose to develop non-producing properties. Competition is also keen in the search for mineral properties and prospects and in the employment and retention of qualified personnel. USE believes that with the recent improvements in market prices for uranium concentrates, it will be able to compete with other uranium producers, primarily because it holds significant uranium resources in place, along with the necessary mining and milling facilities, all of which it acquired for little or no cost. Applications have been submitted to upgrade the mill licenses to operating levels, however, delays in final permitting may be encountered, as the uranium refining industry is closely regulated by the NRC. Nonetheless, USE expects competition from larger producers in Canada, Australia and Africa, as well as from U.S. in situ producers of uranium and other producers that recover uranium as a byproduct of other mineral recovery processes, and from uranium recovered from the de-enrichment of highly enriched uranium obtained from the dismantlement of U.S. and Russian nuclear weapons and sold in the market by the United States Enrichment Corporation and/or the United States Department of Energy, as well as from imports to the United States of uranium from the Commonwealth of Independent States (formerly the Soviet Union). See Item 1 "Description of Business - Uranium - Uranium Market Information" and "NUEXCO Exchange Value" in Registrant's 1995 Form 10-K. USE's affiliate FNG encounters strong competition with a number of larger civil engineering construction firms in the western United States. 14. Reserves Estimates. While the ore reserve estimates at GMMV Round Park ore deposit in Wyoming and SGMC's Lincoln project in California have been reviewed by independent consultants, such ore reserve estimates are necessarily imprecise and depend to some extent on statistical inferences drawn from limited drilling, which may, on occasion, prove unreliable. Should the Company encounter mineralization or formations at any of its mines or projects different from those predicted by drilling, sampling and similar examinations, ore reserve estimates may have to be adjusted and mining plans may have to be altered in a way that could adversely affect the Company's operations. Moreover, short-term operating factors relating to the ore reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades, may adversely affect the Company's profitability in any particular accounting period. 15. Variable Revenues and Recent Losses. Due to the nature of USE's business, there are from time to time major increases in gross revenues from sale of mineral properties. During fiscal 1991, $7,193,600 was recognized from sale of a partial interest in a uranium property to Kennecott Uranium Company (a GMMV partner). No such revenues were recognized from fiscal 1992 through fiscal 1995. Further, USE realized a net gain in fiscal 1992 of $613,000, but net losses were realized from fiscal 1993 through fiscal 1995 (in the respective amounts of $221,900, $3,370,800 and $2,070,600). 16. Bullfrog Litigation. Registrant, Crested, Parador Mining Company, Inc. ("Parador") and H. B. Layne Contractor, Inc. ("Layne") are defendants and counter- or cross-claimants in certain litigation in the District Court of Nye County, Nevada, brought by Bond Gold Bullfrog Inc. ("BGBI") in July 1991. BGBI (now known as Barrick Bullfrog, Inc.) is an affiliate of Barrick Corp., a large international gold producer headquartered in Toronto, Canada. The litigation primarily concerns extralateral rights associated with two patented mining claims owned by Parador and initially leased to a predecessor of BGBI, which claims are in and adjacent to BGBI's Bullfrog open pit and underground mine. USE and Crested assert certain interests in the claims under an April 1991 assignment and lease from Parador, which is subject to the lease to BGBI's predecessor. Parador, USE and Crested had previously advised BGBI that they are entitled to royalty payments with respect to extralateral rights of the subject claims on minerals produced at the Bullfrog Mine, claiming that the lode or vein containing the gold mineralization apexes on the Parador claims and dips under the claims leased to BGBI by Layne. BGBI seeks to quiet title to its leasehold interest in the subject claims, alleging that Parador's lease thereof to USE and Crested is adverse to the interest claimed by BGBI, and that the assertions by USE and Crested of an interest in the claims have no foundation. BGBI seeks a determination that USE and Crested have no rights in the claims and an order enjoining USE and Crested from asserting any interest in them. BGBI further asserts that, in attempting to lease an interest in the subject claims to USE and Crested, Parador breached the provisions of its lease to BGBI, and that Parador is responsible for the legal fees and costs incurred by BGBI in the quiet title action, which may be offset against royalties. Under an arrangement to pay certain legal expenses of Parador, USE and Crested may be responsible for any such amounts. BGBI alleges that by entering into the Assignment and Lease of Mining Claims with Parador, USE and Crested disrupted the contractual relationship between BGBI and Parador. In addition, BGBI claims that the USECC-Parador agreement slanders BGBI's title to the claims. BGBI seeks compensatory damages from Parador, USE, and Crested; punitive damages from USE and Crested; and costs and other appropriate relief from Parador, USE and Crested, all in amounts to be determined. A partial or bifurcated trial to the court of the extralateral rights issues was held on December 11 and 12, 1995. The purpose of the hearing was to determine whether the Bullfrog orebody is a "vein, lode or ledge" as described in the General Mining Law and, if so, whether the facts of the case warrant the application of the doctrine of extralateral rights as set forth in such statute. Although the Court sat as both the finder of fact and law with respect to such issues, the Court concluded that the questions are ultimately one of law which must be decided based on the testimony and exhibits introduced at the trial concerning the description of the orebody. Registrant and defendants Crested Corp. and Parador presented five experts in the field of geology, including the person who was responsible for the discovery of the gold deposit at the mine. All five experts opined that the deposit was a lode and it apexed on a portion of Parador's two mining claims. The defendant Layne presented a single witness who testified that there was no apex within the Parador claims. The Court nevertheless found that Parador had failed to meet its burden of proof and therefore Parador, Registrant and Crested have no right, title and interest in the minerals lying beneath the claims of Layne pursuant to extralateral rights. The Court entered a partial judgment in favor of Layne and ordered that Parador pay Court costs to Layne. Defendants intend to appeal the Court's ruling as erroneous as a matter of law at such time as it is appropriate to do so. The partial trial did not address any of the other issues pending in the litigation other than those required to decide the question of whether the doctrine of extralateral rights is applicable to this case. All other claims and counterclaims remain pending before the Court and no hearing date has been set for those issues. If USE's and Crested's position concerning extralateral rights is ultimately sustained, substantial additional revenues and income may be received by USE and Crested from royalties payable with respect to gold produced from the Bullfrog Mine. If, however, the final decision of the appellate court is adverse to USE and Crested, an award of damages against USE and Crested in any substantial amount by this Court could have a material adverse effect on the ability of USE and Crested to carry on their business in the manner described in this Prospectus. 17. Potential Issuance of Preferred Stock. Under the USE Restated Articles of Incorporation, as amended ("Restated Articles") and as permitted by the Wyoming Business Corporation Act ("WBCA"), the USE Board of Directors has authority to create series of preferred stock and to issue shares thereof, without the approval of any USE shareholders. The creation and issue of USE preferred stock with dividend rights senior to the USE common stock could adversely affect common stockholder participation in future earnings through dividends that otherwise would be available for distribution to holders of the common stock, including those purchasing the Shares. Such preferred stock also could inhibit a takeover of USE. Under the WBCA, separate voting approval by classes of stock is required for certain substantive corporate transactions. If the interests of preferred stockholders is perceived to be different from those of the common stockholders, the preferred stockholders could withhold approval of the transactions needed to effect the takeover. 19. Potential Anti-Takeover Effects of Staggered Board. The USE Board of Directors is presently divided into three classes of two directors each. Pursuant to the USE Restated Articles and as permitted by the WBCA, the directors in each class serve a three year term, and only those directors in one class are reelected each year. This board classification could stall a takeover of USE, even if a majority of the common stock were to be held by persons desiring a change in control of the Board. See "Description of Securities to be Registered." PLAN OF DISTRIBUTION The Shares will be offered from time to time by the Selling Shareholders (i) in transactions in the over-the-counter market, automated inter-dealer system on which the Company's common stock is then listed, in negotiated transactions or a combination of such methods of sale, and (ii) at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Selling Shareholders may effect such transactions directly with the broker-dealers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of the Shares for whom such broker-dealers may act as agents or to whom they sell as principals, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). Sales of the Shares may be made pursuant to this Prospectus or pursuant to Rule 144 adopted under the 1933 Act. No underwriting arrangements exist as of the date of this Prospectus. Upon being advised of any underwriting arrangements that may be entered into by the Selling Shareholders after the date of this Prospectus, the Company will prepare and file a post- effective amendment to this Registration Statement including a supplement to this Prospectus to disclose the name of such underwriters and such arrangements. Expense of any sales pursuant to this Prospectus will be borne by the Selling Shareholders, except that the Company is paying certain of the expenses, which are estimated at $1,000, of registering the Shares under the 1933 Act, consisting of all costs incurred in connection with the preparation of the registration statement (except for any fees of counsel for the Selling Shareholders). The Selling Shareholders will pay or assume brokerage commissions, or underwriting discounts, incurred in the sale of the Shares, which commissions or discounts are not being paid or assumed by the Company. SELECTED FINANCIAL DATA
May 31, ----------------------------------------------------------- 1994 1993 1992 1991 ---- ---- ---- ---- Current assets $ 3,866,600 $ 1,650,300 $ 3,260,500 $ 7,302,300 Current liabilities 1,291,700 1,592,100 681,900 816,000 Working capital 2,574,900 58,200 2,578,600 6,486,300 Total assets 33,090,300 24,037,200 24,583,000 20,500,100 Long-term obligations(1) 16,612,500 2,900,000 4,540,400 3,244,100 Shareholders' equity 12,559,100 15,063,200 14,982,900 15,045,500
February 29, 1996 (3) May 31, 1995 (unaudited) ------------ ------------------ Current assets $ 4,058,000 $ 2,228,700 Current liabilities 4,036,000 1,091,000 Working capital 22,000 1,137,700 Total assets 34,165,000 34,950,900 Long-term obligations(1)(2) 15,882,300 14,416,400 Shareholders' equity 12,168,400 16,007,700 __________
(1) Includes $3,951,800, $3,951,800, $1,695,600, $1,695,600, and $725,900 of reclamation liabilities, and additional amounts of other accrued liabilities, on uranium properties at May 31, 1995, 1994, 1993, 1992, and 1991, respectively. See Notes F and K to the Consolidated Financial Statements contained in Registrant's 1995 Form 10-K. (2) See Notes 4 and 5 to the unaudited Condensed Consolidated Financial Statements contained in Registrant's Form 10-Q for fiscal quarter ended February 29, 1996. (3) Reflects the reclassification for amounts associated with the operations of Brunton as discontinued because Brunton was sold by Registrant as of January 31, 1996. See Notes 1 and 3 to the unaudited Condensed Consolidated Financial Statements for the fiscal quarter and nine months ended February 29, 1996. See the Form 8-K Report for February 16, 1996 for pro forma condensed consolidated financial information, giving effect to the Brunton sale.
Years Ended May 31, -------------------------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues $ 9,148,000 $ 8,776,300 $ 9,045,500 $ 6,353,600 $ 9,569,100 Income (loss) before equity in income (loss) of affiliates, provision for income taxes and extraordinary item (2,281,500) (3,587,900) (103,100) 819,200 6,082,900 Equity in (loss) of affiliates (442,300) (390,700) (444,700) (324,900) (96,100) Net income (loss) (2,070,600) (3,370,800) (221,900) 613,200 6,164,900 Income (loss) per share before extraordinary item $ (.42) $ (.70) $ (.05) $ .09 $ .93 Extraordinary item -- -- -- .06 .62 ----------- ----------- ----------- ----------- ----------- Income (loss) per share before cumulative effect of accounting change (.42) (.70) (.05) .15 1.55 Cumulative effect at June 1, 1993 of income tax accounting change -- (.06) -- -- -- ----------- ----------- ----------- ----------- ----------- Net income (loss) per share $ (.42) $ (.76) $ (.05) $ .15 $ 1.55 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Cash dividends per share $ -0- $ -0- $ -0- $ -0- $ -0- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Three Months Ended Nine Months Ended -------------------------- ---------------------------- February 29 February 28 February 29, February 28, 1996 1995 1996 1995 ---- ---- ---- ---- (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ----------- ----------- ------------ Revenues $ 1,875,600 $ 1,386,300 $ 8,151,800 $ 3,638,500 Loss before equity in loss of affiliates and provision for income taxes (1,290,900) (218,400) (1,882,500) (1,551,200) Equity in loss of affiliates - net (115,700) (128,100) (281,600) (304,900) Loss from continuing operations (1,074,400) (270,300) (1,765,400) (1,437,700) Income (loss) from discontinued operations net of income taxes (9,200) (58,100) 308,900 121,900 Gain on disposal of discontinued operations net of income taxes 2,295,700 -- 2,295,700 -- Income (loss) from discontinue operations 2,286,500 (58,100) 2,604,600 121,900 Net income (loss) 1,212,100 (328,400) 839,200 (1,315,800) Loss from continuing operations per share (.17) (.06) (.28) (.29) Net income (loss) per share $ .19 $ (.07) $ .14 $ (.27) Cash dividends per share -0- -0- -0- -0-
See the Form 8-K Report for February 16, 1996 for pro forma condensed consolidated financial information, giving effect to the Brunton sale. MATERIAL CHANGES Brunton. On February 16, 1996 Registrant completed the sale of 8,267,450 shares of common stock, $0.01 par value, (the "Stock") of Brunton to Silva Production AB, a closely held Swedish corporation ("Silva"), pursuant to the terms of a Stock Purchase Agreement dated January 30, 1996 (the "Agreement") by and between Registrant and Silva. The Brunton transaction was prompted in part by Registrant's desire to focus on its core business of acquiring and developing mineral properties and mining and marketing minerals, particularly uranium and gold. The Stock constitutes all of the issued and outstanding shares of Brunton owned by Registrant as of the date of the sale including 90,750 shares held in Brunton's treasury. The purchase price for the Stock was $4,300,000, which was a negotiated price based on an Adjusted Shareholder's Equity in Brunton (as defined in the Agreement) as of January 31, 1996 of $2,399,103. Registrant received $300,000 upon execution and delivery of the Agreement, approximately $3,000,000 by wire transfer from Silva at closing and an agreement by Silva to pay Registrant $1,000,000 in three annual installments of $333,333 together with interest at the rate of 7% per annum, such installments to be paid on February 15, 1997, February 15, 1998 and February 15, 1999. In addition, Silva agreed that, in the operation of Brunton, Silva will cause the existing Brunton products and operations (including lasers and other new products being developed by Brunton at the time of the sale) to be a separate profit center and to pay Registrant 45% of the net profits before taxes derived from that profit center for a period of four years and three months commencing February 1, 1996. The first such net profits payment will be made on or before July 15, 1997 for the period from February 1, 1996 through April 30, 1997, if net profits are earned for such period. Additional net profits payments will be made, on July 15, 1998, July 15, 1999 and July 15, 2000, if net profits are earned for the corresponding twelve month period. There can be no assurance that Brunton will earn net profits for any such period and therefore there can be no assurance that any such net profits payment will be received by Registrant. The assets of Brunton that were acquired by Silva through the purchase of the Stock consist of certain real estate housing Brunton's headquarters and manufacturing operations in Riverton, Wyoming; Brunton's working capital; equipment, inventory, machinery, personal property and all of Brunton's intellectual property rights. Certain items of equipment and personal property were withheld by the Registrant from the Agreement and transferred from Brunton to Registrant, by mutual agreement with Silva, for Registrant's assumption of the indebtedness thereon. Such items include off-book inventory and depreciated mining equipment, real estate not used in Brunton operations, and miscellaneous other equipment, as well as 225,556 shares of Registrant's common stock, par value $0.01 per share, and options to purchase 150,000 shares of Registrant's common stock for $3.50 per share; 160,000 shares of Crested Corp. common stock, par value $0.001, and options to purchase (from Crested Corp.) 300,000 shares of Crested Corp. common stock for $0.40 per share, all of which were previously owned by Brunton. 125,556 shares of USE (and options to purchase 75,000 shares of USE), plus 60,000 shares of Crested (and options to purchase 150,000 shares of Crested) were transferred to Plateau in partial payment of debt owed to Plateau by USECC. The remaining 100,000 USE shares (and options to purchase 75,000 USE shares), plus 100,000 Crested shares (and options to purchase 150,000 shares of Crested) were transferred to SGMC. Also at closing, the Registrant paid Brunton $171,685 for accrued rentals on mining equipment owned by Brunton and transferred to Registrant at closing, and the Registrant paid off $273,000 in bank debt previously incurred by Brunton in connection with a loan to the Registrant. The sale will eliminate Brunton's manufacturing and/or marketing of professional and recreational outdoor products from the commercial segment of Registrant's business, except to the extent that there are net profit payments from Silva over the next four years and three months, of which there can be no assurance. For the fiscal year ended May 31, 1995, Brunton's sales provided 49% of net revenues of USE (29% for the six months ended November 30, 1995). The inability to include Brunton's operations with Registrant's other operating revenues in the future could result in continued operating losses for Registrant, unless Registrant is able to develop other profitable businesses, such as Registrant's uranium business or FNG's construction business, to replace profits from Brunton. Continued operating losses without offsetting replacements of working capital will adversely affect USE's ability to continue its operations as described in this Prospectus. See also Risk Factors 1 and 2 above and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Registrant's 1995 Form 10-K. On the other hand, receipt in February 1996 of approximately $2,900,000 in net cash from the sale (and future payments on Silva's $1,000,000 promissory note and any profits payments) will enhance the Company's financial condition and medium term liquidity as well as providing additional resources to put the Company's Plateau uranium mill into operation and develop the Company's uranium and gold properties. Plateau Resources. Registrant intends to consolidate all of its uranium assets into a wholly-owned subsidiary (Plateau Resources Limited) in the fiscal year ending May 31, 1996, and fund the start up of its Shootaring Canyon uranium mill and commencement of mining operations at the mines now owned by Plateau in Utah, with debt or equity funding. However, such consolidation has not been effected to date and there are no agreements in place for the financing of such uranium operations. There can be no assurance that uranium prices will remain at the current level, that the Company will succeed in obtaining long-term uranium supply contracts required to allow Registrant to operate its uranium properties profitably or that the required financing will be available to put such properties into operation. Update on Sheep Mountain Partners Arbitration On April 18, 1996 the arbitration panel (the "Panel") entered an Arbitration Order and Award (the "Order") in the Nukem/CRIC proceedings. The Panel found in favor of the Registrant and Crested on certain claims made by the Registrant and Crested (including the claims for reimbursement of standby, maintenance expense and other expenses on the SMP mines), and in favor of Nukem/CRIC and against the Registrant and Crested on certain other claims. The Registrant and Crested were awarded monetary damages of approximately $7.4 million, which amount is after deduction of monetary damages which the panel awarded in favor of Nukem/CRIC and against the Registrant and Crested. An additional amount of approximately $4.8 million was awarded by the Panel to the Registrant and Crested, to be paid out of cash funds held in SMP bank accounts, which accounts have been accruing operating funds from SMP since the arbitration/litigation proceedings were commenced. It is anticipated that such payment out of the SMP bank accounts will be made in the first quarter of fiscal 1997. The Panel ordered that one utility supply contract for 980,000 pounds of uranium oxide held by Nukem/CRIC belonged to SMP, and ordered such contract assigned to SMP. The contract expires in 2000. The fraud and RICO claims of the Registrant and Crested against Nukem and CRIC were dismissed. On April 30, 1996 Nukem/CRIC filed with the Panel two motions (the "Nukem Motions") requesting correction of the Order, claiming to have discovered errors and inconsistencies in two of the 36 claims addressed in the Order that they allege improperly increased the damages awarded to Registrant and Crested by an aggregate amount exceeding $16 million. They have also written a letter to the bank holding most of the SMP escrowed proceeds instructing the bank to take no action with respect to releasing funds from the SMP escrow account without prior notification to them. On May 15, 1996, Registrant and Crested filed the Order (under seal with respect to certain portions containing commercially sensitive information) with the United States District Court for the District of Colorado (the "Court") together with a petition for confirmation of the Order. At a hearing on May 24, 1996 the Court remanded the Order to the Panel for limited review of the Nukem Motions, without taking further evidence. The petition for confirmation of the Order and motions filed by Registrant and Crested for dissolution of SMP, for the appointment of a receiver to oversee the obligations of SMP to make delivery of uranium concentrates to utilities and supervise the formal dissolution of SMP, and for an order directing distribution of the escrowed proceeds, were stayed by the Court pending a ruling by the Panel on the Nukem Motions. On July 3, 1996 the Panel ruled on the Nukem Motions, denying the principal claim of error by Nukem/CRIC and modifying the language of the Order in certain respects, which did not materially alter the amount awarded to Registrant and Crested. With respect to the principal claim of error alleged in the Nukem Motions, concerning the award of more than $16 million of damages and interest to Registrant and Crested attributable to Nukem's unauthorized use of SMP uranium supply contracts to obtain rights to purchase U3O8 from the Commonwealth of Independent States ("CIS"), the Panel affirmed the amount of its award to Registrant and Crested. In so doing the Panel stated that "There was wrongdoing on the part of Nukem when it used what were clearly partnership contracts to obtain financial benefits for itself alone....Our Award...is premised upon wrongdoing by Nukem and a judgment by us that Nukem ought not to be permitted to profit from that wrongful conduct." The Panel affirmed the Order awarding SMP the rights to purchase CIS uranium as well as the uranium acquired pursuant to those rights and the profits therefrom which are impressed with a constructive trust in favor of SMP. The Panel further stated, "We thus conclude that there is no inconsistency and no double recovery and no subtraction that ought to be made from profits already realized...." The Panel did correct a portion of the award to reimburse $137,700 to CRIC for U3O8 it purchased, out of a bank account in Riverton, WY. The Panel also made a correction to have the $136,500 previously awarded to USECC paid out of the First Interstate Bank of Riverton account rather than the Norwest Bank account in Denver, CO. Registrant and Crested called a mathematical error to the Panel's attention which was made by Nukem after the close of evidence in the amount of $265,313.83. The Panel did not consider that error because it was not directed by the Court to do so and it remains for the Court to resolve that issue. The Panel did not order SMP dissolved. The Registrant and Crested have filed a motion with the Court seeking judicial dissolution of SMP. Pending a favorable ruling on that motion, the Registrant and Crested may seek to reach an agreement with Nukem/CRIC on dissolution of SMP. If a dissolution is not achievable through negotiation, the Registrant and Crested may renew its motion for judicial intervention and the appointment of a receiver by the courts, to wind up the partnership affairs and distribute assets after payment of liabilities. The timing and ultimate resolution of the question of SMP dissolution presently is uncertain. Pending such resolution, the Registrant and Crested are hopeful that delivery obligations under the various SMP utility supply contracts can be met through the cooperation of Nukem/CRIC. Construction - Four Nines Gold, Inc. The contract awarded to FNG by the City of Lead, South Dakota for municipal road and drainage construction and rock slide area stabilization has been increased as a result of change orders by the City to $3,550,604 as of December 31, 1995. FNG had performed 86 percent of the contract, billing $3,018,023 (including 5 percent retainage against completion of the project) of which $2,656,224 had been paid as of December 31, 1995. FNG continues to expect the contract to be profitable. On September 13, 1995, FNG was awarded a separate construction contract for $618,270 by the United States Department of the Interior, Bureau of Reclamation, for the Minor Laterals, North Canal, Stage 5, Belle Fourche Unit, South Dakota. The work consists of constructing 3.81 miles of pipeline, approximately 1.4 miles of gravel-surfaced road, removing existing reinforced concrete hydraulic structures and constructing miscellaneous concrete structures which include four inlets. Notice to proceed with the work on this contract was given on September 29, 1995, with final completion required by May 10, 1996. As of December 31, 1995 FNG had performed 41% of the contract, billing $201,401 and having received payment for all amounts billed. FNG expects this contract to be profitable. Wyoming Real Estate Sale to Arrowstar On April 26, 1996 the USECC Joint Venture sold its Wind River Estates Mobile Home Park (including various personal property) in Riverton, Wyoming to Arrowstar Investments, Inc., a related party, for $804,000, the appraised value as determined by McDonald Appraisal Service Inc. as of April 5, 1996. The total purchase price consists of $500,000 cash; Arrowstar's unsecured 10% promissory note due 2006 for $56,000; cancellation of USECC's $47,934.25 promissory note issued to Arrowstar on September 1, 1995 (for real property in connection with a prior transaction); and $161,378.34 by Arrowstar assigning to USECC its entire interest in First-N-Last L.L.C. Additionally, USECC will credit Arrowstar $38,687.41 for goodwill due to Arrowstar's investing in First-N- Last. For information relating to Arrowstar (and the components of the prior transactions which comprised part of the April 26, 1996 transaction), see the Registrant's Proxy Statement dated October 27, 1995 incorporated by reference herein. Proceeds of the sale will be applied to working capital. See "Managements Discussion and Analysis of Financial Condition and Results of Operations," in Registrant's 1995 Form 10-K. Wyoming Real Estate Sale to Third Party On April 25, 1996, the Registrant and Crested entered into an agreement with a non-related party to sell 10 six-plex townhouses located in Jeffrey City, Wyoming for $500,000, conditioned upon purchaser obtaining financing for the full amount within 60 days. Full real estate title will be transferred to the purchaser upon closing, however, if purchaser removes the townhouses, purchaser must reclaim the land and the real property where the townhouses were located will be assigned and conveyed back to USE and Crested by quit claim deed for full consideration of $10.00. Proceeds of the sale will be applied to working capital. See "Managements Discussion and Analysis of Financial Condition and Results of Operations," in Registrant's 1995 Form 10-K. Three and Nine Months Ended February 29, 1996 Compared to Three and Nine Months Ended February 28, 1995 Revenues for the nine month and three month periods ended February 29, 1996 increased by $4,513,300 and $489,300, respectively, primarily due to an increase in mineral sales, a mineral option, and an increase in construction contract revenues. Revenues from mineral sales and option were $3,116,700 and $942,400 for the nine and three months ended February 29, 1996. There were no similar U3O8 deliveries or option activities for the same period in the prior year. Construction contract revenues for the nine and three months ended February 29, 1996 increased by $2,450,000 and $523,400 respectively from profitable contracts awarded late in fiscal 1995 to the Registrant's subsidiary FNG. Management fees and other revenues increased by $168,400 and decreased by $62,300 for the nine and three months ended February 29, 1996. The increase is primarily as a result of increased revenues generated by operations of a motel, convenience store and restaurant at the Registrant's town of Ticaboo in southern Utah. The costs of mineral sales were $2,766,700 for the nine months and $942,400 for the three months ended February 29, 1996, for which there were no corresponding costs during the same period in 1995. Cost and expenses associated with mineral operations decreased by $403,100 and $108,400, respectively, for the nine and three months ended February 29, 1996, compared to the nine and three months ended February 28, 1995, primarily as a result of a decrease in legal costs in connection with the SMP arbitration. The cost of construction activities increased by $1,779,200, and $437,900, respectively for the nine month and three month periods ended February 29, 1996 compared to the same periods in 1995 as a result of increased contract work. General and administrative expenses increased by $496,700 and decreased by $340,600, respectively for the nine and three months ended February 29, 1996 compared to the comparable 1995 periods. The increase was due to additional expenses associated with the FNG's contracts. Additionally, interest expense which is included in general and administrative expense increased by $46,200 during the nine months ended February 29, 1996 as compared to the same period in 1995. General and administration expenses also increased due to the Christmas bonus paid in stock to certain employees during the quarter ended February 29, 1996 and to the shares of stock issued in February 1996 under Registrant's Restricted Stock Bonus Plan. The total of these stock issuances was compensation of $297,400. Officers and directors were not issued any stock compensation (see Note 6). Commercial operations expenses remained relatively constant. Operations for the nine months and three months ended February 29, 1996 resulted in a loss from continuing operations of $1,765,400 and $1,074,400, respectively, as compared to a loss of $1,437,700 and $270,300 during the same periods of the previous year. During the nine months and quarter ended February 29, 1996 the Registrant recorded a gain of $2,295,700 net of $50,000 in taxes, on the sale of Brunton. No such gain was recognized in the prior year's periods. Due to the discontinuance of operations from Brunton during the quarter ended February 29, 1996, all income from Brunton is shown as discontinued operations on the Statements of Operations for the quarter and nine months ended February 29, 1995. During the nine months and quarter ended February 29, 1996 the Registrant recognized income of $308,900 and a loss of $9,200, respectively, from Brunton's discontinued operations as compared to a gain of $121,900 and a loss of $58,100 for the corresponding periods of the prior year. The Registrant therefore recognized a net income of $839,200 ($0.14 per share) compared to a loss of $1,315,800 ($0.27 per share) for the nine month period and net income of $1,212,100 ($0.19 per share) compared to a loss of $328,400 ($0.07 per share) for the three month period, of the previous year. Investment Banking Consulting Agreement On January 9, 1996, Registrant retained Shamrock Partners Ltd., Investment Bankers ("Consultant") as a financial consultant and advisor, on a nonexclusive basis, for a one year term subject to renewal. As compensation for Consultant's services, Registrant has agreed to grant Consultant Warrants to purchase 200,000 shares of Registrant's common stock at a price of $5.00 per share. Such Warrants were issued on March 26, 1996. The Warrants are exercisable at any time during the term of the Consulting Agreement and Consultant has a right to demand registration of such shares under the Securities Act of 1933. The Warrants and underlying shares were registered under a Form S-1 registration statement (SEC File No. 333-6189) declared effective on June 20, 1996. As of June 28, 1996, no Warrants have been exercised. Options and Shares Compensation Proposals As of December 22, 1995, the Registrant's board of directors amended the Registrant's 1989 Incentive Stock Option Plan, without shareholder approval, to increase the number of options issuable to employees (not including executive officers or directors of the Registrant) from the present 275,000 options up to the increased number of 700,000 options. All such newly authorized options will be nonqualified under IRS regulations. Under the Plan as amended, the board of directors has issued nonqualified options to purchase a total of 360,000 shares, subject to continued employment and exercisable at 20% per year, to employees; the exercise price of the options is $4.00 (the fair market price at December 22, 1995), subject to the market price of the shares being above $8.00 per share for 30 days after grant date. The board of directors also has proposed, subject to approval by the shareholders at the next annual meeting, a stock award program for the executive officers and directors of the Registrant, for the award of common shares to each individual, as of March 1 of each year of continued employment. The first award is tentatively set to be March 1, 1997, in amounts of 20,000 shares for from three to 5 years per officer or director, however, no awards shall be made until a formal plan is adopted and approved by the shareholders and then only upon further decision of the compensation committee as to other features of the plan (including payment of taxes for the grantees with pay back arrangements) which may be desirable. The stock award plan will conform to the Commission's proposed Rule 16b-3 for purposes of complying with Sections 16(a) and (b) of the Exchange Act regarding shortswing profit prohibitions. The board of directors expects both the amended 1989 Incentive Stock Option Plan, and (subject to shareholder approval) the stock award program for officers and directors, to be registered with the Commission on Form S-8 in calendar 1996. EXPERTS The consolidated financial statements of USE incorporated by reference in this Prospectus from the Company's 1995 Form 10-K have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. Reference is made to said report which includes an explanatory paragraph that describes the litigation discussed in Notes E and K to such Consolidated Financial Statements. LEGAL MATTERS Stephen E. Rounds, Denver, Colorado, has acted as special counsel to USE in connection with this offering. PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 3. Incorporation of Documents by References. Registrant hereby incorporates the documents listed in (a) through (c) below by reference into this Form S-8 registration statement. All documents subsequently filed by registrant pursuant to sections 13(a), 13(d), 14 and 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in the registration statement and to be part thereof from the date of filing such documents. (a) Registrant's latest annual report (for fiscal year ended May 31, 1995), and registrant's proxy statement for annual meeting in November 1995. (b) All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal year covered by the registrant document referred to in (a) above. (c) The registrant's class of common stock is described in the S-4 registration statement filed with the Commission on November 29, 1993 (SEC File No. 33-72280), including any amendment which may be filed for the purpose of updating such description. Item 4. Description of Securities. Not applicable (see Item 3(c) above). Item 5. Interests of Named Experts and Counsel. Not applicable. Item 6. Indemnification of Directors and Officers. The Wyoming Business Corporation Act ("BCA"), W.S. 17-16-850 et. seq., provides for indemnification of the registrant's officers, directors, employees, and agents against liabilities which they may incur in such capacities. A summarization of circumstances in which such indemnification may be available follows, but is qualified by reference to registrant's Articles of Incorporation and the text of the statute. In general, any officer, director, employee, or agent may be indemnified against expenses, fines, settlements, or judgments arising in connection with a legal proceeding to which such person is a party as a result of such relationship, if that person's actions were in good faith, were believed by him or her to in (or at least not opposed to) registrant's best interests, and in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by decision of the board of directors (by directors not at the time parties to the proceeding) or by majority shareholder vote (excluding shares held or controlled by directors who are at the time parties to the proceeding), or by opinion of special legal counsel. The circumstances under which indemnification would be made in connection with an action brought on behalf of the registrant are generally the same as stated above, except that indemnification is permitted only for reasonable expenses. In addition, registrant has statutory authority to purchase insurance to protect its officers, directors, employees, and agents against any liabilities asserted against them, or incurred in connection with their service in such capacities. Further, registrant may advance or reimburse funds to a director who is a party to a proceeding, for reasonable expenses incurred in connection with a proceeding. Item 7. Exemption from Registration Claimed. Not applicable. Item 8. Exhibits. 2.1 Agreement and Plan of Share Exchange [5] 3.1 USE Articles of Incorporation [1] 3.1(a) USE Articles of Amendment [1] 3.2 USE Bylaws [3] 4.1(c) 1992 Stock Compensation Plan for Outside Directors * 4.2 USE 1989 Incentive Stock Option Plan, as amended through 12/22/95 37 4.3 USE Restricted Stock Bonus Plan, as amended through 2/94 [6] 10.1 Sale and Lease Back Agreement and Addendum with Brunton, dated November 2, 1992 [5] 10.2 Stock Sale and Option Agreement with Brunton (includes Brunton Loans of $211,800 to USE and $76,760 to Crested), dated April 30, 1993 [5] 10.3 Credit Facility (Brunton loan of $300,000 to USE, convertible to USE common stock) dated August 3, 1993 [5] 10.6 Employment Agreement with Daniel P. Svilar [1] 10.8 Executive Officer Death Plan [3] 10.11 Memorandum of Agreement - Sweetwater Mill [2] 10.28 Memorandum of GMMV Agreement [3] 10.35 Severance Agreement [1] 10.37 Executive Compensation [1] 10.40 Stock Purchase Agreement, Plateau Resources and filed Exhibits [4] [1] Incorporated by reference from the like-numbered exhibit to registrant's Form 10-K for fiscal year ended May 31, 1992. [2] Incorporated by reference from the like-numbered exhibit to registrant's Form 10-K for fiscal year ended May 31, 1991. [3] Incorporated by reference from the like-numbered exhibit to registrant's Form 10-K for fiscal year ended May 31, 1990. [4] Incorporated by reference from Exhibit A to registrant's Form 8-K, reporting an event of August 11, 1993. [5] Incorporated by reference from the like-numbered exhibit to registrant's Form S-4 registration statement filed November 29, 1994 (SEC File No. 33-72280). Item 9. Undertakings. The registrant hereby undertakes: (a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (a)(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (a)(3) To remove from registration by means of a post- effective amendment any of the securities being registered which remain unsold at the termination of this offering. (b) That, for purposes of determining any liability under the securities Act of 1933,each filing of the registrant's annual report pursuant to Section 123(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona offering thereof. (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers, and controlling persons of the registrant, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successfully defense of any action suit or proceeding) is asserted by such officer, director, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Post Effective Amendment to its Form S-8 Registration Statement to be signed on its behalf by the undersigned, duly authorized in the City of Riverton, WY on July 15, 1996. U.S. ENERGY CORP. (Registrant) Date: July 15, 1996 By: s/ John L. Larsen __________________________ JOHN L. LARSEN, President and Chief Executive Officer In accordance with the requirements of the Securities Act of 1933, this Registration Statement on Form S-8 was signed by the following persons in the capacities and on the dates stated. Date: July 15, 1996 By: s/ John L. Larsen __________________________ JOHN L. LARSEN, President and Director Date: July 15, 1996 By: s/ Max T. Evans __________________________ MAX T. EVANS, Director Date: July 10, 1996 By: s/ Harold F. Herron __________________________ HAROLD F. HERRON, Director Date: July ____, 1996 By: __________________________ DON C. ANDERSON, Director Date: July ____, 1996 By: __________________________ DAVID W. BRENMAN, Director Date: July 15, 1996 By: s/ Nick Bebout __________________________ NICK BEBOUT, Director Date: July 16, 1996 By: s/ Robert Scott Lorimer __________________________ ROBERT SCOTT LORIMER, Principal Financial Officer and Chief Accounting Officer EX-4.2 2 1989 STOCK OPTION PLAN AMND 12/22/95 EXHIBIT 4.2 U.S. ENERGY CORP. 1989 STOCK OPTION PLAN As Amended September 1, 1992, September 3, 1993, Janaury 6, 1994 and December 22, 1995 1. Purpose. Restrictions on Amount Available Under the Plan. This 1989 Stock Option Plan (the "Plan") is intended to encourage stock ownership by employees, consultants and directors of U.S. Energy Corp. (the "Corporation"), its divisions and Subsidiary Corporations, so that they may acquire or increase their proprietary interest in the Corporation, and to encourage such employees and directors to remain in the employ of the Corporation and to put forth maximum efforts for the success of the business. It is further intended that options granted by the Committee pursuant to Section 6 of this Plan shall constitute "incentive stock options" ("Incentive Stock Options") within the meaning of Section 422A of the Internal Revenue Code of 1986 and the regulations issued thereunder (the "Code"), and options granted by the Committee pursuant to Section 7 of this Plan shall constitute "nonqualified stock options" ("Nonqualified Stock Options"). 2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "Disability" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. (b) "Fair Market Value" per share as of a particular date shall mean the last sale price of the Corporation's Common Stock as reported on a national securities exchange or on the NASDAQ National Market System or, if last sale reporting quotation is not available for the Corporation's Common Stock, the average of the bid and asked prices of the Corporation's Common Stock as reported by NASDAQ or in the National Quotation Bureau, Inc.'s "Pink Sheets" or, if such quotations are unavailable, the value determined by the Committee (as hereinafter defined) in accordance with their discretion in making a bona fide, good faith determination of fair market value. (c) "Parent Corporation" shall mean any corporation (other than the employer corporation) in an unbroken chain of corporations ending with the employer corporation if, at the time of granting an Option, each of the corporations other than the employer corporation owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 1989 Stock Option Plan as Amended through 12/22/95 (d) "Subsidiary Corporation" shall mean any corporation (other than the employer corporation) in an unbroken chain of corporations beginning with the employer corporation if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Administration. The Plan shall be administered by a committee (the "Committee"), consisting of not less than two members of the Board of Directors of the Corporation (the "Board"). The members of the Committee, who shall be selected at a duly convened meeting of the Board of Directors, shall be persons who have not been granted or awarded equity securities of the Corporation under the Plan or any other plan of the Employer or its affiliates, during the year prior to awards of securities under the Plan by the Committee. It is the intent of this Plan that the Committee members shall be "disinterested administrators" as that term is used in Rule 16b-3(c)(2)(i) promulgated by the Securities and Exchange Commission. The members of the Committee shall have all powers, subject to compliance with the Plan, to select officers and directors for participation in the Plan, and to make all decisions concerning the timing, pricing and amount of a grant or award under the Plan. The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine which Options shall constitute Incentive Stock Options and which Options shall constitute Nonqualified Stock Options; to determine the purchase price of the shares of Common Stock covered by each Option (the "Option Price"); to determine the persons to whom, and the time or times at which, Options shall be granted; to determine the number of shares to be covered by each Option; to interpret the Plan; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of the Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Committee may delegate to one or more of its members or to one or more agents such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. 1989 Stock Option Plan as Amended through 12/22/95 The Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. One member of the Committee shall be selected by the Board as chairman. The Committee shall hold its meetings at such times and places as it shall deem advisable. All determinations of the Committee shall be made by a majority of its members either present in person or participating by conference telephone at a meeting or by written consent. The Committee may appoint a secretary and make such rules and regulations for the conduct of its business as it shall deem advisable, and shall keep minutes of its meetings. No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 4. Eligibility. Subject to certain limitations hereinafter set forth, Options may be granted to employees of (including officers) and consultants to and directors of (whether or not they are employees) the Corporation or its present or future divisions and Subsidiary Corporations. In determining the persons to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Corporation and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. A person to whom an Option has been granted hereunder is sometimes referred to herein as an "Optionee." An Optionee shall be eligible to receive more than one grant of an Option during the term of the Plan, but only on the terms and subject to the restrictions hereinafter set forth. 5. Stock. The stock subject to Options hereunder shall be shares of the Corporation's Common Stock, $.01 par value per share ("Common Stock"). Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Corporation. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 925,000. The maximum number of shares which may be subject to options granted under the Plan to the officers and directors as a group shall not exceed 275,000 shares of Common Stock. The limitations established by the preceding sentences shall be subject to adjustment as provided in Section 8(i) hereof. 1989 Stock Option Plan as Amended through 12/22/95 In the event that any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full the shares of Common Stock allocable to the unexercised portion of such Option (unless the Plan shall have been terminated) shall become available for subsequent grants of options under the Plan. 6. Incentive Stock Options. Options granted pursuant to this Section 6 are intended to constitute Incentive Stock Options and shall be subject to the following special terms and conditions, in addition to the general terms and conditions specified in Section 8 hereof. Consultants and directors who are not employees of the Corporation shall not be entitled to receive Options pursuant to this Section 6. The aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the shares of Common Stock with respect to which Options are exercisable for the first time by an Optionee during any calendar year may not exceed $100,000.00 Incentive Stock Options granted under this Plan are intended to satisfy all requirements for incentive stock options under the Code and, notwithstanding any other provision of this Plan, the Plan and all Incentive Stock Options granted under it shall be so construed, and all contrary provisions shall be so limited in scope and effect and, to the extent they cannot be so limited, they shall be void. 7. Nonqualified Stock Options. Options granted pursuant to this Section 7 are intended to constitute Nonqualified Stock Options and shall be subject only to the general terms and conditions specified in Section 8 hereof. 8. Terms and Conditions of Options. Each Option granted pursuant to the Plan shall be evidenced by a written Option Agreement between the Corporation and the Optionee, which agreement shall comply with and be subject to the following terms and conditions: (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. Each Option Agreement shall specifically identify the portion, if any, of the Option which constitutes an Incentive Stock Option and the portion, if any, which constitutes a Nonqualified Stock Option. 1989 Stock Option Plan as Amended through 12/22/95 (c) Option Price. Each Option Agreement shall state the Option Price, which shall be not less than 100% of the Fair Market Value of the shares of Common Stock of the Corporation on the date of grant of the Option except that any option granted under the Plan to a person owning more than ten percent of the total combined voting power of the Common Stock shall be at a price of 110% of such fair market value and shall be for a term of no more than five years, in the case of Incentive Stock Options, and not less than 80% of the Fair Market Value of the shares of Common Stock of the Corporation on the date of grant of the Option in the case of Non- Qualified Stock Options. The Option Price shall be subject to adjustment as provided in Section 8(i) hereof. The date on which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (d) Method of Exercise and Medium and Time of Payment. Each exercise of an Option granted hereunder, whether in whole or in part, shall be by written notice to the Secretary of the Corporation designating the number of shares as to which the Option is exercised, and shall be accompanied by payment in full of the Option Price (in cash, shares or property) for the number of shares so designated, together with any written statements required by any applicable securities laws. The Option Price shall be paid in cash, in shares of Common Stock having a Fair Market Value equal to such Option Price or in property or in a combination of cash, shares and property, and may be effected in whole or in part (i) with monies received from the Corporation at the time of exercise as a compensatory cash payment, or (ii) with monies borrowed from the Corporation pursuant to repayment terms and conditions as shall be determined from time to time by the Committee, in its discretion, separately with respect to each exercise of Options and each Optionee; provided, however, that each such method and time for payment and each such borrowing and terms and conditions of repayment shall be permitted by and be in compliance with applicable law. The Board of Directors shall have the sole and absolute discretion to determine whether or not property other than cash or Common Stock may be used to purchase the shares of Common Stock hereunder and, if so, to determine the value of the property received. (e) Term and Exercise of Options. Options shall be exercisable over the exercise period as and at the times the Committee may determine, as reflected in the Option Agreement; provided, however, that the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, 1989 Stock Option Plan as Amended through 12/22/95 deems appropriate. The exercise period shall be determined by the Committee; provided, however, that such exercise period shall not exceed ten years from the date of grant of the Option. The exercise period shall be subject to earlier termination as provided in Sections 8(f) and 8(g) hereof. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable; provided, however, that an Option may not be exercised at any one time as to fewer than 100 shares (or such number of shares as to which the Option is then exercisable if such number of shares is less than 100). (f) Termination. Except as provided in this Section 8(f) and in Section 8(g) hereof, an Option may not be exercised unless the Optionee is then an employee or director of or consultant to the Corporation or a division or Subsidiary Corporation thereof (or a corporation or a Parent or Subsidiary Corporation of such corporation issuing or assuming the option in a transaction to which Section 425(a) of the Code applies), and unless the Optionee has remained continuously as an employee or director of or consultant to the Corporation since the date of grant of the Option. In the event that the Optionee ceases to be an employee or director of or consultant to the Corporation (other than by reason of death, Disability or retirement), all Options of such Optionee that are exercisable at the time of such cessation may, unless earlier terminated in accordance with their terms, be exercised within three months after such cessation; provided, however, that if the employment or consulting relationship of an Optionee shall terminate, or if a director shall be removed, for cause, all Options theretofore granted to such Optionee shall, to the extent not theretofore exercised, terminate forthwith. Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an individual any right to continue in the employ of the Corporation or any of its divisions or Subsidiary Corporations or interfere in any way with the right of the Corporation or its shareholders or any such division or Subsidiary Corporation to terminate such employment or other relationship between the individual and the Corporation or any of its divisions and subsidiary corporations. (g) Death Disability or Retirement of Optionee. If an Optionee shall die while a director of, or employed by, or a consultant to, the Corporation or a Subsidiary Corporation thereof, or within three months after the termination of such Optionee's employment or directorship or consulting relationship, other than termination for cause, or if the Optionee's employment or directorship or consulting relationship, shall terminate by reason 1989 Stock Option Plan as Amended through 12/22/95 of disability or retirement, all Options theretofore granted to such Optionee (whether or not otherwise exercisable) may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death or Disability of the Optionee, at any time within one year after the date of death, Disability or retirement of the Optionee. (h) Nontransferability. Options granted under the Plan shall not be transferable other than by will or by the laws of descent and distribution, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee or by his guardian or legal representative. Any attempted sale, pledge, assignment, hypothecation or other transfer of an option contrary to the provisions hereof and the levy of any execution, attachment or similar process upon an option shall be null and void and without force or effect. As a condition to the transfer of any shares of Common Stock issued under this Plan, the Corporation may require an opinion of counsel, satisfactory to the Corporation, to the effect that such transfer will not be in violation of the Securities Act of 1933 or any other applicable securities laws or that such transfer has been registered under federal and all applicable state securities laws. Further, the Corporation shall be authorized to refrain from delivering or transferring shares of Common Stock issued under this Plan until the Board of Directors determines that such delivery or transfer will not violate applicable securities laws and the Optionee has tendered to the Corporation any federal, state or local tax owed by the Optionee as a result of exercising the Option, or disposing of any Common Stock, when the Corporation has a legal liability to satisfy such tax. The Corporation shall not be liable for damages due to delay in the delivery or issuance of any stock certificate for any reason whatsoever, including, but not limited to, a delay caused by listing requirements of any securities exchange or any registration requirements under the Securities Act of 1933, the Securities Exchange Act of 1934, or under any other state or federal law, rule or regulation. The Corporation is under no obligation to take any action or incur any expense in order to register or qualify the delivery or transfer of shares of Common Stock under applicable securities laws or to perfect any exemption from such registration or qualification. Furthermore, the Corporation will have no liability to any Optionee for refusing to deliver or transfer shares of Common Stock if such refusal is based upon the foregoing provisions of this Paragraph. 1989 Stock Option Plan as Amended through 12/22/95 (i) Effect of Certain Changes. (1) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, or through recapitalization resulting in stock splits, or combinations or exchanges of such shares, the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options, and the price per share of such Options, shall be proportionately adjusted by the Committee to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (2) In the event of the proposed dissolution or liquidation of the Corporation, in the event of any corporate separation or division, including, but not limited to, split-up, split-off or spin-off, or in the event of a merger or consolidation of the Corporation with another corporation, the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option (at its then Option Price) solely for the kind and amount of shares of stock and other securities, property, cash or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division, or merger or consolidation by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division, merger or consolidation; or the Committee may provide, in the alternative, that each Option granted under the Plan shall terminate as of a date to be fixed by the Committee; provided, however, that not less than 30 days' written notice of the date so fixed shall be given to each Optionee, who shall have the right, during the period of 30 days preceding such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable. (3) Paragraph (2) of this Section 8(i) shall not apply to a merger or consolidation in which the Corporation is the surviving corporation and shares of Common Stock are not converted into or exchanged for stock, securities of any other corporation, cash or any other thing of value. Notwithstanding the preceding sentence, in case of any consolidation or merger of another corporation into the Corporation in which the Corporation is the surviving corporation and in which there is a reclassification or change (including a change to the right to receive cash or other property) of the shares of Common Stock (other than a change in par 1989 Stock Option Plan as Amended through 12/22/95 value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee may provide that the holder of each Option then exercisable shall have the right to exercise such Option solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Corporation), property, cash or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of the number of shares of Common Stock for which such Option might have been exercised. (4) In the event of a change in the Common Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (5) To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive, provided that each Incentive Stock Option granted pursuant to this Plan shall not be adjusted in a manner that causes such option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422A of the Code. (6) Except as hereinbefore expressly provided in this Section 8(i), this Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin- off of assets or stock of another corporation; and any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or part of its business or assets. 1989 Stock Option Plan as Amended through 12/22/95 (j) Rights as Shareholder - Non-Distributive Intent. Neither a person to whom an Option is granted, nor such person's legal representative, heir, legatee or distributee, shall be deemed to be the holder of, or to have any rights of a holder with respect to, any shares subject to such Option, until after the Option is exercised and the shares are issued to the person exercising such Options. Upon exercise of an Option at a time when there is no registration statement in effect under the Securities Act of 1933 relating to the shares issuable upon exercise and available for delivery of a prospectus meeting the requirements of Section 10(a)(3) of said Act, shares may be issued to the Optionee only if the Optionee represents and warrants in writing to the Corporation that the shares purchased are being acquired for investment and not with a view to the distribution thereof. No shares shall be issued upon the exercise of an Option unless and until there shall have been compliance with any then applicable requirements of the Securities and Exchange Commission, or any other regulatory agencies having jurisdiction over the Corporation. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distribution or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Section 8(i) hereof. (k) Other Provisions. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option, and (ii) in the case of an Incentive Stock Option, the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option, as the Committee shall deem advisable. (l) Forfeiture Provisions: All shares of Common Stock purchased on exercise of all Nonqualified Options granted after the date of this Plan Amendment (and all shares of Common Stock purchased on exercise of all Nonqualified Options granted prior to such date provided that the holder consents), shall be subject to forfeiture back to the Corporation in the event of termination of employee, director or consultant status with the Corporation on or before January 5 of the second calendar year after exercise. For example, Common Stock purchased on September 1, 1993 by exercise of a Nonqualified Option, will be subject to forfeiture through January 5, 1995. Provided, that upon exercise of a Nonqualified Option at a time when there is a registration statement in effect under the Securities Act of 1933 relating to the shares issuable upon exercise, the preceding forfeiture provisions of this paragraph shall immediately terminate. 1989 Stock Option Plan as Amended through 12/22/95 9. Agreement by Optionee Regarding Withholding Taxes. If the Committee shall so require, as a condition of exercise, each Optionee shall agree that: (a) No later than the date of exercise of any Option granted hereunder, the Optionee will pay to the Corporation or make arrangements satisfactory to the Committee regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option; and (b) The Corporation shall, to the extent permitted or required by law, have the right to deduct federal, state and local taxes of any kind required by law to be withheld upon the exercise of such Option from any payment of any kind otherwise due to the Optionee. The Corporation shall not be obligated to advise any Optionee of the existence of any such tax or the amount which the Corporation will be so required to withhold. 10. Term of Plan. Options may be granted pursuant to the Plan from time to time within a period of ten years from the date the Plan is adopted by the Board, or the date the Plan is approved by the shareholders of the Corporation, whichever is earlier. 11. Amendment and Termination of the Plan. The Board at any time and from time to time may suspend, terminate, modify or amend the Plan; provided, however, that any amendment that would materially increase the aggregate number of shares of Common Stock as to which Options may be granted under the Plan or materially increase the benefits accruing to participants under the Plan or materially modify the requirements as to eligibility for participation in the Plan shall be subject to the approval of the holders of a majority of the Common Stock issued and outstanding, except that any such increase or modification that may result from adjustments authorized by Section 8(i) hereof shall not require such approval. Except as provided in Section 8 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any Option previously granted, unless the written consent of the Optionee is obtained. 12. Approval of Shareholders. The Plan shall take effect upon its adoption by the Board but shall be subject to the approval of the holders of a majority of the issued and outstanding shares of Common Stock of the Corporation, which approval must occur within 12 months after the date the Plan is adopted by the Board. 1989 Stock Option Plan as Amended through 12/22/95 13. Assumption. The terms and conditions of any outstanding Options granted pursuant to this Plan shall be assumed by, be binding upon and inure to the benefit of any successor corporation to the Corporation and shall continue to be governed by, to the extent applicable, the terms and conditions of this Plan. Such successor corporation shall not otherwise be obligated to assume this Plan. 14. Termination of Right of Action. Every right of action arising out of or in connection with the Plan by or on behalf of the Corporation or of any Subsidiary, or by any shareholder of the Corporation or of any Subsidiary against any past, present or future member of the Board, or against any employee, or by an employee (past, present or future) against the Corporation or any Subsidiary, will, irrespective of the place where an action may be brought and irrespective of the place of residence of any such shareholder, director or employee, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action is alleged to have risen. 15. Tax Litigation. The Corporation shall have the right, but not the obligation, to contest, at its expense, any tax ruling or decision, administrative or judicial, on any issue which is related to the Plan and which the Board believes to be important to holders of Options issued under the Plan and to conduct any such contest or any litigation arising therefrom to a final decision. IN WITNESS WHEREOF, the foregoing is the 1989 Stock Option Plan of U.S. Energy Corp., as amended at September 1, 1992, September 3, 1993, January 6, 1994 and December 22, 1995. U.S. ENERGY CORP. By: s/ Max T. Evans _________________________ MAX T. EVANS, Secretary -----END PRIVACY-ENHANCED MESSAGE-----