EXHIBIT 10.57
MANAGEMENT AGREEMENT
THIS AGREEMENT regarding the Lincoln Project in Xxxxxx County,
California is made and entered into effective as of the 22nd day of May, 1996,
by and between U.S. Energy Corp., a Wyoming corporation ("USE") 000 Xxxxx 0xx
Xxxx, Xxxxxxxx, XX 00000 and Xxxxxx Gold Mining Company ("SGMC") X.X. Xxx 0000,
Xxxxxx Xxxxx, XX 00000.
RECITALS
WHEREAS, on August 4, 1994, USE acquired 78% of the outstanding shares
of SGMC from SGMC for USE's ownership interest in the Lincoln Project
("Project"); and
WHEREAS, SGMC does not have sufficient personnel or expertise to manage
the exploration and development of the Lincoln Project into a operating mine;
and
WHEREAS, it is in the best interest of all parties that USE conduct,
supervise, care for and maintain the operations of the Project (including
assisting SGMC in seeking private placement funds, initial public offering
and/or a joint venture partner); and
WHEREAS, SGMC desires to engage USE for the above purposes pursuant to
the terms of this Management Agreement.
NOW, THEREFORE, IN CONSIDERATION OF THE PROMISES AND MUTUAL COVENANTS
CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS:
SECTION ONE
DEFINITIONS
"Accounting Procedure" means the procedures set forth in Exhibit A.
"Assets: means the leased properties, properties held in fee or by
mining claims, products and all other real and personal property, tangible and
intangible, held by or for the benefit of SGMC.
"Cost Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to SGMC.
"Development" or "Development Operation" shall mean the activity,
operations, or work of preparing for the removal of deposits of gold from the
mining properties, including
1 of 8
EXHIBIT 10.57
without limitation: primary excavations required to expose and/or extract gold
bearing ores, the construction or installation of any improvements to be used
for the mining or handling of ores, and incline, raise, drift, shaft and
cross-cut excavation.
"Exploration" shall mean all activities directed toward ascertaining the
existence, location, quantity, quality, or commercial value of deposits of gold
bearing ores.
"Mining of" or "Mining Operations" or "Operations" shall mean the
activity, operations, development or work of mining, development drilling,
extracting and producing gold and of storing gold ores upon or within the
Properties and all work incident thereto performed in connection with such
mining, processing gold ores at the mill to be built and owned by SGMC.
"Products" means all ores, minerals and mineral resources produced from
the Properties under this Agreement.
"Properties" means the properties owned or leased between the town sites
of Xxxxxx Creek and Xxxxxx City, in Xxxxxx County, California by SGMC or other
properties that may be acquired for the purpose of mining by SGMC prior to the
termination of this Agreement.
SECTION TWO
TERM
The term of this agreement is from June 1, 1996 to December 31, 1997,
unless extended by the mutual consent of the parties hereto. The Accounting
Procedure's as set forth in Exhibit A shall take affect on June 1, 1996.
SECTION THREE
MANAGEMENT OF THE LINCOLN PROJECT (the "PROJECT")
SGMC hereby appoints USE as the manager to care for and maintain the
Project, with all rights, powers and duties of the manager to maintain and
continue to permit, develop, explore and coordinate efforts with SGMC to find
financing for the Project through December 31, 1997, the term of this Agreement
or any extensions thereof. USE shall have the full authority to take whatever
action necessary in either obtaining authority to develop and operate the
Project, reclaim it, sell all or a portion thereof (private placement), seek an
initial public offering, and/or acquire a joint venture partner(s) to operate
the Project. The intention of the parties is to permit USE to serve as the
manager and operator of the Project and as such, USE shall propose the programs
and budgets, make and collect cash calls, incur expenditures and take any other
actions
2 of 8
EXHIBIT 10.57
and exercise all other rights and powers in order to manage the Project and
property included therein.
It is understood that SGMC shall prepare and fill all reports required
of SGMC for the various permits, corporate reports, reports to Xxxxxx United and
any other royalty holders as may be required.
SECTION FOUR
COMPENSATION FOR MANAGEMENT
For managing the Project, SGMC shall advance moneys as may be required
by USE in sufficient amounts to meet the annual budgets on a monthly basis prior
to the fifth day of each month in advance of the month's expenditures, and for
such other purposes as USE shall deem necessary to carry out the purposes of
this Agreement. Any advance in excess of expenditures will be credited against
the budget amount for subsequent months. Any expenditure in excess of the
monthly advance will be paid by SGMC when invoiced. The materials, services, and
other items for which USE shall charge SGMC are set forth in this Agreement and
in the Accounting Procedure attached hereto and made a part hereof as Exhibit A.
SECTION FIVE
PLACE OF WORK
SGMC will deliver all information necessary for USE to perform the
services required under this Agreement to USE through December 31, 1997. It is
understood that USE will provide its services primarily at its offices listed at
000 Xxxxx 0xx Xxxx, Xxxxxxxx, XX, but USE will, when necessary and upon request,
travel to the Project to perform the services hereunder. USE shall be reimbursed
for all expenses relating to the travel to and from the Project.
SECTION SIX
BUDGETS
USE will submit an annual Budget to SGMC sixty days prior to the end of
each fiscal year. In order to timely submit such a budget SGMC must submit its
mine, mill, development, exploration and construction plans to USE one hundred
(100) days prior to year end. After submittal of plans and then budgets, both
USE and SGMC will give their best effort to resolve areas of conflict. The
Annual Budget shall be approved 15 days prior to the beginning of a new fiscal
year.
3 of 8
EXHIBIT 10.57
6.1 DEADLOCK ON PROPOSED PROGRAMS AND BUDGETS. If USE and SGMC fail to approve a
Plan and Budget by the beginning of the period to which the proposed Plan and
Budget applies, or if they fail to present a Plan and Budget, a Plan and Budget
comparable to the last adopted Plan and Budget shall automatically be adopted.
6.2 BUDGET OVERRUNS. USE shall immediately notify SGMC of any material departure
from an adopted Plan and Budget.
6.3 EMERGENCY OF UNEXPECTED EXPENDITURES. In case of emergency, USE may take any
action it deems necessary to protect life, limb or property, to protect assets
or to comply with law or government regulation. Also USE may make expenditures
for unexpected events which are beyond its reasonable control and which do not
result from a breach by it of its standard of care. In the case of either an
emergency or unexpected expenditure, USE shall promptly notify SGMC of the
emergency or unexpected expenditure.
6.4 MONTHLY ACCOUNTING. USE shall account monthly in reasonable detail all
expenditures incurred as compared to approved budgeted.
SECTION SEVEN
MATERIALS AND EQUIPMENT
USE shall furnish, at USE's own expense, all data processing equipment
and related materials necessary to carry out the terms of this Agreement.
SECTION EIGHT
EMPLOYMENT OF PERSONNEL
USE shall provide qualified and experienced personnel to perform or aid
in performing the work required under this Agreement, and shall be responsible
for and in full control of the work performed by such personnel.
USE reserves the right to determine which of its personnel shall be
assigned to any particular project and to replace or reassign such personnel
during a project.
USE further reserves the right to subcontract to qualified third persons
any part or all of the performance of the services described in any project
description order hereunder.
USE assumes responsibility for its personnel providing services
hereunder and will make all deductions required of employers by state, federal
and local laws, including deductions for
4 of 8
EXHIBIT 10.57
social security, income taxes, contributions for unemployment compensation
funds, and shall maintain worker's compensation and liability insurance for all
employees.
SECTION NINE
RELATIONSHIP BETWEEN PARTIES
The parties to this contract intend and agree that the relationship
created by this contract is that of SGMC and USE as an independent contractor.
SGMC is interested only in the results to be achieved under this contract. USE
shall control the means of performing the work required under this contract. USE
is not to be considered an agent or employee of SGMC for any purpose and the
employees of USE are not entitled to any of the benefits provided by SGMC to its
employees, including but not limited to health insurance, worker's compensation
coverage, unemployment insurance and retirement plans.
SECTION TEN
WORK STANDARDS
USE will adhere to industry standards and will perform all services
required under this Agreement in a manner consistent with generally accepted
procedures for payroll and associated services, USE shall reprocess at USE's
expense all work necessary to correct errors directly caused by malfunctions of
USE's machines or mistakes of USE's personnel.
SECTION ELEVEN
LIMITED LIABILITY OF SERVICER
USE shall not be liable for any damages caused by delay in rendering
performance hereunder arising from any cause beyond the reasonable control of
USE, or as a result of strikes, or work stoppage.
USE shall not be liable for breach of warranty, express or implied,
including without limitations any warranties of merchantability or fitness for a
particular purpose in respect to any performance by USE pursuant to this
Agreement. USE shall in no event be liable for any incidental, special or
consequential damages of any nature whatsoever, such as, but not limited to,
loss of anticipated profits or other economic loss in connection with, or
arising out of services provided for in its Agreement, or for specific
performance, unless otherwise expressly agreed to in writing.
Because the failure of USE to fulfill this Agreement would result in
damages or injuries that may not be readily ascertained by any pecuniary
standard, the parties to this contract agree
5 of 8
EXHIBIT 10.57
to limit USE's liability arising out of or in any way connected to its
performance under this Agreement, including the malfunction of USE's equipment
and defective programs, failure or negligence of USE's employees and agents, to
general money damages in an amount not to exceed the total amount paid by SGMC
for services performed by USE under this Agreement during the period of thirty
(30) days immediately preceding the occurrence giving rise to any claim by SGMC.
SECTION TWELVE
CORRECTION OF ERRORS
USE shall have the right to reprocess SGMC data to correct any errors
for which USE may be responsible in full satisfaction of all SGMC claims,
provided SGMC has notified USE of any claimed error within thirty (30) days
after receipt of service results and furnished supporting documentation of such
claim.
SECTION THIRTEEN
REVIEW OF WORK
SGMC shall review all reports and data submitted by USE within thirty
(30) days following delivery and notify USE of any discrepancies or deficiencies
contained in such material. All services furnished hereunder are deemed
acceptable to SGMC unless proper notice and written proof of claim are made
within that thirty (30) day period after the receipt of the results of services
performed by USE.
SECTION FOURTEEN
CUSTODY OF DATA
USE shall be liable for loss, destruction or damage of SGMC supplied
materials only if due to the negligence of USE, and then only to the extent of
restoring the lost, destroyed, or damaged materials; provided such restoration
can be reasonably performed by USE and SGMC furnishes USE with all source data
necessary for such restoration.
SECTION FIFTEEN
PROPRIETARY RIGHTS
All programs, specifications, applications, routines, subroutines,
techniques, ideas, or formulas utilized or developed by USE in connection with
this Agreement are and shall remain the sole property of USE unless otherwise
provided for in this Agreement.
6 of 8
EXHIBIT 10.57
SECTION SIXTEEN
INTEGRATION CLAUSE
The entire Agreement between parties with respect to the subject matter
hereunder is contained in this Agreement. Except as herein expressly provided to
the contrary, the provisions of this Agreement are for the benefit of the
parties hereto solely and not for the benefit of any other person, persons, or
legal entities.
SECTION SEVENTEEN
WAIVER OR MODIFICATION INEFFECTIVE UNLESS IN WRITING
No waiver, alteration, or modification of any of the provisions of this
Agreement shall be binding unless in writing and signed by a duly authorized
representative of both parties to this Agreement.
SECTION EIGHTEEN
REPRESENTATIONS AND WARRANTIES
USE makes no representations, warranties, or guaranties, express or
implied, including without limitation any warranties of merchantability or
fitness for intended use, other than the express representations, warranties,
and guaranties contained in this Agreement.
SECTION NINETEEN
WRITTEN NOTICE
All written communications regarding this Agreement should be sent to
USE at the address first above listed, unless notified to the contrary.
Any written notice hereunder shall become effective as of the date of
mailing by registered or certified mail and shall be deemed sufficiently given
if sent to the addressee at the address stated in this Agreement or such other
address as may hereafter be specified by notice in writing.
7 of 8
EXHIBIT 10.57
SECTION TWENTY
GOVERNING LAW
This Agreement shall be governed by the laws of the State of Wyoming. In
the event any dispute arises between the parties over the meaning of any terms
in this Agreement or performance thereunder, the parties agree to try to resolve
the dispute by discussion, conciliation or third party arbitration or mediation.
In the event it becomes necessary to litigate any dispute not capable of
resolution by alternate means, the prevailing party shall be entitled, in
addition to any other relief obtained, to assess the non-prevailing party court
costs and reasonable attorneys fee.
Dated the day and year first above written.
XXXXXX GOLD MINING COMPANY (SGMC)
ATTEST:
By: /S/ XXXXXXX X. XXXXXXX
-------------------------------
/S/ R. XXXXX XXXXXXX XXXXXXX X. XXXXXXX, President
-----------------------------
U.S. ENERGY CORP.
ATTEST:
By: /S/ XXXX X. XXXXXX
-------------------------------
/S/ R. XXXXX XXXXXXX XXXX X. XXXXXX, President
-----------------------------
8 of 8
EXHIBIT 10.57
EXHIBIT A
ACCOUNTING PROCEDURE
The financial and accounting procedures to be followed by U.S. Energy
Corp. ("USE") under the Management Agreement ("Agreement") to which this Exhibit
is attached are set forth below. References in this Accounting Procedure to
Sections and Articles are to those located in this Accounting Procedure unless
it is expressly stated that they are references to the Agreement. In the event
of any inconsistencies between the terms of the Agreement and the terms of this
Accounting Procedure, the terms of the Agreement shall control.
ARTICLE I
GENERAL PROVISIONS
GENERAL ACCOUNTING RECORDS. USE shall maintain detailed and comprehensive
accounting records in accordance with this Accounting Procedure, sufficient to
provide a record of expenditures (and any revenues) and periodic statements of
financial position and the results of operations for managerial, tax, regulatory
or other financial reporting purposes. Such records shall be retained for the
duration of the period allowed Xxxxxx Gold Mining Company ("SGMC") for audit or
the period necessary to comply with tax or other regulatory requirements. The
records shall reflect all obligations, advances and credits for SGMC.
1.1(a) AUDITS. USE shall order an audit of the accounting and financial
records for each fiscal year (or other accounting period). All written
exceptions to and claims upon USE for discrepancies disclosed by such audit
shall be made not more than six months after receipt of the audit report.
Failure to make any such exception or claim within the six month period shall
mean the audit is correct and binding upon the Participants. The audits shall be
conducted by a firm of certified public accountants selected by USE, unless
otherwise agreed to by the participants.
1.1(b) OPEN BOOKS. Both USE and USECC will make their books and records
available to SGMC or its auditors during normal business hours at their offices
in Riverton, WY. SGMC will make its books and records available to USE or its
auditors as they pertain to the "Agreement" during normal business hours in
Xxxxxx Creek, CA. Both Parties will arrange for
1 of 8
EXHIBIT 10.57
working space for such records to be reviewed upon written request and
scheduling. No documents requested if pertinent to the Agreement will be
withheld.
1.2. BANK ACCOUNTS. USE shall maintain separate bank accounts for the
reimbursement of monies from SGMC for the payment of all expenses to USE or its
affiliate USECC and the deposit of all receipts due to SGMC.
ARTICLE II
CHARGES TO COST ACCOUNT
Subject to the limitations hereinafter set forth, USE shall create Cost Accounts
and charge the Cost Accounts with, and be entitled to receive from SGMC (subject
to the Budget in effect) the following:
2.1 RENTALS, ROYALTIES AND OTHER PAYMENTS. Property maintenance costs and
other payments necessary to maintain title to the Properties.
2.2 LABOR AND EMPLOYEE BENEFITS.
(a) Salaries and wages of USE or USECC employees directly engaged in
operations, including salaries or wages of employees who are temporarily
assigned to and directly employed by same.
(b) USE's cost of holiday, vacation, sickness and disability benefits,
and other customary allowances applicable to the salaries and wages chargeable
under Sections 2.2 (a) and 2.9. Those costs may be charged on a "when and as
paid basis" or by "percentage assessment" on the amount of salaries and wages.
If percentage assessment is used, the rate shall be applied to wages or salaries
excluding overtime and bonuses. Such rate shall be based on USE's cost
experience and it shall be periodically adjusted to ensure that the total of
such charges does not exceed the actual cost thereof to USE.
(c) USE's actual cost of established plans for employee's group life
insurance, hospitalization, pension, retirement, stock purchase, thrift, bonus
and other benefit plans of a like nature applicable to salaries and wages
chargeable under Section 2.2 (a) or 2.9, provided that the plans are limited to
the extent feasible to those customary in the industry.
2 of 8
EXHIBIT 10.57
(d) Cost of governmentally imposed assessments pertaining to salaries
and wages chargeable under Sections 2.2(a) and 2.9, including all penalties
except those resulting from the willful misconduct or gross negligence of USE.
2.3 ASSETS. Cost of all assets purchased or furnished solely for use in
connection with operations on the Properties.
2.4 TRANSPORTATION. Reasonable transportation costs incurred in connection
with the transportation of employees, equipment, material and supplies necessary
for exploration, maintenance and operation of the Assets and Properties.
2.5 SERVICES.
(a) The cost of contract services, outside consultants and utilities
procured from outside sources, other than services described in Section 2.8 and
2.10. If contract services are performed by an affiliate of USE, the cost
charged to the Cost Accounts shall not be greater than that for which comparable
services and utilities are available in the open market.
(b) The direct costs of using and servicing USE's exclusively-owned
facilities as provided in Section 3.5, including any charge for depreciation
thereof.
2.6 INSURANCE PREMIUMS. Premiums paid or accrued for insurance required
pursuant to Exhibit B of the Agreement.
2.7 DAMAGES AND LOSSES. All costs in excess of insurance proceeds
necessary to repair or replace damage or losses to (but not damages or losses
resulting from USE use of) any Assets resulting from any cause other than the
willful misconduct or negligence of USE.
2.8 LEGAL EXPENSE. All legal costs and expenses of litigation in which
SGMC is named as a dependent or in which SGMC initiates legal action. .
2.9 NON-OPERATING EXPENSES. A pro rata portion of (i) the salaries and
expenses of USE's superintendent and other employees serving Operations whose
time is not allocated directly to such Operations, and (ii) the costs of
maintaining and operating any necessary suboffice and (iii) all necessary camps,
including housing facilities for employees, used solely for Operations on the
Properties. The expense of those facilities shall include depreciation or a fair
monthly rental in lieu of depreciation of the investment. Such charges shall be
apportioned for all properties served by the employees and facilities on an
equitable basis consistent with USE's general accounting practice and generally
accepted accounting principles.
3 of 8
EXHIBIT 10.57
2.10 ADMINISTRATIVE CHARGE. USE shall charge the Cost Account each month a
sum as provided in the annual Budget, which shall reimburse USE for its home
office overhead and general administrative expenses for its conduct of
Operations. The following representative list of items comprising USE's
principal business office expenses are expressly covered by the administrative
charge provided in this Section 2.10.
2.10 (a) Administrative Supervision, which includes services rendered by
officers and directors of USE, except to the extent that such services represent
a direct charge to SGMC.
(i) Accounting, billing and record keeping in accordance with
governmental regulations and the provisions of the Agreement, and preparation of
reports;
(ii) Handling of all tax matters, including any protests, except
any outside professional fees which SGMC may approve as a direct charge.
(iii) Routine legal services by USE's legal staff;
(iv) Records and storage space, telephone service and office
supplies.
(v) Receptionists, secretaries, accountants, accounting and other
clerks, data processing personnel and engineering and geologic support
personnel.
2.10 (b) In the alternative SGMC and USE can adopt a percentage method
during each annual budgeting process. The procedures for general and
administrative expenditures on a percentage basis is as follows:
(i) Each Month USE shall charge SGMC a sum for each phase of
Operations as provided below which shall be a liquidated amount to reimburse USE
for its home office overhead and general and administrative expenses to conduct
each phase of Operations, and which shall be in lieu of any management fee:
(1) EXPLORATION PHASE - ten percent (10%) of Allowable costs'
(2) MAJOR CONSTRUCTION PHASE - two percent (2%) of Allowable
costs; (3) MINING PHASE - two and one-half percent (2 1/2%)
of Allowable Costs;
Provided, however, that the Participants shall negotiate a fixed sum management
fee in lieu of the above stated percentages to be effective two years after the
commencement of the Mining Phase. In the event that the Participants are unable
to agree upon a fixed sum management fee, the above stated percentages will
remain in effect.
(ii) The term "Allowable Costs" as used in this Section for a
particular phase of Operation shall mean all charges to SGMC excluding (1) the
administrative charge referred to
4 of 8
EXHIBIT 10.57
herein; (2) depreciation, depletion or amortization of tangible or intangible
assets, USE shall attribute such Allowable costs to a particular phase of
Operations by applying the following guidelines:
(1) The "Exploration Phase" shall cover those activities
conducted to ascertain the existence, location, extent or
quality of any deposit of ore or mineral. Such phase shall
cease when a commercially recoverable reserve is determined
to exist.
(2) The "Major Construction Phase" shall cover those activities
conducted to access a commercially feasible ore body or to
extend production of an existing ore body, and to construct
or install related fixed assets, and shall include all
activities involved in the construction of a mine, mill,
smelter or other ore processing facilities.
(3) The "Mining Phase" shall include all other activities not
otherwise covered above, including activities conducted
after mining operations have ceased.
(iii) The following is a representative list of items comprising
USE's principal business office expenses that are expressly covered by the
administrative charge provided in this Section.
(1) Administrative supervision, which includes services
rendered by managers, department supervisors, officers and
directors of Use for Operations, except to the extent that
such services represent a SGMC.
(2) Rentals and other charges for office and records storage
space, telephone service, office equipment and supplies.
2.10 (c ) In the event that USE and SGMC can not agree upon a percentage
for general and administration expenses, section 2.10 (a) will remain in effect.
2.11 AUDIT. Cost of annual audits under Sections 1.1 (a) and 1.1 (b) of
the accounting procedure.
5 of 8
EXHIBIT 10.57
2.12 TAXES. All taxes of every kind and nature assessed or levied upon or
in connection with the Assets, the production of Products or Operations, which
have been paid by USE for the benefit of SGMC.
2.13 TAX PREPARATION EXPENSES. The services of tax counsel and tax
administration employees for all tax matters, including preparation of the
Federal and State Tax Return and any protests.
2.14 OTHER EXPENDITURES. Any costs not described herein but which are set
forth in the Agreement or Annual Budget as being chargeable to the Cost
Accounts.
ARTICLE III
BASIS OF CHARGES TO COST ACCOUNT
3.1 PURCHASES. Materials, equipment, machinery and supplies (hereafter,
"Material") purchased, and services procured, solely for use in Operations shall
be charged at prices actually paid by USE after deduction of all discounts
actually received. USE shall maintain reasonable inventory levels adequate to
sustain Operations in accordance with the guidelines set by SGMC.
3.2 MATERIAL FURNISHED BY USE. At its discretion USE may furnish Material
from its stocks under the following conditions:
(a) NEW MATERIAL (CONDITION "A"): New Material transferred from the
USE's properties shall be priced f.o.b. the nearest reputable supply store or
railway receiving point, where like Material is available, at current
replacement cost of the same kind of Material (hereafter, "New Price").
(b) USED MATERIAL (CONDITION "B" AND "C"):
(1) Material in sound and serviceable condition and suitable for
reuse without reconditioning shall be classified as Condition
"B" and priced at seventy-five percent (75%) of New Price.
(2) Other used Material as defined hereafter shall be classified as
Condition "C" and priced at fifty percent (50%) of New Price:
(A) Used Material which after reconditioning will be further
serviceable for original function as good secondhand Material, Condition "B",
or:
6 of 8
EXHIBIT 10.57
(B) Used Material which is serviceable for original function
but not substantially suitable for reconditioning.
(3) Material which cannot be classified as Condition "B" or
Condition "C" shall be priced at a value commensurate with
its use.
(4) Material no longer suitable for is original purpose but
usable for some other purpose shall be priced on a basis
comparable with items normally used for such other purpose.
3.3 PREMIUM PRICE. Whenever Material is not readily obtainable at prices
specified in Section 3.1 and 3.2, USE may charge the Cost Accounts for the
required Material on the basis of USE's direct cost and expenses incurred in
procuring such Material; provided, however, that prior notice of the proposed
charge is given to SGMC, whereupon SGMC shall have the right, by notifying USE
within ten days of the delivery of the notice from USE, to furnish at the usual
receiving point all or part of its share of Material suitable for use and
acceptable to USE. If SGMC so furnishes Material in kind, USE shall make
appropriate credits to its account.
3.4 WARRANTY OF MATERIAL FURNISHED BY USE OR SGMC. Neither USE or SGMC
warrants the Material furnished beyond any dealer's or manufacturer's warranty.
3.5 EXCLUSIVELY-OWNED FACILITIES. The following rates shall apply to
services rendered from equipment or facilities owned exclusively by USE:
(a) Water, fuel, power, compressor and other auxiliary services at
rates currently prevailing in the vicinity;
(b) Equipment at a fair rate sufficient to cover maintenance, repairs,
depreciation and related services, provided that the charges do not exceed those
currently prevailing in the vicinity; and
(c) Laboratory services at a fair rate, provided the charges do not
exceed those of other outside service laboratories for services in the vicinity.
7 of 8
EXHIBIT 10.57
ARTICLE IV
DISPOSAL OF MATERIAL
4.1 DISPOSITION GENERALLY. USE shall have no obligation to purchase SGMC's
interest in Material. SGMC shall determine the disposition of all Material,
provided USE shall have the right to dispose of normal accumulations of junk and
scrap material either by transfer to SGMC as provided in Section 4.2 or by sale.
USE shall credit SGMC for all Material sold hereunder.
4.2 SALES. Sales of Material to third parties shall be credited to the
Cost Accounts at the net amount received. Any damages or claims by SGMC shall be
charged back to the Cost Accounts if and when paid.
ARTICLE V
INVENTORIES
5.1 PERIODIC INVENTORIES, NOTICE AND REPRESENTATION. At reasonable
intervals, inventories shall be taken by USE, which shall include all such
Material as is ordinarily considered controllable by operators of mining
properties.
5.2 RECONCILIATION AND ADJUSTMENT OF INVENTORIES. Reconciliation of
inventory with charges to the Cost Account shall be made, and a list of overages
and shortages shall be determined by USE. Inventory adjustments shall be made by
USE to the Cost Account for overages and shortages, but USE shall be held
accountable to SGMC only for shortages due to lack of reasonable diligence.
8 of 8
EXHIBIT 10.57
EXHIBIT B
INSURANCE
U. S. Energy Corp. ("USE") shall, at all times while conducting
Operations, comply fully with the applicable worker's compensation laws and
purchase insurance protection for USE, as well as Xxxxxx Gold Mining Company
("SGMC"), comparable to that provided under standard form insurance policies for
(i) comprehensive public liability and property damage with combined limits of
One Million Dollars for bodily injury and property damage; (ii) automobile
insurance with combined limits of One Million Dollars: and (iii) adequate and
reasonable insurance against risk of fire and other risks ordinarily insured
against in similar operations (Ten Million Dollars). These limits are minimum
limits, and shall not be construed as a limit on USE's liability to SGMC.
