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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, 1999.
[_] 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
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1200 Seventeenth Street, Suite 900, Denver, CO 80202
(Address of principal executive offices and zip code)
(303) 352-2060
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common stock, $.01 par value The American Stock Exchange
Preferred Stock Purchase Rights The American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 1, 2000, assuming a price of $37.13 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
$1,426,353,331.
As of March 1, 2000, the company had outstanding 38,415,118 shares of common
stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, 12 and 13
incorporate by reference certain specifically identified portions of Stillwater
Mining Company's Proxy Statement for the registrant's 2000 Annual Meeting of
Stockholders.
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TABLE OF CONTENTS
PART I
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ITEMS 1 AND 2 BUSINESS AND PROPERTIES...................................... 3
ITEM 3 LEGAL PROCEEDINGS............................................ 23
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS...................................................... 23
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.............................. 24
ITEM 6 SELECTED FINANCIAL AND OPERATING DATA........................ 25
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 27
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.... 33
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 35
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 55
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT................................................... 56
ITEM 11 EXECUTIVE COMPENSATION....................................... 56
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................... 56
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 56
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.......................................... 57
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PART I
ITEMS 1 AND 2
BUSINESS AND PROPERTIES
INTRODUCTION AND 1999 HIGHLIGHTS
Stillwater Mining Company (the company) mines, processes and refines
palladium, platinum and associated metals (platinum group metals or PGMs) from a
geological formation in southern Montana known as the J-M Reef. The J-M Reef is
the only known significant source of platinum group metals outside South Africa
and Russia. Associated by-product metals of PGMs include rhodium, gold, silver,
nickel and copper. The J-M Reef is an extensive mineralized zone containing PGMs
which have been traced over a strike length of approximately 28 miles. All of
the company's current mining operations are conducted at the Stillwater Mine in
Nye, Montana. Expansion is under way at the Stillwater Mine and the company is
developing a second mine at the East Boulder project approximately 13 miles away
on the west end of the J-M Reef.
PGMs are rare precious metals with unique physical properties that are used
in diverse industrial applications and in the jewelry industry. The largest and
fastest growing use for PGMs is in the automotive industry for the production of
catalysts that reduce automobile emissions. Palladium is also used in the
production of electronic components for personal computers, cellular telephones,
facsimile machines and other devices, as well as dental applications. Platinum's
largest use is for jewelry. Industrial uses for 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.
At December 31, 1999, the company had proven and probable reserves of
approximately 36.3 million tons of ore with an average grade of 0.71 ounce of
PGMs per ton containing approximately 25.7 million ounces of palladium and
platinum in a ratio of approximately 3.3 parts palladium to one part platinum.
See "Business and Properties - PGM Ore Reserves".
Highlights of the 1999 year included:
. Revenues increased 43% to $152.7 million in 1999 as a result of record PGM
prices compared to 1998, and the company reported net income of $37.2
million in 1999 compared to a net income of $13.4 million in 1998.
. During 1999, the company continued to implement a plan announced in 1998
designed to increase annual PGM production from 444,000 ounces in 1998 to
an estimated annualized rate of 1.2 million ounces by the end of 2002. The
plan consists of an expansion of the existing Stillwater Mine from the
current production capacity of 2,000 tons of ore per day to 3,000 tons of
ore per day, the construction of a second mine approximately 13 miles to
the west of Nye, the East Boulder Project, designed to process ore at the
rate of 2,000 tons per day, and the expansion of the existing smelter and
base metals refinery. During 1999, the expansion at the Stillwater Mine
experienced difficulties associated with a lack of sufficient developed
working faces, increased dilution resulting from narrower ore width and
lower mine productivity which caused production to decrease to
approximately 409,000 ounces. The company has implemented programs to
address these issues and expects the Nye expansion to be completed during
2001, approximately one year behind the original schedule. The total
capital cost of the expansion program is currently estimated to be
approximately $385 million. This cost estimate is being reviewed by
Bechtel/MRDI. See "Business and Properties - Expansion Plan".
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. During 1999, the company mined approximately 688,000 tons of ore compared
to approximately 720,000 tons of ore mined in 1998. The cash cost of
production per PGM ounce was $199 in 1999 compared to $151 in 1998.
. Cash flow from operations increased to $67.8 million in 1999 compared to
$31.1 million in 1998.
. During 1999, $51.4 million of convertible subordinated notes were called
for redemption, and virtually all of the notes were converted to common
stock.
For a discussion of risks associated with the company's business, please
read "Business and Properties--Current Operations", "--Expansion Plan", and "--
Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
HISTORY OF THE COMPANY
Palladium and platinum were discovered in the J-M Reef by Johns Manville
Corporation geologists in the early 1970s. In 1979, a Manville subsidiary
entered into a partnership agreement with Chevron U.S.A. Inc. to develop PGMs
discovered in the J-M Reef. Manville and Chevron explored and developed the
Stillwater property and commenced underground mining in 1986.
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 sold a portion of its shares
through the offering reducing its 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. This plateau is deeply dissected by several
rivers and their tributaries, including the Stillwater River towards the eastern
end of the reef 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,
with the heavier, more basic, darker minerals crystallizing first, and sinking
towards the bottom, 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. The reef has been identified for 28 miles in an east-
southeasterly direction.
The PGMs, which consist primarily of palladium, platinum and a minor amount
of rhodium, are concentrated in one principal layer along with small amounts of
nickel, copper, silver and gold. 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 mineralized
horizon has been demonstrated to have a vertical continuity exceeding 6,000
feet. Additionally, one exploration hole in the Stillwater Valley has confirmed
the continuity of the reef to the 1,400-foot elevation. Geological and
geophysical evidence suggests that the J-M Reef extends downward beyond the
limits of currently available
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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 platiniferous Merensky Reef 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. The Merensky
Reef, however, has a substantially longer known surface strike length compared
to the strike length of the J-M Reef.
PGM ORE RESERVES
The following table sets forth the company's proven and probable
palladium and platinum ore reserves as of December 31, 1999 and 1998. The
reserves reflected below are based on a cut-off grade in 1999 and 1998 of 0.3
ounce of palladium plus platinum per ton, and assume prices for palladium and
platinum of $225 and $350 per ounce, respectively, in 1999 and 1998. Proven and
probable reserves give effect to an average mining dilution of 10% at zero grade
based on actual mining experience.
The December 31, 1999 and 1998 ore reserves were reviewed 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 prior to 1997. See "Business and
Properties - Risk Factors - Difficulty of Estimating Reserves Accurately."
ORE RESERVES (1)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------
Average Contained (3) Average Contained (3)
Tons (1) Grade (3) Ounces Tons (1) Grade (3) Ounces
(000's) (Ounce/Ton) (000's) (000's) (Ounce/Ton) (000's)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proven Reserves 1,764 0.74 1,311 1,884 0.74 1,399
Probable Reserves (2) 34,529 0.71 24,352 35,174 0.71 24,871
------- ---- ------ ------ ---- ------
Total Proven and Probable
Reserves 36,293 0.71 25,663 37,058 0.71 26,270
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(1) 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 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 high enough
to assume continuity. See "Business and Properties - Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Factors That May Affect Future Results and Financial
Condition."
(2) Total probable reserves include 13.3 million tons at December 31, 1999
and 1998 in the area of East Boulder. Significant capital investments
will be required to access the East Boulder reserves. See "Business and
Properties -Current Operations - East Boulder Project."
(3) Expressed as palladium plus platinum ounces per ton at a ratio of 3.3
parts palladium to one part platinum, before processing losses of
approximately 10%.
Reserves are consumed during mining operations and the company
generally replaces reserves by drilling on a close-spaced pattern 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 has
set a goal to establish sufficient reserves to support its mine development
objective of approximately two to three years of production.
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CURRENT OPERATIONS
Stillwater Mine
The company's current mining operations take place at the Stillwater
Mine, an underground mine accessing the J-M Reef in Nye, Montana. In addition,
the company owns and maintains ancillary buildings which contain the
concentrator, shop and warehouse, changing facilities, headframe, hoist house,
paste plant, storage facilities and office. All structures are located within
its 1,340 acre operating permit area at the Stillwater Mine. The Stillwater Mine
is primarily located on federal land and is wholly owned and operated by the
company. 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 a five-mile segment of the J-M Reef,
between the elevations of 6,700 and 3,100 feet above sea level. Deep exploration
drill holes at the mine have confirmed the structure and mineralization of the
J-M Reef down to an elevation of 1,400 feet. The deposit appears to be open at
depth and will be further verified by additional drilling. Access to the ore at
the Stillwater Mine is by means of a 1,950-foot vertical shaft and by horizontal
adits and drifts driven parallel to the strike of the J-M Reef at vertical
intervals of between 200 feet and 300 feet. 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. Four major levels below the 5,000-foot level are now being developed
from the shaft and shaft ramp system.
The 1,950-foot vertical shaft was constructed in 1994 and 1997 as part
of the company's 1994 expansion plan designed to double output from 1,000 to
2,000 tons of ore per day and was sunk adjacent to the concentrator to increase
efficiency of the operation. All ore and waste are crushed before being hoisted
up the shaft. The production shaft and underground crushing station have reduced
haulage times and costs, improved the material handling of ore and waste and
improved the grinding capabilities of the concentrator. 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.
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 equipment. Sub-level stoping is a
mining method in which blocks of the reef approximately 50 feet high and up to
75 feet in length are extracted in 30-foot intervals utilizing mobile electric
hydraulic long-hole drills and remote control rubber tired load haul dump
equipment. The reef is mined in a retreat sequence and mined out areas are
filled with development waste. The company believes that mechanized mining
methods are safer, less expensive and more productive than traditional
"cut-and-fill" stoping. Mechanized mining accounts for approximately 94% of
total tons mined in 1999. Currently, direct costs per ton mined for mechanized
stoping are approximately 16% less than cut-and-fill stoping and is nearly 62%
more productive in terms of tons per man-hour. However, not all areas of the
reef are amenable to mechanized methods, and the company will continue to select
the appropriate mining method on a stope-by-stope basis.
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Production
During 1999, the company produced approximately 409,000 ounces of
palladium and platinum, compared to approximately 444,000 ounces in 1998 and
approximately 355,000 ounces in 1997. See "Selected Financial and Operating
Data". The company reduced its cash production costs from $174 per ounce in 1997
to $151 per ounce in 1998. In 1999, cash production costs increased to $199 per
ounce. The increase is the result of a decrease in the tons of ore mined in
1999, which occurred due to a lack of developed production faces, narrower ore
widths which caused increased mining dilution and lower ore grades and lower
mine productivity.
During 1998, the company announced the 1998 Expansion Plan designed
to, among other things, increase the Stillwater Mine production rate to 3,000
tons of ore per day and begin mining at East Boulder. The capital expenditure
budget relating to the expansion at the Stillwater Mine is approximately $75
million. At December 31, 1999, the company had invested approximately $47.9
million at the Stillwater Mine. See "Business and Properties - Expansion Plan".
Concentration
The company maintains a concentrator plant adjacent to the Stillwater
Mine. Ore is defined as material with a metal content of 0.3 ounce per ton or
more. 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 this 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.
During 1998, the concentrator's crushing, grinding and flotation
capacity were expanded to enable the processing of 3,000 tons of ore per day.
Mill recovery was 91% for 1999, 91% for 1998 and 89% for 1997.
In 1998, the company received an amendment to its existing Operating
Permit which provides for the construction of a lined tailings impoundment that
will serve the Stillwater Mine for the next thirty years. During 1999,
construction commenced on the tailings impoundment which is expected to be
completed in late 2000. See "Business and Properties - Current Operations -
Regulatory and Environmental Matters - Permitting and Reclamation".
Metallurgical Complex
Smelting. The company's metallurgical complex is located in Columbus,
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Montana and consists of the precious metals smelter and base metals refinery.
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 matte.
The matte is tapped from the furnace and granulated. The granulated
furnace matte is remelted in a top blown rotary converter (TBRC), which
separates iron from the converter matte. The converter matte is poured from the
top blown rotary converter, granulated and transferred to the base metals
refinery in two ton bags for further processing. The granulated converter matte,
approximately 10% of the original smelter feed weight, is primarily copper and
nickel sulfides containing about 2% PGMs.
The gasses 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.
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The initial expansion of the smelter was completed in 1997, increasing
the daily smelting capacity from 22 tons of concentrate per day to 32 tons of
concentrate per day. Feed and power control systems for the existing furnace
were modified, a second top blown rotary converter was added and the gas
handling and solution regeneration systems were upgraded. During 1999, the
company completed construction of an additional smelting facility designed to
provide smelting capacity of 100 tons of concentrate per day. The new facility
consists of a larger furnace, an additional top blown rotary converter, an
additional granulator and additional gas handling and solution regeneration
systems. The total cost of the facility was $38 million and is expected to
provide sufficient smelting capacity for the foreseeable future.
Base Metals Refinery. In 1996, the company constructed and
---------------------
commissioned the base metals refinery in Columbus, Montana, which utilizes the
patented Sherritt Process, whereby sulfuric acid is used to dissolve the nickel,
copper, cobalt and iron from the converter matte. This process upgrades the
converter matte product over 25 to 30 times (from 2% PGMs to 55-60% PGMs). The
base metals refinery has a capacity equivalent to more than 4,000 tons of ore
per day of mine production. The present plant is operated two shifts per day,
five days per week. Even though mine production ramped up during 1997 and 1998,
the base metals refinery was able to increase efficiencies and maintain a five-
day schedule.
The iron is precipitated out of the solution and returned to the
smelter to be processed and removed in the 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 solution. In the second half of 1999, the company completed
construction of the second stage of a copper/nickel refinery. As a result,
copper byproducts are now shipped to a copper smelter pursuant to a sales
contract.
The resulting PGM rich filter cake is shipped via air freight to four
different refineries and is returned to the account of the company as 99.95% PGM
sponge after approximately 26-35 days. The company pays its refiners a refining
charge in United States dollars per ounce for the toll processing of the base
metals refinery filter cake.
The 1998 expansion plan for the base metals refinery contemplates an
additional autoclave and an upgrade to the piping and ventricular systems
required to handle the additional material anticipated as a result of the Nye
and East Boulder expansions. The base metals refinery expansion is expected to
be completed in the second half of 2000.
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. During 1998, the company began processing small
shipments of spent auto catalysts and in 1999 processed approximately 356 tons
of spent catalysts.
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 and mineralization of the J-M Reef
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 will provide western access to the J-M Reef,
and is located approximately 32 miles south of Big Timber, Montana. The property
is accessed via a Forest Service road and all necessary
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utilities exist for operations. The East Boulder property is wholly owned by the
company. Development consists of construction of an underground mine and support
facilities, including an underground crusher, a surface concentrator and
ancillary surface facilities. These facilities have been designed to allow
expansion beyond 2,000 tons of ore per day should this be economically justified
and if existing operating permits are amended.
During the second quarter of 1998, the company accepted delivery of a
tunnel boring machine and commenced to drive a 18,500-foot long, 15-foot
diameter tunnel. This tunnel is expected to be completed early in the second
quarter of 2000 and cost approximately $21.3 million. The company acquired and
refurbished a second tunnel boring machine and commenced drilling a second
tunnel in the first quarter of 1999. At December 31, 1999, the first and second
tunnels had advanced 16,097 and 13,116 feet, respectively, of the 18,500 feet
toward the reef.
Additional activities commenced during 1999 which consisted of design
engineering, site work and construction of surface facilities, including the
tailings impoundment facility, concentrator facility, and new office/dry
facility. At December 31, 1999, the company had invested $87.8 million at the
East Boulder Project.
During the fourth quarter of 1999, the company contracted with two
independent engineering firms, Bechtel Corporation and MRDI, USA, a division of
AGRA Simons Limited, to conduct a project review of the project parameters for
the East Boulder Project. The study is expected to analyze the project's
development schedule, mine planning, capital and operating cost estimates.
During 2000, the company expects to continue underground development,
detailed engineering and construction of the concentrator and ancillary
facilities at East Boulder. The East Boulder mine is expected to begin
production in the first half of 2001. The estimated total cost of the project is
approximately $270 million. This estimated cost and schedule may change based
upon the Bechtel/MRDI report.
Other Properties
The company owns a 37,199 square foot smelter plant and 45,600 square
foot base metals refinery located in Columbus, Montana. The company also leases
a 10,100 square foot office building in Columbus and 4,777 square feet of office
space in Denver, Colorado. The company believes that its existing facilities are
adequate to service current production levels. The company also owns additional
parcels of land totaling approximately 3,024 acres in Stillwater County, Montana
and additional properties in Big Timber, Montana which will be used for
ancillary facilities. All of the company properties are subject to a mortgage in
favor of the company's banking syndicate. Non-mining properties are also subject
to a mortgage in favor of Chevron and Manville.
Sales and Hedging Activities
Palladium, platinum, rhodium and gold are sold to a number of consumers
and dealers 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 third party refineries to the account of the purchaser.
By-product metals are purchased at market price by customers, brokers or outside
refiners.
During 1998, the company entered into long-term sales contracts with
General Motors Corporation, Ford Motor Company and Mitsubishi Corporation, each
of whom represent more than 10% of the company's revenues. The contracts apply
to the company's production over the five-year period from January 1999 through
December 2003. Under the contracts, the company has committed between 90% to
100% of its palladium production. Palladium sales are priced at a discount to
market, with a floor price averaging approximately $225 per ounce. The company
has agreed to an average maximum palladium price of approximately $400 per ounce
on approximately 30% of its production. The remaining 70% of the company's
palladium production is not subject to any price cap. In addition, the company
has committed approximately 20% of its annual platinum production over the next
five years under these agreements. Platinum sales are priced at a discount to
market, subject to an average minimum price of $350 per ounce with an average
maximum price of $425 per ounce. The remaining 80% of the company's annual
platinum production is not committed under these contracts and remains
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available for sale at prevailing market prices. At February 29, 2000, the market
prices for palladium and platinum were $722 and $490 per ounce, respectively.
The sales contracts provide for adjustments to ounces committed based on actual
production. The sales contracts contain termination provisions that allow the
purchasers to terminate in the event the company breaches certain provisions of
the contract and the breach is not cured within periods ranging from 10 to 30
days of notice by the purchaser. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The company has historically entered into hedging instruments from time
to time to manage the effect of price changes in palladium and platinum on the
company's cash flow. Prior to 1999, hedging activities typically consisted of
"spot deferred contracts" for future deliveries of specific quantities of PGMs
at specific prices, 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. Following a
sharp rise in palladium spot prices, the company's deliveries against these
hedge contracts throughout 1997 and 1998 resulted in substantial hedging losses.
These losses totaled approximately $10.2 million in 1997, $26.8 million in 1998
and $0.06 million in 1999.
As of December 31, 1999, the company had sold forward 20,000 ounces of
platinum for delivery in 2000 at an average price of $404 per ounce. All forward
sales contracts are settled in cash at the delivery date. For anticipated
production in the year 2000, the company has established put and call options on
57,500 ounces of palladium production at $326 and $418 per ounce, respectively,
and on 1,000 ounces of platinum production at $349 and $370, respectively. For
anticipated production in the year 2001, the company has established put and
call options on 5,000 ounces of palladium at $327 and $419 per ounce,
respectively. The fair value of the company's put and call options was a loss of
approximately $1.1 million at December 31, 1999. These put and call options work
together as collars under which the company receives the difference between the
put price and market price only if the market price is below the put price, and
the company pays the difference between the call price and the market price only
if the market price is above the call price. The company's put and call options
are settled at maturity. The company has credit agreements with its major
trading partners that provide for margin deposits in the event that forward
prices for palladium and platinum exceed the company's hedge contract prices.
Title and Royalties
The company holds 995 patented and unpatented lode or millsite claims
covering approximately 16,000 acres of the J-M Reef located on federal land. 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 the 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 United States Forest Service (USFS) to ensure the
proper allocation of personnel and other resources required for the USFS to
complete the mineral examination process (the process by which a determination
is made as to whether a discovery of valuable minerals exists) 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 patent applications and
the 138 claims covered thereby will then undergo several levels of review within
the U.S. Department of the Interior before submission to the Secretary for
signature. There can be no guarantee as to whether patents will ever be issued
for the 138 claims currently being processed. Another company claim leased from
the Mouat family and acquired through the agreement with Anaconda Minerals Inc.
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 or millsite claim, in terms of location and maintenance, depends on
strict compliance with a complex body of federal and state statutory and
decisional law (as to unpatented mining claims) and the existence of a discovery
of valuable minerals. In addition, there are few
10
<PAGE>
public records that definitively control the issues of validity and ownership of
unpatented mining claims and millsites.
Of the company's 995 controlled claims, 869 are subject to royalties,
including 711 subject to a 5% net smelter royalty payable to Franco Nevada
Mining Corporation, Limited, 56 subject to a 0.35% net smelter royalty payable
to the Mouat family, and 102 subject to both royalties. During 1999, the company
paid royalties of approximately $3.0 million.
Safety
Current mine operations extend over five miles horizontally along the
Stillwater Complex and involve the use of heavy machinery and drilling and
blasting in confined spaces. The company's lost time accident rate was 6.0 in
1999. Management has implemented additional safety training programs and has
vigorously applied 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 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. Eighty 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 in 1999 with zero lost time accidents and once again was the
recipient of the Governor's Safety and Health Achievement Award. The complex is
the first ever three-time recipient of this Award. The smelter (for the seventh
consecutive year) and the base metals refinery (for the third consecutive year)
were granted the Sharp's Award, which exempts these facilities from routine
Occupational Safety and Health Administration inspections.
Employees
As of December 31, 1999, the company had 954 employees in the following
areas:
Number of
Area Employees
------------------------------ ----------
Mining 537
Processing 106
Maintenance 166
Technical Services 65
Safety and Environmental 18
Administration 51
Miscellaneous 11
-------
Total 954
Prior to 1995, the company's employees were non-union. In July 1995,
the hourly employees approved the appointment of the Oil, Chemical and Atomic
Workers Union (OCAW) as exclusive bargaining representative for substantially
all hourly workers. 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 initial OCAW contract expired in June 1999, and a new five year
contract was negotiated which covers substantially all hourly workers at both
the Nye and East Boulder operations. Prior to renegotiation, OCAW merged with
the International Paper Workers Union, resulting in the Paper, Allied
Industrial, Chemical and Energy Workers International Union (PACE). The new
contract calls for an annual average wage increase of approximately 4% per
annum. In exchange, various work rules were modified which the company believes
will increase worker productivity.
11
<PAGE>
The company competes for individuals skilled in underground hard rock
mining techniques. Although the company has historically experienced a shortage
of qualified miners, the economic downturn affecting gold and base metal mining
has made available a number of skilled underground miners. In addition, the
company has instituted a training program to bring new employees up to the
status of qualified, experienced underground miners bringing the total number of
miners at the end of 1999 to 271.
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 which could involve 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 recordkeeping 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. 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 Stillwater Mine and East Boulder property are located on the
northern edge of the Absaroka-Beartooth wilderness, about 30 miles north of
Yellowstone National Park. Due to the proximity of the company's operations to
Yellowstone National Park and a wilderness area, the company's operations are
subject to stringent environmental controls which may adversely impact the
company's revenues. For example, increasingly stringent requirements may be
adopted under the Clean Water Act, Clean Air Act or Endangered Species Act which
could require installation of environmental controls not required of competitors
located overseas or may prohibit all releases of hazardous substances from
mining and milling operations.
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 including current property owners for 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
12
<PAGE>
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 2,450 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, 69 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 Department of
Environmental Quality (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 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 tons of ore per day production cap. During 1997, as a result of this
application, the Montana DEQ began preparation of an Environmental Impact
Statement in order to assess the environmental impacts of the amendment. The
Montana DEQ issued the final Environmental Impact Statement in 1998, subsequent
to review of draft issuances and a public hearing. In November 1998, the Record
of Decision was issued by the Montana DEQ and the USFS. There were no material
changes from the original application.
In the first quarter of 1999, an environmental group filed a complaint
against the Montana DEQ challenging the adequacy of the Environmental Impact
Statement and reclamation provisions developed in connection with the amendment
to the permit. The company is not named in the complaint. The company believes
the complaint is without merit. The company is in the process of negotiating a
contractual resolution to the complaint with the plaintiffs. No assurances can
be provided that a settlement will be achieved. If the company is not able to
reach a contractual resolution with the plaintiffs, continued litigation
regarding the Environmental Impact Statement could delay expansion of the
Stillwater Mine and adversely impact the company's revenues.
Capital outlay for the proposed long-term tailings site is estimated to
be approximately $25 million. The current tailings facility, located adjacent to
the Stillwater Mine, is expected to meet the company's needs pending completion
of the Hertzler facility. A pipeline will connect the current and proposed
tailings impoundments. The company is currently negotiating with the local
government to obtain the necessary right of way to construct the required
pipeline and expects to resolve this issue during 2000.
The East Boulder project is permitted with all necessary environmental
permits, including an operating permit to produce 2,000 tons of ore per day. The
water quality discharge permit for the East Boulder mine is in the renewal
process, during which time the formerly-issued permit remains in effect.
13
<PAGE>
EXPANSION PLAN
The company is implementing an expansion plan with a long-term goal of
reaching an annualized rate of PGM production of approximately 1.2 million
ounces before year end 2002 (the "Expansion Plan"). The key components of the
Expansion Plan include increasing mine production at the Stillwater Mine from
2,000 to 3,000 tons of ore per day, construction of a tailings facility,
developing a new mine at East Boulder with a permitted capacity of 2,000 tons of
ore per day and expansion of the smelter and base metals refinery to accommodate
the increased throughput.
The company has completed a preliminary study setting forth the
expected costs and timetable for the Expansion Plan. Based upon studies by
independent mining engineers and the company's internal analyses, it was
estimated that the Expansion Plan would require capital investment of
approximately $385 million, as set forth below.
<TABLE>
<CAPTION>
Estimated Capital Investment for the Expansion Plan
---------------------------------------------------
<S> <C>
Expansion of Stillwater Mine from 2,000 to 3,000 tons of ore per day and
construction of a new tailings facility $ 75 million
Development and construction of East Boulder mine and ancillary facilities 270 million
Expansion of existing smelter and base metals refinery 40 million
---------------
Total estimated capital investment $ 385 million
</TABLE>
During the fourth quarter of 1999, the company contracted with two
independent engineering firms, Bechtel Corporation and MRDI, USA, a division of
AGRA Simons Limited, to conduct a project review of the project parameters for
the East Boulder Project. The study is expected to analyze the project's
development schedule, mine planning, capital and operating cost estimates. Based
upon the results of the project review, the company may revise its estimates
regarding the project schedule, production levels, capital and operating costs
or other factors affecting the project.
The key risks associated with the Expansion Plan are discussed under
the headings "Business and Properties - Risk Factors--Expansion Plan Risks-
Achievement of the company's long term goals is subject to significant
uncertainties" and "--Adverse Effects of Government Regulations and Permitting."
Expansion at the Stillwater Mine. In the second quarter of 1998, H.A.
--------------------------------
Simons Ltd., independent mining engineers, completed an engineering study on the
expansion of the Stillwater Mine. Based upon the engineering study and the
company's internal analyses, the expansion was estimated to cost approximately
$75 million and consists of modifications to the existing concentrator,
additional underground development and completion of a new tailings disposal
facility. During 1998, the concentrator expansion was completed and the
remaining expansion is expected to be completed by the end of 2001. When this
expansion is complete, it is expected that the Stillwater Mine will produce
approximately 700,000 ounces of PGMs annually. During 1999, the expansion at the
Stillwater Mine experienced difficulties associated with a lack of sufficient
developed working faces, increased dilution resulting from narrower ore widths
and lower mine productivity which caused production to decrease to approximately
409,000 ounces. The company has implemented programs to address these issues and
expects the expansion to be completed during 2001, approximately one year behind
the original schedule.
Development of East Boulder. The East Boulder site will provide western
---------------------------
access to the J-M Reef. The company has received all major permits necessary to
construct and operate a mining facility at East Boulder at a capacity of 2,000
tons of ore per day. Development at East Boulder will consist of construction of
mine and support facilities, including an underground crusher, a surface
concentrator and ancillary surface facilities. These facilities have been
designed, however, to allow expansion beyond 2,000 tons of ore per day should
this be economically justified and if existing operating permits are amended.
During 1998 and 1999, the company completed the tunnel boring machines
and began development work. Independent contractors have commenced work with the
company to drive two 18,500-foot long, 15-foot diameter tunnels to reach the J-M
Reef. The tunnel boring is expected to be completed early in the second quarter
of 2000 and as of February 29, 2000, the company has drilled approximately
17,260 feet in one tunnel and
14
<PAGE>
15,300 feet in the second tunnel. Based upon an independent engineering study by
Kilborn International Inc. (which covered primarily the underground mine and
mine-related infrastructure) and internal analyses, the company estimated the
development of East Boulder should cost approximately $270 million. The company
believes that the operating costs at East Boulder should be substantially
similar to the costs at the existing operations at the Stillwater Mine. When
completed, annual PGM production from East Boulder is expected to be
approximately 450,000 ounces. The key risks associated with the development of
the East Boulder mine are discussed under the headings "Risk Factors--Expansion
Plan Risks - Achievement of the company's long term goals is subject to
significant uncertainties" and "-- Adverse Effects of Government Regulations -
changes to regulations and compliance with existing regulations could increase
costs and cause delays."
Expansion of the Smelter and Base Metals Refinery. The company
-------------------------------------------------
processes concentrate produced from the Stillwater Mine at a smelter and a base
metals refinery located in Columbus, Montana. The company needed to expand these
facilities in order to accommodate the increased production expected from the
Stillwater Mine and the development of East Boulder. During 1999, the expansion
of the smelter was completed at a cost of approximately $38 million. Expansion
of the base metals refinery is expected to be completed in 2000. Based upon
independent engineering estimates and the company's internal analyses, the
estimated capital cost of expanding the smelter and the base metals refinery is
approximately $40 million.
COMPETITION: PALLADIUM AND PLATINUM MARKET
The following description of recent events relating to the palladium
and platinum markets is not intended to be complete, and readers are advised to
obtain their own information and advice regarding the commodities markets.
General
Palladium and platinum are rare precious metals with unique physical
qualities that 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 since 1992, but
the increased demand for palladium has been much more dramatic. According to
Johnson Matthey, PLC, demand for palladium has grown from 3.9 million ounces in
1992 to 8.4 million ounces in 1999 - more than double in seven years. Platinum
demand has increased from 3.8 million ounces in 1992 to 5.6 million ounces in
1999 - a 47% 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.
15
<PAGE>
The largest and fastest growing application for palladium is in the
automotive industry, which represented nearly 57% of the palladium demand for
1999. Demand for palladium in the next several years is projected to increase
significantly, driven primarily by its use in the production of automotive
catalysts which reduce harmful automobile emissions. 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 vehicles. 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
could have a marked effect on palladium usage and to an undetermined extent,
platinum.
Approximately 22% 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, although
substitution of base metals for lower end applications continue to move forward.
Dentistry has also been a major use for palladium due to the substitution of
palladium alloys for gold-based dental alloys, representing approximately 14% of
the palladium demand for 1999.
Approximately 48% 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.
Supply
According to Johnson Matthey, PLC, the primary production sources of
palladium and platinum are mines located in the Republic of South Africa and
Russia. South Africa provided approximately 25% of the palladium and 75% of the
platinum worldwide during 1999. 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. Russia provided approximately
65% of the palladium and approximately 16% of the platinum worldwide in 1999.
Approximately half of this supply is believed to have come from stockpiles.
Small amounts of palladium and platinum are also produced in Canada principally
as a by-product of nickel and copper mining.
Johnson Matthey, PLC also projects the supply of palladium to be flat
and may decline in the future. In the past, the primary producer of palladium,
Russia, has supplied over 65% of what is now an eight million ounce (demand)
world market. Russia is believed to produce approximately 2.5 million ounces a
year as a by-product of nickel mining, 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 foreseeable future.
However, if it were to be determined that Russia's stockpiles of palladium and
platinum were extensive, and if they still exist and were disposed of in the
market, the increased supply could adversely affect the market prices of
palladium and platinum.
In addition to these sources 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. The company also processes small
shipments of spent automotive catalysts.
Prices
The company's revenue and earnings depend upon world palladium and
platinum prices. The company has no control over these prices, which tend to
fluctuate widely. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Revenue" and "--Factors That May Affect
Future Results and
16
<PAGE>
Financial Condition." The volatility of palladium and platinum prices is
illustrated in the following table of the annual high, low and average prices
per ounce.
<TABLE>
<CAPTION>
PALLADIUM PLATINUM
--------------------------------------- -------------------------------------------
Year High Low Average High Low Average
--------- -------- -------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1995 178 128 151 459 403 424
1996 144 114 128 432 367 397
1997 239 118 177 497 343 396
1998 419 201 284 429 334 372
1999 454 285 358 457 342 377
2000* 785 433 546 573 414 479
* (Through February 29)
</TABLE>
All subsections under "Business and Properties" are qualified in their
entirety by reference to "Business and Properties - Risk Factors" and
"Management'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 May Affect Future Results and Financial Conditions."
Vulnerability to Metals Price Volatility--Changes in supply and demand could
reduce market prices.
Since the company's sole source of revenue is the sale of platinum
group metals, changes in the market price of platinum group metals significantly
impact profitability. Many factors beyond the company's control influence the
market prices of these metals. These factors include global supply and demand,
speculative activities, international political and economic conditions and
production levels and costs in other platinum group metal producing countries,
particularly Russia and South Africa.
Current economic and political events in Russia could result in
declining market prices. If Russia disposes of substantial amounts of platinum
group metals from stockpiles or otherwise, the increased supply could reduce the
market prices of palladium and platinum. Recent political instability in Russia
and mounting economic problems make Russian shipments difficult to predict and
the risk of sales from stockpiles more significant. Volatility was evident
during 1997, 1998 and 1999 when apparent tightness in the market for platinum
group metals led to high prices for current delivery contracts and
"backwardation," a condition in which delivery prices for metals in the near
term are higher than delivery prices for metals to be delivered in the future.
See "Business and Properties - Competition: Palladium and Platinum Market" for
further explanation of these factors.
The company enters into hedging contracts from time to time in an
effort to reduce the negative effect of price changes on the company's cash
flow. These hedging activities typically consist of contracts that required the
company to deliver specific quantities of metal in the future at specific
prices, 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 sales in 1997 and 1998. Following that time,
market prices for palladium to be delivered currently rose sharply. Because the
company's contracts were entered into before the price increase, deliveries
under the hedging contracts during 1997 and 1998 were made at below market
prices and the company experienced substantial hedging losses. In 1998, the
company realized $202 per ounce of palladium sold while average current delivery
prices were $286 per ounce. At February 29, 2000, the market price for palladium
and platinum were $722 and $490 per ounce, respectively. See "Business and
Properties - Current Operations - Sales and Hedging Activities" for a discussion
of the company's outstanding hedge obligations. Thus, while hedging transactions
are intended to reduce the negative effects of price decreases, they can also
prevent the company from benefitting from price increases. The company has
entered into long-term sales contracts that provide a
17
<PAGE>
floor price for sales of a portion of the company's production. During 1997,
1998 and 1999, respectively, the company reported hedging losses of
approximately $10.2 million, $26.8 million and $0.06 million, respectively. For
additional discussion of the marketing contracts, see "Business and Properties--
Current Operations--Sales and Hedging Activities".
Expansion Plan Risks--Achievement of the company's long-term goals is subject to
significant uncertainties.
The company's achievement of its long-term expansion goals depends upon
its ability to increase production substantially at the Stillwater Mine and
related facilities and its ability to develop the East Boulder mine. Each of
these tasks will require the company to construct mine and processing facilities
and to commence and maintain production within budgeted levels. Although the
company believes its goals and preliminary estimates are based upon reasonable
assumptions, the company may need to revise its plans and estimates for the
Stillwater Mine and East Boulder project as the projects progress. See "Business
and Properties - Current Operations - East Boulder Project" and "Business and
Properties - Expansion Plans" for further discussion of the company's expansion
plans. Among the major risks to successful completion of the Expansion Plan are:
. potential cost overruns during development of new mine operations and
construction of new facilities;
. possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits; and
. the inability to recruit sufficient numbers of skilled underground
miners.
In addition, a decrease in the market price for platinum group metals
would limit the company's ability to successfully implement and finance the
Expansion Plan.
Based on the complexity and uncertainty involved in development
projects at this early stage, it is extremely difficult to provide reliable time
and cost estimates. The company cannot be certain that either the Stillwater
mine expansion or the development of East Boulder will be completed on time or
at all, that the expanded operations will achieve the anticipated production
capacity, that the construction costs will not be higher than estimated, that
the expected operating cost levels will be achieved or that funding will be
available from internal and external sources in necessary amounts or on
acceptable terms.
During the fourth quarter of 1999, the company contracted with two
independent engineering firms, Bechtel Corporation and MRDI, USA, a division of
AGRA Simons Limited, to conduct a project review of the project parameters for
the East Boulder project. The study is expected to analyze the project's
development schedule, mine planning, capital and operating cost estimates. The
project's capital costs, operating costs and economic returns may differ
materially from the company's previous analyses, which were based largely on
preliminary engineering and cost estimates. The company will proceed with
further development of East Boulder as the engineering studies are completed and
the grade and continuity of the reserves are confirmed.
East Boulder is a development project and has no operating history.
Thus, estimates of future cash operating costs at East Boulder are based largely
on the company's years of operating experience at the Stillwater Mine portion of
the J-M Reef. Actual cash operating costs and economic returns may differ
significantly from those currently estimated or those established in future
studies and estimates. Although the company anticipates that the operating
characteristics at East Boulder will be similar to the Stillwater Mine, new
mining operations often experience unexpected problems during the development
and start-up phases, which can result in substantial delays in reaching
commercial production.
Compliance with Bank Credit Agreement
The company's agreement with the syndicate of banks, led by the Bank of
Nova Scotia, provides a credit facility that is being used to finance a portion
of the expansion plan and contains certain covenants relating to the
accomplishment of project milestones and certain other production covenants.
During 1999, the company did
18
<PAGE>
not comply with the production covenants. On October 29, 1999, the bank
syndicate waived the requirement to comply with the production covenants. This
waiver was extended to June 30, 2000 on February 22, 2000. The company expects
to comply with the debt covenants subsequent to the date the waiver expires.
However, in the unlikely event the company cannot comply with the debt
covenants, and pending final results of the project review, there can be no
assurance that the company will be able to renegotiate or extend the existing
waiver on the underlying credit agreement. If this occurs, the company would be
required to seek alternative financing, which may not be available, and could
adversely impact operating and capital costs or affect project completion.
Dependence on Agreements with Significant Customers
In the third quarter 1998, the company entered into long-term sales
contracts with General Motors Corporation, Ford Motor Company and Mitsubishi
Corporation covering the sale of palladium and platinum over the five-year
period from January 1999 through December 2003. Under these contracts, the
company has committed between 90% to 100% of its annual palladium production and
approximately 20% of its platinum production. Each contract with General Motors,
Ford and Mitsubishi represents over 10% of the company's revenues. The contracts
provide for floor prices on 100% of the company's palladium production sold
under the contracts at $225 per ounce, and a ceiling price of $400 per ounce on
approximately 30% of the company's palladium production sold under the
contracts. The market price for palladium on February 29, 2000 was $722. If
market prices continue substantially above $400 per ounce, the company will
forego significant revenue. The sales contracts contain termination provisions
that allow the purchasers to terminate in the event the company breaches certain
provisions of the contract and the breach is not cured within periods ranging
from ten to thirty days of notice by the purchaser. In addition, the contracts
contain force majeure provisions that allow for the suspension and, in one
instance, the termination of the contract upon the occurrence of certain events,
such as "acts of God," that are beyond the control of a contracting party and
that limit the party's ability to perform the contract.
The company, therefore, is subject to the customers' compliance with
the terms of the contracts, their ability to terminate or suspend the contracts
and the customers' willingness and ability to pay. In the event the company
becomes involved in a disagreement with one or more of its customers, their
compliance with these contracts may be at risk. For example, the company has
negotiated floor prices that are well above historical low prices for palladium.
In the event of a substantial decline in the market price of palladium, one or
more of these customers could seek to renegotiate the prices or fail to honor
the contracts. In such an event, the company's expansion plans could be
threatened. In addition, under the company's syndicated credit facility, a
default or modification of the sales contracts could prohibit additional loans
or require the repayment of outstanding loans. Although the company believes it
has adequate legal remedies if a customer fails to perform, termination or
breach could have a material adverse effect on the company's expansion plans and
results of operations. See "Business and Properties--Current Operations--Sales
and Hedging Activities" for additional information about the sales contracts.
Limited Availability of Additional Mining Personnel and Uncertainty of Labor
Relations
The operations of the company depend significantly on the availability
of qualified miners. Historically, the company has experienced high turnover
with respect to its miners. In addition, the company must compete for
individuals skilled in the operation and development of mining properties. The
number of such persons is limited, and significant competition exists to obtain
their skills. The company cannot be certain that it will be able to maintain an
adequate supply of miners and other personnel or that the company's labor
expenses will not increase as a result of a shortage in supply of such workers.
Failure to maintain an adequate supply of miners could adversely effect the
company's expansion plans and results of operations. The company currently has
approximately 954 employees, about 710 of whom are covered by a collective
bargaining agreement with PACE Local 8-001, expiring June 30, 2004. In the event
the company's employees were to engage in a strike or other work stoppage, the
company could experience a significant disruption of its operations and higher
ongoing labor costs, which could have a material adverse effect on the company's
business, financial condition and results of operations.
19
<PAGE>
Mining Risks and Potential Inadequacy of Insurance Coverage
Underground mining and the company's milling, smelting and refining
operations involve a number of risks and hazards, including environmental
hazards, industrial accidents, labor disputes, metallurgical and other
processing, smelting or refining problems, unusual and unexpected rock
formations, ground or slope failures, cave-ins, flooding and periodic
interruptions due to inclement or hazardous weather conditions or other acts of
God, mechanical equipment and facility performance problems and the availability
of materials and equipment. Such risks could result in damage to, or destruction
of, mineral properties or production facilities, personal injury or death,
environmental damage, delays in mining, monetary losses and possible legal
liability. Fatalities have occurred at the company's mine since operations began
in 1986. Industrial accidents could have a material adverse effect on the
company's business and operations. Although the company believes that it
maintains insurance within ranges of coverage consistent with industry practice,
it cannot be certain that this insurance will cover the risks associated with
mining or that the company will be able to maintain insurance to cover these
risks at economically feasible premiums. The company might also become subject
to liability for pollution or other hazards which it cannot insure against or
which it may elect not to insure against because of premium costs or other
reasons. Losses from such events could have a material adverse effect on the
company.
Adverse Effect of Governmental Regulations--Changes to regulations and
compliance with existing regulations could increase costs and cause delays.
The company's business is subject to extensive federal, state and
local environmental controls and regulations, including the regulation of
discharge of materials into the environment, disturbance of lands, threatened or
endangered species and other environmental matters. These laws are continually
changing and, as a general matter, are becoming more restrictive. Generally,
compliance with these regulations requires the company to obtain permits issued
by Federal, state and local regulatory agencies. 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. Nonrenewal of permits or the imposition of
additional conditions could have a material adverse effect on the company's
financial condition or results of operations.
The Stillwater Mine and East Boulder property are located on the
northern edge of the Absaroka-Beartooth wilderness, about 30 miles north of
Yellowstone National Park. Due to the proximity of the company's operations to
Yellowstone National Park and a wilderness area, the company's operations are
subject to stringent environmental controls which may adversely impact the
company's revenues. For example, increasingly stringent requirements may be
adopted under the Clean Water Act, Clean Air Act or Endangered Species Act which
could require installation of environmental controls not required of competitors
located overseas or may prohibit all releases of hazardous substances from
mining and milling operations.
Compliance with existing and future environmental laws and regulations
may require additional control measures and expenditures which the company
cannot predict. Environmental compliance requirements for new mines 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.
Expansion will require new environmental permitting at the Stillwater Mine and
mining and processing facilities at the East Boulder project.
For example, in April 1996, the company submitted a permit amendment
application for the expansion of the Stillwater Mine. This expansion proposal
included selection and construction of a new tailings impoundment and removal of
the 2,000 tons of ore per day production cap. During 1997, as a result of this
application, the Montana DEQ began preparation of an Environmental Impact
Statement in order to assess the environmental impacts of the amendment. The
Montana DEQ issued the final Environmental Impact Statement in 1998, subsequent
to review of draft issuances and a public hearing. In November 1998, the Record
of Decision was issued by the Montana DEQ and the USFS. There were no material
changes from the original application. An environmental group filed a complaint
to challenge the adequacy of the Environmental Impact Statement and reclamation
provisions developed in connection with the amendment to the permit. The company
is not named
20
<PAGE>
in the complaint, and the company believes the complaint is without merit. The
company is in the process of negotiating a contractual resolution to the
complaint with the environmental group. No assurances can be provided that a
settlement will be achieved. If the company is not able to reach a contractual
resolution with the plaintiffs, continued litigation regarding the Environmental
Impact Statement could delay expansion of the Stillwater Mine and adversely
impact the company's revenues.
The company's activities are also subject to extensive federal, state
and local laws and regulations governing matters relating to mine safety,
occupational health, labor standards, prospecting, exploration, production,
exports and taxes. Compliance with these and other laws and regulations could
require significant capital outlays. The company has not experienced any
material difficulty emanating from these extensive laws and regulations in the
past, nor does it have any basis to expect any material difficulty in the
future. The company believes that it has successfully complied in all material
respects with all federal, state and local requirements for the current
operations and planned expansion of its mining activities at the Stillwater
Mine.
Dependence on a Single Mine--The Stillwater Mine is the company's sole source of
revenues.
All of the company's revenues are currently derived from its mining
operations at the Stillwater Mine. Although the company has not experienced any
serious production interruption since operations began in 1986, an interruption
in operations at the Stillwater Mine or at any of the company's processing
facilities would have a material adverse effect on the company's ability to
generate revenues and profits in the future.
Uncertainty of Title to Properties
The validity of unpatented mining claims on public lands, which
constitute most of the property holdings of the company, is often uncertain and
may be contested and subject to title defects. 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 or millsite, in terms of
its location and its maintenance, depends on strict compliance with a complex
body of federal and state statutory and decisional law and, for unpatented
mining claims, the existence of a discovery of valuable minerals. In addition,
few public records exist to definitively control the issues of validity and
ownership of unpatented mining claims or millsites. While the company has
obtained various reports, opinions and certificates of title for some of the
unpatented mining claims or millsites it owns or to which it has the rights in
accordance with what the company believes is industry practice, the company
cannot be certain that the title to any of its claims may not be defective.
Difficulty of Estimating Reserves Accurately
While the company's 1999 ore reserves have been affirmed and verified
by independent consultants, the ore reserve estimates are necessarily imprecise
and depend to some extent on statistical inferences drawn from limited drilling,
which may prove unreliable. Reserve estimates are expressions of judgment based
on knowledge, experience and industry practice. Although the company believes
its estimated ore reserves are well established, it cannot be certain that its
estimated ore reserves are accurate, and future production experience could
differ materially from such estimates. Should the company encounter
mineralization or formations at any of its mines or projects different from
those predicted by drilling, sampling and similar examinations, reserve
estimates may have to be adjusted and mining plans may have to be altered in a
way that might adversely affect the company's operations. Declines in the market
prices of platinum group metals may render the mining of some or all of the
company's ore reserves uneconomic. The grade of ore may vary significantly from
time to time and between the Stillwater Mine and the East Boulder Project, as
well as with any operation. The company cannot give any assurances that any
particular level of metal may be recovered from the ore reserves. Moreover,
short-term factors relating to the ore reserves, such as the need for additional
development of the ore body or the processing of new or different grades, may
impair the profitability of the company in any particular accounting period.
21
<PAGE>
Complexity of Processing Platinum Group Metals
Producers of platinum group metals are required to conduct additional
processing procedures and construct and operate additional facilities compared
to gold and silver producers. In addition to concentration facilities at the
mine site, the company operates its own smelting and base metals refining
facilities in Columbus, Montana to produce a filter cake that is shipped for
final refining by a third party refiner. The operations of a smelter and
refinery by the company require environmental steps and operational expertise
not required of most other precious metals producers. Though the company has not
experienced any material adverse effects to date, this additional complexity of
operations poses additional operational and environmental risks.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning the individuals who
are executive officers of the company.
Name Age Position
- --------------------------------------------------------------------------------
William E. Nettles 56 Chairman of the Board and Chief Executive Officer
Harry C. Smith 51 President and Chief Operating Officer
James A. Sabala 45 Vice President and Chief Financial Officer
Vernon Baker 41 Vice President, Nye Operations
The following are brief biographies of the company's executive and
other officers:
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.
HARRY C. SMITH was appointed President and Chief Operating Officer
effective August 30, 1999, and has responsibility for the company's Montana
operations. Mr. Smith was most recently Group General Manager and Senior Vice
President North America for BHP Copper in Tucson, Arizona. Prior to the
acquisition of Magma Copper Company by BHP Copper in 1996, he was Vice President
of Magma Copper and President of Magma Nevada Mining Company for four years. His
underground mining experience includes over 20 years in positions of increasing
responsibility in the areas of production, mine development, concentrating and
maintenance. Mr. Smith holds a Bachelor's Degree in Geology from Whittier
College.
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, Mr. Sabala was with Price Waterhouse & Co. as a Certified
Public Accountant. He received a Bachelor of Science in Business, summa cum
laude, with a major in Accounting from the University of Idaho.
VERNON BAKER is currently Vice President, Nye Operations. Mr. Baker
joined the company in April 1999 after twelve years with Homestake Mining
Company serving in various positions, including General Manager at the Homestake
Mine in South Dakota. Previously, Mr. Baker was employed by BHP World Minerals
from 1991 - 1992 as a Mining Engineer. He received a Master's of Business
Administration from the Stanford Graduate School of Business and has a
Bachelor's of Science degree in Mining Engineering from the University of
Nevada.
22
<PAGE>
Set forth below is certain information concerning other officers of
the Company:
CHRIS ALLEN is currently Vice President, Environmental 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.
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 in business, summa cum laude, from Regis University
and her Master of Business Administration from the University of Colorado.
ROBERT LAPPLE is currently Vice President, Metals Marketing. Mr.
Lapple joined the company in 1998. Prior to joining the company, he was Vice
President of Precious Metals with Gerald Metals, Inc./PGP Industries Inc. from
1996 to 1998. From 1995 to 1996 he was a vice president with the Moccatta Group
of Standard Chartered Bank and served as a vice president with Engelhard
Corporation from 1989 to 1995. From 1983 to 1989 he served in a number of roles
of increasing responsibility with Gerald Metals, Inc. He received his Bachelor
of Arts in economics from Davidson College.
JOHN STARK was appointed Vice President, Human Resources on September
21, 1999. Mr. Stark has a varied background in corporate administrations and
human resources. He was previously with Molycorp, Inc. since 1996; Western
Mobile, Inc., an international construction material supplier, from 1992 to
1996; and with AMAX Inc. for 13 years until 1992. Mr. Stark received his Juris
Doctor degree from the University of Denver School of Law and holds a Bachelor
of Arts degree in economics from the University of Montana.
ITEM 3
LEGAL PROCEEDINGS
The company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
company's consolidated financial position, results of operations or liquidity.
Please see "Business and Properties - Current Operations - Regulatory and
Environmental Matters - Permitting and Reclamation" for a discussion of the
Montana DEQ complaint.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
23
<PAGE>
PART II
ITEM 5
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The company's common shares are traded on the American Stock Exchange,
Inc. ("AMEX") under the trading symbol "SWC". For the period from January 1,
1998 through December 31, 1999 the high and low sales prices for the company's
common stock for each quarter as reported by the AMEX were:
1999 HIGH LOW
--------------------------------- --------------- ----------------
First Quarter $29.13 $22.25
Second Quarter 34.50 26.13
Third Quarter 32.88 21.50
Fourth Quarter 32.38 19.38
1998 HIGH LOW
--------------------------------- --------------- ----------------
First Quarter $16.88 $10.58
Second Quarter 19.29 14.92
Third Quarter 21.29 11.58
Fourth Quarter 27.33 19.42
The prices for the company's common stock have been retroactively
adjusted to reflect a three-for-two stock split effective December 31, 1998.
Stockholders. As of March 1, 2000, the company had 502 stockholders of
record.
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. Covenants in the Scotiabank Credit
Facility significantly restrict the payment of dividends on common stock.
24
<PAGE>
ITEM 6
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement
Revenues (1) $ 152,747 $ 106,723 $ 76,877 $ 56,214 $ 51,335
-------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of metals sold (1) 81,451 66,793 67,948 50,175 45,864
Depreciation and amortization 13,557 11,642 11,658 8,699 5,749
-------------------------------------------------------------------------------------------------------------------
Total cost of sales 95,008 78,435 79,606 58,874 51,613
General and administrative expenses 7,305 5,102 3,479 2,532 1,974
-------------------------------------------------------------------------------------------------------------------
Total costs and expenses 102,213 83,537 83,085 61,406 53,587
-------------------------------------------------------------------------------------------------------------------
Operating income (loss) 50,434 23,186 (6,208) (5,192) (2,252)
Interest income 1,048 1,354 1,073 2,138 2,795
Interest expense, net of capitalized interest (2) (137) (2,774) (3,608) (1,461) (431)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
cumulative effect of accounting change 51,345 21,776 (8,743) (4,515) 112
Income tax (provision) benefit (14,174) (8,380) 3,366 1,736 (44)
-------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of accounting 37,171 13,386 (5,377) (2,779) 68
change
Cumulative effect of accounting change, net of income
tax provision of $8,677 (3) - - - 13,861 -
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 37,171 $ 13,386 $ (5,377) $ 11,082 $ 68
-------------------------------------------------------------------------------------------------------------------
Basic earnings per share (4)
Income (loss) before cumulative effect of
accounting change $ 1.01 $ 0.43 $ (0.18) $ (0.09) $ -
Cumulative effect of accounting change (3) - - - 0.46 -
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.01 $ 0.43 $ (0.18) $ 0.37 $ -
-------------------------------------------------------------------------------------------------------------------
Diluted earnings per share (4)
Income (loss) before cumulative effect of
accounting change $ 0.96 $ 0.38 $ (0.18) $ (0.09) $ -
Cumulative effect of accounting change (3) - - - 0.46 -
-------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.96 $ 0.38 $ (0.18) $ 0.37 $ -
-------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding (4)
Basic 36,758 31,472 30,435 30,140 30,102
Diluted 38,597 35,019 30,435 30,140 30,102
-------------------------------------------------------------------------------------------------------------------
Cash Flow Data
Net cash provided by (used in) operating activities $ 67,818 $ 31,090 $ (1,889) $ 14,464 $ 6,009
Capital expenditures (5) 194,253 77,963 15,110 58,413 46,133
Balance Sheet Data
Current assets $ 45,710 $ 85,378 $ 35,303 $ 49,061 $ 44,974
Total assets 478,838 335,937 229,219 239,910 162,175
Current liabilities 36,989 26,617 12,249 15,833 10,370
Long-term debt and capital lease obligations 84,404 58,992 61,513 62,563 8,713
Shareholders' equity 323,104 228,007 141,392 143,666 132,305
Working capital 8,721 58,761 23,054 33,228 34,604
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(footnotes on following page)
25
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data
Tons milled (6) 689 719 577 446 398
Mill head grade (7) 0.66 0.69 0.70 0.67 0.67
Ounces of palladium produced 315 340 271 196 169
Ounces of platinum produced 94 104 84 59 51
------------------------------------------------------------------------------------------------------------------
Total ounces produced (8) 409 444 355 255 220
------------------------------------------------------------------------------------------------------------------
Ounces of palladium sold 314 337 288 214 180
Ounces of platinum sold 94 103 91 62 54
------------------------------------------------------------------------------------------------------------------
Total ounces sold (8) 408 440 379 276 234
------------------------------------------------------------------------------------------------------------------
Price and Cost Data (9)
Average realized price per palladium ounce $372 $202 $144 $144 $157
Average realized price per platinum ounce 383 377 388 410 425
Combined average realized price per ounce 375 243 203 204 219
Cash costs per ton milled $118 $ 93 $107 $105 $119
Cash costs per ounce produced 199 151 174 184 215
Total costs per ounce produced 232 178 207 219 240
------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Revenues consist of the sales revenue for palladium and platinum,
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.
(2) Capitalized interest for the years ended December 31, 1999, 1998, 1997,
and 1996 totaled $4.6 million, $2.1 million, $1.5 million, and $2.2
million respectively.
(3) Net income for 1996 reflects a change in accounting policy which became
effective January 1, 1996. Pursuant to this policy, the company changed
its method of accounting for mine development expenditures by
capitalizing certain direct and indirect costs related to development
activities, which were previously expensed. The effect of the
accounting change on 1996 results was to increase net income by
approximately $5.2 million ($0.17 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 ($0.10 per
share) in 1995.
(4) In 1997, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings 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. .
(5) Aggregate capital expenditures related to expansion plans were $145.9
million, $49.9 million, $2.9 million, $35.9 million, and $39.5 million
in 1999, 1998, 1997, 1996 and 1995.
(6) Tons milled represent the number of grade-bearing tons of ore fed to
the concentrator.
(7) Mill head grade is presented as ounces of palladium and platinum
combined per ton.
(8) 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.
(9) A combined average realized price of palladium and platinum is reported
at the same ratio as ounces are produced from the base metals refinery.
Cash costs include cash costs of mining, processing and administrative
expenses at the mine site (including overhead, taxes other than income
taxes, royalties and credits for metals produced other than palladium
and platinum.) Total costs of production include cash costs plus
depreciation and amortization. Income taxes, corporate general and
administrative expenses and interest income and expense are not
included in either total or cash costs.
26
<PAGE>
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 mines, processes and refines palladium, platinum and
associated metals from the J-M Reef in Montana. The company conducts its mining
operations at the Stillwater Mine and announced last year its Expansion Plan
intended to reach an estimated annualized rate of PGM production of 1.2 million
ounces before year end 2002. The company plans to expand existing operations at
the Stillwater Mine and develop the East Boulder site. See "Business and
Properties-- Expansion Plan."
The company's production of palladium and platinum is determined by
the tons of ore mined, the mill head grade and metallurgical recovery. 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 metals refinery to a third-party refiner for
final processing. Shipment from the base metals refinery to a third-party
refiner generally occurs within 15 to 18 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 base metals refinery at the end of an accounting
period is generally shipped during the first two weeks of the subsequent period.
The ore grade of the company's reserves is generally consistent, but,
as is common in an underground mine, the grade mined and the recovery rate
achieved will vary from period to period. In particular, mill head grade can be
expected to vary by up to 10% from quarter to quarter. During 1999, the average
mill head grade of ore processed was 0.66 ounce of PGMs per ton of ore. During
1998, the average mill head grade of ore processed was 0.69 ounce of PGMs per
ton of ore, compared to the 1997 average mill head grade of 0.70 ounce of PGMs
per ton of ore.
Revenue
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 significant customers represented
approximately 80%, 60% and 90% of total revenues for the years ended December
31, 1999, 1998 and 1997, respectively. The company sells its metals to a small
number of customers and brokers; however, the company may, if the need were to
arise, readily sell its metal in markets throughout the world.
Until the second quarter of 1997, the company used basic hedging
techniques involving spot deferred forward contract commitments and put and call
options to attempt to lock in prices for its production, benefit from price
increases and protect against price decreases. During the first quarter of 1997,
the company entered into significant hedge positions, particularly for
palladium, for 1997 and 1998. These hedging contracts, which expired in 1998,
precluded the company from obtaining the benefit of increased market palladium
prices in 1997 and 1998. As a result, the company's revenues were unfavorably
impacted in 1998 with the company's average 1998 realized price for palladium
falling about 29% below the average 1998 market price. These below market hedge
contracts matured, and the metal was delivered by the close of 1998. The
objective of the company's current hedging policy is to benefit from upward
price movements while providing floor prices to reduce the company's exposure to
downside price movements. During 1998, the company entered into long term sales
contracts to sell approximately 90% to 100% of its palladium
27
<PAGE>
production and 20% of its platinum production from 1999 through 2003. Palladium
sales under these contracts will be at a discount to market prices. These
contracts provide for an average floor price of approximately $225 per ounce on
substantially all of the company's annual palladium production and an average
maximum price of $400 per ounce on approximately 30% of palladium production.
The 20% of the company's platinum production covered by these contracts will be
sold subject to floor of $350 per ounce and a cap of $425 per ounce. On February
29, 2000, the market price for palladium and platinum was $722 and $490 per
ounce, respectively. See "Business and Properties - Risk Factors--Dependence on
Agreements with Significant Customers."
The company may continue to use forward contract and option strategies
to reduce the effect of metal price volatility on its financial results. As of
December 31, 1999, the company had sold forward 20,000 ounces of platinum for
delivery in 2000 at an average price of $404 per ounce. All forward sales
contracts are settled in cash at the delivery date. For anticipated production
in the year 2000, the company has established put and call options on 57,500
ounces of palladium production at $326 and $418 per ounce, respectively, and on
1,000 ounces of platinum production at $349 and $370 per ounce, respectively.
For anticipated production in the year 2001, the company has established put and
call options on 5,000 ounces of palladium at $327 and $419 per ounce,
respectively. The fair value of the company's put and call options was a loss of
approximately $1.1 million at December 31, 1999. These put and call options work
together as collars under which the company receives the difference between the
put price and market price only if the market price is below the put price, and
the company pays the difference between the call price and the market price only
if the market price is above the call price. The company's put and call options
are settled at maturity.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
PGM Production. During 1999, the company produced approximately
--------------
315,000 ounces of palladium and approximately 94,000 ounces of platinum,
respectively, compared with approximately 340,000 ounces of palladium and
approximately 104,000 ounces of platinum during 1998. The decrease was due to a
4% decrease in tons mined in 1999 compared to 1998, combined with a 4% decrease
in the average ore grade of material processed. The decrease in tons mined is
due to a lack of developed production faces, which occurred as a result of not
achieving the company's development plan in 1999. Also contributing to the
production decrease was increased dilution resulting from narrower ore widths
and lower mine productivity experienced in 1999 compared to 1998. The lower
average ore grade in 1999 compared to 1998 is the result of normal variations
experienced from year to year.
Revenues. Revenues were $152.7 million for the year ended December 31,
--------
1999 compared with $106.7 million in 1998, an increase of 43% and were the
result of higher realized PGM prices offset by lower production levels.
Palladium sales decreased to approximately 314,000 ounces in 1999 from
approximately 337,000 ounces in 1998. Platinum sales decreased to approximately
94,000 ounces in 1999 from approximately 103,000 ounces in 1998. As a result,
the total quantity of metal sold decreased 7% to approximately 408,000 ounces in
1999 from approximately 440,000 ounces in 1998.
The average realized price per ounce of palladium and platinum sold in
1999 increased 54% to $375 per ounce, compared to $243 per ounce in 1998. The
average market price rose 19% to $362 per ounce in 1999, compared with $304 per
ounce in 1998. The average realized price per ounce of palladium was $372 per
ounce in 1999 compared to $202 per ounce for 1998, while the average market
price increased 25% to $358 per ounce in 1999 from $286 per ounce in 1998. The
average realized price per ounce of platinum sold was $383 per ounce in 1999,
compared with $377 per ounce in 1998. The platinum average market price was $377
per ounce in 1999 compared to $372 per ounce in 1998. Hedging losses totaled
approximately $0.06 million in 1999 compared to $26.8 million in 1998.
28
<PAGE>
Costs and Expenses. Cash production costs per ounce in the year ended
------------------
December 31, 1999 increased $48, or 32%, to $199 per ounce from $151 per ounce
in the year ended December 31, 1998, as a result of the decrease in the quantity
of metal produced, combined with an increase in costs associated with the
company's activities to expand operations at the Stillwater Mine. Total
production costs per ounce in the year ended December 31, 1999 increased $54, or
30% to $232 per ounce from $178 per ounce in the year ended December 31, 1998.
This increase is also primarily due to the decrease in the quantity of metal
produced combined with an increase in costs associated with the program designed
to expand operations at the Stillwater Mine. In addition, general and
administrative costs increased $2.2 million, or 43%, primarily as a result of
severance and consulting costs incurred in 1999 as a result of certain
management changes.
Operating Income. The company reported operating income of $50.4
----------------
million for the year ended December 31, 1999, compared with operating income of
$23.2 million for the year ended December 31, 1998. The higher operating income
was mainly the result of higher realized prices. For 1999, general and
administrative costs were $7.3 million compared with $5.1 million in 1998. The
increase was due to severance and consulting costs incurred in 1999.
Net Income. Primarily as a result of increased operating income, the
----------
company has provided for income taxes of $14.2 million, or 28% of pretax income,
for the year ended December 31, 1999 compared to $8.4 million, or 38.5% of
pretax income, for the year ended December 31, 1998. During the fourth quarter
of 1999, a review of the company's income tax provision resulted in a reduction
of its 1999 tax rate to 28% from the 31.5% rate previously accrued during the
year. The reduction in rate for 1999 resulted from adjustments to the prior
years' deferred income tax provisions and adjustments of the anticipated
benefits of allowable depletion. As a result the company reported net income of
$37.2 million for the year ended December 31, 1999 compared with $13.4 million
in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
PGM Production. During 1998, the company produced approximately
--------------
340,000 ounces of palladium and approximately 104,000 ounces of platinum
compared to approximately 271,000 ounces of palladium and approximately 84,000
ounces of platinum in 1997. The increase was primarily due to a 24% increase in
the tons mined in 1998 compared to 1997. The increase in tonnage was primarily
due to completion of an expansion plan completed in the fourth quarter of 1997
that resulted in increasing operating efficiencies in 1998.
Revenues. Revenues were $106.7 million for the year ended December 31,
--------
1998 compared with $76.9 million in 1997, an increase of 39% and were the result
of higher production levels and higher realized PGM prices.
Palladium sales increased to approximately 337,000 ounces in 1998 from
approximately 288,000 ounces in 1997. Platinum sales increased to approximately
103,000 ounces in 1998 from approximately 91,000 ounces in 1997. Total sales of
metal increased 16% to approximately 440,000 ounces in 1998 from approximately
379,000 ounces in 1997, primarily due to significantly higher production levels
achieved in 1998.
The average realized price per ounce of palladium and platinum sold
in 1998 was $243 per ounce, compared to $203 per ounce in 1997, while the
average market price rose about 32% to $304 per ounce in 1998, compared with
$230 per ounce in 1997. The average realized price per ounce of palladium was
$202 per ounce in 1998 compared to $144 per ounce for 1997, while the average
market price increased 61% to $286 per ounce in 1998 from $178 per ounce in
1997. The average realized price per ounce of platinum sold was $377 per ounce
in 1998, a decline of 3% compared with $388 per ounce in 1997. The platinum
average market price was $372 per ounce in 1998 compared to $395 per ounce in
1997.
29
<PAGE>
Costs and Expenses. Cash production costs per ounce in the year ended
------------------
December 31, 1998 decreased $23, or 13%, to $151 per ounce from $174 per ounce
in the year ended December 31, 1997, primarily the result of a 25% increase in
metal production. Total production costs per ounce in the year ended December
31, 1998 decreased $29, or 14% to $178 per ounce from $207 per ounce in the year
ended December 31, 1997. This decrease is also primarily due to increased metal
production.
Operating Income (Loss). The company reported operating income of
-----------------------
$23.2 million for the year ended December 31, 1998, compared with an operating
loss of $6.2 million for 1997. The higher operating income was mainly the result
of increased metal production and higher realized prices. For 1998, general and
administrative costs were $5.1 million compared with $3.5 million in 1997.
Net Income (Loss). Primarily as a result of increased operating
-----------------
income, the company has provided for income taxes of $8.4 million compared to a
reported benefit of $3.4 million for the year ended December 31, 1997. As a
result the company reported net income of $13.4 million for the year ended
December 31, 1998 compared with net loss of $5.4 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital at December 31, 1999 was $8.7 million
compared to $58.8 million at December 31, 1998. The decrease in working capital
was primarily due to an increase in capital spending during 1999. The ratio of
current assets to current liabilities was 1.2 at December 31, 1999, compared to
3.2 at December 31, 1998.
Net cash provided by operations for the year ended December 31, 1999
was $67.8 million compared with $31.1 million in 1998, an increase of $36.7
million. The increase was primarily a result of increased net income of $23.8
million, an increase in non-cash expenses of $7.1 million and a decrease in net
operating assets and liabilities of $5.8 million in 1999 compared to 1998.
A total of $194.3 million of cash was used in investing activities in
1999 compared to $54.5 million in 1998. The increased usage was primarily due to
an increase in capital expenditures as a result of the development of the East
Boulder project and the Stillwater Mine expansion.
For the year ended December 31, 1999, cash flow from financing
activities was $79.5 million compared to $69 million for the year ended December
31, 1998. The increase was primarily due to borrowing of $79.5 million under the
company's seven-year, $175 million credit facility. In 1998, the company
completed a 3.45 million common share offering which provided approximately $71
million.
As a result of the above, cash and cash equivalents decreased by $47.0
million for the year ended December 31, 1999, compared with an increase of $45.6
million in the comparable period of 1998.
In 1998, the company announced plans to expand the Stillwater Mine and
to develop the East Boulder Project. Total capital to fund the expansion is
expected to approximate $385 million. Of this, the Stillwater Mine expansion is
expected to cost about $75 million; East Boulder is expected to cost
approximately $270 million; and approximately $40 million is designated for the
expansion of the company's smelter and base metals refinery located in Columbus,
Montana. During 1999, the company invested approximately $194.3 million in
capital items, including capitalized interest of $4.6 million. During 2000, the
company expects to invest approximately $185 million in capital items, including
capitalized interest.
Cash flow from operating activities is not expected to be sufficient
to cover 2000 capital expenditures. Based on cash on hand and expected cash
flows from operations, along with the remaining borrowings of $95.5 million
available under the existing credit facilities of $175 million, management
believes there is sufficient liquidity to meet 2000 operating and capital needs.
In addition, the company may, from time to time, also seek to raise additional
capital from the public or private securities markets or from
30
<PAGE>
other sources for general corporate purposes and for investments beyond the
scope of the current phase of its current expansion plans.
In March 1999, the company obtained a seven-year $175 million credit
facility from a syndicate of banks led by the Bank of Nova Scotia. The facility
provides for a $125 million term loan facility and a $50 million revolving
credit facility. Borrowings may be made under the term loan facility until
December 29, 2000 and amortization of the term loan facility will commence on
March 31, 2001. The final maturity of the term loan facility and revolving
credit facility will be December 30, 2005.
The loans are required to be prepaid from excess cash flow, proceeds
from asset sales and the issuance of debt or equity securities, subject to
specified exceptions. Proceeds of the term loan facility are being used to
finance a portion of the expansion plan. Proceeds of the revolving credit
facility are being used for general corporate and working capital needs. At the
company's option, the credit facility bears interest at the London Interbank
Offered Rate (LIBOR) or an alternate base rate, in each case plus a margin of
1.00% to 1.75% which is adjusted depending upon the company's ratio of debt to
operating cash flow. Substantially all the property and assets of the company
and its subsidiaries and the stock of the company's subsidiaries are pledged as
security for the credit facility.
Covenants in the Scotiabank Credit Facility restrict: (1) additional
indebtedness; (2) payment of dividends or redemption of capital stock; (3)
liens; (4) investment, acquisitions, dispositions or mergers; (5) transactions
with affiliates; (6) capital expenditures (other than those associated with the
expansion plan); (7) refinancing or prepayment of subordinated debt (excluding
the underwritten call of the company's 7% Convertible Subordinated Notes); (8)
changes in the nature of business conducted or ceasing operations at the
principal operating properties; and (9) commodities hedging to no more than 90%
of annual palladium production and 75% of annual platinum production (excluding
the sales covered by the company's marketing contracts and similar agreements).
The company is also subject to financial covenants including a debt to operating
cash flow ratio, a debt service coverage ratio and a debt to equity ratio.
Events of default include: (1) a cross-default to other indebtedness
of the company or its subsidiaries; (2) any material modification to the
life-of-mine plan for the Stillwater Mine; (3) a change of control of the
company; (4) the failure to maintain annual palladium production of at least
315,000 ounces in the year 2000 and at least 490,000 ounces each year thereafter
or (5) any breach or modification of any of the sales contracts.
During 1999, as a result of delays in the expansion plan, the company
did not comply with certain production covenants set forth in the credit
facility. The bank syndicate granted an initial waiver of these covenants until
February 15, 2000 pending completion of the Year 2000 Mine Plan. In the fourth
quarter, the company retained independent mining engineers to review key
operating and capital cost parameters included in its long-term mine plans. On
February 22, 2000, the bank group granted a second waiver of the production
covenants until June 30, 2000. The company expects to comply with the debt
covenants subsequent to the date the waiver expires. However, in the unlikely
event the company cannot comply with the debt covenants, and pending final
results of the project review, there can be no assurance that the company will
be able to renegotiate or extend the existing waiver on the underlying credit
agreement. If it is unsuccessful in this endeavor, it will seek alternative
financing. The company is in compliance with all other aspects of the credit
agreement including all financial covenants.
Market Risk
- -----------
The company may from time to time utilize derivative instruments to
manage financial risk. The company has entered into long-term sales contracts
with General Motors Corporation, Ford Motor Company, and Mitsubishi Corporation.
The contracts apply to a portion of the company's production over the five-year
period from January 1999 through December 2003. Under these contracts, the
company has committed between 90% to 100% of its palladium production and
approximately 20% of its annual platinum production, with floor prices on
substantially all of the company's production committed under these contracts
averaging
31
<PAGE>
$225 per ounce of palladium and $350 per ounce of platinum. The company has also
agreed to an average maximum price of approximately $400 per ounce on
approximately 30% of its palladium production sold under the contracts and $425
per ounce on approximately 20% of its annual platinum production. At February
29, 2000, the market prices for palladium and platinum were $722 and $490 per
ounce, respectively.
For anticipated production in the year 2000, the company has
established put and call options on 57,500 ounces of palladium production at
$326 and $418 per ounce, respectively, and on 1,000 ounces of platinum
production at $349 and $370 per ounce, respectively. In addition, the company
has sold forward 20,000 ounces of platinum for delivery in 2000 at an average
price of $404 per ounce. For anticipated production in the year 2001, the
company has established put and call options on 5,000 ounces of palladium at
$327 and $419 per ounce, respectively. The fair value of the company's put and
call options was a loss of approximately $1.1 million at December 31, 1999.
These put and call options work together as collars under which the company
receives the difference between the put price and market price only if the
market price is below the put price, and the company pays the difference between
the call price and the market price only if the market price is above the call
price. The company's put and call options are settled at maturity.
ENVIRONMENTAL OBLIGATIONS
The company focused on one significant environmental project during
1999. This project involved securing an amendment to the company's existing
permit from the Montana Department of Environmental Quality (DEQ) which provided
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 $0.2 million in 1999 and $0.3 million in 1998. In the first quarter of
1999, an environmental group filed a complaint against the DEQ challenging the
adequacy of the Environmental Impact Statement and reclamation provisions
developed in connection with the permit amendment. The company believes the
complaint is without merit. The company is in the process of negotiating a
contractual resolution to the suit with the plaintiffs. No assurances can be
provided that a settlement will be achieved. If the company is not able to reach
a contractual resolution with the plaintiffs, continued litigation regarding the
Environmental Impact Statement could delay expansion of the Stillwater Mine and
adversely impact the company's revenues. In 1999, the company's environmental
expenses were $0.7 million and capital expenditures (excluding those facilities
described under the expansion plan) for environmental equipment were $0. The
company incurred environmental expenses of $0.6 million and $0.1 million in
capital expenditures for environmental equipment in 1998. The company's ongoing
operating expenditures for environmental compliance are expected to be
approximately $1.1 million per year.
The company is presently required to post surety bonds with the State
of Montana in the amount of $11.1 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, 1999, the accrued liability was $0.9 million compared to $0.7
million at December 31, 1998. 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.
32
<PAGE>
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, production and recovery rates, permitting, financing needs,
the terms of future credit facilities and capital expenditures, increases in
processing capacity, cost reduction measures, safety, timing for engineering
studies, and environmental permitting and compliance, litigation and the
palladium and platinum market. Factors that could cause actual results to differ
materially from those anticipated include:
. worldwide economic and political events affecting the supply and demand
of palladium and platinum;
. price volatility of PGMs;
. potential cost overruns, difficulty in making reliable estimates in the
early stages of expansion, uncertainties involved in developing a new
mine and other factors associated with a major expansion;
. fluctuations in ore grade, tons mined, crushed or milled;
. variations in concentrator, smelter or refinery operations;
. geological, technical, permitting, mining or processing problems;
. availability of experienced employees;
. financial market conditions, including the ability to renegotiate the
existing bank credit facility;
. compliance of the company and significant customers with marketing
contracts; and
. the other factors discussed under "Risk Factors."
Investors are cautioned not to put undue reliance on forward-looking
statements. The company disclaims any obligation to update forward-looking
statements.
ITEM 7A
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The company is exposed to market risk, including the effects of
adverse changes in metal prices and interest rates as discussed below.
Commodity Price Risk
The company produces and sells palladium, platinum and associated
by-product metals directly to its customers and also through third parties. As a
result, financial risks are materially affected when prices for these
commodities fluctuate. In order to manage commodity price risk and to reduce the
impact of fluctuation in prices, the company enters into long-term contracts and
uses various derivative financial instruments. The company may also lease metal
to counterparties to earn interest on excess metal balances. All derivatives are
off-balance sheet and therefore have no carrying value. Because the company
hedges only with instruments that have a high correlation with the value of the
hedged transactions, changes in derivatives' fair value are expected to be
offset by changes in the value of the hedged transaction.
33
<PAGE>
As of December 31, 1999, the company had sold forward 20,000 ounces of
platinum for delivery in 2000 at an average price of $404 per ounce. All forward
sales contracts are settled in cash at the delivery date. For anticipated
production in the year 2000, the company has established put and call options on
57,500 ounces of palladium production at $326 and $418 per ounce, respectively,
and on 1,000 ounces of platinum production at $349 and $370 per ounce,
respectively. For anticipated production in the year 2001, the company has
established put and call options on 5,000 ounces of palladium at $327 and $419
per ounce, respectively. The fair value of the company's put and call options
was a loss of approximately $1.1 million at December 31, 1999. These put and
call options work together as collars under which the company receives the
difference between the put price and the market price only if the market price
is below the put price. The company pays the difference between the call price
and the market price only if the market price is above the call price. The
company's put and call options are settled at maturity.
In addition, the company has entered into long-term sales contracts
with General Motors Corporation, Ford Motor Company and Mitsubishi Corporation.
The contracts apply to a portion of the company's production over the five-year
period from January 1999 through December 2003. Under the contracts, the company
has committed between 90% to 100% of its palladium production. Palladium sales
are priced at a discount to market with a floor price averaging approximately
$225 per ounce. The company has agreed to an average maximum palladium price of
approximately $400 per ounce on approximately 30% of its production sold under
the contracts. At February 29, 2000, the market price for palladium was $722 per
ounce. The remaining 70% of the company's palladium production is not subject to
any price cap. In addition, the company has committed approximately 20% of its
annual platinum production over the next five years under these agreements.
Platinum sales are priced at a discount to market, subject to an average minimum
price of $350 per ounce with an average maximum price of $425 per ounce. The
remaining 80% of the company's annual platinum production is not committed under
these contracts and remains available for sale at prevailing market prices. At
February 29, 2000, the market price for platinum was $490 per ounce. The sales
contracts provide for adjustments to ounces committed based upon actual
production. In addition, the sales contracts contain termination provisions that
allow the purchasers to terminate in the event the company breaches certain
provisions of the contracts and the breach is not cured within periods ranging
from ten to 30 days of notice by the purchaser
Interest Rate Risk
At the present time, the company has no financial instruments in place
to manage the impact of changes in interest rates. Therefore, it is exposed to
changes in interest rates that effect the credit facility which carries a
variable interest rate based upon LIBOR or an alternative base rate. At December
31, 1999, approximately $79.5 million had been borrowed under the total
available credit of $175 million at an interest rate of 7.5%.
34
<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
James A. Sabala
Vice President and Chief Financial Officer
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Stillwater Mining Company:
We have audited the accompanying consolidated balance sheet of Stillwater Mining
Company and subsidiary as of December 31, 1999, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Stillwater Mining
Company and subsidiary as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG LLP
Billings, Montana
January 19, 2000, except for the third and fourth
paragraphs of note 6 which are as of February 22, 2000.
36
<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, 1998,
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1998, 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.
PricewaterhouseCoopers L.L.P.
Denver, Colorado
February 3, 1999
37
<PAGE>
STILLWATER MINING COMPANY
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31, 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Assets
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,846 $ 49,811
Inventories 11,658 9,333
Accounts receivable 26,248 21,762
Deferred income taxes 1,945 2,980
Other current assets 3,013 1,492
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 45,710 85,378
Property, plant and equipment, net 428,252 247,556
Other noncurrent assets 4,876 3,003
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 478,838 $ 335,937
==========================================================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------------------------------------------------
Current liabilities
Accounts payable $ 20,157 $ 11,980
Accrued payroll and benefits 5,511 3,332
Property, production and franchise taxes payable 4,322 3,971
Current portion of long-term debt and capital lease obligations 2,628 2,425
Other current liabilities 4,371 4,909
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 36,989 26,617
Long-term liabilities
Long-term debt and capital lease obligations 84,404 58,992
Deferred income taxes 29,042 19,009
Other noncurrent liabilities 5,299 3,312
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 155,734 107,930
- --------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 12)
Shareholders' equity
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued - -
Common stock, $0.01 par value, 50,000,000 shares authorized, 37,917,973
and 34,548,559 shares issued and outstanding 379 345
Paid-in capital 272,173 214,281
Retained earnings 50,552 13,381
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 323,104 228,007
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 478,838 $ 335,937
==========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
STILLWATER MINING COMPANY
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 152,747 $ 106,723 $ 76,877
- -------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of metals sold 81,451 66,793 67,948
Depreciation and amortization 13,557 11,642 11,658
- -------------------------------------------------------------------------------------------------------------------------
Total cost of sales 95,008 78,435 79,606
General and administrative expenses 7,305 5,102 3,479
- -------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 102,313 83,537 83,085
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 50,434 23,186 (6,208)
Other income (expense)
Interest income 1,048 1,354 1,073
Interest expense, net of capitalized interest
of $4,620, $2,126, and $1,535 (137) (2,774) (3,608)
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 51,345 21,766 (8,743)
Income tax (provision) benefit (14,174) (8,380) 3,366
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 37,171 $ 13,386 $ (5,377)
=========================================================================================================================
Basic earnings per share
Net income (loss) $ 1.01 $ 0.43 $ (0.18)
=========================================================================================================================
Diluted earnings per share
Net income (loss) $ 0.96 $ 0.38 $ (0.18)
=========================================================================================================================
Weighted average common shares outstanding
Basic 36,758 31,472 30,435
Diluted 38,597 35,019 30,435
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
STILLWATER MINING COMPANY
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 37,171 $ 13,386 $ (5,377)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 13,557 11,642 11,658
Deferred income taxes 13,601 8,380 (3,366)
Changes in operating assets and liabilities:
Inventories (2,325) (1,953) 6,142
Accounts receivable (4,486) (14,836) (6,855)
Accounts payable 8,177 9,271 (2,330)
Other operating assets and liabilities 2,123 5,200 (1,761)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 67,818 31,090 (1,889)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (194,253) (77,963) (15,110)
Purchase of short-term investments - (2,277) (11,497)
Proceeds from maturity of short-term investments - 15,745 15,089
Proceeds from sale/leaseback transactions - 10,019 -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (194,253) (54,476) (11,518)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Borrowings under credit facility 79,500 - -
Proceeds from capital lease - - 855
Payments on long-term debt and capital lease obligations (2,484) (2,078) (1,386)
Payments for debt issuance costs (2,657) - -
Issuance of common stock, net of stock issue costs 5,685 71,084 1,740
Repurchase and retirement of common stock (265) - -
Costs for conversion of 7% convertible notes (309) - -
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 79,470 69,006 1,209
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents
Net increase (decrease) (46,965) 45,620 (12,198)
Balance at beginning of year 49,811 4,191 16,389
- ---------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 2,846 $ 49,811 $ 4,191
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
STILLWATER MINING COMPANY
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained
Shares Common Paid-in Earnings Total
Outstanding Stock Capital (Deficit) Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 20,136 $201 $138,093 $ 5,372 $143,666
Comprehensive loss:
Net loss - - - (5,377) (5,377)
Comprehensive income for the tax benefit
from stock options exercised - - 1,363 - 1,363
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive loss - - 1,363 (5,377) (4,014)
========================================================================================================================
Common stock issued under stock plans 242 3 1,772 - 1,775
Other - - (35) - (35)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 20,378 $204 $141,193 $ (5) $141,392
Comprehensive income:
Net income - - - 13,386 13,386
Comprehensive income for the tax benefit
from stock options exercised - - 2,145 - 2,145
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - 2,145 13,386 15,531
========================================================================================================================
Common stock issued under stock plans 355 3 4,430 - 4,433
Conversion of 7% convertible notes - - 17 - 17
Issuance of shares pursuant to public stock offering 2,300 23 66,615 - 66,638
Three-for-two stock split 11,516 115 (119) - (4)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 34,549 $345 $214,281 $ 13,381 $228,007
Comprehensive income:
Net income - - - 37,171 37,171
Comprehensive income for the tax benefit
from stock options exercised - - 2,533 - 2,533
- ------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - 2,533 37,171 39,704
========================================================================================================================
Common stock issued under stock plans 503 5 5,773 - 5,778
Conversion of 7% convertible notes 2,876 29 50,253 - 50,282
Repurchase and retirement of common stock (10) - (265) - (265)
Costs related to public stock offering and
conversion of 7% convertible notes - - (402) - (402)
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 37,918 $379 $272,173 $50,552 $323,104
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
NOTE 1
NATURE OF OPERATIONS
Stillwater Mining Company, a Delaware corporation, is engaged in the
exploration, development, extraction, processing and refining of palladium,
platinum 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
geologic formation containing one of the largest deposits of platinum group
metals in the world.
The company's operations consist of the Stillwater Mine located on the
J-M Reef in Nye, Montana, the East Boulder Project located at the western end of
the J-M Reef in Sweet Grass County, Montana and a smelter, base metals refinery
and copper-nickel refinery located in Columbus, Montana.
During 1998, the company announced plans for the expansion of the
Stillwater Mine, development of the East Boulder Project and expansion of the
smelter and base metals facilities (1998 Expansion Plan). Key components of the
expansion are development of the Stillwater Mine and concentrator facilities to
expand production from 2,000 tons per day to 3,000 tons per day, development of
the East Boulder Project and ancillary facilities to provide for an initial
production rate of 2,000 tons per day and expansion of the smelter and base
metals refinery. The Stillwater Mine concentrator expansion was completed in the
fourth quarter of 1998. The smelter expansion was completed in the fourth
quarter of 1999.
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 the 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
42
<PAGE>
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, expected sales prices
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 a
maturity of three months or less to be cash equivalents. As of December 31, 1999
and 1998, cash and cash equivalents included $0 and $20.5 million, of investment
grade commercial paper, respectively.
Inventories
Metals inventories are carried at the lower of current market value or
cost. Production costs include the cost of direct labor and materials,
depreciation and amortization, as well as overhead costs relating to mining and
processing activities. Materials and supplies inventories are valued at the
lower of average cost or fair market value.
Property, Plant and Equipment
Plant and equipment are recorded 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 operations as incurred. Mine development expenditures
incurred to increase existing production, develop new ore bodies or develop
mineral property substantially in advance of production are capitalized and
amortized using a units-of-production method over the proven and probable
reserves. Interest is capitalized on expenditures related to construction or
development projects and amortized using the same basis of depreciation as the
related asset. Interest capitalization is discontinued when the asset is placed
into operation or development ceases. Exploration costs are expensed as
incurred.
The company follows Statement of Financial Accounting Standard (SFAS)
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. SFAS No. 121 prescribes that an impairment loss is
recognized in the event that facts and circumstances indicate that the estimated
carrying amount of an asset may not be recoverable and an estimate of future
undiscounted cash flows is less than the carrying amount of the asset.
Impairment is recorded based on an estimate of future discounted cash flows. As
of December 31, 1999, the company does not believe that any impairments of its
long-lived assets have occurred.
Fair Value of Financial Instruments
The company's non-derivative financial instruments consist primarily of
cash, accounts receivable and debt. The carrying amounts of cash and accounts
receivable approximate fair value due to their short maturities. The carrying
amounts of long-term debt approximate fair values as interest rates on the
majority of such debt are variable. At December 31, 1999 and 1998, based on
rates available for similar types of obligations, the fair values of capital
lease obligations were not materially different from their carrying amounts.
43
<PAGE>
Revenue Recognition
Revenues consist of the sales of palladium and platinum, including any
hedging gains or losses. By-product metals revenue and secondary materials
processing revenue are included as a reduction to the cost of metals sold.
Revenue is recognized when product is shipped from the company's base metals
refinery 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.
Hedging Program
The company enters into forward sales contracts and put and call
options from time to time to manage the effect of price changes in palladium and
platinum on the company's revenue. These instruments are accounted for as hedges
when the instrument is designated as a hedge of the related production and there
exists a high degree of correlation between the fair value of the instrument and
the fair value of the hedged production. The degree of correlation is assessed
periodically. In the event that an instrument does not meet the designation or
effectiveness criteria, any gain or loss on the instrument is recognized
immediately in earnings. Otherwise, gains or losses related to hedging
transactions are recognized as adjustments to the revenue recorded for the
related production. If an instrument is settled early, any gains or losses are
deferred and recognized as adjustments to the revenue recorded for the related
production. Costs associated with the purchase of certain hedging instruments
are deferred and amortized against revenue related to the hedged production.
Reclamation and Environmental Costs
Post-closure reclamation and site restoration costs are estimated based
on environmental regulatory requirements and are accrued ratably over the life
of the mine using a units-of-production method. Current expenditures related to
ongoing environmental and reclamation programs are expensed as incurred.
Although the ultimate amount of the obligations to be incurred was uncertain at
December 31, 1999 and 1998, the company has posted $11.1 million and $8.9
million, respectively, in reclamation bonds for state and federal requirements.
The accrued reclamation liability, included in other noncurrent liabilities, was
approximately $0.9 million and $0.7 million, respectively at December 31, 1999
and 1998.
Income Taxes
Income taxes are determined using the asset and liability approach in
accordance with the provisions of 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. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
44
<PAGE>
Stock-Based Compensation
The company has elected to account for stock options in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, because options are granted at fair market value, no
compensation expense has been recognized for options issued under the company's
stock option plans. The company has adopted the disclosure only provisions of
SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, the company
has made pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting, as set forth in SFAS No. 123, had been
applied.
Earnings Per Share
The company follows SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted earnings per share.
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.
NOTE 3
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted for fiscal years beginning after June 15, 2000.
SFAS No. 133 requires that derivatives be reported on the balance sheet at fair
value and, if the derivative is not designated as a hedging instrument, changes
in fair value must be recognized in earnings in the period of change. If the
derivative is designated as a hedge and to the extent such hedge is determined
to be effective, changes in fair value are either a) offset by the change in
fair value of the hedged asset or liability (if applicable) or b) reported as a
component of other comprehensive income in the period of change, and
subsequently recognized in earnings when the offsetting hedged transaction
occurs. The definition of derivatives has also been expanded to include
contracts that require physical delivery if the contract allows for net cash
settlement. The company primarily uses derivatives to hedge metal prices. Such
derivatives are reported at cost, if any, and gains and losses on such
derivatives are reported when the hedged transaction occurs. Accordingly, the
company's adoption of SFAS No. 133 will have an impact on the reported financial
position of the company, and although such impact has not been determined, it is
currently not believed to be material. Adoption of SFAS No. 133 should have no
significant impact on reported earnings, but could materially affect
comprehensive income.
In June 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, Reporting on the Costs of Start-up
Activities. SOP 98-5 was effective for fiscal year 1999 and requires that
45
<PAGE>
the costs of start-up activities, including organization costs, be expensed as
incurred. The effect of the adoption of this statement on the company's
financial statements was not material.
NOTE 4
INVENTORIES
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
Metals inventory
Raw ore $ 187 $ 267
Concentrate and in-process 7,079 4,988
- -------------------------------------------------------------------------------
7,266 5,255
Materials and supplies 4,392 4,078
- -------------------------------------------------------------------------------
$ 11,658 $ 9,333
===============================================================================
NOTE 5
PROPERTY, PLANT AND EQUIPMENT
(in thousands) 1999 1998
- -------------------------------------------------------------------------------
Machinery and equipment $ 42,277 $ 25,055
Leased equipment 10,628 12,256
Buildings and structural components 91,767 69,262
Mine development 165,896 143,142
Land 2,182 2,220
Construction-in-progress:
East Boulder Project 111,175 23,582
Stillwater Mine Expansion 77,081 33,160
Other construction-in-progress 4,034 3,346
- -------------------------------------------------------------------------------
505,040 312,023
Less accumulated depreciation and amortization (76,788) (64,467)
- -------------------------------------------------------------------------------
$ 428,252 $ 247,556
===============================================================================
NOTE 6
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Scotiabank Credit Facility
In March 1999, the company entered into a seven-year $175 million
credit facility ("the Scotiabank Credit Facility") from a syndicate of banks led
by the Bank of Nova Scotia. The Scotiabank Credit Facility provides for a $125
million term loan facility and a $50 million revolving credit facility.
Borrowings may be made under the term loan facility until December 29, 2000 and
amortization of the term loan facility will commence on March 31, 2001. The
final maturity of the term loan facility and revolving credit facility is
December 30, 2005. As of December 31, 1999, the company had $52.6 million
outstanding under the term loan facility and $26.9 million outstanding under the
revolving credit facility.
The loans are required to be repaid from excess cash flow and proceeds
from asset sales. Proceeds of the term loan facility were used to finance a
portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility
are used for general corporate and working capital needs. At the company's
option, the Scotiabank Credit
46
<PAGE>
Facility bears interest at London Interbank Offered Rates (LIBOR) or an
alternate base rate, in each case plus a margin of 1.00% to 1.75%, which may be
adjusted depending upon the company's ratio of debt to operating cash flow. At
December 31, 1999, the borrowings outstanding under the Scotiabank Credit
Facility bear interest at 7.5%. Substantially all the property and assets of the
company are pledged as security for the Scotiabank Credit Facility.
During 1999, the company did not comply with certain production
covenants set forth in the credit facility. The bank syndicate granted a waiver
of these covenants until June 30, 2000. The company is in compliance with all
other aspects of the credit agreement, including all financial covenants, as of
December 31, 1999.
The company has both the intent and ability to comply with the debt
covenants subsequent to the date the waiver expires. As a result, the company
has classified the debt as a long-term liability at December 31, 1999.
Convertible Subordinated Notes
In April 1996, the company issued $51.5 million of 7% Convertible
Subordinated Notes (the "Convertible Notes") with a stated maturity date of May
1, 2003. The Convertible Notes were unsecured, subordinated obligations. On May
1, 1999, the company completed the underwritten call for redemption of its $51.4
million outstanding principal amount of 7% Convertible Subordinated Notes.
Substantially all of the notes were converted into common stock. The notes were
redeemed at a conversion price of $17.87 per share with cash paid in lieu of
fractional shares. The company issued approximately 2.9 million shares of common
stock in connection with the conversion of the notes. Underwriters' fees and
other costs associated with the call for redemption were approximately $0.3
million.
Equipment Lease Agreements
The company leases certain underground mining equipment under five-year
leasing agreements containing two-year renewal options that can be exercised at
the original lease terms. The following is a schedule by year of future minimum
lease payments under capital leases together with the present value of the net
minimum lease payments (in thousands):
Year ended December 31,
- -------------------------------------------------------------------------------
2000 $ 2,719
2001 2,115
2002 1,581
2003 482
2004 59
- -------------------------------------------------------------------------------
Total minimum lease payments 6,956
Less amount representing interest (804)
- -------------------------------------------------------------------------------
Present value of net minimum lease payments 6,152
Less current portion (2,523)
- -------------------------------------------------------------------------------
Total long-term capital lease obligation $ 3,629
===============================================================================
47
<PAGE>
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, 1999 and 1998 was
$1.4 million and $1.5 million, respectively, 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
and Manville Corporation. Scheduled principal repayments during the years 2000
through 2004 are approximately $0.1 million in each year. Scheduled principal
repayments subsequent to 2004 total $0.9 million.
Cash Paid for Interest
The company made cash payments for interest of $3.8 million, $4.5
million and $4.7 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
NOTE 7
EMPLOYEE BENEFIT PLANS
The company has adopted two savings plans which qualify under section
401(k) of the U.S. Internal Revenue Code covering all non-bargaining and
bargaining employees. Under the plans, employees may elect to contribute up to
10% of their cash compensation, subject to the Employee Retirement Income
Security Act of 1974 (ERISA) limitations. The company is required to make
matching cash contributions equal to 200% of the employee's contribution up to
3% of the employee's compensation. Contributions to the plans charged to
operations were $1.5 million, $1.2 million and $1.0 million in 1999, 1998 and
1997, respectively.
NOTE 8
COMMON STOCK PLANS AND AGREEMENTS
Stock Plan
The company sponsors stock option plans that enable the company to
grant stock options or restricted stock to employees and non-employee directors.
As of December 31, 1999, there were 4,350,000 shares of common stock authorized
for issuance under the plans.
Awards granted under the plans may consist of incentive stock options
(ISOs) or non-qualified stock options (NQSOs), stock appreciation rights (SARs),
restricted stock or other stock-based awards, with the exception that
non-employee directors may not be granted SARs and only employees of the company
may be granted ISOs.
The plans are 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. Officers' and directors' unexercised
options expire ten years after the date of grant. All other options expire five
to ten years after the date of grant, depending upon the original grant date.
48
<PAGE>
There were approximately 535,000 shares available for grant as of
December 31, 1999. Stock option activity for the years ended December 31, 1999,
1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Weighted Average Fair Value of
Shares * Exercise Price * Options Granted *
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at December 31, 1996 1,508,708 $ 8.47 -
(1,011,888 exercisable)
1997 Activity:
Options granted 729,412 $ 13.27 $ 7.02
Options exercised (359,821) $ 5.06 -
Options canceled (47,475) $ 13.91 -
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997 1,830,824 $ 10.93 -
(1,410,297 exercisable)
1998 Activity:
Options granted 930,365 $ 16.24 $ 8.11
Options exercised (526,371) $ 8.27 -
Options canceled (32,100) $ 14.98 -
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1998 2,202,718 $ 13.74 -
(1,162,031 exercisable)
1999 Activity:
Options granted 634,150 $ 26.68 $ 6.58
Options exercised (499,047) $ 11.56 -
Options canceled (84,622) $ 22.36 -
- --------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1999 2,253,199 $ 17.52 -
(1,524,185 exercisable)
</TABLE>
* Adjusted to reflect the 1998 three-for-two stock split.
The following table summarizes information for outstanding and exercisable
options as of December 31, 1999:
<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>
$3.91 123,013 4.7 $ 3.91 123,013 $ 3.91
$ 8.96 - $12.99 437,604 4.7 $ 12.31 401,336 $ 12.28
$13.00 - $15.99 697,308 7.0 $ 14.62 566,742 $ 14.55
$16.00 - $20.24 263,157 6.7 $ 17.55 180,403 $ 17.59
$20.25 - $23.99 196,975 5.3 $ 21.90 129,224 $ 21.44
$24.00 - $26.99 452,517 6.5 $ 26.62 113,467 $ 26.48
$27.00 - $29.99 56,075 7.6 $ 28.57 - -
$30.00 - $33.99 26,550 6.3 $ 31.58 10,000 $ 32.38
----------- -----------
2,253,199 1,524,185
=========== ===========
</TABLE>
The company has elected to follow APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock. Under APB Opinion No. 25, because the exercise price of the company's
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
49
<PAGE>
Pro forma information regarding net earnings and earnings per share is
required by SFAS No. 123 and has been determined as if the company had accounted
for its stock options under the fair value method of SFAS No. 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:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average expected lives (years) 3.8 6.5 5.9
Interest rate 5.5% 4.4 - 5.5% 5.7 - 6.7%
Volatility 47% 53% 47%
Dividend yield - - -
======================================================================================================================
</TABLE>
Option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because the company's
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 stock
options.
The estimated fair value of the options is amortized to expense over
the vesting period of the options for purposes of the following pro forma
disclosures (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $ 32,064 $ 10,560 $ (7,966)
Pro forma net income (loss) per share:
Basic $ 0.87 $ 0.34 $ (0.26)
Diluted $ 0.83 $ 0.30 $ (0.26)
======================================================================================================================
</TABLE>
The effect of outstanding stock options on diluted weighted average
shares outstanding was 898,023 and 667,763 shares for 1999 and 1998,
respectively. Outstanding options to purchase 519,875, 264,111 and 1,220,549
shares of common stock were excluded from the computation of diluted earnings
per share for the years ended December 31, 1999, 1998 and 1997, respectively,
because the effect of inclusion would have been antidilutive using the treasury
stock method.
The effect of the company's Convertible Notes on diluted weighted
average shares outstanding was 940,594 and 2,878,656 shares for 1999 and 1998,
respectively. In addition, 2,878,656 million shares of common stock issuable
under the terms of the company's Convertible Subordinated Notes were excluded
from the computation of diluted earnings per share for the year ended December
31, 1997 because the effect of inclusion would have been antidilutive using the
treasury stock method.
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, par value $0.01 per share (the
"Preferred Stock"), at a purchase price of $80 per unit, subject to adjustment.
All outstanding Rights may be redeemed by the company at any time until such
time the
50
<PAGE>
Rights become exercisable. 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. The Rights expire on October 26, 2005 unless earlier
redeemed or exercised.
Note 9
Income Taxes
The components of the provision (benefit) for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current federal $ 573 $ - $ -
Current state - - -
- -----------------------------------------------------------------------------------------------------------------------
Total current 573 - -
Deferred federal 10,132 7,618 (3,060)
Deferred state 3,469 762 (306)
- -----------------------------------------------------------------------------------------------------------------------
Total deferred 13,601 8,380 (3,366)
- -----------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $ 14,174 $ 8,380 $ (3,366)
=======================================================================================================================
</TABLE>
The components of the company's deferred tax liabilities (assets) are
comprised of the following temporary differences and carryforwards (in
thousands):
<TABLE>
<CAPTION>
December 31, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 10,939 $ 8,087
Mine development costs 62,639 35,146
- -----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 73,578 43,233
- -----------------------------------------------------------------------------------------------------------------------
Capital lease obligations (539) (1,013)
Noncurrent liabilities (2,087) (1,347)
Current liabilities (628) (2,103)
Inventory (323) (117)
Net operating loss and other carryforwards (42,904) (22,624)
- -----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets (46,481) (27,204)
- -----------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 27,097 $ 16,029
=======================================================================================================================
</TABLE>
There was no valuation allowance recorded in 1999 or 1998 because it
was more likely than not that all deferred tax assets would be realized. A
reconciliation from the federal income tax provision at the applicable statutory
income tax rate to the effective rate is as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes $ 51,345 $ 21,766 $ (8,743)
=======================================================================================================================
Income taxes at statutory rate $ 17,971 $ 7,618 $ (3,060)
State income taxes, net of federal benefit 2,272 762 (306)
Adjustments to prior years tax provisions (6,069) - -
- -----------------------------------------------------------------------------------------------------------------------
Income tax provision (benefit) $ 14,174 $ 8,380 $ (3,366)
=======================================================================================================================
</TABLE>
51
<PAGE>
At December 31, 1999, the company had approximately $109 million of
regular tax net operating loss carryforwards expiring during 2009 through 2019.
The company believes that it is more likely than not that these carryforwards
will be utilized to reduce future federal income tax liabilities. Management can
and would implement tax planning strategies to prevent these carryforwards from
expiring. The company made cash payments for income taxes of $225,000, $316,000
and $0 for the years ended December 31, 1999, 1998 and 1997, respectively.
Adjustments to the prior years' tax provisions relate to the company's review of
its net deferred tax assets and liabilities, together with net operating loss
carryforwards. The company has determined to currently recognize potential tax
benefits arising therefrom on the assumption that the deductions and losses will
be realized in future years. In making this determination, the company has
considered the current level of platinum group metal (PGM) prices and the
ability of the company to use accelerated depreciation and amortization methods
in the determination of taxable income.
Note 10
Capital Transactions
Common Stock Offering
On October 20, 1998, 2,000,000 shares of the company's common stock
were sold in a public offering at $30.75 per share (pre stock split). On
November 4, 1998, 300,000 additional shares were sold pursuant to the
underwriter's over-allotment option. Proceeds from the offering were
approximately $66.6 million, net of offering costs of $4.1 million.
Common Stock Split
On December 8, 1998, the Board of Directors declared a three-for-two
stock split of the company's common stock effected in the form of a stock
dividend to shareholders of record on December 21, 1998. This stock split was
recorded as of the close of business on December 31, 1998 by transferring par
value of $115,158 from additional paid in capital to common stock and by paying
$3,805 for fractional shares. All share data in the notes to the financial
statements, including stock option information, has been restated to
retroactively reflect this stock split.
Note 11
Commodity Instruments
The company uses various derivative financial instruments to manage the
company's exposure to market prices associated with changes in palladium and
platinum commodity prices. The company may also lease metal to counterparties to
earn interest on excess metal balances. All derivatives are off-balance sheet
and therefore have no carrying value. Because the company hedges only with
instruments that have a high correlation with the value of the hedged
transactions, changes in derivatives' fair value are expected to be offset by
changes in the value of the hedged transaction.
52
<PAGE>
As of December 31, 1999, the company had sold forward 20,000 ounces of
platinum for delivery in 2000 at an average price of $404 per ounce. All forward
sales contracts are settled in cash at the delivery date. For anticipated
production in the year 2000, the company has established put and call options on
57,500 ounces of palladium production at $326 and $418, respectively, and on
1,000 ounces of platinum production at $349 and $370, respectively. For
anticipated production in the year 2001, the company has established put and
call options on 5,000 ounces of palladium at $327 and $419, respectively. The
fair value of the company's put and call options was a loss of approximately
$1.1 million at December 31, 1999. These put and call options work together as
collars under which the company receives the difference between the put price
and the market price only if the market price is below the put price and the
company pays the difference between the call price and the market price only if
the market price is above the call price. The company's put and call options are
settled at maturity.
The company has entered into long-term sales contracts with General
Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The contracts
apply to a portion of the company's production over the five-year period from
January 1999 through December 2003. Under the contracts, the company has
committed between 90% to 100% of its palladium production. Palladium sales are
priced at a discount to market, with a floor price averaging approximately $225
per ounce. The company has agreed to an average maximum palladium price of
approximately $400 per ounce on approximately 30% of its production sold under
the contracts. The remaining 70% of the company's palladium production is not
subject to any price cap. In addition, the company has committed approximately
20% of its annual platinum production over the next five years under these
agreements. Platinum sales are priced at a discount to market, subject to an
average minimum price of $350 per ounce with an average maximum price of $425
per ounce. The remaining 80% of the company's annual platinum production is not
committed under these contracts, and remains available for sale at prevailing
market prices. The sales contracts provide for adjustments to ounces committed
based on actual production. In addition, the sales contracts contain termination
provisions that allow the purchasers to terminate in the event the company
breaches certain provisions of the contracts and the breach is not cured within
periods ranging from ten to thirty days of notice by the purchaser.
Note 12
Commitments And Contingencies
Refining Agreements
The company has contracted with four entities to refine its filter cake
production. Even though there are limited number of PGM refiners, the company is
not economically dependent upon any one refiner.
Operating Leases
In September 1998, the company completed the sale and leaseback of a
tunnel boring machine and miscellaneous other mining equipment. The leases are
non-cancelable with terms of seven years and are
53
<PAGE>
classified as operating leases for financial reporting purposes. Rental expense
amounted to approximately $1.6 million and $0.5 million in 1999 and 1998,
respectively. Rental expense in 1997 was insignificant.
Future minimum lease payments for non-cancelable leases with terms in
excess of one year are $1.6 million in each of the years 2000 - 2004, and $1.1
million thereafter.
Significant Customers
Sales to significant customers represented approximately 80%, 60% and
90% of total revenues for the years ended December 31, 1999, 1998 and 1997,
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.
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,
the company agrees to reimburse MPC for these costs through additional electric
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, has not met or
exceeded MPC's investment cost, the company will be required to pay MPC the
difference.
Note 13
Quarterly Data (Unaudited)
Quarterly earnings data for the years ended December 31, 1999 and 1998 were
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------------
1999 Quarters
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $38,030 $36,845 $32,204 $45,668
Operating income 15,544 11,129 7,243 16,518
Net income (1) 10,588 8,046 5,099 13,438
Basic earnings per share (1) 0.31 0.22 0.13 0.35
Diluted earnings per share (1) 0.28 0.21 0.12 0.35
- -------------------------------------------------------------------------------------------------------------------------
1998 Quarters
- -------------------------------------------------------------------------------------------------------------------------
Revenue $21,513 $26,523 $28,198 $30,489
Operating income 2,371 5,597 6,657 8,561
Net income 982 3,061 3,790 5,553
Basic earnings per share 0.04 0.10 0.12 0.17
Diluted earnings per share 0.04 0.10 0.12 0.15
=========================================================================================================================
</TABLE>
(1) During the fourth quarter of 1999, a review of the company's deferred tax
liability resulted in a reduction of its 1999 tax rate to 28% from the
31.5% previously accrued during the year. The effect of this reduction on
fourth quarter results was approximately $1.4 million or $0.04 per share.
54
<PAGE>
Note 14
Mineral Reserves And Production Data (Unaudited)
Proven and probable palladium and platinum reserves (1) consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stillwater Mine
Ore reserves (thousands of tons) 22,980 23,745 17,999 15,619 11,072
Grade (2) 0.71 0.71 0.79 0.80 0.82
Contained metal (thousands of ounces)
Palladium (3) 12,444 12,910 10,940 9,595 7,058
Platinum (3) 3,771 3,912 3,315 2,907 2,016
- -----------------------------------------------------------------------------------------------------------------------
Total contained metal 16,215 16,822 14,255 12,502 9,074
=======================================================================================================================
East Boulder
Ore reserves (thousands of tons) 13,313 13,313 11,510 11,510 11,510
Grade (2) 0.71 0.71 0.79 0.79 0.79
Contained metal (thousands of ounces)
Palladium (3) 7,251 7,251 6,992 7,087 7,087
Platinum (3) 2,197 2,197 2,120 2,025 2,025
- -----------------------------------------------------------------------------------------------------------------------
Total contained metal 9,448 9,448 9,112 9,112 9,112
=======================================================================================================================
</TABLE>
Summary operating information was as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ounces produced (in thousands)
Palladium 315 340 271 196 169
Platinum 94 104 84 59 51
Average realized price per ounce
Palladium $372 $202 $144 $144 $157
Platinum $383 $377 $388 $410 $425
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Derived from mineral reserve estimates reviewed by independent consultants
as of December 31, 1999, 1998, 1997, and 1995. The December 31, 1996
estimates were derived from the December 31, 1995 estimates adjusted for
production, additional drilling and development.
(2) Expressed in contained ounces of palladium and platinum per ton.
(3) Based on the ratio of 1.0 part of platinum to 3.3 parts of palladium for
1996 through 1999 and 1.0 part of platinum to 3.5 parts of palladium for
1995.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Reference is made to the Form 8-K previously filed by the company dated
October 13, 1999 and Amendment No. 1 thereto containing the letter from
PricewaterhouseCoopers, L.L.P. with respect to the statement made therein.
55
<PAGE>
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 10, 2000 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 10, 2000, 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 10,
2000, 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 10, 2000, to be filed pursuant to
Regulation 14A, which information is incorporated herein by reference.
56
<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 Page
Report of Management 35
Report of Independent Accountants 36
Balance Sheets 38
Statements of Operations 39
Statements of Cash Flows 40
Statements of Changes in Stockholders' Equity 41
Notes to Financial Statements 42
2. Financial Statement Schedules (not applicable)
(b) Reports on Form 8-K
1. On October 20, 1999, the company filed a Form 8-K to announce the
change in independent accountants from Pricewaterhouse Coopers LLP to
KPMG LLP.
2. On October 21, 1999, the company filed a Form 8-K/A to provide the
independent accountants' letter required in accordance with the Form 8-
K filed on October 20, 1999.
(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
dated December 2, 1995 (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 1998 Equity Incentive Plan (incorporated by reference to Appendix A to
the Proxy statement dated April 6, 1998)
10.2 Amended and Restated Employment Agreement with William E. Nettles,
dated as of August 10, 1998. (incorporated by reference to Exhibit 10.1
of the Registrant 1998 Form 10-K)
10.3 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).
10.4 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).
57
<PAGE>
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 PGM Concentrate Refining Agreement between the company and
Union Miniere dated May 8, 1996. (incorporated by reference to
Exhibit 10.15 of the Registration 1998 10K).
10.10 Articles of Agreement between Stillwater Mining Company and
Oil, Chemical and Atomic Workers International Union dated
July 1, 1999 (filed herewith).
10.11 Palladium Sales Agreement, made as of August 13, 1998, among
Stillwater Mining Company and Ford Motor Company (portions of
the agreement have been omitted pursuant to a confidential
treatment request) (incorporated by reference to Exhibit 10.1
to the Form 8-K dated July 21, 1998).
10.12 Palladium and Platinum Sales Agreement, made as of August 17,
1998, among Stillwater Mining Company and General Motors
Corporation (portions of the agreement have been omitted
pursuant to a confidential treatment request) (incorporated by
reference to Exhibit 10.3 to the Form 8-K dated July 21,
1998).
10.13 Palladium and Platinum Sales Agreement, made as of August 27,
1998, among Stillwater Mining Company and Mitsubishi
Corporation (portions of the agreement have been omitted
pursuant to a confidential treatment request) (incorporated by
reference to Exhibit 10.4 to the Form 8-K dated July 21,
1998).
10.14 Employment Agreement with James A. Sabala dated July 1, 1999
(filed herewith).
10.15 Employment Agreement with Harry C. Smith dated September 7,
1999 (filed herewith).
10.16 Employment Agreement with Vernon C. Baker dated June 29, 1999
(filed herewith).
10.17 Credit Agreement, dated March 10, 1999 between Stillwater
Mining Company and the Bank of Nova Scotia (incorporated by
reference to Exhibit 10.21 of the Registrant's 1998 Form 10-K).
23.1 Consent of KPMG LLP
23.2 Consent of Pricewaterhouse Coopers, L.L.P.
23.3 Consent of Behre Dolbear & Company, Inc.
27 Financial Data Schedule
58
<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 24, 2000 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 24, 2000
- --------------------------------------------
William E. Nettles
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ James A. Sabala March 24, 2000
- --------------------------------------------
James A. Sabala
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Douglas Donald March 24, 2000
- --------------------------------------------
Douglas Donald, Director
/s/ Richard Gilbert March 24, 2000
- ---------------------------------------------
Richard Gilbert, Director
/s/ Lawrence Glaser March 24, 2000
- --------------------------------------------
Lawrence Glaser, Director
/s/ Apolinar Guzman March 24, 2000
- --------------------------------------------
Apolinar Guzman, Director
/s/ Ted Schwinden March 24, 2000
- --------------------------------------------
Ted Schwinden, Director
/s/ Peter Steen March 24 2000
- --------------------------------------------
Peter Steen, Director
59
<PAGE>
EXHIBIT 10.10
CONTRACT
BETWEEN
STILLWATER MINING COMPANY
AND
PAPER, ALLIED INDUSTRIAL, CHEMICAL
AND ENERGY WORKERS INTERNATIONAL UNION
AND ITS LOCAL 8-001
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Articles of Agreement 1
Article 1 - Recognition 1
Article 2 - Non-Discrimination 2
Article 3 - Union Security 2
Article 4 - Management Rights 3
Article 5 - Management-Union Committee 4
Article 6 - Grievance and Arbitration 5
Article 7 - Medical Arbitration 7
Article 8 - Seniority 8
Article 9 - Probationary Period 9
Article 10 - Job Postings 9
Article 11 - Lay-Off and Recall 10
Article 12 - Severance Pay 11
Article 13 - Evaluations 11
Article 14 - Hours of Work and Overtime 12
Article 15 - Classification and Wages 14
Article 16 - Safety and Health 14
Article 17 - Benefits 16
Article 18 - Holidays 16
Article 19 - Vacation 17
Article 20 - Union Leaves of Absence 18
Article 21 - Family and Medical Leave 19
Article 22 - Military Service 19
Article 23 - Bereavement Leave 19
Article 24 - Jury and Witness Duty 20
Article 25 - Contracting Out 20
Article 26 - Miscellaneous 21
Article 27 - Mine/Plant Closure 22
Article 28 - No Strike 22
Article 29 - Past Practice 22
Article 30 - Validity 22
Article 31 - Complete Agreement 23
Article 32 - Term of Agreement 23
</TABLE>
<PAGE>
ARTICLES OF AGREEMENT
This Agreement is between Stillwater Mining Company ("Company"), its successors
and assigns, and the Paper, Allied Industrial, Chemical and Energy Workers
International Union and its Local 8-001 ("Union"), its successors and assigns.
ARTICLE 1
RECOGNITION
Section 1. The Company recognizes the Union as the sole and exclusive
bargaining representative for the following Company employees employed by the
Company at the facilities at [insert address], Nye, Montana; and the facilities
at [insert address], Columbus, Montana. All hourly production and maintenance
employees, including warehouse employees, laboratory technicians and custodians;
but excluding all temporary employees, student summer hires, professional
employees, technical employees, office clerical employees, guards, dispatchers
and supervisors, and those above the rank of supervisor.
Section 2. The Union's Workers' Committee represents Union interests to the
Company. The Workers' Committee will be selected by the Union, and consist of
seven (7) members, including the Local Union President who will be Chair. The
six (6) remaining members will consist of three (3) from the Mine, one (1) from
the Concentrator, one (1) from the Smelter/BMR/Laboratory, and one (1) from
Maintenance/Warehouse. Alternates may be selected to replace absent Committee
members.
Section 3. The Local Union President will promptly notify the Company, in
writing, of the names of the Workers' Committee members, the Grievance Committee
members and any selected stewards. The Company will be notified, in writing, of
any changes to these groups.
Section 4. The activities of the Union's Workers' Committee will not result in
any disruption of the Company's operations, and employees will not neglect their
duties and responsibilities.
ARTICLE 2
NON-DISCRIMINATION
Section 1. The Company and Union agree that neither will discriminate nor
harass any employee or applicant for employment because of race, creed,
<PAGE>
marital status, color, age, disability, religion, national origin or sex in
violation of any applicable Federal, State or local law.
ARTICLE 3
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 or by the thirtieth (30th)
calendar day following the effective date of this Agreement, whichever is later.
Neither the Union, Company, nor any of their officers, agents or members will
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 will be submitted directly to arbitration
for determination.
The Union will indemnify and save the Company harmless against any and all
claims, demands, suits or other forms of liability that will arise out of or by
reason of action taken by the Company in complying with the provisions of this
Article.
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.
ARTICLE 4
MANAGEMENT RIGHTS
Section 1. 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 management who are the sole decision makers regarding
the Company's operations. The following listing of specific management rights
is not intended to be all-inclusive, but are 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
<PAGE>
mean the right does not exist.
Section 2. The Company has 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 end
any job, classification, 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; and to reprimand, suspend, discharge and otherwise discipline for
just cause.
Section 3. The Company has the right to create and administer rules, policies
and procedures. This will include the right to establish or revise attendance,
work, substance abuse, drug and/or alcohol testing, functional testing and
safety rules. The Company has the right to establish or revise a disciplinary
policy to address violations of these rules.
Section 4. The Company also has 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, processes,
techniques, machinery and equipment, means of processing, distribution and
mining; to set the standards of productivity and the products to be produced; to
determine employees' working schedules, including, but not limited to, the
number of hours and shifts to be worked; to determine when overtime work is
necessary and to assign overtime; to choose customers; to utilize part-time and
temporary employees; to decide where or when training on a particular operation
or job is required, how much training is required and the right to move or
retrain employees; to determine the amount and form of any incentive and/or
bonus compensation to be paid in addition to wages; to establish, implement,
modify, suspend or terminate any contract or incentive program; to use
independent contractors to perform any work or services.
Section 5. The Company's failure to exercise any right or function reserved to
it, or the exercise of a management right in a particular way, will not prevent
the Company from exercising any of its rights in the future or in some other way
not in conflict with this Agreement. The only restrictions on management rights
are those expressly provided for in this Agreement.
Section 6. The exercise of these rights alleged to be in conflict with any
other provision of this Agreement will be subject to the grievance and
arbitration procedures.
ARTICLE 5
<PAGE>
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 by
the grievance and arbitration procedures) 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).
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.
Section 3. 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.
Section 4. For employees on their regularly scheduled shifts, time spent at
MUC meetings will be considered as time worked and will be paid at an employee's
normal base rate. The Company will make every reasonable effort to schedule the
MUC members on shift during MUC meetings.
Section 5. The MUC is limited to joint discussion and consultation, and is not
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 procedures of this Agreement.
ARTICLE 6
GRIEVANCE AND ARBITRATION
Section 1. 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 this Agreement's provisions.
<PAGE>
Section 2. The Union will establish a Grievance Committee for dealing with
grievances for each of the following departments: Mine, Concentrator,
Maintenance/Warehouse and Smelter/BMR/Laboratory. The Union will select up to
three (3) employees to serve on the Grievance Committees from each of the above
departments. The Local Union President will be a member of each of the
Grievance Committees.
Section 3. 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 will
be upheld for the Union. The time limits in this Article may be extended by
mutual agreement. The Company will pay for time spent by union representatives
in grievance meetings that are scheduled during their regular working hours.
Section 4. If a grievance arises that is not verbally settled with the
immediate supervisor, an earnest effort will be made to settle the grievance in
the following manner:
Step 1: Within fifteen (15) 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) days of this 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) days of the immediate supervisor's
decision. The Department Head will convene a meeting with the employee, a
steward or Grievance Committee member, and a Human Resources
Representative, within ten (10) days of notification from the Union, for
the purpose of resolving the grievance. The Department Head will give a
written reply within seven (7) days of the meeting.
Step 3: Failing satisfactory resolution at Step 2, the matter may be
presented to a Company Vice President, with a copy to the Human Resources
Manager, within ten (10) days of the Department Head's decision, with a
request that a meeting be held with a Vice President for the purpose of
resolving the grievance. A Vice President will convene a meeting with the
<PAGE>
Grievance Committee, the Local Union President, the steward who filed the
grievance, a representative from the Human Resources Department and another
management representative. The meeting will be held within fourteen (14)
days from the time the matter is submitted to a Vice President. A Vice
President will render a written decision to the Local Union President
within ten (10) days of the meeting.
Section 5. Following Step 3, the parties may refer a grievance to a mediator
acceptable to both parties. There will be a maximum of three (3) grievances
submitted to binding arbitration per hearing. The cost of the mediator will be
paid equally by both parties.
Section 6. If the Union disagrees with the decision rendered by the Vice
President, it may, within thirty (30) days from the date of the decision, refer
the grievance to the Federal Mediation and Conciliation Service. The parties
will request the Federal Mediation and Conciliation Service to submit a panel of
seven (7) arbitrators. Each party will have the right to reject one panel of
arbitrators. The Union will strike the first name and then the parties will
alternately strike a name until one arbitrator is left. The arbitrator will be
notified of selection by a letter from the parties requesting that the
arbitrator set a time for the hearing.
Section 7. If any grievance proceeds beyond Step 3, the grieving party must
submit in writing all known evidence bearing on the grievance. This includes,
but is not limited to, a description of the practice or matter giving rise to
the dispute, relevant dates and all witnesses, along with the specific contract
clause that is allegedly being violated. Evidence not disclosed according to
this section cannot be introduced by the grieving party at arbitration. Evidence
that is discovered at a later date may be introduced at hearing if disclosed to
the Company in writing at least five (5) days prior to the arbitration.
Section 8. In rendering a decision, the arbitrator will be governed and limited
by this Agreement's provisions, applicable law, and the expressed intent of the
parties as described in this Agreement. The arbitrator will have no power to
add to, subtract from, or modify any of the terms and provisions of this
Agreement, or substitute his judgment for that of the Company. The arbitrator
will confine his judgment strictly to the facts submitted in the hearing, the
evidence before him, and this Agreement's express terms and provisions. The
arbitrator's decision will be final and binding upon the parties.
Section 9. The cost of the arbitrator will be paid equally by the parties.
Section 10. The Union and the employees waive their right to pursue any
judicial or administrative remedy against the Company as to any matter subject
<PAGE>
to the procedures established in this Article until such procedures are
exhausted. Any settlement under the procedures established under this Article,
short of arbitration, will be binding upon the Company, the Union, and the
employees and will preclude any further administrative or judicial relief.
Section 11. Any employee has the right to have a union representative present
if they are called into a meeting which may result in disciplinary action.
Section 12. 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 will request the permission of their immediate supervisor which
will not be unreasonably withheld. When a steward or Grievance Committee member
enters an area other than their normal work area, they will inform the
supervisor of that area of their presence and reason for being there. A steward
or Grievance Committee member will inform their supervisor when returning to
their normal work area.
Section 13. Grievances dealing with discharges will be moved immediately to
Step 2 of the grievance procedure.
Section 14. The Union, by not exercising any functions reserved to it or by
exercising any function in a particular way, will not be deemed to have waived
its right to exercise functions as set forth in this Agreement.
ARTICLE 7
MEDICAL ARBITRATION
Section 1. 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, will first be made.
Section 2. If no satisfactory conclusion is reached and the Union or the
Company so elects, a Board of three (3) licensed physicians will be selected,
one by the Company, one by the Union, and one by the two so-named, who will
decide the case. The decision of the Board will be final and binding on both
parties to this Agreement and retroactive to the date the dispute arose.
Section 3. The Company will bear the expense of the physician of its choice,
and the Union will bear the expense of the physician of its choice. The expense
of the third physician will 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 will be paid equally by the parties.
<PAGE>
ARTICLE 8
SENIORITY
Section 1. Company seniority will be determined by an employee's date of
original employment with the Company, if there has been no service break.
Company seniority will apply only for purposes of applicable benefit plans and
earned vacation.
Section 2. Plant seniority will be determined from the employee's date of
original employment with the Company at its facilities covered by this Agreement
or date of employment if there had been a break in service. An employee's plant
seniority will be lost if the employee:
A. Quits.
B. Is discharged for just cause.
C. Fails to work for any reason for two (2) years, or length of
service, whichever is less.
D. Fails to return to work upon termination of a leave of absence.
E. Is promoted to a full-time non-bargaining unit position for a period
in excess of one (1) year.
Section 3. Department seniority will be determined by the date on which the
employee begins continuous service in one of the following departments:
A. Mine
B. Concentrator
C. Maintenance
D. Warehouse
E. Processing (Smelter/BMR/Laboratory)
The employee will lose department seniority in any previous department once
department seniority is established in any other department.
Section 4. The Company will annually provide the Union with a current seniority
list which will also be posted in the workplace.
Section 5. If employees are hired on the same day, seniority will be decided
by the flip of a coin.
ARTICLE 9
PROBATIONARY PERIOD
Section 1. All new employees will be considered probationary employees for
<PAGE>
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, the Union and the employee.
Section 2. Unless Company policies provide otherwise, probationary employees
will not be eligible for any benefits granted to regular employees under this
Agreement. No terms of this Agreement other than this Article and the
appropriate wage rate will apply to probationary employees.
Section 3. Employees continued in employment after the end of the probationary
period will become full-time employees and will be credited with continuous
service from the original date of hire.
ARTICLE 10
JOB POSTINGS
Section 1. 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 posting on the bulletin boards for ten
(10) consecutive days. Employees desiring to bid on the vacancy will apply in
writing to the Human Resources Department within the allotted ten (10) days.
Laid off employees, who have seniority rights, will be eligible to bid on all
job postings. Upon request, a copy of the job posting and of all bids will be
provided to the Local Union President.
Section 2. The Company will determine the successful candidate based on
demonstrated performance and skill consistent with the Evaluations Article. When
there are two or more employees of equal skill and performance, the principle of
plant seniority will govern. If no qualified candidate applies or no bid is
received, the job may be filled by the Company from any other source.
Section 3. Temporary vacancies of less than ninety (90) days may be filled at
the Company's discretion.
Section 4. If the successful bidder proves unsatisfactory after a thirty (30)
day evaluation period, or chooses not to continue in the new position within the
thirty (30) day evaluation period, the employee will be returned to the position
last held with no loss of seniority. The Company will then fill the position
with the next most qualified candidate from the original posting.
Section 5. An employee who is awarded a job posting outside his department
cannot bid for another job for a period of one (1) year. An employee who is
awarded a job posting within his department cannot bid for another job for a
period of four (4) months.
<PAGE>
ARTICLE 11
LAY-OFF AND RECALL
Section 1. In instances of layoff, recall, or job elimination, the Company,
consistent with the Evaluations Article, will consider employees' demonstrated
performance and skill. When there are two or more employees of equal
performance and skill, the principle of plant seniority will govern. Temporary
employees and probationary employees will be laid off prior to employees on the
seniority list, unless the temporary or probationary employees have special
skills not held by regular employees.
Section 2. An employee has ten (10) days to respond to a recall to work by
certified mail. The ten (10) days will begin running when the Company makes its
initial attempt to recall. Unless other arrangements are made, the recalled
employee will have up to fourteen (14) days to return to work after responding
to the Company's offer. Failure to respond or return to work within the time
limits outlined in this Section will result in a loss of seniority.
Section 3. The Company will meet with the MUC Committee to discuss any layoffs
or reduction-in-force prior to implementation. The Company will notify the
Union of any pending layoff or reduction-in-force as far in advance as possible.
If a layoff is less than ninety (90) days in duration, the Company will pay its
portion of the cost of fringe benefits during the layoff.
ARTICLE 12
SEVERANCE PAY
Section 1. Any full-time employee who loses seniority because of a long-term
layoff or a permanent mine closure will be entitled to one (1) week of severance
at the employee's base rate of pay for each full year of continuous service with
the Company up to a maximum of fifteen (15) weeks of pay.
ARTICLE 13
EVALUATIONS
Section 1. The job performance of all bargaining unit employees will be
evaluated on an annual basis. New employees will be evaluated at the conclusion
of their probationary period. This evaluation will be utilized until the next
annual review occurs. These evaluations will have two components. The first
will be based on performance. The second will be a skills assessment. The
Company retains the right, with input from the review committee, to
<PAGE>
periodically modify the evaluation process. Changes in the evaluation process
will be announced at least six (6) months before the end of the evaluation
period.
Section 2. The performance evaluation results will be standardized between
departments (each of which must be ten (10) or more employees). In other words,
each employee's performance score in the department will be ranked in raw score
order and assigned a percentile rank within the department. This percentile
rank will be the number that will be used when comparing the performance of
employees from different departments. Employees who are within ten (10)
percentage points of each other will be considered substantially equal for
performance purposes.
Section 3. The skills assessment will be standardized in the same manner as
the performance evaluations. Employees who are within ten (10) percentage
points of each other will be considered substantially equal for skills purposes.
Section 4. Job restructuring, assignments, layoffs, eliminations, recall, and
other changes materially affecting employment will initially be based on the
employee's performance and skill level demonstrated in the employee's last
evaluation. In each instance where performance and skill are a factor in the
Company's decision, the Company will articulate a minimum skill level needed for
consideration. Employees who have the requisite skill level will initially be
compared on the basis of their job performance. If their performance is
substantially equal, their skill levels will be compared. If the skill level is
also substantially equal, plant seniority will be the deciding factor. If, at
any step of this comparison process, the employees are not substantially equal,
the employee with the superior performance or skill level will be given
preference.
Section 5. When the evaluation process is completed for an entire department,
employees will be provided with a copy of their individual performance
evaluation and skills assessment. Employees who have questions about their
evaluations should initially discuss them with the individual who completed the
evaluation. If this discussion does not resolve the matter, a request to meet
with the review committee may be filed. This request must be made within
fifteen (15) days of receipt of the evaluation and specifically state with what
parts of the performance evaluation or skills assessment the employee disagrees.
The review committee is the only avenue available to challenge performance
evaluations and skill assessments, as they are not subject to the grievance and
arbitration procedures of this Agreement.
Section 6. The review committee will meet with the employee and other involved
parties to determine whether either the performance evaluation or skills
assessment should be revised. The decision to revise the evaluation or skills
assessment must be agreed upon by a majority of the review committee
<PAGE>
members hearing the matter. The decision of the review committee will be final
and binding on both the Company and the employee.
Section 7. The Company and the Union will each designate five (5) individuals
who may act as review committee members. When an employee requests to meet with
the committee, each party will select two (2) members from their respective
groups, who are not within the employee's department, to review the performance
evaluation and skills assessment. At the review committee's request, the Vice
President of Operations will sit as a fifth member of the committee.
ARTICLE 14
HOURS OF WORK AND OVERTIME
Section 1. The normal workweek will begin at 12:01 a.m. each Tuesday and end at
12:00 midnight the following Monday. Overtime will be paid for all hours
worked in excess of forty (40) hours during a workweek.
Section 2. Changes in working schedules (other than temporary incidental
changes) will be discussed with the MUC prior to implementation.
Section 3. 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, will 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 4. If an employee's regularly scheduled shift is canceled less than
ninety (90) minutes before it is scheduled to begin, the employee will either
work a minimum of four (4) hours or be paid four (4) hours at his regular hourly
rate in lieu of work.
Section 5. Upon prior approval of the supervisors involved, employees may
mutually agree to exchange shifts or days off provided the 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.
Section 6. The Company agrees that overtime will be distributed as uniformly
and equally as possible and practical within each classification. Employees
will 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 employees volunteer to accept requested overtime, the Company will
assign
<PAGE>
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 will be
compensated at double (2) time for all hours worked over sixteen (16). Any
employee who has worked sixteen (16) or more hours will be allowed a rest period
of at least eight (8) hours with no loss of overtime pay.
Section 8. Pyramiding of overtime is prohibited.
Section 9. For the purpose of computing weekly overtime the following will be
considered as time worked: holidays, jury/witness service, union business
involving contract administration 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. These hours will
not exceed the number of hours in the employee's normal work day.
Section 10. Except for the first shift worked for each work rotation, an
employee will be given twenty-four (24) hours notice of a change in shift.
Section 11. Employees who work a shift beginning after 12:00 (noon) will be
paid a shift differential of fifty cents ($.50) per hour.
ARTICLE 15
CLASSIFICATION AND WAGES
Section 1. The classifications and rates of pay are attached to this Agreement
and will continue in effect for the duration of this Agreement.
Section 2. Employees temporarily assigned to work in a classification other
than their current classification will continue to be paid the rate of pay for
their current classification.
Section 3. Management personnel may perform bargaining unit work when training,
investigating, testing, and in emergencies, or situations in which no qualified
bargaining unit employee is available to do the job required.
Section 4. If a full-time employee is demoted, through no fault of their own,
from their regular classification, the employee will 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 will be
no pyramiding of rate retention under this Article.
<PAGE>
ARTICLE 16
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 will 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 will consist of
representatives elected annually by members of each work group at each location.
These Committees will meet monthly to discuss safety and health issues,
recommend corrective actions, and communicate safety and health information back
to employees.
Section 3. There will be a Joint Safety and Health Review Committee ("JSHRC")
at each location where a Safety and Health Committee exists. It will be
composed of four (4) members of the Safety and Health Committee and will meet at
least quarterly. There will be equal representation of Company appointees 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 will 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.
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 these records will be provided to the affected employee.
Section 6. Personal protective equipment required by statute or for special
tasks not regularly performed will 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
<PAGE>
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.
Section 7. Prescription safety glasses will be provided at a rate of one (1)
pair per year. Replacement non-prescription safety glasses will be available.
Section 8. The Company will provide for an ongoing safety and health training
program. The content of health and safety training courses will be reviewed
with the JSHRC prior to selection. Time spent on Company approved training will
be considered as time worked. The cost of Company approved training will be
paid by the Company and expenses reimbursed based on current Company policy.
Section 9. No employee will 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.
ARTICLE 17
BENEFITS
Section 1. The Company will provide bargaining unit members with benefits on
the same basis as provided to its salaried employees. The broad-based
categories of these benefits include health, life, and disability insurance, as
well as a 401(k) plan.
Section 2. Amendments to the plans or changes in employee contribution levels
will be announced periodically.
ARTICLE 18
HOLIDAYS
Section 1. The following days will 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
<PAGE>
Section 2. Employees who are required to work on any of the above holidays will
receive pay at the rate of time and one-half (1 1/2) plus holiday pay for all
hours worked. Each full-time employee not required to work on these holidays
will 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. When a Saturday or Sunday holiday is observed on a weekday, the
holiday pay will 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 will 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. 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
will 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. No more than
one (1) person per crew will 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, the employee will be paid according to 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 19
VACATION
Section 1. Employees will be eligible for paid vacation time in accordance with
<PAGE>
the following provisions.
Amount of Paid
Years of Service Vacation Available
1 through 4 80 hours
5 through 9 120 hours
10 or more 160 hours
Section 2. At the beginning of the calendar year, each full-time employee who
has completed one year of continuous service will be credited with vacation
based on length of service. Employees who have less than one year of service,
but have completed their probationary period, will be credited with a pro rata
amount of vacation on January 1. Employees must use a minimum of eighty (80)
hours of their vacation leave annually.
Section 3. At the beginning of each calendar year, full-time employees who have
completed fourteen (14) or more years of continuous service will receive a one
thousand dollar ($1,000) bonus.
Section 4. Employees may choose to receive pay in lieu of time off for vacation
in excess of eighty (80) hours. Pay in lieu of time off will also be provided
when the Company requests an employee to forego his vacation. 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. Vacation cannot be carried
over into the next calendar year without the Company's approval. Vacation must
be taken in full-shift increments, unless shift scheduling dictates otherwise.
Section 5. Vacation schedules will be posted or circulated among employees
during the first two (2) weeks 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
will 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 will be forced to take vacation which has already been approved at a
time undesirable to the employee. Vacation requests must be pre-authorized by
the supervisor at least one (1) week in advance.
Section 6. Holidays falling during an employee's vacation will be
<PAGE>
compensated for by holiday pay or by a one-day extension of the vacation, as the
employee elects.
Section 7. Employees terminating service with the Company will be paid
vacation earned in the current year.
ARTICLE 20
UNION LEAVES OF ABSENCE
Section 1. The Company may grant a short-term unpaid leave of absence for Union
officials or members to attend Union functions. These leaves will be granted
based on the Company's operating requirements. Employees will retain service,
seniority and benefits during this leave of absence. Requests for these leaves
must be made by the Union to the Company not less than fourteen (14) days before
the leave.
Section 2. Upon thirty (30) days written notice from the Union, a long-term
unpaid leave of absence to perform work for the Union will be granted for one
(1) employee for 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. The employee will hold and
accumulate seniority and continuous service for all purposes during the leave.
Upon request, the employee will be allowed to continue in the Company Group
Health Plan, and any Disability Plans, by paying the full cost of the benefits
during the leave. Reinstatement will be granted if the employee is physically
able to return to the previously held classification, as determined by a Company
paid physical examination. If the 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 21
FAMILY AND MEDICAL LEAVE
Section 1. The Company will comply with all applicable State and Federal laws
which address employees' rights to request or obtain family or medical leaves.
Employees who use the family medical leave because of a personal medical
condition will not be required to use vacation.
ARTICLE 22
MILITARY SERVICE
Section 1. The Company will comply with applicable State law and the
<PAGE>
Uniformed Services Employment and Reemployment Rights Act as they relate to
military leave.
Section 2. Any employee who is required to attend an encampment of the Reserve
of the Armed Forces or the National Guard will be paid the difference between
the employee's base wages and military pay, for a period not to exceed seventeen
(17) days.
ARTICLE 23
BEREAVEMENT LEAVE
Section 1. In the event of the death of an employee's immediate family member,
a reasonable period of unpaid leave will be granted to the employee. Immediate
family includes the employee's spouse, children, stepchildren, parents, step-
parents, brothers, sisters, grandparents and grandchildren, and the parents and
grandparents of the employee's spouse.
Section 2. To offset the expenses associated with attending the funeral, any
employee who has completed the probationary period will be paid forty (40) hours
of base wages in the event of the death of a spouse, child or step-child, or
twenty-four (24) hours of base wages in the event of the death of any other
immediate family member listed above.
ARTICLE 24
JURY AND WITNESS SERVICE
Section 1. Employees selected for jury duty or subpoenaed for witness service
will be allowed the necessary time off to perform the service. Employees must
contact their immediate supervisor prior to reporting for jury duty or
subpoenaed witness service. An employee who reports and is then released from
service must immediately contact the employee's supervisor to coordinate return
to work. The Company will make reasonable allowances for travel and shift
schedules.
Section 2. Regular full-time 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 service to receive applicable pay.
ARTICLE 25
CONTRACTING OUT
<PAGE>
Section 1. The Company, having the availability of equipment, skills, manpower,
or the time to do the work, will 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 will not apply to
the installation of equipment or construction or any other activities not
ordinarily done by employees of the Company.
Section 2. Before commencing any major contract job to be performed on the
premises, the Company will notify the Local Union President, 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, to discuss information concerning contracting out.
ARTICLE 26
MISCELLANEOUS
Section 1. The Company will provide a copy of this Agreement to each employee.
Section 2. In July of each year, mechanics and electricians who are on the
seniority list will receive a tool allowance of four hundred dollars ($400.00)
and two hundred dollars ($200.00) respectively.
Section 3. The Company will provide a one-time boot allowance payment of seven
hundred and fifty dollars ($750.00) for all full-time employees on the effective
date of this Agreement. All active probationary employees on the effective date
of this Agreement will receive the one-time payment when they satisfy their
probationary period.
Section 4. The Company will provide a secure bulletin board at each of the
locations covered by this Agreement.
Section 5. Employees in the bargaining unit will 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.
Section 6. Required notices may be made by personal service, confirmed
facsimile transmission or certified mail, return receipt requested. The
designated party for the Company is the Human Resources Manager. The designated
party for the Union is the International Representative. Each party will
provide the other with the name and address of the individual who is authorized
to receive notices under this Section.
<PAGE>
Section 7. Any employee required to work more than two (2) hours beyond the
normal quitting time will be provided with a meal. An additional meal will be
furnished for each additional four (4) hours of continuous work. The Company
may, with the agreement of the involved employees, in lieu of a meal and time to
eat the meal, compensate the employee by the payment of one (1) additional hour
at time and one-half (1 1/2).
Section 8. Employees will have available five (5) full or partial, unpaid days
for sick leave each year.
Section 9. Each January employees will earn an attendance bonus equal to two
and one-fourth percent (2.25%) of their base rate multiplied by straight and
overtime hours actually worked through December 31 of the previous year.
ARTICLE 27
MINE/PLANT CLOSURE
Section 1. The Company will comply with the Worker Adjustment Retraining and
Notification Act.
ARTICLE 28
NO STRIKE
Section 1. During the term of this Agreement, there will be no strike, work
stoppage, picketing, honoring of any picket line at the Company premises, work
slowdown, sympathy strike, or any other form of economic pressure directed
against the Company or its services on the part of the Union or its members
covered by this Agreement. The Company will not lock out any bargaining unit
employee during the term of this Agreement.
Section 2. In the event of any breach of this Article, the Union will
immediately declare publicly that such action is unauthorized, will immediately
order its members to resume their normal duties and continue to take any
necessary action to correct the problem and restore the Company to full
operation.
ARTICLE 29
PAST PRACTICE
Section 1. This Agreement supersedes any previous oral and written agreements
between the Company, its employees and the Union. The Company will not be bound
by any past understandings, practices and/or customs between the Company, its
employees, and the Union on matters not
<PAGE>
specifically governed by the terms of this Agreement.
ARTICLE 30
VALIDITY
Section 1. Nothing contained in this Agreement will be construed in any way as
interfering with the obligation of the parties to comply with any and all State
and Federal laws, or any rules, regulations, and orders of duly constituted
authorities pertaining to matters covered by this Agreement, and such compliance
will not constitute a breach of this Agreement.
Section 2. If any court holds any part of this Agreement invalid, that decision
will not invalidate the entire Agreement.
ARTICLE 31
COMPLETE AGREEMENT
Section 1. This Agreement during its life may be amended only by mutual consent
of the parties. Any amendments made to this Agreement will be reduced to
written form and will be duly signed by the authorized representatives of the
Company and the Union.
Section 2. The parties acknowledge that during the negotiations resulting in
this Agreement, each had the unlimited right to make proposals with respect to
all subjects of collective bargaining. The understandings and agreements
arrived at by the parties after exercise of that right are included in this
Agreement. Therefore, the Company and the Union each waive the right and each
agrees that the other will not be obligated to bargain collectively with respect
to any matter referred to by this Agreement or with respect to any subject not
specifically referred to in this Agreement, except those required by law, even
though the subject may not have been within the knowledge or contemplation of
either or both of the parties at the time that they negotiated this Agreement.
ARTICLE 32
TERM OF AGREEMENT
Section 1. This Agreement will be in effect from July 1, 1999 until noon July
1, 2004, 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, will continue in
effect until terminated by either party upon ninety (90) days written notice of
its desire to terminate or modify this Agreement.
<PAGE>
With their signatures, the authorized representatives of the parties express
their agreement.
STILLWATER MINING COMPANY PAPER, ALLIED INDUSTRIAL,
CHEMICAL AND ENERGY WORKERS INTERNATIONAL UNION AND
ITS LOCAL 8-001
By: ____________________________ By: ____________________________
Vern Baker Don Beer
Date: __________________________ Date: __________________________
By: ____________________________ By: ____________________________
Kris Koss Steven Gentry
Date: __________________________ Date: __________________________
<PAGE>
STILLWATER MINING COMPANY
BARGAINING UNIT BASE RATE STRUCTURE
<TABLE>
<CAPTION>
7/01/99 7/01/00 7/01/01 7/01/02 7/01/03
Position Title Base Rate Base Rate Base Rate Base Rate Base Rate
- -------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Leadman - Mechanic $ 20.80 $ 21.63 $ 22.50 $ 23.28 $ 24.10
Leadman - Electrician $ 20.80 $ 21.63 $ 22.50 $ 23.28 $ 24.10
Leadman - Lab $ 20.80 $ 21.63 $ 22.50 $ 23.28 $ 24.10
Mechanic I $ 19.08 $ 19.84 $ 20.64 $ 21.36 $ 22.11
Electrician I $ 19.08 $ 19.84 $ 20.64 $ 21.36 $ 22.11
Hoistman I $ 19.08 $ 19.84 $ 20.64 $ 21.36 $ 22.11
Leadman -Mine/Mill/Smelter/BMR $ 18.99 $ 19.75 $ 20.54 $ 21.26 $ 22.00
Leadman - Warehouse $ 18.43 $ 19.17 $ 19.93 $ 20.63 $ 21.35
Mechanic II $ 17.58 $ 18.28 $ 19.01 $ 19.68 $ 20.37
Electrician II $ 17.58 $ 18.28 $ 19.01 $ 19.68 $ 20.37
Miner I $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
Mill/Smelter/BMR Operator I $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
U/G Construction I $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
Lab Tech I $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
Hoistman II $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
Diamond Driller I $ 17.42 $ 18.12 $ 18.84 $ 19.50 $ 20.18
Heavy Equipment Operator I $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
Miner II $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
Sand Plant Operator $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
Sandfiller $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
U/G Equipment Operator I $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
Warehouse I $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
U/G Construction II $ 16.60 $ 17.26 $ 17.95 $ 18.58 $ 19.23
Mechanic III $ 14.95 $ 15.55 $ 16.17 $ 16.74 $ 17.32
Electrician III $ 14.95 $ 15.55 $ 16.17 $ 16.74 $ 17.32
U/G Equipment Operator II $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Diamond Driller II $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Heavy Equipment Operator II $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Mill/Smelter/BMR Operator II $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Lab Tech II $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
U/G Construction III $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Miner III $ 14.32 $ 14.89 $ 15.49 $ 16.03 $ 16.59
Equipment Operator III $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
Warehouse II $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
Mill/Smelter/BMR Operator III $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
Lamp Repairer $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
Lab Tech III $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
Custodian $ 12.58 $ 13.08 $ 13.61 $ 14.08 $ 14.58
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Probationary Rate $ 10.06 $ 10.46 $ 10.88 $ 11.26 $ 11.66
</TABLE>
LINES OF PROGRESSION AND BID POSITIONS
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of July 1, 1999, is by and between STILLWATER
MINING COMPANY, a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and JAMES A. SABALA ("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 Vice
President and Chief Financial Officer for the Company.
ARTICLE 2
TERM
The term of this Agreement shall be for a period commencing on the date
above and ending December 31, 1999, unless sooner terminated as hereinafter
provided. The Agreement shall thereafter continue in effect for subsequent one
(1) year terms, commencing January 1, unless altered or terminated as
hereinafter provided; provided, however, that following a Change of Control, as
defined in Section 5.6, the Employment Term shall continue for no less than one
(1) additional year. 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."
<PAGE>
ARTICLE 3
DUTIES AND AUTHORITY
Employee agrees, unless otherwise specifically authorized by the Company,
to devote substantially all of his business time and effort to 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
authorities customarily held by others holding positions similar to those
assigned to Employee in similar businesses, subject to the general and customary
supervision of the Company's Board of Directors and Chief Executive Officer.
ARTICLE 4
COMPENSATION
1.1 Base Salary. The Company agrees to pay Employee a base salary of One
-----------
Hundred Seventy-Five Thousand Dollars ($175,000.00) 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.
1.2 Incentive Compensation. Employee shall participate in the Company's
----------------------
incentive compensation plans for executive officers of the Company, as in effect
from time to time during the Employment Term. The Company shall adopt an annual
incentive program for executive officers of the Company that will provide for a
performance based cash bonus of an amount to be determined by the Board of
Directors of the Company (the "Annual Bonus"). Until changed by the Board of
Directors of the Company, the Annual Bonus shall be set at a target of 35% of
the Employee's base salary, with a maximum which shall not exceed 70% of the
Employee's base salary.
1.3 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
during the initial term of this Agreement and during the term of each extension
hereof.
ARTICLE 5
TERMINATION
1.4 Termination by the Company Without Cause; Termination by Employee for
---------------------------------------------------------------------
Good Reason.
- -----------
-2-
<PAGE>
(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
in a lump sum a cash amount equal to: (i) 200 percent of his annual base
salary in effect immediately preceding such termination and (ii) 200
percent of the Annual Bonus paid or payable to the Employee for the most
recently completed fiscal year during the Employment Term.
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) A material reduction in Employee's responsibilities,
authorities, or duties;
(ii) Employee's job is eliminated other than by reason of
promotion or termination for Cause;
(iii) 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 five (5) business days of receipt by
the Company of written notice from Employee which describes in
reasonable detail the amount which is due;
(iv) A material reduction in Employee's base salary except in
the event of an across-the-board salary reduction for all executive
officers;
(v) 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;
(vi) A material reduction in Employee's reasonable opportunity
to earn incentive compensation under any plan in which Employee is a
participant, except in the event of an across-the-board reduction in
such benefits for all executive officers;
(vii) The Company and its successor(s) (as described in
subparagraph (ix) below) shall discontinue the business of the
Company; or
(viii) 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).
-3-
<PAGE>
Solely for the purposes of Section 5.6, any good faith determination of
Good Reason made by the Employee shall be conclusive.
1.5 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 Section 5.1, "Cause" shall mean (i) Employee's willful
and continued failure substantially to perform his duties hereunder for a period
of fifteen (15) days after written notice to Employee by the Company of each
such failure; (ii) Employee's dishonesty in the performance of his duties
hereunder; or (iii) Employee's conviction of a felony under the laws of the
United States or any state thereof. 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 termination of Employee's employment shall be
determined in accordance with the plans, policies and practices of the Company.
1.6 Notice of Termination. Any termination by the Company or by the
---------------------
Employee shall be communicated by Notice of Termination to the other party
hereto given in accordance with Article 18 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Termination Date
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or the Company,
respectively, hereunder or preclude the Employee or the Company, respectively,
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
1.7 Termination Date. "Termination Date" means the date of receipt of the
----------------
Notice of Termination or any later date specified therein, as the case may be.
1.8 Termination by Death or Disability. Upon termination of Employee's
----------------------------------
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. Employee's employment hereunder may be
terminated by the Company if Employee becomes physically or mentally
incapacitated and is therefore unable for a period of one hundred eighty (180)
consecutive days to perform his duties (such incapacity is hereinafter referred
to as "Disability"). Upon any such termination for Disability, Employee shall
be entitled to receive payment of disability benefits in lieu of salary under
the Company's Employee benefit plans as then in effect.
1.9 Termination Following a Change of Control; Benefits.
---------------------------------------------------
-4-
<PAGE>
(1) 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:
(1) 200 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;
(2) 200 percent of the Employee's target bonus in effect
immediately prior to the Change of Control (or on the Termination
Date, whichever is higher).
(3) 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 customary severance pay, office facilities and equity
incentive program participation) 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 12 months after the Termination Date, including
receiving the full benefit of 12 months 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 (i)
for the purposes of the Company's equity incentive programs,
Employee's employment shall be deemed terminated as of the
Termination Date hereunder; and (ii) to the extent Employee,
following the Termination Date, becomes employed by another
employer and becomes entitled to receive health insurance
benefits from such employer, the Company's obligation to provide
such health insurance benefits hereunder shall be decreased;
(4) All accrued compensation (including base salary and
Highest Annual Bonus, each prorated through the Termination Date)
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.
(5) The Employee shall be free to accept other employment
following such Termination, 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.
(2) The following terms shall have the meanings set forth below:
(1) 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:
-5-
<PAGE>
(1) 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
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 (c) below; or
(2) 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 (_) 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
(3) 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
(4) 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
-6-
<PAGE>
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 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.
(2) "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.
(3) For the purposes of this Section 5.6 only, "Cause" shall
mean:
(1) 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
(2) Employee's conviction of a felony or any crime
involving moral turpitude.
1.10 Certain Additional Payments by the Company. Anything in this Agreement
------------------------------------------
to the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Employee
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 5.7) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Employee with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Employee shall be entitled to receive
an additional payment (an "Excise Tax Payment") in the amount of the Excise Tax
(but not any income tax) imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 5.7(a), if it shall be determined that the
Employee is entitled to an Excise Tax Payment but that the Employee, after
taking into account the Payments and the Excise Tax Payment, would not receive a
net after-tax benefit of at least $10,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to the Employee
resulting from an elimination of the Excise Tax Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise
-7-
<PAGE>
Tax, then no Excise Tax Payment shall be made to the Employee and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
ARTICLE 6
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.
ARTICLE 7
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 without limitation, 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 8
NONCOMPETITION
1.11 Necessity of Covenant. The Company and Employee acknowledge that:
---------------------
(1) The Company's business is highly competitive;
(2) The Company maintains confidential information and trade secrets
as described in Article 9, all of which are zealously protected and kept
secret by the Company;
(3) In the course of his employment, Employee will acquire certain of
the information described in Article 9 and the Company would be adversely
affected if such information subsequently, and in the event of the
termination of Employee's employment, is used for the purposes of competing
with the Company;
(4) The Company transacts business throughout the world; and
(5) 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.
-8-
<PAGE>
1.12 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 the end
of the Employment Term, he will not, without the express written permission of
the Company, which may be 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 Platinum Group Metals
business conducted by 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 termination of employment.
1.13 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.
1.14 Survival. The terms of this Article 8 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 9
CONFIDENTIAL INFORMATION AND TRADE SECRETS
1.15 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 thereafter, 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
thereafter, 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
-9-
<PAGE>
person to whom disclosure is reasonably necessary or appropriate in connection
with the performance by Employee of his duties, any Confidential Information or
trade secrets obtained by him while in the employ of the Company.
1.16 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.
1.17 Exceptions. The restrictions and obligations in Section 9.1 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 obligation of confidentiality by a third party who has the right to make
such disclosure; (iii) is developed independently by Employee 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; or
(v) is required to be disclosed to enforce rights under this Agreement.
1.18 Survival. The terms of this Article 9 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 10
JUDICIAL CONSTRUCTION
Employee believes and acknowledges that the provisions contained in this
Agreement, including the covenants contained in Articles 8 and 9 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 11
RIGHT TO INJUNCTIVE RELIEF
Employee acknowledges that a breach by Employee of any of the terms of
Articles 8 or 9 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.
ARTICLE 12
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 5.6 and Article 13.
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<PAGE>
ARTICLE 13
ASSIGNMENT
12.1 Permitted Assignment. Subject to the provisions of Section 5.6, 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.
12.2 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 14
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 15
ENTIRE AGREEMENT
The Company and Employee acknowledge that this Agreement contains 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 16
GOVERNING LAW
The parties hereby agree that this Agreement 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.
ARTICLE 17
ATTORNEYS' FEES
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.
-11-
<PAGE>
ARTICLE 18
NOTICE
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
James A. Sabala
1403 Solitude Lane
Evergreen, Colorado 80439
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
HC 54 Box 365
Nye, Montana 59061
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:___________________________________
Name:______________________________
Title:_____________________________
EMPLOYEE
______________________________________
James A. Sabala
-12-
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of September 7, 1999, is by and between STILLWATER
MINING COMPANY, a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and HARRY SMITH ("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
President and Chief Operating Officer for the Company.
ARTICLE 2
TERM
The term of this Agreement shall be for a period commencing on the date
above and ending December 31, 2000, unless sooner terminated as hereinafter
provided. The Agreement shall thereafter continue in effect for subsequent one
(1) year terms, commencing January 1, unless altered or terminated as
hereinafter provided; provided, however, that following a Change of Control, as
defined in Section 5.6, the Employment Term shall continue for no less than one
(1) additional year. 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."
<PAGE>
ARTICLE 3
DUTIES AND AUTHORITY
Employee agrees, unless otherwise specifically authorized by the Company,
to devote substantially all of his business time and effort to 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 those assigned
to Employee in similar businesses, subject to the general and customary
supervision of the Company's Board of Directors and Chief Executive Officer.
ARTICLE 4
COMPENSATION
4.1 Base Salary. The Company agrees to pay Employee a base salary of Two
-----------
Hundred Fifty Thousand Dollars ($250,000) 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.
4.2 Incentive Compensation. Employee shall participate in the Company's
----------------------
incentive compensation plans for executive officers of the Company, as in effect
from time to time during the Employment Term. The Company shall adopt an annual
incentive program for executive officers of the Company that will provide for a
performance based cash bonus of an amount to be determined by the Board of
Directors of the Company (the "Annual Bonus"). Until changed by the Board of
Directors of the Company, the Annual Bonus shall be set at a target of 40% of
the Employee's base salary, with a maximum which shall not exceed 80% of the
Employee's base salary. For the remainder of 1999, half of Employee's Annual
Bonus will be based on net income and half on a matrix of costs per ounce(s)
produced. Both measures will be based on performance versus budget for the
remainder of 1999, as determined by the Compensation Committee.
4.3 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
during the initial term of this Agreement and during the term of each extension
hereof. The Employee shall be eligible to use a Company vehicle during the term
of this Agreement in accordance with Company policy. The Company shall pay the
Employee's reasonable moving expenses incurred in conjunction with his move to
Montana in accordance
2
<PAGE>
with Company policy. Employee acknowledges that he has received a copy of the
foregoing policies.
ARTICLE 5
TERMINATION
5.1 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 thirty (30) 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
a lump sum a cash amount equal to 100 percent of his annual base salary in
effect immediately preceding such termination.
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) A material reduction in Employee's responsibilities,
authorities, or duties;
(ii) Employee's job is eliminated other than by reason of
promotion or termination for Cause;
(iii) 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 five (5) business days of receipt by
the Company of written notice from Employee which describes in
reasonable detail the amount which is due;
(iv) A material reduction in Employee's base salary except in
the event of an across-the-board salary reduction for all executive
officers;
(v) 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;
(vi) A material reduction in Employee's reasonable opportunity
to earn incentive compensation under any plan in which Employee is a
participant, except in the event of an across-the-board reduction in
such benefits for all executive officers;
(vii) The Company and its successor(s) (as described in
subparagraph (ix) below) shall discontinue the business of the
Company; or
3
<PAGE>
(viii) 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).
Solely for the purposes of Section 5.6, any good faith determination of
Good Reason made by the Employee shall be conclusive.
5.2 Termination by the Company for Cause; Voluntary Termination by
--------------------------------------------------------------
Employee.
- --------
(a) Employee's employment hereunder may be terminated by the Company
for "Cause." For purposes of Section 5.1, "Cause" shall mean (i) Employee's
willful and continued failure substantially to perform his duties hereunder
for a period of fifteen (15) days after written notice to Employee by the
Company of each such failure; (ii) Employee's dishonesty in the performance
of his duties hereunder; or (iii) Employee's conviction of a felony under
the laws of the United States or any state thereof.
(b) Employee shall have the right to voluntarily terminate this
Agreement upon thirty (30) days' notice to the Company.
(c) 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 termination of
Employee's employment shall be determined in accordance with the plans,
policies and practices of the Company.
5.3 Notice of Termination. Any termination by the Company or by the
---------------------
Employee shall be communicated by Notice of Termination to the other party
hereto given in accordance with Article 18 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Termination Date
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or the Company,
respectively, hereunder or preclude the Employee or the Company, respectively,
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
5.4 Termination Date. "Termination Date" means the date of receipt of the
----------------
Notice of Termination or any later date specified therein, as the case may be.
5.5 Termination by Death or Disability. Upon termination of Employee's
----------------------------------
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.
4
<PAGE>
Employee's employment hereunder may be terminated by the Company if Employee
becomes physically or mentally incapacitated and is therefore unable for a
period of one hundred eighty (180) consecutive days to perform his duties (such
incapacity is hereinafter referred to as "Disability"). Upon any such
termination for Disability, Employee shall be entitled to receive payment of
disability benefits in lieu of salary under the Company's Employee benefit plans
as then in effect.
5.6 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) 200 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
thirty (30) days after the Termination Date;
(ii) 200 percent of the Employee's annual target bonus in effect
immediately prior to the Change of Control (or on the Termination
Date, whichever is higher).
(iii) 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 customary
severance pay, Company vehicle, office facilities and equity incentive
program participation) 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 24 months
after the Termination Date, including receiving the full benefit of 24
months 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 (i) for the purposes of the Company's equity incentive
programs, Employee's employment shall be deemed terminated as of the
Termination Date hereunder; and (ii) to the extent Employee, following
the Termination Date, becomes employed by another employer and becomes
entitled to receive health insurance benefits from such employer, the
Company's obligation to provide such health insurance benefits
hereunder shall be decreased;
(iv) All accrued compensation (including base salary and
Highest Annual Bonus, each prorated through the Termination Date) 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 .
(v) The Employee shall be free to accept other employment
following such Termination, and, except as provided herein, there
shall be no offset of any
5
<PAGE>
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) 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
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 (c) 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)
6
<PAGE>
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 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 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.
(iii) For the purposes of this Section 5.6 only, "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.
5.7 Certain Additional Payments by the Company. Anything in this Agreement
------------------------------------------
to the contrary notwithstanding, any payment ordistribution by the Company to or
for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") shall be limited to the maximum amount that can be payable without
such Payment being subject to the excise tax imposed by Section 4999 of the Code
on Employee. The Company agrees to comply, to the extent feasible, with the
Employee's preferences concerning the components of any Payment required to be
limited under the previous sentence.
7
<PAGE>
ARTICLE 6
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.
ARTICLE 7
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 without limitation, 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 8
NONCOMPETITION
8.1 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 9, 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 9 and the Company would be adversely
affected if such information subsequently, and in the event of the
termination of Employee's employment, 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.
8.2 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 the end
of the Employment Term, he will not, without the express written permission of
the Company, which may be 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,
8
<PAGE>
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 Platinum Group
Metals business conducted by 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 termination of employment.
8.3 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.
8.4 Survival. The terms of this Article 8 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 9
CONFIDENTIAL INFORMATION AND TRADE SECRETS
9.1 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 thereafter, 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
thereafter, 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 performance by
Employee of his duties, any Confidential Information or trade secrets obtained
by him while in the employ of the Company.
9.2 Return of Confidential Information. Upon termination of employment,
----------------------------------
Employee agrees to deliver to the Company all materials that include
Confidential Information or trade
9
<PAGE>
secrets, and all other materials of a confidential nature which belong to or
relate to the business of the Company.
9.3 Exceptions. The restrictions and obligations in Section 9.1 shall no
----------
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 obligation of confidentiality by a third party who has the right to make
such disclosure; (iii) is developed independently by Employee 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; or
(v) is required to be disclosed to enforce rights under this Agreement.
9.4 Survival. The terms of this Article 9 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 10
JUDICIAL CONSTRUCTION
Employee believes and acknowledges that the provisions contained in this
Agreement, including the covenants contained in Articles 8 and 9 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 11
RIGHT TO INJUNCTIVE RELIEF
Employee acknowledges that a breach by Employee of any of the terms of
Articles 8 or 9 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.
ARTICLE 12
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 5.6 and Article 13.
ARTICLE 13
ASSIGNMENT
13.1 Permitted Assignment. Subject to the provisions of Section 5.6, the
--------------------
Company shall have the right to assign thiscontract to its successors or
assigns, and all covenants or
10
<PAGE>
agreements hereunder shall inure to the benefit of and be enforceable by or
against its successors or assigns.
13.2 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 14
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 15
ENTIRE AGREEMENT
The Company and Employee acknowledge that this Agreement contains 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 16
GOVERNING LAW
The parties hereby agree that this Agreement 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.
ARTICLE 17
ATTORNEYS' FEES
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.
ARTICLE 18
NOTICE
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
11
<PAGE>
If to the Employee:
Harry Smith
11520 Flying Bird Drive
Oro Valley, Arizona 85737
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
HC 54 Box 365
Nye, Montana 59061
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:______________________________
Name: William E. Nettles
Title: Chief Executive Officer
EMPLOYEE
__________________________________
Harry Smith
12
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of June 29, 1999, is by and between STILLWATER
MINING COMPANY, a corporation duly organized and existing under the laws of the
State of Delaware (the "Company"), and VERNON C. BAKER ("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 Vice
President of Stillwater Operations for the Company.
ARTICLE 2
TERM
The term of this Agreement shall be for a period commencing on the date
above and ending December 31, 1999, unless sooner terminated as hereinafter
provided. The Agreement shall thereafter continue in effect for subsequent one
(1) year terms, commencing January 1, unless altered or terminated as
hereinafter provided; provided, however, that following a Change of Control, as
defined in Section 5.6, the Employment Term shall continue for no less than one
(1) additional year. 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."
<PAGE>
ARTICLE 3
DUTIES AND AUTHORITY
Employee agrees, unless otherwise specifically authorized by the Company,
to devote substantially all of his business time and effort to 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
authorities customarily held by others holding positions similar to those
assigned to Employee in similar businesses, subject to the general and customary
supervision of the Company's Board of Directors and Chief Executive Officer.
ARTICLE 4
COMPENSATION
4.1 Base Salary. The Company agrees to pay Employee a base salary of One
-----------
Hundred Fifty Thousand Dollars ($150,000.00) 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.
4.2 Incentive Compensation. Employee shall participate in the Company's
----------------------
incentive compensation plans for executive officers of the Company, as in effect
from time to time during the Employment Term. The Company shall adopt an annual
incentive program for executive officers of the Company that will provide for a
performance based cash bonus of an amount to be determined by the Board of
Directors of the Company (the "Annual Bonus"). Until changed by the Board of
Directors of the Company, the Annual Bonus shall be set at a target of 30% of
the Employee's base salary, with a maximum which shall not exceed 60% of the
Employee's base salary.
4.3 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
during the initial term of this Agreement and during the term of each extension
hereof.
ARTICLE 5
TERMINATION
<PAGE>
5.1 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
in a lump sum a cash amount equal to: (i) 100 percent of his annual base
salary in effect immediately preceding such termination and (ii) 100
percent of the Annual Bonus paid or payable to the Employee for the most
recently completed fiscal year during the Employment Term.
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) A material reduction in Employee's responsibilities,
authorities, or duties;
(ii) Employee's job is eliminated other than by reason of
promotion or termination for Cause;
(iii) 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 five (5) business days of receipt by
the Company of written notice from Employee which describes in
reasonable detail the amount which is due;
(iv) A material reduction in Employee's base salary except in
the event of an across-the-board salary reduction for all executive
officers;
(v) 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;
(vi) A material reduction in Employee's reasonable opportunity
to earn incentive compensation under any plan in which Employee is a
participant, except in the event of an across-the-board reduction in
such benefits for all executive officers;
(vii) The Company and its successor(s) (as described in
subparagraph (ix) below) shall discontinue the business of the
Company; or
(viii) 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
<PAGE>
substantially all of the business and/or assets of the Company or a
controlling portion of the Company's stock).
Solely for the purposes of Section 5.6, any good faith determination of
Good Reason made by the Employee shall be conclusive.
5.2 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 Section 5.1, "Cause" shall mean (i) Employee's willful
and continued failure substantially to perform his duties hereunder for a period
of fifteen (15) days after written notice to Employee by the Company of each
such failure; (ii) Employee's dishonesty in the performance of his duties
hereunder; or (iii) Employee's conviction of a felony under the laws of the
United States or any state thereof. 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 termination of Employee's employment shall be
determined in accordance with the plans, policies and practices of the Company.
5.3 Notice of Termination. Any termination by the Company or by the
---------------------
Employee shall be communicated by Notice of Termination to the other party
hereto given in accordance with Article 18 of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Employee's
employment under the provision so indicated and (iii) if the Termination Date
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Employee or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Employee or the Company,
respectively, hereunder or preclude the Employee or the Company, respectively,
from asserting such fact or circumstance in enforcing the Employee's or the
Company's rights hereunder.
5.4 Termination Date. "Termination Date" means the date of receipt of the
----------------
Notice of Termination or any later date specified therein, as the case may be.
5.5 Termination by Death or Disability. Upon termination of Employee's
----------------------------------
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. Employee's employment hereunder may be
terminated by the Company if Employee becomes physically or mentally
incapacitated and is therefore unable for a period of one hundred eighty (180)
consecutive days to perform his duties (such incapacity is hereinafter referred
to as "Disability"). Upon any such termination for Disability, Employee shall
be entitled to receive payment of disability benefits in lieu of salary under
the Company's Employee benefit plans as then in effect.
<PAGE>
5.6 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) 150 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) 150 percent of the Employee's target bonus in effect
immediately prior to the Change of Control (or on the Termination
Date, whichever is higher).
(iii) 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 customary
severance pay, office facilities and equity incentive program
participation) 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 12 months after the
Termination Date, including receiving the full benefit of 12 months 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 (i) for the purposes of the Company's equity incentive programs,
Employee's employment shall be deemed terminated as of the Termination
Date hereunder; and (ii) to the extent Employee, following the
Termination Date, becomes employed by another employer and becomes
entitled to receive health insurance benefits from such employer, the
Company's obligation to provide such health insurance benefits
hereunder shall be decreased;
(iv) All accrued compensation (including base salary and Highest
Annual Bonus, each prorated through the Termination Date) 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.
(v) The Employee shall be free to accept other employment
following such Termination, 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) The following terms shall have the meanings set forth below:
<PAGE>
(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
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 (c) 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 (y) 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
<PAGE>
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 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 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.
(iii) For the purposes of this Section 5.6 only, "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.
5.7 Certain Additional Payments by the Company. Anything in this
------------------------------------------
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 5.7) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (an "Excise Tax Payment") in the
amount of the Excise Tax (but not any income tax) imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.7(a), if it shall be
determined that the Employee is entitled to an Excise Tax Payment but that the
Employee, after taking into account the Payments and the Excise Tax Payment,
would not receive a net after-tax benefit of at least $10,000 (taking into
account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to the
<PAGE>
Employee resulting from an elimination of the Excise Tax Payment and a reduction
of the Payments, in the aggregate, to an amount (the "Reduced Amount") such that
the receipt of Payments would not give rise to any Excise Tax, then no Excise
Tax Payment shall be made to the Employee and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.
ARTICLE 6
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.
ARTICLE 7
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 without limitation, 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 8
NONCOMPETITION
8.1 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 9, 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 9 and the Company would be adversely
affected if such information subsequently, and in the event of the
termination of Employee's employment, 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
<PAGE>
protection of their respective legitimate interests and that any violation
of these restrictions would cause substantial injury to the Company.
8.2 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 the end
of the Employment Term, he will not, without the express written permission of
the Company, which may be 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 Platinum Group Metals
business conducted by 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 termination of employment.
8.3 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.
8.4 Survival. The terms of this Article 8 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 9
CONFIDENTIAL INFORMATION AND TRADE SECRETS
9.1 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 thereafter, 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
<PAGE>
for three (3) years thereafter, 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
performance by Employee of his duties, any Confidential Information or trade
secrets obtained by him while in the employ of the Company.
9.2 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.
9.3 Exceptions. The restrictions and obligations in Section 9.1 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 obligation of confidentiality by a third party who has the right to make
such disclosure; (iii) is developed independently by Employee 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; or
(v) is required to be disclosed to enforce rights under this Agreement.
9.4 Survival. The terms of this Article 9 shall survive the expiration or
--------
termination of this Agreement for any reason.
ARTICLE 10
JUDICIAL CONSTRUCTION
Employee believes and acknowledges that the provisions contained in this
Agreement, including the covenants contained in Articles 8 and 9 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 11
RIGHT TO INJUNCTIVE RELIEF
Employee acknowledges that a breach by Employee of any of the terms of
Articles 8 or 9 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.
ARTICLE 12
CESSATION OF CORPORATE BUSINESS
<PAGE>
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 5.6 and Article 13.
ARTICLE 13
ASSIGNMENT
12.1 Permitted Assignment. Subject to the provisions of Section 5.6, 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.
12.2 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 14
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 15
ENTIRE AGREEMENT
The Company and Employee acknowledge that this Agreement contains 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 16
GOVERNING LAW
The parties hereby agree that this Agreement 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.
ARTICLE 17
ATTORNEYS' FEES
<PAGE>
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.
ARTICLE 18
NOTICE
All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
Vernon C. Baker
_____________________
_____________________
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
HC 54 Box 365
Nye, Montana 59061
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:
Name:
Title:
EMPLOYEE
Vernon C. Baker
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF KPMG APPEARS HERE]
Independent Accountants' Consent
--------------------------------
The Board of Directors and Stockholders
Stillwater Mining Company:
We consent to incorporation by reference in the registration statements (Nos.
333-12455, 333-12419 and 333-58251) on Form S-3 and in the registration
statements (Nos. 33-97358 and 333-70861) on Form S-8 of Stillwater Mining
Company of our report dated January 19, 2000, except for the third and fourth
paragraphs of note 6 which are as of February 22, 2000, relating to the
consolidated balance sheet of Stillwater Mining Company and subsidiary as of
December 31, 1999 and the related consolidated statements of operations, changes
in shareholders' equity, and cash flows for the year then ended, which report
appears in the December 31, 1999 annual report on Form 10-K of Stillwater Mining
Company.
/s/ KPMG LLP
Billings, Montana
March 22, 2000
<PAGE>
EXHIBIT 23.2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Stillwater Mining Company
In our opinion, the accompanying consolidated balance sheet at December 31, 1998
and the related consolidated statements of operations, of cash flows and of
changes in shareholders' equity for the years ended December 31, 1998 and 1997
present fairly in all material respects, the financial position of Stillwater
Mining Company and its subsidiary at December 31, 1998, and the results of their
operations and the cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards in the United States, 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. We have not audited the consolidated financial
statements if Stillwater Mining Company and its subsidiary for any period
subsequent to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
February 3, 1999
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Nos. 333-12455, 333-12419 and 333-58251) and on Form S-8
(Nos. 333-97358 and 333-70861) of Stillwater Mining Company of our report dated
February 3, 1999 relating to the financial statements, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Denver, Colorado
March 24, 2000
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF BEHRE DOLBEAR & COMPANY, INC. APPEARS HERE]
March 23, 2000
Stillwater Mining Company
One Tabor Center
1200- 17th Street, Suite 900
Denver, CO 80202
Attention: Mr. Harry C. Smith
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, 1999 prepared by Behre Dolbear on Form 10-K for the year ended December 31,
1999 and the Annual Report 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 these filings 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
Bernard J. Guarnera
President, Chief Executive Officer and
Chief Operating Officer
BJG/tfr
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