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EXCLUSIVITY AGREEMENT

THIS EXCLUSIVITY AGREEMENT (“Agreement”) is made as of this 10th day of July,
2006 (the “Effective Date”) by and between U.S. Energy Corp, a Wyoming
corporation (“USEG”), Crested Corp., a Colorado corporation (“CBAG” and together
with USEG the “Sellers”), and SXR Uranium One Inc., a Canadian corporation (the
“Buyer”).
 
 
Recitals
 
A.
The Sellers are in the natural resource business and carry on, directly and
through subsidiary and affiliated entities, a uranium exploration and
development business with the goal of creating a United States uranium mining
and milling business (the “Business”).

 
B.
In accordance with a term sheet dated June 22, 2006 signed by the Parties (the
“Term Sheet”), the Sellers wish to sell, and the Buyer directly or through one
or more wholly-owned subsidiaries thereof wishes to purchase, the uranium assets
of the Sellers used in the Business listed in Schedule A to the Term Sheet, as
amended on the date hereof (the “Assets”) for the consideration and on the terms
and conditions described therein.

 
C.
The purchase and sale of the Assets is subject, among other things, to the
successful completion by the Buyer of a detailed due diligence investigation of
the Assets, to the preparation and execution of a mutually satisfactory
definitive acquisition agreement (the “Definitive Agreement”) containing terms
and conditions consistent with the Term Sheet and the provisions hereof, to the
receipt of all required regulatory and shareholder approvals and to the approval
of the boards of directors of each party hereto.

 
D.
In connection therewith, the Sellers have agreed to grant the Buyer exclusive
rights as more particularly set forth herein to negotiate the Definitive
Agreement and to conduct its due diligence investigation of the Assets.

 
E.
Concurrently herewith, the parties have entered into a confidentiality and
non-disclosure agreement (the “Confidentiality Agreement”) to replace and
supersede the confidentiality agreement dated November 18, 2005 between USEG and
Aflease Gold and Uranium Resources Limited.

 
Agreement
 
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Sellers and the Buyer (collectively, the
“Parties” and individually, a “Party”) intending to be legally bound, agree as
follows:
 
1.  Exclusivity.
 

(a)  
In consideration of the receipt of the Fee (as hereinafter defined), the Sellers
hereby grant to the Buyer for the Term (as hereinafter defined) the exclusive
right, at the Buyer’s sole cost and expense, to review all information and data
in the control or possession of the Sellers relating to the Assets and to
perform all investigations, inquiries and studies with respect to the Assets as
the Buyer may reasonably require for

 

 
 

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the purposes of its due diligence, all on the terms and subject to the
conditions set forth herein and in the Confidentiality Agreement.
 

(b)  
During the Term, the Sellers (i) will not, and will not permit any other person
or company to, directly or indirectly through any director, officer, agent,
affiliate, employee or otherwise: (A) solicit, initiate or encourage the
submission of any proposal or offer, or have discussions, engage in negotiations
or enter into any understanding, agreement or commitment with, or accept any
proposal from, any person other than the Buyer relating to the acquisition or
purchase of the Assets or the Business; or (B) furnish or agree to furnish to
any other person any information regarding the Assets or the Business except as
required by law for reporting, permitting or conducting business in the ordinary
course or as required by any existing agreement; (ii) will inform any person
making inquiry with respect thereto of the existence of this Agreement; and
(iii) will inform the Buyer of any such inquiry.

 
(c)  
Notwithstanding Section 1(b), the Sellers may continue to pursue the acquisition
of additional uranium assets that Sellers have been in pursuit of as of the date
hereof or wish to pursue and in either such case the Buyer will have the right
to review and approve, or decline to approve, the acquisition by the Sellers of
any such assets during the Term. If the Buyer approves such acquisition and the
purchase and sale of the Assets is completed, the Buyer will on the closing
thereof pay to the Sellers the reasonable costs they have incurred in pursuing
such acquisition plus 5%, such payment to be made in addition to the purchase
price payable for the Assets on such closing. If the Buyer declines to approve
such acquisition, the Sellers may make the acquisition for their own account or
otherwise deal in such assets without the Buyer’s further consent or
participation, and the Buyer will have no obligation or liability to reimburse
the Sellers for any of the costs incurred by them in connection with such
pursuit or acquisition.

 
2.  Fee. As consideration for the exclusive rights granted by the Sellers to the
Buyer pursuant to Section 1, within five days of the execution of this Agreement
the Buyer will pay to the Sellers by wire transfer in immediately available
funds the sum of US $750,000 as a non-refundable fee (the “Fee”); provided,
however:
 
(a)
if, prior to the end of the Term, the Parties enter into a Definitive Agreement,
the Fee will be credited to, and subtracted from, the purchase price due from
the Buyer to the Sellers pursuant to the terms thereof;

 
(b)
if, on or before the end of the Term, (i) the Parties do not enter into a
Definitive Agreement, (ii) the Buyer determines in its sole discretion that it
does not desire to acquire the Assets, or (iii) subject to Section 2(c), this
Agreement is terminated pursuant to Section 7, the Fee automatically will be
deemed earned by the Sellers and will not be reimbursable to the Buyer; and

 
(c)
if this Agreement is terminated by the Buyer pursuant to Section 7(a) by reason
of the material breach hereof by the Sellers or either of them, or by reason of
the Sellers’ inability to obtain a required third party consent or approval
before the end of the Term, the Fee will be reimbursable by the Sellers to the
Buyer forthwith on receipt by the Sellers of the Buyer’s notice of termination.

 
 

 

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The Parties agree that, absent fraud or willful breach of this Agreement by a
Party, in the event this Agreement is terminated by reason of the material
breach hereof by such Party, the sole and exclusive remedies of the Party or
Parties not in breach will be as set out in Sections 2(b) or (c) hereof, as the
case may be. Without limiting the foregoing, no Party shall be liable to any
other Party for consequential, incidental, punitive, reliance, exemplary or
indirect damages, lost profits or business interruption damages, whether by
statute, in tort or contract.
 
3.  Term. This Agreement will commence on the Effective Date and, unless
terminated earlier by a Party under Section 7, will continue until 180 days
after the date hereof unless prior thereto the Buyer requests by written notice
to the Sellers a three month extension of the exclusivity rights granted
hereunder, in which event this Agreement will continue until 270 days after the
date hereof (the “Term”).
 
4.  Definitive Documentation. The Parties will use their reasonable commercial
efforts to settle and sign during the Term one or more Definitive Agreements
consistent with the Term Sheet and the applicable provisions of this Agreement.
Completion of the purchase and sale of the Assets will be subject to the receipt
on terms acceptable to the Buyer of all governmental and regulatory approvals
required under applicable laws, all required stock exchange, shareholder and
third party approvals and to the transfer to the Buyer of all required licenses,
permits and other approvals required in connection with the acquisition,
ownership and operation of the Assets. In connection with the foregoing, the
Sellers will use their reasonable commercial efforts to obtain, prior to the
execution of Definitive Agreements, all third party consents and approvals which
are required in connection with the completion of the purchase and sale of the
Assets, including without limitation all consents and approvals from third
parties having any interest or potential interest in the Assets.
 
5.  Conduct of Business. Until execution of the Definitive Agreement or
termination of this Agreement, the Sellers (a) will conduct the Business or
cause the Business to be conducted, in the usual and ordinary course and (b)
will not, and will not permit any of their respective affiliates to, directly or
indirectly, without the Buyer’s prior consent, (i) dispose of any of the Assets
except in the ordinary course of business, (ii) reorganize the Business, (iii)
terminate or amend any existing material contract or enter into any new material
contract relating to the Business except contracts contemplated by Section 1(c);
or (iv) take any material action that would cause the approval of the
shareholders of any Seller to be required in connection with the transactions
contemplated herein.
 
6.  Development Expenditures. During the Term, it is anticipated that the
Sellers will continue to develop certain of the Assets in accordance with the
development and holding budgets indicated in Schedule A as amended on the date
hereof. Such budgets were provided at the Buyer’s request to define the
potential expenditures to be incurred thereon during the Term. Both the Buyer
and the Sellers agree that (i) Sellers have certain contractual developmental
expenditures that must be met in 2006 and 2007 to hold the Assets and that
Sellers will meet those obligations and notify the Buyer in advance of such
estimated expenditures before any of the same are incurred; (ii) the Sellers
will notify and seek the approval of the Buyer for any anticipated expenditures
relating to the Assets outside of any contractual or holding cost obligations
before any of the same are incurred; and (iii) the Sellers will have the
ultimate determination as to whether expenditures will be made on the Assets.
 

 
 

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To the extent such expenditures shall have been approved in advance by the Buyer
and incurred during the Term, then, provided the acquisition and the purchase
and sale of the Assets is completed, the Buyer will on the closing thereof
provide the Seller with a payment equal to the aggregate amount of all such
approved and incurred expenditures, such payment to be made in addition to the
purchase price payable for the Assets on such closing. If such closing does not
for any reason occur, the Buyer shall have no liability to provide the Sellers
with any reimbursement on account of such expenditures, even if the Buyer shall
have approved, and the Sellers shall have incurred, the same.
 
7.  Termination.
 
(a)
The Buyer may terminate this Agreement at any time during the Term by giving
written notice to the Sellers of such termination, whether or not the Sellers or
either of them are in material breach hereof, and, subject to Section 7(c), such
termination will become effective upon the Sellers’ receipt of such notice,
without further action by either Party.

 
(b)
The Sellers may terminate this Agreement at any time during the Term by giving
written notice to the Buyer of such termination if the Buyer is in material
breach hereof and, subject to Section 7(c), such termination will become
effective upon the Buyer’s receipt of such notice, without further action by
either Party.

 
(c)
Notwithstanding any other provision of this Agreement, if the Buyer or the
Sellers give written notice of termination under Section 7(a) or 7(b) by reason
of a material breach hereof, such termination will not become effective unless
the Party giving such notice (the “notifying party”):

 

 
(i)
sets out in such notice of termination the basis for its belief that a material
breach has occurred;

 
(ii)        provides the Party alleged to be in material breach (the “receiving
party”) with a period of 30 business days from the receipt of such notice of
termination to give a written notice of reply to the notifying party; and  
 

 
(iii)
declines, in a written notice given to the receiving party within 10 business
days of receiving such notice of reply, to accept such notice of reply;

 
in which event, the Agreement will be terminated effective upon the receipt by
the receiving party of the notice referred to in Section 7(c)(iii); provided,
however, that, notwithstanding the foregoing, if the receiving party shall fail
to deliver a written notice of reply within the period of 30 business days
referred to in Section 7(c)(ii), the Agreement will be deemed to have been
terminated in accordance with the notice of termination.
 
(d)
Notwithstanding any other provision of this Agreement, the Confidentiality
Agreement and the provisions of Sections 2, 9, 11 and 13 of this Agreement, will
survive any termination of this Agreement.

 
 
 
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8.  Due Diligence Activities. During the Term, the Buyer will have the following
rights and obligations with respect to its due diligence investigations and
activities:
 
(a)   the Sellers will give Buyer and its authorized representatives such access
to the employees, properties, assets, books and records of the Sellers and their
affiliates relating to the Assets and the Business and all information and data
relating thereto as the Buyer may reasonably require to carry out and complete
its due diligence review of the Assets;
 
(b)   upon reasonable advance written notice to the Sellers, the Buyer and its
authorized representatives will have the right to enter upon any lands and
premises included in the Assets to conduct such inspections as may be necessary
and appropriate for the purposes of its due diligence;
 
(c)   all information furnished or made available to the Buyer pursuant to this
Agreement will be deemed to be Confidential Information (as defined in the
Confidentiality Agreement) and will be subject to the terms of the
Confidentiality Agreement; and
 
(d)   the Buyer will conduct all activities hereunder in a reasonable and
prudent manner and in full compliance with all applicable laws and regulations,
and with all applicable site safety rules of the Sellers which have been
communicated to the Buyer.
 
9.  No Representation or Warranty Regarding Completeness or Accuracy of Data.
 
(a)   The Sellers represent and warrant that they have full right, power and
authority to disclose or make available the information and data to be disclosed
or made available to the Buyer pursuant to this Agreement and the
Confidentiality Agreement without the violation of any contractual, legal or
other obligation to any entity or person.
 
(b)   The Sellers make no representation or warranty, expressed or implied, as
to the accuracy or completeness of any such information, data, reports and other
material.
 
10.  Disclosure. Each Party may upon execution of this Agreement issue a news
release disclosing this Agreement and the subject matter hereof. Any Party
intending to issue such release shall first provide the other Parties with a
reasonable opportunity to review and comment thereon prior to the issuance
thereof. Each Party will provide the other Parties with a reasonable opportunity
to review and comment on all subsequent public announcements, news releases or
other disclosure by such Party relating to this Agreement or the subject matter
hereof prior to the issuance thereof except where the disclosing Party, in its
reasonable opinion, believes that such public announcement, news release or
other disclosure is required by law and such advance disclosure to the other
Party would not be practicable.
 
11.  Fees and Expenses. Each Party will be responsible for its own legal,
accounting, investment banking and other fees and expenses incurred in
connection with this Agreement and all matters related thereto. The Buyer will
indemnify and hold harmless the Sellers, and the Sellers will indemnify and hold
harmless the Buyer, from and against the claims of any brokers or finders in
respect of the purchase and sale of the Assets.
 
 
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12.  Notices. All notices with regard to this Agreement will be forwarded to a
Party at its address for notice set forth on the signature page of this
Agreement. Notices hereunder will be in writing and will be considered given
either (i) when delivered in person, (ii) upon receipt when delivered by a
reputable overnight delivery service to such contact addresses, or (iii) five
days after deposit in the U.S. or Canadian mail, registered or certified, return
receipt requested, in a sealed envelope or container, postage and postal charges
prepaid.
 
13.  Law. This Agreement will be governed by and construed in accordance with
the laws of the State of Wyoming without reference to the conflicts of laws
principles thereof. Each of the Parties hereby submits to the exclusive
jurisdiction of any state or federal court sitting in Wyoming in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims with respect to the action or proceeding may be heard and determined in
any such court. Each Party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each Party
agrees to waive any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other party with respect to any such action or
proceeding.
 
14.  Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction will not invalidate or render unenforceable such provision in any
other jurisdiction.
 
15.  Agency. This Agreement is not intended to create, and will not be construed
to create, a relationship of partnership between the Parties. This Agreement
will not constitute any Party as the legal representative or agent of any other
Party, nor will any Party have the right or authority to assume, create or incur
any liability or obligation, express or implied, against, in the name of or on
the behalf of any other Party.
 
16.  General.
 
(a)
If any Party brings any proceedings to enforce any of the terms hereof, the
prevailing Party will be entitled to recover from the other Party or Parties
reimbursement for all reasonable expenses, costs and attorneys' and experts’
fees incurred in connection therewith.

 
(b)
No Party will be liable to any other Party for indirect or consequential damages
with respect to this Agreement or in connection with the breach hereof.

 
(c)
The Term Sheet, this Agreement and the Confidentiality Agreement contain the
entire agreement of the Parties hereto with respect to the subject matter hereof
and supersede all prior understandings and agreements, whether written or oral,
with respect thereto.

 
(d)
No Party may assign this Agreement without the prior written consent of the
other Parties except that the Buyer may assign this Agreement to one or more
direct or indirect wholly-owned subsidiaries thereof without the prior written
consent of the Sellers.

 

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(e)
Nothing in this Agreement will be deemed to create rights in or benefits for any
third parties.

 
(f)
This Agreement will not be amended or modified in any way except by an
instrument signed by each Party.

 
17.  Counterparts; Facsimile. This Agreement may be executed in counterparts and
by exchange of facsimile copies.
 

 
[REMAINDER OF PAGE INTENTIONALLY BLANK]
 

 

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IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed
by its respective duly authorized representative as of the Effective Date.
 
U.S. Energy Corp.

By:   /s/ Mark Larsen  
Name   Mark Larsen  
Title:   President   

Address for notices:

U.S. Energy Corp.
877 N. 8th W.
Riverton, Wyoming
USA 82501
Attention: Mark J. Larsen
Facsimile: (307) 857-3050

With a copy to:

U.S. Energy Corp.
877 N. 8th W.
Riverton, Wyoming
USA 82501
Attention: Steven R. Youngbauer, Esq.
Facsimile: (307) 857-3050

Crested Corp.

By:   /s/ Keith G. Larsen  
Name   Keith G. Larsen  
Title:   Co-Chairman  

Address for notices:

Crested Corp.
877 N. 8th W.
Riverton, Wyoming
USA 82501
Attention: Keith G. Larsen
Facsimile: (307) 857-3050

With a copy to:

Crested Corp.
877 N. 8th W.
Riverton, Wyoming
USA 82501

 

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Attention: Steven R. Youngbauer, Esq.
Facsimile: (307) 857-3050

Sxr Uranium One Inc.

By:  /s/ Neal J. Froneman  
Name   Neal J. Froneman  
Title:   President and CEO  

Address for notices:

Suite 820-26 Wellington Street East
Toronto, Ontario
Canada M5E 1S2
Attention:  Jennifer M. Smith
Facsimile: (416) 363-6806
 
VANSOL Library:737031.2
 
 
 
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