-----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, NUXfU2SphPDZTK659BHe+QCL7DogyLkSTI8edNkM0l4Dk9ZUV7kb/gnTqPWfKTnw jYvnONbPcp1uqTCj3NvVXw== 0001172593-04-000020.txt : 20040412 0001172593-04-000020.hdr.sgml : 20040412 20040412110650 ACCESSION NUMBER: 0001172593-04-000020 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040412 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED STATES ANTIMONY CORP CENTRAL INDEX KEY: 0000101538 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 810305822 STATE OF INCORPORATION: MT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-08675 FILM NUMBER: 04727834 BUSINESS ADDRESS: STREET 1: P O BOX 643 CITY: THOMPSON FALLS STATE: MT ZIP: 59873 BUSINESS PHONE: 4068273523 MAIL ADDRESS: STREET 1: PO BOX 643 CITY: THOMPSON FALLS STATE: MT ZIP: 59873-0643 FORMER COMPANY: FORMER CONFORMED NAME: AGAU MINES INC DATE OF NAME CHANGE: 19740728 10KSB 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period -------- to------- Commission file number 33-00215 UNITED STATES ANTIMONY CORPORATION (Name of small business issuer in its charter) Montana 81-0305822 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 643, Thompson Falls, Montana 59873 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (406) 827-3523 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The registrant's revenues for its most recent fiscal year were $3,221,750 The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the average bid price of such stock, was $5,500,829 as of March 27, 2004. At March 27, 2004, the registrant had 28,114,288 outstanding shares of par value $0.01 common stock. TABLE OF CONTENTS PART I
ITEM 1. DESCRIPTION OF BUSINESS 2 General. . . . . . . . . . . . . . . . . . . . . . . 2 History. . . . . . . . . . . . . . . . . . . . . . . 2 Overview-2003. . . . . . . . . . . . . . . . . . . . 2 Risk Factors . . . . . . . . . . . . . . . . . . . . 2 Antimony Division. . . . . . . . . . . . . . . . . . 4 Zeolite Division . . . . . . . . . . . . . . . . . . 6 Environmental Matters. . . . . . . . . . . . . . . . 7 Employees. . . . . . . . . . . . . . . . . . . . . . 8 Other. . . . . . . . . . . . . . . . . . . . . . . . 8 ITEM 2. DESCRIPTION OF PROPERTIES 8 Antimony Division. . . . . . . . . . . . . . . . . . 8 Zeolite Division . . . . . . . . . . . . . . . . . . 9 ITEM 3. LEGAL PROCEEDINGS 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 9 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 9 ITEM 7. FINANCIAL STATEMENTS 11 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 11 ITEM 8-A CONTROLS AND PROCEDURES 11 PART III ITEM 9.. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . 12 ITEM 10. EXECUTIVE COMPENSATION 13 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 13 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 14 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 16 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 19 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . 20 CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . 21 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . F1-F22
PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL Explanatory Note: As used in this report, the terms "we," "us" and "our" are - -------------------------------------------------------------------------------- used to refer to United States Antimony Corporation and, as the context - -------------------------------------------------------------------------------- requires, its management. - --------------------------- Some of the information in this Form 10-KSB contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they: -discuss our future expectations; -contain projections of our future results of operations or of our financial condition; and -state other "forward-looking" information. HISTORY United States Antimony Corporation was incorporated in Montana in January 1970 to mine and produce antimony products. In December 1983, we suspended antimony mining operations but continued to produce antimony products from domestic and foreign sources. Bear River Zeolite Company ("BRZ") was incorporated in 2000, and it mines and produces zeolite in southeastern Idaho. Our principal business is the production and sale of antimony and zeolite products. OVERVIEW-2003 Antimony Sales During 2003, sales of our antimony products decreased approximately 16% from that of 2002. The decrease was primarily due to increased imports of Chinese material at low prices competing with our products. Bear River Zeolite Company During 2003, significant costs were incurred by BRZ to expand the plant, repair equipment, and market the product. Sales of zeolite increased 140% during 2003 from 2002. Yellow Jacket Reclamation The Yellow Jacket mill site was essentially reclaimed in 2002. Little work was performed in 2003. Two pieces of equipment still must be trucked out and survey work must be completed in 2004. The expenses are estimated to be $6,000. Yellow Jacket reclamation has been a cash drain on our resources since our abandonment of the operation in 1999. Yankee Fork Mill Site Reclamation During 2003 most of the reclamation work was completed. Work scheduled for 2004 includes neutralization of leach tailings and storage of them in a trench, fill dirt work, and seeding and fertilizing. RISK FACTORS There may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed below, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. 2 Our liabilities substantially exceed our assets. If we were liquidated before our stockholders' deficit is eliminated, our common shareholders would lose part or all of their investment. In the event of our dissolution, the proceeds (if any) realized from the liquidation of our assets will be distributed to our shareholders only after satisfaction of claims of our creditors and preferred shareholders. The ability of a purchaser of shares to recover all or any portion of the purchase price for the shares in that event will depend on the amount of funds realized and the claims to be satisfied by those funds. We have a negative net worth, have incurred significant losses, and may incur losses in the future. We have not generated an operating profit for several years. Instead we have been able to continue operations from gross profit from our antimony operations, sales of common stock and borrowings from banks and others. As of December 31, 2003, we had a stockholders' deficit of $1,692,337; and we may incur net losses for the foreseeable future unless and until we are able to establish profitable business operations and reduce cash outflows from general and administrative expenses and property reclamation costs. As of December 31, 2003, we had total current assets of $204,134 and total current liabilities of $1,880,746, or negative working capital of approximately $1,676,612. Our auditors' report as of February 13, 2004 raised doubt about our ability to continue as a going concern. Our audited financial statements for the year ended December 31, 2003, which are included in this report, indicate that there was doubt as of February 13, 2004 about our ability to continue as a going concern due to our need to generate cash from operations and obtain additional financing. We are delinquent or in arrears on significant current liabilities; and collection efforts by creditors could jeopardize our viability as a going concern and close down our operations. As of December 31, 2003, we are delinquent on the payment of several current liabilities including payroll and property taxes of approximately $128,392, accounts payable of approximately $600,000, judgments payable in the amount of $53,130 and accrued interest payable in the amount of $16,645. In the absence of payment arrangements, creditors could individually or collectively demand immediate payment and jeopardize our ability to fund operations and correspondingly damage our business. Creditors who are owed taxes have the power to seize our assets for payment of amounts past due and close down our operations. Capital to meet our future needs for antimony and zeolite production may be unavailable on acceptable terms. To fund future needs, we may seek to obtain additional capital from public or private financing transactions, as well as borrowing and other resources. The issuance of equity or equity-related securities to raise additional cash would result in dilution to our present stockholders. Further, additional debt funding or common stock sales may not be available on favorable terms, if at all. Our existing debt is secured by pledges to the bank and to our president, John C. Lawrence, of substantially all of our assets. In addition, we owe a secured convertible note payable to a company controlled by a significant shareholder, that is secured by 100% of our stock in BRZ. Therefore, a default in the payment of any secured debt could result in a loss of the related assets and our ability to continue operations. As of December 31, 2003, our bank debt in the amount of $553,532 is secured by a collateral pledge of substantially all of our mining equipment as well as our patented and unpatented mining claims in Sanders County, Montana. On March 31, 2004 and all successive quarters pursuant to the terms of convertible and secured convertible notes payable we will owe an interest payment which if we don't or are unable to pay will result in a default on the notes. Our president, John C. Lawrence, has also guaranteed repayment of all our bank debt and has a secured interest in our assets as well. In the event we are unable to pay the bank debt as it matures, there is a risk the bank may foreclose its security interest and we would lose all or a portion of our equipment as well as our patented and unpatented mining claims. 3 Our research, development, manufacturing and production processes involve the controlled use of hazardous materials, and we are subject to various environmental and occupational safety laws and regulations governing the use, manufacture, storage, handling, and disposal of hazardous materials and some waste products. The risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result and any liability could exceed our financial resources. We also have three ongoing environmental reclamation and remediation projects, one at our current production facility in Montana and two at discontinued mining operations in Idaho. Adequate financial resources may not be available to ultimately finish the reclamation activities if changes in environmental laws and regulations occur; and these changes could adversely affect our cash flow and profitability. We do not have environmental liability insurance now; and we do not expect to be able to obtain insurance at a reasonable cost. If we incur liability for environmental damages while we are uninsured, it could have a harmful effect on our financial condition and us. The range of reasonably possible losses from our exposure to environmental liabilities in excess of amounts accrued to date cannot be reasonably estimated at this time. Some of our accruals for environmental obligations are current liabilities. We have accruals totaling $208,500 on our balance sheet at December 31, 2003, for our environmental reclamation responsibilities, $151,000 of which are classified as current. If we are not able to adequately perform our reclamation activities on a timely basis, we could be subject to fines and penalties from regulatory agencies. ANTIMONY DIVISION Our antimony mining properties, mill and metallurgical plant are located in the Burns Mining District of Sanders County, Montana, approximately 15 miles west of Thompson Falls. We hold 12 patented lode claims, some of which are contiguous, and 2 patented mill sites. We have no "proven reserves" or "probable reserves" of antimony, as these terms are defined by the Securities and Exchange Commission. Prior to 1984, we mined antimony ore underground by driving drifts and using slushers in room and pillar type stopes. Mining was suspended in December 1983, because antimony could be purchased more economically from foreign sources. Our underground antimony mining operations may be reopened in the future should raw material prices warrant doing so. We now purchase the majority of our raw antimony from China and Canada. Antimony metal from Chinese sources has been obtained primarily through brokers. Because we depend on foreign sources for raw materials, there are risks of interruption in procurement from these sources and/or volatile changes in world market prices for these materials that are not controllable by us. Changes in antimony metal export policy by the Chinese government could impair availability of antimony metal and/or could increase antimony metal prices, which could result in curtailed production, decreased profits, operating result fluctuations or breach of contractual obligations to provide antimony products to our customers. We currently own 50% of the common stock of United States Antimony, Mexico S.A. de C.V. ("USAMSA"), which was formed in April 1998. During 1998 and 1999, we invested capital and surplus equipment from our Thompson Falls antimony operation in USAMSA, which was used for the construction of an antimony processing plant in Mexico. During the later part of 2000 we finalized our 50% investment in USAMSA. To date, two antimony processing furnaces and a warehouse building have been built and limited antimony processing has taken place. During 2003, 2002 and 2001, USAMSA was idle and had no production activities due to volatile antimony prices and the lack of operating and development capital. During 2002, we adjusted our investment in USAMSA to recognize an impairment of its value. The adjustment reduced our carrying value in USAMSA to equal 50% of its net equity, or $18,625 at December 31, 2002. During 2003, our investment in USAMSA decreased to $11,913, reflecting our share of its 2003 operating loss. USAMSA is pursuing the assignment of mining concessions in the Mexican states of Zacatecas, Coahuila, Sonora, Queretaro and Oaxaca. We hope USAMSA will begin in future years to produce antimony metal and other products as processing opportunities become available and as antimony prices dictate, although there can be no assurance USAMSA will be profitable. 4 From antimony raw materials, we produce antimony oxide products of different particle size using proprietary furnace technology, several grades of sodium antimonate using hydro metallurgical techniques, and antimony metal. Antimony oxide is a fine, white powder that is used primarily in conjunction with a halogen to form a synergistic flame retardant system for plastics, rubber, fiberglass, textile goods, paints, coatings and paper. Antimony oxide is also used as a color fastener in paint, as a catalyst for production of polyester resins for fibers and film, as a phosphorescent agent in fluorescent light bulbs and as an opacifier for porcelains. Sodium antimonate is primarily used as a fining agent (degasser) for glass in cathode ray tubes used in television bulbs and as a flame retardant. We also sell antimony metal for use in bearings, storage batteries and ordnance. We estimate (but have not independently confirmed) that our present share of the domestic market for antimony oxide products is approximately 4%. We have only one principal domestic competitor. The balance of domestic sales are foreign imports (primarily from Chinese and Belgian suppliers). In recent years we made substantial improvements to our analytical and chemical research capabilities. Since March 1998, we have employed a Chief Chemist who has devoted a substantial portion of his working time to research and development activities. We have continued to pursue research and development activities that have resulted in advances in our preparation, packaging and quality of our antimony products. We believe that our ability to meet customer product specifications gives us a competitive advantage. We believe that we will be able to stay competitive in the antimony business because of these advances. However, many of our competitors in the antimony industry have substantially more capital resources and market share than us. Therefore, our ability to maintain market share can be significantly affected by factors outside of our control. For the year ended December 31, 2002, we sold 3,479,394 pounds of antimony products generating approximately $3.27 million in revenues. During 2003, we sold 2,166,691 pounds of antimony products generating approximately $2.74 million in revenues. During 2002 and 2003, approximately 40% and 56%, respectively, of our antimony sales were made to one customer, KOHLER Co. Marketing We employ full-time marketing personnel and have negotiated various - --------- commission based sales agreements with other chemical distribution companies. Antimony Price Fluctuations: Our operating results have been, and will continue - ---------------------------- to be, directly related to the market prices of antimony metal, which have fluctuated widely in recent years. The volatility of prices is illustrated by the following table, which sets forth the average prices of antimony metal per pound as reported by sources deemed reliable by us.
YEAR AVERAGE PRICE - ---- -------------- 2003 $1.21 2002 0.88 2001 0.58 2000 0.67 1999 0.58 1998 0.63
The range of sales prices for antimony oxide per pound was as follows for the periods indicated:
YEAR HIGH LOW AVERAGE PRICE - ---- ----- ----- -------------- 2003 $5.45 $1.01 $ 0.92 2002 5.25 0.71 0.99 2001 5.99 0.66 0.93 2000 5.88 0.65 0.99 1999 5.52 0.65 0.85 1998 5.57 0.83 1.13
Antimony metal prices are determined by a number of variables over which we have no control. These include the availability and price of imported metals, the quantity of new metal supply, and industrial and commercial demand. If metal prices decline and remain depressed, our revenues and profitability may be adversely affected. 5 We use various antimony raw materials to produce our products. We obtain antimony raw material from sources in China, Canada and the U.S. Purchases from Canadian and U.S. sources have been made at world market prices, as established by the London Metals Bulletin from time to time. Our USAMSA venture is intended eventually to reduce our dependence on foreign sources; but during 2002 and 2003, USAMSA was idle and it is not expected to provide sufficient raw material for several years. ZEOLITE DIVISION We own 100% of Bear River Zeolite Company, an Idaho corporation incorporated on June 1, 2000. BRZ has a lease with Webster Farm, L.L.C. The lease entitles BRZ to surface mine and process zeolite on property located near Preston, Idaho in exchange for a royalty payment. The royalty is a percentage of the zeolite sale price, which varies between 8%-13%. The minimum annual royalty during the first five years is $1,000. During 2002, we sold additional royalty interests in BRZ to a company controlled by Al Dugan, a majority shareholder and, as such, an affiliate. The royalties granted Mr. Dugan's company a payment equal to 3% of all gross sales on zeolite products. BRZ has constructed a processing plant on the property and is currently improving its productive capacity. We have incurred development and start-up costs of $467,695. We are currently taking orders for our zeolite products and are optimistic that orders will continue and increase during 2003. We have no "proven reserves" or "probable reserves" of zeolite, as these terms are defined by the Securities and Exchange Commission. "Zeolite" refers to a group of minerals that consist of hydrated aluminosilicates that hold cations such as calcium, sodium, ammonium and potassium in their crystal lattice. Water is loosely held in cavities in the lattice. BRZ's zeolite deposits have characteristics, which make the mineral useful for a variety of purposes including: -Soil Amendment and Fertilizer. Zeolite has been successfully used to fertilize golf courses, sports fields, parks and common areas, and high value crops, including corn, potatoes, soybeans, red beets, acorn squash, green beans, sorghum sudangrass, brussel sprouts, cabbage, carrots, tomatoes, cauliflower, radishes, strawberries, wheat, lettuce and broccoli. -Water Filtration. Zeolite is used for particulate, heavy metal and ammonium removal in swimming pools, municipal water systems, fisheries, fish farms, and aquariums. -Sewage Treatment. Zeolite is used in sewage treatment plants to remove nitrogen and as a carrier for microorganisms. -Nuclear Waste and Other Environmental Cleanup. Zeolite has shown a strong ability to selectively remove strontium, cesium and various other radioactive isotopes from solution. Zeolite can also be used for the cleanup of soluble metals such as mercury, chromium, copper, lead, zinc, arsenic, molybdenum, nickel, cobalt, antimony, calcium, silver and uranium. -Odor Control. A major cause of odor around cattle, hog, and poultry feed lots is the generation of the ammonium in urea and manure. The ability of zeolite to absorb ammonium prevents the formation of ammonia gas, which generates the odor. -Gas Separation. Zeolite has been used for some time to separate gases, to re-oxygenate downstream water from sewage plants, smelters, pulp and paper plants, and fish ponds and tanks, and to remove carbon dioxide, sulfur dioxide and hydrogen sulfide from methane generators as organic waste, sanitary landfills, municipal sewage systems and animal waste treatment facilities. -Animal Nutrition. Feeding up to 2% zeolite increases growth rates, decreases conversion rates, prevents worms, and increases longevity. -Miscellaneous Uses. Other uses include catalysts, petroleum refining, building applications, solar energy and heat exchange, desiccants, pellet binding, horse and kitty litter, floor cleaner and carriers for insecticides, pesticides and herbicides. 6 ENVIRONMENTAL MATTERS Our exploration, development and production programs conducted in the United States are subject to local, state and federal regulations regarding environmental protection. Some of our production and mining activities are conducted on public lands. We believe that our current discharge of waste materials from our processing facilities is in material compliance with environmental regulations and health and safety standards. The U.S. Forest Service extensively regulates mining operations conducted in National Forests. Department of Interior regulations cover mining operations carried out on most other public lands. All operations by us involving the exploration for or the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of water sources, waste materials, odor, noise, dust and other environmental protection requirements adopted by federal, state and local governmental authorities. We may be required to prepare and present to the authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. Any changes to our reclamation and remediation plans, which may be required due to changes in state or federal regulations, could have an adverse effect on our operations. The range of reasonably possible loss in excess of the amounts accrued, by site, cannot be reasonably estimated at this time. We accrue environmental liabilities when the occurrence of such liabilities is probable and the costs are reasonably estimable. The initial accruals for all our sites are based on comprehensive remediation plans approved by the various regulatory agencies in connection with permitting or bonding requirements. Our accruals are further based on presently enacted regulatory requirements and adjusted only when changes in requirements occur or when management revises its estimate of costs required to comply with existing requirements. As remediation activity has physically commenced, management has been able to refine and revise its estimates of costs required to fulfill future environmental tasks based on contemporaneous cost information, operating experience, and changes in regulatory requirements. In instances where costs required to complete our remaining environmental obligations are clearly determined to be in excess of the existing accrual, we have adjusted the accrual accordingly. When regulatory agencies require additional tasks to be performed in connection with our environmental responsibilities, we evaluate the costs required to perform those tasks and adjust our accrual accordingly as the information becomes available. In all cases, however, our accrual at year-end is based on the best information available at that time to develop estimates of environmental liabilities. Yankee Fork Mill Site. During 2003, USAC spent $27,397 and essentially finished the bulk of the reclamation work at the Yankee Fork mill site. In essence most of the work was completed during 2003. During 2004 leach residue must be neutralized, moved by truck and covered; some rolling stock must be removed, remaining dirt work must be completed, and water monitoring must continue. At December 31, 2003, we have accrued $45,000 for the remaining activities. Antimony Processing Site. We have environmental remediation obligations at our antimony processing site near Thompson Falls, Montana ("the Stibnite Hill Mine Site"). Under the regulatory jurisdiction of the U.S. Forest Service and subject to the operating permit requirements of the Montana Department of Environmental Quality, we performed substantial environmental reclamation activities during 1999 and 2000. The regulatory agencies require that we line a storm water pond and construct a water treatment facility and thus fulfill the majority of our environmental responsibilities at the Stibnite Hill Mine site. At December 31, 2003, we have accrued $150,000, most of which is classified as current for our antimony site reclamation activities. Yellow Jacket Mine. During 2002, we received notification from the U.S. Forest Service outlining only minor tasks to be performed during the 2003 field season. The Forest Service complimented our to-date reclamation efforts, characterizing the site as a potential "showcase for the mining industry." At December 31, 2003 we have $6,000 accrued for the remaining reclamation activities. BRZ. During 2001, we recorded a reclamation accrual for our Bear River Zeolite subsidiary, based on an analysis performed by management and reviewed and approved by regulatory authorities for environmental bonding purposes. The accrual of $7,500 represents the Company's estimated costs of reclaiming, in accordance with regulatory requirements, the acreage disturbed by our zeolite operations and remains unchanged at December 31, 2003. 7 General. Reclamation activities at the Yellow Jacket Mine and the Thompson Falls Antimony Plant have proceeded informally under supervision of the U.S. Forest Service and applicable State Departments of Environmental Quality. We have complied with regulators' requirements and do not expect the imposition of substantial additional requirements. We have posted cash performance bonds with a bank and the U.S. Forest Service in connection with our reclamation activities. In 2002 and 2001, the U.S. Forest Service released a substantial portion of the environmental bonding funds that had been deposited for remediation of the Yellow Jacket Mine. We believe we have accrued adequate reserves to fulfill our environmental remediation responsibilities as of December 31, 2003. We have made significant reclamation and remediation progress on all our properties over the past three years and have complied with regulatory requirements in our environmental remediation efforts. The change in amounts accrued for environmental remediation activities during the years ended December 31, 2002 and 2003
YANKEE FORK THOMPSON FALLS YELLOW JACKET BEAR RIVER MILL SITE ANTIMONY PLANT MINE ZEOLITE TOTAL Balance December 31, 2001 $ 57,028 $ 151,510 $ 9,125 $ 7,500 $225,163 Less: Reclamation Costs . (39,096) (6,960) (4,560) (50,616) Adjustment of Accrued Remediation Costs . . . . 22,068 22,068 ------------- ---------------- -------------- ----------- -------- Balance December 31, 2002 $ 40,000 $ 144,550 $ 4,565 $ 7,500 $196,615 Less: Reclamation Costs . (22,397) (2,683) (25,080) Adjustment of Accrued Remediation Costs . . . . 27,397 8,133 1,435 36,965 ------------- ---------------- --------------- ------------ -------- Balance December 31, 2003 $ 45,000 $ 150,000 $ 6,000 $ 7,500 $208,500 ============= ================ =============== ============ ========
EMPLOYEES As of December 31, 2003, we employed 30 full-time employees. The number of full-time employees may vary seasonally. None of our employees are covered by any collective bargaining agreement. OTHER We hold no material patents, licenses, franchises or concessions; but we consider our antimony processing plant proprietary in nature. We use the trade name "Montana Brand Antimony Oxide" for marketing our antimony products. We are subject to the requirements of the Federal Mining Safety and Health Act of 1977, the Occupational Safety and Health Administration's regulations, requirements of the state of Montana and the state of Idaho, federal and state health and safety statutes and Sanders County, Lemhi County and Custer County health ordinances. ITEM 2. DESCRIPTION OF PROPERTIES ANTIMONY DIVISION Our principal plant and mine are located in the Burns Mining District, Sanders County, Montana, approximately 15 miles west of Thompson Falls, Montana. We hold 2 patented mill sites and 12 patented lode mining claims covering 192 acres. The lode claims are contiguous within two groups. Antimony mining and milling operations were curtailed during 1983 due to continued declines in the price of antimony. We are currently purchasing foreign raw antimony materials and continue to produce antimony metal, oxide and sodium antimonate from our antimony processing facility near Thompson Falls, Montana. 8 ZEOLITE DIVISION We own 100% of Bear River Zeolite Company ("BRZ"), an Idaho corporation incorporated on June 1, 2000. BRZ has entered into a mining lease with Webster Farm, L.L.C. The lease entitles BRZ to surface mine and process zeolite on property located in Preston, Idaho in exchange for a royalty payment. The royalty is a percentage of the unprocessed ore sale price, which varies between 8%-13%. The minimum annual royalty during the first five years is $1,000. The royalty is also payable on zeolite mined on adjacent Bureau of Land Management ("BLM"), ground on which BRZ has located five additional BLM claims, if BRZ accesses those claims across the leased property. We are also subject to a 3% royalty on all gross zeolite sales, payable to a company controlled by Al Dugan, a major shareholder and an affiliate. BRZ has constructed a processing plant on the property. ITEM 3. LEGAL PROCEEDINGS We are not a party to any pending legal proceeding. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2003. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Currently, our common stock is traded on the Over the Counter Bulletin Board ("OTCBB") under the symbol "UAMY." The following table sets forth the range of high and low bid prices as reported by the OTCBB for the periods indicated. The quotations reflect inter-dealer prices without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
2002 HIGH LOW -------------- ----- ----- First Quarter. $0.29 $0.12 Second Quarter 0.23 0.12 Third Quarter. 0.23 0.15 Fourth Quarter 0.22 0.15 2003 HIGH LOW -------------- ----- ------ First Quarter. $0.24 $0.14 Second Quarter 0.33 0.13 Third Quarter. 0.26 0.16 Fourth Quarter 0.26 0.14
The approximate number of record holders of our common stock at March 27, 2004 is 2,642. We have not declared or paid any dividends to our stockholders during the last five years and do not anticipate paying dividends on our common stock in the foreseeable future. Instead, we expect to retain earnings for the operation and expansion of our business. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS Certain matters discussed are forward-looking statements that involve risks and uncertainties, including the impact of antimony prices and production volatility, changing market conditions and the regulatory environment and other risks. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgment as of the date of this filing. The Company disclaims, however, any intent or obligation to update these forward-looking statements. RESULTS OF OPERATIONS The Company reported a net loss of $798,634 in 2003 compared to a net loss of $360,389 during 2002. The increase in the loss during 2003 was the result of decreased antimony sales and increased general and administrative expenses. 9 Total revenues from antimony product sales for the year ended December 31, 2003, were $2,742,419 compared with $3,274,007 for 2002, a decrease of $531,588. Sales of antimony products during the year ended December 31, 2003 consisted of 2,166,691 pounds at an average sale price of $1.27 per pound. During the year ended December 31, 2002, sales of antimony products consisted of 3,479,394 pounds at an average sale price of $0.94 per pound. The decrease in the amount of pounds sold during 2003 is greatly due to the Company's Chinese competitors offering antimony oxide at sales prices less than the Company's cost of production, resulting in the loss of customers to our competitors. Combined cash costs of antimony production and freight and delivery were $2,403,070 or $1.11 per pound sold, for the year ended December 31, 2003, as compared to cash costs of antimony production and freight and delivery of $2,873,096, or $0.83 per pound sold for the year ended December 31, 2002. The increase in cash costs per pound is partially due to an increase in production costs due to increased propane prices and freight and delivery costs. Additionally, with fewer pounds of Antimony products being sold, the fixed costs per pound of antimony produced increased in 2003. Depreciation expense in the Antimony division was $41,288 during 2003 compared to $42,991 during 2002. The decrease in depreciation expense was due to depreciable antimony processing equipment nearing the end of its useful lives. Sales of zeolite products were $479,331, with associated cash cost of sales including freight and delivery costs of $529,397 during the year ended December 31, 2003, compared to sales of $199,890 and cash cost of sales including freight and delivery costs of $265,390 during 2002. This represents an increase of 140% from 2002 to 2003. The tons shipped in 2003 were 4,526 tons compared to 2,054 tons in 2002, an increase of 120%. Depreciation expense was $55,254 for BRZ during 2003, compared to $41,071 during 2002. The increase in depreciation expense during 2003 was due to more depreciable assets placed in service during 2003. During the year ended December 31, 2003, the Company incurred general and administrative expenses totaling $212,689 associated with BRZ compared to $86,658 during 2002, the increase was due to increased sales effect of zeolite products. Reclamation at Yellow Jacket is essentially complete. Yankee Fork Mill Site reclamation was $27,397 in 2003 compared to $22,068 in 2002. Water monitoring and the disposal of certain materials are among the Company's final responsibilities at Yankee Fork. The Company believes it is nearing the end of its reclamation work at Yankee Fork. Antimony general and administrative expenses were $434,563 during the year ended December 31, 2003, compared to $327,936 during the year ended December 31, 2002. The increase in general and administrative expenses from 2002 to 2003 is due to an increase in consulting and other fees associated with the Company's financing activities and its annual meeting of shareholders held in 2003. BRZ sales expenses increased to $70,589 in 2003 from $62,654 in 2002, the increase was due to increased production and marketing of zeolite in 2003. Antimony sales expenses were $67,818 during the year ended December 31, 2003, compared to $80,397 during the year ended December 31, 2002. The decrease in antimony sales expenses during 2002 was primarily related to fewer sales commissions paid to independent brokers for our products during 2003. Interest expense was $82,855 during the year ended December 31, 2003 and was comparable to interest expense of $80,462 incurred during the year ended December 31, 2002. We expect our interest expense to increase during 2004 due to the sale of a secured convertible note payable. During 2002, we adjusted our investment in USAMSA to recognize an impairment of its value. The adjustment reduced our carrying value in USAMSA by $60,526. No such adjustment was made during 2003, except to absorb our share of USAMSA's 2003 operating loss. Accounts receivable factoring expense was $106,175 during the year ended December 31, 2003 compared to factoring expense incurred during the year ended December 31, 2002 of $94,765. The increase was due to increased borrowing activities with the Company's factoring agents. Interest income and other income increased to $10,711 during the year ended December 31, 2003, from $3,728 during the same period of 2002, due to an increase in other miscellaneous income in 2003. During 2002, the sale of a 3% gross sales royalty in BRZ to a Company controlled by Al Dugan resulted in revenue of $200,000. No similar BRZ royalty sales occurred in 2003. 10 FINANCIAL CONDITION AND LIQUIDITY At December 31, 2003, Company assets totaled $1,005,050, and there was a stockholders' deficit of $1,692,337. In addition, at December 31, 2003, the Company's total current liabilities exceeded its total current assets by $1,676,612. Due to the Company's operating losses, negative working capital, and stockholders' deficit, the Company's independent accountants included a paragraph in our 2003 financial statements relating to a going concern uncertainty. To continue as a going concern the Company must generate profits from its antimony and zeolite sales and acquire additional capital resources through the sale of its securities or from short and long-term debt financing. Without financing and profitable operations, the Company may not be able to meet its obligations, fund operations and continue in existence. While management is optimistic, there can be no assurance that the Company will be able to sustain profitable operations and meet its financial obligations. Other significant financial commitments for future periods will include: -Servicing notes payable to bank. -Paying delinquent property and payroll tax liabilities and accounts payable. -Fulfilling responsibilities with environmental, labor safety and securities regulatory agencies. -Keeping current with the interest payment requirements of the secured convertible and convertible notes payable. Cash used by operating activities during 2003 was $449,459, and resulted primarily from the twelve month loss of $798,634 as adjusted by increasing accounts payable and related party payables, non-cash effects of depreciation and amortization, and changes in other current assets and liabilities. Cash used by investing activities during the year ended December 31, 2003 was $121,437, all of which related to the construction and purchases of capital assets used at the Bear River Zeolite facility. The Company was able to fund its operating loss and its acquisition of plant and equipment during the year ended December 31, 2003, from net cash provided from financing activities of $570,896; including $345,000 generated from sales of unregistered common stock and warrants, and proceeds from a secured convertible note payable of $250,000. The Company hopes that it will have additional financial resources from increasing gross profits from its antimony business and sales of zeolite from BRZ. ITEM 7. FINANCIAL STATEMENTS The consolidated financial statements of the registrant are included herein on pages F1-F22. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8-A. CONTROLS AND PROCEDURES The Registrant's president has evaluated the Registrant's disclosure controls and procedures within 90 days of the filing date of this annual report. Based upon this evaluation, the Registrant's president concluded that the Registrant's disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that it files with the Securities and Exchange Commission. There were no significant changes in the Registrant's internal controls or, to the knowledge of the management of the Registrant, in other factors that could significantly affect these controls subsequent to the evaluation date. 11 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Identification of directors and executive officers at December 31, 2003, are as follows:
Affiliation Name Age with us Expiration of Term ----------- ------ -------------- ------------------ John C. Lawrence. . . . . . 65 Chairman, President, Secretary, Annual meeting and Treasurer; Director Robert A. Rice. . . . . . . 79 Director Annual meeting Leo Jackson . . . . . . . 62 Director Annual meeting
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS JOHN C. LAWRENCE. Mr. Lawrence has been the president and a director since our inception. Mr. Lawrence was the president and a director of AGAU Mines, Inc., our corporate predecessor, since the inception of AGAU Mines, Inc. in 1968. He is a member of the Society of Mining Engineers and a recipient of the Uuno Sahinen Silver Medallion Award presented by Butte Tech, University of Montana. He has a vast background in mining, milling, smelting, chemical processing and oil and gas. ROBERT A. RICE. Mr. Rice is a metallurgist, having been employed by the Bunker Hill Company, a wholly-owned subsidiary of Gulf Resources and Chemical Corporation at Kellogg, Idaho, as Senior Metallurgist and Mill Superintendent until his retirement in 1965. Mr. Rice has been a director since 1975. LEO JACKSON. Mr. Jackson is a resident of El Paso, Texas. For the past 15 years, he has been a principal owner and the president of Production Minerals, Inc., a company which has an indirect 25% interest in the stock of USAMSA. Mr. Jackson is one of the principal owners of Minera de Roja, S.A. de C.V., and has been involved in the production and marketing of industrial minerals such as fluorspar and celestite in the United States and Mexico for 25 years. Mr. Jackson speaks fluent Spanish and has a BBA degree from the Sul Ross State University in Texas. Mr. Jackson has been a director since February 1999. We are not aware of any involvement by our directors or executive officers during the past five years in legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer. Board Meetings and Committees. Our Board of Directors held twelve (12) regular - ------------------------------ meetings during the 2003 calendar year. Each incumbent director attended at least 75% of the meetings held during the 2003 calendar year, in the aggregate, by the Board and each committee of the Board of which he was a member. Our Board of Directors does not have a Compensation Committee, or a Nominating Committee. Our Board of Directors has established an Audit Committee consisting of one member (Robert A. Rice) of the Board of Directors not involved in our day-to-day financial management. Mr. Rice is not considered a financial expert; the Company does not have the necessary capital resources to attract and retain an independent financial expert to serve on its Audit Committee. Board Member Compensation. We paid directors' fees in the form of 26,000 shares - ------------------------- of our Series D Preferred Stock per director during 2003. Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the - --------------------------------------------------------- Securities Exchange Act of 1934 requires our directors and executive officers and the holders of 10% or more of our common stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and stockholders holding more than 10% of our common stock are required by the regulation to furnish us with copies of all Section 16(a) forms they have filed. Based solely on our review of copies of Forms 3, 4, and 5 furnished to us, Mr. Lawrence timely filed Form 4 reports during 2002. We do not know if Mr. Rice and Mr. Jackson timely filed Form 4 or Form 5 reports during 2003. We do not know if Al W. Dugan, a shareholder who became a 10% beneficial owner during 2000, timely filed Form 3, or Form 4, or Form 5 reports during 2003. 12 Code of Ethics - --------------- The Company has adopted a Code of Ethics that applies to the Company's executive officers and its directors. The Company will provide, without charge, a copy of the Code of Ethics on the written request of any person addressed to the Company at: United States Antimony Corporation, P.O. Box 643, Thompson Falls, MT 59873. ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The Securities and Exchange Commission requires the following table setting forth for fiscal years ending December 31, 2003, 2002 and 2001; the compensation paid by USAC to its principal executive officer.
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS PAYOUTS ----------------------- ----------------------- Restricted Securities Other Annual Options/ Underlying All Other All Other Name and Principal Position Year Salary Bonus Compensation (1) Awards (2) LTIP SARs Payouts Compensation - --------------------------- ------ --------- ------- --------------- ----------- ---------- -------- ------------- John C. Lawrence, President 2003 $ 96,000 N/A $ 5,538 $ 2,400 None None None John C. Lawrence, President 2002 $ 96,000 N/A $ 5,538 $ 2,400 None None None John C. Lawrence, President 2001 $ 96,000 N/A $ 5,538 $ 0 None None None
(1) Represents earned but unused vacation. (2) These figures represent the fair values, as of the date of issuance, of the annual director's fee payable to Mr. Lawrence in the form of shares of USAC's Series D Preferred stock or restricted Common Stock. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding beneficial ownership of our common stock as of March 27, 2004, by (i) each person who is known by us to beneficially own more than 5% of our Series A, C, and D preferred stock or common stock; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. Unless otherwise stated, each person's address is c/o United States Antimony Corporation, P.O. Box 643, 1250 Prospect Creek Road, Thompson Falls, Montana 59873.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS . . . . . . . . . . . BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS(1) - ------------------------------------ ----------------------------- --------------------- ----------- Common stock . . . . . . . . . . . . The Maguire Family and 1,406,898(2) 5.0% related entities as a group c/o Walter L. Maguire, Sr. P.O. Box 129 Keller, VA 23401 Common stock . . . . . . . . . . . . The Dugan Family 8,795,625(4) 26.4 c/o A. W. Dugan 1415 Louisiana Street, Suite 3100 Houston, TX 77002 Preferred Series A . . . . . . . . . A. Gordon Clark, Jr. 4,500(7) 100.0 stock. . . . . . . . . . . . . 2 Musket Trail Simsbury, CT 06070 Preferred Series C . . . . . . . . . Walter L. Maguire, Sr. 49,091(7) 27.6 stock. . . . . . . . . . . . . . . . P.O. Box 129 Keller, VA 23401 Preferred Series C . . . . . . . . . Richard A. Woods 48,305(7) 27.2 stock. . . . . . . . . . . . . . . . 59 Penn Circle West Penn Plaza Apts. Pittsburgh, PA 15206 13 NAME AND ADDRESS OF. . . . . AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS . . . . . . . . . . . BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS(1) - ------------------------------------ ----------------------------- --------------------- ----------- Preferred Series C . . . . . . . . . Dr. Warren A. Evans 48,305(7) 27.2 stock. . . . . . . . . . . . . . . . 69 Ponfret Landing Road Brooklyn, CT 06234 Preferred Series C . . . . . . . . . Edward Robinson 32,203(7) 18.1 stock. . . . . . . . . . . . . . . . 1007 Spruce Street 1st Floor Philadelphia, PA 19107 Preferred Series D . . . . . . . . . Gary D. Babbitt 475,000(5) (7) 22.5 877 W. Main Street, Suite 1000 Boise, ID 83702 Common stock . . . . . . . . . . . . John C. Lawrence 3,836,653(3) 12.8 Common stock . . . . . . . . . . . . Robert A. Rice 214,791 Nil Common stock . . . . . . . . . . . . Leo Jackson 56,700 Nil Preferred Series D . . . . . . . . . John C. Lawrence 2,551,070(6) (7) 88.7 Preferred Series D . . . . . . . . . Robert A. Rice 50,000 2.7 Preferred Series D . . . . . . . . . Leo Jackson 50,000 2.7 - ------------------------------------ ----------------------------- --------------------- ----------- Common stock and Series D Preferred Stock . . . . . . All directors and executive officers as a group (3 persons). . . . 6,759,214 20.6 ---------- ------
(1) Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 27, 2004 are deemed outstanding for computing the percentage of the person holding options or warrants but are not deemed outstanding for computing the percentage of any other person. Percentages are based on a total of 28,114,288 shares of common stock, 4,500 shares of Series A Preferred Stock, 177,904 shares of Series C Preferred Stock, and 1,863,672 shares of Series D Preferred Stock outstanding on March 27, 2004. (2) Includes 1,007,843 shares owned by the Maguire Foundation; 129,000 shares owned by Walter L. Maguire, Sr.; 45,500 shares owned by Walter L. Maguire, Trustee; and 224,555 shares owned by Walter L. Maguire, Jr. Excludes 1,003,409 shares owned by the 1934 Maguire Trust. (3) Includes 2,086,653 shares of common stock and 1,750,000 stock purchase warrants issuable through the conversion of a convertible note payable. Excludes 75,000 shares owned by Mr. Lawrence's sister, as to which Mr. Lawrence disclaims beneficial ownership. (4) Includes 1,823,767 shares owned by Al W. Dugan; and 1,876,449 shares, in the aggregate, owned by companies owned and controlled by Al W. Dugan; and 5,095,404 stock purchase warrants and shares issuable through the conversion of a secured convertible note payable. Excludes 183,333 shares owned by Lydia Dugan as to which Mr. Dugan disclaims beneficial ownership. (5) Includes warrants to purchase 250,000 shares of Series D Preferred Stock. (6) Includes 1,538,672 shares of Series D preferred stock and warrants to purchase 1,012,398 shares of Series D Preferred Stock. (7) The outstanding Series A, Series C and Series D preferred shares carry voting rights. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Described below are transactions during the last two years to which we are a party and in which any director, executive officer or beneficial owner of five percent (5%) or more of any class of our voting securities or relatives of our directors, executive officers or five percent (5%) beneficial owners has a direct or indirect material interest. See also transactions described in notes 4, 7, 9, 11 and 12 to our Financial Statements as of December 31, 2003. 14 - -Leo Jackson, a director, is a principal owner and president of Production Minerals, Inc., a company which indirectly owns 25% of the stock of USAMSA. We own 50% of the stock of USAMSA. - -During 2003, the Company issued 111,185 warrants to purchase shares of Series D preferred stock to John C. Lawrence, the Company's president and a director, for his assistance in procuring equipment financing. The warrants are exercisable at $0.30 per share and expire in 2008. - -We reimburse John C. Lawrence, a director and Chief Executive Officer, for operational and maintenance expenses incurred in connection with our use of equipment owned by Mr. Lawrence, including welding trucks, backhoes, and an aircraft. Reimbursements for 2003 and 2002 totaled $52,125 and $56,481, respectively, in addition, we accrued interest expense of $7,795 and $13,688 on net advances due Mr. Lawrence, for the years ended December 31, 2003 and 2002, respectively. - -At December 31, 2003 and 2002, we owed legal fees in the amount of $149,971 and $140,018, respectively, to an outside law firm in which Gary D. Babbitt, formerly a director, is a partner. - -During 2003, the Company issued 26,000 shares of its Series D preferred stock to each member of its Board of Directors as compensation for their services as directors. In connection with the issue, the Company recorded $7,800 in director compensation based on an aggregate of 78,000 Series D shares issued. - -In June 2003, the Company issued 201,000 shares of Series D preferred stock and 200,000 Series D preferred stock purchase warrants to Gary D. Babbitt, a former director, for his consulting services. In connection with the issue to Mr. Babbitt, the Company recognized $20,100 of consulting expense based upon its estimated value of the services rendered and shares issued. During 2002, we issued Mr. Babbitt 24,000 shares of Series D preferred stock for his services rendered. - -In September 2003, the Company issued John C. Lawrence, the Company's president and a director, 100,000 shares of Series D preferred stock for his help in financing the Company's operations. In connection with this issue, the Company recorded $15,000 of compensation expense based on its estimated value of the shares issued. - -During 2003, the Company sold a $250,000 secured convertible note payable to a company controlled by Al Dugan, a major shareholder. In connection with the sale Mr. Dugan received 2,000,000 stock purchase warrants excercisable at $0.20 per share until December 22, 2008. - -During 2003, the Company cancelled 1,388,672 shares of its common stock and re-issued an equal amount of Series D preferred stock to John C. Lawrence, the Company's president and a director. - -During 2003, John C. Lawrence, the Company's president and a director converted $100,000 of current debt due him into a convertible long-term note payable. In connection with the sale Mr. Lawrence received 1,000,000 stock purchase warrants excercisable at $0.20 per share until December 22, 2007. - -During 2002, the Company issued 250,000 warrants to purchase shares of Series D preferred stock to Gary D. Babbitt, for legal services rendered. The warrants are excercisable at $0.20 per share and expire in 2005 and 2007. - -During 2002, the Company issued 151,213 warrants to purchase shares of Series D preferred stock to John C. Lawrence in exchange for his warrants to purchase 151,213 shares of the Company's common stock. The warrants are excercisable at $0.20 per share and expire in 2005 and 2007. - -During 2002, the Company sold a 3% gross proceeds royalty on all zeolite extracted from BRZ to Delaware Royalty Company, Inc., a company controlled by Al Dugan, a major shareholder. The Company received $200,000 from the sale of the royalty interest. During the years ended December 31, 2003 and 2002, the Company paid Delaware Royalty Company, Inc. $11,575 and $705 in royalties, respectively. 15 - -Included in the sale of the Company's common stock and common stock warrants during 2003, were 333,334 shares of common stock and 333,334 common stock purchase warrants sold to companies controlled by directors or immediate family members of directors of the Company. - -During 2002, we issued 750,000 Series D Preferred Stock warrants to our president, John C. Lawrence in consideration of his advances made to the Company. The warrants expire in September of 2007, and are exercisable at $0.20 per share. - -On March 20, 2002 we sold Al W. Dugan, a major shareholder, 50,000 shares of our common stock and agreed to issue warrants to purchase 50,000 shares of common stock, for $0.20 per share or $10,000. The warrants are exercisable at $0.30 per share. - -During the fourth quarter of 2002, the Company issued each of its three directors, 24,000 shares of Series D Preferred Stock for their services as directors. - -On February 12, 2002 we sold Al W. Dugan, a major shareholder, 250,000 shares of our common stock and agreed to issue warrants to purchase 250,000 shares of common stock, for $0.20 per share or $50,000. The warrants are exercisable at $0.30 per share. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K EXHIBIT NUMBER DESCRIPTION - ---------------- ----------- 3.01 Articles of Incorporation of USAC, filed as an exhibit to USAC's Form 10-KSB for the fiscal year ended December 31, 1995 (File No.001-08675), are incorporated herein by this reference. 3.02 Amended and Restated Bylaws of USAC, filed as an exhibit to amendment No. 2 to USAC's Form SB-2 Registration Statement (Reg. No.333-45508) are incorporated herein by this reference. 3.03 Articles of Correction of Restated Articles of Incorporation of USAC. 3.04 Articles of Amendment to the Articles of Incorporation of United States Antimony Corporation, filed as an exhibit to USAC's Form 10-QSB for the quarter ended September 30, 2002 (File No. 001-08675), are incorporated herein by this reference. 4.01 Key Employees 2000 Stock Plan, filed as an exhibit to USAC's Form S-8 Registration Statement filed on March 10, 2000 (File No.333-32216) is incorporated herein by this reference. Documents filed with USAC's Annual Report on Form 10-KSB for the year ended December 31, 1995 (File No. 001-08675), are incorporated herein by this reference: 10.10 Yellow Jacket Venture Agreement 10.11 Agreement Between Excel-Mineral USAC and Bobby C. Hamilton 10.12 Letter Agreement 10.13 Columbia-Continental Lease Agreement Revision 10.14 Settlement Agreement with Excel Mineral Company 10.15 Memorandum Agreement 10.16 Termination Agreement 10.17 Amendment to Assignment of Lease (Geosearch) 16 10.18 Series B Stock Certificate to Excel-Mineral Company, Inc. 10.19 Division Order and Purchase and Sale Agreement 10.20 Inventory and Sales Agreement 10.21 Processing Agreement 10.22 Release and settlement agreement between Bobby C. Hamilton and United States Antimony Corporation 10.23 Columbia-Continental Lease Agreement 10.24 Release of Judgment 10.25 Covenant Not to Execute 10.26 Warrant Agreements filed as an exhibit to USAC's Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No. 001-08675), are incorporated herein by this reference 10.27 Letter from EPA, Region 10 filed as an exhibit to USAC's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1997 (File No. 001-08675) is incorporated herein by this reference 10.28 Warrant Agreements filed as an exhibit to USAC's Annual Report on Form 10-KSB for the year ended December 31, 1997 (File No. 001-08675) are incorporated herein by this reference 10.30 Answer, Counterclaim and Third-Party Complaint filed as an exhibit to USAC's Quarterly Report on Forms 10-QSB for the quarter ended September 30, 1998 (File No. 001-08675) is incorporated herein by this reference Documents filed with USAC's Annual Report on Form 10-KSB for the year ended December 31, 1998 (File No. 001-08675), are incorporated herein by this reference: 10.31 Warrant Issue-Al W. Dugan 10.32 Amendment Agreement Documents filed with USAC's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1999 (File No. 001-08675) are incorporated herein by this reference: 10.33 Warrant Issue-John C. Lawrence 10.34 PVS Termination Agreement Documents filed as an exhibit to USAC's Form 10-KSB for the year ended December 31, 1999 (File No. 001-08675) are incorporated herein by this reference: 10.35 Maguire Settlement Agreement 10.36 Warrant Issue-Carlos Tejada 10.37 Warrant Issue-Al W. Dugan 10.38 Memorandum of Understanding with Geosearch Inc. 10.39 Factoring Agreement-Systran Financial Services Company 10.40 Mortgage to John C. Lawrence 17 10.41 Warrant Issue-Al W. Dugan filed as an exhibit to USAC's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000 (File No. 001-08675) is incorporated herein by this reference 10.42 Agreement between United States Antimony Corporation and Thomson Kernaghan & Co., Ltd. filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference. 10.43 Settlement agreement and release of all claims between the Estate of Bobby C. Hamilton and United States Antimony Corporation filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference. 10.44 Supply Contracts with Fortune America Trading Ltd. filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference. 10.45 Amended and Restated Agreements with Thomson Kernaghan & Co., Ltd, filed as an exhibit to amendment No. 3 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508), are incorporated herein by this reference. 10.46 Purchase Order from Kohler Company, filed as an exhibit to amendment No. 4 to USAC's Form SB-2 Registration Statement (Reg. No. 333-45508) are incorporated herein by this reference. Documents filed as an exhibit to USAC's Form 10-QSB for the quarter ended June 30, 2002 (File No. 001-08675) are incorporated herein by this reference. 10.47 Bear River Zeolite Company Royalty Agreement, dated May 29, 2002 10.48 Grant of Production Royalty, dated June 1, 2002 10.49 Assignment of Common Stock of Bear River Zeolite Company, dated May 29, 2002 10.50 Agreement to Issue Warrants of USA, dated May 29, 2002 10.51 Secured convertible note payable Delaware Royalty Company dated December 22, 2003* 10.52 Convertible note payable John C. Lawrence dated December 22, 2003* 10.53 Pledge, Assignment and Security Agreement dated December 22, 2003* 10.54 Note Purchase Agreement dated December 22, 2003* 21.01 Subsidiary of USAC* 14.0 Code of Ethics* 31.1 Rule 13a-14(a)/15d-14(a) Certifications Certification of John C. Lawrence* 32.1 Section 1350 Certifications Certification of John C. Lawrence* 44.1 CERCLA Letter from U.S. Forest Service filed as an exhibit to USAC form 10-QSB for the quarter ended June 30, 2000 (File No. 001-08675) are incorporated herein by this reference and filed as an exhibit to USAC's Form 10-KSB for the year ended December 31, 1995 (File No. 1-8675) is incorporated herein by this reference. ______________________ * Filed herewith. 18 Reports on Form 8-K Item 5. Other Events - October 10, 2003. EXHIBIT 21.01 SUBSIDIARY OF REGISTRANT, AS OF DECEMBER 31, 2003 Bear River Zeolite Company C/o Box 643 Thompson Falls, MT 59873 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The Company's Board of Directors and audit committee reviews and approves audit and permissible non-audit services performed by DeCoria, Maichel & Teague P.S., as well as the fees charged by DeCoria, Maichel & Teague P.S. for such services. In its review of non-audit service fees and its appointment of DeCoria, Maichel & Teague P.S. as the Company's independent accountants, the Board of Directors considered whether the provision of such services is compatible with maintaining DeCoria, Maichel & Teague P.S. independence. All of the services provided and fees charged by DeCoria, Maichel & Teague P.S. in 2003 were pre-approved by the Board of Directors and its audit committee. AUDIT FEES The aggregate fees billed by DeCoria, Maichel & Teague P.S. for professional services for the audit of the annual financial statements of the Company and the reviews of the financial statements included in the Company's quarterly reports on Form 10-QSB for 2003 and 2002 were $44,300 and $40,700, respectively, net of expenses. AUDIT-RELATED FEES There were no other fees billed by DeCoria, Maichel & Teague P.S. during the last two fiscal years for assurance and related services that were reasonably related to the performance of the audit or review of the Company's financial statements and not reported under "Audit Fees" above. TAX FEES The aggregate fees billed by DeCoria, Maichel & Teague P.S. during the last two fiscal years for professional services rendered by DeCoria, Maichel & Teague P.S. for tax compliance for 2003 and 2002 were $2,600 and $2,335 respectively. ALL OTHER FEES There were no other fees billed by DeCoria, Maichel & Teague P.S. during the last two fiscal years for products and services provided by DeCoria, Maichel & Teague P.S. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED STATES ANTIMONY CORPORATION (Registrant) By:/s/ John C. Lawrence Date: April 8, 2004 ------------------------------- John C. Lawrence, President, Director and Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By:/s/ John C. Lawrence Date: April 8, 2004 ------------------------------- John C. Lawrence, Director and President (Principal Executive, Financial and Accounting Officer) By:/s/ Leo Jackson Date: April 12, 2004 -------------------------- Leo Jackson, Director By:/s/ Robert A. Rice Date: April 12, 2004 ---------------------------- Robert A. Rice, Director 20 Exhibit 31.1 CERTIFICATION I, John C. Lawrence, certify that: (1) I have reviewed this annual report on Form 10-KSB of United States Antimony Corporation. (2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; (3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; (4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and (5) I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's Board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: April 8, 2004 /s/ John C. Lawrence John C. Lawrence, President, and Chief Executive Officer 21 Exhibit 32.1 CERTIFICATION PURSUANT TO THE SARBANES-OXLEY ACT 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John C. Lawrence, director and president of United States Antimony Corporation (the "Registrant") do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. This Annual Report on Form 10-KSB of the Registrant for the fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission (the "report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: April 8, 2004 /s/ John C. Lawrence - ----------------------- John C. Lawrence President and Director 22 DeCoria, Maichel & Teague P.S. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of United States Antimony Corporation We have audited the accompanying consolidated balance sheets of United States Antimony Corporation and its subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United States Antimony Corporation and its subsidiary as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has negative working capital, an accumulated deficit and total stockholders' deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/DeCoria, Maichel & Teague P.S. DeCoria, Maichel & Teague P.S. Spokane, Washington February 13, 2004 F-1 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2003 and 2002
2003 2002 ASSETS Current assets: Accounts receivable, less allowance for doubtful accounts of $30,000. . . . . . . . . . . . . . . . . . . . . . . $ 51,081 $ 106,971 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,053 123,307 ------------- ------------- Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 204,134 230,278 Investment in USAMSA, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,913 18,625 Properties, plants and equipment, net . . . . . . . . . . . . . . . . . . . . . . 554,311 529,416 Restricted cash for bank note payable . . . . . . . . . . . . . . . . . . . . . . 105,649 102,022 Restricted cash for reclamation bonds . . . . . . . . . . . . . . . . . . . . . . 99,043 91,186 Deferred financing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 ------------- Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,005,050 $ 971,527 ============= ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Checks issued and payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 87,927 $ 53,641 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 909,696 783,799 Accrued payroll and property taxes. . . . . . . . . . . . . . . . . . . . . . . 197,761 280,247 Accrued payroll and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,085 85,838 Judgment payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,130 49,780 Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,645 18,663 Payable to related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . 232,111 202,625 Stock subscriptions payable . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 Notes payable to bank, current. . . . . . . . . . . . . . . . . . . . . . . . . 144,391 266,284 Accrued reclamation costs, current. . . . . . . . . . . . . . . . . . . . . . . 151,000 44,565 ------------- ------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,880,746 1,820,442 Secured convertible and convertible notes payable . . . . . . . . . . . . . . . . 350,000 Notes payable to bank, noncurrent . . . . . . . . . . . . . . . . . . . . . . . . 409,141 345,638 Accrued reclamation costs, noncurrent . . . . . . . . . . . . . . . . . . . . . . 57,500 152,050 ------------- ------------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,697,387 2,318,130 ------------- ------------- Commitments and contingencies (Notes 1 and 15) Stockholders' deficit: Preferred stock, $0.01 par value, 10,000,000 shares authorized: Series A: 4,500 shares issued and outstanding (liquidation preference $123,750 at December 31, 2003). . . . . . . . . . 45 45 Series B: 750,000 shares issued and outstanding (liquidation preference $825,000 at December 31, 2003). . . . . . . . . . 7,500 7,500 Series C: 177,904 shares issued and outstanding (liquidation preference $97,847 at December 31, 2003) . . . . . . . . . . 1,779 1,779 Series D: 1,863,672 and 96,000 shares issued and outstanding, respectively (liquidation preference $4,659,180 at December 31, 2003). . . . . . . . . 18,636 960 Common stock, $0.01 par value, 50,000,000 and 30,000,000 shares authorized; 28,114,288 and 27,027,959 shares issued and outstanding, respectively . . . . 281,143 270,279 Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 17,387,970 16,963,610 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,389,410) (18,590,776) ------------- ------------- Total stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . (1,692,337) (1,346,603) ------------- ------------- Total liabilities and stockholders' deficit . . . . . . . . . . . . . . $ 1,005,050 $ 971,527 ============= =============
F-2 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2003 and 2002
2003 2002 Revenues: Sales of antimony products and other. . $ 2,742,419 $ 3,274,007 Sales of zeolite products . . . . . . . 479,331 199,890 ------------ ------------ 3,221,750 3,473,897 ------------ ------------ Cost of sales (exclusive of depreciation, as separately stated): Cost of antimony production . . . . . . 2,140,714 2,541,657 Antimony depreciation . . . . . . . . . 41,288 42,991 Antimony freight and delivery . . . . . 262,356 331,439 Cost of zeolite production. . . . . . . 447,772 242,961 Zeolite depreciation. . . . . . . . . . 55,254 41,071 Zeolite freight and delivery. . . . . . 81,625 22,429 ------------ ------------ 3,029,009 3,222,548 ------------ ------------ Gross profit. . . . . . . . . . . . . . . 192,741 251,349 ------------ ------------ Other operating expenses: Yankee Fork Mill site reclamation . . . 27,397 22,068 Antimony general and administrative . . 434,563 327,936 Antimony sales expenses . . . . . . . . 67,818 80,397 Zeolite general and administrative. . . 212,689 86,658 Zeolite sales expenses. . . . . . . . . 70,589 62,654 ------------ ------------ 813,056 579,713 ------------ ------------ Other (income) expense: Interest expense. . . . . . . . . . . . 82,855 80,462 USAMSA impairment adjustment. . . . . . 60,526 Factoring expense . . . . . . . . . . . 106,175 94,765 Interest income and other . . . . . . . (10,711) (3,728) Zeolite royalty sale. . . . . . . . . . (200,000) ------------ ----------- 178,319 32,025 ------------ ------------ Net loss. . . . . . . . . . . . . . . . . $ (798,634) $ (360,389) ============ ============ Net loss per share of common stock. . . . $ (0.03) $ (0.01) ============ ============ Basic weighted average shares outstanding 27,175,607 26,907,102 ============ ============
The accompanying notes are an integral part of these financial statements. F-3
UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT For the years ended December 31, 2003 and 2002 TOTAL PREFERRED STOCK COMMON STOCK ADDITIONAL PAID ACCUMULATED SHARES AMOUNT SHARES AMOUNT IN CAPITAL DEFICIT TOTAL --------- ------- ----------- --------- ---------------- ------------- ------------ Balances, December 31, 2001 932,404 $ 9,324 26,156,959 $261,569 $ 16,791,610 $(18,230,387) $(1,167,884) Issuance of common stock and warrants for cash 871,000 8,710 163,360 172,070 Issuance of Series D preferred stock to directors for services 96,000 960 8,640 9,600 Net loss (360,389) (360,389) ---------- ------- --------- --------- ----------- ------------- ------------ Balances, December 31, 2002 1,028,404 10,284 27,027,959 270,279 16,963,610 (18,590,776) (1,346,603) Issuance of common stock and warrants for cash 2,300,001 23,000 322,000 345,000 Issuance of common stock and warrants for common stock subscriptions payable 175,000 1,750 33,250 35,000 Issuance of Series D preferred stock to directors and others for services 379,000 3,790 39,110 42,900 Common stock warrants issued with secured convertible and convertible notes payable 30,000 30,000 Common stock cancelled and re-issued as Series D preferred stock 1,388,672 13,886 (1,388,672) (13,886) Net loss (798,634) (798,634) ---------- ------- --------- --------- ----------- ------------- ------------ Balances, December 31, 2003 2,796,076 $27,960 28,114,288 $281,143 $ 17,387,970 $(19,389,410) $(1,692,337) ========= ======= =========== ========= ================ ============= ============
The accompanying notes are an integral part of these financial statements. F-4 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2003 and 2002
2003 2002 Cash flows from operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(798,634) $(360,389) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization. . . . . . . . . . . . . . 96,542 97,084 Series D preferred stock issued to directors and officer 22,800 9,600 Series D preferred stock issued for legal services . . . 20,100 USAMSA impairment adjustment . . . . . . . . . . . . . . 60,526 Loss from unconsolidated investment. . . . . . . . . . . 6,712 3,200 Change in: Accounts receivable. . . . . . . . . . . . . . . . . . 55,890 (1,887) Inventories. . . . . . . . . . . . . . . . . . . . . . (29,746) 2,768 Restricted cash for bank note payable. . . . . . . . . (3,627) (98,219) Restricted cash for reclamation bonds. . . . . . . . . (7,857) (3,636) Accounts payable . . . . . . . . . . . . . . . . . . . 125,897 159,212 Accrued payroll and property taxes . . . . . . . . . . (82,486) 23,927 Accrued payroll and other. . . . . . . . . . . . . . . 2,247 3,048 Judgment payable . . . . . . . . . . . . . . . . . . . 3,350 3,257 Accrued interest payable . . . . . . . . . . . . . . . (2,018) 4,023 Payable to related parties . . . . . . . . . . . . . . 129,486 81,543 Accrued reclamation costs. . . . . . . . . . . . . . . 11,885 (28,548) ---------- ---------- Net cash used by operating activities. . . . . . . . (449,459) (44,491) ---------- ---------- Cash flows from investing activities: Purchase of properties, plants and equipment . . . . . . . . (121,437) (305,745) ---------- ---------- Net cash used by investing activities. . . . . . . . (121,437) (305,745) ---------- ---------- Cash flows from financing activities: Proceeds from sale of common stock and warrants. . . . . . . 345,000 172,070 Proceeds from issuance of common stock subscriptions payable 35,000 Principal payments on notes payable to bank, net . . . . . . (58,390) Proceeds from notes payable to bank, net . . . . . . . . . . 150,646 Proceeds from secured convertible note payable . . . . . . . 250,000 Change in checks issued and payable. . . . . . . . . . . . . 34,286 (7,480) ---------- ---------- Net cash provided by financing activities. . . . . . 570,896 350,236 ---------- ---------- Net decrease in cash . . . . . . . . . . . . . . . . . . . . . 0 0 Cash, beginning of year. . . . . . . . . . . . . . . . . . . . 0 0 ---------- ---------- Cash, end of year. . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 0 ========== ========== Supplemental disclosures: Cash paid during the year for interest . . . . . . . . . . . $ 73,727 $ 62,599 ========== ========== Noncash financing activities: Common stock warrants issued with secured convertible and convertible notes payable. . . . . . . . . . . . . . $ 30,000 ========== Common stock and warrants issued for common stock subscriptions payable. . . . . . . . . . . . . . . . . . $ 35,000 ========== Conversion of payable to related parties to convertible note payable . . . . . . . . . . . . . . . . . . . . . . $ 100,000 ========== Common stock cancelled and re-issued as Series D preferred stock. . . . . . . . . . . . . . . . . . . . . $ 13,866 ==========
F-5 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND OF COMPANY AND BASIS OF PRESENTATION AGAU Mines, Inc., predecessor of United States Antimony Corporation ("USAC" or "the Company"), was incorporated in June 1968 as a Delaware corporation to mine gold and silver. USAC was incorporated in Montana in January 1970 to mine and produce antimony products. In June 1973, AGAU Mines, Inc. was merged into USAC. In December 1983, the Company suspended its antimony mining operations when it became possible to purchase antimony raw materials more economically from foreign sources. The principal business of the Company has been the production and sale of antimony products. During 2000, the Company formed a 75% owned subsidiary, Bear River Zeolite Company ("BRZ"), to mine and market zeolite and zeolite products from a mineral deposit in southeastern Idaho. In 2001, an operating plant was constructed at the zeolite site and zeolite production and sales commenced. During 2002, the Company acquired the remaining 25% of BRZ and continued to produce and sell zeolite products. The financial statements have been prepared on a going concern basis, which assumes realization of assets and liquidation of liabilities in the normal course of business. At December 31, 2003, the Company had negative working capital of approximately $1.68 million, an accumulated deficit of approximately $19.4 million, and a total stockholders' deficit of approximately $1.7 million. Additionally, the Company is delinquent on the payment of several current liabilities including payroll and property taxes totaling approximately $138,000, accounts payable totaling approximately $600,000 including approximately $240,000 payable to law firms, a judgment payable to the Internal Revenue Service totaling approximately $53,000, and accrued interest payable totaling approximately $17,000. These factors, among others, indicate that there is substantial doubt that the Company will be able to meet its obligations and continue in existence as a going concern. The financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. To improve the Company's financial condition, the following actions have been initiated or taken by management: - -During 2003 and 2002, the Company made progress in developing its zeolite product capabilities, and broadened its zeolite product line. The Company has been developing a sales and marketing force and attracting new zeolite customers. - -During the fourth quarter of 2003, the Company negotiated the sale of a $250,000 secured convertible note payable to a company controlled by a major shareholder of the Company. In addition, the Company was able to convert $100,000 of current debt owed to the Company's president into a longer term convertible note payable. - -During 2003, the Company sold an aggregate of 2,300,001 shares of its unregistered common stock and warrants for $345,000; during 2002, the Company sold an aggregate of 871,000 shares of its unregistered common stock and warrants for cash of $172,070. The Company will mostly likely continue to offer its stock for sale to finance its activities, there can be no assurances, however, the Company will be successful in selling its stock. - -The Company has curtailed certain labor and overhead costs and is considering the sale of certain of its land holdings in Sanders County, Montana in an effort to provide more operating capital. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-6 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. CONCENTRATIONS OF RISK The Company purchases most of the raw antimony used in the production of its finished antimony products from Chinese producers through metal brokers. If the supply of antimony from China is reduced, it is possible that the Company's antimony product operations could be adversely affected. During the years ended December 31, 2003 and 2002, 56% and 40%, respectively, of the Company's antimony revenues were generated by sales to one customer. Subsequent to year-end, the Company terminated a sales agreement with its largest customer. Management expects gross sales to decrease in the short-term, but gross profit from remaining and future sales to increase overall. The ultimate outcome of this event is still uncertain, however. During 2003, 18% and 14% of the Company's revenues generated from zeolite product sales were to one of two individual customers, respectively. During 2002, 55% of the Company's revenues generated from zeolite product sales were to an individual customer. The loss of the Company's "key" customers could adversely affect its business. The Company's products are sold principally in the United States and, to a lesser extent, Canada. The Company's revenues from antimony sales are strongly influenced by world prices for such commodities, which fluctuate and are affected by numerous factors beyond the Company's control, including inflation and worldwide forces of supply and demand. The aggregate effect of these factors is not possible to predict accurately. Many of the Company's competitors in the antimony industry have substantially more capital resources and market share than the Company. Therefore, the Company's ability to maintain its market share can be significantly affected by factors outside of the Company's control. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - ----------------------------- The Company's consolidated financial statements include the accounts of Bear River Zeolite Company, a wholly owned subsidiary. Intercompany balances and transactions are eliminated in consolidation. The Company accounts for its investment interest in its 50% owned foreign entity, USAMSA, by the equity method. Restricted Cash - ---------------- Restricted cash consists primarily of cash held for payment of delinquent payroll taxes, reclamation performance bonds, and security for a bank note payable. Restricted cash held for reclamation and as security for a bank note payable are held as certificates of deposit with reputable financial institutions. Deferred Financing Costs - -------------------------- Deferred financing costs relating to secured convertible notes payable are amortized over the terms of the notes payable. F-7 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Reclassifications - ----------------- Certain reclassifications have been made to the 2002 financial statements in order to conform to the 2003 presentation. These reclassifications have no effect on net loss, total assets or stockholders' deficit as previously reported. Inventories - ----------- Inventories at December 31, 2003 and 2002, primarily consisted of antimony finished products, antimony metal and zeolite finished products that are stated at the lower of first-in, first-out cost or estimated net realizable value. Since the Company's antimony inventory is a commodity with a sales value that is subject to world prices for antimony that are beyond the Company's control, a significant change in the world market price of antimony could have a significant effect on the net realizable value of inventories. Properties, Plants and Equipment - ----------------------------------- Production facilities and equipment are stated at the lower of cost or estimated net realizable value and are depreciated using the straight-line method over their estimated useful lives (five to fifteen years). Vehicles and office equipment are stated at cost and are depreciated using the straight-line method over estimated useful lives of three to five years. Maintenance and repairs are charged to operations as incurred. Betterments of a major nature are capitalized. When assets are retired or sold, the costs and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is reflected in operations. The Company has adopted the provisions of Statement of Financial Accounting Standards No. 144, ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." The provisions of SFAS No. 144 require that an impairment loss be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the estimated fair value of the asset if the asset is expected to be held and used. Management of the Company periodically reviews the net carrying value of all of its properties on a property-by-property basis. These reviews consider the net realizable value of each property to determine whether a permanent impairment in value has occurred and the need for any asset write-down. Although management has made its best estimate of the factors that affect net realizable value based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs. Income Taxes - ------------- The Company records deferred income tax liabilities and assets for the expected future income tax consequences of events that have been recognized in its financial statements. Deferred income tax liabilities and assets are determined based on the temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. F-8 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: Reclamation and Remediation - ----------------------------- All of the Company's mining operations are subject to reclamation and closure requirements. Minimum standards for mine reclamation have been established by various governmental agencies. Costs are estimated based primarily upon environmental and regulatory requirements and are accrued and charged to expense over the expected economic life of the operation using the units-of-production method. The liability for reclamation is classified as current or noncurrent based on the expected timing of expenditures. The Company accrues costs associated with environmental remediation obligations when it is probable that such costs will be incurred and they are reasonably estimable. Costs of future expenditures for environmental remediation are not discounted to their present value. Such costs are based on management's current estimate of amounts that are expected to be incurred when the remediation work is performed within current laws and regulations. The Company has restricted cash balances that have been provided to ensure performance of its reclamation obligations. It is reasonably possible that due to uncertainties associated with defining the nature and extent of environmental contamination, application of laws and regulations by regulatory authorities, and changes in remediation technology, the ultimate cost of remediation and reclamation could change in the future. The Company continually reviews its accrued liabilities for such remediation and reclamation costs as evidence becomes available indicating that its remediation and reclamation liability has changed. Revenue Recognition - -------------------- Sales of antimony and zeolite products are recorded upon shipment and when title passes to the customer. The Company's sales agreements provide for no product returns or allowances. Income (Loss) Per Common Share - ---------------------------------- The Company accounts for its income (loss) per common share according to Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). Under the provisions of SFAS No. 128, primary and fully diluted earnings per share are replaced with basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding, and does not include the impact of any potentially dilutive common stock equivalents. Common stock equivalents, including warrants to purchase the Company's common stock and common stock issuable upon the conversion of notes payable, are excluded from the calculations when their effect is antidilutive. Stock-Based Compensation - ------------------------- Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), as amended by SFAS No. 148, requires companies to recognize stock-based expense based on the estimated fair value of employee stock options. Alternatively, SFAS No. 123 allows companies to retain the current approach set forth in APB Opinion 25, "Accounting for Stock Issued to Employees," provided that expanded footnote disclosure is presented. The Company has not adopted the fair value method of accounting for stock-based compensation under SFAS No. 123, but provides the pro forma disclosure required when appropriate. F-9 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: New Accounting Pronouncements - ------------------------------- In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." This statement culminates the current requirements that gains and losses on debt extinguishment must be classified as extraordinary items in the income statement. Instead, such gains and losses will be classified as extraordinary items only if they are deemed to be unusual and infrequent, in accordance with the current GAAP criteria for extraordinary classifications. In addition, SFAS No. 145 eliminates an inconsistency in lease accounting by requiring that modifications of capital leases that result in reclassification as operating leases be accounted for consistent with sales-leaseback accounting rules. The statement also contains other nonsubstantive corrections to authoritative accounting literature. The rescission of SFAS No. 4 is effective in fiscal years beginning after May 15, 2002. The amendment and technical corrections of SFAS No. 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, 2002. SFAS No. 145 has no impact on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amount recognized. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 has no impact on the Company's financial statements. In August 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 removes acquisitions of financial institutions from the scope of SFAS No. 72 and FASB Interpretation No. 9, and requires that those transactions be accounted for in accordance with SFAS No. 141 and SFAS No. 142. In addition, SFAS No. 147 amends SFAS No. 144, to include in its scope long-term customer-relationship intangible assets of financial institutions. The provisions of SFAS No. 147 are generally effective October 1, 2002. SFAS No. 147 has no impact on the Company's financial statements. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting for Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the requirements for a guarantor's accounting for and disclosure of certain guarantees issued and outstanding. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This interpretation also incorporates without reconsideration the guidance in FASB Interpretation No. 34, which is being superseded. The adoption of FIN 45 has no material effect on the Company's financial statements. In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables," related to the timing of revenue recognition for arrangements in which goods or services or both are delivered separately in a bundled sales arrangement. The EITF requires that when the deliverables included in this type of arrangement meet certain criteria they should be accounted for separately as separate units of accounting. This consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. EITF 00-21 will not have an impact upon initial adoption and is not expected to have a material impact on the Company's results of operations, financial position and cash flows. F-10 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: New Accounting Pronouncements, Continued: - -------------------------------------------- In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123." SFAS No. 148 provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects of reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, this Statement amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about those effects in interim financial information. The amendments to SFAS No. 123, which provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation is effective for financial statements for fiscal years ending after December 15, 2002. The amendment to SFAS No. 123 relating to disclosures and the amendment to Opinion 28 is effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. Management does not intend to adopt the fair value accounting provisions of SFAS No. 123 and currently believes that the adoption of SFAS No. 148 will not have a material impact on the Company's financial statements. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This standard amends and clarifies the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement is effective prospectively for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. SFAS No. 149 will not have an impact upon initial adoption and is not expected to have a material effect on the Company's results of operations, financial position and cash flows. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The requirements of SFAS No. 150 were initially required to become effective for the Company for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. On November 7, 2003, the FASB issued FAS No. 150-3, deferring the effectiveness of SFAS No. 150 under certain circumstances. The Company has evaluated the impact of SFAS No. 150 to determine the effect it may have on its results of operations, financial position or cash flows and has concluded that the adoption of this statement is not expected to have a material effect on the Company's financial position or results of operations. 4. SALES OF ACCOUNTS RECEIVABLE The Company sells its accounts receivable to a financing company pursuant to the terms of a factoring agreement. According to the terms of the agreement, the receivables are sold with full recourse and the Company assumes all risks of collectibility. Accordingly, the Company's allowance for doubtful accounts receivable is based upon the expected collectibility of all trade receivables. The performance of all obligations and payments to the factoring company is personally guaranteed by John C. Lawrence, the Company's president and a director. As consideration for Mr. Lawrence's guarantee, the Company granted a mortgaged security interest to Mr. Lawrence collateralized by the Company's real and personal property. F-11 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. SALES OF ACCOUNTS RECEIVABLE, CONTINUED: The factoring agreement requires that the Company pay a financing fee equal to 2% of the face amount of receivables sold. Financing fees paid by the Company during the years ended December 31, 2003 and 2002 totaled $106,175 and $94,765, respectively. For the years ended December 31, 2003 and 2002, net accounts receivable of approximately $3.2 million and $3.3 million, respectively, were sold under the agreement. Proceeds from the sales were used to fund inventory purchases and operating expenses. The agreement is for a term of one year with automatic renewal for additional one-year terms. The Company's sales of accounts receivable qualify as sales under the provisions of Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a Replacement of FASB Statement 125." 5. INVENTORIES The major components of the Company's inventories at December 31, 2003 and 2002, were as follows:
2003 2002 Antimony Metal. . $ 31,824 $ 7,406 Antimony Oxide. . 71,680 93,456 Sodium Antimonate 218 2,388 Zeolite . . . . . 49,331 20,057 -------- -------- $153,053 $123,307 ======== ========
At December 31, 2003 and 2002, antimony metal consisted principally of recast metal from antimony-based compounds and metal purchased from foreign suppliers, respectively. Antimony oxide inventory consisted of finished product oxide held at the Company's plant or in independent warehouses throughout the United States. Sodium antimonite inventory consisted of dry finished product and wet raw materials, the majority of which were stored at the Company's antimony plant near Thompson Falls, Montana. The Company's zeolite inventory consists of salable zeolite material held at BRZ's Idaho mining and production facility. 6. PROPERTIES, PLANTS AND EQUIPMENT The major components of the Company's properties, plants and equipment at December 31, 2003 and 2002 were as follows:
2003 2002 Mining equipment (1). . . . . . . . . . . $ 945,137 $ 945,137 Chemical processing and office buildings. 168,211 144,727 Chemical processing equipment . . . . . . 923,591 921,065 BRZ plant . . . . . . . . . . . . . . . . 522,057 426,630 Other . . . . . . . . . . . . . . . . . . 151,268 151,268 ---------- ---------- 2,710,264 2,588,827 Less accumulated depreciation . . . . . . 2,155,953 2,059,411 ---------- ---------- $ 554,311 $ 529,416 ========== ==========
(1) Substantially all of the Company's mining equipment is fully depreciated. At December 31, 2003 and 2002, mining equipment with an original cost of approximately $670,000, was in use at BRZ. F-12 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. INVESTMENT IN USAMSA The Company has a 50% investment in United States Antimony, Mexico S.A. de C.V. ("USAMSA"). The Company accounts for its investment in USAMSA by the equity method and translates the foreign currency financial statements of USAMSA in accordance with the requirements of SFAS No. 52, "Foreign Currency Translation." Assets and liabilities are translated at current exchange rates, related revenues and expenses are translated at average exchange rates in effect during the period, and the effects of exchange rate changes are reflected in stockholders' equity. Unaudited condensed financial information for USAMSA at December 31, 2003 and 2002, and the years then ended, is as follows:
2003 2002 ASSETS Current assets . . . . . . . . . . . . . . . $15,286 $16,292 Noncurrent assets. . . . . . . . . . . . . . 68,588 73,102 ------- ------- Total assets . . . . . . . . . . . . . . . $83,874 $89,394 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities. . . . . . . . . . . . . $60,048 $52,144 Stockholders' equity . . . . . . . . . . . . 23,826 37,250 ------- ------- Total liabilities and stockholders' equity $83,874 $89,394 ======= ======= 2003 2002 RESULTS OF OPERATIONS Expenses: Administrative and other costs . . . . . $11,124 $ 6,401 ------- ------- Net loss . . . . . . . . . . . . . . . . $11,124 $ 6,401 ======= =======
USAMSA was idle during 2003 and 2002 due to unstable antimony metal prices and the absence of sufficient operating capital. During 2002, the Company adjusted the carrying value of its investment in USAMSA to equal 50% of USAMSA's net book value. Leo Jackson, a director and stockholder of the Company owns 31.4% of Production Minerals, Inc., which has an indirect interest of 25% in the stock of USAMSA. 8. JUDGMENT PAYABLE At December 31, 2003 and 2002, the Company owed $53,130 and $49,780, respectively, to the Internal Revenue Service, in connection with a default judgment in a bankruptcy proceeding. The default judgment was originally entered against the Company by the United States Bankruptcy Court in 1992 in favor of the bankruptcy estate of a former legal counsel of the Company. In 1998, the Trustee of the estate assigned the interest in the judgment to the Internal Revenue Service. The judgment accrues interest at the Federal Judgment Interest Rate, and is due in monthly installments of $3,000. During 2003 and 2002, the Company made no payments on this judgment payable. F-13 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. DUE TO RELATED PARTIES Amounts due to related parties at December 31, 2003 and 2002 were as follows (see Note 15):
2003 2002 Entity owned by John C. Lawrence, president and director. . . . . . . . . . . . . . . . . $ 7,368 $ 8,824 John C. Lawrence, president and director(1) . . . . . . . . . . . . . . . . . . . . . . . 224,743 193,801 ---------- -------- $ 232,111 $202,625 ========== ======== Transactions affecting the payable to Mr. Lawrence during 2003 and 2002 were as follows: 2003 2002 Balance, beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 193,801 $116,361 Equipment rental charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,125 56,481 Advances, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,817 20,959 Conversion to convertible note payable(2) . . . . . . . . . . . . . . . . . . . . . . . . (100,000) ---------- -------- Balance, end of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 224,743 $193,801 ========== ========
(1) Includes accrued interest at 10% per annum of $21,484 and $13,688 for the years ended December 31, 2003 and 2002, respectively. (2) See Note 11. 10. NOTES PAYABLE TO BANK Notes payable to First State Bank of Thompson Falls, Montana ("First State Bank") at December 31, 2003, were as follows:
Term note payable, bearing interest at 9.0% through September 2008, then prime plus 2% through maturity; payable in monthly installments of $5,648; maturing September 2013 $ 438,612 Note payable under $150,000 revolving line-of-credit, bearing interest at 6.0%; outstanding principal and accrued interest due June 2004. . 65,170 Note payable under $50,000 revolving line-of-credit, bearing interest at 9.5%; outstanding principal and accrued interest due April 2004 . 49,750 ----------- 553,532 Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . (144,391) ----------- Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . . . $ 409,141 ============
At December 31, 2003, principal payments on the notes payable to bank are due as follows:
YEAR ENDING DECEMBER 31, ------------- 2004. . . . . . . $ 144,391 2005. . . . . . . 32,236 2006. . . . . . . 35,260 2007. . . . . . . 38,567 2008. . . . . . . 42,185 Thereafter. 260,893 ------------- 553,532 =============
F-14 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. NOTES PAYABLE TO BANK, CONTINUED: Each of the notes payable described above is collateralized by accounts receivable, inventory, certain equipment, patented and unpatented claims in Sanders County, Montana and are personally guaranteed by John C. Lawrence, the Company's president and a director. The note payable under a $150,000 revolving line-of-credit is also collateralized by a certificate of deposit. The notes also contain certain restrictive covenants, including paying payroll and property taxes, as they are due. At December 31, 2003, the Company was not in compliance with certain of the covenants. The Company has obtained a waiver from First State Bank relating to these covenants, which applies at December 31, 2003 and through December 31, 2004. 11. SECURED CONVERTIBLE AND CONVERTIBLE NOTES PAYABLE Security Agreement and Secured Convertible Note Payable - ------------------------------------------------------------- On December 22, 2003, the Company and its wholly-owned subsidiary BRZ, entered into a Pledge, Assignment, and Security Agreement ("the Agreement") with Delaware Royalty Company, Inc. ("Delaware"), a company controlled by Al Dugan, a major shareholder of the Company. The Agreement was in connection with the purchase of a $250,000 Secured Convertible Note Payable ("the Secured Note"), by Delaware from the Company. The Agreement granted Delaware a first-priority security interest in all of the issued and outstanding stock of BRZ in the event the Company is unable to complete payment and performance under the obligations associated with the Secured Note. The Secured Note accrues interest at 10% per annum with interest payable quarterly, beginning March 31, 2004, and is convertible into shares of the Company's common stock at an initial conversion price of $0.20 per share up until 30 days prior to repayment of the Secured Note. In the event the Company issues shares of its common stock for a consideration per share less than the initial conversion price, the initial conversion price is reduced to a new conversion price equal to the consideration per share received by the Company for the additional shares of common stock then issued so that the number of shares issuable to the holder of the Secured Note upon conversion is proportionately increased. In the case of shares issued without consideration, the initial conversion price shall be reduced in an amount so as to maintain for the holder of the Secured Note the right to convert the note into shares equal in amount to the same percentage interest in the common stock of the Company as existed immediately preceding the date the additional common stock was issued. The Secured Note is subject to certain covenants, which include, among other things, payment of the principal and accrued interest according to the terms of the note, and the use of proceeds for the payment of accounts payable and the purchase of inventory and mining equipment. The Secured Note matures on December 22, 2007, unless otherwise converted. At December 31, 2003, $250,000 of principal was outstanding and due on the note. Convertible Note Payable - -------------------------- On December 22, 2003, John C. Lawrence the Company's president and a director, agreed to convert $100,000 of related party debt due him into a Convertible Note Payable ("the Convertible Note"). The Convertible Note contains essentially the same attributes and privileges that the Secured Note provides Delaware Royalty Company, in that it accrues interest at 10% per annum and is convertible into shares of the Company's common stock at an initial conversion price of $0.20 per share. The conversion price of the Convertible Note is also subject to the same anti-dilution adjustments as the Secured Note. The Convertible Note matures on December 22, 2007, unless otherwise converted. The Convertible Note is unsecured, however, and not collateralized by any of the Company's assets. At December 31, 2003, $100,000 was outstanding in the Convertible Note payable. F-15 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SECURED CONVERTIBLE NOTES PAYABLE, CONTINUED: Deferred Financing Charges - ---------------------------- In connection with the issuance of the secured convertible and convertible notes payable, Mr. Dugan and Mr. Lawrence, were issued 2,000,000 and 1,000,000 stock purchase warrants, respectively. The warrants expire in December of 2008 and 2007, respectively, and are exercisable for shares of the Company's unregistered common stock at $0.20 per share. The Company accounted for the detachable warrants issued in connection with the notes in accordance with Accounting Principles Board Opinion No. 14, and estimated a fair value of $0.01 per warrant, or $30,000, attributable to the detachable warrants. The resulting value was recorded as a deferred financing cost and will be amortized as interest expense over the terms of the respective convertible notes payable. During the year ended December 31, 2003, none of the deferred offering costs had yet been amortized to interest expense. 12. STOCKHOLDERS' DEFICIT Common Stock Warrants - ----------------------- The Company's Board of Directors has the authority to issue stock warrants for the purchase of preferred or common stock to directors and employees of the Company. The Company has also issued warrants in exchange for services rendered the Company and in connection with sales of its unregistered common stock.
Transactions in common stock warrants are as follows:. . . NUMBER OF EXERCISE EXPIRATION WARRANTS PRICES DATES ----------- ----------- ---------- Balance December 31, 2001. . . . . . . . . . . . . . . . . 3,906,714 $0.25-$0.45 (A) Warrants issued in connection with stock sales . . . . . 871,000 $ 0.30 (B) Warrants issued for consulting services. . . . . . . . . 600,000 $ 0.30 (B) Warrants issued in connection with BRZ purchase. . . . . 50,000 $ 0.45 (C) Warrants exchanged for Series D warrants . . . . . . . . (151,213) Warrants expired . . . . . . . . . . . . . . . . . . . . (100,000) $ 0.55 ----------- ----------- Balance, December 31, 2002 . . . . . . . . . . . . . . . . 5,176,501 Warrants issued in connection with 2002 and 2003 stock sales . . . . . . . . . . . . . . . . . . . 2,550,001 $ 0.30 (D) Warrants issued with secured convertible and convertible notes payable. . . . . . . . . . . . . . . . . . . . . 3,000,000 $ 0.20 (E) Warrants expired and cancelled . . . . . . . . . . . . . (300,400) $ 0.25 ----------- ----------- Balance, December 31, 2003 . . . . . . . . . . . . . . . . 10,426,102 ===========
F-16 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCKHOLDERS' DEFICIT, CONTINUED: Common Stock Warrants, Continued: - ------------------------------------ (A) Warrants are exercisable on or before January and December of 2004. (B) Warrants are exercisable on or before September and November of 2005. (C) Warrants are exercisable on or before May of 2005. (D) Warrants are exercisable on or before June and December of 2006. (E) Warrants are exercisable on or before December of 2007 and 2008. Preferred Stock Warrants - -------------------------- During 2003, the Company issued 111,185 warrants to purchase shares of Series D preferred stock to John C. Lawrence, the Company's president and a director, for his assistance in procuring equipment financing. The warrants are exercisable at $0.30 per share and expire in 2008. In addition, during 2003, the Company issued 200,000 warrants to purchase shares of Series D preferred stock to Gary D. Babbitt, the Company's former attorney and director for consulting services provided the Company. The warrants are exercisable at $0.30 per share and expire in 2006. (See Preferred Stock/Series D). During 2002, the Company issued 1,151,213 warrants to purchase shares of Series D preferred stock. Of the Series D warrants issued, 750,000 were issued to Mr. Lawrence, in consideration for advances made by him to the Company; 250,000 were issued to Mr. Babbitt, for legal services rendered; and an additional 151,213 were issued to Mr. Lawrence in exchange for his warrants to purchase 151,213 shares of the Company's common stock. The warrants are exercisable at $0.20 per share and expire in 2005 and 2007. Issuance of Common Stock for Cash - -------------------------------------- During 2003, the Company sold an aggregate of 2,300,001 shares of its unregistered common stock, plus warrants to purchase 2,375,001 shares of its common stock at $0.30 per share. Proceeds from the sale totaled $345,000, or approximately $0.15 per unit of shares and warrants sold, and were used to fund the Company's operating activities. During 2002, the Company sold an aggregate of 871,000 shares of its unregistered common stock, plus warrants to purchase 871,000 shares of common stock exercisable at $0.30 per share, to existing shareholders and other parties for cash of $172,070. In connection with the stock sales during 2002, 600,000 warrants, exercisable at $0.30 and expiring in November 2005, were issued to a stockholder and consultant for his services. At December 31, 2002, the Company had stock subscriptions payable of $35,000 outstanding relating to its commitment to sell 175,000 shares of common stock and common stock purchase warrants exercisable at $0.30 per share on or before November of 2005. The shares and warrants were issued subsequently in 2003. Common Stock Cancelled and Re-issued as Series D Preferred Stock - ----------------------------------------------------------------------- During 2003, the Board of Directors resolved that 1,388,672 shares of the Company's common stock held by John C. Lawrence, the Company's president, be cancelled and then re-issued in an equal number of shares of the Company's Series D preferred stock. The cancellation and re-issue resulted from the Company's need to maintain its authorized common stock available for issue within the maximum number of shares as provided by its Articles of Incorporation, while it offered shares of its common stock and warrants for sale. F-17 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCKHOLDERS' DEFICIT, CONTINUED: Preferred Stock - ---------------- The Company's Articles of Incorporation authorize 10,000,000 shares of $0.01 par value preferred stock available for issuance with such rights and preferences, including liquidation, dividend, conversion and voting rights, as the Board of Directors may determine. Series A - --------- During 1986, Series A preferred stock, consisting of 4,500 shares, was established by the Board of Directors. These shares are nonconvertible, nonredeemable and are entitled to a $1.00 per share per year cumulative dividend. Series A preferred stockholders have voting rights for directors only and a total liquidation preference equal to $45,000 plus dividends in arrears. At December 31, 2003, 4,500 shares of Series A preferred stock were outstanding and cumulative dividends in arrears including the liquidation preference amounted to $123,750, or $28.00 per share. Series B - --------- During 1993, Series B preferred stock, consisting of 1,666,667 shares, was established by the Board of Directors and 1,666,667 shares were issued in connection with a final settlement of litigation. The Series B preferred stock has preference over the Company's common stock and Series A preferred stock, has no voting rights (absent default in payment of declared dividends) and is entitled to cumulative dividends of $0.01 per share per year payable if and when declared by the Board of Directors. In the event of dissolution or liquidation of the Company, the preferential amount payable to Series B restricted preferred stockholders is $1.00 per share plus dividends in arrears. No dividends have been declared or paid with respect to the Series B preferred stock. In 1995, 916,667 shares of Series B preferred stock were surrendered to the Company and cancelled in connection with the settlement of litigation against Bobby C. Hamilton. At December 31, 2003, cumulative dividends in arrears on the 750,000 outstanding Series B shares were $75,000, or $0.10 per share. Total dividends in arrears and liquidation preference were $825,000 at December 31, 2003. Series C - --------- During 1997, the Company issued 2,560,762 shares of Series C preferred stock in connection with the conversion of certain debts owed by the Company. During 1999, holders of 2,354,766 shares of Series C stock converted their shares into common stock of the Company. The Series C shares have voting rights, are non-redeemable and have a $0.55 per share liquidation preference, or $97,847, at December 31, 2003. At December 31, 2003 and 2002, 177,904 shares of Series C preferred stock remained outstanding and unconverted. Series D - --------- During 2002, the Company established its Series D preferred stock. Holders of the Series D preferred stock have the right, subject to the availability of authorized but unissued common stock, to convert their shares into shares of the Company's common stock without payment of additional consideration. The Series D shares are initially convertible into the Company's common stock as determined by dividing $0.20 by the conversion price in effect at the time of the conversion. The initial conversion price of the Series D preferred stock is $0.20, and subject to adjustment based upon anti-dilution provisions, that include but are not limited to, the affects of the subsequent sale of common stock at prices less than the initial conversion price. F-18 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. STOCKHOLDERS' DEFICIT, CONTINUED: Series D, Continued: - ---------------------- DESIGNATION. The class of convertible Series D preferred stock, $0.01 par value, consists of up to 2.5 million shares. VOTING RIGHTS. The holders of Series D preferred shares shall have the right to that number of votes equal to the number of shares of common stock issuable upon conversion of such Series D preferred shares. REDEMPTION. The Series D preferred shares are not redeemable by the Company. LIQUIDATION PREFERENCE. The Series D holders are entitled to a liquidation preference equal to the greater of $2.50 per share or the equivalent market value of the number of shares of common stock into which each share of Series D is convertible. At December 31, 2003, the liquidation preference for Series D preferred stock was $4,659,180. REGISTRATION RIGHTS. All of the underlying common stock issued upon conversion of the Series D preferred shares shall be entitled to "piggyback" registration rights when, and if, the Company files a registration statement for its securities or the securities of any other stockholder. DIVIDENDS. The Series D holders are entitled to an annual dividend of $0.0235 per share. The dividends are cumulative and payable after payment and satisfaction of the Series A, B and C preferred stock dividends. At December 31, 2003 and 2002, the Company had 1,863,672 and 96,000 shares of Series D preferred stock outstanding, respectively (see Note 15). 13. 2000 STOCK PLAN In January 2000, the Company's Board of Directors resolved to create the United States Antimony Corporation 2000 Stock Plan ("the Plan"). The purpose of the Plan is to attract and retain the best available personnel for positions of substantial responsibility and to provide additional incentive to employees, directors and consultants of the Company to promote the success of the Company's business. The maximum number of shares of common stock or options to purchase common stock that may be issued pursuant to the Plan is 500,000. At December 31, 2003 and 2002, 300,000 shares of the Company's common stock had been issued under the Plan. 14. INCOME TAXES The Company had no income tax provision or benefit for the years ended December 31, 2003 and 2002. At December 31, 2003 and 2002, the Company had net deferred tax assets composed as follows:
2003 2002 Arising from differences in the book and tax basis of certain property assets . . . . . . . . . . . . . . $ 300,000 $ 250,000 Arising from net tax operating loss carryforwards . . 1,445,000 1,550,000 ------------ ------------ Total deferred tax assets . . . . . . . . . . . . . . 1,745,000 1,800,000 ------------ ------------ Valuation allowance . . . . . . . . . . . . . . . . . (1,745,000) (1,800,000) ------------ ------------ Net deferred tax assets . . . . . . . . . . . . . . $ 0 $ 0 ============ ============
F-19 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 14. INCOME TAXES, CONTINUED: The deferred tax assets were calculated based on an estimated 34% income tax rate. As management of the Company cannot determine if it is more likely than not that the Company will realize the benefit of its deferred tax assets, a valuation allowance equal to the net deferred tax assets at both December 31, 2003 and 2002 has been established. At December 31, 2003 and 2002, the Company had unexpired regular tax net operating loss carryforwards of approximately $4,250,000 and $4,700,000, respectively, which expire in the years 2004 through 2023. At December 31, 2003, the Company had net operating loss carryforwards for alternative minimum tax purposes of approximately $4,000,000. 15. RELATED-PARTY TRANSACTIONS In addition to transactions described in Notes 4, 7, 9, 11, and 12, during 2003 and 2002, the Company had the following transactions with related parties: - -During 2003, the Company issued 26,000 shares of its Series D preferred stock to each member of its Board of Directors as compensation for their services as directors. In connection with the issue, the Company recorded $7,800 in director compensation based on an aggregate of 78,000 Series D shares issued. - -In June 2003, the Company issued 201,000 shares of Series D preferred stock and 200,000 Series D preferred stock purchase warrants to Gary D. Babbitt, a former director, for his consulting services. In connection with the issue to Mr. Babbitt, the Company recognized $20,100 of consulting expense based upon its estimated value of the services rendered and shares issued. - -In September 2003, the Company issued John C. Lawrence, the Company's president and a director, 100,000 shares of Series D preferred stock for his help in financing the Company's operations. In connection with this issue, the Company recorded $15,000 of compensation expense based on its estimated value of the shares issued. - -Included in the sale of the Company's common stock and common stock warrants during 2003, were 333,334 shares of common stock and 333,334 common stock purchase warrants sold to companies controlled by directors or immediate family members of directors of the Company. - -During 2002, the Company sold a 3% gross proceeds royalty on all zeolite extracted from BRZ to Delaware Royalty Company, Inc., a company controlled by a Al Dugan, a major shareholder. The Company received $200,000 from the sale of the royalty interest. During the years ended December 31, 2003 and 2002, the Company paid Delaware Royalty Company, Inc. $11,575 and $705 in royalties, respectively. - -During 2002, the Company issued 96,000 shares of its Series D preferred stock to three members of the Board of Directors and Gary D. Babbitt, a former director and the Company's legal counsel, for their duties as directors. The stock awards were recorded as compensation expense (director's fees) based upon the estimated value of the stock at the date of issuance. F-20 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. COMMITMENTS AND CONTINGENCIES Until 1989, the Company mined, milled and leached gold and silver in the Yankee Fork Mining District in Custer County, Idaho. In 1994, the U.S. Forest Service, under the provisions of the Comprehensive Environmental Response Liability Act of 1980 ("CERCLA"), designated the cyanide leach plant as a contaminated site requiring cleanup of the cyanide solution. In 1996, the Idaho Department of Environmental Quality requested that the Company sign a consent decree related to completing the reclamation and remediation at the Preachers Cove mill, which the Company signed in December 1996. The Company has been reclaiming the property and, as of December 31, 2003, the cyanide solution cleanup was complete, the mill removed, and a majority of the cyanide leach residue disposed of. In November of 2001, the Environmental Protection Agency ("EPA") listed two by-products of the Company's antimony oxide manufacturing process as hazardous wastes. Antimony slag and antimony bag house filters are now subject to comprehensive management and treatment standards under subtitle C of the Resource Conservation and Recovery Act ("RCRA"), and emergency notification requirements for releases to the environment under CERCLA. On November 26, 2002, the Company received a notice of violation from the Montana Department of Environmental Quality ("Montana DEQ"). The notice related to a hazardous waste discharge that was discovered during a hazardous waste compliance evaluation inspection conducted at the Company's Thompson Falls antimony facility. In response to the notice, the Company removed certain antimony materials from its production area, agreed to ensure the Montana DEQ that future releases of hazardous waste would not occur and was assessed a fine. The Company continues to have its premises inspected and tested by Montana DEQ for potential releases of its hazardous wastes into the environment. The Company's management believes that USAC is currently in substantial compliance with environmental regulatory requirements and that its accrued environmental reclamation costs are representative of management's estimate of costs required to fulfill its reclamation obligations. Such costs are accrued at the time the expenditure becomes probable and the costs can reasonably be estimated. The Company recognizes, however, that in some cases future environmental expenditures cannot be reliably determined due to the uncertainty of specific remediation methods, conflicts between regulating agencies relating to remediation methods and environmental law interpretations, and changes in environmental laws and regulations. Any changes to the Company's reclamation plans as a result of these factors could have an adverse affect on the Company's operations. The range of possible losses in excess of the amounts accrued cannot be reasonably estimated at this time. 17. FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments." The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data and to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The carrying amounts for cash, restricted cash, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair values. The fair value of amounts due to related parties approximates their carrying values of $232,111 and $202,625, respectively, at December 31, 2003 and December 31, 2002, based upon the contractual cash flow requirements. F-21 UNITED STATES ANTIMONY CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED: The carrying amounts for judgments payable of $53,130 and $49,780, at December 31, 2003 and 2002, respectively, are reasonable estimates of their fair values based upon the judgment's repayment requirements. The carrying amount of the convertible secured and convertible notes payable aggregating $350,000 at December 31, 2003, is a reasonable estimate of their fair value. 18. BUSINESS SEGMENTS The Company has two operating segments, antimony and zeolite. Management reviews and evaluates the operating segments exclusive of interest and factoring expenses. Therefore, interest expense is not allocated to the segments. Selected information with respect to segments for the years ended December 31, 2003 and 2002 is as follows:
2003 2002 Revenues: Antimony . . . . . . . . . . . . . $2,742,419 $3,274,007 Zeolite. . . . . . . . . . . . . . 479,331 199,890 ---------- ---------- $3,221,750 $3,473,897 ========== ========== Cost of sales: Production and freight and delivery: Antimony . . . . . . . . . . . . . $2,403,070 $2,873,096 Zeolite. . . . . . . . . . . . . . 529,397 265,390 Depreciation: Antimony . . . . . . . . . . . . . 41,288 42,991 Zeolite. . . . . . . . . . . . . . 55,254 41,071 ---------- ---------- $3,029,009 $3,222,548 ========== ========== Gross profit . . . . . . . . . . . . . $ 192,741 $ 251,349 ========== ========== Other operating expenses: Sales expense: Antimony . . . . . . . . . . . . . $ 67,818 $ 80,397 Zeolite. . . . . . . . . . . . . . 70,589 62,654 General and administrative expense: Antimony . . . . . . . . . . . . . 434,563 327,936 Zeolite. . . . . . . . . . . . . . 212,689 86,658 ---------- ---------- $ 785,659 $ 557,645 ========== ========== Capital expenditures: Antimony . . . . . . . . . . . . . $ 25,506 $ 0 Zeolite. . . . . . . . . . . . . . 95,931 305,745 ---------- ---------- $ 121,437 $ 305,745 ========== ========== Properties, plant and equipment, net: Antimony . . . . . . . . . . . . . $ 132,608 $ 147,886 Zeolite. . . . . . . . . . . . . . 421,703 381,530 ---------- ---------- $ 554,331 $ 529,416 ========== ==========
See Note 2 regarding sales to major customers. F-22 EX-10.51 3 doc2.txt THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS") AND SHALL NOT BE SOLD, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF LEGAL COUNSEL FOR THE HOLDER HEREOF, OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT REQUIRE REGISTRATION UNDER THE ACT AND THE STATE ACTS. Haynes and Boone LLP Draft December 18, 2003 UNITED STATES ANTIMONY CORPORATION 10% SECURED CONVERTIBLE NOTE DUE DECEMBER 22, 2007 NO: 1 $250,000 DATE OF ISSUE: December 22, 2003 United States Antimony Corporation, a Montana corporation (the "Company"), is indebted and, for value received, herewith promises to pay to: DELAWARE ROYALTY COMPANY or to its order (together with any assignee, jointly or severally, the "Holder"), on or before December 22, 2007 (the "Due Date") (unless this Note shall have been sooner presented for conversion as herein provided), the sum of Two Hundred Fifty Thousand and No/100s Dollars ($250,000.00) (the "Principal Amount") and to pay interest on the Principal Amount at the rate of ten percent (10%) per annum as provided herein. This Note is one of the Notes referred to in the Note Purchase Agreement (the "Purchase Agreement"), dated December 22, 2003 among the Company, Bear River and the Holder. Capitalized terms used herein and not otherwise defined shall have the meaning set forth for such terms in the Purchase Agreement. In furtherance thereof, and in consideration of the premises, the Company covenants, promises and agrees as follows: 1. Interest. From the date of this Note through the Stated Maturity Date, -------- interest shall accrue hereunder on the unpaid principal sum of this Note at 10% per annum. All amounts of principal and interest on this Note that are past due for more than ninety (90) days shall bear interest at the rate of 15% until paid. All payments of both principal and interest shall be made at the address of the Holder hereof as it appears in the books and records of the Company, or at such other place as may be designated by the Holder hereof in writing to Company. 2. Payment of Principal and Interest. The principal of this Note shall be ----------------------------------- due and payable in full on December 22, 2007 (the "Stated Maturity Date"). Interest will be payable beginning on the Date of Issue of this Note, and shall be payable quarterly thereafter on March 31, June 30, September 30 and December 31 of each year until the Stated Maturity Date. Al Dugan Convertible Note.doc 1 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 3. Prepayments; Application of Payments. The Company shall have the right -------------------------------------- to prepay this Note in whole or in part. All payments made under this Note shall be applied first to accrued interest, and the balance, if any, to principal; provided, however, that interest shall accrue on any remaining principal balance and shall be payable at the rate provided above. 4. Manner of Payment. Payments of principal and interest on this Note will ------------------ be made by delivery of checks to the Holder of this Note at its address as set forth in this Note or at the Holder's request, by wire transfer of same day funds to the account of Holder pursuant to written instructions delivered to the Company by the Holder. If the date upon which the payment of principal and interest is required to be made pursuant to this Note occurs other than on a business day, then such payment of principal and interest shall be made on the next occurring business day following said payment date and shall include interest through said next occurring business day. 5. Conversion Right. The Holder shall have the right, at Holder's option, ----------------- at any time up to thirty (30) days after repayment, to convert the face amount of this Note into such number of fully paid and nonassessable shares of common stock, $0.01 par value, of the Company (the "Common Stock") as shall be provided herein. The Holder may exercise the conversion right by giving written notice (the "Conversion Notice") to the Company of the exercise of such right and stating the name or names in which the stock certificate or stock certificates for the shares of Common Stock are to be issued and the address to which such certificates shall be delivered. The Conversion Notice shall be accompanied by the Note (if the Note has not been repaid) or the Conversion Price, as defined below (if the Note has been repaid). The number of shares of Common Stock that shall be issuable upon conversion of the Note shall equal the amount of principal requested by the Holder to be converted divided by the Conversion Price as defined below and in effect on the date the Conversion Notice is given. Conversion shall be deemed to have been effected on the date the Conversion Notice is received (the "Conversion Date"). Within twenty (20) business days after receipt of the Conversion Notice, the Company shall issue and deliver by hand against a signed receipt therefor or by United States registered mail, return receipt requested, to the address designated in the Conversion Notice, a stock certificate or stock certificates of the Company representing the number of shares of Common Stock to which Holder is entitled and a check or cash in payment of all interest accrued and unpaid on the Note being converted up to and including the Conversion Date and check or cash payment of any remaining principal. 6. Conversion Price. ----------------- (a) Adjustments Generally. On the issue date hereof and until such time as ---------------------- an adjustment shall occur, the Conversion Price shall be at $0.20 per share, subject to adjustment at times in accordance with the following provisions: (1) Adjustment for Issuance of Shares at less than the Conversion Price. If ------------------------------------------------------------------- and whenever any Additional Common Stock (as herein defined) shall be issued by the Company (the date of such issuance being hereinafter referred to as the "Stock Issue Date") for a consideration per share less than the Conversion Price, then in each such case the Conversion Price shall be reduced to a new Conversion Price equal to the consideration per share received by the Company for the additional shares of Common Stock then issued and the number of shares Al Dugan Convertible Note.doc 2 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 issuable to Holder upon conversion shall be proportionately increased; and, in the case of shares issued without consideration, the initial Conversion Price shall be reduced in amount and the number of shares issued upon conversion shall be increased in an amount so as to maintain for the Holder the right to convert the Note into shares equal in amount to the same percentage interest in the Common Stock of the Company as existed for the Holder immediately preceding the Stock Issue Date; PROVIDED, HOWEVER, THAT IN NO EVENT MAY THE CONVERSION PRICE BE DECREASED IN ACCORDANCE WITH THIS SUBSECTION 6(A)(1) TO LESS THAN $0.20 PER SHARE, AS ADJUSTED FOR THE SPLIT UP OR COMBINATION OF SHARES, STOCK DIVIDENDS OR OTHER REORGANIZATION OR RECAPITALIZATION. (2) Sale of Shares. In case of the issuance of Additional Common Stock for --------------- a consideration part or all of which shall be cash, the amount of the cash consideration therefor shall be deemed to be the amount of the cash received by Company for such shares, after any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or for any expenses incurred in connection therewith. In case of the issuance of any shares of Additional Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefor, other than cash, shall be deemed to be the then Fair Market Value (as hereinafter defined) of the property received. (3) Reclassification of Shares. In case of the reclassification of ---------------------------- securities into shares of Common Stock, the shares of Common Stock issued in such reclassification shall be deemed to have been issued for a consideration other than cash. Shares of Additional Common Stock issued by way of dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. (4) Split up or Combination of Shares. In case issued and outstanding -------------------------------------- shares of Common Stock shall be subdivided or split up into a greater number of shares of the Common Stock, the Conversion Price shall be proportionately decreased, and in case issued and outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price shall be proportionately increased, such increase or decrease, as the case may be, becoming effective at the time of record of the split-up or combination, as the case may be. (5) Exceptions. The term "Additional Common Stock" herein shall mean all ---------- shares of Common Stock hereafter issued by the Company (including Common Stock held in the treasury of the Company and any convertible security), except (i) Common Stock issued upon the conversion of any of the Notes issued under the Purchase Agreement, (ii) Common Stock issued upon the conversion of the Company's currently outstanding preferred stock, or (iii) Common Stock issued to directors and officers of the Company at Fair Market Value in lieu of cash compensation. (b) Adjustment for Mergers, Consolidations, Etc. ----------------------------------------------- (1) In the event of distribution to all Common Stock holders of any stock, indebtedness of the Company or assets (excluding cash dividends or distributions Al Dugan Convertible Note.doc 3 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 from retained earnings) or other rights to purchase securities or assets, this Note will be convertible into the kind and amount of securities, cash and other property which the Holder would have been entitled to receive if the Holder owned the Common Stock issuable upon conversion of this Note immediately prior to the occurrence of such event. (2) In case of any capital reorganization, reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend, subdivision, split up or combination of shares), this Note shall be convertible into the kind and number of shares of stock or other securities or property of the Company to which the Holder would have been entitled to receive if the Holder owned the Common Stock issuable upon conversion of the Note immediately prior to the occurrence of such event. The provisions of the foregoing sentence shall similarly apply to successive reorganizations, reclassifications, consolidations, exchanges, leases, transfers or other dispositions or other share exchanges. (3) The term "Fair Market Value," as used herein, is the value ascribed to consideration other than cash as determined by the Board of Directors of the Company in good faith. If the Board of Directors shall be unable to agree as to such Fair Market Value or the Holder disagrees with such determination, then the issue of Fair Market Value shall be submitted to arbitration under and pursuant to the rules and regulations of the American Arbitration Association, and the decision of the arbitrators shall be final, conclusive and binding, and a final judgment may be entered thereon; provided, however, that such arbitration shall be limited to determination of the Fair Market Value of assets tendered in consideration for the issue of Common Stock. (c) Notice of Adjustment. (A) In the event the Company shall propose to ---------------------- take any action which shall result in an adjustment in the Conversion Price, the Company shall give notice to the Holder, which notice shall specify the record date, if any, with respect to such action and the date on which such action is to take place. Such notice shall be given on or before the earlier of twenty (20) days before the record date or the date which such action shall be taken. Such notice shall also set forth all facts (to the extent known) material to the effect of such action on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of this Note. (B) Following completion of an event wherein the Conversion Price shall be adjusted, the Company shall furnish to the Holder a statement, signed by the Principal Executive or Financial Officer of the Company of the facts creating such adjustment and specifying the resultant adjusted Conversion Price then in effect. 7. Reservation of Shares. Company warrants and agrees that it shall at all ---------------------- times reserve and keep available, free from preemptive rights, sufficient authorized and unissued shares of Common Stock to effect conversion of this Note. 8. Events of Default. "Event of Default," wherever used herein, means any ------------------- one of the following events and the continuance of such event or breach (unless otherwise stated) for a period of thirty (30) days after there has been given to Company a written notice, by registered or certified mail, specifying such default or breach, stating that such notice is a "Notice of Default" hereunder, and requiring it to be remedied: Al Dugan Convertible Note.doc 4 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 (a) default in the payment of the principal or interest on this Note when such principal or interest becomes due and payable; (b) default in the performance of any covenant made by Company in this Note or in the Purchase Agreement (other than a default in the performance of a covenant specifically dealt with elsewhere in this Section); (c) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of the property of the Company or ordering the winding up or liquidation of the affairs of the Company and the continuance of any such decree or order of relief or any such other decree or order unstayed and in effect for a period of thirty (30) consecutive days; or (d) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the filing by any of them of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the making by any of them of an assignment for the benefit of creditors, or the admission by any of them in writing of its inability to pay its debts generally as they become due. 9. Remedies. In addition to any remedies available under the Security -------- Agreement and subject to the terms hereof, by a notice in writing to the Company and, upon any such declaration, this Note shall become immediately due and payable if an Event of Default occurs and is continuing, and in every such case the Holder may declare the principal and interest on the Note to be due and payable immediately. 10. Covenants. --------- (a) -Payment of Principal and Accrued Interest. The Company will duly and ------------------------------------------- punctually pay or cause to be paid the principal sum of this Note, together with interest accrued thereon from the date hereof to the date of payment, in accordance with the terms hereof. (b) -Use of Proceeds. The Company shall use the proceeds received from ----------------- Holder pursuant to the terms of this Note for payment of accounts payable, antimony inventory, purchase of mine equipment, including shaker screens and associated equipment, and zeolite mine infrastructure. (c) -Mergers and Acquisitions. Company will not dissolve, liquidate, -------------------------- consolidate or merger with or sell or transfer all or substantially all of its assets to any Person, Al Dugan Convertible Note.doc 5 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 unless, in regard to any of the foregoing and so long as no Event of Default then exists, the Company or any of its Subsidiaries is the surviving or acquiring party. (d) -Senior Debt. Company will not incur any future senior indebtedness ------------ without the prior written consent of the holder of the Note which approval shall not be unreasonably withheld. 11. Rights under Purchase and Security Agreements. This Note is one of the ----------------------------------------------- Notes issued pursuant to the Purchase Agreement and the Security Agreement, dated December 22, 2003 (the "Security Agreement"), between Company and Holder and is entitled to all the rights and benefits, and is subject to all the obligations of Holders and Company under said agreements. If there is a conflict between terms and conditions found in the Note and other documents, the Note terms and conditions shall prevail. Company and Holders have participated in the negotiation and preparation of the Purchase Agreement, the Security Agreement and this Note. Company agrees that a copy of the Purchase Agreement with all amendments, additions and substitutions therefor shall be available to the Holder at the offices of the Company. 12. Miscellaneous. ------------- (a) Collection Fees. If this Note is placed in the hands of an attorney for --------------- collection, and if it is collected through any legal proceedings at law or in equity or in bankruptcy, receivership or other court proceedings, the Company hereby undertakes to pay all costs and expenses of collection including, but not limited to, court costs and the reasonable attorney's fees of the Holder. (b) Consent to Amendments. This Note may be amended, and the Company may ----------------------- take any action herein prohibited, or omit to perform any act herein required to be performed by it, if and only if the Company shall obtain the written consent to such amendment, action or omission to act from the Holder; provided that no such consent shall vary the payment terms or interest terms of the Note without the consent of the Holder, and provided further that if this Note is held of record by more than one Holder, any consent to be obtained from the Holder(s) or amendment hereto shall be deemed to have been completed upon the approval by the Holders of 51% of the then outstanding principal balance of this Note. (c) Benefits of Note. Nothing in this Note, express or implied, shall give ----------------- to any Person, other than the Company, the Holder, and their successors and assigns, any benefit or any legal or equitable right, remedy or claim under or in respect of this Note. (d) Successors and Assigns. All covenants and agreements in this Note ------------------------ contained by or on behalf of the Company shall bind and inure to the benefit of the respective successors and assigns of the Company. (e) Restrictions on Transfer. Subject to the provisions of this Section, -------------------------- this Note is transferable in the same manner and with the same effect as in the case of a negotiable instrument payable to a specified person. The Company, however, may treat the registered holder hereof as the owner hereof for all purposes until this Note shall have been surrendered for Al Dugan Convertible Note.doc 6 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 transfer as hereinafter provided. Upon surrender of this Note duly executed by the Holder hereof or his agent or attorney, the Company shall execute and deliver a new Note in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Note shall promptly be canceled. This Note is not transferable directly or indirectly, in whole or in part, except in the case of any such transfer (a) that is in compliance with applicable federal and state securities laws, including but not limited to, the Securities Act of 1933, as amended, and (b) for which the Company is provided with an opinion of counsel to the Holder, reasonably satisfactory to the Company, to the effect that such transfer is not in violation of any of said securities laws. (f) Notice; Address of Parties. Except as otherwise provided, all ----------------------------- communications to the Company or the Holder of this Note provided for herein or - with reference to this Note shall be deemed to have been sufficiently given or served for all purposes: when delivered by hand if personally delivered; one (1) business day after being deposited with an overnight courier addressed to the appropriate address as set forth on the signature page to this Note; three (3) business days after being sent as certified or registered mail, postage and charges prepaid, to the appropriate address as set forth on the signature page to this Note. (g) Separability Clause. In case any provision in this Note shall be -------------------- invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions in such jurisdiction shall not in any way be affected or impaired thereby provided such construction does not destroy the essence of the bargain provided for hereunder. (H) GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN -------------- ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS (WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW). (i) Usury. It is the intention of the parties hereto to conform strictly to ----- the applicable laws of the State of Texas and the United States of America, and judicial or administrative interpretations or determinations thereof regarding the contracting for, charging and receiving of interest for the use, forbearance, and detention of money. The Holder shall have no right to claim, charge or receive any interest in excess of the maximum rate of interest, if any, permitted to be charged on that portion of the amount representing principal which is outstanding and unpaid from time to time by applicable Texas or federal law. Determination of the rate of interest for the purpose of determining whether this Note is usurious under applicable law shall be made by amortizing, prorating, allocating and spreading in equal parts during the period of the actual time of this Note, all interest or other sums deemed to be interest at any time contracted for, charged or received from the Company in connection with this Note. Any interest contracted for, charged or received in excess of the maximum rate allowed by applicable law shall be deemed a result of a mathematical error and a mistake; if this Note is paid in part prior to the end of the full stated term of this Note and the interest received for the actual period of existence of this Note exceeds the maximum rate allowed by applicable law, the holder shall credit the amount of the excess against any amount owing under this Note or, if this Note has been paid in full, or in the event that it has been accelerated prior to maturity, the Holder shall refund to the Company the amount of such excess, and shall not be subject to any of the penalties provided by Al Dugan Convertible Note.doc 7 10% Secured Convertible Note Haynes and Boone LLP Draft December 18, 2003 applicable law for contracting for, charging or receiving interest in excess of the maximum rate allowed by applicable law. Any such excess which is unpaid shall be canceled. [SIGNATURE PAGES FOLLOW] Al Dugan Convertible Note.doc 8 10% Secured Convertible Note IN WITNESS WHEREOF, the undersigned Company has caused this Note to be duly issued and executed on the Date of Issue as stated above. United States Antimony Corporation By:/s/John C. Lawrence ---------------------------------- Address for Notice: - --------------------- To the Company: P. O. Box 643 By:/s/John C. Lawrence ---------------------------------- Thompson Falls, Montana 59873 Attention: John C. Lawrence This instrument was acknowledged before me on 12-22, 2003 by John C. Lawrence the President of United States Antimony Corporation a Montana corporation. Notary Public, State of Montana My Commission Expires:07-12-2004 Printed Name of Notary Carol L. DeMann Address for Notice: - --------------------- To The Holder: Delaware Royalty Company, Inc. c/o Nortex Corporation 1415 Louisiana, Suite 3100 Houston, TX 77002 Attn: Al W. Dugan Signature Page 10% Convertible Note Issues To-Delaware Royalty Company EX-10.52 4 doc3.txt THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR APPLICABLE STATE SECURITIES LAWS ("STATE ACTS") AND SHALL NOT BE SOLD, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED UNLESS THE COMPANY SHALL HAVE RECEIVED AN OPINION OF LEGAL COUNSEL FOR THE HOLDER HEREOF, OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT REQUIRE REGISTRATION UNDER THE ACT AND THE STATE ACTS. UNITED STATES ANTIMONY CORPORATION 10% CONVERTIBLE NOTE DUE DECEMBER 22, 2007 NO: 2 $100,000.00 DATE OF ISSUE: December 22, 2003 United States Antimony Corporation, a Montana corporation (the "Company"), is indebted and, for value received, herewith promises to pay to: JOHN C. LAWRENCE or to its order (together with any assignee, jointly or severally, the "Holder"), on or before December 22, 2007 (the "Due Date") (unless this Note shall have been sooner presented for conversion as herein provided), the sum of One Hundred Thousand Dollars ($100,000.00) (the "Principal Amount") and to pay interest on the Principal Amount at the rate of ten percent (10%) per annum as provided herein. In furtherance thereof, and in consideration of the premises, the Company covenants, promises and agrees as follows: 1. Interest. From the date of this Note through the Stated Maturity Date, -------- interest shall accrue hereunder on the unpaid principal sum of this Note at 10% per annum. All amounts of principal and interest on this Note that are past due for more than ninety (90) days shall bear interest at the rate of 15% until paid. All payments of both principal and interest shall be made at the address of the Holder hereof as it appears in the books and records of the Company, or at such other place as may be designated by the Holder hereof in writing to Company. 2. Payment of Principal and Interest. The principal of this Note shall be ----------------------------------- due and payable in full on December 22, 2007 (the "Stated Maturity Date"). Interest will be payable beginning on the Date of Issue of this Note, and shall be payable quarterly thereafter on March 31, June 30, September 30 and December 31 of each year until the Stated Maturity Date. 3. Prepayments; Application of Payments. The Company shall have the right -------------------------------------- to prepay this Note in whole or in part. All payments made under this Note shall be applied first to accrued interest, and the balance, if any, to principal; provided, however, that interest shall accrue on any remaining principal balance and shall be payable at the rate provided above. 4. Manner of Payment. Payments of principal and interest on this Note will ------------------ be made by delivery of checks to the Holder of this Note at its address as set forth in this Note or at the Holder's request, by wire transfer of same day funds to the account of Holder pursuant to written instructions delivered to the Company by the Holder. If the date upon which the payment of principal and interest is required to be made pursuant to this Note occurs other than on a business day, then such payment of principal and interest shall be made on the next occurring business day following said payment date and shall include interest through said next occurring business day. 5. Conversion Right. The Holder shall have the right, at Holder's option, ----------------- at any time up to thirty (30) days after repayment, to convert the face amount of this Note into such number of fully paid and nonassessable shares of common stock, $0.01 par value, of the Company (the "Common Stock") as shall be provided herein. The Holder may exercise the conversion right by giving written notice (the "Conversion Notice") to the Company of the exercise of such right and stating the name or names in which the stock certificate or stock certificates for the shares of Common Stock are to be issued and the address to which such certificates shall be delivered. The Conversion Notice shall be accompanied by the Note (if the Note has not been repaid) or the Conversion Price, as defined below (if the Note has been repaid). The number of shares of Common Stock that shall be issuable upon conversion of the Note shall equal the amount of principal requested by the Holder to be converted divided by the Conversion Price as defined below and in effect on the date the Conversion Notice is given. Conversion shall be deemed to have been effected on the date the Conversion Notice is received (the "Conversion Date"). Within twenty (20) business days after receipt of the Conversion Notice, the Company shall issue and deliver by hand against a signed receipt therefor or by United States registered mail, return receipt requested, to the address designated in the Conversion Notice, a stock certificate or stock certificates of the Company representing the number of shares of Common Stock to which Holder is entitled and a check or cash in payment of all interest accrued and unpaid on the Note being converted up to and including the Conversion Date and check or cash payment of any remaining principal. 6. Conversion Price. ----------------- (a) Adjustments Generally. On the issue date hereof and until such time as ---------------------- an adjustment shall occur, the Conversion Price shall be at $0.20 per share, subject to adjustment at times in accordance with the following provisions: (1) Adjustment for Issuance of Shares at less than the Conversion Price. If ------------------------------------------------------------------- and whenever any Additional Common Stock (as herein defined) shall be issued by the Company (the date of such issuance being hereinafter referred to as the "Stock Issue Date") for a consideration per share less than the Conversion Price, then in each such case the Conversion Price shall be reduced to a new Conversion Price equal to the consideration per share received by the Company for the additional shares of Common Stock then issued and the number of shares issuable to Holder upon conversion shall be proportionately increased; and, in the case of shares issued without consideration, the initial Conversion Price shall be reduced in amount and the number of shares issued upon conversion shall be increased in an amount so as to maintain for the Holder the right to convert the Note into shares equal in amount to the same percentage interest in the Common Stock of the Company as existed for the Holder immediately preceding the Stock Issue Date; PROVIDED, HOWEVER, THAT IN NO EVENT MAY THE CONVERSION PRICE BE DECREASED IN ACCORDANCE WITH THIS SUBSECTION 6(A)(1) TO LESS THAN $0.20 PER SHARE, AS ADJUSTED FOR THE SPLIT UP OR COMBINATION OF SHARES, STOCK DIVIDENDS OR OTHER REORGANIZATION OR RECAPITALIZATION. (2) Sale of Shares. In case of the issuance of Additional Common Stock for --------------- a consideration part or all of which shall be cash, the amount of the cash consideration therefor shall be deemed to be the amount of the cash received by Company for such shares, after any compensation or discount in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services or for any expenses incurred in connection therewith. In case of the issuance of any shares of Additional Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefor, other than cash, shall be deemed to be the then Fair Market Value (as hereinafter defined) of the property received. (3) Reclassification of Shares. In case of the reclassification of ---------------------------- securities into shares of Common Stock, the shares of Common Stock issued in such reclassification shall be deemed to have been issued for a consideration other than cash. Shares of Additional Common Stock issued by way of dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. (4) Split up or Combination of Shares. In case issued and outstanding -------------------------------------- shares of Common Stock shall be subdivided or split up into a greater number of shares of the Common Stock, the Conversion Price shall be proportionately decreased, and in case issued and outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price shall be proportionately increased, such increase or decrease, as the case may be, becoming effective at the time of record of the split-up or combination, as the case may be. (5) Exceptions. The term "Additional Common Stock" herein shall mean all ---------- shares of Common Stock hereafter issued by the Company (including Common Stock held in the treasury of the Company and any convertible security), except (i) Common Stock issued upon the conversion of any of the Notes, (ii) Common Stock issued upon the conversion of the Company's currently outstanding preferred stock, or (iii) Common Stock issued to directors and officers of the Company at Fair Market Value in lieu of cash compensation. (b) Adjustment for Mergers, Consolidations, Etc. ----------------------------------------------- (1) In the event of distribution to all Common Stock holders of any stock, indebtedness of the Company or assets (excluding cash dividends or distributions from retained earnings) or other rights to purchase securities or assets, this Note will be convertible into the kind and amount of securities, cash and other property which the Holder would have been entitled to receive if the Holder owned the Common Stock issuable upon conversion of this Note immediately prior to the occurrence of such event. (2) In case of any capital reorganization, reclassification of the stock of the Company (other than a change in par value or as a result of a stock dividend, subdivision, split up or combination of shares), this Note shall be convertible into the kind and number of shares of stock or other securities or property of the Company to which the Holder would have been entitled to receive if the Holder owned the Common Stock issuable upon conversion of the Note immediately prior to the occurrence of such event. The provisions of the foregoing sentence shall similarly apply to successive reorganizations, reclassifications, consolidations, exchanges, leases, transfers or other dispositions or other share exchanges. (3) The term "Fair Market Value," as used herein, is the value ascribed to consideration other than cash as determined by the Board of Directors of the Company in good faith. If the Board of Directors shall be unable to agree as to such Fair Market Value or the Holder disagrees with such determination, then the issue of Fair Market Value shall be submitted to arbitration under and pursuant to the rules and regulations of the American Arbitration Association, and the decision of the arbitrators shall be final, conclusive and binding, and a final judgment may be entered thereon; provided, however, that such arbitration shall be limited to determination of the Fair Market Value of assets tendered in consideration for the issue of Common Stock. (c) Notice of Adjustment. (A) In the event the Company shall propose to ---------------------- take any action which shall result in an adjustment in the Conversion Price, the Company shall give notice to the Holder, which notice shall specify the record date, if any, with respect to such action and the date on which such action is to take place. Such notice shall be given on or before the earlier of twenty (20) days before the record date or the date which such action shall be taken. Such notice shall also set forth all facts (to the extent known) material to the effect of such action on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of this Note. (B) Following completion of an event wherein the Conversion Price shall be adjusted, the Company shall furnish to the Holder a statement, signed by the Principal Executive or Financial Officer of the Company of the facts creating such adjustment and specifying the resultant adjusted Conversion Price then in effect. 7. Reservation of Shares. Company warrants and agrees that it shall at all ---------------------- times reserve and keep available, free from preemptive rights, sufficient authorized and unissued shares of Common Stock to effect conversion of this Note. 8. Events of Default. "Event of Default," wherever used herein, means any ------------------- one of the following events and the continuance of such event or breach (unless otherwise stated) for a period of thirty (30) days after there has been given to Company a written notice, by registered or certified mail, specifying such default or breach, stating that such notice is a "Notice of Default" hereunder, and requiring it to be remedied: (a) default in the payment of the principal or interest on this Note when such principal or interest becomes due and payable; (b) default in the performance of any covenant made by Company in this Note or (other than a default in the performance of a covenant specifically dealt with elsewhere in this Section); (c) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of the property of the Company or ordering the winding up or liquidation of the affairs of the Company and the continuance of any such decree or order of relief or any such other decree or order unstayed and in effect for a period of thirty (30) consecutive days; or (d) the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the filing by any of them of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the making by any of them of an assignment for the benefit of creditors, or the admission by any of them in writing of its inability to pay its debts generally as they become due. 9. Remedies. In addition to any remedies available under the Security -------- Agreement and subject to the terms hereof, by a notice in writing to the Company and, upon any such declaration, this Note shall become immediately due and payable if an Event of Default occurs and is continuing, and in every such case the Holder may declare the principal and interest on the Note to be due and payable immediately. 10. Covenants. --------- (a) -Payment of Principal and Accrued Interest. The Company will duly and ------------------------------------------- punctually pay or cause to be paid the principal sum of this Note, together with interest accrued thereon from the date hereof to the date of payment, in accordance with the terms hereof. (b) -Use of Proceeds. The Company shall use the proceeds received from ----------------- Holder pursuant to the terms of this Note for payment of accounts payable, antimony inventory, purchase of mine equipment, including shaker screens and associated equipment, and zeolite mine infrastructure. (c) -Mergers and Acquisitions. Company will not dissolve, liquidate, -------------------------- consolidate or merger with or sell or transfer all or substantially all of its assets to any Person, unless, in regard to any of the foregoing and so long as no Event of Default then exists, the Company or any of its Subsidiaries is the surviving or acquiring party. (d) -Senior Debt. Company will not incur any future senior indebtedness ------------ without the prior written consent of the holder of the Note which approval shall not be unreasonably withheld. 11. Miscellaneous. ------------- (a) Collection Fees. If this Note is placed in the hands of an attorney for --------------- collection, and if it is collected through any legal proceedings at law or in equity or in bankruptcy, receivership or other court proceedings, the Company hereby undertakes to pay all costs and expenses of collection including, but not limited to, court costs and the reasonable attorney's fees of the Holder. (b) Consent to Amendments. This Note may be amended, and the Company may ----------------------- take any action herein prohibited, or omit to perform any act herein required to be performed by it, if and only if the Company shall obtain the written consent to such amendment, action or omission to act from the Holder; provided that no such consent shall vary the payment terms or interest terms of the Note without the consent of the Holder, and provided further that if this Note is held of record by more than one Holder, any consent to be obtained from the Holder(s) or amendment hereto shall be deemed to have been completed upon the approval by the Holders of 51% of the then outstanding principal balance of this Note. (c) Benefits of Note. Nothing in this Note, express or implied, shall give ----------------- to any Person, other than the Company, the Holder, and their successors and assigns, any benefit or any legal or equitable right, remedy or claim under or in respect of this Note. (d) Successors and Assigns. All covenants and agreements in this Note ------------------------ contained by or on behalf of the Company shall bind and inure to the benefit of the respective successors and assigns of the Company. (e) Restrictions on Transfer. Subject to the provisions of this Section, -------------------------- this Note is transferable in the same manner and with the same effect as in the case of a negotiable instrument payable to a specified person. The Company, however, may treat the registered holder hereof as the owner hereof for all purposes until this Note shall have been surrendered for transfer as hereinafter provided. Upon surrender of this Note duly executed by the Holder hereof or his agent or attorney, the Company shall execute and deliver a new Note in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and this Note shall promptly be canceled. This Note is not transferable directly or indirectly, in whole or in part, except in the case of any such transfer (a) that is in compliance with applicable federal and state securities laws, including but not limited to, the Securities Act of 1933, as amended, and (b) for which the Company is provided with an opinion of counsel to the Holder, reasonably satisfactory to the Company, to the effect that such transfer is not in violation of any of said securities laws. (f) Notice; Address of Parties. Except as otherwise provided, all ----------------------------- communications to the Company or the Holder of this Note provided for herein or with reference to this Note shall be deemed to have been sufficiently given or served for all purposes: when delivered by hand if personally delivered; one (1) business day after being deposited with an overnight courier addressed to the appropriate address as set forth on the signature page to this Note; three (3) business days after being sent as certified or registered mail, postage and charges prepaid, to the appropriate address as set forth on the signature page to this Note. (g) Separability Clause. In case any provision in this Note shall be -------------------- invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions in such jurisdiction shall not in any way be affected or impaired thereby provided such construction does not destroy the essence of the bargain provided for hereunder. (H) GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN -------------- ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MONTANA (WITHOUT REGARD TO PRINCIPLES OF CHOICE OF LAW). (i) Usury. It is the intention of the parties hereto to conform strictly to ----- the applicable laws of the State of Montana and the United States of America, and judicial or administrative interpretations or determinations thereof regarding the contracting for, charging and receiving of interest for the use, forbearance, and detention of money. The Holder shall have no right to claim, charge or receive any interest in excess of the maximum rate of interest, if any, permitted to be charged on that portion of the amount representing principal which is outstanding and unpaid from time to time by applicable Montana or federal law. Determination of the rate of interest for the purpose of determining whether this Note is usurious under applicable law shall be made by amortizing, prorating, allocating and spreading in equal parts during the period of the actual time of this Note, all interest or other sums deemed to be interest at any time contracted for, charged or received from the Company in connection with this Note. Any interest contracted for, charged or received in excess of the maximum rate allowed by applicable law shall be deemed a result of a mathematical error and a mistake; if this Note is paid in part prior to the end of the full stated term of this Note and the interest received for the actual period of existence of this Note exceeds the maximum rate allowed by applicable law, the holder shall credit the amount of the excess against any amount owing under this Note or, if this Note has been paid in full, or in the event that it has been accelerated prior to maturity, the Holder shall refund to the Company the amount of such excess, and shall not be subject to any of the penalties provided by applicable law for contracting for, charging or receiving interest in excess of the maximum rate allowed by applicable law. Any such excess which is unpaid shall be canceled. IN WITNESS WHEREOF, the undersigned Company has caused this Note to be duly issued and executed on the Date of Issue as stated above. United States Antimony Corporation By:/s/ John C. Lawrence ---------------------------------- Address for Notice: - --------------------- To the Company: P. O. Box 643 By:---------------------------------- Thompson Falls, Montana 59873 Attention: John C. Lawrence EX-10.53 5 doc4.txt HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 PLEDGE, ASSIGNMENT AND SECURITY AGREEMENT THIS PLEDGE, ASSIGNMENT, AND SECURITY AGREEMENT (this "SECURITY AGREEMENT") is executed as of December 22, 2003 by UNITED STATES ANTIMONY CORPORATION, a Montana corporation (the "COMPANY"), whose address is P. O. Box 643, Thompson Falls, Montana 59873, in favor of the Holder (the "SECURED PARTY") of the Company's 10% Secured Convertible Notes due December 22, 2007 (the "NOTES"), at the address as set forth on the signature page of the Note. PRELIMINARY STATEMENTS ---------------------- WHEREAS, the Company, Bear River and the Secured Party have entered into that certain Note Purchase Agreement dated as of the date hereof (as renewed, extended, amended or restated from time to time, the "NOTE PURCHASE AGREEMENT"); WHEREAS, in connection with the Note Purchase Agreement, the Secured Party has purchased from the Company a Note executed by the Company and payable to the order of Secured Party in an aggregate original principal amount of Two Hundred Fifty Thousand and No/100s Dollars ($250,000.00); and WHEREAS, the obligations of the Secured Party under the Notes and the other documents, instruments and agreements entered into in connection therewith or in connection with the Note Purchase Agreement (collectively, the "NOTE PURCHASE DOCUMENTS") are conditioned upon, among other things, the execution and delivery of this Security Agreement by the Company. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company hereby agrees, as follows: 1. REFERENCE TO NOTES. The terms, conditions, and provisions of the Notes are incorporated herein by reference, the same as if set forth herein verbatim, which terms, conditions, and provisions shall continue to be in full force and effect hereunder until the Obligation (as defined herein) is paid and performed in full. 2. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context hereof otherwise requires, each term defined in either the Notes or in the UCC is used in this Security Agreement with the same meaning; provided that, if the definition given to such term in the Notes conflicts with the definition given to such term in the UCC, the Notes' definition shall control to the extent legally allowable; and if any definition given to such term in Chapter 9 of the UCC conflicts with the definition given to such term in any other chapter of the UCC, the Chapter 9 definition shall prevail. As used herein, the following terms have the meanings indicated: "BEAR RIVER" means Bear River Zeolite Company, an Idaho corporation and wholly-owned subsidiary of the Company. Pledge, Assignment & Security Agreement.doc 1 Security Agreement HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 "COLLATERAL" has the meaning set forth in PARAGRAPH 4 hereof. "EVENT OF DEFAULT" has the meaning set forth in the Notes. "OBLIGATION" means, collectively, (a) the indebtedness of the Company to the Secured Parties evidenced by the Notes, and (b) all indebtedness, liabilities, and obligations of the Company arising under this Security Agreement and any other agreement executed by the Company in favor of the Secured Parties. "RIGHTS" means all rights, remedies, powers, privileges, or benefits. "SECURITY INTEREST" means the security interest granted and the pledge and assignment made under PARAGRAPH 3 hereof. "UCC" means the Uniform Commercial Code, including each such provision as it may subsequently be renumbered, as enacted in the Texas or other applicable jurisdiction, as amended at the time in question. 3. SECURITY INTEREST. In order to secure the full and complete payment and performance of the Obligation when due, the Company hereby grants to the Secured Party a first-priority Security Interest in all of the Company's Rights, titles, and interests in and to the Collateral and pledges, collaterally transfers, and assigns the Collateral to the Secured Party, all upon and subject to the terms and conditions of this Security Agreement. Such Security Interest is granted and pledge and assignment are made as security only and shall not subject the Secured Party to, or transfer or in any way affect or modify, any obligation of the Company with respect to any of the Collateral or any transaction involving or giving rise thereto. 4. COLLATERAL. As used herein, the term "COLLATERAL" means all of the issued and outstanding capital stock in Bear River. 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Secured Party that: (A) BINDING OBLIGATION/ PERFECTION. This Security Agreement creates a legal, valid, and binding lien in and to the Collateral in favor of the Secured Party and enforceable against the Company. Upon the delivery of the Collateral to the Secured Party, the Security Interest in that Collateral will be fully perfected and the Security Interest will constitute a first-priority lien on such Collateral. Other than the Financing Statements with respect to this Security Agreement, there are no other financing statements covering the Collateral. The creation of the Security Interest does not require the consent of any Person that has not been obtained. (B) GOVERNMENTAL AUTHORITY. No authorization, approval, or other action by, and no notice to or filing with, any governmental authority is required either for the pledge by the Company of the Collateral pursuant to this Security Agreement or for the execution, delivery, or performance of this Security Agreement by the Company. (C) LIENS. The Company owns the Collateral free and clear of all liens. Pledge, Assignment & Security Agreement.doc 2 Security Agreement HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 6. COVENANTS. Until the Obligation is paid and performed in full, the Company covenants and agrees with the Secured Party that the Company will: (A) NOTES. Comply with, perform, and be bound by all covenants and agreements in the Notes that are applicable to it, its assets, or its operations, each of which is hereby ratified and confirmed. (B) NOTICES. (i) Except as may be otherwise expressly permitted under the terms of the Notes, promptly notify the Secured Party of (A) any change in any fact or circumstances represented or warranted by the Company with respect to the Collateral or Obligation, (B) any claim, action, or proceeding affecting title to the Collateral or the Security Interest and, at the request of the Secured Party, appear in and defend, at the Company's expense, any such action or proceeding, and (C) the occurrence of any other event or condition (including, without limitation, matters as to lien priority) that could have a material adverse effect on the Collateral or the Security Interest created hereunder; and (ii) give the Secured Party thirty (30) days written notice before any proposed (A) relocation of its principal place of business or chief executive office, (B) change of its name, identity, or corporate structure, and (C) change of its jurisdiction of organization or organizational identification number, as applicable. Prior to making any of the changes contemplated in clause (ii) preceding, the Company shall execute and deliver all such additional documents and perform all additional acts as the Secured Party, in its sole discretion, may request in order to continue or maintain the existence and priority of the Security Interests in all of the Collateral. (C) CONTROL. Execute all documents and take any action required by the Secured Party in order for the Secured Party to obtain "control" (as defined in the UCC) with respect to the Collateral. (D) FURTHER ASSURANCES. At the Company's expense and the Secured Party's request, before or after an Event of Default or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default (a "POTENTIAL DEFAULT"), (i) file or cause to be filed such applications and take such other actions as the Secured Party may request to obtain the consent or approval of any governmental authority to the Secured Party's Rights hereunder, including, without limitation, the Right to sell all the Collateral upon an Event of Default or Potential Default without additional consent or approval from such governmental authority (and, because the Company agrees that the Secured Party's remedies at law for failure of the Company to comply with this provision would be inadequate and that such failure would not be adequately compensable in damages, the Company agrees that its covenants in this provision may be specifically enforced); (ii) from time to time promptly execute and deliver to the Secured Party all such other assignments, certificates, supplemental documents, and financing statements, and do all other acts or things as the Secured Party may reasonably request in order to more fully create, evidence, perfect, continue, and preserve the priority of the Security Interest and to carry out the provisions of this Security Agreement; and (iii) pay all filing fees in connection with any financing, continuation, or termination statement or other instrument with respect to the Security Interests. (E) ENCUMBRANCES. Not create, permit, or suffer to exist, and shall defend the Collateral against, any lien or other encumbrance on the Collateral, and shall defend the Pledge, Assignment & Security Agreement.doc 3 Security Agreement HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 Company's Rights in the Collateral and the Secured Party's Security Interest in the Collateral against the claims and demands of all Persons. The Company shall do nothing to impair the Rights of the Secured Party in the Collateral. 7. DEFAULT; REMEDIES. If an Event of Default exists, the Secured Party may, at its election (but subject to the terms and conditions of the Notes), exercise any and all Rights available to a secured party under the UCC, in addition to any and all other Rights afforded under the Notes, this Security Agreement, at law, in equity, or otherwise. 8. POWER OF ATTORNEY. The Company hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the name of the Company or in its own name, to take after the occurrence and during the continuance of an Event of Default, or upon the occurrence of a set of facts or circumstances that with the passage of time are likely to result in an Event of Default, and from time to time thereafter, any and all action and to execute any and all documents and instruments that the Secured Party at any time and from time to time deems necessary or desirable to accomplish the purposes of this Security Agreement. This power of attorney is a power coupled with an interest and shall be irrevocable. The Secured Party shall be under no duty to exercise or withhold the exercise of any of the Rights, powers, privileges, and options expressly or implicitly granted to the Secured Party in this Security Agreement, and shall not be liable for any failure to do so or any delay in doing so. Neither the Secured Party nor any Person designated by either of them shall be liable for any act or omission or for any error of judgment or any mistake of fact or law. This power of attorney is conferred on the Secured Party solely to protect, preserve, maintain, and realize upon the Secured Party's Security Interest in the Collateral. The Secured Party shall not be responsible for any decline in the value of the Collateral and shall not be required to take any steps to preserve rights against prior parties or to protect, preserve, or maintain any lien given to secure the Collateral. 9. RIGHTS AS STOCKHOLDER. While the Collateral is held by the Secured Party, such shares shall be issued and outstanding shares of Bear River for all corporate purposes, and the Company shall have all the rights of shareholders with respect to such shares, including the right to notice of, and to vote at, meetings and the right to receive the dividends declared by the board of directors of Bear River with respect to such shares. Cash dividends on the shares held as Collateral shall be paid to the Company directly by Bear River. All shares distributed as a result of any stock dividend, stock split or to be distributed in connection with any recapitalization or reorganization shall be delivered to the Secured Party and held as Collateral in accordance with the terms of this Agreement. 10. MISCELLANEOUS. (A) CONTINUING SECURITY INTEREST. This Security Agreement creates a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full of the Obligation; and (ii) inure to the benefit of and be enforceable by the Secured Party, and its successors, transferees, and assigns. Until payment in full of the obligation, the Company shall be entitled to the return, upon its request and at its expense, of such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Pledge, Assignment & Security Agreement.doc 4 Security Agreement HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 (B) TERM. Upon full and final payment and performance of the Obligation, this Security Agreement shall thereafter terminate upon receipt by the Secured Party of the Company's written notice of such termination. (C) ACTIONS NOT RELEASES. The Security Interest and the Company's obligations and the Secured Party's Rights hereunder shall not be released, diminished, impaired, or adversely affected by the occurrence of any one or more of the following events: (i) the taking or accepting of any other security or assurance for any or all of the Obligation; (ii) any release, surrender, exchange, subordination, or loss of any security or assurance at any time existing in connection with any or all of the Obligation; (iii) the modification of, amendment to, or waiver of compliance with any terms of any of the other Note Purchase Documents without the notification or consent of the Company, except as required therein (the Right to such notification or consent being herein specifically waived by the Company); (iv) the insolvency, bankruptcy, or lack of corporate or trust power of any party at any time liable for the payment of any or all of the Obligation, whether now existing or hereafter occurring; (v) any renewal, extension, or rearrangement of the payment of any or all of the Obligation, either with or without notice to or consent of the Company, or any adjustment, indulgence, forbearance, or compromise that may be granted or given by the Secured Party to the Company; (vi) any neglect, delay, omission, failure, or refusal of the Secured Party to take or prosecute any action in connection with any other agreement, document, guaranty, or instrument evidencing, securing, or assuring the payment of all or any of the Obligation; (vii) any failure of the Secured Party to notify the Company of any renewal, extension, or assignment of the Obligation or any part thereof, or the release of any Collateral or other security, or of any other action taken or refrained from being taken by the Secured Party against the Company or any new agreement between or among the Secured Party and the Company, it being understood that except as expressly provided herein, the Secured Party shall not be required to give the Company any notice of any kind under any circumstances whatsoever with respect to or in connection with the Obligation, including, without limitation, notice of acceptance of this Security Agreement or any Collateral ever delivered to or for the account of the Secured Party hereunder; (viii) the illegality, invalidity, or unenforceability of all or any part of the Obligation against any party obligated with respect thereto by reason of the fact that the Obligation, or the interest paid or payable with respect thereto, exceeds the amount permitted by law, the act of creating the Obligation, or any part thereof, is ultra vires, or the officers, partners, or trustees creating same acted in excess of their authority, or for any other reason; or (ix) if any payment by any party obligated with respect thereto is held to constitute a preference under applicable laws or for any other reason the Secured Party is required to refund such payment or pay the amount thereof to someone else. (D) WAIVERS. Except to the extent expressly otherwise provided herein or in the Notes and to the fullest extent permitted by applicable law, the Company waives (i) any Right to require the Secured Party to proceed against any other Person, to exhaust the Secured Party's Rights in Collateral, or to pursue any other Right which the Secured Party may have; and (ii) with respect to the Obligation, presentment and demand for payment, protest, notice of protest and nonpayment, and notice of the intention to accelerate. (E) FINANCING STATEMENT; AUTHORIZATION. The Secured Party shall be entitled at any time to file this Security Agreement or a carbon, photographic, or other reproduction of this Security Agreement, as a financing statement, but the failure of the Secured Party to do so Pledge, Assignment & Security Agreement.doc 5 Security Agreement HAYNES AND BOONE, LLP DRAFT DECEMBER 20, 2003 shall not impair the validity or enforceability of this Security Agreement. The Company hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any UCC jurisdiction any initial financing statements and amendments thereto (without the requirement for the Company's signature thereon) that (i) indicate the Collateral and (ii) contain any other information required by Article 9 of the UCC of the state or such jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including whether the Company is an organization, the type of organization, and any organization identification number issued to the Company. (F) AMENDMENTS. This Security Agreement may be amended only by an instrument in writing executed jointly by the Company and the Secured Party, and supplemented only by documents delivered or to be delivered in accordance with the express terms hereof. (G) MULTIPLE COUNTERPARTS. This Security Agreement may executed in a number of identical counterparts, each of which shall be deemed an original for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this Security Agreement, it shall not be necessary to produce or account for more than one such counterpart. (H) PARTIES BOUND; ASSIGNMENT. This Security Agreement shall be binding on the Company and the Company's heirs, legal representatives, successors, and assigns and shall inure to the benefit of the Secured Party and the Secured Party's successors and assigns. The Company may not, without the prior written consent of the Secured Party, assign any Rights, duties, or obligations hereunder. (I) GOVERNING LAW. THE SUBSTANTIVE LAWS OF THE STATE OF IDAHOAPPLICABLE TO ------------- AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, EXCEPT TO THE EXTENT THE LAWS OF ANOTHER JURISDICTION GOVERN THE CREATION, PERFECTION, VALIDITY, OR ENFORCEMENT OF LIENS UNDER THIS SECURITY AGREEMENT, AND THE APPLICABLE FEDERAL LAWS OF THE UNITED STATES OF AMERICA, SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS SECURITY AGREEMENT AND THE NOTES. [SIGNATURE PAGES FOLLOW] Pledge, Assignment & Security Agreement.doc 6 Security Agreement EXECUTED as of the date first stated in this Pledge, Assignment, and Security Agreement. UNITED STATES ANTIMONY CORP., as Company ATTEST: (Seal) By: /s/John C. Lawrence /s/ John C. Lawrence ------------------------------------ ------------------------------ Name: John C. Lawrence Secretary/Assistant Secretary Title: President of Company John C. Lawrence ------------------------------ Printed Name Mailing Address WITNESSED: P. O. Box 643 /s/Lee D. Martin ------------------------------ Thompson Falls, Montana 59873 Name: Lee D. Martin ------------------------ /s/Michael J. Floersch ------------------------------ Name: Michael J. Floersch ------------------------ DELAWARE ROYALTY COMPANY, INC., as Secured Party ATTEST: (Seal) By: /s/ Al Dugan --------------------------------- ------------------------------ Name: President Secretary/Assistant Secretary Title: Delaware Royalty of Company ------------------------------ Printed Name Mailing Address WITNESSED: - --------------------------- ------------------------------ - --------------------------- Name: ------------------------ ------------------------------ Name:------------------------- Security Agreement Signature Page EX-10.54 6 doc5.txt HAYNES AND BOONE DRAFT DECEMBER 20, 2003 NOTE PURCHASE AGREEMENT BY AND AMONG UNITED STATES ANTIMONY CORPORATION, BEAR RIVER ZEOLITE COMPANY, AND DELAWARE ROYALTY COMPANY, INC. DATED: December 22, 2003 Note Purchase Agreement.doc NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS 4 1.1 Definitions 4 ARTICLE 2 PURCHASE AND SALE OF NOTE AND CONVERSION OF NOTE INTO PREFERRED STOCK 7 2.1 Authorization of Notes 7 2.2 Sale of Notes 7 ARTICLE 3 CLOSING 8 3.1 Note Closing 8 3.2 Deliveries at Note Closing 8 3.3 Conditions of Note Closing 9 3.3 Conditions of Note Closing 10 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 10 4.1 Corporate Existence and Power 11 4.2 Authorization; No Contravention 11 4.3 No Consent or Approval Required 12 4.4 Binding Effect 12 4.5 Capitalization 12 4.6 Financial Information 13 4.7 Undisclosed Liabilities 13 4.8 No Defaults; Contracts 13 4.9 Litigation 14 4.10 Compliance. 14 4.11 Intellectual Property 15 4.12 Title to Properties 15 4.13 Tax Matters 16 4.14 ERISA Matters. 16 4.15 Labor Matters 17 4.16 Insurance 17 4.17 Related Transactions 17 4.18 Offering 17 4.19 Investment Company 18 4.20 Broker's, Finder's or Similar Fees 18 4.21 Environmental Matters 18 4.22 Disclosure 18 4.23 Absence of Certain Changes 18 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 19 5.1 Existence and Power 19 5.2 Authorization; No Contravention 19 5.3 Governmental Authorization; Third Party Consents 19 5.4 Binding Effect 19 5.5 Purchase for Own Account 20 5.6 Restricted Securities 20 5.7 Accredited Investor. 21 5.8 Broker's, Finder's or Similar Fees 21 Note Purchase Agreement.doc i NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 5.10 Tax Advisor 21 ARTICLE 6 COVENANTS 21 6.1 Notice of Certain Events 21 6.2 Access to Records 21 6.3 Financial Statements 21 6.4 Payment of Obligations 23 6.5 Conduct of Business 23 6.6 Conduct of Business 23 ARTICLE 7 MISCELLANEOUS 23 7.1 Survival of Representations, Warranties and Covenants 23 7.2 Notices 23 7.3 Successors and Assigns; Third Party Beneficiaries 24 7.4 Amendment and Waiver 24 7.5 Counterparts 25 7.6 Headings 25 7.7 Governing Law 25 7.8 Severability 25 7.9 Entire Agreement 25 7.10 Publicity; Confidentiality 25 7.11 Further Assurances 26 7.12 Expenses 26 Note Purchase Agreement.doc ii NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 EXHIBITS & SCHEDULES EXHIBITS A Form of Convertible Note B Security Agreement C Form of Warrant SCHEDULE OF PURCHASERS COMPANY DISCLOSURE SCHEDULES PURCHASER DISCLOSURE SCHEDULES Note Purchase Agreement.doc iii NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 NOTE PURCHASE AGREEMENT This Note Purchase Agreement (the "AGREEMENT") is hereby made on this 22nd day of December, 2003, by and among United States Antimony Corporation, a Montana corporation (the "COMPANY"), Bear River Zeolite Company, an Idaho corporation and wholly-owned subsidiary of the Company ("BEAR RIVER"), and Delaware Royalty Company, Inc., a DELAWARE corporation (the "PURCHASER"). The Company, Bear River and the Purchaser are each a "PARTY" and together are "PARTIES" to this Agreement. PRELIMINARY STATEMENTS ---------------------- The Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase and accept that certain 10% Secured Convertible Note due December 22, 2007 (the "NOTE") in substantially the form attached hereto as EXHIBIT A all in accordance with the terms and subject to the conditions set forth in this Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Company, Bear River and the Purchasers hereby agree as follows: 1. DEFINITIONS. 1.1 DEFINITIONS. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "AGREEMENT" means this Agreement as the same may be amended supplemented or modified in accordance with SECTION 7.4(B) of this Agreement. "BALANCE SHEET" has the meaning set forth in SECTION 4.6 of this Agreement. "BEAR RIVER" has the meaning set forth in the Preamble to this Agreement. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banks in the State of Texas are authorized or required by law or executive order to close. "BUSINESS PLAN" has the meaning set forth in SECTION 4.11(A) of this Agreement. "CAPITAL STOCK" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock and any and all rights, warrants or options exchangeable for or convertible into such capital stock (but excluding any debt security that is exchangeable for or convertible into such capital stock). "CLAIMS" means actions, suits, proceedings, claims, complaints, disputes, arbitrations or investigations. Note Purchase Agreement.doc 4 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 "CLOSING" has the meaning set forth in SECTION 3.1 of this Agreement. "CLOSING DATE" has the meaning set forth in SECTION 3.1 of this Agreement. "CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute thereto. "COLLATERAL" has the meaning set forth in the Security Agreement. "COMMON STOCK" means the Company's common stock, par value $0.01 per share, or any other capital stock of the Company into which such stock is reclassified or reconstituted. "COMPANY" has the meaning set forth in the preamble to this Agreement. "CONDITION OF BEAR RIVER" means the assets, business, properties, prospects, operations or financial condition of Bear River, taken as a whole. "CONDITION OF THE COMPANY" means the assets, business, properties, prospects, operations or financial condition of the Company, taken as a whole. "CONDITION OF THE PURCHASER" means the assets, business, properties, prospects, operations or financial condition of the Purchaser, taken as a whole. "CONTRACT" means any agreement, contract, obligation, promise or undertaking (whether written or oral and whether express or implied) between the Company and/or Bear River, as the case may be, and any Person that is legally binding. "CONTRACTUAL OBLIGATIONS" means as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument to which such Person is a party or by which it or any of its property is bound. "EMPLOYEE BENEFIT PLAN" means any deferred compensation, pension, profit sharing, stock option, stock purchase, savings, group insurance or retirement plan, and all vacation pay, severance pay, incentive compensation, consulting, bonus and other employee benefit or fringe benefit plans or arrangements maintained by the Company or any Person that is included with the Company in a controlled group or affiliated service group under Sections 414(b), (c), (m), or (o) of the Code (an "ERISA Affiliate") (including, without limitation, health insurance, life insurance and other benefit plans maintained for retirees) within the previous six plan years or with respect to which contributions are or were (within such six year period) made or required to be made by the Company or any ERISA Affiliate or with respect to which the Company has any liability. "ENVIRONMENTAL EVENT" has the meaning set forth in SECTION 4.21 of this Agreement. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "ERISA AFFILIATE" has the meaning set forth above under "Employee Benefit Plan." Note Purchase Agreement.doc 5 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 "FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4.6 of this Agreement. "GAAP" means generally accepted accounting principles in the United States in effect from time to time. "GOVERNMENTAL AUTHORITY" means the government of any nation, state, city, locality or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "INTELLECTUAL PROPERTY RIGHTS" has the meaning set forth in SECTION 4.11 of this Agreement. "IRS" means the Internal Revenue Service. "LEGAL EXPENSES" means the legal expenses of Purchaser payable to its counsel Haynes and Boone, LLP, which is payable by Purchaser out of the Purchase Price at closing. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or preference, priority, right or other security interest or preferential arrangement of any kind or nature whatsoever (excluding preferred stock and equity related preferences), including, without limitation, those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under any capital lease, or any financing lease having substantially the same economic effect as any of the foregoing. "NOTE" has the meaning set forth in the preamble to this Agreement. "ORDER" means, as to any Person, any judgment, injunction, writ, award, decree or order of any nature of any Governmental Authority against or binding upon such Person. "PERSON" means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of such entity. "PROPRIETARY TECHNOLOGY" has the meaning set forth in SECTION 4.11 of this Agreement. "PURCHASER" has the meaning set forth in the preamble to this Agreement. "PURCHASE PRICE" has the meaning set forth in SECTION 2.2 of this Agreement. "REQUIREMENTS OF LAW" means, as to any Person, any law, statute, treaty, rule, regulation, right, privilege, qualification, license or franchise or determination of an arbitrator or a court or other Governmental Authority or stock exchange, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject or pertaining to any or all of the transactions contemplated or referred to in this Agreement. Note Purchase Agreement.doc 6 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 "REQUISITE RIGHTS" has the meaning set forth in SECTION 4.11(A) of this Agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "SECURITY AGREEMENT" means that certain Security Agreement of an even date herewith by and among the Company and the Purchaser, attached hereto as EXHIBIT B, granting the Purchaser a security interest in the Collateral. "STOCK EQUIVALENTS" means any security or obligation which is by its terms convertible into or exchangeable for shares of Common Stock or any other Capital Stock or securities of the Company, and any option, warrant or other subscription or purchase right with respect to Common Stock or such other Capital Stock or securities. "SUBSIDIARIES" of a corporation means each Person as to which such corporation directly or indirectly owns or has the power to vote, or to exercise a controlling influence with respect to, fifty percent (50%) or more of the securities of any class of such Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or Persons performing similar functions) of such Person. "TAX" or "TAXES" means any federal, state, county, local, foreign and other taxes, including, without limitation, income taxes, estimated taxes, excise taxes, sales taxes, use taxes, gross receipts taxes, franchise taxes, employment and payroll related taxes, property taxes and import duties, whether or not measured in whole or in part by net income. "TRANSACTION DOCUMENTS" means collectively, this Agreement, the Note, the Warrant and the Security Agreement. "WARRANT" means that certain warrant in the name of Purchaser to purchase 2,000,000 shares of Common Stock at $0.20 per share expiring December 22, 2007. 2. PURCHASE AND SALE OF THE NOTES. 2.1 AUTHORIZATION OF THE NOTE. The Company has authorized the issuance and sale of the Note in the principal amount of $250,000. 2.2 SALE OF THE NOTE. Subject to the terms and conditions hereof, the Purchaser agrees to purchase from the Company and the Company agrees to sell and issue to the Purchaser the Note, which shall be in the original aggregate principal amount of $250,000. The purchase price (the "PURCHASE PRICE") for the note shall be $250,000, consisting of $25,000 previously advanced to the Company and $225,000 less the Legal Expenses payable in cash at Closing. 3. CLOSING. 3.1 CLOSING. The consummation of the initial sale and purchase of the Note and the delivery of all documentation in connection therewith (the "CLOSING") shall be held at the offices of Haynes and Boone, LLP, counsel to the Purchaser, 1000 Louisiana, Suite 4300, Houston, Note Purchase Agreement.doc 7 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 Texas 77002 on December 22, 2003 (the "CLOSING DATE") or at such other time and place as shall be mutually agreed upon by the Company, Bear River and the Purchaser. 3.2 DELIVERIES AT CLOSING. The Company, Bear River and the Purchaser are executing and delivering the following documents and items at the Closing: (A) NOTE. The Company shall deliver the Note to the Purchaser. (B) FUNDING. The Purchaser has previously paid $25,000 of the Purchase Price, and at Closing, the Purchaser shall pay $225,000 (the unpaid portion of the Purchase Price) less the Legal Expenses by cashier's check. (C) SECURITY AGREEMENT. The Company and the Purchaser shall deliver the Security Agreement together with the stock pledged accompanied by a stock power executed in blank. (D) OPINION OF COUNSEL. The Company shall deliver to the Purchaser an opinion of the Company's counsel in a form reasonably acceptable to the Purchaser. (E) COMPANY SECRETARY'S CERTIFICATE. The Company shall deliver to the Purchaser a certificate, dated the Closing Date, of the Company's Secretary (the "COMPANY SECRETARY'S CERTIFICATE") to the effect that: (i) attached to the Company Secretary's Certificate is a true and complete copy of (x) the Company's Articles of Incorporation, as amended, and in effect as of the Closing Date, (y) the Company's bylaws, as amended and in effect on the Closing Date; (ii) attached to the Company Secretary's Certificate is a true and complete copy of resolutions adopted by the Company's board of directors authorizing the execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby; (iii) the signatures of the incumbent officers of the Company as identified on the Company Secretary's Certificate are the genuine signatures of such officers; (iv) the representations and warranties of the Company set forth in ARTICLE 4 are true and correct as of the Closing Date; and (v) attached to the Company Secretary's Certificate is a true and complete copy of a certificate of good standing (including tax good standing) from the Secretary of State of the State of Montana, dated as of a date not more than ten (10) days prior to the Closing Date. (F) BEAR RIVER SECRETARY'S CERTIFICATE. Bear River shall deliver to the Purchaser a certificate, dated the Closing Date, of Bear River's Secretary (the "BEAR RIVER SECRETARY'S CERTIFICATE") to the effect that: (i) attached to the Bear River Secretary's Certificate is a true and complete copy of (x) Bear River's Articles of Incorporation, as amended, and in effect as of the Closing Date, (y) Bear River's bylaws, as amended and in effect on the Closing Date; (ii) attached to the Bear River Secretary's Certificate is a true and complete copy of resolutions adopted by Bear River's board of directors authorizing the execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby; (iii) the signatures of the incumbent officers of Bear River as identified on the Bear River Secretary's Certificate are the genuine signatures of such officers; (iv) the representations and warranties of Bear Note Purchase Agreement.doc 8 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 River set forth in ARTICLE 4 are true and correct as of the Closing Date; and (v) attached to the Bear River Secretary's Certificate is a true and complete copy of a certificate of good standing (including tax good standing) from the Secretary of State of the State of Idaho, dated as of a date not more than ten (10) days prior to the Closing Date. (G) FINANCING STATEMENTS. The Company shall deliver all Uniform Commercial Code financing statements and other documents deemed necessary or appropriate by the Purchaser to perfect the security interest in favor of the Purchaser arising under the Security Agreement, duly executed and delivered by the appropriate parties, to be recorded with the appropriate filing offices. (H) WARRANT. The Company shall deliver the Warrant to Purchaser. 3.3 COMPANY'S CONDITIONS OF CLOSING. The obligations of the Company under SECTION 2.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against the Company unless it consents in writing thereto: (A) CLOSING DELIVERIES. The Purchaser shall have made the deliveries required of them by SECTION 3.2 (B). (B) NO INJUNCTION. No preliminary or permanent injunction or other binding order, decree or ruling issued by a court or government agency shall be in effect which shall have the effect or preventing the consummation of the transaction contemplated by this Agreement. (C) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Purchaser contained in SECTION 5 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the date of such Closing Date. (D) PERFORMANCE. The Purchaser shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by them on or before the Closing. (E) CORPORATE PROCEEDINGS. All corporate and other proceedings required to be taken by the Purchaser to carry out the transactions contemplated by this Agreement, and all instruments and other documents relating to such transactions, shall be reasonably satisfactory in form and substance to the Company, and the Company shall have been furnished with such instruments and documents as it shall have reasonably requested. 3.4 PURCHASER'S CONDITIONS OF CLOSING. The obligations of the Purchaser under SECTION 2.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against the Purchaser unless it consents in writing thereto: Note Purchase Agreement.doc 9 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 (A) CLOSING DELIVERIES. The Company and Bear River shall have made the deliveries required of each by SECTIONS 3.2 (A) and (C)-(H). (B) NO INJUNCTION. No preliminary or permanent injunction or other binding order, decree or ruling issued by a court or government agency shall be in effect which shall have the effect or preventing the consummation of the transaction contemplated by this Agreement. (C) REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Company and Bear River contained in SECTION 4 shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the date of such Closing Date. (D) PERFORMANCE. The Company and Bear River shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. (E) BLUE SKY. The Company and Bear River shall have obtained all necessary permits and qualifications, if any, or secured an exemption therefrom, required by any state or country prior to the offer and sale of the Note, if required under the applicable state or country law. (F) CORPORATE PROCEEDINGS. All corporate and other proceedings required to be taken by the Company and Bear River to carry out the transactions contemplated by this Agreement, and all instruments and other documents relating to such transactions, shall be reasonably satisfactory in form and substance to the Purchaser, and the Purchaser shall have been furnished with such instruments and documents as it shall have reasonably requested. 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND BEAR RIVER. Except as disclosed in a document referring specifically to this Agreement with appropriate section references (with each such exception specifically identifying or cross-referencing the provision of this SECTION 4 to which such exception relates) which has been delivered to the Purchaser on or before the date hereof (the "Company Disclosure Schedules"), and in order to induce the Purchaser to enter into and perform this Agreement and the documents and agreements contemplated hereby, the Company and Bear River, jointly and severally, represent and warrant to the Purchaser as of the date of this Agreement as follows: 4.1 CORPORATE EXISTENCE AND POWER. (A) The Company: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is currently proposed to be, engaged; and (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property Note Purchase Agreement.doc 10 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 or the conduct of its business requires such qualification, except to the extent that the failure to so qualify would not have a material adverse effect on the Condition of the Company. The Company has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents. No jurisdiction, other than those referred to in clause (c) above, has claimed, in writing or otherwise, that the Company is required to qualify as a foreign corporation therein, and the Company does not file any franchise, income or other tax returns in any other jurisdiction based upon the ownership or use of property therein or the derivation of income therefrom. Except as set forth on SCHEDULE 4.1(A) attached to this Agreement, the Company has no Subsidiaries. The Company is not a participant in or partner to any joint ventures or partnerships. (B) Bear River: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is currently proposed to be, engaged; and (c) is duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction in which its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to so qualify would not have a material adverse effect on the Condition of Bear River. No jurisdiction, other than those referred to in clause (c) above, has claimed, in writing or otherwise, that Bear River is required to qualify as a foreign corporation therein, and Bear River does not file any franchise, income or other tax returns in any other jurisdiction based upon the ownership or use of property therein or the derivation of income therefrom. Bear River has no Subsidiaries. Bear River is not a participant in or partner to any joint ventures or partnerships. 4.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Company of this Agreement and each of the Transaction Documents and the transactions contemplated hereby and thereby: (a) have been duly authorized by all necessary corporate and shareholder action of the Company; (b) do not contravene the terms of the Company's Articles of Incorporation or bylaws, or any amendment of any thereof; (c) do not violate, conflict with or result in any breach or contravention of, or the creation of any Lien under, any Contractual Obligation or Contract of the Company, or any Requirement of Law applicable to the Company; and (d) do not violate any Order against or binding upon the Company. The Company has not previously entered into any Contractual Obligation or Contract that is currently in effect or by which the Company is currently bound, granting any rights to any Person that are inconsistent with the rights to be granted by the Company to the Purchasers in this Agreement and each of the other Transaction Documents. 4.3 NO CONSENT OR APPROVAL REQUIRED. No consent, approval or authorization of, or declaration to, or filing with, any Governmental Authority or any other Person is required for the valid authorization, execution, delivery and performance by the Company of this Agreement, except for the filing of any notice in connection with the Closing that may be required under applicable federal or state securities laws (which, if required, shall be filed on a Note Purchase Agreement.doc 11 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 timely basis as may be so required) and for consents, approvals, authorizations, and declarations that have already been obtained or made. 4.4 BINDING EFFECT. This Agreement and each of the other Transaction Documents have been or will be duly executed and delivered by the Company, and each constitutes the legal, valid and binding obligations of the Company enforceable against it in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or in equity). 4.5 CAPITALIZATION. (A) The Company's authorized capital stock consists of: (i) ______________ shares of Common Stock, of which _______________ shares are issued and outstanding; and (ii) ____________ shares of preferred stock, par value $___ per share, of which _____________ shares are issued and outstanding as of the date of this Agreement. Except as set forth on SCHEDULE 4.5(A) attached to this Agreement, there are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire or rights to cause the Company to repurchase or redeem (x) any shares of the Company's Capital Stock, (y) any Stock Equivalents of the Company or (z) other securities of the Company. The issued and outstanding shares of Common Stock and Preferred Stock are all duly authorized, validly issued, fully paid and nonassessable, and were issued in compliance with the registration and qualification requirements of all applicable federal and state securities laws. The shares of Common Stock issuable upon conversion of the Notes are duly authorized and, when issued in compliance with the conversion provisions of the Notes, will be validly issued, fully paid and nonassessable. Except as set forth on SCHEDULE 4.5(A) attached to this Agreement, the Company is not a party to any stockholder agreements, registration rights agreements or voting agreements. (B) Bear River's authorized capital stock consists of ______________ shares of common stock, par value $____ per share, of which 7500 shares are issued and outstanding as of the date of this Agreement. Except as set forth on SCHEDULE 4.5(B) attached to this Agreement, there are no options, warrants, conversion privileges, subscription or purchase rights or other rights presently outstanding to purchase or otherwise acquire or rights to cause Bear River to repurchase or redeem (x) any shares of the Bear River's Capital Stock, (y) any Stock Equivalents of Bear River or (z) other securities of Bear River. The issued and outstanding shares of Bear River's common stock and preferred stock are all duly authorized, validly issued, fully paid and nonassessable, and were issued in compliance with the registration and qualification requirements of all applicable federal and state securities laws. Except as set forth on SCHEDULE 4.5(B) attached to this Agreement, Bear River is not a party to any stockholder agreements, registration rights agreements or voting agreements. 4.6 FINANCIAL INFORMATION. The Company has previously delivered to the Purchaser the audited balance sheet of the Company dated December 31, 2002 and related Note Purchase Agreement.doc 12 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 unaudited statements of operations for the fiscal year then ended and the unaudited balance sheets of the Company dated September 30, 2003 (collectively, the "Balance Sheet") and related unaudited statements of operations for the fiscal quarter then ended, prepared by the Company (collectively, the "Financial Statements"). The Financial Statements (i) fairly present in all material respects the financial position of the Company as of the respective dates indicated and the results of operations of the Company for the respective periods indicated and (ii) unless otherwise stated therein, have been prepared in accordance with GAAP consistently applied, subject to routine year-end adjustments that in the aggregate would not have a material adverse effect on the Condition of the Company. 4.7 UNDISCLOSED LIABILITIES. Except as and to the extent reflected on, or fully reserved against in, the Balance Sheet and except for liabilities or obligations that were incurred consistently with past business practice in or as a result of the normal and ordinary course of business since the date of incorporation of the Company or Bear River, as the case may be, the Company and Bear River do not have any liabilities or obligations, whether direct or indirect, matured or unmatured, contingent or otherwise. 4.8 NO DEFAULTS; CONTRACTS. (A) SCHEDULE 4.8(A) attached to this Agreement sets forth a true and complete list of all Contracts of the Company. The Company is not in default: (a) under (i) the Company's Articles of Incorporation or bylaws, in each case, as amended, or (ii) any Contractual Obligation or Contract to which the Company is a party and, to the knowledge of the Company, the other party to such Contractual Obligation or Contract is not in default thereunder; or (b) under any Order against or binding upon the Company, which defaults, in the aggregate, could reasonably be expected to have a material adverse effect on the Condition of the Company. Except as set forth on SCHEDULE 4.8(A) attached to this Agreement, (i) each Contract of the Company is in full force and effect and is valid and enforceable against the Company in accordance with its terms and (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give the Company or any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any Contract. (B) SCHEDULE 4.8(B) attached to this Agreement sets forth a true and complete list of all Contracts of Bear River. Bear River is not in default: (a) under (i) Bear River's Articles of Incorporation or bylaws, in each case, as amended, or (ii) any Contractual Obligation or Contract to which Bear River is a party and, to the knowledge of Bear River, the other party to such Contractual Obligation or Contract is not in default thereunder; or (b) under any Order against or binding upon Bear River, which defaults, in the aggregate, could reasonably be expected to have a material adverse effect on the Condition of Bear River. Except as set forth on SCHEDULE 4.8(A) attached to this Agreement, (i) each Contract of Bear River is in full force and effect and is valid and enforceable against Bear River in accordance with its terms and (ii) no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Bear River or any Person the Note Purchase Agreement.doc 13 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any Contract. 4.9 LITIGATION. There are no: (a) Claims or legal or administrative proceedings pending or to the knowledge of the Company, threatened against the Company or Bear River, whether at law or in equity, or before or by any Governmental Authority that, if adversely determined against the Company or Bear River, as the case may be, (i) could reasonably be expected to have a material adverse effect on the Condition of the Company or the Condition of Bear River or (ii) would restrict the Company's ability to consummate the transactions contemplated by this Agreement and the other Transaction Documents or draw into question the validity of this Agreement or any of the other Transaction Documents; or (b) Orders against or binding upon the Company or Bear River. 4.10 COMPLIANCE. The Company and Bear River have complied with all Requirements of Law applicable to their respective businesses, operations, properties, assets, products and services, and the Company and Bear River have obtained all necessary permits, licenses and other authorizations required to conduct their respective businesses with such exceptions that do not have an adverse effect on the Condition of the Company or the Condition of Bear River. Such licenses and permits are in full force and effect, and no violations have been recorded in respect of any such licenses or permits, no proceeding is pending or, to the knowledge of the Company, threatened to revoke or limit any thereof, and no written notice of non-compliance, assessment or charge has been received by the Company or Bear River. 4.11 INTELLECTUAL PROPERTY. (A) The Company and Bear River own or have the right to use all Intellectual Property Rights material to and necessary for the conduct of each of their businesses as proposed to be conducted in the business plans of each, previously delivered to Purchaser and as amended and supplemented with the approval of the Purchaser as of the date of this Agreement (the "BUSINESS PLAN"), (collectively, the "REQUISITE RIGHTS"), free and clear of all Liens. SCHEDULE 4.11(A) attached to this Agreement sets forth a true and complete list of (i) all such Requisite Rights and (ii) all agreements (including licenses) relating to such Requisite Rights. (B) The Company and Bear River have all governmental approvals, authorizations, consents, licenses and permits necessary to conduct their respective businesses as proposed to be conducted under the terms of the Business Plan. (C) To the knowledge of the Company, no product or service proposed to be licensed, marketed or sold by the Company or Bear in accordance with the terms of the Company's Business Plan violates any license or infringes any Intellectual Property Rights of others. (D) There is no pending or, to the knowledge of the Company, threatened claim or litigation against the Company or Bear River contesting the validity of or right to use the Requisite Rights, nor has the Company or Bear River received any written notice that any of the Requisite Rights or the proposed operation of its business in Note Purchase Agreement.doc 14 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 accordance with the terms of the Business Plan conflicts with the asserted rights of others, in any case, which if adversely determined against the Company or Bear River could reasonably be expected to have a material adverse effect on the Condition of the Company or the Condition of Bear River As used herein, the term "Intellectual Property Rights" means all intellectual property rights, including, without limitation, Proprietary Technology, patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications and registrations, copyrights, copyright applications and registrations, know-how, licenses, trade secrets, proprietary processes and formulae. As used herein, "Proprietary Technology" means all source and object code, processes, inventions, trade secrets, know-how and other proprietary rights owned by the Company or Bear River pertaining to any product or service licensed, marketed or sold by the Company or Bear River or used, employed or exploited in the development, license, sale, marketing, distribution or maintenance thereof, and all documentation describing or relating to the foregoing, including, without limitation, manuals, memoranda, know-how, notebooks, patents and patent applications, trademarks and trademark applications and registrations, copyrights and copyright applications and registrations, records and disclosures. 4.12 TITLE TO PROPERTIES. (A) The Company and Bear River enjoy peaceful and undisturbed possession under all leases under which each is operating, and, to the best of the Company's knowledge, no claim has been asserted against the Company or Bear River that is adverse to any of their respective rights in such leasehold interests. (B) The Company and Bear River have good, valid and indefeasible title to their respective properties and assets reflected as owned on the Balance Sheet or acquired by either since the date of the Balance Sheet (other than properties and assets disposed of in the ordinary course of business since the date of the Balance Sheet), and all such properties and assets are free and clear of all Liens, except for Liens disclosed in the Financial Statements and Liens for current Taxes not yet due and payable and minor imperfections of title, if any, not material in nature or amount and not materially detracting from the value or impairing the use of the property subject thereto or impairing the operations of the Company or Bear River as presently conducted, taken as a whole. (C) The Purchaser acknowledges that this SECTION 4.12 relates to assets and properties of the Company and Bear River other than Intellectual Property Rights, as to which separate representations and warranties are made in SECTION 4.11 of this Agreement. 4.13 TAX MATTERS. All tax returns and tax reports required to be filed by the Company or Bear River have been filed with the appropriate Governmental Authorities in all jurisdictions in which such returns and reports are required to be filed and all of the foregoing are true, correct and complete in all material respects. All Taxes required to have been paid or accrued by the Company or Bear River have been fully paid or are adequately provided for on the Balance Sheet, except for Tax liabilities arising since the date of the Balance Sheet and Note Purchase Agreement.doc 15 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 liabilities being challenged in good faith by the Company or Bear River by appropriate proceedings diligently conducted. No issues are currently pending before the IRS or any other taxing authority in connection with any of the returns and reports referred to above, and no waivers of statutes of limitations have been given or requested by the Company or Bear River with respect to Taxes. All deficiencies asserted or assessments (including interest and penalties) made as a result of any examination by the IRS or by appropriate other taxing authorities of the tax returns of or with respect to the Company or Bear River have been fully paid or are adequately provided for on the Balance Sheet, and no proposed but unassessed additional Taxes, interest or penalties have been asserted. To the Company's knowledge, upon due investigation, the provisions for Taxes on the Balance Sheet are sufficient for the payment of all accrued and unpaid Taxes as of such date, except for Taxes being challenged in good faith by the Company or Bear River by appropriate proceedings diligently conducted. 4.14 ERISA MATTERS. (A) Seller is not a party to any pension, profit sharing, savings, retirement or other deferred compensation plan, or any bonus (whether payable in cash or stock) or incentive program, or any group health plan (whether insured or self-funded), or any disability or group life insurance plan or other employee welfare benefit plan, or to any collective bargaining agreement or other agreement, written or oral, with any trade or labor union, employees association or similar organization. Seller is not a party to, nor has made any contribution to or otherwise incurred any obligation under, a "multiemployer plan" as defined in Section 3(37) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (B) To the knowledge of Seller, Seller has not violated any of the health care continuation coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") prior to the Closing. (C) No payment or benefit which will or may be made by Seller or an affiliate of Seller with respect to any employee of Seller in connection with the transactions contemplated hereby will be characterized as a "parachute payment" within the meaning of Section 280G(b)(2) of the Code. 4.15 LABOR MATTERS. Neither the Company nor Bear River is a party to nor is either bound by (i) any collective bargaining agreement or (ii) employment agreement. No collective bargaining agreement covering any of the Company's or Bear River's employees is currently being negotiated. There are no threatened attempts by employees of the Company or Bear River to organize for collective bargaining purposes. 4.16 INSURANCE. The Company and Bear River have such policies of liability and workmen's compensation as are adequate against risks usually insured against by comparable persons, businesses and properties. Such policies are in full force and effect and all premiums with respect to such policies are currently paid. 4.17 RELATED TRANSACTIONS. No Company or Bear River director, executive officer or "affiliate" (as defined in the Securities Act of 1933, as amended) of any such Person, is Note Purchase Agreement.doc 16 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 presently, directly or indirectly, through his, her or its affiliation with any other Person, a party to any transaction with the Company or Bear River, as the case may be, providing for the furnishing of services by or to, or rental or sale of real or personal property from or to, or otherwise requiring cash payments to or by any such person, except for normal employment arrangements in the ordinary course of the Company's or Bear River's respective businesses. 4.18 OFFERING. (A) Subject in part to the accuracy of the Purchaser's representation set forth in ARTICLE 5 hereof, the offer, sale and issuance of the Notes as contemplated by this Agreement is exempt from the registration requirements of the 1933 Act and any applicable state securities laws, and neither the Company, Bear River nor any authorized agent acting on either's behalf will take any action hereafter that would cause the loss of such exemption. (B) The Business Plan previously provided to the Purchaser was prepared in good faith by the Company and does not contain any untrue statement of material fact, nor does it omit to state a material fact necessary to make the statements therein not misleading. 4.19 INVESTMENT COMPANY. Neither the Company nor Bear River is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 4.20 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage commissions, finder's fees or similar fees or commissions payable by the Company or Bear River in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or Bear River or any action taken by or on behalf of the Company or Bear River. 4.21 ENVIRONMENTAL MATTERS. The Company and Bear River conduct their respective businesses and operations in compliance with all applicable environmental laws, ordinances and regulations. The Company and Bear River have not received any written notice of any claim, action, suit, proceeding, hearing or investigation based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, handling, emission, discharge, release or threatened release into the environment of any pollutant, contaminant or hazardous or toxic material or waste (each, an "ENVIRONMENTAL EVENT") by the Company or Bear River. To the Company's knowledge, no notice of any Environmental Event by any Person that occupied any of the premises occupied by or used by the Company or Bear River prior to the date such premises were so occupied or used was given to such Person. Without limiting the generality of the foregoing, neither the Company nor Bear River has disposed of or placed on or in any property or facility used in their respective businesses any waste materials, hazardous materials or hazardous substances in violation of any Requirement of Law. 4.22 DISCLOSURE. This Agreement, the Schedules and the documents and items listed on SCHEDULE 5.6(D) attached to this Agreement, taken as a whole, do not, as of the respective dates thereof, contain any untrue statement of a material fact or omit to state a material fact Note Purchase Agreement.doc 17 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. 4.23 ABSENCE OF CERTAIN CHANGES. Since September 30, 2003 there has not been any: (A) change in the Company's or Bear River's authorized or issued capital stock; grant of any stock option or right to purchase shares of capital stock of the Company or Bear River; issuance of any security convertible into such capital stock; grant of any registration rights; purchase, redemption, retirement, or other acquisition by the Company or Bear River of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of capital stock; (B) amendment to the organizational documents of the Company or Bear River; (C) sale, lease, or other disposition of any asset or property of the Company or Bear River or mortgage, pledge, or imposition of any Lien on any material asset or property of the Company or Bear River, including the sale, lease, or other disposition of any of the Requisite Rights; (D) creation of any indebtedness of the Company or Bear River not set forth on the Financial Statements; or (E) material adverse change in the Condition of the Company or Bear River. 5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Except as disclosed in a document referring specifically to this Agreement with appropriate section references (with each such exception specifically identifying or cross-referencing the provision of this SECTION 5 to which such exception relates) which has been delivered to the Company on or before the date hereof (the "Purchaser's Disclosure Schedule"), and in order to induce the Company to enter into and perform this Agreement and the documents and agreements contemplated hereby, the Purchaser represents and warrants to the Company as of the date of this Agreement as follows: 5.1 EXISTENCE AND POWER. The Purchaser hereby represents and warrants that it is an entity duly organized, validly existing and in good standing under the laws of the state of its formation. The Purchaser has the power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents. 5.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance by the Purchaser of this Agreement and each of the other Transaction Documents and the transactions contemplated hereby and thereby, including, without limitation, the purchase of the Notes (a) have been duly authorized by all necessary corporate action, (b) do not contravene the terms of the Purchaser's constating documents, if applicable, or any amendment Note Purchase Agreement.doc 18 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 thereof, (c) do not violate, conflict with or result in any breach or contravention of or the creation of any Lien under, any Contractual Obligation of the Purchasers, or any Requirement of Law applicable to the Purchasers, and (d) do not violate any Order of any Governmental Authority against or binding upon the Purchasers. 5.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. No consent, approval or authorization of, or declaration to, or filing with, any Governmental Authority or any other Person, and no lapse of a waiting period under any Requirement of Law, is required for the valid authorization, execution, delivery or performance (including, without limitation, the purchase of the Notes) by the Purchaser of this Agreement or the transactions contemplated hereby, except for consents, approvals, authorizations, declarations and filings that have already been obtained or made. 5.4 BINDING EFFECT. This Agreement and each of the other Transaction Documents to which the Purchaser is a party have been or will be duly executed and delivered by the Purchaser and, when executed and delivered, will constitute the legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity). 5.5 PURCHASE FOR OWN ACCOUNT. The Notes to be acquired by the Purchaser pursuant to this Agreement are being acquired for the Purchaser's own account and with no intention of distributing or reselling the Notes or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, or any state. The Purchaser represents and warrants to the Company that it will not transfer the Notes, except in compliance with the Securities Act and applicable state securities laws. 5.6 RESTRICTED SECURITIES. (A) The Purchaser understands that the Notes will not be registered at the time of their issuance under the Securities Act for the reason that the sale provided for in this Agreement is exempt pursuant to Section 4(2) of the Securities Act and that the reliance of the Company on such exemption is predicated in part on the Purchaser's representations set forth in this ARTICLE 5. (B) The Purchaser acknowledges and agrees that the Notes must be held indefinitely unless a subsequent disposition thereof is registered or qualified under the Securities Act and applicable state securities laws or is exempt from registration. The Purchaser acknowledges that (i) there may be no public market for such security, (ii) there can be no assurance that any such market will ever develop and (iii) there can be no assurance that it will be able to liquidate its investment in the Company. (C) The Purchaser represents and warrants to the Company that (i) it acknowledges that an investment in the Company involves a high degree of risk, (ii) it has such knowledge and experience in financial and business matters as is necessary to Note Purchase Agreement.doc 19 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 enable it to evaluate the merits and risks of an investment in the Company and is not utilizing any other person to be its purchaser representative in connection with evaluating such merits and risks; and (iii) it has no present need for liquidity in its investment in the Company and is able to bear the risk of that investment for an indefinite period and to afford a complete loss thereof. (D) The Purchaser acknowledges that it has received a copy of the documents and items listed on SCHEDULE 5.6(D) attached to this Agreement. The Purchaser represents and warrants that the Purchaser has had the opportunity to ask questions of and to receive answers from the Company concerning, and to review the books and records of the Company and to obtain additional information regarding, the Company and such documents and items to the Purchaser's satisfaction. 5.7 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as that term is defined by Rule 501(a) of Regulation D promulgated under the Securities Act. 5.8 BROKER'S, FINDER'S OR SIMILAR FEES. There are no brokerage commissions, finder's fees or similar fees or commissions payable by the Purchaser, in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Purchaser or any action taken by the Purchaser. 5.9 TAX ADVISOR. The Purchaser has reviewed with the Purchaser's own tax advisors the federal, state and local tax consequences of the purchase of the Notes and the transactions contemplated by this Agreement. The Purchaser is relying solely on such advisors and not on any statements or representations of the Company or any of its agents and understands that the Purchaser, and not the Company, shall be responsible for the Purchaser's own tax liability that may arise as a result of the purchase of the Notes or the transactions contemplated by this Agreement. 6. COVENANTS. 6.1 NOTICE OF CERTAIN EVENTS. So long as the Notes shall remain outstanding, the Company and Bear River shall give the Purchaser prompt notice of (a) any event of default under any material agreement with respect to indebtedness for borrowed money or any material purchase money obligation, and any event which, upon the notice or lapse of time or both, would constitute such an event of default or would be likely to result in an Event of Default, that would permit the holder of such indebtedness or obligation to accelerate the maturity thereof, and (b) any action, suit or proceeding at law or in equity which, if adversely determined, could reasonably be expected to have a material adverse effect upon the Condition of the Company or the Condition of Bear River. 6.2 ACCESS TO RECORDS. So long as the Notes shall remain outstanding, the Company and Bear River shall afford to the Purchaser and its authorized employees, counsel, accountants and other representatives, upon reasonable notice and during ordinary business hours, (i) full access to all books, records and properties of the Company or Bear River and (ii) the opportunity to interview any officer of the Company or Bear River regarding its affairs; Note Purchase Agreement.doc 20 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 provided the foregoing does not unreasonably interfere with the business of the Company or Bear River. 6.3 FINANCIAL STATEMENTS. So long as the Notes shall remain outstanding, the Company and Bear River shall deliver to the Purchaser: (A) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of income, stockholders' equity and cash flows of the Company for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable details and satisfactory in form to the Purchaser and certified by an authorized financial officer of the Company subject to changes resulting from year-end adjustment; (B) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidated statements of income and cash flows and a consolidated statement of stockholders' equity of the Company for such year, and a consolidated balance sheet of the Company as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Purchaser and, as to the statements, reported on by independent public accountants of recognized national standing selected by the Company whose report shall be without limitation as to the scope of the audit and satisfactory in substance to the Purchaser and, as to the consolidating statements, certified by an authorized financial officer of the Company; (C) promptly upon receipt thereof, a copy of each other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company; (D) as soon as practicable and in any event within five (5) Business Days after obtaining knowledge (a) of any condition or event which, in the opinion of management of the Company, would have a material adverse effect on the Condition of the Company or the Condition of Bear River, (b) that any Person has given any notice to the Company or Bear River or taken any other action with respect to a claimed default, (c) of the institution of any litigation involving claims against the Company equal to or greater than $25,000 with respect to any single cause of action or of any adverse determination in any court proceeding in any litigation involving a potential liability to the Company or Bear River equal to or greater than $25,000 with respect to any single cause of action which makes the likelihood of an adverse determination in such litigation against the Company or Bear River substantially more probable or (d) of any regulatory proceeding which may have a material adverse effect on the Condition of the Company or the Condition of Bear River, an officer's certificate specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such Person and the nature of any such claimed default, event or condition, or specifying the details of such Note Purchase Agreement.doc 21 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 proceeding, litigation or dispute and what action the Company or Bear River has taken, is taking or proposes to take with respect thereto; (E) promptly upon completion thereof on an annual basis within 60 days following each fiscal year end, a copy of each operating budget and projection of financial performance prepared by or for the Company or Bear River; (G) within (5) five Business Days after the removal or resignation of, or the death or disability of any executive officer of the Company or Bear River, written notice thereof, together with information in reasonable detail with respect thereto; and (H) with reasonable promptness, such other information respecting the condition or operations, financial or otherwise, of the Company or Bear River as the Purchaser may reasonably request. 6.4 PAYMENT OF OBLIGATIONS. The Company and Bear River shall pay or discharge or cause to be paid or discharged all material obligations, liabilities, claims or demands, and all Taxes levied or imposed upon the Company or Bear River or upon the income, profits or property of the Company or Bear River; provided, however, that the Company and Bear River shall not be required to pay or discharge or cause to be paid or discharged any such obligation, liability, claim, demand, or Tax the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate provision has been made. 6.5 CONDUCT OF BUSINESS. The Company and Bear River shall (i) take all actions required to assure that the Company and Bear River remain duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation and duly qualified as a foreign corporation in any applicable jurisdiction, (ii) take all actions required to assure that the Company and Bear River maintain all permits to conduct its business and (iii) conduct their businesses in compliance with all Requirements of Law. 6.6 MAINTENANCE OF INSURANCE. The Company and Bear River will carry and maintain insurance (subject to customary deductibles and retentions) in at least such amounts and against such liabilities and hazards and by such methods as customarily maintained by other companies operating similar businesses. 6.7 ADDITIONAL RESTRICTIONS. For so long as the Notes remain outstanding, Bear River shall not, and the Company shall cause Bear River to not,: (A) issue any capital stock of Bear River; and (B) after the date of the Closing, pledge any of the assets of Bear River as security for any indebtedness. 7. MISCELLANEOUS. 7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and warranties made in this Agreement shall survive the Closing until the earlier Note Purchase Agreement.doc 22 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 of the date that is the third anniversary of the Closing Date except for the representations and warranties set forth in SECTIONS 4.1, 4.2, 4.3 and 4.5 that will survive indefinitely. 7.2 NOTICES. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier, overnight delivery service or personal delivery: if to the Company or Bear River: United States Antimony, Inc. P. O. Box 634 Thompson Falls, Montana 57986 Attention: John C. Lawrence if to the Purchaser: Delaware Royalty Company, Inc. c/o Nortex Corporation 1415 Louisiana, Suite 3100 Houston, Texas 77002 Attention: A. W. Dugan with a copy to: Haynes and Boone, LLP 1000 Louisiana, Suite 4300 Houston, Texas 77002 Attention: Charles D. Powell All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one (1) Business Day after being deposited with an overnight courier; and three (3) Business Days after being deposited in the mail, postage prepaid, if mailed. 7.3 SUCCESSORS AND ASSIGNS; THIRD PARTY BENEFICIARIES. This Agreement shall be freely assignable by the Purchaser. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. No Person other than the Company, Bear River and the Purchaser and its successors and permitted assigns is intended to be a beneficiary of this Agreement. Note Purchase Agreement.doc 23 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 7.4 AMENDMENT AND WAIVER. (A) No failure or delay on the part of the Company, Bear River or the Purchaser in exercising any right, power or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company, Bear River or the Purchaser at law, in equity or otherwise. (B) Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company, Bear River or the Purchaser from the terms of any provision of this Agreement, shall be effective (i) only if it is made or given in writing and signed by the Company, Bear River and the Purchaser, and (ii) only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. 7.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 7.6 HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of this Agreement. 7.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN -------------- ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION. 7.8 SEVERABILITY. If any one or more of the provisions contained in this Agreement, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, then the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions of this Agreement shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 7.9 ENTIRE AGREEMENT. This Agreement, together with the Schedules attached to this Agreement (all of which are incorporated into, and made a part of, this Agreement) and the other Transaction Documents, is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties to this Agreement in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the Schedules hereto, and the Note Purchase Agreement.doc 24 NOTE PURCHASE AGREEMENT HAYNES AND BOONE DRAFT DECEMBER 20, 2003 other Transaction Documents supersede all prior agreements and understandings between the parties with respect to such subject matter. 7.10 PUBLICITY; CONFIDENTIALITY. Except as may be required by an applicable Requirement of Law, (i) none of the parties to this Agreement shall issue a publicity release or public announcement or otherwise make any disclosure concerning this Agreement or the transactions contemplated hereby, without prior approval by the other parties hereto (which approval shall not be unreasonably withheld) and (ii) the Company, Bear River and the Purchaser agree that all information received from each other will be held strictly confidential and each party will take reasonable steps to maintain the confidentiality of such information; provided, however, that nothing in this Agreement shall restrict any of the Company, Bear River or the Purchaser from disclosing information: (a) that is already publicly available; and (b) to their respective (i) shareholders, principals, and employees and (ii) attorneys, accountants, consultants and other advisors to the extent necessary to obtain their services in connection with the transactions contemplated by this Agreement. If any announcement is required by law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties an opportunity to comment thereon. 7.11 FURTHER ASSURANCES. Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any other Person), as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement and to consummate and make effective as promptly as possible the transactions contemplated by this Agreement. 7.12 EXPENSES. The Company shall pay all expenses incident to the preparation, negotiation and execution of this Agreement, including without limitation, all fees, costs and expenses of legal counsel, up to an aggregate $50,000. [SIGNATURE PAGES FOLLOW] Note Purchase Agreement.doc 25 NOTE PURCHASE AGREEMENT IN WITNESS WHEREOF, the parties to this Agreement have caused their respective duly authorized representatives to execute and deliver this Agreement on the date first above written. COMPANY: UNITED STATES ANTIMONY CORPORATION - ---------------------------------------- Name: ---------------------------------- Title:---------------------------------- BEAR RIVER: BEAR RIVER ZEOLITE COMPANY - ---------------------------------------- Name:----------------------------------- Title:---------------------------------- PURCHASER: DELAWARE ROYALTY COMPANY, INC. - ---------------------------------------- Name:----------------------------------- Title:---------------------------------- SIGNATURE PAGE NOTE PURCHASE AGREEMENT EXHIBIT A FORM OF NOTE HAYNES AND BOONE DRAFT DECEMBER 20, 2003 EXHIBIT B SECURITY AGREEMENT EX-14.0 7 doc6.txt INTRODUCTION "Quality and Integrity" has been part of United States Antimony Corporation's (hereinafter called the Company) since inception. Truthfulness, honesty, fairness, to each other, our Company, and to our investors, customers and suppliers are the ethical standards by which we live and work. Each person who is an officer or director of the Company is a Company "associate" and has a responsibility to deal ethically in all aspects of the Company's business and to comply fully with all laws, regulations, and Company policies. Anyone who is employed by the Company is expected to assume the responsibility for applying these standards of ethical conduct. When in doubt any future employees will have the responsibility to seek clarification from the appropriate Company representative. (See Disclosure, Guidance and Approvals, below). Each director, officer and employee of the Company is required to comply with this Code of Ethics. CONFLICTS OF INTEREST A CONFLICT OF INTEREST EXISTS WHEN AN INDIVIDUAL'S PRIVATE INTEREST CONFLICTS WITH THE INTERESTS OF THE COMPANY. WHEN AN INDIVIDUAL'S LOYALTY TO THE COMPANY AND CONDUCT OF RESPONSIBILITIES AND DUTIES TOWARDS THE COMPANY IS PREJUDICED BY ACTUAL OR POTENTIAL BENEFIT FROM ANOTHER SOURCE A CONFLICT OF INTEREST EXISTS. We are confident of the individual loyalty and honesty of our associates. Good relations with customers and suppliers and the integrity of our associates are critical sources of goodwill and absolutely necessary to our success. Associates should never be in a position where their personal interests or third parties inappropriately influence their judgment on Company matters. No associate should be subject, or even reasonably appear to be subject, to influences, interests or relationships that conflict with the best interests of the Company. This means avoiding any activity that might compromise or seem to compromise the integrity of the Company or the associate. All associates shall avoid conflicts of interests in connection with the conduct of the Company's business except as expressly permitted by this Code. Common Sources of Conflicts. - ------------------------------- Although it is impossible to prepare a list of all potential conflict of interest situations, conflicts of interest generally arise in four situations: - -INTEREST OF ASSOCIATE - When an associate, a member of the associate's family or a trust in which the associate is involved, has a significant direct or indirect financial interest in, or obligation to, an actual or potential competitor, supplier, lender, service provider or customer of the Company; United States Antimony Corporation Code of Ethics Page 1 of 7 - -INTEREST OF RELATIVE - When an associate conducts business on behalf of the Company with a supplier or customer of which a relative by blood or marriage is a principal, partner, shareholder, officer, employee or representative; - -GIFTS - When an associate, a member of the employee's household, a trust in which the employee is involved, or any other person or entity designated by the employee, accepts gifts, credits, payments, services or anything else of more than token or nominal value from an actual or potential competitor, supplier or customer; and - -MISUSE OF INFORMATION - When employee misuses information obtained in the course of employment. Specific Examples. - ------------------- While it is not possible to describe every situation, it is useful to consider a few examples in which clear conflicts of interest are present so that ground rules can be established: - -POSITION OF INFLUENCE - If an associate or a member of that associate's family has a significant financial or other beneficial interest in an actual or potential supplier or customer, the associate may not, without full disclosure and specific written clearance by appropriate Company representatives, influence decisions with respect to business with such supplier or customer. Such positions include situations where associates draw specifications for suppliers' raw materials, products or services; recommend, evaluate, test or approve such raw materials, products or services; or participate in the selection of, or negotiating arrangements with, suppliers. - -OTHER POSITIONS - It is expressly acceptable for individuals of this Company to serve as officers and directors of other companies at their discretion. Advance Disclosure. - -------------------- Because conflicts of interest have the potential of serious abuse, all conflict of interest circumstances affecting any associate should be disclosed to the appropriate Company representative. While transactions affected by a conflict of interest must generally be avoided, there may be times when such transactions are nevertheless fair and appropriate and in the Company's best interest. An associate who believes a potential transaction that may be affected by a conflict of interest should nevertheless be pursued, must disclose all material terms of the proposed matter to the appropriate Company representative in advance. No such transaction may be pursued, however, unless it is approved in advance by the appropriate, duly authorized and disinterested officers of the Company, the board of directors or an appropriate committee thereof. United States Antimony Corporation Code of Ethics Page 2 of 7 LAWFUL CONDUCT All associates shall carry on the business of the Company in compliance with all applicable laws. Without limiting this obligation, the following conduct is prohibited: - -Employee theft, fraud, embezzlement, misappropriation, or any form of wrongful conversion of property belonging to the Corporation or another employee. - -Any act of fraud, deception or intentional misrepresentation against or involving the Corporation, a customer, a supplier or any other party. - -Any act of bribery, including a promise, offer or gift of money or anything of value made or offered by an employee to: 1. A government official or someone acting for the government; or 2. A person employed by, or acting on behalf of, a customer, supplier or other organization with which the Corporation does business or has prospective business, (except in the case of certain permitted gifts described below). - -The destruction or alteration of Corporation records in order to falsify, conceal or misrepresent information for any purpose including any motivation to: 1. Avoid criticism for errors of judgment or to conceal failure to follow a supervisor's instructions; 2. Show a performance record better than, or different from, performance actually achieved; or 3. Misrepresent the employee's performance, activities, or other transactions, or those of another employee. - -Political contributions of money, services, or other property of the Corporation that are in violation of the law when the contributions are made. - -Violations of securities laws rules or regulations, including concealment of information required to be disclosed in filings the Corporation makes with the Securities and Exchange Commission. GIFTS Associates and their families generally shall not solicit or accept gifts, fees, bequests, services or entertainment from customers, suppliers or prospective customers. A gift is regarded as any type of United States Antimony Corporation Code of Ethics Page 3 of 7 gratuity, favor, loan, legacy, fee, compensation, or anything of monetary value. All such gifts are prohibited except: - -Business entertainment and other courtesies such as meals, sporting events, and the like, that involves no more than ordinary amenities, and can be properly reciprocated by the employee and charged as a business expense. Lavish or extravagant entertainment, such as weekend trips, etc., should not be accepted unless the recipient makes full reimbursement to the donor. - -Gifts received because of kinship, marriage, or social relationships and not because of any business relationship. - -Unsolicited advertising or promotional materials that are made widely available. - -Customer or supplier paid travel or lodging where the trip has a legitimate business purpose. An appropriate Company representative must approve any such trips in advance in writing. - -Fees or other compensation received from an organization in which membership or an official position is held, subject to prior written approval by an appropriate Company representative. Associates who believe that acceptance of a permitted gift might make them feel obligated and therefore improperly influenced in the performance of their duties should not accept it, or turn it over to the Company. Associates who are unsure whether a gift is a violation of the law and the Code, should seek guidance from an appropriate Company representative. Likewise, no associate of the Company or members of his or her family may extend a gift to any existing or prospective customer or supplier that will not meet these same criteria. MISUSE OF INFORMATION No information obtained as a result of employment or association with the Company may be used for personal profit or as the basis for a "tip" to others unless the Company has made such information generally available to the public. This is true whether or not direct injury to the Company appears to be involved. The requirement is not limited to transactions relating to the Company stock but also applies to securities of any other company and includes any situation in which information may be used as the basis for unfair bargaining with an outsider. The public disclosure of confidential data and trade secrets relating to our business can have a material adverse effect on the Company and is prohibited. CORPORATE OPPORTUNITIES. A CORPORATE OPPORTUNITY IS AN OPPORTUNITY USEFUL TO THE COMPANY THAT IS DISCOVERED THROUGH THE USE OF COMPANY PROPERTY, OPPORTUNITY OR POSITION AS A THE COMPANY ASSOCIATE. Associates are prohibited from taking corporate opportunities for themselves. When an associate uses corporate property, corporate information or corporate position for personal gain, he or she is taking a corporate opportunity. You must use corporate opportunities only for advancing the legitimate business interests of the Company. United States Antimony Corporation Code of Ethics Page 4 of 7 COMPLETE TRUTHFUL AND FULL DISCLOSURES IN PUBLIC FILINGS The Company's filings made under the Securities Exchange Act of 1934, such as quarterly and annual reports and proxy statements, are to contain all required disclosures. All such filings shall provide required information in a full, fair, accurate, timely, and understandable manner. The Company has procedures in place to achieve these goals with respect to securities reports and shareholder communications. Any employee who has concerns about the accuracy or adequacy of disclosures being made in these documents should feel free to contact the Chief Financial Officer. No employee shall engage in any conduct with the intent of impairing the Company's compliance with this provision. ACCOUNTING MATTERS The Company's financial statements and books and records on which they are based must accurately reflect all corporate transactions. All receipts and disbursements of corporate funds shall be promptly and properly recorded on the Company's books, and the Company's records must disclose the nature and purpose of the transactions. The Company's investors, creditors and other decision makers rely on its records and have a right to information that is timely and accurate. - -All employees shall cooperate fully with the independent auditors of the Company and under no circumstances withhold any information from them. - -A director, officer or employee may not maintain the Company's accounting or other records, or cause them to be maintained, in such a way that they do not reflect the true nature of transactions, account balances or other matters with clarity and completeness. - -A director, officer or employee may not establish for any purpose an unauthorized, undisclosed, or unrecorded fund or asset account involving Company assets. - -A director, officer or employee may not allow transactions with a supplier, agent, or customer to be structured or recorded in a way not consistent with normal business practice or generally accepted accounting principles. - -No false, incomplete, misleading or artificial entries or records shall be made on the books or records of the Company or its subsidiaries for any reason. The shifting of charges or costs to inappropriate accounts is prohibited. - -No payment on behalf of the Company shall be made or approved with the understanding that it will or might be used for something other than the stated purposes. - -No undisclosed or unrecorded corporate funds shall be established for any purpose, nor shall the Company funds be placed in any personal or non-corporate account. - -"Slush funds" or similar off-book accounts, where there is no accounting for receipts or expenditures on corporate books, are prohibited. United States Antimony Corporation Code of Ethics Page 5 of 7 A system of internal accounting controls shall be maintained which is sufficient to provide reasonable assurances that transactions: - -are executed in accordance with management's authorization, - -are recorded in a manner that permits preparation of the Company's financial statements in conformity with generally accepted accounting principles and applicable regulations, and - -are recorded so as to maintain accountability for the Company's assets. No officer or employee acting on behalf of the Company shall engage in any activity that circumvents or seeks to circumvent the Company's systems of internal controls. DISCLOSURE, GUIDANCE AND APPROVALS This Code permits or requires associates in various situations to disclose certain facts to, and seek guidance or obtain approval from "appropriate Company representatives". For each associate, the "appropriate Company representative" is as follows: - -In the case of any non-officer employee, such employee's supervisor. If such employee has concerns regarding the supervisor's objectivity or independence with respect to the matter, the appropriate Company representative is the Chief Financial Officer. - -In the case of any officer or management employee (other than the CEO, President, CFO or Controller) the appropriate Company representative is the Chief Financial Officer. If such employee has concerns regarding the Chief Financial Officer's objectivity or independence with respect to the matter, the appropriate Company representative is the Chief Executive Officer or the President. - -In the case of the Chief Executive Officer, the President, the Chief Financial Officer or the Controller, and any director, the appropriate Company representative is the Chairman of the Audit Committee of the Board of Directors or, if the Chairman so determines, the full Audit Committee. These are the persons associates should contact to seek guidance, to clarify issues and to obtain confirmation that a particular course of conduct or transaction is permissible or impermissible under this Code. The Audit Committee has adopted separate procedures for employees to report concerns they may have regarding financial reporting abuses, illegality or violations of this Code on a confidential basis. The Company Corporation Employee Reporting Procedure for Accounting and Auditing Concerns are circulated periodically and any employee may obtain a copy from the Chief Financial Officer. CERTIFICATIONS Employees may be required periodically to certify their understanding of and intent to comply or past compliance with this Code. United States Antimony Corporation Code of Ethics Page 6 of 7 Any employee who violates this Code of Ethics is subject to possible suspension or other disciplinary action, including discharge. Any employee who assists in, or knowingly fails to report, a violation of this Code is also subject to suspension, discharge or other appropriate action. Any employee who suspects a violation of these policies (including any material transaction or relationship that gives rise to a conflict of interest which to the knowledge of such employee has not been disclosed to the appropriate persons) should inform the appropriate Company representatives by using the Company Corporation Employee Reporting Procedure for Accounting and Auditing Concerns. ADOPTED AND ACCEPTED BY THE BELOW SIGNED DIRECTORS OF UNITED STATES ANTIMONY CORPORATION. Signed this 23rd day of March 2004. /s/ John C. Lawrence - ----------------------------- John C. Lawrence /s/ Robert A. Rice - ----------------------------- Robert A. Rice /s/ Leo Jackson - ----------------------------- Leo Jackson United States Antimony Corporation Code of Ethics Page 7 of 7 -----END PRIVACY-ENHANCED MESSAGE-----