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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________.
Commission File Number 0-25090
STILLWATER MINING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 81-0480654
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
717 Seventeenth Street, Suite 1480, Denver, CO 80202
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(Address of principal executive offices and zip code)
(303) 978-2525
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common stock, $.01 par value The American Stock Exchange
Preferred Stock Purchase Rights The American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] YES [_] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 2, 1998, assuming a price of $21.50 per share, the closing sale
price on the American Stock Exchange, the aggregate market value of shares of
voting and non-voting common equity held by non-affiliates was approximately
$438,179,611.
As of March 2, 1998, the Company had outstanding 20,380,447 shares of common
stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, 12 and 13
incorporate by reference portions of Stillwater Mining Company's Proxy Statement
for the registrant's 1998 Annual Meeting of Stockholders.
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TABLE OF CONTENTS
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PART I
Items 1 and 2 BUSINESS AND PROPERTIES 1
Item 3 LEGAL PROCEEDINGS 19
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 20
Item 6 SELECTED FINANCIAL DATA 21
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 23
Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29
Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 49
PART III
Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 49
Item 11 EXECUTIVE COMPENSATION 49
Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 49
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 49
PART IV
Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 50
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ITEMS 1 AND 2
BUSINESS AND PROPERTIES
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INTRODUCTION AND 1997 HIGHLIGHTS
Stillwater Mining Company (the "Company"), a Delaware corporation, is engaged
in the exploration, development, extraction, processing and refining of
platinum, palladium and associated metals from the J-M Reef located in
Stillwater and Sweet Grass Counties, Montana. Associated by-product metals
include rhodium, gold, nickel and copper. The Company conducts its current
mining operations at the Stillwater Mine, in Nye, Montana. Future expansion is
planned at the East Boulder site, located at the western end of the J-M Reef.
The J-M Reef is the only significant source of platinum group metals ("PGMs")
outside the Republic of South Africa and Russia. The J-M Reef is an extensive
mineralized zone containing PGMs, which has been traced over a strike length of
approximately 28 miles and which extends downward over one mile to unknown
depths. The Company holds the rights to claims covering substantially all of the
presently identified PGM mineralized zone of the J-M Reef.
At December 31, 1997, the Company had proven and probable reserves of
approximately 29.5 million tons of ore with approximately 23.4 million contained
ounces of platinum and palladium in a ratio of approximately 3.3 parts palladium
to one part platinum.
Highlights of the 1997 year included:
. Production increased to 355,000 ounces of platinum and palladium in
1997 from 255,000 ounces in 1996.
. Cash costs per ounce produced decreased to $174 in 1997 from $184 in
1996, and total costs per ounce produced decreased to $207 in 1997
from $219 in 1996.
. Recovery rates improved to 89% in 1997 from 88% in 1996, and mining
dilution was reduced to 25% in 1997 from 40% in 1996.
. Mechanized mining increased to 80% in 1997 from 60% in 1996, and tons
mined increased to 580,000 in 1997 from 424,000 in 1996.
. The Company completed the expansion plan (the "Expansion Plan") begun
in 1994 designed to double output from 1,000 tons per day (TPD) to
2,000 TPD. The production rate goal was reached in the fourth quarter
of 1997 when the Company's mine production reached 2,000 TPD, a 46%
increase over mine production in the fourth quarter of 1996.
. Other key elements of the Expansion Plan were also completed during
the year, including the commissioning of the 1,950-foot vertical
production shaft to improve ore haulage, construction of an
underground crushing system, increasing capacity in the concentrator
facility and smelter modifications.
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. Revenues increased to $76.9 million in 1997 compared to $56.2 million
in 1996, but the Company had a net loss of $5.4 million in 1997
compared to a net loss of $2.8 million in 1996. The Company's
profitability was adversely affected by hedging positions that
resulted in realization of below market prices for platinum of $388
per ounce and palladium of $144 per ounce. The average market prices
for these metals in 1997 were $395 and $178 per ounce, respectively.
. The Company recently announced a long term goal to triple production
over the next five years. The key elements are to complete a second
expansion of at the Stillwater Mine and to develop the East Boulder
Project. A feasibility study is underway to determine the optimum
level of production at the Stillwater Mine, and in November 1997 the
Company made the decision to resume the East Boulder Project. The
Company plans to drive an 18,500 foot tunnel into the western section
of the J-M Reef and complete a feasibility study and cost estimate for
the East Boulder Project.
For further discussion of these matters and certain associated risks, see
"Business and Properties--Current Operations", "--Future Expansion", and
"--Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
HISTORY OF THE COMPANY
Platinum and palladium were discovered in the J-M Reef by Manville Corporation
("Manville") geologists in the early 1970s. In 1979, a Manville subsidiary
entered into a joint venture agreement with Chevron U.S.A. Inc. ("Chevron") to
develop PGMs discovered in the J-M Reef. Manville and Chevron explored and
developed the Stillwater property and commenced underground mining in 1986.
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In 1992, the Company was incorporated and on October 1, 1993, Chevron and
Manville transferred substantially all assets, liabilities and operations at
Stillwater to the Company, with Chevron and Manville each receiving a 50%
ownership interest in the Company's stock. In September 1994, the Company
redeemed Chevron's entire 50% ownership. The Company completed its initial
public offering in December 1994, and Manville also sold shares reducing its
record ownership percentage to approximately 27%. In August 1995, Manville sold
its remaining ownership interest in the Company to institutional investors. The
Company's common stock is publicly traded on the American Stock Exchange under
the symbol "SWC."
GEOLOGY OF THE J-M REEF
The J-M Reef is located in the Beartooth Mountains in southern
Montana. It is situated along the northern edge of the Beartooth Plateau, which
rises to elevations of over 10,000 feet in places within the reef. This
plateau is deeply dissected by several rivers and their tributaries including
the Stillwater River, towards the eastern end and the Boulder River, near the
western end of the reef. Both of these rivers have eroded their valley
floors resulting in deep valleys cut into the gently undulating elevated
plateau.
Geologically, the J-M Reef is composed of an assemblage of basic and
ultrabasic rocks derived from a single, large, buried magma body emplaced an
estimated 2.7 billion years ago. The molten rock was sufficiently fluid at the
time of emplacement to allow individual minerals to crystallize sequentially,
the heavier, more basic, darker minerals crystallizing first, sinking towards
the bottom, and leaving the lighter, more siliceous light-colored minerals to
crystallize out later to produce bands of norite, gabbro and anorthosite which
can be traced across most of the strike length of the complex. Over time the
original horizontal orientation of the reef was changed as the reef was tilted
at an angle of 50 to 90 degrees to the north. The upper portion of the reef was
eroded away to produce the essentially lenticular-shaped exposure of the reef
evident today, which has been identified for 28 miles in an east-southeasterly
direction and has a maximum width of nearly 4.5 miles near the East Boulder
valley.
The PGMs, consisting of platinum, palladium and a small amount of rhodium,
along with small amounts of nickel, copper and gold, are concentrated in one
principal layer. The J-M Reef appears to form a continuous layer which is
exposed from the highest ridges over 9,500 feet above sea level to the deepest
valleys almost a mile below the surface of the plateau. The zone of
mineralization has also been intersected in a drill hole at an elevation of
3,020 feet above sea level demonstrating vertical continuity exceeding 6,000
feet. Geological and geophysical evidence suggests that the J-M Reef extends
downward beyond the limits of currently available mining practice. Geological
mapping and gravity surveys also suggest that the dip of the J-M Reef flattens
gently and may extend 30 miles or more to the north.
The J-M Reef is similar to South Africa's Bushveld Complex which
contains the well-known platiniferous Merensky Reef which is currently mined in
many localities. The in situ PGM grade of the J-M Reef is significantly higher
than that of the Merensky Reef and its economically recoverable portion is
significantly thicker, making the J-M Reef generally amenable to a wider variety
of gravity assisted, mechanized mining methods. The Merensky Reef, however, has
a substantially longer surface strike length compared to the known 28-mile
strike length of the J-M Reef.
The Company believes that the J-M Reef constitutes a qualifying lode or vein
for purposes of the General Mining Law of 1872, as amended (the "General Mining
Law"), but is not aware of any administrative or legal determination on this
point. The Company is not relying solely on down dip (or "extralateral") rights
to secure possession of the J-M Reef, but has the rights to mining claims
vertically overlying the portions of the down dip extensions needed for mining
in the foreseeable future. See "--Mining Claims".
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PGM ORE RESERVES
The following table sets forth the Company's proven and probable platinum and
palladium ore reserves and platinum and gold equivalent reserves as of December
31, 1997 and 1996. The reserves reflected below are based on a cut-off grade of
0.40 ounces of platinum plus palladium per ton, and assume the following prices
for economic production: $375 and $155 per ounce for platinum and palladium,
respectively. Proven and probable reserves are after average mining dilution of
10% at zero grade based on actual mining experience.
The December 31, 1997 ore reserves were affirmed and verified by Behre Dolbear
& Company, Inc. ("Behre Dolbear"), independent consultants, who are experts in
mining, geology and ore reserve determination. The Company has utilized Behre
Dolbear to carry out independent reviews and inventories of the Company's ore
reserves since 1990. The ore reserves have been affirmed and verified by Behre
Dolbear in alternating years. The December 31, 1996 proven and probable
platinum and palladium ore reserves, although not independently verified by
Behre Dolbear in 1996, were determined by the Company using the same technical
methods and criteria which were previously reviewed and verified by Behre
Dolbear.
ORE RESERVES(*)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
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AVERAGE CONTAINED(2) AVERAGE CONTAINED(2)
Tons(1) GRADE(2) OUNCES TONS(1) GRADE(2) OUNCES
(000'S) (OUNCES/TON) (000's) (000'S) (OUNCES/TON) (000'S)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proven Mining Reserves 1,379 0.86 1,184 1,365 0.85 1,166
Probable Mining Reserves 28,130 0.79 22,183 25,764 0.79 20,448
- ------------------------------------------------------------------------------------------------------------------------------
Total Proven and Probable
Reserves 29,509 0.79 23,367 27,129 0.80 21,614
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Total Platinum Equivalent Proven
and Probable Reserves(3) 15,462 10,246
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Total Gold Equivalent Proven
and Probable Reserves(3) 19,354 10,265
</TABLE>
(*) Reserves are defined as that part of a mineral deposit that can be
economically and legally extracted or produced at the time of determination
and is customarily stated in terms of "ore" when dealing with metals. The
term "economic" implies that profitable extraction or production has been
established, analytically demonstrated or assumed with reasonable
certainty. The term need not signify that extraction facilities are in
place and operative. The proven reserves are computed from dimensions
revealed in workings or drill holes and from the results of detailed
sampling. The sites for inspection, sampling and measurement are spaced at
intervals of 25 to 50 feet, and the geologic character is so defined, that
the size , shape, depth and mineral content of the reserve blocks are
established. The probable reserves are computed from information similar to
that used for proven reserves, but the sites for inspection, sampling and
measurement are between 50 and 1,000 feet apart. The degree of assurance,
although lower than that for proven reserves, is sufficient to predict the
geological regularity of the reef between points of observation. See "--
Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Factors That May Affect Future
Results and Financial Condition."
(1) Total proven and probable reserves include 11,510,000 tons in the area of
East Boulder. Significant capital investments will be required to access
the East Boulder reserves. See "-- East Boulder Project."
(2) Expressed as platinum plus palladium ounces per ton at a ratio of 3.3 parts
palladium to one part platinum, before processing losses of approximately
ten percent (10%).
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(3) Platinum and gold equivalent ounces of proven and probable reserves at
December 31, 1997 are presented solely for purposes of illustration and are
calculated using the London P.M. Fix of $363 per ounce of platinum, $290
per ounce of gold and $203 per ounce of palladium on December 30, 1997.
Platinum and gold equivalent ounces of proven and probable reserves at
December 31, 1996 were calculated using the London A.M. Fix of $370 per
ounce of platinum, $370 per ounce of gold and $117 per ounce of palladium
on December 31, 1996.
Reserves are consumed during mining operations and the Company generally
replaces reserves by drilling mineralized material which has been identified
geologically but not yet established as proven and probable reserves. Because
of the expense of the close-spaced drilling necessary to generate proven mining
reserve estimates, the Company generally only attempts to prove up only
sufficient reserves to support its mine development objective of approximately
18 months of production.
CURRENT OPERATIONS
STILLWATER MINE
The Company's current mining operations consist of the Stillwater Mine, an
underground mine located within the J-M Reef in Nye, Montana. The Company holds
a 100% interest in and operates the Stillwater Mine. The mine is located
approximately 85 miles southwest of Billings, Montana and is accessed by a paved
road. The mine has adequate water and power from established sources.
MINING
The Stillwater Mine accesses only a small segment of the J-M Reef,
approximately five miles long, between the elevations of 6,700 and 3,100 feet
above sea level. Deep exploration drill holes have confirmed the structure and
mineralization of the J-M Reef down to the 2,000 foot elevation, but currently
is open at depth to be further verified by additional drilling. Access to the
ore at the Stillwater Mine is by means of horizontal adits and drifts driven
parallel to the strike of the J-M Reef at vertical intervals of about 200 feet.
The Company is currently evaluating the economics of developing drifts at
vertical intervals of about 300 feet. Increasing the interval spacing could
result in reduced development costs. Adits have been driven from the surface in
the Stillwater Valley at elevations of 5,000 feet above sea level or more. Five
drifts have been developed below the valley floor by ramping down from the 5,000
foot level to extract ore from the reef down to the 4,000 foot elevation. Three
levels below the 5,000 foot level can now be accessed from the shaft.
The 1,950 foot vertical shaft, which was commissioned in 1997 as part of the
Expansion Plan, was sunk adjacent to the concentrator. Development is
continuing on two drifts at 3,200 and 3,800 feet above sea level, both of which
are only accessible from the shaft. The crushing station was commissioned
during 1997 and is located on the 3,100 foot level. All ore hoisted up the
shaft is crushed. The commissioning of the production shaft and underground
crushing station has reduced haulage time and costs, improved the material
handling of ore and waste and improved the grinding capabilities of the
concentrator. During the fourth quarter of 1997, approximately 56% of ore
production was crushed and hoisted up the shaft. The Company expects this
percentage to increase as more stopes are developed off the shaft. For the
foreseeable future, ore from those areas above the 5,000 foot west elevation
will continue to be hauled to the surface by train. Ore from those areas below
the 5,000 foot level and those that are not currently connected to the shaft are
transported to the surface by 15-ton underground trucks. The portion of waste
that cannot be used for backfill in underground excavations is hauled to the
surface or hoisted up the shaft, depending on its location, and used in the rock
embankment of the tailings dam or is placed in the permitted waste disposal
site.
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Prior to 1994, almost all of the Company's mining activities utilized "cut-
and-fill" stoping methods. This method extracts the ore body in ten-foot high
horizontal cuts. The open space created by the extraction of each cut is filled
with waste rock and coarse concentrator tailings and becomes the floor for the
next level of mining as the process moves upward. Since 1994, the Company has
introduced two mechanized mining methods: "ramp-and-fill" and "sub-level"
stoping. Ramp-and-fill is a mining method in which a succession of horizontal
cuts are extracted from the ore body using mobile equipment. Access to the ore
body is from ramps driven in or adjacent to the ore body allowing the use of
hydraulic drills and load haul dump (LHD) equipment. The Company believes that
mechanized mining methods are safer, less expensive and more productive than
traditional "cut and fill" stoping. Mechanized mining increased from 60% in 1996
to 80% in 1997. Currently, direct costs per ton mined for ramp-and-fill stoping
is 40% less than cut-and-fill stoping and is more productive by one ton per man-
hour. However, not all areas of the reef are amenable to ramp-and-fill mining,
and the Company will continue to select the appropriate mining method on a
stope-by-stope basis.
PRODUCTION
During 1997, the Company produced 355,000 ounces of platinum and palladium, up
from 255,000 ounces in 1996. See "Selected Financial and Operating Data." In the
fourth quarter of 1997, the Company attained its Expansion Plan production
goals: mine production increased from approximately 1,370 TPD in the fourth
quarter of 1996 to approximately 2,000 TPD in the fourth quarter of 1997, a 46%
increase. Variations in production above and below 2,000 TPD can be expected in
future periods. To accomplish the Expansion Plan's production goals, the Company
hired experienced rockbreakers (see "Employees") and invested in mobile mining
equipment. In conjunction with the acquisition of the new equipment, the Company
undertook several initiatives to reduce maintenance costs, including a reduction
in the number of sizes and types of equipment used in the mine, formation of an
additional maintenance crew to permit maintenance activities to be carried out
on a 24-hour, seven day per week basis and development of a computerized
scheduled maintenance system. Additionally, the focus on underground development
increased on both existing levels as well as new levels accessed from the shaft.
Surface facilities were also completed, including a new maintenance shop and
warehouse and an extension of the site offices and change house. Site services
were expanded and upgraded and appropriate pre-investments in infrastructure
were made to accommodate future plans.
The Expansion Plan's positive impact on the Company's cash costs of production
occurred in 1996. Cash costs of production were $215 per ounce in 1995, $184 per
ounce in 1996 and $174 per ounce in 1997. During 1994 through 1997, the
Company's total capital expenditures for the expansion of the Stillwater Mine
and facilities were approximately $70 million, excluding capital costs for
sustaining and rehabilitating the existing mine. Of the $70 million, $2.9
million was expended in 1997.
CONCENTRATION
The Company maintains a concentrator plant adjacent to the Stillwater Mine.
Ore is defined as material with a 0.4 cut-off grade. Ore is fed into the
concentrator, mixed with water and ground to a slurry in a mill circuit to
liberate the PGM-bearing sulfide minerals from the rock matrix. Various
reagents are added to the slurry to separate the valuable sulfides from the
waste rock in a flotation circuit. In the flotation circuit, the sulfide
minerals are floated, recycled, reground and refloated to produce a concentrate
suitable for further processing. The flotation concentrate, which represents
approximately 1% of the original ore weight, is filtered, dried and transported
in trailers approximately 46 miles to the Company's metallurgical complex in
Columbus, Montana. Approximately 60% of the material discarded from this
process is used for backfill in the mine, with the balance stored in an onsite
tailings containment area.
As part of the Expansion Plan, the capacity of the concentrator was expanded
with the addition of a large ball mill grinding unit, additional flotation
capacity and ancillary equipment.
During 1997, the Company continued to improve the recovery performance from
the new flotation circuit. Recovery improved to 90% at December 31, 1997 from
86% at December 31, 1996. The Company expects that the installation of twenty
additional 300 cubic foot flotation cells, expected to be completed during the
second
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quarter of 1998, will increase the concentrator's recovery to approximately 92%.
These cells are also expected to increase the concentrate grade, resulting in
potential cost reductions of downstream processing.
Waste rock from the mine is currently being used to build the impoundment
embankment. In 1996, the Company submitted an application to the Montana
Department of Environmental Quality ("Montana DEQ") requesting an amendment to
its Operating Permit. The Company's proposal contemplates the construction of a
lined tailings impoundment that would serve the Stillwater Mine for the next
thirty years. See "Regulatory and Environmental Matters".
Currently, the concentrator has a capacity of 2,000 TPD. In 1998, the Company
will be modifying the concentrator. Changes include the installation of metal
lifters and grates in the semi-autogenous (SAG) grinding mill and installation
of a particle size monitor (PSM), to control the particle size in the grinding
circuit. The PSM should provide a more uniform sized product for the flotation
circuit and reduce labor requirements. The Company expects that modifying the
SAG mill and installing the PSM should provide the concentrator with increased
capacity.
SMELTING
The Company's metallurgical complex is located in Columbus, Montana and
consists of the precious metals smelter and base metals refinery (BMR).
Concentrate from the mine site is fed to a 1.5 megawatt electric furnace, where
it is melted and separated into a silica oxide rich slag and a PGM rich furnace
matte. The slag is drained through the side of the furnace, cooled and provided
to outside parties for use as road base.
The furnace matte is remelted in one of two top blown rotary converters
(TBRC), which separates iron from the matte. The converter matte is poured from
the TBRC, granulated and transferred to the BMR in two ton bags. The matte,
approximately 10% of the original smelter feed weight, is primarily copper and
nickel sulfides containing about 2% PGMs.
The gases released from the smelting operations are routed through a
gas/liquid scrubbing system, which removes approximately 99.8% of the sulfur
dioxide. Spent scrubbing solution is treated in a process that converts the
sulfur dioxide to gypsum, or calcium sulfate, and regenerates clean scrubbing
solution. The gypsum is used by local farmers as a soil amendment.
The smelter's expansion was completed in 1997, increasing the daily smelting
capacity from 22 TPD to 32 TPD. Feed and power control systems for the existing
furnace were modified, a second TBRC was added and the gas handling and solution
regeneration systems were upgraded. Additionally during 1997, the furnace was
rebricked, a process that occurs every two to three years. The furnace
modifications resulted in significant power savings due to increased furnace
efficiency. At 2,000 TPD of mine production, the smelter processes
approximately 25-30 TPD of concentrate.
REFINING
In 1996, the Company constructed and commissioned the BMR, which utilizes the
patented Sherritt Process, whereby sulfuric acid is used to dissolve the nickel,
copper, cobalt and iron from the smelter matte. This process upgrades the
smelter product over 25-30 times (from 2% Pt+Pd to 55-60% Pt+Pd). The BMR has a
capacity equivalent to more than 4,000 tons per day of mine production. The
present plant is operated one shift per day, five days per week. Even though
mine production ramped up during 1997, the BMR was able to increase efficiencies
and maintain the same five day schedule.
The iron is precipitated out of the solution and returned to the smelter to be
processed and removed as slag. The dissolved nickel, copper and cobalt is
shipped via truck, as a sulfate solution, to an outside refiner located in
Canada. The Company is paid for a portion of the nickel and cobalt content of
the
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solution. During the first and second quarters of 1998, the Company plans to
complete a project evaluation for a copper/nickel refinery for the sulfate
solution.
The resulting PGM rich filter cake is shipped via air freight to Union Miniere
("UM") in Belgium, or Johnson Matthey ("JM") in New Jersey and is returned to
the account of the Company after 20 days (UM), or 35 days (JM), as 99.95% PGM
sponge. Currently, the Company is shipping approximately 70% of its filter cake
to UM and approximately 30% to JM and should remain at these levels through the
expiration of the refining contracts on December 31, 2000 and February 5, 2001,
respectively. The Company pays UM and JM a refining charge in United States
dollars per ounce for the toll processing of the BMR filter cake.
SECONDARY MATERIALS PROCESSING
A sampling facility for secondary materials was completed in late 1997. The
facility was designed to accept spent catalysts that can be crushed and added to
the electric furnace. Several test lots were processed during 1997, and it was
determined that the spent auto catalysts are suitable for processing at the
Company's facilities. Processing of secondary materials was suspended in mid-
1997 to assess the results of the test lots and to improve the performance of
the system. The Company expects to process shipments of spent auto catalysts
during 1998.
EXPLORATION ACTIVITIES
Major portions of the J-M Reef have yet to be exposed to drilling and
development sufficient to allow for the delineation of additional reserves.
However, given the magnitude of its current proven and probable reserves, the
Company's exploration activities are limited. The Company's current plans are
to continue to focus on its current PGM reserves at the Stillwater Mine and East
Boulder Project rather than exploring for or attempting to acquire additional
developed or undeveloped ore reserves. Consequently, exploration does not
represent a significant expenditure for the Company.
EAST BOULDER PROJECT
The East Boulder Project provides western access to the J-M Reef, from Sweet
Grass County, Montana and is the second fully permitted site on the J-M Reef. In
1996, the Company began work on the initial exploration phase of the East
Boulder Project, including site preparation, construction of a power line and
procurement of a tunnel boring machine ("TBM"). During the second half of 1996,
the Company invested $7.8 million in the East Boulder Project. These capital
investments were primarily for construction of the TBM and providing electrical
power supply to the mine portal site. In October 1996, the project was
deferred, primarily due to a downturn in platinum and palladium prices.
However, permitting and environmental activities continued at East Boulder, with
approximately $1.1 million expended during 1997.
In November 1997, with the achievement of the Expansion Plan's production
goals and higher prices for platinum and palladium, the Company announced plans
to restart the East Boulder Project. This entails completion of the TBM which
will provide access to the western section of the J-M Reef. The Company
anticipates delivery of the TBM in the second quarter of 1998, with development
work to begin in the third quarter of 1998. Independent contractors will be
working with the Company to drive the 18,500-foot long, 15 foot diameter tunnel.
This is expected to take approximately 18 months and cost approximately $20
million. During this period, the Company will complete a feasibility study and
cost estimate for the East Boulder Project. The Company will make a decision on
proceeding with further development of the East Boulder Project once the
feasibility study is completed and the grade and continuity of the reef have
been confirmed. The preliminary feasibility study, completed in 1992, estimated
the total cost of the project to be $250 million, including $50 million for
contingencies.
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OTHER PROPERTIES
The Company owns and maintains a 55,000 square foot building containing the
concentrator plant, changing facilities and offices and a recently constructed
29,200 square foot shop and warehouse, both located within its 1,340 acre
operating permit area at the Stillwater Mine. In Columbus, Montana, the Company
owns and maintains a 23,200 square foot smelter plant and a 17,000 square-foot
base metals refinery on property leased from the Town of Columbus. None of these
properties is currently subject to any mortgage or other encumbrance. The
Company also leases a 10,100 square foot office building in Columbus from a
third party. The Company believes that its existing facilities are adequate to
service current production levels. The Company also owns six parcels of land
totaling 2,473 acres in Stillwater County, Montana. Certain of these parcels are
leased to ranch operators, and one has been subdivided for the lease or sale of
residential lots. About 60 acres of one property is within the Company's
operating permit boundaries. Some of these properties also include residential
rental units. Non-mining properties are subject to a mortgage in favor of
Chevron and Manville to support the Company's indemnification obligations to
such parties.
SALES AND HEDGING ACTIVITIES
Platinum, palladium, rhodium and gold are sold to a number of dealers and
consumers with whom the Company has established trading relationships. Refined
PGMs of 99.95% purity in sponge form are transferred upon sale from the
Company's account at UM and JM to the account of the purchaser. By-product
metals are purchased at market price by brokers or outside refiners.
The Company enters into hedging instruments from time to time to manage the
effect of price changes in platinum and palladium on the Company's cash flow.
Hedging activities typically consist of spot deferred contracts for future
deliveries of specific quantities of PGMs at specific prices and the sale of
call options and the purchase of put options. During the first quarter of 1997,
the Company entered into significant hedging positions, particularly in
palladium, for both 1997 and 1998 sales. The Company delivered against these
hedge contracts throughout 1997, incurring substantial palladium hedging losses
of approximately $10.1 million, due to the sharp rise in palladium spot prices
in mid-1997. At December 31, 1997, the Company had sold forward under spot
deferred contracts 213,165 ounces of palladium at $134 per ounce and 4,255
ounces of platinum at $369 per ounce. The London A.M. Fix prices for palladium
and platinum at December 31, 1997 were $204 and $362 per ounce, respectively.
The hedged palladium quantities represent about sixty percent of expected 1998
production and more than half of these contracts will be settled during the
first half of the year. Stillwater Mining has no platinum or palladium hedged
for 1999. The Company has credit agreements with its major trading partners that
provide for margin deposits in the event that forward prices for platinum and
palladium exceed the Company's hedge contract prices and their credit lines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
TITLE AND ROYALTIES
The Company holds 995 patented and unpatented lode or millsite claims covering
approximately 16,000 acres of the J-M Reef. The Company believes that
approximately 130 of these claims cover 100% of the known apex of the J-M Reef.
Applications for patents covering 172 of these unpatented claims, for a total
area of 2,876.9 acres, have been submitted. Patents to 34 claims covering an
area of 574.8 acres have been granted; 138 claims covering 2,302.1 acres have
had first half final certificates issued. The Company is currently working with
the U.S. Forest Service (USFS) to ensure the allocation of personnel and other
resources required for the USFS to complete the patent documentation process on
the 138 claims which have first half final certificates issued. The Company
expects that this process will take another year or more to complete. The
patents will then undergo several levels of review within the U.S. Department of
the Interior before submission to the Secretary for signature. Another Company
claim leased from the Mouat family and acquired through the agreement with
Anaconda Minerals Inc.
9
<PAGE>
was patented many years ago. The remaining claims either adjoin the apex of
the J-M Reef or provide sites for surface operations.
Unpatented mining claims may be located on U.S. federal public lands open to
appropriation, and are generally considered to be subject to greater title risk
than other real property interests because the validity of unpatented mining
claims is often uncertain and is always subject to challenges of third parties
or contests by the federal government. The validity of an unpatented mining
claim, in terms of its location and its maintenance, is dependent on strict
compliance with a complex body of federal and state statutory and decisional
law. In addition, there are few public records that definitively control the
issues of validity and ownership of unpatented mining claims.
Of the Company's 995 controlled claims, 869 are subject to royalties,
including 711 subject to a 5% net smelter royalty payable to Manville, 56
subject to a 0.35% net smelter royalty payable to the Mouat family, and 102
subject to both royalties. During 1997, the Company paid royalties of
approximately $2.2 million.
SAFETY
Underground mining is, by its nature, a hazardous occupation. Current mine
operations extend over five miles horizontally into the Stillwater Complex and
involve the use of heavy machinery and drilling and blasting in confined spaces.
The Company's recent safety performance has been in line with that of similar
mines in terms of its Lost Time Accident Rate ("LTA rate"); however, six
fatalities have occurred at the Company's mine since operations began in 1986.
The Company's LTA rate in 1992 was 12.9 and decreased to a low of 2.8 in 1996.
Although the Company's Accident Severity Rate remained the same as reported in
1996, the LTA rate increased to 3.3 in 1997. In response to this unfavorable
increase, management has implemented additional safety training programs and has
rejuvenated the application of the "Neil George Five-Point Safety System," which
is well known to the underground hard rock mining industry. This program
encourages daily interaction between employees and supervisors with a specific
focus on safety and requires subsequent documentation of that interaction.
Management believes that continued reductions in accident frequency are
achievable.
Safety is a primary concern of the Company, and the Company believes that
training is a key element in accident prevention. Forty hours of safety
training are required before inexperienced employees may start working
underground, and yearly retraining in first aid, accident prevention techniques
and equipment handling are mandatory for each mining employee.
The metallurgical complex in Columbus, Montana maintained an exemplary safety
record with zero lost time accidents and once again became the recipient of the
Governor's Safety Award. The complex is the first ever two-time recipient of
this Award. The smelter (for the fifth consecutive year) and the BMR were
granted the Sharp's Award, which exempts the complex from routine Occupational
Safety and Health Association inspections.
10
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 675 employees in the following areas:
-------------------------------------
Number of
Area Employees
-------------------------------------
Mining 435
Processing 63
Maintenance 89
Technical Services 36
Safety and Environmental 15
Administration 37
-------------------------------------
Total Employees 675
-------------------------------------
Prior to 1995, the Company's employees were non-union. In an election held in
July 1995, 50.6% of those voting favored the appointment of the Oil, Chemical
and Atomic Workers Union (OCAW) as exclusive bargaining representative for
substantially all hourly workers. The union was certified by the National Labor
Relations Board in January 1996. On June 30, 1996, members of Local 2-1 of the
OCAW ratified their first contract agreement with the Company, which became
effective on July 1, 1996. The contract has a term of three years and provides
for a cumulative increase in wages and benefits of 5.86% over the contract term.
This contract was negotiated using an interest-based bargaining approach that
has resulted in cooperative and stable labor relations. Management believes its
employee relations are good and believes its wages, benefits and working
conditions are competitive with other mining operations.
The Company competes for individuals skilled in underground hard rock mining
techniques and has experienced a shortage of qualified miners. The number of
such persons is limited, and significant competition exists to obtain their
skills. During 1997, the Company added a net total of 156 hourly employees to
the workforce. The Company has instituted a training program to bring new
employees up to the status of qualified, experienced underground miners.
Approximately 67 skilled miners will be required during 1998 and the Company may
find it difficult to attract and retain sufficient numbers of these skilled
individuals to achieve the anticipated production for its expansion. As a result
of the downturn in the gold industry, the Company has been the beneficiary of
layoffs by gold companies. The Company has hired 34 experienced underground
miners from the gold industry, and will continue to recruit these miners to meet
the demands of the Company's increased production goals.
REGULATORY AND ENVIRONMENTAL MATTERS
GENERAL. The Company's business is subject to extensive federal, state and
--------
local government controls and regulations, including regulation of mining and
exploration operations involving the discharge of materials and contaminants
into the environment, disturbance of land, reclamation of disturbed lands,
associated potential impacts to threatened or endangered species and other
environmental concerns. In particular, statutes including, but not limited to,
the Clean Air Act, the Clean Water Act, the Solid Waste Disposal Act, the
Emergency Planning and Community Right-to-Know Act, the Endangered Species Act
and the National Environmental Policy Act, impose permit requirements, effluent
standards, air emission standards, waste handling and disposal restrictions and
other design and operational requirements, as well as record keeping and
reporting requirements, upon various aspects of mineral exploration, extraction
and processing. In addition, the Company's existing mining operations may
become subject to additional environmental control and mitigation requirements
if applicable federal, state and local laws and regulations governing
environmental protection, land use and species protection are amended or become
more stringent in the future. For example, effective July 1, 1998 for the 1997
calendar year, the Company will for the first time be required to annually
report the volume of its release of certain toxic materials into the
environment, including such constituents that are placed within engineered
tailings impoundments. Such reporting is required by
11
<PAGE>
the Emergency Planning and Community Right-to-Know Act, noted above.
Additionally, the Company is aware that federal regulation under the Solid Waste
Disposal Act governing the manner in which secondary materials and by-products
of mineral extraction and benefication are handled, stored and reclaimed or
reused are pending final revision which could affect the Company's facility
design, operations, and permitting requirements.
The Company's past and future activities may also cause it to be subject to
liabilities under provisions of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (CERCLA), and analogous state
law. Such laws impose strict liability on certain categories of potentially
responsible parties for their actions resulting in releases or threatened
releases of hazardous substances into the environment which cause the incurrence
of cleanup costs.
Generally, compliance with the above statutes requires the Company to obtain
permits issued by federal, state and local regulatory agencies and to file
various reports and keep records of its operations affecting the environment.
Certain permits require periodic renewal or review of their conditions. The
Company cannot predict whether it will be able to renew such permits or whether
material changes in permit conditions will be imposed. Non-renewal of permits or
the imposition of additional conditions could have a material adverse effect on
the Company's financial condition and results of operations.
The Company believes that its operations and facilities comply in all material
respects with current federal, state and local permits and regulations.
However, compliance with existing and future laws and regulations may require
additional control measures and expenditures which cannot be estimated at this
time. Compliance requirements for new mines and mills may require substantial
additional control measures that could materially affect permitting and proposed
construction schedules for such facilities. Under certain circumstances,
facility construction may be delayed pending regulatory approval. The cost of
complying with future laws and regulations may render currently operating or
future properties less profitable and could adversely affect the level of the
Company's reserves and, in the worst case, render its mining operations
uneconomic.
The Company has agreed to indemnify each of Chevron and Manville for all
claims related to environmental damage or hazards.
PERMITTING AND RECLAMATION. Operating Permit 00118 issued by the Montana
---------------------------
Department of State Lands encompasses approximately 1,340 acres at the Company's
Stillwater Mine located in Stillwater County, Montana. The permit delineates
lands that may be subject to surface disturbance. At present, approximately 150
acres have been disturbed, 18 of which are occupied by the tailings impoundment.
The remaining acreage consists of buildings, roads and portal sites. The
Company employs concurrent reclamation wherever feasible.
Reclamation regulations affecting the Company's operations are promulgated and
enforced by the Hard Rock Bureau of the Montana DEQ. Additional reclamation
requirements may be imposed by the USFS during the permitting process. For
regulatory purposes, reclamation does not mean restoring the land to its pre-
mining state. Rather, it is returning the post-mining land to a state which has
stability and utility comparable to pre-mining conditions. Reclamation concerns
include stabilization and vegetation of disturbed lands, controlling drainage
from portals and waste rock dumps, removal of roads and structures,
neutralization or removal of process solutions and visual aesthetics. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Environmental Obligations."
Permits governing air and water quality are issued to the Company by the
Montana DEQ, which has been delegated such authority by the federal government.
Operating permits issued to the Company by the Montana DEQ and the USFS do not
have an expiration date but are subject to periodic reviews. The reviews
evaluate
12
<PAGE>
bonding levels, monitor reclamation progress, and assess compliance with all
permit requirements and mitigation measures.
In April 1996, the Company submitted a permit amendment application for the
expansion of the Stillwater Mine. This expansion proposal includes selection and
construction of a new tailings impoundment and removal of the arbitrary 2,000
TPD production cap. During 1997, as a result of this application, the Montana
DEQ began preparation of an Environmental Impact Statement (EIS) in order to
assess the environmental impacts of the amendment. The Montana DEQ is expected
to issue the final EIS in 1998, subsequent to review of draft issuances and a
public hearing. The Company currently does not foresee any material changes from
its application.
Capital outlay for the proposed long term tailings site is estimated to be $25
million. The current tailings facility, located adjacent to the Stillwater Mine,
has an expected life through the year 2003, assuming 2,000 TPD of mine
production. A pipeline will connect the current and proposed tailings
impoundments. While the Company believes that its proposal represents a sound
environmental solution to long-term tailings disposal, there is no assurance
that the necessary permits will be granted.
The East Boulder Project has been fully permitted with the necessary
environmental permits and with an operating permit to produce 2,000 TPD.
POSSIBLE REFORM OF THE GENERAL MINING LAW. During the 1997 legislative
------------------------------------------
session, legislation was introduced into the United States Congress which
proposed a number of modifications to the General Mining Law, which governs the
location and maintenance of unpatented mining claims and related activities on
federal lands. Among those modifications were proposals which would have (i)
imposed a royalty on production from unpatented mining claims, (ii) increased
the cost of holding such claims, and (iii) imposed more specific federal
reclamation requirements on operations on such claims. None of those proposed
modifications were enacted into law. The same or similar proposals may be
considered by Congress in 1998 as well. The potential impact on the Company as a
result of congressional action is difficult to predict, but legislation amending
the General Mining Law could adversely affect the Company's ability to
economically develop the J-M Reef, virtually all of which is comprised of
unpatented mining claims on federal lands, and would, in the case of imposed
production royalties, generally reduce the profitability of the Company and, in
the worst case, render its mining operations uneconomic.
FUTURE EXPANSION
The Company has adopted a long term goal to triple production in five years
and is currently establishing the steps necessary to achieve this goal. The two
key components will be increasing output at the Stillwater Mine substantially
and moving the East Boulder Project through feasibility and development and into
production.
The Company has retained an independent engineering firm familiar with the
Stillwater Mine to conduct a feasibility study to determine the optimum size of
the Stillwater Mine operation. The study is expected to be delivered by mid-year
1998. Possible approaches to further increase production include deepening the
existing 1,950 foot production shaft or increasing lateral development around
the shaft. Final decisions regarding approaches, timing and costs await delivery
of the feasibility study. Preliminary estimates for costs associated with
expansion at the Stillwater Mine are $75 million, including $25 million for the
proposed long term tailings site.
The East Boulder Project is the other key to reaching the Company's long term
goal. As discussed above, the East Boulder Project recently has been resumed
after being put on hold in late 1996. At this point the Board of Directors has
authorized completion of the TBM that will be used to drive an 18,500 foot
tunnel to give access to the western portion of the J-M Reef. Current estimates
call for commencement of boring in the second half of 1998, with completion of
the tunnel approximately 18 months thereafter. During this 18 month
13
<PAGE>
period, the Company plans to complete a detailed feasibility study. The
detailed feasibility study will also update anticipated project costs, which
were estimated at $250 million (including a $50 contingency factor) in a 1992
prefeasibility study.
In addition, achieving these goals will require significant modifications at
the concentrator, the smelter and the BMR. Decisions regarding the various steps
in implementing this growth plan will be made as the results of development work
and feasibility studies are obtained, and at this stage no assurance can be
given that the Company's goal will be achieved. See "--Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors that May Affect Future Results."
COMPETITION: PLATINUM AND PALLADIUM MARKET
The following description of recent events relating to the platinum and
palladium markets is not intended to be complete, and readers are advised to
obtain their own information and advice regarding the commodities markets.
GENERAL
Platinum and palladium are rare precious metals characterized by unique
physical qualities and are used in diverse industrial applications and in the
jewelry industry. The Company knows of no economically viable replacements for
PGMs in a number of key technological and industrial applications. The
development of a less expensive alternative alloy or synthetic material which
has the same characteristics as PGMs could have a material adverse effect on the
Company's revenues. Although the Company is unaware of any such alloy or
material, there can be no assurance that none will be developed.
The Company competes with other suppliers of PGMs, some of which are
significantly larger than the Company and have access to greater mineral
reserves and financial and commercial resources. See "Supply" below. In
addition, new mines may open over the next several years, increasing supply.
Furthermore, in certain industrialized countries, an industry has developed for
the recovery of PGMs from scrap sources, mostly from spent automotive and
industrial catalysts. There can be no assurance that the Company will be
successful in competing with these existing and emerging PGM producers. See
"--Risk Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEMAND
Demand for both palladium and platinum has increased, but the increased demand
for palladium has been much more dramatic. Demand for palladium has grown from
3.9 million ounces in 1992 to 7.4 million ounces in 1997 - almost double in five
years. Platinum demand has increased from 3.8 million ounces in 1992 to 5.1
million ounces in 1997 - a 34% increase.
PGM's unique physical qualities include: (i) a high melting point; (ii)
superior conductivity and ductility; (iii) a high level of resistance to
corrosion; (iv) strength and durability; and (v) strong catalytic properties.
Palladium, like platinum, has numerous industrial applications and when combined
with silver, provides an extremely conductive material.
The largest and fastest growing application for palladium is in the automotive
industry, which represented nearly 40% of the palladium demand for 1997. Demand
for palladium in the next several years is projected to increase significantly,
driven primarily by automotive catalysts. In the U.S., the automobile industry
has made the decision to comply with standards that will decrease automotive
emissions to National Low Emission Vehicle standards beginning with the 1999
model year. Europe and Japan have adopted more stringent standards for the
future as well. With growing concern for cleaner air, it is expected that
concern over automobile emissions will continue to spread. This will have a
marked effect on palladium usage and to a lesser extent, platinum.
14
<PAGE>
Approximately one-third of the palladium supply is consumed in the production
of electronic components for personal computers, cellular telephones, facsimile
machines and other devices. There are also indications that demand from the
electronic and semiconductor industries will continue to be strong. Dentistry
has also been a major use for palladium due to the substitution of palladium
alloys for gold-based dental alloys, representing approximately 18% of the
palladium demand for 1997.
Approximately 60% of current world platinum production is used for industrial
and manufacturing processes, most significantly for the manufacture of catalytic
converters for the global auto industry. In addition to catalytic converters,
industrial uses of platinum include the production of data storage disks, glass,
paints, nitric acid, anti-cancer drugs, fiber optic cables, fertilizers,
unleaded and high octane gasolines and fuel cells. The balance of current
platinum demand is for the production of jewelry, such as gem settings for
rings, and for investment/collector coins. Supply and demand for platinum are
essentially in balance and are expected to remain this way for the foreseeable
future. If higher prices for palladium do cause some of the growth to be taken
up by platinum, then the outlook for platinum will be enhanced.
SUPPLY
The primary production sources of palladium and platinum are mines located in
the Republic of South Africa, which industry sources believe provided
approximately three-fourths of the platinum and one-fourth of the palladium
worldwide during 1997. The principal PGM mining companies in the Republic of
South Africa are Anglo American Platinum Corporation, Ltd., Impala Platinum
Holdings, Ltd. and Western Platinum, Ltd.
The second largest source of platinum and palladium is Russia, which industry
sources believe provided approximately two-thirds of the palladium and
approximately one-eighth of the platinum worldwide in 1997. Approximately half
of this supply is believed to have come from stockpiles. Small amounts of
platinum and palladium are also produced in Canada principally as a by-product
of nickel and copper mining.
Supply of palladium is projected to be flat and may, in fact, decline
materially in the future. In the past, the primary producer of palladium,
Russia, has supplied over 60% of what is now a seven million ounce world market.
Russia is believed to produce roughly 2.0 million ounces a year as a by-product
of a nickel mine, and the remaining supply has come from stockpiles accumulated
over the years. The general consensus in the western markets is that the
Russian stockpiles of both palladium and platinum have declined significantly
and will be exhausted within the next few years. However, if it were to be
determined that Russia's stockpiles of palladium and platinum were extensive and
if they disposed of them in the market, the supply scenario would drastically
change.
It is possible to recover PGMs from automotive catalytic converters acquired
from scrap yards. A small but growing industry has developed, predominantly in
North America, in the collection and recovery of PGMs from scrap sources,
including automotive catalytic converters and electronic and communications
equipment, which could provide additional feedstock for the Company's
metallurgical complex in Columbus, Montana.
15
<PAGE>
PRICES
The Company's revenue and earnings are dependent upon world platinum and
palladium prices which fluctuate widely and over which the Company has no
control. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Revenue" and "--Factors That May Affect Future Results and
Financial Condition." The volatility of platinum and palladium prices is
illustrated in the following table of the annual high, low and average prices
per ounce.
- --------------------------------------------------------------------------
PLATINUM PALLADIUM
- --------------------------------------------------------------------------
Year High Low Average High Low Average
- --------------------------------------------------------------------------
1993 $414 $345 $376 $142 $100 $123
1994 431 380 406 163 124 144
1995 459 403 424 178 128 151
1996 433 368 398 146 116 130
1997 525 340 395 245 115 178
- --------------------------------------------------------------------------
All subsections under "Business and Properties" are qualified in their
entirety by reference to "--Risk Factors" and " Managements's Discussion and
Analysis of Financial Condition and Results of Operations--Factors That May
Affect Future Results and Financial Condition."
RISK FACTORS
Set forth below are certain risks faced by the Company. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors That Could Affect Future Results."
MINING AND PROCESSING
The Company's business operations are subject to risks and hazards inherent in
the mining industry, including but not limited to unanticipated variations in
grade and other geological problems, water conditions, underground conditions,
metallurgical and other processing, smelting or refining problems, mechanical
equipment and facility performance problems, the unavailability of materials and
equipment, accidents, labor force and force majeure factors, any of which can
materially and adversely affect, among other things, production quantities and
rates, costs and expenditures, the development or expansion of properties, and
production commencement dates.
RISKS OF PGM PRICE FLUCTUATIONS, BACKWARDATION AND HEDGING
The Company's results of operations are directly related to the market price
of PGMs. Prices for PGMs are subject to volatile price movements over short
periods of time and are influenced by numerous factors over which the Company
has no influence or control, including, for example, complex issues of global
supply and demand, expectations regarding Russian and South African supplies,
decisions by automobile, electronics and other industrial users, global and
regional political or economic factors, speculation, and sales by holders and
producers in response to such factors. This volatility was evident during 1997,
when apparent tightness in PGM markets led to multi-year highs for current
delivery contracts and "backwardation," a condition where delivery prices for
metals in the near term have higher prices than metals to be delivered in the
future. See "--Competition: Platinum and Palladium Market."
During 1997, the Company was unable to realize a substantial portion of high
current PGM prices because it had entered into hedging contracts that were
uneconomic to roll forward due to the backwardation in the PGM markets. As a
result, the Company realized $144 per ounce for palladium and $388 per ounce of
platinum sold in 1997, while average current delivery prices were $178 per ounce
for palladium and $395 per ounce platinum. Thus, while hedging transactions are
intended to reduce the negative effects of volatility of prices, hedging can
limit potential gains from increases in prices and could expose the Company to
material losses in certain events. See "Note 9 of Notes to Financial
Statements."
16
<PAGE>
RISKS REGARDING EXPANSION GOALS
The Company's achievement of its long term expansion goal depends upon its
ability to increase production substantially at the Stillwater Mine and
related facilities and to complete exploration and development successfully and
to achieve its production goals at the East Boulder Project. Although the
Company believes its goals and its preliminary estimates are based upon
reasonable assumptions, at this time there can be no assurance that these goals
can be achieved. See "--East Boulder Project" and "--Expansion Plans."
The feasibility study to determine the optimum production level at the
Stillwater Mine is not yet available, and its results may differ materially from
preliminary production and cost analyses by the Company. To increase production
at the Stillwater Mine, the Company must receive permit approval to increase
tons processed and to construct a new long-term tailings facility, which are
subject to the completion of environmental impact analyses and public review
processes. Other facilities, including the concentrator, smelter and BMR, will
also have to be expanded or modified. In addition, design, construction and
operation at full capacity of new and expanded facilities must be achieved, each
of which can be expected to be time-consuming and complex and to involve
important elements that are beyond the Company's control.
The Company has also not yet completed a final feasibility study or cost
estimate for the East Boulder Project. Prior to obtaining a feasibility study at
East Boulder, construction of the TBM must be finished, the 18,500 foot tunnel
must be completed, results of geologic and metallurgical analyses must be
obtained, and studies estimating capital expenditures, cash operating costs and
recovery rates must be finalized. As a result, the feasibility of proceeding
with East Boulder or the projects' capital costs, operating costs and economic
returns may differ materially from the Company's current analysis. The Company
will decide whether to proceed with further development of the East Boulder
Project only after the feasibility study is completed and the grade and
continuity of the reef have been confirmed.
Based on the complexity and uncertainty involved in major projects, such as
the second expansion at the Stillwater Mine and exploration, development and
attainment of production goals at East Boulder, estimates of time and funding
required at this early stage are extremely difficult to provide with certainty.
No assurance can be given that either project will be completed on time or at
all or that funding will be available from internal and external sources in
necessary amounts or on acceptable terms. Finally, the Company's pursuit of its
expansion goals and its ability to finance them could be materially adversely
affected by changes in PGM prices.
INSURANCE AND MINING RISKS
The business of mining is generally subject to a number of risks and hazards,
including environmental conditions, industrial accidents, labor disputes,
encountering unusual or unexpected geological conditions, ground or slope
failures, cave-ins, and other events or conditions that could result in damage
to, or destruction of, mineral properties or production facilities, personal
injury or death, environmental damage to properties or the properties of others,
delays in mining, monetary losses and possible legal liability. The Company
maintains insurance against certain risks that are typical in the mining
industry and in amounts that the Company believes to be reasonable, but which
may not provide adequate coverage. However, insurance against certain other
risks (including certain liabilities for environmental pollution or other
hazards as a result of exploration and operations) are not insured, and losses
from such events could have a material adverse affect on the Company.
RISK OF GOVERNMENT REGULATION OF MINING ACTIVITIES
The Company's operations and exploration activities are subject to extensive
regulation governing development, production, labor standards, occupational
health, waste disposal, use of toxic substances, environmental regulations, mine
safety, and other matters in all jurisdications in which they operate. Changes
in regulations can have material impacts on anticipated levels of production,
costs and profitability. There can be no assurance that all required permits
and government approvals can be secured and maintained on an economic basis.
See "--Current Operations--Regulatory and Environmental Matters."
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information concerning the individuals who are
executive officers of the Company.
Name Age Position
- --------------------------------------------------------------------------------
William E. Nettles 54 Chairman of the Board and Chief Executive Officer
John E. Andrews 51 President and Chief Operating Officer
James A. Sabala 43 Vice President and Chief Financial Officer
Chris Allen 48 Vice President, Safety and Government Affairs
Gil Clausen 41 Vice President, Nye Operations
Gina Wilson 51 Vice President, Investor Relations and
Corporate Communications
The following are brief biographies of the above individuals:
- --------------------------------------------------------------------------------
WILLIAM E. NETTLES is currently Chairman of the Board and Chief Executive
Officer of the Company. He joined the Company in August 1997 after fifteen
years with Engelhard Corporation. Most recently, Mr. Nettles served as Chief
Financial Officer for Engelhard. He had previously served as Engelhard's Vice
President and General Manager for the Chemical Catalyst Group and the Specialty
Minerals & Colors Group and Vice President and Business Director for the
Performance Minerals Group. Prior to Engelhard, Mr. Nettles was with The Dow
Chemical Company from 1965 to 1982 serving in various position of increasing
responsibility. Mr. Nettles has a Bachelor of Science in Industrial Management
from the Georgia Institute of Technology and a Master of Business Administration
from the University of Michigan.
- --------------------------------------------------------------------------------
JOHN E. ANDREWS is currently President and Chief Operating Officer of the
Company. He joined the Company in 1993 after serving four years as the Director
of International Mining Operations of Phelps Dodge Corporation. From 1979 to
1989, Mr. Andrews held various positions with Exxon Corporation and its
affiliates, including Operations Support Division Manager of Exxon Coal and
Minerals Company and Plans Coordination and Evaluation Manager of Exxon Minerals
Company. Prior to joining Exxon, Mr. Andrews was a Consulting Mining Engineer
with David S. Robertson & Associates from 1977 to 1979. From 1969 to 1977 he
served in a variety of mining capacities with Union Corporation, Ltd. in the
Republic of South Africa. He received a Bachelor of Science with honors from
the Royal School of Mines, Imperial College, England in 1969.
- --------------------------------------------------------------------------------
JAMES A. SABALA was appointed Vice President and Chief Financial Officer of the
Company effective April 1, 1998. Prior to joining the Company, Mr. Sabala was
with Coeur d'Alene Mines Corporation from 1981 to 1998, most recently as Senior
Vice President and Chief Financial Officer. Prior to joining Coeur d'Alene
Mines, Sabala was with Price Waterhouse & Co. as a Certified Public Accountant.
He received a Bachelor of Science in Business, Major--Accounting from the
University of Idaho.
- --------------------------------------------------------------------------------
CHRIS ALLEN is currently Vice President, Safety and Government Affairs. He
joined the Company in 1993. Prior to joining the Company, he was Manager of
Health and Safety for P.T. Freeport Indonesia Incorporated from 1991 to 1993,
and prior to that he was with FMC Gold Corporation and FMC Corporation from 1986
to 1991 in a number of roles with increasing responsibility in the areas of
safety and environmental affairs. He received a Bachelor of Science in Public
Health from Utah State University.
- --------------------------------------------------------------------------------
GIL CLAUSEN is currently Vice President, Nye Operations. Clausen joined the
Company in 1995 after six years with Placer Dome Inc. in a number of positions,
including General Manager of the Detour Lake Mine and the Endako Mines Division.
Prior to that he was employed by Cleveland-Cliffs, Fording Coal and Noranda
Mines
18
<PAGE>
Limited. Clausen received his Bachelor of Science and Master of Science degrees
from Queen's University in Kingston, Canada. He also holds a Diploma in Civil
Engineering from Ryerson Polytechnical University.
- --------------------------------------------------------------------------------
GINA WILSON is currently Vice President, Investor Relations and Corporate
Communications. She joined the Company in 1996 after serving three years with
Santa Fe Pacific Gold Corporation as Director of Investor Relations and
Corporate Communications. Prior to that she was employed by Amax Gold Inc. as
Manager, Investor and Public Relations from 1988 to 1993. She received her
Bachelor of Science degree, summa cum laude, from Regis University and her
Master of Business Administration from the University of Colorado.
- --------------------------------------------------------------------------------
ITEM 3
LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
19
<PAGE>
PART II
- --------------------------------------------------------------------------------
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
---------------------------
The Company's common shares were traded on the NASDAQ National Market under
the symbol PGMS from December 16, 1994 to June 4, 1997. Effective June 5, 1997,
the Company began trading on the American Stock Exchange, Inc. (AMEX) under the
trading symbol SWC. For the period from January 1, 1996 through December 31,
1997 the high and low sales prices for the Company's common stock for each
quarter as reported by NASDAQ or AMEX, as applicable, were:
- -----------------------------------------------------------------------------
1997 HIGH LOW
- -----------------------------------------------------------------------------
FIRST QUARTER $ 24-7/8 $16-1/2
SECOND QUARTER 25-9/16 19-1/2
THIRD QUARTER 22-1/2 19
FOURTH QUARTER 23 15-1/4
- -----------------------------------------------------------------------------
1996 HIGH LOW
- -----------------------------------------------------------------------------
FIRST QUARTER $ 24-1/2 $18-1/4
SECOND QUARTER 29-5/8 19-3/4
THIRD QUARTER 25-3/4 18
FOURTH QUARTER 19-1/2 14-7/8
- -----------------------------------------------------------------------------
STOCKHOLDERS. As of February 28, 1998, the Company had 381 stockholders
------------
of record and an estimated 12,100 additional beneficial holders whose stock was
held in street name by brokerage houses.
DIVIDENDS. The Company has never paid any dividends on its common stock
---------
and expects for the foreseeable future to retain all of its earnings from
operations for use in expanding and developing its business. Any future decision
as to the payment of dividends will be at the discretion of the Company's Board
of Directors and will depend upon the Company's earnings, financial position,
capital requirements, plans for expansion, loan covenants and such other factors
as the Board of Directors deems relevant.
20
<PAGE>
ITEM 6
SELECTED FINANCIAL AND OPERATING DATA
-------------------------------------
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues (11) $ 76,877 $ 56,214 $ 51,335 $ 54,934 $50,186
- ------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of metals sold 67,948 50,175 45,864 46,041 42,098
Depreciation and amortization 11,658 8,699 5,749 5,232 4,910
- ------------------------------------------------------------------------------------------------------------
Total cost of sales 79,606 58,874 51,613 51,273 47,008
Administrative expenses 2,887 1,760 1,974 768 732
Other costs and expenses 592 772 - - -
- ------------------------------------------------------------------------------------------------------------
Total costs and expenses 83,085 61,406 53,587 52,041 47,740
- ------------------------------------------------------------------------------------------------------------
Operating income (loss) (6,208) (5,192) (2,252) 2,893 2,446
Interest income 1,073 2,138 2,795 221 79
Interest expense, net of capitalized interest (10) (3,608) (1,461) (431) (320) (141)
- ------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes, extraordinary
loss and cumulative effect of accounting change (8,743) (4,515) 112 2,794 2,384
Income tax benefit (provision) (1) 3,366 1,736 (44) (243) (8,014)
- ------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss and
cumulative effect of accounting change (5,377) (2,779) 68 2,551 (5,630)
Extraordinary loss on early extinguishment of
debt, net of tax benefit of $357 (2) - - - (568) -
- ------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change (5,377) (2,779) 68 1,983 (5,630)
Cumulative effect of accounting change, net
of income tax provision of $8,677 - 13,861 - - -
- ------------------------------------------------------------------------------------------------------------
Net income (loss) $ (5,377) $ 11,082 $ 68 $ 1,983 $(5,630)
============================================================================================================
Pro forma information (unaudited) (3)
Historical income before income
taxes and extraordinary loss $ 2,384
Pro forma provision for income taxes (921)
- -----------------------------------------------------------------------------------------------------------
Pro forma income before extraordinary loss 1,463
Extraordinary loss -
- -----------------------------------------------------------------------------------------------------------
Pro forma net income $ 1,463
- -----------------------------------------------------------------------------------------------------------
Basic and diluted income (loss) per common share (4)
Income (loss) before extraordinary loss and
cumulative effect of accounting change $ (0.27) $ (0.14) $ - $ 0.17 $ 0.10
Extraordinary loss - - - (0.04) -
- -----------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of accounting change (0.27) (0.14) - 0.13 0.10
Cumulative effect of accounting change - 0.69 - - -
- -----------------------------------------------------------------------------------------------------------
Net income (loss) per share $ (0.27) $ 0.55 $ - $ 0.13 $ 0.10
Weighted average common shares outstanding
Basic and diluted 20,290 20,093 20,068 15,133 15,000
===========================================================================================================
CASH FLOW DATA
Net cash provided by (used in) operations $ (1,297) $ 14,464 $ 6,009 $ 9,220 $ 4,484
Capital expenditures (5) 15,820 58,413 46,133 9,315 2,039
BALANCE SHEET DATA
Current assets $ 35,303 $ 49,061 $ 44,974 $ 77,234 $22,073
Total assets 229,219 239,910 162,175 153,498 92,460
Current liabilities 12,249 15,833 10,370 9,427 6,803
Long-term debt and capital lease obligations 61,513 62,563 8,713 1,715 1,790
Shareholders' equity 141,392 143,666 132,305 132,171 74,144
Working capital 23,054 33,228 34,604 67,807 15,270
- -------------------------------------------------------------------------------------------------------------
(footnotes on following page)
</TABLE>
21
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA (Continued)
-------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
(thousands of ounces and tons unless otherwise noted)
Tons milled (6) 577 446 398 373 363
Head grade (combined Pt+Pd ounces per ton) 0.70 0.67 0.67 0.80 0.87
Ounces of platinum produced (7) 84 59 51 63 66
Ounces of palladium produced (7) 271 196 169 207 218
- --------------------------------------------------------------------------------------------------------------
Total ounces produced 355 255 220 270 284
==============================================================================================================
Ounces of platinum sold 91 62 54 63 66
Ounces of palladium sold 288 214 180 216 203
- --------------------------------------------------------------------------------------------------------------
Total ounces sold 379 276 234 279 269
==============================================================================================================
Platinum equivalent ounces produced (8) 206 123 111 136 137
Gold equivalent ounces produced (8) 246 127 123 144 143
PRICE AND COST DATA (9)
Average realized price per platinum ounce $ 388 $ 410 $ 425 $ 399 $ 376
Average realized price per palladium ounce 144 144 157 138 125
Combined average realized price per ounce 203 204 219 197 187
Cash costs per ton milled $ 107 $ 105 $ 119 $ 124 $ 128
Cash costs per ounce produced 174 184 215 173 165
Total costs per ounce produced 207 219 240 191 182
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The net loss for the year ended December 31, 1993 includes a one-time
provision for income taxes pursuant to Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, of $7.9 million to
record deferred income taxes arising out of the reorganization from the
Chevron/Manville partnerships into the Company.
(2) Upon early extinguishment of notes issued in connection with the 1994
private placement, the unamortized balance of deferred debt issue costs of
$925,000 ($568,000 net of taxes) was charged against income as an
extraordinary item.
(3) Pro forma information is presented for purposes of comparability assuming
the Company was a taxable entity for all periods presented.
(4) In 1997, the Company adopted SFAS NO. 128, Earning per Share, which requires
the presentation of basic and diluted earnings per share. All prior period
per share data presented have been restated to conform with the provisions
of this statement. Income (loss) per common share is calculated based on
weighted average common shares outstanding and is presented on a pro forma
basis for 1993 for purposes of comparability. The Company's historical
capital structure and taxable status are not indicative of its current
structure and, accordingly, historical earnings per share have not been
presented for 1992.
(5) In 1997, 1996, 1995 and 1994, $2.9 million, $35.9 million, $39.5 million and
$9.3 million, respectively, were capitalized in connection with the
Expansion Plan.
(6) Tons milled represents the number of grade-bearing short tons of ore fed to
the concentrator.
(7) Ounces produced is defined as the number of ounces produced from the
concentrator during the period reduced by losses expected to be incurred in
subsequent smelting and refining processes. Differences in ounces produced
and ounces sold are caused by the length of time required by the smelting
and refining processes.
(8) Platinum and gold equivalent ounces have been calculated by dividing the
total market value of platinum and palladium produced during the given
period by the average market prices of platinum and gold, respectively, for
each period.
(9) A combined realized price of platinum and palladium is reported at the same
ratio as ounces are produced from the Base Metals Refinery. Cash costs of
production include cash costs of mining, processing and general and
administrative expenses at the mine site (including overhead, taxes other
than income, royalties and credits for metals produced other than platinum
and palladium.)
22
<PAGE>
Total costs of production include cash costs plus depreciation and
amortization. Income taxes and interest income and expense are not included
in either total or cash costs per ounce produced.
(10) Capitalized interest for the years ended December 31, 1997 and 1996 totaled
$1.5 million and $2.2 million, respectively. No interest was capitalized
for the years ended December 31, 1993 through 1995.
(11) Revenues consist of the sales revenue for platinum and palladium, including
any hedging gain or loss. By-product metals revenue and secondary
materials processing revenue are included as a reduction of cost of metals
sold.
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes, included elsewhere in this
report, and the information contained in "Selected Financial and Operating
Data."
PRODUCTION
The Company's production of platinum and palladium is determined by the ore
tons mined, the mill head grade (ounces of precious metal per ton of ore) and
mill recovery. Processing facilities have historically been able to handle all
ore mined in a timely manner, and production statistics subsequent to the recent
completion of the Stillwater Mine expansion indicate that this should continue
to be the case going forward.
The Company defines its mine production as those ounces contained in
concentrate when it is shipped to the Company's smelter, which generally occurs
within four days of the ore being mined. The Company records revenue when
partially-refined ounces are shipped from its base metal refinery (BMR) to a
third-party refiner for final processing. Shipment from the BMR to a third-party
refiner generally occurs within fifteen to eighteen days of mining.
Approximately 40 days elapse between the time ore is extracted from the
Stillwater Mine and the time ounces of precious metal contained in that ore are
made available to the Company by a third-party refiner. Because of the length of
the processing cycle and the different cutoff points for identifying production
and sales, production may not always correspond to sales in a particular
accounting period. However, any production not shipped from the BMR at the end
of an accounting period is generally shipped during the first two weeks of the
subsequent period.
In 1994, the Company commenced a major expansion project designed to double
ore throughput at its Nye, Montana operation to 2,000 tons per day (TPD). This
expansion effort was completed in mid-1997, and during the fourth quarter of
that year, the Company successfully attained its 2,000 TPD goal. Increases in
ore tonnage were achieved as the Company began hoisting ore to the surface via a
newly-completed shaft. In addition, start-up of the underground crusher and
conveyor system allowed for a more uniform size of crushed material to be fed to
the mill, which increased throughput by about fifteen tons per hour. Also, the
Company added manpower, increased the number of active stopes and improved
productivity, principally through the increase of mechanized mining methods.
The grade of ore mined by the Company in a given period depends on the
particular areas of the J-M Reef from which the ore is extracted. Overall, the
ore grade of the J-M Reef is generally consistent; however, the grade does vary
from stope to stope and is also affected by the mix of production methods used
during the period. Now that the expansion project has been completed, the
Company intends to focus on developing more stopes in order to better manage the
mix of stopes it mines and, consequently, the resulting grade of ore delivered
to the concentrator (mill head grade).
The average mill head grade of ore processed through the concentrator in 1997
was 0.70 ounce of metal per ton of ore (OPT), which was in line with the
Company's expectations. This was an improvement over the 1996 average mill head
grade of 0.67 OPT. This improvement resulted primarily from the successful
implementation of controls designed to minimize mine dilution, along with
material handling and material processing efficiencies, which resulted from
commissioning of the production shaft in June 1997.
23
<PAGE>
In November 1997, the Company announced plans for the next phase of its
expansion strategy. This phase entails completion of a tunnel boring machine,
which will provide access to the East Boulder section of the J-M Reef. The East
Boulder project, thirteen miles west of the Nye, Montana operation, is the
second fully permitted site on the J-M Reef. This project has the potential to
equal the production of the recently expanded Stillwater Mine, i.e., 450,000 to
500,000 ounces annually. The current phase of this development effort includes a
final engineering study and cost estimate for the project and is expected to
take approximately eighteen months to complete at a cost of about $20 million.
REVENUE
The Company's revenue depends entirely on the number of ounces of platinum and
palladium sold and the price per ounce it receives for those sales. Ounces of
metal are recorded as sold when shipments are made from the Company's BMR to a
third-party refiner. The Company's revenue and earnings are significantly
influenced by worldwide prices of palladium and platinum, which can be volatile
and over which the Company has no control. Sales to three customers represented
approximately 90%, 98% and 92% of total revenues for the years ended December
31, 1997, 1996 and 1995, respectively. The Company sells its metals to a small
number of customers and brokers; however, the Company is not economically
dependent upon these customers since palladium and platinum can be readily sold
in numerous markets throughout the world.
Beginning in October 1993 and continuing through the first quarter of 1997,
the Company used basic hedging techniques involving spot deferred forward
contract commitments to lock in prices for its production. In addition, the
Company also used put and call options from time to time to improve the
opportunity to benefit from upward price movements while protecting against
downside price risk. Under the terms of spot deferred forward contracts, the
Company has the option of deferring delivery against these contracts. However,
due to severe backwardation in palladium markets (where spot prices for metal
exceed future prices), the Company was unable to defer delivery on these
contracts on favorable terms. As a result, 1997 revenues were unfavorably
impacted, with the combined average 1997 realized price falling about 12% below
the average 1997 market price. The Company reports the combined realized price
per ounce of palladium and platinum at the same ratio of palladium and platinum
produced from the BMR, i.e., 3.2:1. The same ratio is applied to determine the
average spot market price.
As of December 31, 1997, the Company has spot deferred forward sales contracts
for deliveries of future production in 1998 of 4,255 ounces of platinum and
213,165 ounces of palladium at prices averaging $369 and $134 per ounce,
respectively. The London A.M. Fix prices for platinum and palladium at
December 31, 1997 were $362 and $204 per ounce, respectively. The hedged
palladium quantities represent about sixty percent of expected 1998 production
and more than half of these contracts will be settled during the first half of
the year. Stillwater Mining has no platinum or palladium hedged for 1999.
COST STRUCTURE
The Company's current operating costs per ounce have improved significantly as
a result of completion of the Stillwater Mine expansion. Cash costs of
production include cash costs of mining, processing, general and administrative
expenses at the minesite and are net of metals revenue other than palladium and
platinum. Mine site general and administrative expenses include overhead, taxes
other than income, and royalties. Operating efficiencies were achieved through
economies of scale as production increased to 2,000 TPD of ore mined, up from
about 1,200 TPD in 1996. In addition, material handling and material processing
efficiencies were realized once the underground shaft was commissioned in June
1997, as the shaft provided a more automated method for transporting ore and
waste underground. Finally, the successful implementation of controls to
minimize mine dilution also had a favorable impact on the Company's cost
structure in 1997. Management expects these operating efficiencies will
continue to be realized in the future.
24
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
PGM PRODUCTION. Total ore tons mined in the year ended December 31, 1997
- --------------
increased 37% to 580,000 tons, from 424,000 tons for the year ended December 31,
1996. Tons milled in 1997 averaged about 1,600 TPD compared with an average of
1,200 TPD milled in 1996. Increases in ore tonnage were achieved as a result of
the mine expansion, primarily through operating efficiencies gained by
commencing underground ore crushing, adding mine manpower, and improving stoping
productivity. Enhanced stoping productivity was driven by an increase in
mechanized mining to almost 80% of 1997 tons mined, up from 60% in 1996.
The average head grade of ore delivered to the mill was 0.70 OPT in 1997, an
increase over the 0.67 OPT achieved in 1996. The mill head grade increased
primarily due to successful implementation of controls to minimize mining
dilution. Additionally, commissioning of the production shaft in June 1997
produced greater efficiencies in material handling and subsequent material
processing through the mill.
Platinum and palladium production increased 39% to 355,000 ounces for the year
ended December 31, 1997 from 255,000 ounces in 1996. Once again, this
substantial improvement in production was primarily the result of the mine
expansion and, more specifically, was driven by the increase in tons milled
during 1997 and a higher average mill head grade, coupled with an improvement in
the recovery rate resulting from the installation of three additional flotation
cells earlier in the year.
REVENUE. Revenues were $76.9 million for the year ended December 31,
-------
1997 compared with $56.2 million in 1996, an increase of 37%.
Platinum sales increased to 91,000 ounces in 1997 from 62,000 ounces in 1996.
Palladium sales increased to 288,000 ounces in 1997 from 214,000 ounces in 1996.
Total sales of metal increased 37% to 379,000 ounces in 1997 from 276,000 ounces
in 1996, primarily due to significantly higher production levels achieved in
1997 as a result of the mine expansion. Effective January 1, 1997, the Company
changed its method of revenue recognition whereby revenue is recognized when
product is shipped from the Company's BMR to an external refiner. This change
made the Company's revenue recognition policy more comparable with other
precious metals producers. The cumulative effect of this change as of January
1, 1997 was to increase revenue by approximately $2.7 million in the first
quarter of 1997; the effect on net income was not material.
The combined average realized price per ounce of platinum and palladium sold
in 1997 was $203, roughly the same as 1996, while the combined average spot
price rose about 20% to $230 in 1997, compared with $191 in 1996. The average
realized price per ounce of platinum sold was $388 in 1997, a decline of 5%
compared with $410 in 1996. The platinum spot price remained about the same in
both years at $395. The average realized price per ounce of palladium remained
constant at $144 for both 1997 and 1996, while the average spot price increased
39% to $178 in 1997 from $128 in 1996. The Company was unable to realize the
average spot price for palladium in 1997 because of its inability to defer
delivery upon favorable terms on its spot deferred palladium forward contracts
due to continued severe backwardation in the palladium markets during 1997.
COSTS. Cash costs per ounce of metal produced in the year ended December
-----
31, 1997 decreased $10 to $174 per ounce from $184 per ounce in the year ended
December 31, 1996, primarily the result of a 39% increase in metal production.
Total costs per ounce of metal produced in the year ended December 31, 1997
decreased $12 to $207 per ounce from $219 per ounce in the year ended December
31, 1996. This decrease is also primarily due to increased metal production.
25
<PAGE>
OPERATING INCOME (LOSS). The Company incurred an operating loss of $6.2
-----------------------
million for the year ended December 31, 1997, compared with an operating loss of
$5.2 million for 1996. The higher operating loss was mainly the result of a $1.1
million increase in general and administrative costs. For 1997, general and
administrative costs were $2.9 million compared with $1.8 million in 1996. The
$2.9 million of expenses for 1997 included approximately $1.6 million of non-
recurring severance costs and professional fees related to changes in the
Company's business processes and management structure and the reorganization of
the Company's Board of Directors. The decrease in costs per ounce for the
current year was driven by significantly higher production in 1997, about 39%
more than in 1996. Operating efficiencies also contributed to the lower cost per
ounce.
NET INCOME (LOSS). The Company realized a net loss of $5.4 million for the
-----------------
year compared with net income of $11.1 million in 1996, when results included
the cumulative effect of an accounting change. Absent this accounting change,
the net loss for 1996 was $2.8 million. The larger net loss in 1997 was driven
by lower realized platinum prices, reduced interest income on lower cash
balances and increased net interest expense.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
PGM PRODUCTION. Platinum and palladium production increased to 59,000 ounces
--------------
and 196,000 ounces, respectively, for the year ended December 31, 1996 from
51,000 ounces and 169,000 ounces, respectively, in 1995. PGM production for 1996
resulted from milling 446,000 tons with an average mill head grade of 0.67 OPT.
In comparison, PGM production for 1995 resulted from milling 398,000 ounces per
ton with an average mill head grade comparable to 1996.
The average mill head grade in 1996 was lower than the average historical
mill head grade for the Stillwater Mine because of dilution which resulted from
the increased use of mechanized mining techniques. Also, material handling
constraints led to the mixing of waste into the ore stockpiles in 1996. A new
mining width control system reduced mining dilution significantly in the fourth
quarter of 1996 and a new waste tracking system significantly reduced ore/waste
mixing. The average mill head grade for 1995 was lower than the average
historical mill head grade due to milling large volumes of low grade material
throughout 1995 and the lack of sufficient quantities of high grade ore in the
second and third quarters of that year.
REVENUE. Revenues were $56.2 million for the year ended December 31, 1996,
-------
compared with $51.3 million in 1995, an increase of 10%.
Platinum sales increased to 62,000 ounces in 1996 from 54,000 ounces in 1995.
Palladium sales increased to 214,000 ounces in 1996 from 180,000 ounces in 1995.
Combined sales of these metals increased 18% to 276,000 ounces in 1996 from
234,000 ounces in 1995, primarily due to increased production in 1996 and the
commissioning of the BMR, which reduced the time period from mine production to
third-party refinery release of metals by nearly two months. This resulted in
nearly two months' additional production being made available for sale during
1996.
Average realized prices per ounce sold for both platinum and palladium
decreased in 1996, reflecting a decrease in the market price for both metals.
The average spot price of platinum decreased to $397 in 1996 from $424 in 1995;
the average realized price per ounce declined to $410 in 1996 from $425 in 1995.
The average spot price of palladium decreased to $128 in 1996 from $151 in 1995;
the average realized price per ounce decreased to $144 in 1996 from $157 in
1995. Because the spot prices for both metals trended down during late 1995 and
into 1996, the Company entered into hedging contracts in 1996 for a portion of
its annual production. These contracts resulted in average realized prices that
were higher than spot prices. The average realized price per ounce of platinum
sold exceeded the average spot price by 3%, while the average realized price per
ounce of palladium sold exceeded the average spot price by 12%.
26
<PAGE>
OPERATING INCOME (LOSS). The Company incurred an operating loss of $5.2
-----------------------
million for the year ended December 31, 1996, compared with an operating loss of
$2.3 million for 1995. The higher loss in 1996 was the result of lower prices,
partially offset by lower costs per ounce. The decrease in costs per ounce for
1996 was primarily driven by a 16% increase in ounces produced in 1996. The
lower cost per ounce was also impacted by a change in accounting for capitalized
underground development expense, which more than offset the effect of increased
depreciation and amortization and a $0.8 million write-off of assets.
NET INCOME (LOSS). The Company realized net income in 1996 of $11.1 million
-----------------
after the cumulative effect of the accounting change for capitalized underground
development expenses, compared with $0.1 million of net income for 1995.
Excluding the cumulative effect of the accounting change, the net loss for 1996
was $2.8 million. The higher net loss in 1996 was primarily the result of
lower metal prices and lower net interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company derives revenue from the sale of PGMs to independent brokers and
consumers at either spot market prices or contract prices. Excess cash is
invested in interest-bearing, investment-grade securities according to a short-
term investment policy approved by the Board of Directors, which requires
maturities of less than two years with an average portfolio duration of less
than one year.
The Company has established an unsecured working capital line of credit with
NM Rothschild and Sons, Ltd., with a maximum borrowing capacity of $15
million, which expires on April 30, 1999. As of December 31, 1997, there were
no borrowings against this credit line, and the Company could borrow up to $7.4
million based upon quarterly borrowing calculations under the terms of the
agreement.
During 1997, the Company executed its fifth five-year equipment-leasing
agreement with Senstar Capital Corporation (Senstar) for $0.8 million. This
agreement was preceded by a $7.5 million leasing agreement with Senstar signed
in October 1995 and by three additional agreements executed in 1996 for $0.8
million, $1.5 million, and $1.5 million. The latest contract brings the total
capitalized lease transactions with Senstar to $12.1 million. Each of the
agreements covers new underground mining equipment and contains a two-year
renewal option that can be exercised at the end of five years.
In 1996, the Company sold $51.5 million of 7% Convertible Subordinated Notes
Due 2003 (the "Notes"), maturing on May 1, 2003. The Notes are unsecured,
subordinated obligations and will be redeemable, in whole or in part, at the
option of the Company beginning on May 1, 1999. The Notes are convertible,
subject to prior redemption or repurchase, at the option of holders prior to
maturity, into shares of the Company's common stock at a conversion price of
$26.80 per share.
At December 31, 1997, the Company had working capital of $23.1 million, cash
and cash equivalents of $4.2 million, short-term investments of $13.5 million
and long-term debt and capital leases of $61.5 million. Total liquidity
available to the Company at December 31, 1997 represented by cash, short-term
investments and credit availability was $25.1 million.
Net cash provided by operations before changes in working capital for the year
ended December 31, 1997 was $3.5 million, compared with $5.4 million in 1996, a
decrease of $1.9 million. This decrease was primarily due to lower net earnings
in 1997. Net cash provided by operations before changes in working capital for
the year ended December 31, 1996 was $5.4 million, a decrease of $0.3 million
compared with 1995. The decrease in 1996 was primarily due to lower net
earnings in 1996.
Capital expenditures for 1997 were $15.8 million, with approximately $6.5
million related to mine development, $2.9 million related to the completion of
the Expansion Plan and about $1.1 million related to East
27
<PAGE>
Boulder. The remaining capital expenditures were for process improvements and
$1.5 million in capitalized interest. Capital expenditures of $58.4 million and
$46.1 million were made in 1996 and 1995, respectively, principally for the
Expansion Plan.
The Company plans to spend approximately $30 million in 1998 on capital items,
with about half related to the East Boulder project. Cash flow from operating
activities is not expected to be sufficient to cover 1998 capital expenditures.
Based on cash and short-term investments on hand and expected cash flows from
operations, along with additional equipment lease facilities and the
availability of funds under the Company's line of credit, Management believes
there is sufficient liquidity to fund current development activities at East
Boulder and to meet 1998 operating and capital needs. The Company may, from
time to time, also seek to raise additional capital from the public or private
securities markets or from other sources for general corporate purposes and for
investments beyond the scope of the current phase of development on the East
Boulder project.
ENVIRONMENTAL OBLIGATIONS
The Company currently has one significant environmental project in process.
This project involves securing an amendment to the Company's existing permit
from the Montana Department of Environmental Quality which would provide for a
substantial increase in throughput at the Stillwater mine site and construction
of a tailings facility on a tract of land owned by the Company in Stillwater
County, Montana. The costs associated with this permitting effort were $0.3
million in 1997 and $0.2 million in 1996. The Company expects to incur
additional costs of about $0.4 million in 1998 to complete the project. With the
exception of the costs of this project, the Company does not anticipate
incurring any significant capital or unusual operating expenditures for other
environmental compliance within the next 12 months. In 1997, the Company's
environmental expenses were $0.5 million and capital expenditures for
environmental equipment were $0.4 million. The Company incurred $1.0 million in
environmental-related costs during 1996, of which half were expensed and half
were for purchases of environmental equipment. The Company's ongoing operating
expenditures for environmental compliance are expected to be approximately $0.5
million per year.
The Company is presently required to post surety bonds with the State of
Montana in the amount of $4.2 million, which also represents the Company's best
estimate of mine closure and reclamation costs for current operations. The
Company does not believe that costs will materially exceed this estimate. The
Company is accruing for reclamation costs over the life of the Stillwater Mine
based on current production levels and estimated proven and probable reserves.
On December 31, 1997 and 1996, the accrued liability was $0.7 million and $0.6
million, respectively. The Company periodically reviews the adequacy of its
reclamation and mine closure obligations in light of current laws and
regulations and will adjust its estimate as necessary.
YEAR 2000 ISSUES
The Company does not believe that the cost of addressing Year 2000 issues will
be material to its business, operations or financial condition. In May 1996,
the Company began the implementation of new information technology
infrastructure that will render the Company fully compliant with Year 2000
issues. This implementation is expected to be completed during 1998.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Some statements contained in this report are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and, therefore,
involve uncertainties or risks that could cause actual results to differ
materially. Such statements include comments regarding expansion plans, costs,
grade, dilution, production and recovery rates, permitting, anticipated cash
flows, financing needs and capital expenditures, increases in processing
capacity, cost reduction measures, safety, timing for feasibility studies,
environmental permitting and exploration work, and the palladium and platinum
market. Factors that could cause actual results to differ materially include
(i) economic and political events affecting supply and demand of palladium and
platinum, (ii) price volatility of PGM's, (iii) amounts and prices of the
Company's forward metals sales, (iv) fluctuations in ore grade, tons mined,
crushed or milled, (v) variations in concentrator, smelter or refinery
operations, (vi) geological, technical, permitting, mining or processing
problems, (vii) availability of experienced employees, (viii) financial market
conditions and (ix) the other factors discussed under "Business and
Properties -- Risk Factors." The Company disclaims any obligation to update
forward-looking statements.
28
<PAGE>
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements and for other financial and operating information in this
report. Management believes that its accounting systems and internal accounting
controls, together with other controls, provide assurance that all accounts and
records are maintained by qualified personnel in requisite detail, and
accurately and fairly reflect transactions of Stillwater Mining Company in
accordance with established policies and procedures.
The Board of Directors has an Audit Committee, none of whose members are
officers or employees of the Company or its affiliates. The Audit Committee
recommends independent accountants to act as auditors for the Company; reviews
the Company's financial statements; confers with the independent accountants
with respect to the scope and results of their audit of the Company's financial
statements and their reports thereon; reviews the Company's accounting policies,
tax matters and internal controls; and oversees compliance by the Company with
the requirements of federal regulatory agencies. Access to the Audit Committee
is given to the Company's financial and accounting officers and independent
accountants.
William E. Nettles
Chairman of the Board and Chief Executive Officer
John E. Andrews
President and Chief Operating Officer
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Stillwater Mining Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of changes in
shareholders'equity present fairly in all material respects, the financial
position of Stillwater Mining Company and its subsidiary at December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 2, the Company changed its method of accounting for mine
development expenditures in 1996.
PRICE WATERHOUSE LLP
Denver, Colorado
February 28, 1998
30
<PAGE>
STILLWATER MINING COMPANY
================================================================================
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, 1997 1996
- -------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,191 $ 16,389
Short-term investments 13,468 17,060
Inventories 7,380 13,522
Accounts receivable 6,926 71
Other current assets 1,349 1,221
Deferred income taxes 1,989 798
- -------------------------------------------------------------------------------------------
Total current assets 35,303 49,061
- -------------------------------------------------------------------------------------------
Property, plant and equipment, net 191,254 187,802
Other noncurrent assets 2,662 3,047
- -------------------------------------------------------------------------------------------
Total assets $229,219 $239,910
===========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital lease obligations $ 1,982 $ 1,463
Accounts payable 2,709 5,039
Accrued payroll and benefits 1,972 2,289
Property, production and franchise taxes payable 3,682 3,120
Other current liabilities 1,904 3,922
- -------------------------------------------------------------------------------------------
Total current liabilities 12,249 15,833
- -------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term debt and capital lease obligations 61,513 62,563
Other noncurrent liabilities 2,283 2,528
Deferred income taxes 11,782 15,320
Commitments and contingencies (Note 10) -- --
- -------------------------------------------------------------------------------------------
Total liabilities 87,827 96,244
- -------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,377,623 and 20,135,912 shares issued and
outstanding in 1997 and 1996, respectively 204 201
Paid-in capital 141,193 138,093
Accumulated earnings (deficit) (5) 5,372
- -------------------------------------------------------------------------------------------
Total shareholders' equity 141,392 143,666
- -------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $229,219 $239,910
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
STILLWATER MINING COMPANY
================================================================================
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $76,877 $56,214 $51,335
- ------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of metals sold 67,948 50,175 45,864
Depreciation and amortization 11,658 8,699 5,749
- ------------------------------------------------------------------------------------------------------
Total cost of sales 79,606 58,874 51,613
General and administrative expenses 2,887 1,760 1,974
Other costs and expenses 592 772 --
- ------------------------------------------------------------------------------------------------------
Total costs and expenses 83,085 61,406 53,587
- ------------------------------------------------------------------------------------------------------
OPERATING LOSS (6,208) (5,192) (2,252)
OTHER INCOME (EXPENSE)
Interest income 1,073 2,138 2,795
Interest expense, net of capitalized interest of $1,535, $2,218, and $0 (3,608) (1,461) (431)
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (8,743) (4,515) 112
INCOME TAX BENEFIT (PROVISION) 3,366 1,736 (44)
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (5,377) (2,779) 68
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET
OF INCOME TAX PROVISION OF $8,677 - 13,861 -
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(5,377) $11,082 $ 68
======================================================================================================
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
Loss before cumulative effect of accounting change $ (0.27) $(0.14) $ -
Cumulative effect of accounting change - 0.69 -
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.27) $0.55 $ -
======================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic and diluted 20,290 20,093 20,068
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
STILLWATER MINING COMPANY
================================================================================
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (NOTE 11) $ (1,297) $ 14,464 $ 6,009
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, including capitalized interest (15,820) (58,413) (46,133)
Purchase of short-term investments (11,497) (48,290) (189,183)
Proceeds from sale and maturity of short-term investments 15,089 55,163 165,250
Proceeds from sale of assets 118 118 433
- -------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (12,110) (51,422) (69,633)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,740 414 56
Exercise of stock warrants -- -- 2
Redemption of common stock -- (134) (101)
Proceeds from capital lease and debt issue, net of debt issue costs 855 53,206 7,460
Payments on long-term debt and capital lease obligations (1,386) (853) (73)
- -------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,209 52,633 7,344
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) (12,198) 15,675 (56,280)
Balance at beginning of year 16,389 714 56,994
- -------------------------------------------------------------------------------------------------------
Balance at end of year $ 4,191 $ 16,389 $ 714
=======================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
STILLWATER MINING COMPANY
================================================================================
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Shares Common Paid-in Earnings Total
Outstanding Stock Capital (Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 20,070 $201 $137,748 $(5,778) $132,171
Common stock redeemed (5) -- (101) -- (101)
Common stock issued under stock plan -- -- 109 -- 109
Other -- -- 58 -- 58
Net income -- -- -- 68 68
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 20,065 $201 $137,814 $(5,710) $132,305
Common stock redeemed (7) -- (134) -- (134)
Common stock issued under stock plan 78 -- 455 -- 455
Other -- -- (42) -- (42)
Net income -- -- -- 11,082 11,082
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 20,136 $201 $138,093 $ 5,372 $143,666
Common stock issued under stock plan 242 3 1,772 -- 1,775
Income tax benefits from stock options exercised -- -- 1,363 -- 1,363
Other -- -- (35) -- (35)
Net loss -- -- -- (5,377) (5,377)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 20,378 $204 $141,193 $ (5) $141,392
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE 1
NATURE OF OPERATIONS
Stillwater Mining Company (the "Company"), a Delaware corporation, is engaged
in the exploration, development, extraction, processing and refining of
platinum, palladium and associated minerals from the J-M Reef located in
Stillwater and Sweet Grass Counties, Montana. The J-M Reef is a twenty-eight
(28) mile long ore body containing the highest known grade deposit of platinum
group metals in the world.
In Stillwater County, the Company operates the Stillwater Mine located in Nye,
Montana. The Stillwater Mine encompasses one fully permitted minesite on the J-
M Reef. It also houses the Company's concentrator facilities. In Columbus,
Montana, the Company operates a precious metals smelter and a base metals
refinery.
The second fully permitted site on the J-M Reef is the East Boulder Project,
which is located in Sweet Grass County, Montana. In November 1997, the Company
restarted development activities at East Boulder. This phase entails completion
of a tunnel boring machine that will provide access to the East Boulder section
of the J-M Reef.
The Company's operations can be significantly impacted by risks and
uncertainties associated with the mining industry as well as those specifically
related to its operations. The risks and uncertainties that can impact the
Company include but are not limited to the following: price volatility of
palladium and platinum, economic and political events affecting supply and
demand for these metals, reserve estimation, exploration and development,
environmental obligations, government regulations and ownership of and access to
mineral reserves.
NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Stillwater Mining Company and its wholly owned subsidiary (collectively referred
to as the "Company"). All intercompany transactions and balances have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with current year presentation.
USE OF ESTIMATES
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in these
consolidated financial statements and accompanying notes. The more significant
areas requiring the use of management's estimates relate to mineral reserves,
reclamation and environmental obligations, valuation allowance for deferred tax
assets, useful lives for depreciation and amortization, and future cash flows
from long-lived assets. Actual results could differ from these estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments consist primarily of corporate bonds and commercial
paper with original maturities of less than two years. Under Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities, these securities are carried at
amortized cost, which approximates fair value, as the Company has the ability
and intent to hold to maturity.
35
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
REVENUE RECOGNITION
Revenues consist of the sales revenue for platinum and palladium, including
any hedging gain or loss. By-product metals revenue and secondary materials
processing revenue are included as a reduction to the cost of metals sold.
Effective January 1, 1997, the Company changed its method of revenue recognition
whereby revenue is recognized when product is shipped from the Company's base
metals refinery (BMR) to an external refiner. Sales and receivables are
provisionally valued and later adjusted when sales prices are finalized and
weight and assay calculations are completed. This change made the Company's
revenue recognition policy more comparable with other precious metals
producers. The cumulative effect of this change as of January 1, 1997 was to
increase revenue by approximately $2.7 million in the first quarter of 1997; the
effect on net income was not material. Prior to 1997, the Company recognized
revenue when product was delivered and transferred to the buyer.
HEDGING PROGRAM
The Company enters into forward sales contracts and option contracts from time
to time to manage the effect of price changes in palladium and platinum on the
Company's sales. The results of these transactions are included in sales
revenue at the same time as the hedged production.
INVENTORIES
Metals inventories are valued at the lower of average cost or net realizable
value. Production costs include the cost of direct labor, raw materials,
depreciation and amortization, as well as administrative expenses relating to
mining and processing activities. Materials and supplies inventories are valued
at the lower of average cost or replacement value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives ranging from five to twenty
years or, for capital leases, the term of the related leases. Maintenance and
repairs are charged to expense as incurred. Mine development expenditures
incurred to increase existing production, develop new ore bodies, or develop
property substantially in advance of production are capitalized and amortized
using the units-of-production method. Interest is capitalized on expenditures
related to construction or development projects and amortized using the same
basis of depreciation as the related asset. Capitalization is discontinued when
the asset enters commercial operation or development ceases. Exploration costs
are expensed as incurred.
Effective January 1, 1996, the Company changed its method of accounting for
mine development expenditures whereby certain direct and indirect costs related
to development activities, which were previously expensed as incurred, are now
capitalized. This change is believed to better present current income from
mining activities because it results in a better matching of expenses with the
revenue generated as a result of those expenses. The effect of the accounting
change on 1996 results was to increase net income by approximately $5.2 million
($0.25 per share). Assuming the accounting change had been applied
retroactively, the unaudited pro forma effect would have been an increase in net
income of $3.0 million ($0.15 per share) in 1995.
Annually, or more frequently as circumstances require, the Company applies
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, in determining the carrying value of its mining
assets. In the event that estimated undiscounted future net cash flows are less
than the carrying amount of the asset, an impairment loss is recognized.
36
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted earnings per share. All prior-period
earnings per share data presented have been restated to conform with the
provisions of this Statement.
Basic earnings per share excludes dilution and is computed by dividing net
earnings available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock.
Outstanding options to purchase 1.2 million shares of common stock and 1.9
million shares of common stock issuable under the terms of the Company's
Convertible Subordinated Notes were not included in the computation of diluted
earnings per share because to do so would have been antidilutive.
STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, in
1996 and, as permitted by SFAS No. 123, the Company continues to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees, and
has made pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting, as defined in SFAS No. 123, had been
applied.
CAPITALIZATION OF FINANCING COSTS
Financing costs related to the issuance of debt securities are capitalized and
amortized over the life of the indebtedness.
MINE CLOSURE AND RECLAMATION
Minimum standards for mine closure and reclamation costs have been established
by various governmental agencies. Such costs are accrued over the life of the
mine using the units-of-production method. Expenditures related to ongoing
reclamation programs are expensed as incurred. As of December 31, 1997, the
Company has posted $4.2 million in reclamation bonds for state and federal
requirements, which also represents the Company's best estimate of future
reclamation and mine closure costs under existing environmental legislation and
the future operations plan. The accrued reclamation liability was $0.7 million
and $0.6 million at December 31, 1997 and 1996, respectively.
INCOME TAXES
Income taxes are determined using the asset and liability approach in
accordance with the provisions set forth in SFAS No. 109, Accounting for Income
Taxes. This method gives consideration to the future tax consequences of
temporary differences between the financial reporting basis and the tax basis of
assets and liabilities based on currently enacted tax rates.
SIGNIFICANT CUSTOMERS
Sales to significant customers represented approximately 90%, 98% and 92% of
total revenues for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company sells its metals to a small number of customers and
brokers; however, the Company is not economically dependent upon these customers
since platinum and palladium can be readily sold in numerous markets throughout
the world.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and short-term
investments, accounts receivable and debt. The carrying amounts of cash, short-
term investments and accounts receivable approximate fair value
37
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
due to their short maturities. At December 31, 1997 and 1996, based on rates
available for similar types of obligations, the fair values of long-term debt
and capital lease obligations were not materially different from their carrying
amounts.
NOTE 3
INVENTORIES
Inventories consisted of the following (in millions):
December 31, 1997 1996
- ---------------------------------------------------------------------------
Raw ore $ 0.5 $ 0.3
Concentrate and in-process 3.6 6.6
Matte and finished goods -- 3.5
- ---------------------------------------------------------------------------
4.1 10.4
Materials and supplies 3.3 3.1
- ---------------------------------------------------------------------------
$ 7.4 $13.5
===========================================================================
As described in Note 2, palladium and platinum revenue is now recognized when
product is shipped from the base metals refinery, thereby essentially
eliminating all finished goods inventory.
NOTE 4
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in millions):
December 31, 1997 1996
- ---------------------------------------------------------------------------
Equipment $ 23.2 $ 22.1
Leased equipment 12.1 11.1
Facilities 67.5 54.5
Mine development 127.5 94.9
Land 2.2 2.2
Construction-in-process 12.6 46.6
- ---------------------------------------------------------------------------
245.1 231.4
Less accumulated depreciation and amortization (53.8) (43.6)
- ---------------------------------------------------------------------------
$191.3 $187.8
===========================================================================
NOTE 5
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
SPECIAL INDUSTRIAL EDUCATION IMPACT REVENUE BONDS
These bonds were issued by the Company in 1989 in three series to finance
impact payments to local school districts. The bonds bear interest at varying
rates between 6.5% and 7.8% and mature in increasing annual principal amounts
through 2009. The balance outstanding at December 31, 1997 and 1996 was $1.6
million, of which approximately $0.1 million was classified as current in each
year. The bonds, which are collateralized by the Company's real estate, are
secured by guarantees from Chevron Corporation. Scheduled principal repayments
during the years 1998 through 2002 are approximately $0.1 million in each year.
Scheduled principal repayments subsequent to 2002 total $1.1 million.
38
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
CONVERTIBLE SUBORDINATED NOTES
On April 29, 1996, the Company sold $50 million of 7% Convertible Subordinated
Notes Due 2003 (the "Convertible Notes"), maturing on May 1, 2003. On May 14,
1996, the initial purchaser exercised its over-allotment option and purchased an
additional $1.5 million of Convertible Notes. The Convertible Notes are
unsecured, subordinated obligations. As of December 31, 1997 and 1996, $51.5
million is classified as long-term debt.
The Convertible Notes will be redeemable, in whole or in part, at the option
of the Company beginning on May 1, 1999. The Convertible Notes will be
convertible, subject to prior redemption, at the option of holders at any time
after 90 days following the date of original issuance and prior to maturity,
into shares of the Company's common stock at a conversion price of $26.80 per
share.
In connection with the offering of the Convertible Notes, the Company filed a
shelf registration statement on Form S-3 under the Securities Act of 1933, as
amended, relating to the resale of the Convertible Notes and the common stock
issuable upon conversion. This registration statement was declared effective by
the Securities and Exchange Commission on December 19, 1996.
EQUIPMENT LEASE AGREEMENTS
During 1997, pursuant to the terms of the 1995 Senstar Capital Corporation
Master Lease Agreement, the Company entered into its fifth five-year equipment
leasing agreement for $0.8 million. This agreement was preceded by a $7.5
million leasing agreement with Senstar, signed in October 1995, and by three
additional agreements executed in 1996 totaling $3.8 million. The latest
contract brings the total capitalized lease transactions with Senstar to $12.1
million. These agreements cover new underground mining equipment and each
contains a two-year renewal option that can be exercised at the end of five
years. Based upon the provisions of the leasing agreement, all leases are
capital leases, and the renewal options qualify as extensions of the base lease
term. As a result, all leased equipment has been capitalized and is being
depreciated over seven years. Future minimum payments under the equipment
leases are as follows (in millions):
Year Ending December 31,
- -------------------------------------------------------------------------
1998 $ 2.7
1999 3.0
2000 2.9
2001 2.1
2002 1.5
Subsequent to 2002 0.5
- -------------------------------------------------------------------------
Total minimum lease payments 12.7
Less amount representing interest (2.3)
- -------------------------------------------------------------------------
Present value of net minimum lease payments 10.4
Less current portion (1.9)
- -------------------------------------------------------------------------
Total capital lease obligation $ 8.5
=========================================================================
CREDIT AGREEMENT
As of April 19, 1994, the Company established an unsecured working capital
line of credit with N M Rothschild & Sons Limited, having a maximum borrowing
capacity of $15 million, subject to a borrowing base computation. The line of
credit is scheduled to expire on April 30, 1999. Interest on amounts drawn is
payable at 1.5% per annum over the prevailing London Interbank Offered Rate or
0.5% over the prevailing prime rate. Fees of 1.5% per annum are levied on the
aggregate amount of any letters of credit issued under the facility and a
39
<PAGE>
commitment fee of 0.5% per annum is payable on available but unused amounts.
These fees were $0.1 million in 1997, 1996 and 1995. As of December 31, 1997,
the Company has approximately $7.4 million available, is in compliance with all
financial covenants and has no debt outstanding under this facility.
NOTE 6
EMPLOYEE BENEFIT PLANS
On June 1, 1993, the Company established the Stillwater Mining Company 401(k)
Plan and Trust (the "existing plan"). From June 1, 1993 through September 30,
1996, all eligible employees could participate in this plan. On October 1,
1996, the Company established the Stillwater Mining Company 401(k) Plan and
Trust for Bargaining Unit Employees ("the new plan"). All bargaining unit
employees' assets were transferred to the new plan, while all non-bargaining
unit employees continue participation under the existing plan. All current
employees of the Company with at least six months of consecutive service are
eligible to participate in their appropriate plan. Other than the
differentiation between bargaining unit employees and non-bargaining unit
employees, the plans are identical. The Company matches employee contributions
at a 2:1 ratio up to 3% of the employee's gross wages. Both plans have a three-
year cliff vesting period. Monthly contributions are made to separate trust
funds administered by an independent investment manager. Company contributions
to the plans totaled $1.0 million, $0.9 million and $0.7 million in 1997, 1996
and 1995, respectively.
NOTE 7
COMMON AND PREFERRED STOCK PLANS AND AGREEMENTS
STOCK PLAN
In September 1994, the Company adopted the Stillwater Mining Company 1994
Stock Plan (the "Stock Plan"), which enables the Company to grant stock options
or restricted stock to employees, non-employee directors and consultants. The
options are in the form of either incentive stock options or non-qualified stock
options and may be granted with stock appreciation rights (SARs). SARs permit
holders to receive either cash or shares of common stock with value equal to the
excess of the market price over the grant price in exchange for the surrender of
the SARs. Shares issuable under the Stock Plan may be newly issued or shares
purchased on the open market.
The Stock Plan is administered by the Compensation Committee of the Company's
Board of Directors, which determines the exercise price, exercise period,
vesting period and all other terms. Unexercised options expire ten years after
the date of grant.
The Stock Plan covers 1,500,000 shares of common stock. Furthermore, on
January 21, 1998, the Board of Directors adopted a general employee stock plan
which covers an additional 200,000 shares of common stock. Combined, there is
approximately 161,575 shares available for grant as of December 31, 1997. Stock
option activity for the years ended December 31, 1997, 1996 and 1995 is
summarized as follows:
40
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION> Weighted Average
Weighted Average Fair Value of
Shares Exercise Price Options Granted
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1994
(150,000 exercisable) 635,625 $ 5.87 -
1995 Activity:
Options granted 219,250 $19.83 $ 7.31
Options exercised (400) $ 5.87 -
Options canceled (9,275) $ 5.87 -
- ------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1995
(303,688 exercisable) 845,200 $ 9.49 -
1996 Activity:
Options granted 278,775 $21.40 $ 9.47
Options exercised (77,595) $ 5.87 -
Options canceled (40,575) $18.56 -
- ------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996
(674,592 exercisable) 1,005,805 $12.70 -
1997 Activity:
Options granted 486,275 $19.90 $10.53
Options exercised (239,881) $ 7.59 -
Options canceled (31,650) $20.86 -
- ------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997
(940,198 exercisable) 1,220,549 $16.40 -
============================================================================================================
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------------------
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Price Outstanding Contract Life Exercise Price Exercisable Exercise Price
--------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.87 337,174 6.72 $ 5.87 337,174 $ 5.87
$13.44 - $20.00 444,025 8.63 $18.40 398,012 $18.39
$20.10 - $28.13 439,350 8.79 $22.50 205,012 $23.15
--------- -------
1,220,549 940,198
========= =======
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, (SFAS 123) requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
25, because the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS
41
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
123. The fair value for these options was estimated at the date of grant using
a Black-Scholes option pricing model with the following weighted-average
assumptions:
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Weighted average expected lives (years) 5.9 5.9 5.8
Interest rate 5.7-6.7% 5.2-6.2% 5.9-7.9%
Volatility 47% 45% 42%
Dividend yield - - -
===============================================================================
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
information follows (in millions, except for per share amounts):
1997 1996 1995
- -------------------------------------------------------------------------------
Pro forma net income (loss) $ (8.0) $ 9.7 $ (0.3)
Pro forma income (loss) per share:
Basic and diluted $(0.39) $0.48 $(0.01)
===============================================================================
Additionally, 9,950 shares and 30,000 shares of restricted stock were granted
in 1997 and 1994, respectively. Deferred compensation related to restricted
stock was recorded as a component of paid-in capital and is amortized over the
two-year vesting period.
SHAREHOLDERS' RIGHTS AGREEMENT
In October 1995, the Board of Directors of the Company adopted a Rights
Agreement under which Stillwater shareholders of record as of November 15, 1995
received a dividend in the form of Preferred Stock Purchase Rights (the
"Rights"). The Rights permit the holder to purchase one one-thousandth of a
share (a unit) of Series A Preferred Stock at an initial exercise price of $80
per share under certain circumstances. The purchase price, the number of units
of Preferred Stock and the type of securities issuable upon exercise of the
Rights are subject to adjustment. The Rights expire on October 26, 2005 unless
earlier redeemed or exchanged. Until a Right is exercised, the holder thereof
has no rights as a shareholder of the Company, including the right to vote or
receive dividends. Subject to certain conditions, the Rights become exercisable
ten business days after a person or group acquires or commences a tender or
exchange offer to acquire a beneficial ownership of 15% or more of the Company's
outstanding common stock.
42
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE 8
INCOME TAXES
The total income tax provision (benefit) has been allocated as follows (in
millions):
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1
Cumulative effect of accounting change - 8.7 -
- -----------------------------------------------------------------------------
Total income tax provision (benefit) $ (3.4) $ 7.0 $ 0.1
=============================================================================
The components of the income tax provision (benefit) consisted of the
following (in millions):
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
Current federal $ - $ 0.2 $ (0.1)
Current state - - -
- -----------------------------------------------------------------------------
Total current - 0.2 (0.1)
- -----------------------------------------------------------------------------
Deferred federal (3.1) (2.1) 0.5
Deferred state (0.3) 0.2 (0.3)
- -----------------------------------------------------------------------------
Total deferred (3.4) (1.9) 0.2
- -----------------------------------------------------------------------------
Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1
=============================================================================
The deferred tax (assets) liabilities are comprised of the tax effect of the
following (in millions):
December 31, 1997 1996
- -----------------------------------------------------------------------------
Property and equipment $ 6.9 $ 6.6
Mine development costs 26.6 26.5
- -----------------------------------------------------------------------------
Total deferred tax liabilities 33.5 33.1
- -----------------------------------------------------------------------------
Capital lease obligations (1.0) (0.5)
Noncurrent liabilities (0.9) (1.4)
Current liabilities (1.2) (0.3)
Inventory (0.1) -
State tax deduction (1.2) (1.3)
Net operating loss carryforwards (19.3) (15.1)
- -----------------------------------------------------------------------------
Total deferred tax assets (23.7) (18.6)
- -----------------------------------------------------------------------------
Net deferred tax liabilities $ 9.8 $ 14.5
=============================================================================
43
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
The following is a reconciliation between the tax provision determined by
applying the federal statutory income tax rate of 35% in 1997, 1996 and 1995 to
pre-tax income, and the Company's tax provision (benefit) (in millions):
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of accounting change $ (8.7) $ (4.5) $ 0.1
=============================================================================
Income taxes at statutory rate $ (3.1) $ (1.6) $ 0.1
State income taxes, net of federal benefit (0.3) (0.1) -
- -----------------------------------------------------------------------------
Income tax provision (benefit) $ (3.4) $ (1.7) $ 0.1
=============================================================================
At December 31, 1997, the Company had approximately $46.6 million of regular
tax net operating loss carryforwards expiring during 2009 through 2012.
NOTE 9
PRECIOUS METALS HEDGING CONTRACTS
Precious metals hedging contracts at December 31, 1997, consist of spot
deferred forward sales contracts. Realization under these contracts is
dependent upon the counterparties performing in accordance with the terms of the
contracts. The Company does not anticipate nonperformance of the
counterparties. Forward sales contracts require the future delivery of metals
at a specific price.
At December 31, 1997, the Company's outstanding hedge contracts are as follows:
1998
-------------------
Average
Hedged Price
Ounces Per Ounce
- -----------------------------------------------------------------------------
PLATINUM
Forward sales contracts (spot deferred) 4,255 $ 369
- -----------------------------------------------------------------------------
PALLADIUM
Forward sales contracts (spot deferred) 213,165 $ 134
- -----------------------------------------------------------------------------
The Company has credit agreements with its major trading partners that provide
for margin deposits in the event that forward prices for platinum and palladium
exceed the Company's hedge contract prices and their credit lines.
NOTE 10
COMMITMENTS AND CONTINGENCIES
REFINING AGREEMENTS
The Company has contracted with two separate entities to refine its filter
cake production. These contracts contain termination clauses upon adequate
notice but may require a substantial payment in the form of a cancellation fee.
The Company currently has no plans to terminate these contracts within the next
twelve months.
44
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
ELECTRIC SERVICE AGREEMENT
During 1996, Montana Power Company (MPC) upgraded the Company's transmission
line and substation facilities. The cost of this upgrade to MPC totaled
approximately $2.9 million. In a contract between MPC and the Company dated
June 1, 1996, the Company agrees to reimburse MPC for these costs through
additional electrical revenues produced from the Company's increased load in
excess of 8,000 kilowatts. At the completion of the five-year agreement, if the
total additional revenues, as defined in the contract between MPC and the
Company, have not met or exceeded MPC's investment cost, the Company will be
required to pay MPC the difference.
45
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE 11
CASH FLOW INFORMATION
Reconciliation of net income (loss) to net cash provided (used in) operating
activities is as follows (in millions):
Year ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(5.4) $ 11.1 $ 0.1
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 11.7 8.7 5.7
Deferred income taxes (3.4) (1.7) (0.3)
Cumulative effect of accounting change,
net of income tax provision of $8.7 - (13.9) -
Loss on disposition of fixed assets 0.6 1.0 -
Other - (0.5) 0.2
Changes in operating assets and liabilities:
Decrease in inventories 6.1 4.9 0.2
Increase in accounts receivable (6.8) (0.1) -
Decrease (increase) in other current assets (0.2) -- (0.6)
Decrease (increase) in other noncurrent assets 0.4 0.3 (0.6)
Increase (decrease) in accounts payable (2.3) 0.3 0.9
Increase (decrease) in other current liabilities (1.8) 4.2 (0.3)
Increase (decrease) in noncurrent liabilities (0.2) 0.2 0.7
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1.3) 14.5 6.0
=============================================================================
SUPPLEMENTAL INFORMATION
Cash paid (received) during the year for:
Interest expense $ 3.3 $ 0.8 $ 0.1
Income taxes $ - - $(0.3)
- ------------------------------------------------------------------------------
46
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
NOTE 12
QUARTERLY DATA (UNAUDITED)
Quarterly earnings data for the years ended December 31, 1997 and 1996 were as
follows (in millions, except per share data):
First Second Third Fourth
- -------------------------------------------------------------------------------
1997 QUARTERS
- -------------------------------------------------------------------------------
Revenue $ 16.0 $ 22.3 $ 17.0 $ 21.6
Operating income (loss) (3.3) 0.1 (1.7) (1.3)
Net loss (2.2) (0.7) (1.7) (0.8)
Net loss per share (0.11) (0.04) (0.08) (0.04)
- -------------------------------------------------------------------------------
1996 QUARTERS
- -------------------------------------------------------------------------------
Revenue $ 13.6 $ 10.7 $ 16.5 $ 15.4
Operating income (loss) -- (1.3) (1.6) (2.3)
Net income (loss) 13.8 (0.6) (0.8) (1.3)
Net income (loss) per share 0.69 (0.04) (0.04) (0.06)
- -------------------------------------------------------------------------------
Note 13
MINERAL RESERVES AND PRODUCTION DATA (UNAUDITED)
Proven and probable palladium and platinum reserves (1) consisted of the
following:
December 31, 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------
STILLWATER MINE
Ore reserves (thousands of tons) 17,999 15,619 11,072 10,797 10,561
Grade (2) 0.79 0.80 0.82 0.82 0.82
Contained metal (thousands of ounces)
Palladium (3) 10,940 9,595 7,058 6,918 6,751
Platinum (3) 3,315 2,907 2,016 1,976 1,929
- -------------------------------------------------------------------------------
Total contained metal 14,255 12,502 9,074 8,894 8,680
===============================================================================
EAST BOULDER
Ore reserves (thousands of tons) 11,510 11,510 11,510 11,510 11,510
Grade (2) 0.79 0.79 0.79 0.79 0.79
Contained metal (thousands of ounces)
Palladium (3) 6,992 6,992 7,087 7,087 7,087
Platinum (3) 2,120 2,120 2,025 2,025 2,025
- -------------------------------------------------------------------------------
Total contained metal 9,112 9,112 9,112 9,112 9,112
===============================================================================
47
<PAGE>
STILLWATER MINING COMPANY
================================================================================
NOTES TO FINANCIAL STATEMENTS
Summary operating information was as follows:
Year Ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Ounces produced (in thousands)
Palladium 271 196 169 207 218
Platinum 84 59 51 63 66
Average realized price per ounce
Palladium $ 144 $ 144 $ 157 $ 138 $ 125
Platinum $ 388 $ 410 $ 425 $ 399 $ 376
- -------------------------------------------------------------------------------
(1) Derived from mineral reserve estimates prepared by independent consultants
as of December 31, 1997, December 31, 1995 and July 1, 1992 and adjusted
for production, additional drilling and development. The increases in
reserves can be attributed to additional drilling and development, the use
of a lower cut-off grade and adjustment for historical mining experience.
(2) Expressed in contained ounces of platinum and palladium per ton.
(3) Based on the ratio of 1.0 part of platinum to 3.3 parts of palladium for
1996 and 1997 and 1.0 part of platinum to 3.5 parts of palladium for 1993
through 1995.
48
<PAGE>
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------------------
Not applicable PART III
================================================================================
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
For information concerning the Company's executive officers, reference is made
to the information set forth under the caption "Executive Officers of the
Registrant" located in Item 1 of this Form 10-K. For information concerning the
Company's directors and compliance by the Company's directors, executive
officers and significant stockholders with the reporting requirements of Section
16 of the Securities Exchange Act of 1934, as amended, reference is made to the
information set forth under the captions "Election of Directors" and "Compliance
with Section 16(a) - Beneficial Ownership Reporting Compliance," respectively,
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 15, 1998, to be filed pursuant to Regulation 14A, which information
is incorporated herein by reference.
ITEM 11
EXECUTIVE COMPENSATION
----------------------
Reference is made to the information set forth under the caption "Executive
Compensation and Other Information" in the Company's Proxy Statement for the
Annual Meeting of Stockholders, to be held on May 15, 1998, to be filed pursuant
to Regulation 14A, which information (except for the Report of the Compensation
Committee of the Board of Directors and the Performance Graph) is incorporated
herein by reference.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
---------------------
Reference is made to the information set forth under the caption "Security
Ownership of Principal Stockholders and Management" in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held on May 15, 1998, to
be filed pursuant to Regulation 14A, which information is incorporated herein by
reference.
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Reference is made to the information contained under the caption "Certain
Transactions" contained in the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 15, 1998, to be filed pursuant to Regulation
14A, which information is incorporated herein by reference.
49
<PAGE>
PART IV
================================================================================
ITEM 14
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
-----------------------
(a) Documents filed as part of this Form 10-K
1. Financial Statements See Item
Report of Management 29
Report of Independent Accountants 30
Balance Sheet 31
Statement of Operations 32
Statement of Cash Flows 33
Statement of Changes in Stockholders' Equity 34
Notes to Financial Statements 35
2. Financial Statement Schedules (not applicable)
(b) Reports on Form 8-K
On November 3, 1997 the Company filed a Form 8-K announcing the
resignation of R. Daniel Williams, Vice President and Chief Financial
Officer
(c) Exhibits.
EXHIBITS
Number Description
2.1 Exchange Agreement for 10,000 shares of common stock dated October 1,
1993 (incorporated by reference to Exhibit 2.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-85904) as declared
effective by the Commission on December 15, 1994 (the "1994 S-1")).
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.4 to the 1994 S-1).
3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the 1994 S-1).
4.1 Form of Indenture, dated April 29, 1996, between the Company and
Colorado National Bank with respect to the Company's 7% Convertible
Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 of
the Company's Form 8-K dated April 29, 1996).
4.2 Rights Agreement, dated October 26, 1995 (incorporated by reference to
Form 8-A filed on October 30, 1995).
10.1 1994 Stock Plan (incorporated by reference to Exhibit 10.1 to the 1994
S-1), as amended by First Amendment to 1994 Stock Plan dated May 12,
1997
10.2 Employment Agreement with John E. Andrews dated as of September 19, 1994
(incorporated by reference to Exhibit 10.4 to the 1994 S-1).
10.3 Credit Agreement between Stillwater Mining Company as borrower and N M
Rothschild & Sons Limited as Lender, dated as of April 19, 1994
(incorporated by reference to Exhibit 10.7 to the 1994 S-1).
10.4 Mining and Processing Agreement dated March 16, 1984 regarding the Mouat
family; and Compromise of Issues Relating to the Mining and Processing
Agreement (incorporated by reference to Exhibit 10.8 to the 1994 S-1).
10.5 Conveyance of Royalty Interest and Agreement between the Company and
Manville Mining Company, dated October 1, 1993 (incorporated by
reference to Exhibit 10.9 to the 1994 S-1).
10.6 Agreement for Electric Service between the Montana Power Company and
Stillwater Mining Company dated June 1, 1996 (incorporated by reference
to Exhibit 10.8.1 of the Registrant's 1996 10-K).
10.7 Stock Redemption Agreement by and between the Company and Chevron USA
Inc. and Manville Mining Company, dated July 28, 1994 (incorporated by
reference to Exhibit 10.11 to the 1994 S-1).
10.8 Registration Rights Agreement dated August 23, 1995, amending
Shareholders Agreement (incorporated by reference to Exhibit 4.1 to Form
8-K filed on August 28, 1995).
10.9 Employment Agreement with R. Daniel Williams dated August 1, 1995
(incorporated by reference to Exhibit 10.15 to the Registrant's 1995
10-K).
50
<PAGE>
10.10 Residue Refining Agreement between Stillwater Mining Company and Johnson
Matthey, dated as of February 8, 1996 (incorporated by reference to
Exhibit 10.16 of the Registrant's 1995 10-K).
10.11 Equipment Lease Agreement between Stillwater Mining Company and Senstar
Capital Corporation dated October 5, 1995. (incorporated by reference to
Exhibit 10.17 of the Registrant's 1995 19-K).
10.12 Purchase Agreement between Stillwater Mining Company and Senstar Capital
Corporation dated October 5, 1995 (incorporated by reference to Exhibit
10.17.1 of the Registrant's 1995 10-K).
10.13 Purchase Agreement between Stillwater Mining Company and The Westaim
Corporation, dated October 14,1996 (incorporated by reference to Exhibit
10.16 of the Registrant's 1996 10-K).
10.14 Employment Agreement with William E. Nettles dated August 13, 1997.
10.15 PGM Concentrate Refining Agreement between the Company and Union Miniere
dated May 8, 1996.
10.16 Articles of Agreement between the Company and Oil, Chemical and Atomic
Workers International Union dated July 1, 1996.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Behre Dolbear & Company, Inc.
27 Financial Data Schedule
51
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 OR 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
STILLWATER MINING COMPANY
("Registrant")
Dated: March 27, 1998 By: /s/ William E. Nettles
-----------------------
William E. Nettles
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant, in
the capacities, and on the dates, indicated.
Signature and Title Date
- ----------------------------------------------------------------------------
/s/ William E. Nettles March 27, 1998
- ------------------------------------
William E. Nettles
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
/s/ Tammy R. Cosgrove March 27, 1998
- ------------------------------------
Tammy Cosgrove
Controller
(Principal Accounting Officer)
/s/ Ray W. Ballmer March 27, 1998
- ------------------------------------
Ray W. Ballmer, Director
/s/ Douglas Donald March 27, 1998
- ------------------------------------
Douglas Donald, Director
/s/ John W. Eschenlohr March 27, 1998
- ------------------------------------
John W. Eschenlohr, Director
/s/ Lawrence Glaser March 27, 1998
- ------------------------------------
Lawrence Glaser, Director
/s/ Pete Ingersoll March 27, 1998
- ------------------------------------
Pete Ingersoll, Director
/s/ Ted Schwinden March 27, 1998
- ------------------------------------
Ted Schwinden, Director
/s/ Peter Steen March 27, 1998
- ------------------------------------
Peter Steen, Director
52
<PAGE>
EXHIBIT INDEX
Number Description
2.1 Exchange Agreement for 10,000 shares of common stock dated October 1,
1993 (incorporated by reference to Exhibit 2.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-85904) as declared
effective by the Commission on December 15, 1994 (the "1994 S-1")).
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.4 to the 1994 S-1).
3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference
to Exhibit 3.2 to the 1994 S-1).
4.1 Form of Indenture, dated April 29, 1996, between the Company and
Colorado National Bank with respect to the Company's 7% Convertible
Subordinated Notes Due 2003 (incorporated by reference to Exhibit 4.1 of
the Company's Form 8-K dated April 29, 1996).
4.2 Rights Agreement, dated October 26, 1995 (incorporated by reference to
Form 8-A filed on October 30, 1995).
10.1 1994 Stock Plan (incorporated by reference to Exhibit 10.1 to the 1994
S-1), as amended by First Amendment to 1994 Stock Plan dated May 12,
1997
10.2 Employment Agreement with John E. Andrews dated as of September 19, 1994
(incorporated by reference to Exhibit 10.4 to the 1994 S-1).
10.3 Credit Agreement between Stillwater Mining Company as borrower and N M
Rothschild & Sons Limited as Lender, dated as of April 19, 1994
(incorporated by reference to Exhibit 10.7 to the 1994 S-1).
10.4 Mining and Processing Agreement dated March 16, 1984 regarding the Mouat
family; and Compromise of Issues Relating to the Mining and Processing
Agreement (incorporated by reference to Exhibit 10.8 to the 1994 S-1).
10.5 Conveyance of Royalty Interest and Agreement between the Company and
Manville Mining Company, dated October 1, 1993 (incorporated by
reference to Exhibit 10.9 to the 1994 S-1).
10.6 Agreement for Electric Service between the Montana Power Company and
Stillwater Mining Company dated June 1, 1996 (incorporated by reference
to Exhibit 10.8.1 of the Registrant's 1996 10-K).
10.7 Stock Redemption Agreement by and between the Company and Chevron USA
Inc. and Manville Mining Company, dated July 28, 1994 (incorporated by
reference to Exhibit 10.11 to the 1994 S-1).
10.8 Registration Rights Agreement dated August 23, 1995, amending
Shareholders Agreement (incorporated by reference to Exhibit 4.1 to Form
8-K filed on August 28, 1995).
10.9 Employment Agreement with R. Daniel Williams dated August 1, 1995
(incorporated by reference to Exhibit 10.15 to the Registrant's 1995
10-K).
10.10 Residue Refining Agreement between Stillwater Mining Company and Johnson
Matthey, dated as of February 8, 1996 (incorporated by reference to
Exhibit 10.16 of the Registrant's 1995 10-K).
10.11 Equipment Lease Agreement between Stillwater Mining Company and Senstar
Capital Corporation dated October 5, 1995. (incorporated by reference to
Exhibit 10.17 of the Registrant's 1995 19-K).
10.12 Purchase Agreement between Stillwater Mining Company and Senstar Capital
Corporation dated October 5, 1995 (incorporated by reference to Exhibit
10.17.1 of the Registrant's 1995 10-K).
10.13 Purchase Agreement between Stillwater Mining Company and The Westaim
Corporation, dated October 14,1996 (incorporated by reference to Exhibit
10.16 of the Registrant's 1996 10-K).
10.14 Employment Agreement with William E. Nettles dated August 13, 1997.
10.15 PGM Concentrate Refining Agreement between the Company and Union Miniere
dated May 8, 1996.
10.16 Articles of Agreement between the Company and Oil, Chemical and Atomic
Workers International Union dated July 1, 1996.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Behre Dolbear & Company, Inc.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.1
STILLWATER MINING COMPANY
FIRST AMENDMENT TO 1994 STOCK PLAN
This First Amendment to 1994 Stock Plan (the "Amendment") of Stillwater
Mining Company (the "Company") is made as of this 12th day of May, 1997 pursuant
to the approval of the Board of Directors of the Company on the same date.
WHEREAS, the Board of Directors of the Company recognizes that the
Securities and Exchange Commission has adopted amendments to Rule 16b-3 under
the Securities Exchange Act of 1934, as amended, and believes that it is in the
best interest of the Company, its employees and directors to amend the 1994
Stock Plan (the "Original Plan") to reflect such amendments to Rule 16b-3 and to
make certain other changes to the Plan in order to allow the Board of Directors
or the Compensation Committee of the Board of Directors to grant Awards to
persons who make significant contributions to the Company but who are not
Employees or Directors of the Company.
NOW, THEREFORE, pursuant to the authorization granted by the Board of
Directors of the Company, the Plan is hereby amended as set forth below.
Capitalized terms used herein and not otherwise defined, have the meaning
ascribed to such terms in the Original Plan.
1. Purposes. Section 1 of the Original Plan is hereby amended to read in
--------
its entirety as follows:
"SECTION 1. Purposes. The purposes of this Stillwater Mining Company 1994
--------
Stock Plan as amended by the First Amendment to 1994 Stock Plan dated April
24, 1997, (the "First Amendment") and as further amended from time to time
(the "Plan"), are to promote the interests of Stillwater Mining Company and
its stockholders by (i) attracting and retaining personnel, including
executive and other key employees, consultants, and directors of the
Company and its Affiliates, as defined below; (ii) motivating such
employees by means of performance-related incentives to achieve longer-
range performance goals, and (iii) enabling such employees, consultants and
directors to participate in the long-term growth and financial success of
the Company."
2. Definitions.
-----------
(a) Section 2 of the Original Plan is hereby amended to add the
following definition:
"Consultant" shall mean any Person who is engaged by the Company or
any Affiliate to render consulting or advisory services as an
independent contractor and is compensated for such services."
(b) The following definitions in Section 2 of the Original Plan are
hereby amended to read as follows:
<PAGE>
"Committee" shall mean (i)the Board, or (ii) a committee of the Board
designated by the Board to administer the Plan and composed of not
less than the minimum number of Persons from time to time required by
Rule 16b-3, each of whom, to the extent necessary to comply with 16b-3
only, is a "Non-Employee Director" within the meaning of Rule 16b-
3(b)(3)(i).
"Non-Employee Director" (i) shall have the meaning set forth in Rule
16b-3(b)(3)(i) for purposes of the definition of "Committee" set forth
in the Plan, and (ii) shall mean a director who is not an Employee of
the Company for all other purposes, including, but not limited to,
Section 6(a)(iv).
"Participant" shall mean any Employee, Non-Employee Director or
Consultant selected by the Committee to receive an Award under the
Plan."
3. Awards.
------
(a) Clause (i) of Section 6(a)(iv) of the Original Plan is hereby
amended to read in its entirety as follows: "(i) the term of each such Option
shall be the lesser of ten (10) years after the date of grant or, if a Non-
Employee Director is removed for cause, one year after the termination of
services as a director,..." Such amendment to the Plan set forth in the
immediately preceding sentence shall be deemed to amend and apply to all Award
Agreements relating to any Options granted to any Non-Employee Director prior to
the date of this Amendment or hereafter.
(b) Section 6 of the Original Plan is hereby amended to add a new
paragraph (a)(v) to read in its entirety as follows:
"(v) Consultants. Subject to the provisions of the Plan, the
-----------
Committee shall have the authority to determine the Consultants to
whom options shall be granted, the number of Shares to be covered by
each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The Committee
shall have the authority to only grant Non-Qualified Stock Options to
Consultants. The exercise price of the Option granted shall not be
less than 100% of the per share Fair Market Value of the Shares on the
date of grant. Each Option shall be exercisable at such times and
subject to such conditions as the Committee shall specify in the
applicable Award Agreement or thereafter. The Committee may impose
such conditions with respect to the exercise of Options, including
without limitation, any relating to the application of federal or
state securities laws, as it may deem necessary or advisable."
(c) Section 6(e)(iii) of the Original Plan is hereby amended to read
in its entirety as follows:
<PAGE>
"(iii) Limited on Transfer Awards. Awards (other than Incentive
--------------------------
Stock Options) shall be transferable to the extent provided in any
Award Agreement. Incentive Stock Options may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Participant, only by the
Participant; provided, however, that the Participant may designate a
beneficiary of the Participant's Incentive Stock Option in the event
of the Participant's death on a beneficiary designation form provided
by the Company.
<PAGE>
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of August 13, 1997, is by and between STILLWATER
MINING COMPANY, a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and William E. Nettles ("Employee").
WHEREAS, the Company desires to employ Employee and Employee desires to be
employed by the Company pursuant to the terms and conditions of this Agreement;
and
WHEREAS, the Company has heretofore determined that it is in the best
interests of the Company and its stockholders to assure that the Company will
have the continued dedication of the Employee, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of the Company;
and
WHEREAS, the Company has determined it is imperative to diminish the
inevitable distraction of the Employee by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Employee's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control and to provide the Employee
with compensation and benefits arrangements upon a Change of Control which
ensure that the compensation and benefits to be paid to the Employee are at
least as favorable as those in effect at the time of the Change of Control and
which are competitive with those of other corporations.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
ARTICLE 1
EMPLOYMENT
The Company hereby employs Employee, and Employee agrees to serve, as Chief
Executive Officer for the Company.
ARTICLE 2
BOARD MEMBERSHIP
Employee shall initially be appointed as Chairman of the Board of
Directors, and the Company shall nominate and shall use its reasonable efforts
to cause Employee to be elected to serve as a member of the Board of Directors.
Failure by the Company to cause Employee to continue in office as Chairman of
the Board of Directors or to be elected to serve as a member of the Board of
Directors shall not be a breach of this Agreement. Failure by the Company to
cause Employee to continue in office as Chairman of the Board of Directors shall
be "Good Reason" (as defined in Section 6.1 below) for Employee to terminate
this Agreement.
<PAGE>
ARTICLE 3
TERM
The term of this Agreement shall be for a period of three (3) years
commencing August 13, 1997, unless sooner terminated as hereinafter provided.
The Agreement shall thereafter continue for subsequent two (2) year terms unless
altered or terminated as hereinafter provided; provided, however, that following
a Change of Control, as defined in Section 6.4, the Employment Term shall
continue for no less than an additional two (2) years. The period of Employee's
employment hereunder, including any extension or extensions pursuant to the
foregoing sentence, from the date of commencement until the date of expiration
or termination of this Agreement, is referred to hereinafter as the "Employment
Term."
ARTICLE 4
DUTIES AND AUTHORITY
Employee agrees, unless otherwise specifically authorized by the Company,
to devote substantially all of his business time and effort to do his duties for
the profit, benefit and advantage of the business of the Company, except that
Employee may serve on the boards of directors of other business corporations
that have no business relationship with the Company and which do not compete
with the Company. In performing his duties hereunder, Employee shall have the
authority customarily held by others holding positions similar to do those
assigned to Employee in similar businesses, subject to the general and customary
supervision of the Company's Board of Directors.
ARTICLE 5
COMPENSATION
5.1 Base Salary. The Company agrees to pay Employee a base salary of Two
-----------
Hundred Seventy-five Thousand Dollars ($275,000.00) per year, payable at the
usual times for the payment of the Company's executive employees, subject to
adjustment as provided herein. Employee's base salary shall be reviewed at
least annually and may be increased, but not decreased, consistent with general
salary increases for the Company's executive employees or as appropriate in
light of the performance of Employee and the Company. Notwithstanding anything
herein to the contrary, Employee's base salary may be reduced in the event of an
across-the-board salary reduction for all executive officers; provided, however,
that the percentage reduction of Employee's base salary shall not exceed the
highest percentage reduction in base salary of any other executive officer.
5.2 Incentive Compensation. Employee shall participate in the Company's
----------------------
incentive compensation plans for executive officers of the Company, which plans
will be in effect during the Employment Term. The Company will provide for a
performance based cash bonus in an amount to be determined by the Board of
Directors of the Company (the target of which shall be 65% of Employee's base
salary and the maximum of which shall not exceed 130% of Employee's base
salary). For the first year of employment, Employee shall be guaranteed a bonus
of no less than 65% of Employee's base salary.
-2-
<PAGE>
5.3 Employee Benefits. Employee shall be eligible to participate in such
-----------------
other of the Company's employee benefit plans and to receive such benefits for
which his level of employment makes him eligible, in accordance with the
Company's policies as in effect from time to time during the Employment Term;
provided, however, that Employee shall be entitled to four weeks of vacation per
year during the initial term of this Agreement and during the term of each
extension hereof. In the event that Employee is ineligible to participate in
the Company's existing health plan, either in general or with respect to any
pre-existing condition, the Company shall provide Employee with comparable
health care benefits.
5.4 Options. The Company shall grant to Employee the right and option to
-------
purchase from the Company all or any part of an aggregate amount of 100,000
shares of the Common Stock of the Company under the Company's 1994 Stock Plan
pursuant to the Stock Option Agreement attached hereto as Exhibit A.
---------
ARTICLE 6
TERMINATION
6.1 Termination by the Company Without Cause; Termination by Employee for
---------------------------------------------------------------------
Good Reason.
- -----------
(a) The Company shall have the right to terminate this Agreement
without Cause (as defined below) upon ninety (90) days' notice to Employee.
If Employee's employment hereunder is terminated by the Company without
Cause or by Employee for "Good Reason" (as defined below) (other than a
termination involving a Change of Control or by reason of death or
disability), the Company shall pay Employee at the time of such termination
the following severance benefits for a three (3) year period following the
date of termination, if such termination occurs within the initial
Employment Term, and for a two (2) year period following the date of
termination if such termination occurs after the initial Employment Term
(the "Termination Period"):
(i) Annual base salary at the rate in effect immediately prior
to the termination date;
(ii) Bonus payable in such amount as would be payable to
Employee had he been employed by the Company for the full Termination
Period, at the target level in effect immediately prior to the
termination date, assuming the Company had achieved targeted
performance objectives for such period;
(iii) During the Termination Period, the Company shall timely
pay or provide to Employee any other amounts or benefits required to
be paid or provided or which Employee is eligible to receive under any
plan or policy of the Company to the same extent that Employee would
be eligible therefor if he were employed on a full-time basis by the
Company in the capacity provided for herein during the Termination
Period (the "Other Benefits"); provided, however, that should Employee
-3-
<PAGE>
be employed by another employer during the Termination Period and
become entitled to receive Other Benefits from such employer, the
Company's obligation to provide such Other Benefits hereunder shall be
terminated;
(iv) The Company shall make available to Employee post-
placement services for corporate executives at levels customary for
executives in Employee's position in the Company's industry; and
(v) All of the then outstanding Options (to the extent not
then exercisable) shall immediately become exercisable and Employee
may exercise the Options in full in accordance with Section 7 of the
Stock Option Agreement attached hereto as Exhibit A.
(b) For purposes of this Agreement, other than Section 6.4 hereof,
"Good Reason" shall mean:
(i) A substantial and material alteration in the nature or
status of the Employee's responsibilities, or the assignment of duties
inconsistent with, or a substantial and material alteration in the
nature or status of, the Employee's responsibilities;
(ii) Failure by the Company to cause Employee to continue in
office as Chairman of the Board of Directors;
(ii) Employee's job is eliminated other than by reason of
termination for Cause;
(iv) The Company fails to pay Employee any amount otherwise
vested and due hereunder or under any plan or policy of the Company,
which failure is not cured within ten (10) business days of receipt by
the Company of written notice from Employee which describes in
reasonable detail the amount which is due;
(v) A material reduction in Employee's base salary except in
the event of an across-the-board salary reduction for all executive
officers;
(vi) A material reduction in Employee's aggregate level of
benefits under the Company's pension, life insurance, medical, health
and accident, disability, deferred compensation or savings or similar
plans, except in the event of an across-the-board reduction in such
benefits for all executive officers;
(vii) A material reduction in Employee's reasonable opportunity
to earn incentive compensation under any plan in which Employee is a
participant;
-4-
<PAGE>
(viii) Employee's office is relocated outside of a 50-mile radius
of Denver, Colorado, without his written consent;
(ix) The Company and its successor(s) (as described in
subparagraph (x) below) shall discontinue the business of the Company;
(x) The failure of the Company to obtain an agreement to
expressly assume this Agreement from any successor to the Company
(whether such succession is direct or indirect by purchase, merger,
consolidation or otherwise, to substantially all of the business
and/or assets of the Company or a controlling portion of the Company's
stock); or
(xi) After August 13, 1998, failure by the Company to grant on
an annual basis stock options to purchase at least 80,000 shares of
Common Stock, assuming performance targets are satisfied, or to
provide that such options will vest on death or disability of
Employee.
6.2 Termination by the Company for Cause; Voluntary Termination by
--------------------------------------------------------------
Employee. Employee's employment hereunder may be terminated by the Company for
- --------
"Cause." For purposes of this Agreement, other than Section 6.4 hereof, "Cause"
shall mean:
(i) Misfeasance or nonfeasance of duty by the Employee
intended to injure or having the effect of injuring the reputation,
business or business relationships of the Company or any officers,
directors or employees;
(ii) The wilful and continued failure of Employee to perform
substantially Employee's duties under this Agreement (except by reason
of physical or mental incapacity) after a written demand for
substantial performance is delivered to Employee by the Board of
Directors which specifically identifies the manner in which the Board
believes that Employee has not substantially performed Employee's
duties which is not remedied or reasonable steps to effect such remedy
are not commenced within fifteen (15) days after such demand is
received by Employee and diligently pursued to completion;
(iii) Employee's dishonesty in the performance of his duties
hereunder, or
(iv) Employee's conviction of a felony, any crime involving
moral turpitude, or any crime which could reflect unfavorably upon the
Company.
Employee shall have the right to voluntarily terminate this Agreement upon
ninety (90) days' notice to the Company. If Employee is terminated for Cause,
or if Employee voluntarily terminates employment hereunder other than for Good
Reason, he shall be entitled to receive his base salary through the date of
termination. All other benefits, if any, payable to Employee following such
-5-
<PAGE>
termination of Employee's employment shall be determined in accordance with the
plans, policies and practices of the Company.
6.3 Termination by Death or Disability. Upon termination of Employees'
----------------------------------
employment due to death of Employee, Employee shall be entitled to his base
salary at the rate in effect at the time of Employee's death through the end of
the month in which his death occurs, as well as the target annual bonus prorated
through the end of the month in which death occurs. Employee's employment
hereunder may be terminated by the Company if Employee becomes physically or
mentally incapacitated and (i) is unable for a period of one hundred eighty
(180) consecutive days to perform his duties and (ii) a determination is made
regarding Employee's disability by a physician appointed by the chief
administrator of University Hospital, Denver, Colorado, or another health
professional agreed upon by the Company and Employee (such incapacity is
hereinafter referred to as "Disability"). Upon any such termination for
Disability, Employee shall be entitled to receive his base salary, as well as
the target annual bonus, prorated in each case through the date on which
Employee is first eligible to receive payment of disability benefits in lieu of
salary under the Company's employee benefit plans as then in effect.
6.4 Termination Following a Change of Control; Benefits.
---------------------------------------------------
(a) In the event there is a Termination Following a Change of Control,
the Agreement shall terminate and Employee shall be entitled to the
following severance benefits:
(i) 300 percent of Employee's annual base salary at the rate
in effect immediately prior to the Change of Control or on the
Termination Date, whichever is higher, payable in a lump sum within
sixty (60) days after the Termination Date;
(ii) 300 percent of Employee's target bonus in effect
immediately prior to the Change of Control or on the Termination Date,
whichever is higher, payable at the same time as the payment in (a)(i)
above;
(iii) To the extent not theretofore paid or provided, the
Company shall timely pay or provide to Employee any other amounts or
benefits required to be paid or provided or which Employee is eligible
to receive under any plan, program, policy, practice, contract or
agreement of the Company (other than severance pay) to the same extent
that Employee would be eligible therefor if he were employed on a
full-time basis by the Company in the capacity provided for herein for
a period of 36 months after the Termination Date, including receiving
the full benefit of three (3) years of employment at the income levels
provided for herein for purposes of any retirement plan utilizing
years of service as a criteria in the provision of benefits (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits"); provided, however, that to the extent Employee,
following the Termination Date, becomes employed by another employer
and becomes entitled to
-6-
<PAGE>
receive health insurance benefits from such employer, the Company's
obligation to provide such health insurance benefits hereunder shall
be decreased;
(iv) If the Employee receives any payments hereunder or under
any other plan or agreement (the "Total Payments") which are subject
to an excise tax imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended, or any similar tax imposed under federal,
state or local law (collectively, "Excise Taxes"), the Company shall
pay to the Employee (on or before the date which the Employee is
required to pay such Excise Taxes) an additional amount such that the
net amount retained by the Employee after deduction of any Excise Tax
on the Total Payments and any federal, state and local income and
employment taxes and Excise Tax upon the additional payment made under
this Section 6.4(a)(iv) shall be equal to the Total Payments. For
purposes of calculating the amount payable to Employee under this
Section, the federal and state income tax rates used shall be the
highest marginal federal and state rates applicable to ordinary income
in Employee's state of residence, taking into account any federal
income tax deductions or credits available to Employee for state
income taxes. The Company shall cause its independent auditors to
calculate such amount and provide Employee a copy of such calculation
at least ten (10) days prior to the date specified above for payment
of such amount; and
(v) All accrued compensation and unreimbursed expenses through
the Termination Date. Such amounts shall be paid to Employee in a
lump sum in cash within thirty (30) days after the Termination Date.
(vi) The Employee shall be free to accept other employment
during such period, and, except as provided herein, there shall be no
offset of any employment compensation earned by the Employee in such
other employment during such period against payments due Employee
hereunder, and there shall be no offset in any compensation received
from such other employment against the continued salary set forth
above.
(b) For purposes of this Section 6.4, the following terms shall have
the meanings set forth below:
(i) A "Change in Control" of the Company shall mean and shall
be deemed to have occurred if any of the following events shall have
occurred:
(a) Any person (as defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) is or becomes the beneficial owner (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities
of the Company (not including in the securities beneficially
owned by such person any securities acquired directly from the
Company or its affiliates) representing 30% or more of the
-7-
<PAGE>
combined voting power of the Company's then outstanding
securities, excluding any person who becomes such a beneficial
owner in connection with a transaction described in clause (i) of
paragraph (3) below; or
(b) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election
by the Company's stockholders was approved or recommended by a
vote of at least two-thirds (2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously
so approved or recommended; or
(c) there is consummated a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with
any other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity or
any parent thereof) at least 55% of the combined voting power of
the securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no person is or becomes the beneficial
owner, directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person any
securities acquired directly from the Company or its affiliates)
representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or
substantially all of the Company's assets to an entity, at least
60% of the combined voting power of the voting securities of
which are owned by stockholders of the Company in substantially
the same proportions as their ownership of the Company
immediately prior to such sale.
Notwithstanding the foregoing, a "Change in Control" shall not be
deemed to have occurred by virtue of the consummation of any
transaction or series of integrated transactions immediately following
which the record holders of the
-8-
<PAGE>
common stock of the Company immediately prior to such transaction or
series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially
all of the assets of the Company immediately following such
transaction or series of transactions.
(ii) "Termination Date" shall mean, if the Employee's
employment is terminated by the Company pursuant to a Termination
Following a Change of Control, the date of receipt of a notice of
termination or any later date specified therein, as the case may be;
(iii) "Termination Following a Change of Control" shall mean a
Termination of the Employee without Cause by the Company in connection
with or within two years following a Change of Control or a
termination by the Employee for Good Reason of the Employee's
employment with the Company within two years following a Change of
Control.
(iv) "Good Reason" shall mean:
(a) A substantial and material alteration in the nature or
status of the Employee's responsibilities, or the assignment of
duties inconsistent with, or a substantial and material
alteration in the nature or status of, the Employee's
responsibilities;
(b) Employee's job is eliminated other than by reason of
termination for Cause
(c) The Company fails to pay Employee any amount otherwise
vested and due hereunder or under any plan or policy of the
Company, which failure is not cured within ten (10) business days
of receipt by the Company of written notice from Employee which
described in reasonable detail the amount which is due;
(d) A reduction in Employee's base salary except in the
event of an across-the-board salary reduction for all executive
officers, including the executive officers of the entity, if any,
controlling the Company following the Change of Control;
(e) A reduction in Employee's aggregate level of benefits
under the Company's pension, life insurance, medical, health and
accident, disability, deferred compensation or savings or similar
plans, except in the event of an across-the-board reduction in
such benefits for all executive officers, including the executive
officers of the entity, if any, controlling the Company following
the Change of Control;
-9-
<PAGE>
(f) A reduction in Employee's reasonable opportunity to
earn incentive compensation in at least the amounts contemplated
in Section 5.2 under any plan in which Employee is a participant;
(g) Employee's office is relocated outside of a 50-mile
radius of Denver, Colorado without his written consent;
(h) The Company and its successor(s) (as described in
paragraph (9) below) shall discontinue the business of the
Company;
(i) The failure of the Company to obtain an agreement to
expressly assume this Agreement from any successor to the Company
(whether such succession is direct or indirect by purchase,
merger, consolidation or otherwise, to substantially all of the
business and/or assets of the Company or a controlling portion of
the Company's stock); or
(j) After August 13, 1998, failure by the Company to grant
on an annual basis stock options to purchase no less than 80,000
shares of Common Stock, assuming performance targets are
satisfied, or to provide that such options will vest on death or
disability of Employee.
(v) "Cause" shall mean:
(a) Misfeasance or nonfeasance by the Employee in the
performance of his duties under this Agreement intended to injure
the Company which has a material adverse effect on the Company's
business or operations, if such failure is not remedied or
reasonable steps to effect such remedy are not commenced within
thirty (30) days after written notice of such violation; or
(b) Employee's conviction of a felony or any crime
involving moral turpitude.
ARTICLE 7
INSURANCE
7.1 Key Man Insurance. Employee agrees that the Company may, from time to
-----------------
time, apply for and take out in its own name and at its own expense, life,
health, accident, or other insurance upon Employee that the Company may deem
necessary or advisable to protect its interests hereunder; and Employee agrees
to submit to any medical or other examination necessary for such purposes and to
assist and cooperate with the Company in preparing such insurance; and Employee
agrees that he shall have no right, title, or interest in or to such insurance.
-10-
<PAGE>
7.2 Directors' and Officers' Insurance. The Company shall use
----------------------------------
commercially reasonable efforts to obtain and maintain directors' and officers'
liability insurance coverage in an amount equivalent to that of a well-insured,
similarly situated company; provided, however, that the failure to obtain and
maintain such insurance after the Company has exercised such commercially
reasonable efforts shall not be a breach of the Company's obligations under this
Agreement. Any directors' and officers' liability insurance covering Employee
shall continue to apply following the period in which the Employee is serving as
officer or director of the Company for actions or omissions during the period in
which Employee was acting as officer or director.
ARTICLE 8
FACILITIES AND EXPENSES
The Company shall make available to Employee such office space, secretarial
services, office equipment and furnishings as are suitable and appropriate to
Employee's title and duties. The Company shall promptly reimburse Employee for
all reasonable expenses incurred in the performance of his duties hereunder,
including expenses for entertainment, travel, management seminars and use of the
telephone, subject to the Company's reasonable requirements with respect to the
reporting and documentation of such expenses.
ARTICLE 9
NONCOMPETITION
9.1 Necessity of Covenant. The Company and Employee acknowledge that:
---------------------
(a) The Company's business is highly competitive;
(b) The Company maintains confidential information and trade secrets
as described in Article 10, all of which are zealously protected and kept
secret by the Company;
(c) In the course of his employment, Employee will acquire certain of
the information described in Article 10, and in the event of the
termination of Employee's employment, the Company would be adversely
affected if such information is used for the purposes of competing with the
Company;
(d) The Company transacts business throughout the world; and
(e) For these reasons, both the Company and Employee further
acknowledge and agree that the restrictions contained herein are reasonable
and necessary for the protection of their respective legitimate interests
and that any violation of these restrictions would cause substantial injury
to the Company.
9.2 Covenant Not to Compete. Employee agrees that from and after the date
-----------------------
hereof during the Employment Term and for a period of one (1) year after
cessation of employment with the Company, he will not, without the express
written permission of the Company, which may be
-11-
<PAGE>
given or withheld in the Company's sole discretion, directly or indirectly own,
manage, operate, control, lend money to, endorse the obligations of, or
participate or be connected as an officer, director, 5% or more stockholder of a
publicly-held company, stockholder of a closely-held company, employee, partner,
or otherwise, with any enterprise or individual engaged in a business which is
competitive with the business conducted by the Company at the time of cessation
of employment with the Company. It is understood and acknowledged by both
parties that, inasmuch as the Company transacts business worldwide, this
covenant not to compete shall be enforced throughout the United States and in
any other country in which the Company is doing business as of the date of
Employee's cessation of employment.
9.3 Disclosure of Outside Activities. Employee, during the term of his
--------------------------------
employment by the Company, shall at all times keep the Company informed of any
outside business activity and employment, and shall not engage in any outside
business activity or employment which may be in conflict with the Company's
interests.
9.4 Survival. The terms of this Article 9 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 10
CONFIDENTIAL INFORMATION AND TRADE SECRETS
10.1 Nondisclosure of Confidential Information. Employee has acquired and
-----------------------------------------
will acquire certain "Confidential Information" of the Company. "Confidential
Information" shall mean any information that is not generally known, including
trade secrets, outside the Company and that is proprietary to the Company,
relating to any phase of the Company's existing or reasonably foreseeable
business which is disclosed to Employee by the Company including information
conceived, discovered or developed by Employee. Confidential Information
includes, but shall not be limited to, business plans, financial statements and
projections, operating forms (including contracts) and procedures, payroll and
personnel records, marketing materials and plans, proposals, software codes and
computer programs, project lists, project files, price information and cost
information and any other document or information that is designated by the
Company as "Confidential." The term "trade secret" shall be defined as follows:
A trade secret may consist of any formula, pattern, device or
compilation of information which is used in one's business, and
which provides to the holder an opportunity to obtain an advantage
over competitors who do not know or use it.
Accordingly, employee agrees that he shall not, during the Employment Term and
for three (3) years after cessation of employment with the Company, use for his
own benefit such Confidential Information or trade secrets acquired during the
term of his employment by the Company. Further, during the Employment Term and
for three (3) years after cessation of employment with the Company, Employee
shall not, without the written consent of the Board of Directors of the Company
or a person duly authorized thereby, which consent may be given or withheld in
the Company's sole discretion, disclose to any person, other than an employee of
the Company or a person to whom disclosure is reasonably necessary or
appropriate in connection with the
-12-
<PAGE>
performance by Employee of his duties, any Confidential Information or trade
secrets obtained by him while in the employ of the Company.
10.2 Return of Confidential Information. Upon termination of employment,
----------------------------------
Employee agrees to deliver to the Company all materials that include
Confidential Information or trade secrets, and all other materials of a
confidential nature which belong to or relate to the business of the Company.
10.3 Exceptions. The restrictions and obligations in Section 10.1 shall
----------
not apply with respect to any Confidential Information which: (i) is or becomes
generally available to the public through any means other than a breach by
Employee of his obligations under this Agreement; (ii) is disclosed to Employee
without an obligation of confidentiality by a third party that is not an
affiliate of the Company who has the right to make such disclosure; (iii) is
developed by Employee independent of his performance of duties hereunder without
use of or benefit from the Confidential Information; (iv) was in possession of
Employee without obligations of confidentiality prior to receipt under this
Agreement; (v) is required to be disclosed to enforce rights under this
Agreement; or (vi) is required to be disclosed by Law.
10.4 Survival. The terms of this Article 10 shall survive the expiration
--------
or termination of this Agreement for any reason.
ARTICLE 11
JUDICIAL CONSTRUCTION
Employee believes and acknowledges that the provisions contained in this
Agreement, including the covenants contained in Articles 9 and 10 of this
Agreement, are fair and reasonable. Nonetheless, it is agreed that if a court
finds any of these provisions to be invalid in whole or in part under the laws
of any state, such finding shall not invalidate the covenants, nor the Agreement
in its entirety, but rather the covenants shall be construed and/or blue-lined,
reformed or rewritten by the court as if the most restrictive covenants
permissible under applicable law were contained herein.
ARTICLE 12
RIGHT TO INJUNCTIVE RELIEF
Employee acknowledges that a breach by Employee of any of the terms of
Articles 9 or 10 of this Agreement will render irreparable harm to the Company;
and that in the event of such breach the Company shall therefore be entitled to
any and all equitable relief, including, but not limited to, injunctive relief,
and to any other remedy that may be available under any applicable law or
agreement between the parties.
-13-
<PAGE>
ARTICLE 13
CESSATION OF CORPORATE BUSINESS
This Agreement shall cease and terminate if the Company shall discontinue
its business, and all rights and liabilities hereunder shall cease, except as
provided in Section 6.4 and Article 14.
ARTICLE 14
ASSIGNMENT
14.1 Permitted Assignment. Subject to the provisions of Section 6.4, the
--------------------
Company shall have the right to assign this contract to its successors or
assigns, and all covenants or agreements hereunder shall inure to the benefit of
and be enforceable by or against its successors or assigns.
14.2 Successors and assigns. The terms "successors" and "assigns" shall
----------------------
mean any person or entity which buys all or substantially all of the Company's
assets, or a controlling portion of its stock, or with which it merges or
consolidates.
ARTICLE 15
FAILURE TO DEMAND, PERFORMANCE AND WAIVER
The failure by either party to demand strict performance and compliance
with any part of this Agreement during the Employment Term shall not be deemed
to be a waiver of the rights of such party under this Agreement or by operation
of law. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
ARTICLE 16
ENTIRE AGREEMENT
The Company and Employee acknowledge that this Agreement contain the full
and complete agreement between and among the parties, that there are no oral or
implied agreements or other modifications not specifically set forth herein, and
that this Agreement supersedes any prior agreements or understandings, if any,
between the Company and Employee, whether written or oral. The parties further
agree that no modifications of this Agreement may be made except by means of a
written agreement or memorandum signed by the parties.
ARTICLE 17
GOVERNING LAW
The parties hereby agree that his Agreement and the Exhibit hereto shall be
construed in accordance with the laws of the State of Colorado, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Colorado or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Colorado.
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<PAGE>
ARTICLE 18
ATTORNEYS' FEES
Prior to a Change of Control, if either party shall commence any action or
proceeding against the other that arises out of the provisions hereof, or to
recover damages as the result of the alleged breach of any of the provisions
hereof, the prevailing party therein shall be entitled to recover all reasonable
costs incurred in connection therewith, including reasonable attorneys' fees.
Following a Change of Control, should a dispute arise under this Agreement, or
any action or proceeding be commenced to recover damages as a result of an
alleged breach of the terms of this Agreement, the Company shall be required to
pay the costs of Employee incurred in connection therewith, including reasonable
attorneys' fees.
ARTICLE 19
COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the Company has hereunto signed its name and Employee
hereunder has signed his name, all as of the day and year first-above written.
STILLWATER MINING COMPANY
By: /s/ RAY BALLMER
___________________________
Name: RAY BALLMER
______________________
Title: CHAIRMAN
_____________________
EMPLOYEE
/s/ WILLIAM E. NETTLES
______________________________
William E. Nettles
-15-
<PAGE>
EXHIBIT 10.15
PGM CONCENTRATE REFINING AGREEMENT
THIS PGM CONCENTRATE REFINING AGREEMENT (this "Agreement") is made as of the
8th day of May, 1996, by and between S.A. UNION MINIERE N.V. Business Unit
Hoboken, incorporated under the laws of Belgium ("Union Miniere"), and
STILLWATER MINING COMPANY, a Delaware corporation authorized to conduct business
in the State of Montana ("SMC").
WITNESSETH:
WHEREAS, Union Miniere owns certain facilities in Belgium (the "Facility")
capable of treating PGM Concentrate (as such term is defined herein);
WHEREAS, SMC intends to mine, mill and process minerals from its present
mine in Nye, Montana as described herein (the "Stillwater Mine"); and
WHEREAS, SMC desires Union Miniere to treat and refine the PGM Concentrate
produced by SMC from the Stillwater Mine, and Union Miniere desires to treat and
refine the PGM Concentrate at its Facility.
NOW, THEREFORE, for and in consideration of the premises and of the several
and mutual agreements herein contained, value and sufficiency being hereby
acknowledged, the Parties agree as follows:
1. DEFINITIONS
-----------
Throughout this Agreement, the following terms shall mean:
1.1 AGREED CONTENT means the concentration of a metal found in the
PGM Concentrate as set forth in the Final Assay determined in
accordance with Section 12 hereof.
1.2 DATE OF DELIVERY means the date the PGM Concentrate is received
by Union Miniere as acknowledged in accordance with Section 6.3
hereof.
1.3 FACILITY means Union Miniere's Belgian facilities capable of
treating and refining PGM Concentrate.
1.4 FINAL ASSAY means the determination of the concentrations of
metals in the PGM Concentrate on which the return of metals by Union
Miniere to SMC will be based under this Agreement.
1.5 FINAL VALUE means the market value of returnable and payable
metals less payable charges.
1.6 G means gram, i.e., 0.001 Kg.
1.7 HEREOF, HEREIN, HERETO, HEREUNDER refers to this Agreement as a
whole and not solely to a particular subdivision thereof in which the
same appear.
1.8 KG means kilogram, i.e., 1,000g, or 32.1507 tr oz.
1.9 LOT means a quantity of PGM Concentrate delivered to Union
Miniere in one shipment of approximately 200 to 400 pounds per
shipment.
<PAGE>
1.10 PARTY OR PARTIES means Union Miniere and SMC, individually or
collectively as the context implies, and the successors and assigns of
any Party which shall have become a Party hereto in accordance with
the terms hereof.
1.11 PLATINUM GROUP METALS OR PGM means, collectively, platinum,
palladium and rhodium.
1.12 PGM CONCENTRATE means materials produced by SMC and containing
principally platinum, palladium and rhodium and generally having the
composition as described in Section 5 hereof.
1.13 PROVISIONAL INVOICE means an invoice for charges by Union Miniere
to SMC based on the lowest results of the assays performed in
accordance with Section 12.
1.14 RETURNABLE METALS means the metals contained in the PGM
Concentrate to be refined and returned to SMC's account by Union
Miniere in the quantities, at the purity levels and otherwise as
required by Section 10.1 hereof.
1.15 SMC ACCOUNT means the account for Returnable Metals established
with Union Miniere in accordance with Section 10.4 hereof.
1.16 STILLWATER MINE means SMC's present mine in Nye, Montana.
1.17 TR OZ means ounce, i.e., 31.1035 grams.
1.18 U.S. means United States dollars, the lawful currency of the
United States of America.
2. DELIVERY OF PGM CONCENTRATE; REFINING; RETURN OF METALS
-------------------------------------------------------
2.1 DELIVERY BY SMC
SMC shall deliver to Union Miniere PGM Concentrate in the
quantities and with the composition and otherwise in accordance with
the terms and conditions of this Agreement.
2.2 REFINING OF PGM CONCENTRATE; RETURN OF METALS
Union Miniere shall take delivery of the PGM Concentrate provided
by SMC under this Agreement, and shall treat and refine the PGM
Concentrate and return certain metals contained in the PGM Concentrate
upon the terms and conditions of this Agreement.
3. TERM AND TERMINATION
--------------------
3.1 TERM
This Agreement will remain in force and effective until December
31, 2000, unless extended or terminated by written agreement of the
Parties, or terminated according to the provisions of this Agreement.
<PAGE>
3.2 OPTIONAL EARLY TERMINATION
At its option, SMC may terminate this Agreement by notifying
Union Miniere in writing at least one hundred and eighty (180) days in
advance of the date of such termination. In the event of such
optional termination as provided in this Section 3.2, SMC shall pay to
Union Miniere (in addition to payment of charges due in accordance
with Section 11 for processing already performed), as liquidated
damages and not as a penalty, an amount of money indicated for the
respective period during which the date of such termination occurs as
follows:
Period during which Amount
Date of Termination Occurs ($US)
-------------------------- ---------
Effective date through December 31, 1996 3,500,000
January 1, 1997 through December 31, 1997 2,800,000
January 1, 1998 through December 31, 1998 2,000,000
January 1, 1999 through December 31, 1999 1,400,000
January 1, 2000 through December 31, 2000 700,000
The liquidated damages provided for herein shall be Union
Miniere's sole and exclusive remedy for SMC's optional early
termination of this Agreement in accordance with this Section 3.2.
3.3 EXTRAORDINARY EARLY TERMINATION
Notwithstanding the provisions of Section 3.2 hereof, SMC may
terminate this Agreement by notifying Union Miniere in writing at
least thirty (30) days in advance of the date of such termination,
without payment of the liquidated damages set forth in Section 3.2 or
any penalty or other amounts except payment of charges due in
accordance with Section 11 for processing already performed, under the
following circumstances:
3.3.1 Force Majeure. A condition or conditions of force
-------------
majeure continue for the applicable periods set forth in Section
15.2 hereof; or
3.3.2 Change in Law. An order, statute, rule, regulation,
-------------
executive order, injunction, stay, decree or restraining order
shall have been enacted, entered, promulgated or enforced by any
governmental or regulatory authority or instrumentality or court
of competent jurisdiction that materially adversely affects the
transactions contemplated by this Agreement, the market
conditions thereof or the economic benefits to SMC thereof; or
3.3.3 Default by Union Miniere. Union Miniere defaults in
------------------------
the performance of its obligations hereunder in accordance with
Section 13.2 hereof.
4. QUANTITIES
----------
In each calendar year of this Agreement, SMC shall ship to Union Miniere
under this Agreement, and Union Miniere will treat, PGM Concentrate in
quantities which shall be the lesser of the (i) ounces of platinum group
metals or (ii) percentage of total calendar
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<PAGE>
year production from the Stillwater Mine in accordance with the following
schedule for the respective calendar years:
PRODUCTION RANGES
-----------------
Calendar PGM Percentage of Total
Year Ounces Calendar Year Production
-------- --------- ------------------------
1996 291,600 90%
1997 338,100 70%
1998 350,000 70%
1999 350,000 70%
2000 350,000 70%
---------
1,679,700
5. QUALITY
-------
5.1 HISTORICAL AVERAGE QUALITY OF PGM CONCENTRATE
The PGM Concentrate is expected to have the following approximate
composition, based on average composition of PGM Concentrate produced
by SMC at its pilot plant in 1994:
1994 AVERAGE COMPOSITION OF PGM CONCENTRATE
-------------------------------------------
Average Average
Component % Component %
--------- ---- --------- ----
Pt 10.5 Ni 3.2
Pd 34.0 S 6.0
Rh 0.3 Pb 2.3
Au 0.6 As 0.2
Ag 0.2 Si 0.1
Co 0.1 Se 1.1
Cu 7.5 Te 0.04
Fe 3.3
5.2 MATERIAL CHANGES IN PGM CONCENTRATE COMPOSITION
In the event that the composition of PGM Concentrate delivered
hereunder departs materially from the composition described in Section
5.1 above, Union Miniere and SMC will negotiate in good faith with
full disclosure to overcome any significant economic hardships or
technical difficulty which either Union Miniere or SMC may suffer as a
result thereof.
6. SHIPMENT AND DELIVERY; RECEIPT
------------------------------
6.1 SHIPMENT
Shipment shall be made at a regular rate during the term of this
Agreement. The PGM Concentrate will be dispatched in Lots which will
be packed and sealed in 55 kg drums. More than one Lot may be shipped
by SMC to Union Miniere at a time.
6.2 DELIVERY
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<PAGE>
Delivery shall be free of all charges Brussels Airport, at which
time possession of the PGM Concentrate shall transfer to Union
Miniere.
6.3 RECEIPT
Union Miniere shall promptly notify SMC in writing when it has
received PGM Concentrate at the Brussels Airport. Acknowledgment by
Union Miniere of delivery, on carrier's receipt, will not constitute
agreement as to description, weight or composition of the PGM
Concentrate received.
7. RISK OF LOSS
------------
All risk of loss or damage to the PGM Concentrate and contained metals from
all causes shall be assumed by the Party in possession of such PGM
Concentrate and contained metals. Risk of loss of the PGM Concentrate and
contained metals shall pass to Union Miniere upon receipt and acceptance of
the PGM Concentrate by Union Miniere. Risk of loss shall remain with Union
Miniere through the refining process and will continue thereafter as to any
and all Returnable Metals which have been returned to SMC's account
established in Section 10.4 hereof until such time as such Returnable Metals
have been transferred or exported at the written direction of SMC in
accordance with Section 14 hereof.
8. INSURANCE
---------
Union Miniere shall acquire and maintain adequate insurance to cover
100% of the value of the PGM Concentrate and contained metals while in Union
Miniere's possession.
9. WEIGHING; SAMPLING; MOISTURE
----------------------------
9.1 PROCEDURES
Except as provided in Section 9.4, weighing, sampling and
moisture determinations as to each Lot shall be conducted by Union
Miniere at the Facility in accordance with the procedures set forth in
Exhibit A attached hereto and by this reference incorporated herein.
Union Miniere shall provide to SMC and retain for themselves four (4)
sealed samples per Lot: three (3) for it's own assays and one (1) to
be set aside for purposes of an umpire assay in accordance with
Section 12.4 hereof. Union Miniere shall treat the PGM Concentrate
only after executing and delivering to SMC a weighing and sampling
report which certifies compliance with the procedures set forth in
Exhibit A.
9.2 SMC REPRESENTATIVE
SMC shall be entitled to be represented at weighing, sampling and
moisture determinations, at its own cost, by a supervising company
whose nomination shall be subject to Union Miniere's approval which
approval shall not be unreasonably withheld. An unexhaustive list of
representatives approved by Union Miniere as of the date hereof is
attached hereto as Exhibit B. SMC shall nominate any such
representative by providing written notice to Union Miniere which
indicates the name of the representative and the particular Lot or
Lots which it is supervising on behalf of SMC. If no representative
has been so nominated by SMC within a
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<PAGE>
reasonable time after SMC has received notice from Union Miniere of
the date and time for sampling as provided in Section 9.1, then SMC
will not be represented.
9.3 SEPARATE TREATMENT OF LOTS
Each Lot shall be considered complete and separate for all
accounting purposes under this Agreement.
9.4 ALTERNATIVE PROCEDURES
Weighing, sampling and moisture determinations as to each Lot
shall be conducted by Union Miniere in accordance with Section 9.1,
except that SMC may hereinafter notify Union Miniere in writing of
certain alternative procedures to be followed for such weighing,
sampling and moisture determinations as to each Lot, including but not
limited to procedures involving performance of certain of such
determinations by SMC at the Stillwater Mine facilities, which
alternative procedures shall, after approval by the Parties, be
incorporated herein and thereafter implemented for Lots delivered
under this Agreement.
10. RETURNABLE METALS
-----------------
10.1 PERCENTAGE OF METAL RETURNS; PURITY
Union Miniere shall return to SMC, in accordance with this
Agreement, the respective percentages of the Agreed Content of the
metals contained in the PGM Concentrate, in the form of minimum purity
sponge conforming to ASTM specification B561-84 in the respective
percentages of minimum purity, as set forth in Exhibit C. SMC may,
upon written notice, direct Union Miniere to provide Returnable Metals
in the form of solution rather than sponge with the same respective
minimum purity levels as set forth in Exhibit C.
10.2 RETURN OF METALS
Union Miniere shall make available to SMC or credit to the SMC
account, within the time periods set forth in Section 10.3, the
Returnable Metals. Said Returnable Metals shall be returned
unpackaged, ex Facility, unless otherwise requested by SMC. SMC shall
bear any costs of such packaging.
10.3 TIME FOR RETURN OF THE METALS
Platinum, palladium, silver and gold shall be made available by
Union Miniere to SMC or credited to the SMC account no later than
twenty (20) days after the Date of Delivery. Rhodium shall be made
available by Union Miniere to SMC or credited to the SMC account no
later than fifty (50) days after the Date of Delivery.
10.4 SMC ACCOUNT
In order to establish proper accounting for the Returnable Metals
due to SMC under this Agreement, Union Miniere shall establish an
account in the name of SMC which will reflect the accurate amounts of
each element of Returnable Metal so held by Union Miniere, subject to
the further orders of SMC. Union Miniere shall store, safeguard and
insure all precious metals accounted for in said account, at no charge
to SMC. SMC may require physical delivery of Returnable Metals held
in the SMC account, or it may draw upon its account to transfer to
other third party accounts held by Union Miniere upon written
direction to Union Miniere in accordance with Section 14 hereof.
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<PAGE>
11. CHARGES
-------
11.1 TREATMENT AND REFINING CHARGES
SMC shall pay to Union Miniere the charges set forth in Exhibit D
which shall be adjusted only in accordance with Section 11.2 hereof
and shall be the total amount due to Union Miniere for its treatment
and refining of the PGM Concentrate and the contained metals therein
under this Agreement. Such charges shall be calculated based on the
ounces of each element of Returnable Metals determined by the Agreed
Content to be present in the PGM Concentrate and shall apply pro rata
to fractional amounts. No other charges shall be made by SMC to Union
Miniere under this Agreement.
11.2 ADJUSTMENT OF CHARGES
The charges payable in accordance with Section 11.1 shall remain
fixed at the levels specified in such Section 11.1 for a period of
thirty-six (36) months, commencing January 1, 1996. Thereafter, such
charges may be adjusted for the succeeding twenty-four (24) calendar
months only after the Parties have agreed in writing as to the charges
to be imposed for such twenty-four (24) calendar month period. Prior
to the end of the first period of thirty-six (36) months, Union
Miniere shall provide in writing to SMC a proposal for any adjustment
to charges for such subsequent twenty-four (24) calendar month period,
which proposal shall include documentation to demonstrate that such
proposed adjustment to charges directly results from an increase in
actual costs to Union Miniere in performing the services under this
Agreement; provided, however, that in no event shall Union Miniere
propose to increase any of the charges by an amount exceeding 5% of
any such charge as set forth in Exhibit D. Until agreement as to
adjusted charges has been reached, the charges in Section 11.1 shall
be payable. Upon the establishment of any new charges pursuant to
this Section 11.2, such new charges shall apply to all deliveries of
PGM Concentrate made to Union Miniere after the end of the thirty-
sixth (36th) calendar month described above, but shall have no
application to deliveries of PGM Concentrate made to Union Miniere
before such date.
11.3 PAYMENT OF CHARGES
SMC SHALL PAY TO UNION MINIERE THE TOTAL AMOUNT OF THE CHARGES PAYABLE
UNDER THIS AGREEMENT. SUCH AMOUNT SHALL BE PAID BY SMC IN U.S.
DOLLARS NO LATER THAN TWENTY (20) DAYS AFTER RECEIPT BY SMC OF THE
PROVISIONAL INVOICE OR FINAL INVOICE FROM UNION MINIERE. When
provisional invoicing and payment have been made, a final accounting
shall follow as soon as all necessary data are available.
12. ASSAYS
------
12.1 ASSAY PROCEDURES
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<PAGE>
The samples of PGM Concentrate, by Lot, shall be analyzed by each
Party independently to assay the content therein of precious metals.
Such assays of platinum, palladium gold and silver shall be performed
using fire assay lead collection procedures and assays of rhodium
shall be performed using nickel sulfide collection procedures.
12.2 EXCHANGE OF ASSAYS
The results of the assays of samples performed as described in
Section 12.1 shall be exchanged simultaneously by registered airmail
between SMC and Union Miniere on a date to be agreed upon in advance,
but in no event later than a date sixty (60) days after the Date of
Delivery of the respective Lot.
12.3 SPLITTING DIFFERENCE IN PARTIES' ASSAYS
Should the difference between the results of the assays of both
Parties be not more than:
For Pt.: 0.50% relative;
For Pd.: 0.50% relative;
For Au.: 1.00% relative;
For Rh.: 1.00% relative;
For Ag.: 5.00% relative;
then the exact mean of the two results shall be taken as the
Final Assay for the purpose of final accounting.
12.4 UMPIRE ASSAY
12.4.1 Rotation Among Umpires. In the event of a greater
----------------------
difference between the Parties' assays than the amounts specified in
Section 12.3 above, an umpire assay shall be made by one of the
following umpires, acting in rotation, sampled Lot by sampled Lot:
Laboratoire D' Analyse Bachelet
Rue due Val Benoit, 129
B-4900
Angleur, Belgium
A.H. Knight International Ltd
Eccleston Grange, Prescot Rd.
GB-WA 10 3BA St. Helens - Merseyside
Great Britain
Inspectorate Griffith Ltd
2 Perry Road, Witham
Essex, CM8 3TU
England, Great Britain
Allex Stewart Assay
Caddish Road, Knowsley
Industrial Estate - Merseyside
Great Britain
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<PAGE>
12.4.2 Umpire Assay between Parties' Assays. Should the umpire
------------------------------------
assay fall between the results of the two Parties or coincide with
either, the arithmetical mean of the umpire assay and the assay of the
Party which is nearer to the umpire assay shall be taken as the Final
Assay. In the event that the umpire assay is exactly between the assay
of the two Parties, the umpire assay shall be taken as the Final
Assay.
12.4.3 Umpire Assay Outside Exchanged Results. Should the
--------------------------------------
umpire assay fall outside the exchanged results, the assay of the
Party which is nearer to the umpire assay shall be taken as the Final
Assay.
12.4.4 Cost of Umpire Assay. The cost of the umpire assay shall
--------------------
be borne by the Party whose result is further from the umpire's.
However, if the umpire assay is the exact mean of the assays exchanged
by the Parties, such cost shall be borne equally by the Parties.
12.4.5 Replacement of Existing Umpire. Either Party may
------------------------------
recommend that an existing umpire be replaced. Any such replacement
shall be subject to unanimous agreement of the Parties.
13. DEFAULT
-------
13.1 DEFAULT IN PAYMENT OF CHARGES
Subject to thirty (30) days advance written notification, and a
reasonable time to cure upon the failure of SMC to pay the charges as
required by Section 11 hereof, Union Miniere may retain or sell
Returnable Metals for an amount equivalent to the total amount of
charges due plus interest for the applicable period, which shall be at
the one-month LIBOR rate ruling at the due date of the payment, as
published in the Wall Street Journal. Returnable Metals retained or
sold by Union Miniere under the terms of this Section 13.1 shall be
valued and/or sold at the fair market value on the date of retention
and/or sale.
13.2 DEFAULT BY UNION MINIERE
Subject to thirty (30) days advance written notification, and a
reasonable time to cure, the failure of Union Miniere to satisfy any
of its obligations hereunder, including its failure to satisfy the
minimum purity levels for Returnable Metals, shall constitute a
default hereunder. A default by Union Miniere hereunder shall
furthermore exist in the event Union Miniere shall make or offer to
make any arrangement with creditors or commit any act of bankruptcy.
Upon such a default by Union Miniere, SMC may terminate this Agreement
as provided in Section 3.3.3 and all future obligations of SMC shall
cease.
13.3 SUSPENSION OF PERFORMANCE
Default of performance by either Party under this Agreement shall
give to the non-defaulting Party the right to suspend its further
performance under this Agreement.
14. EXPORT OF RETURNABLE METALS
---------------------------
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<PAGE>
The Returnable Metals shall be exported from Belgium within twelve (12)
months of the Date of Delivery. SMC shall require any of its purchasers of
such Returnable Metals to comply with the requirements of this Section 14.
Detailed instructions (country of destination, forwarding agent, agent,
means of transportation, etc.) regarding the removal of the Returnable
Metals shall be given by SMC or SMC's assignee so as to reach Union Miniere
at least five (5) business days before the date of the removal. Any such
instructions of SMC or its assignee, in their entirety, must be written.
Notwithstanding the provisions of this Section 14, transfers between the
account of SMC at Union Miniere and /or third party accounts at Union
Miniere shall occur on the same day as the receipt of detailed written
instructions from the designated person of SMC; provided that, if such
instructions are received on a day which is not a business day in Belgium,
then such account transfers shall be accomplished on the next succeeding
business day.
15. FORCE MAJEURE
-------------
15.1 EXTENSION OF TIME
If, at any time, either Party is delayed in or prevented from
exercising its rights or performing its obligations under this
Agreement (other than payment of money), which delays or preventions
are caused by any cause beyond the reasonable control of such Party
including, without limiting the generality of the foregoing, acts of
God, accidents, strikes, insurrections, lockouts or other labor or
industrial disturbances, actions of any competent governmental
authority or court orders, future orders of any regulatory body having
jurisdiction, acts of the public enemy, wars (declared or undeclared),
riots, sabotage, blockades, embargoes, shortages of or inability to
secure fuel, power, contractors, labor, raw materials, railroad or
transport facilities, failure of and damage to or destruction of
machinery, plant and equipment, snowslides, landslides, lightning,
weather conditions materially preventing or impairing work, fires,
storms, floods, washouts and explosions, and any other causes beyond
the reasonable control of the Party in question, whether of the kind
enumerated herein or otherwise, such Party shall not be liable for any
such failure or delay by it to perform its obligations hereunder and
the period of all such delays or preventions resulting from such
causes or any of them shall be excluded in computing and shall extend
the time within which Party may exercise its rights or perform its
obligations hereunder for a period equal to the total duration of all
such instances.
15.2 NOTICE REQUIRED; OPTION TO TERMINATE
Neither Party's performance shall be excused or extended under this
Section 15, unless the Party claiming force majeure shall give the
other immediate notice of the occurrence of such event and the
expected duration thereof. The non-claiming Party shall be entitled
to terminate this Agreement without further liability upon notice to
the other Party in the event that a condition or conditions of force
majeure shall continue for more than three (3) consecutive months. In
the condition or conditions of force majeure continue for a period in
excess of twelve (12) consecutive months, then either Party may
terminate this Agreement, without further liability, by written notice
to the other Party. In the event of termination for reasons of force
majeure affecting SMC, the liquidated damages set forth in Section 3.2
shall not apply.
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<PAGE>
15.3 ALLOCATION OF RESOURCES
In the event of a claim of force majeure, Union Miniere shall have an
obligation to allocate its available refining services or other
resources among all of its customers, including SMC, on a pro rata
basis in accordance with its obligations thereto.
15.4 EFFECTS ON PARTIES
Upon receipt of notice from Union Miniere of termination as a result
of force majeure in accordance with Section 15.2, SMC shall be
immediately entitled to ship PGM Concentrate to an alternative
treatment facility and divert any shipment already in route. Union
Miniere shall cooperate with SMC as necessary or appropriate to
facilitate such diversion and alternative facility treatment and the
orderly transition back to Union Miniere upon cessation of the
condition of force majeure. Union Miniere shall be excused for the
duration of any cause of force majeure from accepting further
deliveries of PGM Concentrate from SMC.
15.5 BEST EFFORTS REQUIRED
The Party claiming force majeure shall use all reasonable best efforts
to eliminate such event insofar as possible with a minimum of delay;
provided, however, neither Party shall be required to settle a labor
dispute or strike against its best interest, such settlement and
negotiations being totally within such Party's discretion.
16. RESOLUTION OF DISPUTES
----------------------
16.1 GOOD FAITH, FAIR DEALING
The Parties hereto confirm that the spirit of mutual cooperation and
goodwill underlie this Agreement, and that the Parties shall perform
the transactions contemplated hereunder based on principles of mutual
cooperation. It is therefore agreed and understood that if one of the
Parties has been put into an excessively inequitable or unreasonable
position due to unforeseen conditions or circumstances beyond the
control of either Party, then both Parties shall upon request by the
Party affected by such change enter into good faith negotiations to
arrive at an equitable solution.
16.2 ARBITRATION
All disputes arising under this Agreement, which cannot be settled by
mutual consent and negotiations within a period of one hundred eight
(180) days after commencement of such negotiations (or within such
other period as specifically specified herein for the applicable
dispute), shall be finally settled by way of arbitration under the
rules of Conciliation and Arbitration of the International Chamber of
Commerce. The Parties hereto agree that each Party shall nominate an
arbitrator and the two arbitrators nominated by them shall agree on a
third arbitrator within 30 days after their nomination. The decision
of the arbitrators shall be final and binding upon the Parties thereto
and may be enforced by any court of competent jurisdiction over its
person and venue in such court. The place of arbitration shall be New
York, New York USA, in any event and the
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<PAGE>
language of the arbitration shall be English. Costs of arbitration
shall be charged or apportioned as directed by the arbitrators. Either
Party on behalf of the Parties hereto shall have the right to commence
any such arbitration procedure.
17. APPLICABLE LAW
--------------
THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY AND SHALL BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE "CODE SUISSE DES OBLIGATIONS."
18. CONFIDENTIALITY
---------------
Each Party shall consider all information, documents and other materials
provided hereunder (collectively, "Confidential Information") as
confidential and proprietary information of the disclosing Party, and the
receiving Party agrees to maintain in confidence all such Confidential
Information and not to divulge such Confidential Information in whole or in
part to any third party and not to make use of such Confidential Information
other than in relation to meeting its obligations under this Agreement. This
obligation shall not apply to: (i) Confidential Information which at the
time of disclosure is in the public domain; or (ii) Confidential Information
which, after disclosure, becomes part of the public domain by publication or
otherwise, other than by an unauthorized act or omission of the receiving
Party; or (iii) Confidential Information which the receiving party is
required by law or at the request of any governmental organization to make
public.
19. MODIFICATIONS
-------------
Neither this Agreement nor any terms or provisions hereof may be changed,
waived, discharged, or terminated orally, but only by an instrument in
writing specifically purporting so to do and signed by the Parties hereto.
20. SUCCESSORS AND ASSIGNS
----------------------
This Agreement and all of its provisions shall be binding upon and inure to
the benefit of the successors and permitted assigns of the Parties hereto.
21. ASSIGNMENT
----------
This Agreement may not be assigned by any Party without the prior written
consent of the other Party. Such consent shall not be unreasonably withheld.
22. NOTICES
-------
All notices shall be given by telex or telecopier and shall be deemed
received upon receipt of electronic confirmation of the same.
Notices to Union Miniere shall be directed as follows:
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<PAGE>
S.A. Union Miniere N.V. Telephone 32 3 8217624
A. Grienerstraat 14 Telecopier 32 3 8217807
2660 Hoboken, Belgium Telex 34004 UM B
Notices to SMC shall be directed as follows:
Stillwater Mining Company Telephone (406) 328-6400
HC 54 Box 365 Telecopier (406) 328-8506
Nye, Montana 59061 - USA
23. ENTIRE AGREEMENT
----------------
This Agreement represents the complete agreement between the Parties hereto
and supersedes all prior or contemporaneous oral or written agreement of the
Parties to the extent they relate in any way to the subject matter hereof.
24. COUNTERPARTS
------------
This Agreement may be executed by the Parties hereto in two or more
counterparts, each of which when so executed and delivered shall be an
original, and it shall not be necessary in making proof of this Agreement,
as to any Party hereof, to produce or account for more than one such
counterpart executed by such Party.
25. WAIVER
------
The waiver of any breach of this Agreement by either Party hereto shall in
no way constitute a waiver of any future breach, whether similar or
dissimilar in nature.
26. HEADINGS AND TABLE OF CONTENTS
------------------------------
The headings to all sections, subsections and exhibits, and the table of
contents contained in this Agreement, shall not form a part of this
Agreement or of its exhibits, but shall be regarded as having been used for
the convenience of reference only.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized officers effective from and after the day and year
first above written.
S.A. UNION MINIERE N.V.,
BUSINESS UNIT HOBOKEN
WILLY FIERAIN By: PAUL VAN NEGEN
_____________________________________
Title: VICE PRESIDENT
__________________________________
STILLWATER MINING COMPANY, A DELAWARE
CORPORATION
By: /s/ JOHN ANDREWS
_____________________________________
Title: PRESIDENT
__________________________________
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<PAGE>
EXHIBIT 10.16
ARTICLES OF AGREEMENT
BETWEEN
STILLWATER MINING COMPANY
AND
OIL, CHEMICAL AND ATOMIC WORKERS
INTERNATIONAL UNION, AFL-CIO,
AND ITS
LOCAL 2-1
JULY 1, 1996
ARTICLES OF AGREEMENT
This Agreement dated July 1, 1996, made and entered into by and
between Stillwater Mining Company (hereinafter referred to as the "Company") and
the Oil, Chemical and Atomic Workers International Union, AFL-CIO, and its Local
2-1 (hereinafter referred to as the "Union").
The general purpose of this Agreement is to foster and promote stable
and cooperative labor relations between the Company and its represented
employees and to promote the mutual interests of the Company and the Union, by
setting forth mutual promises and obligations herein assumed, the parties agree
as follows:
ARTICLE I - RECOGNITION
SECTION 1.
The Company recognizes the Union as the sole and exclusive bargaining
representative for the purpose of collective bargaining with respect to rates of
pay, wages, benefits, hours of employment and other conditions of employment
pertaining to all Stillwater Mining Company employees employed by the Company at
the facilities at Nye, Montana; and the facilities at Columbus, Montana, to wit:
All hourly production and maintenance employees, including warehouse employees
and custodians; but excluding all temporary student summer hires, professional
employees, technical and laboratory employees, office clerical employees,
guards, dispatchers and supervisors, and those above the rank of supervisor, as
defined in the act; National Labor Relations Board case number 27-RC-7563,
Certification dated December 19, 1995.
SECTION 2.
The Company recognizes that the Union's Workers' Committee is the duly
selected body which represents Union interests to the Company. The Workers'
Committee shall be selected by the Union, and consist of seven (7) members,
including the Local Union President who shall be Chair. The six (6) remaining
members of the Workers'
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Committee shall consist of three (3) from the mine, one (1) from the
Concentrator, one (1) from the Smelter/BMR, and one (1) from maintenance.
Alternates may be selected to replace members of the Committee who may be
absent.
The Local Union President shall promptly notify the Company, in
writing, of the names of the members of the Workers' Committee and such stewards
as it may select. The Company will be notified, in writing, of any changes and
shall not be required to recognize the above until notified in writing.
The Company recognizes the Workers' Committee as the bargaining
committee for purposes of collective bargaining; as representatives in the
Management-Union Committee meetings as set forth in Article VI; and as stewards
as set forth in Article VII.
The Company recognizes the role of the International Union
Representative. As such, the International Union Representative may be present
at meetings between Management and the Union, provided notice is given in
advance. The Union agrees that such activities will not result in any
disruption of the Company's operations, and employees will not neglect their
duties and responsibilities.
SECTION 3.
The provisions of this Agreement shall be binding upon the Company and
the Union, and its successors and assigns. The provisions of this Agreement
constitute the sole procedure for the processing and settlement of any claim
under this Agreement.
SECTION 4.
There shall be no strikes, work stoppages or work slowdowns by the
Union, or lockouts by the Company, during the term of this Agreement.
ARTICLE II - TERM OF AGREEMENT
This agreement shall remain in effect through 12 noon July 1, 1999,
and if not terminated at the end of that period by sixty (60) days written
notice by one party to the other prior to this date, shall continue in effect
thereafter until terminated by either party upon ninety (90) days written notice
of its desire to terminate or modify this Agreement.
ARTICLE III - MANAGEMENT RIGHTS
The Union recognizes that management retains all the general and
traditional rights to manage the business as well as any rights under law or
agreed to by the parties. These rights rest exclusively in the management who
are the sole decision makers regarding the operation of the business. The
following listing of specific management rights is not intended to be all-
inclusive, but simply sets forth some of those rights considered to be general
rights of management. The fact that a particular management right is not
included in the following listing does not mean the right does not exist:
The right to determine the number of employees required by the Company
at any place from time to time, for any and all operations; to determine the
jobs, content of jobs and to modify, combine or cease any job, department or
operation; to hire, classify, transfer, promote, demote and layoff employees; to
determine qualifications, evaluate performance and assign and direct the
workforce; to maintain order and discipline; to make, alter and amend reasonable
rules of conduct and procedures for employees; to reprimand, suspend, discharge
and otherwise discipline for just cause.
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<PAGE>
The right to determine the number and types of facilities and working
places; the kinds and locations of machines, tools and equipment to be used; and
the right to schedule production; to maintain efficiency; to introduce new or
improved research methods, materials, machinery and equipment; to set the
standards of productivity and the products to be produced; to determine the
working schedules of employees, including the number of hours and shifts to be
worked; to determine the amount and form of incentive and/or bonus compensation
to be paid in addition to wages set forth in Appendix A; to use independent
contractors to perform any work or services provided such contracting does not
result in the layoff of employees covered by this Agreement.
The Company's failure to exercise any right or function reserved to
it, or the exercise of a management right in a particular way, shall not prevent
the Company from exercising any of its rights in the future or in some other way
not in conflict with the express provisions of this Agreement. The only
restrictions on management rights are those expressly provided for in this
Agreement. The exercise of these rights alleged to be in conflict with any
other provision of this Agreement shall be subject to the grievance and
arbitration procedures herein.
ARTICLE IV - NON-DISCRIMINATION
SECTION 1.
There shall be no discrimination or harassment by the Company, its
officers, or agents, or the Union, or its members against any employee because
of membership or non-membership in any lawful union, participation or non-
participation in any lawful union activity, or because any employee has
exercised or failed to exercise any right specifically provided under this
Agreement.
The Company and the Union agree there shall be no discrimination
against any employee because of religion, race, color, creed, age, sex, national
origin, or disability as set forth in the Americans with Disabilities Act.
ARTICLE V - UNION SECURITY
SECTION 1.
Every employee covered by this Agreement must, for the life of this
Agreement after the grace period described below, satisfy a financial obligation
to the Union as the exclusive bargaining representative. Under this Agreement,
the financial obligation for union members is an amount equivalent to monthly
dues, and for non-members a fee amount, as determined by the Union, to perform
the duties as exclusive representative under this Agreement.
This financial obligation is a condition of continued employment and
is in consideration for the cost of representation and collective bargaining and
is not contingent upon present or future membership in the Union.
The grace period for this Agreement is thirty (30) calendar days
following the completion of the employee's probationary period as set forth in
Article X, or by the thirtieth (30th) calendar day following the effective date
of this Agreement, whichever is later.
Neither the Union or Company, nor any of their officers, agents or
members shall intimidate or coerce employees about membership or non-membership
in the Union. If any dispute arises as to whether there has been any violation
of this provision (or whether an employee affected by this Agreement has failed
to meet the financial obligation), the dispute shall be submitted directly to
the arbitration clause found in this Agreement for determination.
The Union shall indemnify and save the Company harmless against any
and all claims, demands, suits or other forms of liability that shall arise out
of or by reason of action taken by the Company in complying with the provisions
of this Article.
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<PAGE>
SECTION 2.
For employees in the bargaining unit, the Company agrees to deduct the
Union dues for the month from the wages due each month, providing each employee
from whose check Union dues are to be deducted has on file a signed payroll
deduction authorization, as stated in Appendix B.
ARTICLE VI - MANAGEMENT-UNION COMMITTEE
SECTION 1.
The Company and the Union recognize the benefits of an open forum
where information, mutual concerns, interests, and complaints (not covered under
Article VII) affecting the workplace can be freely discussed, with a view to
exploring possible solutions which are acceptable and beneficial to employees,
the Union and the Company. Without limiting the opportunity for the Union and
the Company to meet informally at the Nye or Columbus facilities, the parties
agree to establish a Management-Union Committee (MUC) as set forth below.
SECTION 2.
The Workers' Committee will serve as representatives for the Union at
MUC meetings. The Company representatives will be comprised of Senior
Management personnel.
MUC meetings will normally be held during regular business hours, as
necessary, on at least a quarterly basis. Logistics for the meeting will be
mutually agreed upon, and coordinated through the Human Resources Department.
Senior Management from the Nye and Columbus facilities will discuss agenda items
with the Local Union President prior to the meeting. A formal meeting agenda
will be given to all committee members at least five (5) days prior to the
meeting, whenever possible.
For employees on their regularly scheduled shifts, time spent at MUC
meetings will be considered as time worked and will be paid at employee's normal
base rate. The Company will make every reasonable effort to schedule the MUC
members on shift during MUC meetings.
SECTION 3.
The Union and the Company agree that the Management-Union Committee is
limited to joint discussion and consultation, and it is in no way intended to
limit or restrict the rights reserved to the Union or the Company by this
Agreement. The Committee is not intended to take the place of normal
communication between employees and the Company, or to serve as an alternative
to the grievance and arbitration provisions of this Agreement, or to interfere
with or attempt to renegotiate any of the provisions of this Agreement, except
as set forth in Article XXIII, Section 4.
ARTICLE VII - GRIEVANCE AND ARBITRATION
SECTION 1.
It is recognized that, from time to time, dispute(s) between the
Company and its employees may occur. Employees are encouraged to settle these
differences as quickly as possible with their immediate foreman or supervisor.
If desired, the employee may be accompanied and assisted by a steward or
grievance committee member.
A "grievance" is a dispute as to the interpretation, application, or
alleged violation of any of the provisions of this Agreement.
4
<PAGE>
SECTION 2.
The Union will establish a grievance committee for dealing with
grievances for each of the following departments: Mine, Concentrator
Operations, Maintenance and Smelter/BMR. The Union will select up to three (3)
employees to serve on such grievance committees from each of the above
departments for the purpose of processing grievances which are not resolved in
Step 2. The Local Union President, or designee, shall be a member of each of
the above grievance committees. The Union will notify the Company, in writing,
of the names of the employees serving on the above grievance committees, and
such stewards as it may select, and of any changes in membership of same.
SECTION 3 - GRIEVANCE PROCEDURE.
Should a grievance arise that is not verbally settled with the
immediate supervisor, an earnest effort will be made to settle such grievance in
the following manner:
Step 1: Within fifteen (15) calendar days from the time the grievance arose,
- -------
the employee (or steward or grievance committee member) will present the
grievance, in writing, using the standard grievance form, to the immediate
supervisor, with a copy to the Human Resources Manager and the Local Union
President. The employee may be assisted by a member of the grievance committee
or a steward, if so desired. The supervisor will give a written reply within
seven (7) calendar days of said meeting.
Step 2: Failing satisfactory resolution at Step 1, the matter may be presented
- ------
to the grievant's Department Head, with a copy to the Human Resources Manager,
within ten (10) calendar days of the immediate supervisor's decision. The
Department Head will convene a meeting with the employee, a steward or grievance
committee member, and Human Resources Representative, within ten (10) calendar
days of notification from the Union, for the purpose of resolving said
grievance. The Department Head will give a written reply within seven (7)
calendar days of said meeting.
Step 3: Failing satisfactory resolution at Step 2, the matter may be presented
- ------
to the Director of Operations at Nye or Director of Processing at Columbus (as
appropriate), with a copy to the Human Resources Manager, within ten (10)
calendar days of the Department Head's decision, with a request that a meeting
be held with said Director, or designee, for the purpose of resolving said
grievance. The Director will convene a meeting with the grievance committee, a
representative from the Human Resources Department and another management
person. The meeting shall be held within fourteen (14) calendar days from the
time the matter is submitted to said Director. The Director will render a
written decision to the Local Union President within ten (10) calendar days of
the meeting.
SECTION 4 - ARBITRATION PROCEDURE.
If the Union disagrees with the decision rendered by the Director, it
may within thirty (30) calendar days from the date of the decision, refer the
grievance to the Federal Mediation and Conciliation Service for handling
according to the voluntary labor arbitration rules then pertaining. The parties
shall request the Federal Mediation Service to submit a panel of seven (7)
arbitrators. Each party shall have the right to reject one panel of
arbitrators. Strike of the first name shall be determined by the flip of a coin
and then the parties shall alternately strike a name until one arbitrator is
left. The arbitrator shall be notified of selection by a letter from the
parties requesting that the arbitrator set a time for the hearing, subject to
the availability of the Company and the Union representative. Arbitration
hearings shall be held in Billings, Montana.
The arbitrator is restricted to interpreting, applying, and
determining any violation of the provisions of this Agreement and cannot add to,
modify, delete, or otherwise change any provision of this Agreement. The
decision of the Arbitrator shall be final and binding upon the Company, the
Union, and the employee as it applies to the issue submitted for decision; and
shall conclusively determine the same issue for the life of this Agreement.
The Company and the Union shall bear the costs of their respective
expenses, and shall share equally the costs of the arbitrator.
5
<PAGE>
SECTION 5.
Any employee, if they so desire, shall have the right to have a
steward or a grievance committee member present if they are called into a
meeting with any foreman or supervisor, which the employee believes may result
in disciplinary action. The steward or grievance committee member so utilized
by the employee, will request the permission of their immediate supervisor to
leave their assigned work and shall report back to their supervisor immediately
after completing said meeting. Permission to leave will not be unreasonably
withheld.
SECTION 6.
A. For the purpose of counting "days", the day immediately following
the incident giving rise to the grievance, or the day immediately following the
day the employee learned, or should have learned, of the incident giving rise to
the grievance, shall be the first day.
B. The time limits set forth in this Article may be extended by
mutual agreement.
C. Failure by the Union to transmit a grievance to the next higher
step within the time limit provided will constitute a settlement of that
grievance on the basis of the last answer received. If the Company's decision
at any step of this procedure is not given within the time limit specified, the
grievance may be immediately processed to the next step, including arbitration.
D. The Human Resources Department will coordinate the scheduling of
the meetings required beyond Step 1 of the grievance procedure.
E. Grievance meetings will, as far as possible, be carried out
during the regular hours of work of the employee and/or steward or grievance
committee member involved in the grievance. Where a grievance meeting occurs
during the working hours of an employee and/or steward or grievance committee
member in attendance, the Company will pay for the time spent by said
participants which falls within their working hours.
SECTION 7.
If it is necessary for a steward or grievance committee member to take
time off during their regularly scheduled shift to investigate or resolve a
grievance, they shall request the permission of their immediate supervisor,
which permission shall not be unreasonably withheld. When a steward or
grievance committee member enters an area other than their normal work area,
they shall inform the supervisor of that area of their presence and reason for
being there. As well, a steward or grievance committee member shall inform
their supervisor when returning to their normal work area or duties.
SECTION 8.
In the event of discharge of an employee, a grievance may be presented
by either the employee or the Union no later than fourteen (14) calendar days
after the effective date of the discharge. The grievance must be presented, in
writing, to the Human Resources Manager, or designee, and shall be moved
directly to Step 3 of the grievance procedure. Employees who have been
discharged shall be provided either personally or by certified mail, a letter
stating the reason(s) for the discharge. A copy of said letter will be provided
to the Local Union President.
SECTION 9.
The Union, by not exercising any functions thus reserved to it or by
exercising any such function in a particular way, shall not be deemed to have
waived its right to exercise such function as set forth in this Agreement.
ARTICLE VIII - MEDICAL ARBITRATION
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<PAGE>
In the event a dispute arises concerning the physical fitness of an
employee to return to work or to continue to work, an attempt to resolve the
dispute by conference or consultation between a licensed physician selected by
the Company and a licensed physician selected by the Union, shall first be made.
If no satisfactory conclusion is reached by the above, and the Union
so elects, a Board of three (3) licensed physicians shall be selected, one by
the Company, one by the Union, and one by the two so-named, who shall decide the
case. The decision of the Board shall be final and binding on both parties to
this Agreement and retroactive to the date the dispute arose.
The Company shall bear the expense of the physician of its choice, and
the Union shall bear the expense of the physician of its choice. The expense of
the third physician shall be paid by the losing party. In the event that the
decision of the Board does not result in a clear-cut losing party, the expense
of the third physician shall be borne equally by the parties.
ARTICLE IX - SAFETY AND HEALTH
SECTION 1.
The Company and the Union believe an effective safety and health
program is essential for employee morale and well-being, as well as the long-
term viability of the Company. Accordingly, the Company recognizes its
obligation to prevent, correct and eliminate all unhealthy and unsafe working
conditions and practices. Employees are also expected to recognize, address and
report unhealthy or unsafe working conditions. Further, employees shall follow
all Company safety and health rules and procedures and comply with applicable
State and Federal regulations.
SECTION 2.
The Company will recognize one (1) Safety and Health Committee for the
Nye facilities and one (1) Safety and Health Committee for the Columbus
facilities. The respective Safety and Health Committees shall consist of
representatives elected annually by members of each work group at each location.
These Committees shall meet monthly to discuss safety and health issues,
recommend corrective actions, and communicate safety and health information back
to employees.
SECTION 3.
A Joint Safety and Health Review Committee (JSHRC) will be established
and will meet at least quarterly to review: the activities of the Safety and
Health Committees; the overall safety program; accident investigations and near
misses (as defined by MSHA); and to make appropriate training and other safety
and health related recommendations to the Company. The Union will notify the
Company in writing of the names of four (4) representatives selected as members
of the JSHRC. One (1) JSHRC member will be selected from each of the following
areas: Concentrator Operations, Maintenance, Mine, and Processing. There shall
be equal representation of Company and Union appointees on the JSHRC. Time
spent in JSHRC meetings and approved activities will be considered as time
worked. All matters considered and handled by the JSHRC will be reduced to
writing, and the joint minutes shall be maintained and communicated at the
monthly Safety and Health Committee meetings.
SECTION 4.
The Company will conduct occupational health and medical monitoring to
measure exposures in the workplace as appropriate, or upon the recommendation of
the JSHRC. Results will be distributed to the appropriate Safety and Health
Committees and the Local Union President, to the extent that employee
confidentiality is not compromised.
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SECTION 5.
The Company will pay for required medical examinations and the results
will be kept in the employee's confidential medical file. Upon request, a copy
of such records will be provided to the affected employee.
SECTION 6.
Personal protective equipment required by statute or for special tasks
not regularly performed shall be provided by the Company at no cost to the
employee. Upon employment, the Company will provide a one-time allocation of
other Company required personal protective equipment. The Company will allow
employees to purchase subsequent or additional personal protective equipment
through the warehouse at Company cost. Employees whose personal protective
equipment is damaged or destroyed through abnormal conditions, not attributed to
abuse, will receive replacement personal protective equipment through the
warehouse at Company expense.
Prescription safety glasses will be provided at a rate of one (1) pair
per year. Employees will bear the cost of the eye examination for prescription.
Replacement non-prescription safety glasses will be available for purchase at a
price of $1.00 per pair.
SECTION 7.
The Company will provide for an ongoing safety and health training
program meaningful to operating requirements. The Company agrees to review the
content of health and safety training courses with the JSHRC prior to selecting
the course and/or personnel for the training.
Time spent on Company approved training will be considered as time
worked. The cost of Company approved training shall be paid by the Company and
expenses reimbursed based on current Company policy.
SECTION 8.
No employee shall perform unsafe work, or be required to perform
unsafe work. Employees performing unsafe work or unsafe practices will be
subject to disciplinary action, up to and including discharge. Refusal to
perform unsafe work will not warrant or justify any present or future
disciplinary action.
SECTION 9.
No employee shall lose pay, benefits or any other rights provided for
under this Agreement for fulfilling any obligation consistent with this Article
and/or for exercising any right under any federal or state regulation.
ARTICLE X - SENIORITY, JOB BIDDING
SECTION 1.
Company seniority shall be determined by an employee's date of
-----------------
original employment with the Company, or predecessor companies Chevron or
Manville, if there has been no service break. Company seniority shall apply
only for purposes of applicable benefit plans and earned vacation.
SECTION 2.
Plant seniority shall be determined from the employee's date of
---------------
original employment with the Company at its facilities covered by this
Agreement, or date of reemployment if there had been a break in service. An
employee's plant seniority shall be lost if:
A. The employee quits.
8
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B. The employee is discharged for just cause.
C. Layoff in excess of two (2) years, or length of service,
whichever is less.
D. Failure to return to work within ninety (90) days after discharge
from military service.
E. Failure to return to work upon termination of a leave of absence
or extension thereof.
F. Promotion to a full-time non-bargaining unit position for a
period in excess of one (1) year.
If a former employee is re-employed subsequent to termination for an
above stated cause, said employee shall be considered a new employee for plant
seniority purposes.
SECTION 3.
Department seniority shall be determined by the date on which the
--------------------
employee begins continuous service in one of the following departments:
A. Mine
B. Concentrator and surface
C. Maintenance
D. Warehouse
E. Processing (Smelter/BMR)
The employee will lose department seniority in any previous department
once department seniority is established in any other department.
SECTION 4.
Seniority lists shall be compiled and revised as necessary, but no
less often than every three (3) months. The current seniority list will be
posted, with a copy to the Local Union President.
SECTION 5.
All new employees (including persons who have broken prior service)
shall be considered probationary employees for a period of seven hundred eighty
(780) hours worked. The probationary period may be extended by five hundred
twenty (520) hours worked, upon mutual agreement of the Company and the Union.
Probationary employees shall be subject to transfer, promotion, demotion, layoff
and/or discipline including discharge, at the sole discretion of the Company.
Employees continued in employment after the end of the probationary period shall
become full-time employees and shall be credited with continuous service from
the original date of hire.
SECTION 6.
In the event there is a tie based on seniority dates, seniority shall,
in each application, be decided by the flip of a coin.
SECTION 7.
Whenever the Company determines a vacancy, other than a temporary
vacancy, exists in any biddable job classification, or a new job becomes
available, the Company will post a job bulletin covering such classification on
the bulletin boards. The bid will remain posted for ten (10) consecutive days.
Employees desiring to bid on the vacancy shall apply in writing to the Human
Resources Department within the allotted ten (10) days. Upon request, a copy of
the job posting and of all bids shall be provided to the Local Union President.
At the end of ten (10) days, the Company will determine the successful candidate
based on qualifications to perform the job concerned and plant seniority. If no
qualified candidate applies or no bid is received, the job may be filled by the
Company from any other source. No employee shall be required to accept a
permanent job classification change, except in the case of demotion.
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For purposes of this Article, it is understood that an employee's
qualifications to perform a job will be based on any relevant job-related
criteria, including performance appraisal, work history, tests, licenses or
certifications, and the requisite skills, knowledge and ability.
Laid off employees, who have seniority rights, shall be eligible to
bid on all job postings.
SECTION 8.
From time to time, temporary vacancies of less than ninety (90)
calendar days, may occur due to illness, injury or an abnormal increase in
workload. Vacancies of this nature will be filled at the Company's discretion.
Full-time job assignments so filled shall be open for bidding within forty-five
(45) calendar days as set forth above.
SECTION 9.
In the event that the successful bidder proves unsatisfactory after a
thirty (30) calendar day break-in period, or chooses not to continue in the new
position within the thirty (30) calendar day break-in period, the employee shall
be returned to the position last held with no loss of seniority. The Company
shall then fill the position with the next most qualified candidate from the
original posting.
SECTION 10.
An employee accepting a job posting outside their department must
remain in the new department for a period of one (1) year before bidding for a
job posting in any other department. An employee must remain in a new job for a
period of four (4) months before bidding on another job posting within the
department.
ARTICLE XI - HOURS OF WORK, OVERTIME
SECTION 1.
A. The normal workweek shall begin at 12:01 a.m. each Monday and end
at 12:00 midnight the following Sunday.
B. The normal workday shall start at 12:01 a.m. and end at 12:00
midnight each calendar day.
C. Overtime shall be paid for all hours worked in excess of forty
(40) hours during a normally scheduled workweek.
D. Eight (8) hours per day shall constitute the normal workday for
some employees; ten (10) hours per day shall constitute the normal
workday for some employees; and twelve (12) hours per day shall
constitute the normal workday for some employees.
Changes in working schedules (other than temporary incidental changes)
shall be discussed at a Management-Union Committee (MUC) meeting prior to
implementation.
SECTION 2.
An employee who is called back for immediate work after leaving
Company property or who is called for immediate work outside their scheduled
working hours, and actually begins working, shall be paid time and one-half (1
1/2) for work actually performed or a minimum of four (4) hours at the straight-
time rate, whichever is greater. Employees will be compensated for call out
travel at the current Company mileage rate, up to a maximum of fifty (50) miles
each way.
SECTION 3.
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If an employee's regularly scheduled shift is canceled, then at
Company discretion, the employee will:
A. Be paid for four (4) hours, or
B. Be paid for hours actually worked, with a minimum of four (4)
hours.
Employees will receive no pay for a canceled shift if they are
notified of the cancellation at least ninety (90) minutes prior to the start of
their shift. Notification may be by telephone or word of mouth.
SECTION 4.
Upon prior approval of the supervisor(s) involved, employees may
mutually agree to exchange shifts or days off provided such exchange does not
cause any disruption or increased cost to the Company, and that the exchange
does not cause the employee to be on duty more than sixteen (16) hours in any
twenty-four (24) hour period. Such requests may not be unreasonably withheld.
SECTION 5.
No employee shall be rescheduled during any work week for the purpose
of avoiding the payment of overtime.
SECTION 6.
The Company agrees that overtime will be distributed as uniformly and
equally as possible and practical within each classification. Employees shall
not be forced to work overtime as long as there are employees in their
classification who are qualified and willing to work such overtime. If no
qualified employee(s) volunteer to accept requested overtime, the Company will
assign the overtime to a qualified employee, based on reverse order of
department seniority. Employees who decline offered overtime will be charged
for the overtime offered as if it has been worked for the purpose of overtime
allocation.
SECTION 7.
Any employee who has worked sixteen (16) consecutive hours shall be
compensated at double (2) time for all hours worked over sixteen (16). Any
employee who has worked sixteen (16) hours, or more, shall be allowed a rest
period of at least eight (8) hours with no loss of overtime pay.
SECTION 8.
Pyramiding of overtime paid for the same hours worked shall be
prohibited under this Agreement. In cases where more than one overtime rate may
be payable for the same hours worked, only that rate which is higher shall be
paid.
SECTION 9.
For the purpose of computing weekly overtime (only), the following
shall be considered as time worked: Sick/personal leave, hours for holidays,
jury/witness service as per Article XXI, union business involving contract
administration as defined in this Agreement or negotiations for the purpose of
renewing this Agreement, which fall on an employee's regularly scheduled work
day; or meetings, training and conferences required by the Company. Such hours
shall not exceed the number of hours in the employee's normal work day.
However, time paid for sick/personal leave will not count as time worked for
overtime purposes if an employee does not work the last scheduled full work day
of the week in which the overtime occurs.
SECTION 10.
Except for the first shift worked for each work rotation, an employee
shall be given twenty-four (24) hours notice of a change in shift. In the event
that such twenty-four (24) hours notice is not given, the employee shall
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receive one and one-half (1 1/2) times their base rate for all hours worked on
the first shift of the change. This does not apply to employees requesting a
change of rotation.
SECTION 11.
Employees working eight (8) hour shifts shall be paid a shift
differential of twenty-five cents (25c) per hour over the rate of the
classification on which they are working for all hours worked on the evening
shift, and fifty cents (50c) per hour over the rate of the classification on
which they are working for all hours worked on the midnight shift. Employees
working ten (10) hour shifts will be paid a shift differential of thirty-five
cents (35c) per hour over the rate of the classification on which they are
working for all hours worked on the evening or night shift. Employees working
twelve (12) hour shifts shall be paid a shift differential of fifty cents (50c)
per hour over the rate of the classification on which they are working for all
hours worked on the evening or night shift.
ARTICLE XII - LAY-OFF, RECALL, SEVERANCE PAY
SECTION 1.
For the purpose of lay-off and recall, qualifications to perform the
job(s) concerned and plant seniority shall apply. The last qualified full time
employee hired in each department shall be the first full time employee laid off
in each department, and so on. In the event of a layoff, a senior employee in
one department shall have the right to displace a junior employee in another
department, providing such employee is qualified to perform the job in question.
Upon recall, the last full time employee laid off will be the first full time
employee recalled, providing such employee is qualified to perform the job in
question. Full time employees will continue to accrue seniority, for bidding
purposes only, while on layoff. Full time employees will not be laid off until
all temporary employees have been laid off.
SECTION 2.
Any employee on layoff who has kept their address on file with the
Company will, for a period of two (2) years as provided in Article X, be given
notice at the address on file of a vacancy to be filled for which the employee
is eligible. The Company, if necessary, will fill such vacancy immediately on a
temporary basis. If the former employee cannot be located or does not respond
to the Company within ten (10) calendar days after a reasonable attempt to
notify has been made, the former employee shall lose seniority rights over other
employees on the layoff list and the next eligible employee shall be offered
such vacancy. If within the above ten (10) calendar day period, the laid-off
employee notifies the Company of their intention to accept such vacancy, the
Human Resources Department will coordinate return to work arrangements. A
recalled employee shall be allowed up to fourteen (14) days from the date of
such notice-of-acceptance to report for work without loss of seniority rights,
unless there is a documented temporary medical reason hindering reporting for
duty, or at Company request. Reinstatement shall be granted if the employee is
physically able to return to the previously held classification (or other
classification which the employee is eligible to return to), as determined by a
Company-paid physical examination (at the Company's discretion).
If a laid-off employee with recall rights refuses a reinstatement
offer at said employee's last classification, or refuses more than one
reinstatement offer outside their last classification, the employee forfeits all
recall rights.
SECTION 3.
Any full time employee who is laid off as a result of a long-term
reduction-in-force (over 90 days), and having been in continuous full-time
service of the Company for at least one (1) year immediately prior to such lay-
off shall be given one (1) week's pay for each year of service with the Company
at the employee's present base rate up to a maximum of twelve (12) weeks' pay.
Any full-time employee who is laid off and granted severance pay
pursuant to this section, if re-employed and subsequently laid off through a
reduction-in-force, shall be denied a second severance pay allowance unless
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continuous service since re-employment has been one year or more. Any employee
who is laid off or whose employment is severed and granted severance pay
pursuant to this Section, if re-employed within a length of time which is less
than that paid as severance, shall reimburse the Company the excess severance
pay within sixty (60) days of recall. Any excess severance pay repaid to the
Company as set forth above, shall be paid to the employee in the event of a
subsequent lay-off.
If a full time employee with one or more years of continuous service
with the Company is laid off because of force reduction after January 1st of any
year in which the employee has not taken vacation and/or used sick/personal
leave previously earned, shall receive, upon lay-off, vacation and/or
sick/personal leave pay equal to vacation and/or sick/personal leave pay earned
under this Agreement, plus pro rata pay for the vacation and/or sick/personal
leave being earned the year in which the lay-off occurs.
SECTION 4.
The Company will meet with the MUC Committee to discuss any layoffs or
reduction-in-force prior to implementation. The Company shall notify the Union
of any pending layoff or reduction-in-force as far in advance as possible. In
the event of a short-term layoff (less than ninety (90) days duration) the
Company will maintain its portion of the cost to maintain Company benefits
during said layoff.
ARTICLE XIII - CLASSIFICATION AND WAGES
SECTION 1.
The classifications and rates of pay attached hereto as Appendix "A"
shall be made a part of this Agreement and shall continue in effect for the
duration of this Agreement.
SECTION 2.
The proposed creation of a new classification(s), or the elimination
or change of an existing classification(s), shall first be discussed at a
meeting of the MUC committee. If the parties are unable to agree on such new
classification(s) or changes, the Union may file a grievance as set forth in
this Agreement.
SECTION 3.
Any work peculiar to a classification that requires special skills or
experience will normally be done by employees assigned to that classification.
SECTION 4.
Employees assigned to work in a classification above their current
classification will be paid the higher rate of pay while working in the higher
classification, unless such work in the higher classification is for the
purposes of training and qualifying for the higher classification.
SECTION 5.
Employees assigned to a higher classification from the Laborer
classification will be upgraded to the rate of pay of the job they are working
after completion of the probation period as set forth in Article X, unless the
Company documents that said employee is not qualified for the higher job.
SECTION 6.
If a full-time employee is assigned temporarily to a classification
paying a lower wage than their regularly assigned classification, no reduction
in wages shall be made.
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SECTION 7.
If a full-time employee is demoted, through no fault of their own,
from their regular classification, the employee shall receive the higher rate of
pay for a period one (1) week for each full year of service at the previous
classification, at the time assigned to the lower classification. There shall
be no pyramiding of rate retention under this provision.
SECTION 8.
Supervisory or other management personnel shall not perform work which
is normally performed by bargaining unit personnel, except for training or
instruction, investigation, testing, emergencies, and situations in which no
qualified bargaining unit employee is available to do the job required.
ARTICLE XIV - MEAL POLICY
SECTION 1.
A. Employees will be provided sufficient time to eat during their
regularly scheduled shift.
B. Any employee required to work more than two (2) hours beyond the
normal quitting time shall be provided with a meal. An additional meal will be
furnished for each additional four (4) hours of continuous work. It is
understood that the meals herein provided shall be furnished by the Company at
its expense. The employee shall be given sufficient time to eat the meal so
furnished and such time shall be considered as time worked. The Company may,
with the agreement of the involved employee(s), in lieu of a meal and time to
eat the meal, compensate the employee by the payment of one additional hour at
time and one-half (1 1/2).
ARTICLE XV - HOLIDAYS
SECTION 1.
The following days shall be considered holidays:
New Year's Day Good Friday
Memorial Day Independence Day
Labor Day Thanksgiving
Day after Thanksgiving Christmas Eve
Christmas Day Personal Holiday**
** Personal Holiday: Any day during the calendar year which the
employee elects to take with advance notice to, and approval from, the
Company as set forth in Section 6 of this Article.
SECTION 2.
Employees who are required to work on any of the above holidays shall
receive pay at the rate of time and one-half (1 1/2) for all hours worked, plus
holiday pay for the normal scheduled shift on such holidays. Each full time
employee not required to work on these holidays shall receive eight (8) hours
pay for such holidays at their regular rate of pay. Employees scheduled to work
on a holiday who fail to report to work will not receive holiday pay.
SECTION 3.
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When a Saturday or Sunday holiday is observed on a weekday (Monday
through Friday), the holiday pay shall apply on that weekday. Employees
scheduled to work seven (7) days per week rotating shift, will be paid holiday
pay on the calendar day on which the holiday occurs. The actual holiday
schedule shall be posted each year, as soon as practical.
SECTION 4.
An employee absent on either the scheduled workday before or after the
holiday will not receive pay if the absence is not approved by the Company. An
employee who is receiving disability benefits on both the scheduled workday
before and after the holiday will not receive pay for the holiday.
SECTION 5.
An employee who works on a higher rated job than their regular job on
the last scheduled shift immediately preceding and the first scheduled shift
following an unworked holiday will receive holiday pay for such holiday at the
rate of the higher rated job.
An employee who works on a higher rated job than their regular job on
a holiday shall be paid for such holiday at the holiday rate for the higher
rated job.
SECTION 6.
Employees will be entitled to one (1) personal holiday which may be
taken after the employee has completed their probationary period, provided at
least one (1) week's notice is given to the Company. Scheduled annual vacation
shall take precedence over the scheduling of personal holidays.
In the case where more than one employee per crew requests to take a
personal holiday on the same day, department seniority will govern if the
personal holiday had been scheduled between January 1 and March 31 of any year.
Personal holidays will be allocated on a first come, first serve basis if
scheduled after April 1 of any year.
Personal holidays will be allocated and granted based on operational
needs and the wishes of the employee, not unreasonably denied. No more than one
(1) person per crew shall be allowed off on personal holiday on any particular
day, except at Company discretion.
When an employee takes the personal holiday immediately prior to or
immediately after a holiday, such employee shall be paid in accordance with
Section 2 and Section 4 of this Article, provided that the employee works the
last scheduled shift prior to and the next scheduled shift after the holiday and
the personal holiday.
If the personal holiday is not scheduled to be taken in the calendar
year, the employee will be paid for eight (8) hours for the personal holiday at
their base rate. Personal holidays may not be banked or carried over into the
next year.
ARTICLE XVI - SICK-PERSONAL LEAVE/VACATION
SECTION 1 - SICK-PERSONAL.
A. Employees will accrue 3.33 hours per month, to be utilized for
sick-personal leave. Hours so accrued may not be taken until an employee has
completed their probationary period. Personal leave may be taken with the
approval of the supervisor, based on operating requirements. Approval of the
supervisor will not be unreasonably withheld.
At the beginning of each calendar year, an employee who has completed
one (1) full year of continuous service, will be credited with forty (40) hours
sick-personal leave. At the end of each calendar year amounts of
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unused sick-personal leave may be banked, up to a maximum of one hundred twenty
(120) hours. Unused sick-personal leave that is not banked will be paid to the
employee. The Company may require an employee absent due to non-occupational
illness or injury to bring a physician's statement to use banked sick-personal
leave.
B. Each employee must make every reasonable effort to provide the
supervisor with as much advance notice as possible for pre-scheduled events for
which the employee requests a sick-personal time off. Employees are encouraged
to schedule personal business during their scheduled time off. Any unscheduled
absence in which the employee misses three or more scheduled shifts due to
illness requires a statement from the employee's physician. Sick-personal pay
is calculated at the employee's base rate in effect at the time the absence is
taken.
C. Upon termination of employment (including retirement), employees
will be paid for any banked sick-personal leave.
D. Sick-personal leave accruals for employees who retire, are laid
off or terminate employment will be as follows: For each complete calendar
month worked during the current year, employees will receive 1/12 (one-twelfth)
of their sick-personal leave allotment. This is in addition to the vacation
earned during the prior year as set forth in this Article.
Vacation
- --------
Employees will be eligible for paid vacation time in accordance with
the following provisions. Employees are eligible to borrow up to forty (40)
hours vacation leave when they have completed six (6) months continuous service.
IN EACH CALENDAR YEAR IN AMOUNT OF PAID
WHICH AN EMPLOYEE COMPLETES VACATION AVAILABLE
--------------------------- ------------------
1st through 4th year of service 80 hours **
5th through 9th year of service 120 hours
10th through 19th year of service 160 hours
20th through 29th year of service 200 hours
30th and later years of service 240 hours
** Less any Vacation leave used between the completion of the
probationary period and the one-year anniversary date.
A. At the beginning of the calendar year, each full time employee
who has completed six (6) months continuous service will be credited with
vacation based on length of service. Employees must use a minimum of eighty
(80) hours of their vacation leave annually. Vacation must be taken in full-
shift increments, unless shift scheduling dictates otherwise. Vacation may, at
Company request, be "carried over" into the next calendar year. All unused
vacation will be paid to the employee. Vacation requests must be pre-authorized
by the supervisor at least one calendar week in advance.
B. Vacation schedules shall be posted or circulated among employees
during the month of January of each year for employees to indicate their
vacation preference. Vacation request forms will be utilized, with a copy of
the approved form returned to the employee. Vacation will be scheduled to meet
the preference of employees whenever possible. In case of conflict over any
vacation period, vacation will be granted in order of department seniority.
Where an employee elects to split vacation, that employee's seniority rights
shall prevail only for the first choice until all other employees in the
vacation unit have had their first choice. It is understood that the Company
retains the right to schedule vacations as operational conditions dictate;
however, no employee shall be forced to take vacation which has already been
approved at a time undesirable to the employee.
C. Holidays falling during an employee's vacation will be
compensated for by holiday pay or by a one-day extension of the vacation, as the
employee elects.
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D. Employees who do not take unused vacation at Company request may
be paid in lieu of, in addition to the amount earned by the employee based on
time actually worked. If, due to an extreme situation, the Company requires an
employee to work during a previously scheduled vacation, the Company will make
the employee whole for any verifiable, non-refundable expenses incurred by the
employee.
E. An employee may request their vacation date be changed and the
Company may grant such request, based on operating needs and the existing
approved vacation schedule.
F. An employee terminating service with the Company, for any reason,
who has not taken the vacation due that year shall be paid for the same at the
time of termination. In the event part of the vacation has been taken, the
employee will be paid for the unused portion not taken. In addition, for each
complete calendar month worked during the current year, employees will receive
1/12 (one-twelfth) of their earned vacation allotment.
ARTICLE XVII - UNION LEAVES OF ABSENCE
SECTION 1 - UNION LEAVE, SHORT TERM.
The Company may grant a leave of absence, without pay, for Union
officials or members to attend Union functions. Such leaves shall be granted
based on operating requirements of the Company, but shall not be unreasonably
withheld. Employees shall retain service, seniority and benefits during such
leaves of absence.
Requests for such leaves must be made by the Union to the Company, and
should be made with as much advance notice as possible, but not less than
fourteen (14) calendar days except in extenuating circumstances.
SECTION 2 - UNION LEAVE, LONG TERM.
Upon thirty (30) days written notice from the Union, a leave of
absence to perform work for the Union will be granted for one (1) employee for a
period of time of up to one (1) year. The employee may elect to return to the
employee's previous classification with a thirty (30) day written notice for
reinstatement from the Union to the Company.
Such employee will hold and accumulate seniority and continuous
service for all purposes during such leave. Upon request, the employee will be
allowed to continue Company Group Health Plan, and Long and Short Term
Disability Plans, by paying the full cost of such benefits during the period of
leave.
Reinstatement shall be granted if the employee is physically able to
return to the previously held classification, as determined by a Company paid
physical examination. If such employee is physically unable to return to the
previously held classification, the employee will be allowed to return to a job
the employee is qualified to perform, if such job exists.
ARTICLE XVIII - OTHER LEAVES OF ABSENCE
SECTION 1 - FAMILY AND MEDICAL LEAVE.
Employees who have been employed for at least one (1) year and worked
at least 1250 hours during the preceding twelve (12) month period, shall be
granted a leave of absence in the event of the birth or adoption of an
employee's child or the serious health condition of an employee's child, spouse
or parent, as set forth under the Family and Medical Leave Act (FMLA). Such
leave will be granted for up to a maximum of twelve (12) calendar weeks in a
rolling twelve (12) month period.
Request for such leave shall be made through the employee's immediate
supervisor. When the need for leave is foreseeable, the employee shall provide
at least thirty (30) days advance notice. An employee may request
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more than one (1) family leave within a twelve (12) month period, but the total
time on leave within that period may not exceed twelve (12) calendar weeks.
The employee will provide medical certification to the Company
confirming the need for family and medical leave. The request for such leave
must be renewed and new medical certification submitted to the Company every
thirty (30) days.
Credited service for all purposes under this Agreement will accrue
during the period covered by the family and medical leave of absence. The
employee returning from family and medical leave will be reinstated to the
position held prior to the leave, or a comparable position.
Any absence under this provision will not be considered an occurrence
under the Excessive Absenteeism Policy. There will be no requirement for the
employee to use vacation for an absence covered under this provision. However,
the Company will waive the seven (7) day advance vacation notice requirement for
an employee electing to use paid vacation for this leave. Employees whose
absences are covered under FMLA are required to utilize all available current
year sick/personal leave. Under this provision, an employee who has exhausted
vacation and other paid leave will be granted up to three (3) days paid leave,
in a calendar year.
Employees will not perform work for pay while on family and medical
leave, except with written permission of the Company. All other requirements
and conditions under the FMLA shall apply.
SECTION 2 - EMERGENCY LEAVE.
An employee may request a leave of absence without pay for a period
not to exceed twenty-four (24) hours to handle an emergency in the immediate
family and such request shall be granted. The Company may require an employee
given such leave to provide evidence of such emergency situation. Any
legitimate absence under this provision will not be considered an occurrence
under the Excessive Absenteeism Policy.
SECTION 3 - PERSONAL LEAVE WITHOUT PAY.
Personal Leave Without Pay may be granted for the purpose of
conducting legitimate personal matters when operating conditions permit and the
employee has no available Paid Leave. Such leave must be approved in writing by
the Department Manager. The Company makes no guarantee to reinstate any
employee beyond the first thirty-one (31) days of such leave.
SECTION 4 - ELECTION TO POLITICAL OFFICE.
Upon written application, an employee who has been elected or
appointed to a Federal, State or Local political office, may be granted an
unpaid leave of absence for the period of time necessary to fulfill the required
responsibilities of the position, or as required by law. Approval will not be
unreasonably refused.
Employee(s) on such a leave will hold and accumulate seniority and
continuous service for all purposes during such leave, and may be allowed to
continue all Company benefits by paying the employees' cost of such benefits
during the period of leave. The Company will make arrangements for the
employee(s) on leave to pay such costs.
ARTICLE XIX - MILITARY SERVICE
SECTION 1.
The Company shall accord to each employee who leaves active employment
to enter military service of the United States or Reserve or National Guard,
such rights as the employee shall be entitled to under the Uniform Services and
Reemployment Rights Act (USERRA).
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SECTION 2.
Any employee who is required to attend an encampment of the Reserve of
the Armed Forces or the National Guard shall be paid, for a period not to exceed
seventeen (17) days, and such pay shall be the excess of the employee's base
wages over Government pay for the period of military leave.
ARTICLE XX - BEREAVEMENT LEAVE
SECTION 1.
In the event of the death of an employee's spouse, children or step-
children, and upon notification and application to the employee's immediate
supervisor, an unpaid bereavement leave of up to five (5) days shall be granted
to the employee. Additional unpaid bereavement leave may be granted with
approval by the department head.
In the event of death in an employee's immediate family, and upon
notification and application to the employee's immediate supervisor, an unpaid
bereavement leave of up to three (3) days shall be granted to the employee.
Additional unpaid bereavement leave may be granted with approval by the
department head. Immediate family is limited to the employee's parents, step-
parents, brothers, sisters, grandparents and grandchildren, and the parents and
grandparents of the employee's spouse.
To offset the expenses associated with attending the funeral, any
employee who has completed the probationary period shall be paid the equivalent
of five (5) days base wages in the event of the death of spouse, children or
step-child, or three (3) days base wages in the event of the death of an
immediate family member.
ARTICLE XXI - JURY, WITNESS SERVICE
SECTION 1.
Employees selected for jury duty or subpoenaed for witness service are
expected to report for such jury duty or witness service, and will be allowed
the necessary time off to perform such service. Employees shall contact their
immediate supervisor prior to reporting for jury duty or subpoenaed witness
service. An employee who reports and is then released from such service shall
immediately contact the employee's supervisor to coordinate return to work. The
Company will make reasonable allowances for travel and shift schedules.
Permanent employees who are absent because of jury duty, government
subpoena where the Company is not a party, or Company subpoena, will be paid the
difference between the jury duty or specified witness pay and their normal base
wages for scheduled shifts missed. Employees will be required to provide
documentation of such service to receive applicable pay.
ARTICLE XXII - CONTRACTING OUT
SECTION 1.
The Company, having the availability of equipment, skills, manpower,
or the time to do the work, shall not contract out classified work now being
done by employees of the Company as long as there are qualified employees or
qualified former employees with re-employment rights. This shall not apply to
the installation of equipment or construction or any other activities not
ordinarily done by employees of the Company.
SECTION 2.
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Before commencing any major contract job to be performed on the
premises, the Company will notify the Local Union President or designee, in
writing, describing the nature, scope, and expected duration of the work to be
performed. The Company further agrees that it will meet, as necessary, with the
Local Union President or designee, to discuss information concerning contracting
out. Requests for such meetings shall not be unreasonably denied.
ARTICLE XXIII - MISCELLANEOUS
SECTION 1 - COPIES OF AGREEMENT.
The Company and the Union desire every employee to be familiar with
the provisions of the Collective Bargaining Agreement and employee's rights and
duties under it. The Company shall print and provide a copy of this Agreement
in booklet form to each employee, plus twenty-five (25) extra copies for the
Union.
SECTION 2 - BULLETIN BOARDS.
The Company shall provide for secure bulletin boards, one at the
Smelter and one at the main entrance to the Nye operation, to accommodate
otherwise lawful official Union notices and announcements. The Union is
responsible for all postings on Union bulletin boards.
SECTION 3 - PERSONNEL RECORDS.
Employees in the bargaining unit shall have access to their own
personnel file, by appointment with the Human Resources Manager, for the purpose
of reviewing it in person. A Union representative may accompany the employee,
with the employee's permission.
Entries placed in an employee's permanent personnel file shall be in
writing. A copy of such entries shall, upon request, be given to the involved
employee. An employee may elect to provide a copy to their Union
representative. The employee may also make a written reply to any disciplinary
action and have same placed in the permanent personnel file.
The Company will provide, upon request, relevant and necessary
information, to the Union, in order to administer the contract during its term.
SECTION 4 - AMENDMENTS.
This Agreement during its life may be amended only by mutual consent
of the parties hereto. Any amendments made to this Agreement shall be reduced
to written form and shall be duly signed by the authorized representatives of
the Company and the Union.
SECTION 5 - BOOT ALLOWANCE.
The Company shall provide a safety shoe/boot allowance of up to
$100.00 per contract year per employee, when the employee provides a receipt for
same.
SECTION 6 - COMPANY POLICIES.
The following Company Policies are included in this Agreement by
reference:
1. Conflict of Interest
2. Discipline
3. Drug and Alcohol
4. Employee Parking
20
<PAGE>
5. Environmental Compliance
6. Equal Employment Opportunity
7. Excessive Absenteeism
8. Maintenance Tool Replacement
9. Reporting Accident/Injury
10. Reporting Off or Late
11. Returning to Work after Illness or Injury
12. Ride Share Program
13. Safety and Health
14. Security
15. Sexual Harassment
16. Solicitation
17. Weapons
It is understood that in the case of any conflict between this
Agreement and Company Policy, this Agreement prevails.
SECTION 7 - SERVICE OF NOTICE.
Whenever provision is made herein for service of notice, such notice
shall be served:
A. By Personal Service: COMPANY: Manager of Human Resources,
Stillwater Mining Company, or designee in the Manager's absence. UNION:
President (Chair, Worker's Committee), or in the President's absence, to the
Financial Secretary-Treasurer of Local 2-1.
B. By Certified Mail, Return Receipt Requested: COMPANY: Manager
of Human Resources, Stillwater Mining Company, HC 54, Box 365, Nye, MT 59061.
UNION: President (Chair, Worker's Committee), Local 2-1 OCAWIU, P. O. Box 69,
Absarokee, MT 59001, with a copy to International Representative, OCAWIU, P. O.
Box 21635, Billings, MT 59104.
C. Date of service shall be the date of personal service or the date
the notice is posted by the certified mail receipt, properly addressed to the
party being served.
ARTICLE XXIV - MINE/PLANT CLOSURE
The Company agrees it will notify the Union in writing at least ninety
(90) days in advance of shutdown of any of the facilities covered by the
Bargaining Unit which involve permanent transfer or layoff of employees in the
Bargaining Unit. The Company and the Union shall meet within fifteen (15) days
thereafter to bargain in good faith regarding the effect and possible options
for employees and the Company.
ARTICLE XXV - VALIDITY
SECTION 1.
Nothing contained in this Agreement shall be construed in any way as
interfering with the obligation of the parties hereto to comply with any and all
State and Federal laws, or any rules, regulations, and orders of duly
constituted authorities pertaining to matters covered herein, and such
compliance shall not constitute a breach of this Agreement.
SECTION 2.
If any court shall hold any part of this Agreement invalid, such
decision shall not invalidate the entire Agreement.
21
<PAGE>
ARTICLE XXVI - BENEFITS
SECTION 1.
The Company agrees that it will not withdraw or reduce any of the
present benefit plans or benefits, namely:
401(k) Savings Plan
Health Benefit Plan (Blue Cross/Blue Shield)
Wellness Program (if available)
Dental Plan
Prescription Drug Plan
Life Insurance
Supplemental Life Insurance
Accidental Death & Dismemberment Insurance
Sick/Personal Leave
Short-term Disability Plan
Long-term Disability Plan
Employee Assistance Plan
SECTION 2.
In the event the Company desires during the term of this Agreement to
add, change or amend any such plans, it will present such changes to the Union
at least thirty (30) days prior to the proposed effective date of such changes,
with a complete explanation of the reasons for such changes. Within fourteen
(14) days after the Company gives the Union such notice, the Union will notify
the Company whether it has any objections to such changes. If the Union objects
to such changes or amendments, then the Company and the Union will meet to
negotiate the objections and attempt to settle the questions raised by the
Union. If the parties are unable to agree on the proposed amendments or
changes, they may not be implemented during the term of the Agreement.
22
<PAGE>
IN WITNESS WHEREOF the parties have caused this instrument to be
executed by their duly authorized representatives this first day of July, 1996:
EFFECTIVE JULY 1, 1996
OIL, CHEMICAL & ATOMIC WORKERS STILLWATER MINING COMPANY:
INTERNATIONAL UNION - LOCAL 2-1:
/s/ D. EDWARDS /s/ GIL CLAUSEN
__________________________________ _________________________________
Dan C. Edwards Gil Clausen
International Union Representative Director of Operations
/s/ BRUCE KELLEY /s/ GREGG J. HODGES
__________________________________ _________________________________
Bruce Kelley, Local President Gregg Hodges,
Director of Processing
/s/ DICK CAMPBELL /s/ T. J. MCNEILL
__________________________________ _________________________________
Dick Campbell, Mine T. J. McNeill,
Maintenance Superintendent
/s/ JOHN F. EISENBRAUN /s/ LINDA M. SPRATT
__________________________________ _________________________________
John Eisenbraun, Smelter/BMR Linda Spratt,
Human Resources Manager
/s/ BILL EVANS /s/ JOHN E. THOMPSON
__________________________________ _________________________________
Bill Evans, Mill John Thompson,
Project Manager East Boulder
/s/ FARREL LIEN
__________________________________
Farrel Lien, Maintenance
/s/ BENJAMIN S. PALIN
__________________________________
Ben Palin, Mine
/s/ DENNIS A. STORCK
__________________________________
Dennis Storck, Mine
23
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statements on Form S-3 (Nos. 333-12455 and
333-12419) and in the Registration Statement on Form S-8 (No. 33-97358) of
Stillwater Mining Company of our report dated February 28, 1998 appearing on
page 30 of this Form 10-K.
PRICE WATERHOUSE LLP
Denver, Colorado
March 27, 1998
<PAGE>
Exhibit 23.2
[LETTERHEAD OF BEHRE DOLBEAR & COMPANY, INC.]
March 27, 1998
Stillwater Mining Company
717 Seventeenth Street
Suite 1480
Denver, CO 80202
Ladies and Gentlemen:
We hereby authorize the reference to Behre Dolbear & Company, Inc. ("Behre
Dolbear") and the Mineral Inventory of Stillwater Mining Company as of January
1, 1998 prepared by Behre Dolbear, in the Annual Report on Form 10-K of
Stillwater Mining Company, to be filed with the United States Securities and
Exchange Commission.
We also confirm that we have read the description of the Stillwater Mining
Company ore reserves as contained in the Annual Report on Form 10-K and have no
reason to believe that there is any misrepresentation in the information
contained therein that is derived from our report or known to us as a result of
services we performed in connection with the preparation of such report.
Sincerely,
BEHRE DOLBEAR & COMPANY, INC.
/s/ BERNARD J. GUARNERA
By: Bernard J. Guarnera
Title: President, Chief Executive Officer
and Chief Operating Officer
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<PAGE>
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