0001035704-01-500426.txt : 20011030
0001035704-01-500426.hdr.sgml : 20011030
ACCESSION NUMBER: 0001035704-01-500426
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20010930
FILED AS OF DATE: 20011026
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: STILLWATER MINING CO /DE/
CENTRAL INDEX KEY: 0000931948
STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS METAL ORES [1090]
IRS NUMBER: 810480654
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-13053
FILM NUMBER: 1767318
BUSINESS ADDRESS:
STREET 1: 1200 SEVENTEETH STREET
STREET 2: SUITE 900
CITY: DENVER
STATE: CO
ZIP: 80202
BUSINESS PHONE: 3039782525
MAIL ADDRESS:
STREET 1: 1200 SEVEENTH STREET
STREET 2: SUITE 900
CITY: DENVER
STATE: CO
ZIP: 80202
10-Q
1
d91575e10-q.txt
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.
OR
[ ] 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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
737 PALLADIUM PLACE
COLUMBUS, MONTANA 59019
---------------------------------------- ------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(406) 322-8700
-------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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: YES X NO
--- ---
AT OCTOBER 23, 2001, 38,750,416 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER
SHARE, WERE ISSUED AND OUTSTANDING.
1
STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............. 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS...................................................... 26
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.............................. 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES........................................ 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 26
ITEM 5. OTHER INFORMATION...................................................... 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................... 26
SIGNATURES ....................................................................... 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STILLWATER MINING COMPANY
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except share and per share amounts)
SEPTEMBER 30, December 31,
2001 2000
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,903 $ 18,219
Funds held in escrow -- 2,636
Inventories 39,080 42,625
Accounts receivable 20,003 --
Deferred income taxes 3,755 7,732
Fair value of derivative financial instruments 12,903 --
Other current assets 7,864 2,943
------------ ------------
Total current assets 101,508 74,155
PROPERTY, PLANT AND EQUIPMENT, NET 741,246 602,110
OTHER NONCURRENT ASSETS 6,402 2,761
------------ ------------
Total assets $ 849,156 $ 679,026
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,540 $ 21,710
Accrued payroll and benefits 11,544 6,431
Property, production and franchise taxes payable 7,786 8,068
Current portion of long-term debt and capital lease
obligations 6,179 1,970
Metals repurchase agreements payable -- 9,386
Current income taxes payable 5,689 97
Other current liabilities 8,661 11,533
------------ ------------
Total current liabilities 66,399 59,195
Long-term debt and capital lease obligations 225,782 157,256
Deferred income taxes 73,398 55,457
Other noncurrent liabilities 10,685 6,504
------------ ------------
Total liabilities 376,264 278,412
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; none issued -- --
Common stock, $0.01 par value, 100,000,000 shares
authorized; 38,750,416 and 38,645,886 shares
issued and outstanding 388 386
Paid-in capital 290,868 288,212
Retained earnings 172,970 112,016
Accumulated other comprehensive income 8,666 --
------------ ------------
Total shareholders' equity 472,892 400,614
------------ ------------
Total liabilities and shareholders' equity $ 849,156 $ 679,026
============ ============
See notes to consolidated financial statements.
3
STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES $ 52,893 $ 49,056 $ 218,061 $ 146,581
COSTS AND EXPENSES
Cost of metals sold 26,978 24,083 100,816 66,919
Depreciation and amortization 5,950 4,196 17,171 12,708
----------- ----------- ----------- -----------
Total cost of sales 32,928 28,279 117,987 79,627
General and administrative expenses 5,450 1,831 15,905 6,129
Legal settlement 1,684 -- 1,684 --
----------- ----------- ----------- -----------
Total costs and expenses 40,062 30,110 135,576 85,756
----------- ----------- ----------- -----------
OPERATING INCOME 12,831 18,946 82,485 60,825
OTHER INCOME (EXPENSE)
Interest income 473 418 1,719 883
Interest expense, net of capitalized interest of
$4,485, $4,958, $13,433 and $10,037 -- -- -- --
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 13,304 19,364 84,204 61,708
INCOME TAX PROVISION (3,044)) (5,415) (23,250) (17,273)
----------- ----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 10,260 13,949 60,954 44,435
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR REVENUE
RECOGNITION, NET OF INCOME TAX BENEFIT OF $2,503 -- -- -- (6,435)
----------- ----------- ----------- -----------
NET INCOME $ 10,260 $ 13,949 $ 60,954 $ 38,000
=========== =========== =========== ===========
BASIC EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.26 $ 0.36 $ 1.57 $ 1.16
Cumulative effect of accounting change -- -- -- (0.17)
----------- ----------- ----------- -----------
NET INCOME $ 0.26 $ 0.36 $ 1.57 $ 0.99
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Income before cumulative effect of accounting change $ 0.26 $ 0.36 $ 1.55 $ 1.13
Cumulative effect of accounting change -- -- -- (0.16)
----------- ----------- ----------- -----------
NET INCOME $ 0.26 $ 0.36 $ 1.55 $ 0.97
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 38,744 38,561 38,708 38,450
Diluted 39,173 39,159 39,294 39,230
See notes to consolidated financial statements.
4
STILLWATER MINING COMPANY
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
NET INCOME $ 10,260 $ 13,949 $ 60,954 $ 38,000
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains on derivative financial
Instruments, net of tax of $3,786, $0,
$8,479 and $0 4,031 -- 15,805 --
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 14,291 $ 13,949 $ 76,759 $ 38,000
============ ============ ============ ============
See notes to consolidated financial statements.
5
STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60,954 $ 38,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,171 12,708
Deferred income taxes 21,918 14,345
Cumulative effect of change in accounting
for revenue recognition -- 6,435
Changes in operating assets and liabilities:
Inventories 3,545 (12,917)
Accounts receivable (20,003) --
Accounts payable 4,830 10,894
Other 3,919 7,143
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 92,334 76,608
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (156,306) (151,358)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (156,306) (151,358)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 202,611 61,435
Payments on long-term debt and capital lease
obligations (127,240) (2,045)
Payments for debt issuance costs (3,946) --
Net metals repurchase agreement transactions (9,386) 13,552
Issuance of common stock 1,617 11,357
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 63,656 84,299
------------ ------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) (316) 9,549
Balance at beginning of period 18,219 2,846
------------ ------------
BALANCE AT END OF PERIOD $ 17,903 $ 12,395
============ ============
See notes to consolidated financial statements.
6
STILLWATER MINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the company's financial
position as of September 30, 2001 and the results of its operations for the
three- and nine-month periods ended September 30, 2001 and 2000 and cash flows
for the nine-month periods ended September 30, 2001 and 2000. Certain prior year
amounts have been reclassified to conform with the current year presentation.
The results of operations for the three- and nine-month periods are not
necessarily indicative of the results to be expected for the full year. The
accompanying consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
company's 2000 Annual Report on Form 10-K.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
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. Incremental revenues from incidental operations during the development
of new ore bodies and mineral properties, are recorded as a reduction of
capitalized development expenditures. Interest is capitalized on expenditures
related to construction or development projects and amortized using the same
method as the related asset. Interest capitalization is discontinued when the
asset is placed into operation or development ceases. Exploration costs are
expensed as incurred.
NOTE 3 - NEW ACCOUNTING STANDARDS
Effective January 1, 2001, the company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No.
133, Accounting for Derivative Instruments and Hedging Activities and SFAS No.
138, Accounting for Derivative Instruments and Certain Hedging Activities, an
amendment to SFAS No. 133. SFAS Nos. 133 and 138 require 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 company primarily uses derivatives to
hedge metal prices.
In accordance with the transition provisions of SFAS No. 133, the
company recorded a net-of-tax cumulative-effect-type loss adjustment of $7.1
million in accumulated other comprehensive loss to recognize at fair value all
derivatives that are designated as cash-flow hedging instruments at January 1,
2001. During the three- and nine- months ended September 30, 2001, $3.9 million
and $0.4 million, respectively, of accumulated other comprehensive income was
reclassified to earnings. The company expects to reclassify to earnings during
the next twelve months $5.4 million of net unrealized gains existing at
September 30, 2001, that are recorded in accumulated other comprehensive income.
Effective January 1, 2000, the company changed its method of accounting
for revenue recognition. Pursuant to the guidance in Staff Accounting Bulletin
(SAB) No. 101, Revenue Recognition for Financial Statements, the company now
recognizes revenue as title passes to the customer. In accordance with accepted
industry practice, the company previously recognized revenue when product was
shipped from the
7
company's metal refinery to an external refiner. The company implemented SAB No.
101 during the fourth quarter of 2000. The implementation was treated as a
change in accounting principle with the cumulative effect of the change on
retained earnings at the beginning of 2000 included in restated net income of
the first quarter of 2000. The third quarter and first nine months of 2000
financial statements were restated to reflect the change in accounting for
revenue recognition. The effect of the accounting change on the third quarter of
2000 was to decrease net income by approximately $644,000 ($0.02 per basic and
diluted share). The effect of the accounting change on the first nine months of
2000 was to decrease net income by approximately $9.2 million ($0.24 per basic
and $0.23 per diluted share), which includes the cumulative effect of $6.4
million ($0.17 per basic and $0.16 per diluted share). The $6.4 million
cumulative effect adjustment includes $26 million of revenue previously
recognized in 1999, which is reflected as revenue in 2000 under the company's
new method of accounting.
Effective January 1, 2000, the company also implemented Issue No. 00-14
of the FASB Emerging Issues Task Force (EITF), Accounting for Certain Sales
Incentives. The consensus reached by the FASB EITF requires a company to
classify any cash sales discounts as a reduction in revenue. Prior to the
implementation of EITF 00-14, the company classified sales discounts associated
with long-term sales contracts as a component of cost of metals sold. The
company implemented EITF No. 00-14 during the fourth quarter of 2000. Pursuant
to the consensus, financial statements for the three- and nine-month periods
ended September 30, 2000 have been reclassified. During the three- and nine-
months ended September 30, 2000, $1.0 million and $3.2 million, respectively, of
cost of metals sold was reclassified to reduce revenues.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, the
Company will recognize a gain or loss on settlement.
The Company is required and plans to adopt the provisions of SFAS No.
143 for the quarter ending March 31, 2003. To accomplish this, the Company must
identify all legal obligations for asset retirement obligations, if any, and
determine the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require the Company to gather
market information and develop cash flow models. Additionally, the Company will
be required to develop processes to track and monitor these obligations. Because
of the effort necessary to comply with the adoption of Statement No. 143, it is
not practicable for management to estimate the impact of adopting this Statement
at the date of this report.
On October 3, 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
While SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it retains many
of the fundamental provisions of that Statement. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The company has not yet completed its evaluation of the impact of
the adoption of this Statement.
On June 29, 2001, the Accounting Standards Executive Committee (AcSEC)
issued an exposure draft of a proposed Statement of Position (SOP ED),
Accounting for Certain Costs and Activities Related to Property, Plant, and
Equipment. Concurrent with the issuance of the proposed SOP ED, the FASB issued
an exposure draft (FASB ED) of a proposed SFAS, Accounting in Interim and Annual
Financial
8
Statements for Certain Costs and Activities Related to Property, Plant, and
Equipment. The provisions of the proposed SOP ED would result in significant
changes in record keeping and accounting requirements for property, plant, and
equipment (PP&E). If adopted in its present form, the provisions of the SOP ED
would provide guidance on the types of costs that should be capitalized as PP&E,
limit indirect costs that would be capitalized as PP&E, require the use of
component accounting for PP&E and require major overhaul costs to be charged to
expense as incurred. The FASB ED would amend SFAS No. 67, Accounting for Costs
and Initial Rental Operations of Real Estate Projects, to exclude from its scope
the accounting for acquisition, development, and construction costs of real
estate developed and used by an entity for subsequent rental activities that
would be covered by the SOP ED. Until the SOP ED and the FASB ED is issued,
management is unable to determine the impact they will have on the Company's
financial statements.
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under accounting principles generally accepted in the
United States of America, are excluded from net income. For the company, such
items consist of unrealized gains and losses on derivative financial
instruments.
The following summary sets forth the changes of other comprehensive
income (loss) accumulated in shareholders' equity (in thousands):
DERIVATIVE
FINANCIAL INSTRUMENTS
---------------------
Balance at December 31, 2000 $ --
Cumulative effect on adoption (9,985)
Reclassification to earnings (382)
Change in value due to change in metals prices 24,666
--------
14,299
Tax provision (5,633)
--------
Balance at September 30, 2001 $ 8,666
========
NOTE 5 - INVENTORIES
Inventories consisted of the following (in thousands):
SEPTEMBER 30, December 31,
2001 2000
------------ ------------
Metals inventory
Raw ore $ 15 $ 1,086
Concentrate and in-process 12,571 13,971
Finished goods 17,653 21,864
------- -------
30,239 36,921
Materials and supplies 8,841 5,704
------- -------
$39,080 $42,625
======= =======
NOTE 6 - LONG-TERM DEBT
CREDIT FACILITY
In February 2001, the company obtained a $250 million credit facility
(the "Credit Facility") from a syndicate of financial institutions. The Credit
Facility provides for a $65 million five-year term loan facility (Term A), a
$135 million seven-year term loan facility (Term B) and a $50 million revolving
credit facility. Amortization of the term loan facilities will commence on March
31, 2002. The final maturity of
9
the Term A and the revolving credit facility is December 30, 2005 while the Term
B facility final maturity date is December 31, 2007. Of the term loan facility
proceeds, $125 million was used to repay borrowings under the prior credit
facility with the remaining proceeds to be used to fund the company's expansion
plans as required. Proceeds of the revolving credit facility will be used for
general corporate and working capital needs. As of September 30, 2001, the
company had $65.0 million and $134.7 million outstanding under the Term A and
Term B loan facilities, respectively, bearing interest at 6.00% and 6.75% for
the Term A and Term B facilities, respectively.
The loans are required to be prepaid from excess cash flow as defined
in the Credit Facility, proceeds from asset sales and the issuance of debt or
equity securities, subject to specified exceptions. 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 2.0% to 3.25% 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 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) changes in the nature of business conducted or ceasing
operations at the principal operating properties; and (8) 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 agreed-upon annual PGM production levels;
or (5) any breach or modification of any of the sales agreements.
The company is in compliance with all aspects of the credit agreement,
including all financial covenants as of September 30, 2001.
EXEMPT FACILITY REVENUE BONDS
On July 6, 2000, the company completed a $30 million offering of Exempt
Facility Revenue Bonds, Series 2000, through the State of Montana Board of
Investments. The bonds were issued by the State of Montana Board of Investments
to finance a portion of the costs of constructing and equipping certain sewage
and solid waste disposal facilities at both the Stillwater Mine and the East
Boulder Project. The bonds mature on July 1, 2020 and have an interest rate of
8.00% with interest paid semi-annually. The bonds have an effective interest
rate of 8.57%. Net proceeds from the offering were $28.7 million.
NOTE 7 - EARNINGS PER SHARE
The effect of outstanding stock options on diluted weighted average
shares outstanding was 428,644 and 598,636 shares for the three-month periods
ending September 30, 2001 and 2000, respectively. Outstanding options to
purchase 1,192,220 and 326,625 shares of common stock were excluded from the
computation of diluted earnings per share for the three-month periods ended
September 30, 2001 and 2000, respectively, because the effect of inclusion would
have been antidilutive using the treasury stock method.
The effect of outstanding stock options on diluted weighted average
shares outstanding was 585,937 and 780,564 shares for the nine-month periods
ending September 30, 2001 and 2000, respectively. Outstanding options to
purchase 640,041 and 39,725 shares of common stock were excluded from the
computation of diluted earnings per share for the nine-month periods ended
September 30, 2001 and 2000, respectively, because the effect of inclusion would
have been antidilutive using the treasury stock method.
10
NOTE 8 - INCOME TAXES
Income taxes for the nine-month periods ended September 30, 2001 and
2000 have been provided at the expected annualized rate of 27.6% and 28.0%,
respectively.
NOTE 9 - COMMODITY INSTRUMENTS
The company maintains long-term sales contracts with General Motors,
Ford Motor Company and Mitsubishi Corporation. The contracts are not subject to
the requirements of SFAS No. 133 as the contracts qualify for the normal sales
exception provided in SFAS No. 138. The floors and ceilings embedded within the
long-term sales contracts are treated as part of the host contract, not a
separate derivative instrument and are therefore also not subject to the
requirements of SFAS No. 133.
In addition to the long-term sales contracts, the company may also
enter into transactions for the sale and repurchase of metals held in the
company's account at third party refineries. Under these transactions, the
company will enter into an agreement to sell a certain number of ounces at the
then current market price. The company will simultaneously enter into a separate
agreement with the same counter party, to repurchase the same number of ounces
at the same price at the repurchase date.
The company utilizes the following types of derivative financial
instruments: fixed forwards, cashless put and call option collars and
financially settled forwards. For derivative instruments outstanding as of
September 30, 2001, the company has designated the derivative as a hedge of a
forecasted transaction ("cash flow" hedge). Currently, all derivatives have been
assessed as highly effective cash-flow hedges of forecasted transactions.
Changes in fair value of derivatives that are highly effective as hedges and
that are designated and qualified as a cash-flow hedge are reported in other
comprehensive income until the forecasted transactions occur.
From time to time, the company may enter into cashless put and call
option 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 financially settled at maturity. Since the put/call instruments hedge
forecasted transactions, they qualify for cash flow hedge accounting. They are
considered to be highly effective since the intrinsic value of the put/call will
offset the change in value associated with future production not subject to the
long-term sales contract. For the nine-month period ended September 30, 2001,
the company reclassified a realized loss of $2.4 million to reduce revenues and
earnings for cashless put and call option collars that were recorded in
accumulated other comprehensive loss at January 1, 2001. The company has no
cashless put and call option collars outstanding at September 30, 2001.
The company may enter into fixed forward contracts to sell metals at a
future date and at a fixed price in order to reduce the risk associated with
future metals prices for ounces produced in excess of the company's long-term
sales contracts. These instruments are considered to be highly effective
derivatives that will qualify for cash flow hedge accounting since they are an
"all-in-one-hedge" instrument, meaning that all of the components (ounces,
delivery date, and price) are fixed as part of the original commitment. The
company has no fixed forward contracts outstanding at September 30, 2001.
The company also enters into financially settled forwards. They differ
from fixed forwards in that the net gain or loss is settled at maturity. The
company uses the financially settled forwards as a mechanism to hedge the
fluctuations in metal prices associated with future production not subject to
the long-term sales contracts. The financially settled forwards qualify as a
cash flow hedge and are considered to be highly effective, since the change in
the value of the financially settled forward will offset changes in the expected
future cash flows related to future production not subject to the long-term
sales contracts. For the three- and nine-month periods ended September 30, 2001,
the company reclassified a realized gain of $3.9 million and $2.8 million,
respectively, to revenues and earnings from accumulated other comprehensive
income for financially settled forwards.
11
A summary of the company's derivative financial instruments as of
September 30, 2001 is as follows.
Palladium Sales Platinum Sales
Ounces Price Ounces Price
--------- ----- -------- -----
2001 Financially settled forwards 5,000 $706 3,000 $575
2002 Financially settled forwards 15,000 $700 3,000 $575
In November 2000 and March 2001, the company renegotiated certain of
its long-term sales contracts. The new arrangements establish higher floor and
ceiling prices on a portion of the current contracts, extend the term of the
contracts through 2010 with new floors and ceilings and increase the amount of
platinum committed. The contracts provide for floor and ceiling price structures
as summarized below:
PALLADIUM PLATINUM
-------------------------------------------------- -------------------------------------------------------
% of Avg. Floor % of Avg. Ceiling % of Avg. Floor % of Avg. Ceiling
Year Production Price Production Price Production Price Production Price
----------- ---------- ----------- ------------- ------------- ------------- ------------- -------------
2001 90% $347 30% $400 89% $400 41% $550
2002 100% $363 30% $400 96% $404 40% $573
2003 100% $350 30% $400 90% $408 20% $601
2004 100% $371 39% $644 80% $425 16% $856
2005 100% $355 16% $981 80% $425 16% $856
2006 80% $400 20% $980 80% $425 16% $856
2007 80% $400 20% $975 70% $425 14% $850
2008 80% $385 20% $975 70% $425 14% $850
2009 80% $380 20% $975 70% $425 14% $850
2010 80% $375 20% $975 70% $425 14% $850
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS STILLWATER MINING COMPANY
KEY FACTORS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
STILLWATER MINE:
OUNCES PRODUCED (000)(1)
Palladium 96 75 285 236
Platinum 27 23 85 72
---- ---- ---- ----
Total 123 98 370 308
TONS MINED (000) 201 171 581 488
TONS MILLED (000) 201 152 588 470
MILL HEAD GRADE (OUNCE PER TON) 0.65 0.69 0.68 0.70
TOTAL MILL RECOVERY (%) 91 90 90 91
SUB-GRADE TONS MILLED (000) 30 29 73 73
SUB-GRADE MILL HEAD GRADE (OUNCE PER TON) 0.21 0.21 0.21 0.23
TOTAL TONS MILLED (000) 231 181 661 543
COMBINED MILL HEAD GRADE (OUNCE PER TON) 0.59 0.61 0.62 0.63
OUNCES SOLD (000)(1)
Palladium 80 74 292 226
Platinum 26 19 84 71
---- ---- ---- ----
Total 106 93 376 297
AVERAGE REALIZED PRICE PER OUNCE(1)
Palladium $513 $559 $610 $518
Platinum 474 473 516 460
Combined(2) 504 542 589 505
AVERAGE MARKET PRICE PER OUNCE
Palladium $475 $732 $687 $641
Platinum 481 577 559 528
Combined(2) 477 696 657 614
(1) Effective January 1, 2000, the company changed its method of accounting for
revenue recognition. The company now recognizes revenue as title passes to
the customer. Ounces sold and average realized prices for the three- and
nine-month periods ended September 30, 2000 have been restated accordingly.
The differences in ounces produced and ounces sold are caused by the length
of time required by the smelting and refining processes and the specified
delivery dates under the long-term sales contracts. The differences between
the realized prices and market prices occur due to contract pricing
provisions and hedge positions.
(2) Stillwater Mining reports a combined average realized and market price of
palladium and platinum at the same ratio as ounces are produced from the
base metals refinery. The combined average realized price represents
revenues of the company excluding contract discounts divided by ounces
sold. The combined average market price represents the average London PM
Fix for the actual months of the period.
13
STILLWATER MINING COMPANY
KEY FACTORS (CONTINUED)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2001 2000 2001 2000
---- ---- ---- ----
STILLWATER MINE:
PER TON MILLED(3)
CASH OPERATING COSTS $128 $143 $126 $129
Royalties and taxes 13 23 21 20
---- ---- ---- ----
TOTAL CASH COSTS $141 $166 $147 $149
Depreciation and amortization 26 23 26 24
---- ---- ---- ----
TOTAL PRODUCTION COSTS $167 $189 $173 $173
==== ==== ==== ====
PER OUNCE PRODUCED(3)
CASH OPERATING COSTS $239 $263 $225 $227
Royalties and taxes 25 43 38 36
---- ---- ---- ----
TOTAL CASH COSTS $264 $306 $263 $263
Depreciation and amortization 49 43 47 42
---- ---- ---- ----
TOTAL PRODUCTION COSTS $313 $349 $310 $305
==== ==== ==== ====
(3) Income taxes, corporate general and administrative expense and interest
income and expense are not included in either total cash costs or total
production costs. Certain prior year amounts have been reclassified to
conform with the current year presentation.
RECENT DEVELOPMENTS
The market prices for PGMs have fallen significantly over the last few
months and may continue to fall. The price for palladium, which had reached
record high price levels of $1,115 per ounce in January has fallen sharply and
is currently approximately $320 per ounce on October 23, 2001. The price for
platinum has also fallen from $648 per ounce early in 2001 to approximately $426
per ounce on October 23, 2001.
Because of the sharp drop in the price of PGMs, the company is
reviewing whether its previously planned sources of financing will be sufficient
to meet its capital requirements, including the completion of the East Boulder
project on the previously announced schedule. The capital programs that have
been recently pursued by the company depended on operating cash flow and bank
financing premised on a more favorable palladium pricing environment than
currently exists. In light of the drop in PGM prices, the company accelerated
and expanded its ongoing optimization planning and review of operating options
and funding requirements. This optimization review will consider the PGM market
outlook, production, ore grade and tonnage, ounces to be produced and timing of
the company's expansion program. The review will examine variations in
production levels at both the Stillwater mine and the East Boulder mine. In the
current price environment and considering the company's funding requirements,
the company's previously announced production target of 1 million ounces per
annum for 2003 may be deferred or a revised target established.
The company has recently completed the initial East Boulder Mine plan.
The plan is the result of several years of extensive work by the company and
engineering consulting firms and is based on an average PGM price of $450 per
ounce. The company expects to process an average of 1,300 tons of ore per day at
an average grade 0.42 ounce per ton at the East Boulder Mine in 2002. The
initial lower ore grade forecast is the result of development muck scheduled to
be produced in the first half of the year as the mine ramps up to its daily
design rate and grade. The monthly mining rate will be ramped up, as more
production areas become available to mine. In 2003, the mine is forecast to ramp
up to the design rate of 2,000 tons per day producing at an ore grade of 0.56
ounce per ton.
Key data underlying the mine plan was derived from 132 drill holes in
the vicinity of where the access tunnels pierced the reef ore zone and along 675
feet of the orebody strike length. This initial ore reserve work indicates that
the orebody at East Boulder is more continuous yielding about 134 tons of ore
per footwall lateral at an undiluted ore grade of 0.63 ounces per ton, compared
to an average of 70 tons at the Stillwater Mine, at its average undiluted grade
of 1.05 ounces per ton. The higher yield is due to less waste associated with
the reef ore zone at East Boulder and should result in 70 ounces per foot of
footwall lateral on average over the drilled area compared to 52 ounces per foot
of footwall lateral on average at the Stillwater Mine.
Since the initial 132 drill hole program, drilling has tested over
5,000 feet of the orebody with 603 drill holes. The average drillhole grade is
0.65 ounces per ton over a horizontal wall thickness of 7.1 feet. The recent
work includes 170 drill holes along 2,000 feet of the west end of the footwall
lateral that indicates the occurrence of a higher grade zone. Preliminary
results based on the recently completed drill holes indicate the undiluted
weighted averages of the grade in this area range from 0.71 to 0.78 ounce per
ton.
Palladium and platinum production from East Boulder is forecast between
150,000 to 176,000 ounces for 2002, 362,000 ounces for 2003 and 370,000 ounces
for 2004. Cash operating costs before royalties and taxes over the three-year
period, 2002 to 2004, are estimated to be approximately $297, $215,
14
and $206 per ounce produced, respectively. On a cash operating cost per ton
milled basis, costs are estimated to be $110, $102 and $99, respectively.
Capital expenditures at the end of the third quarter of 2001 for the
East Boulder Project were $238 million. Approximately $38 million is projected
to be spent during the remainder of 2001, $81 million for 2002 and $11 million
for 2003. Sustaining capital is projected to be $5 million for 2002, $11 million
for 2003 and $13 million per year going forward.
The results of the company's review and optimization plan of operations
and funding needs due to the recent sharp decline in PGM prices may have an
adverse effect on these projected results for the East Boulder Mine.
RESULTS OF OPERATIONS
Three months ended September 30, 2001 compared to three months ended September
30, 2000
PGM Production. During the third quarter of 2001, the company produced
approximately 96,000 ounces of palladium and approximately 27,000 ounces of
platinum compared with production of approximately 75,000 ounces of palladium
and 23,000 ounces of platinum in the third quarter of 2000. The increase was
primarily due to a 28% increase in total tons milled at the Stillwater Mine in
the third quarter of 2001 compared to the third quarter of 2000. The increase in
tons milled is the result of additional mine production.
Revenues. Revenues were $52.9 million for the third quarter of 2001
compared with $49.1 million for the third quarter of 2000, an increase of 8% and
is primarily due to a 14% increase in ounces sold offset by a 7% decrease in
realized PGM prices, compared to the same period in 2000.
Palladium ounces sold from the Stillwater Mine increased to
approximately 80,000 ounces in the third quarter of 2001 from approximately
74,000 ounces in the third quarter of 2000. Platinum ounces sold from the
Stillwater Mine increased to approximately 26,000 ounces in the third quarter of
2001 from approximately 19,000 ounces in the third quarter of 2000.
The company's combined average realized price per ounce of palladium
and platinum sold in the third quarter of 2001 decreased 7% to $504 per ounce,
compared to $542 per ounce in the third quarter of 2000. The combined average
market price decreased 31% to $477 per ounce in the third quarter of 2001,
compared to $696 per ounce in the third quarter of 2000. The company's average
realized price per ounce of palladium was $513 in the third quarter of 2001,
compared to $559 per ounce in the third quarter of 2000, while the average
market price of palladium was $475 per ounce in the third quarter of 2001
compared to $732 per ounce in the third quarter of 2000. The company's average
realized price per ounce of platinum was $474 in the third quarter of 2001,
compared to $473 per ounce in the third quarter of 2000, while the average
market price of platinum was $481 per ounce in the third quarter of 2001
compared to $577 per ounce in the third quarter of 2000.
Costs and Expenses. Total cash costs per ounce produced at the
Stillwater Mine for the quarter ended September 30, 2001 decreased $42 or 14% to
$264 per ounce from $306 per ounce in the quarter ended September 30, 2000.
Total production costs per ounce produced at the Stillwater Mine in the quarter
ended September 30, 2001 decreased $36 or 10% to $313 per ounce from $349 per
ounce in the quarter ended September 30, 2000. This decrease is primarily a
result of lower royalties and taxes of $18 per ounce associated with lower metal
prices, lower support services of $4 per ounce and lower mine operating costs of
$20 per ounce, offset by higher non-cash costs of $6 per ounce relating to
increased production and increased capital fixed assets. General and
administrative expenses increased $3.6 million primarily as a result of $2.2
million of increased administrative support required to transition the company
from a single site producer to a multi-location producer and $1.2 million
related to consulting services. The company also incurred $1.7 million related
to a settlement of a legal dispute with a terminated refining contract.
Operating Income. The company reported operating income of $12.8
million for the quarter ended September 30, 2001, compared with operating income
of $18.9 million for the quarter ended September 30, 2000. The lower operating
income was mainly the result of lower realized prices, offset by increased
15
quantities delivered to customers and increased general and administrative
expenses.
Net Income. The company reported net income of $10.3 million or $0.26
per diluted share for the third quarter of 2001 compared with net income of
$13.9 million, or $0.36 per diluted share for the third quarter of 2000.
Nine months ended September 30, 2001 compared to nine months ended September 30,
2000
PGM Production. During the first nine months of 2001, the company
produced approximately 285,000 ounces of palladium and approximately 85,000
ounces of platinum compared with production of approximately 236,000 ounces of
palladium and 72,000 ounces of platinum in the first nine months of 2000. The
increase was due to a 22% increase in total tons milled at the Stillwater Mine
in the first nine months of 2001 compared to the first nine months of 2000. The
increase in tons milled is the result of additional mine production.
Revenues. Revenues were $218.1 million for the first nine months of
2001 compared with $146.6 million for the first nine months of 2000, an increase
of 49% and were the result of a 17% increase in realized PGM prices and a 27%
increase in ounces sold, compared to the same period in 2000.
Palladium ounces sold from Stillwater Mine increased to approximately
292,000 ounces in the first nine months of 2001 from approximately 226,000
ounces in the first nine months of 2000. Platinum ounces sold from Stillwater
Mine increased to approximately 84,000 ounces in the first nine months of 2001
from approximately 71,000 ounces in the first nine months of 2000.
The company's combined average realized price per ounce of palladium
and platinum sold in the first nine months of 2001 increased 17% to $589 per
ounce, compared to $505 per ounce in the first nine months of 2000. The combined
average market price rose 7% to $657 per ounce in the first nine months of 2001,
compared with $614 per ounce in the first nine months of 2000. The company's
average realized price per ounce of palladium was $610 in the first nine months
of 2001, compared to $518 per ounce in the first nine months of 2000, while the
average market price of palladium was $687 per ounce in the first nine months of
2001 compared to $641 per ounce in the first nine months of 2000. The company's
average realized price per ounce of platinum was $516 in the first nine months
of 2001, compared to $460 per ounce in the first nine months of 2000, while the
average market price of platinum was $559 per ounce in the first nine months of
2001 compared to $528 per ounce in the first nine months of 2000.
Costs and Expenses. Total cash costs per ounce produced at Stillwater
Mine for the nine months ended September 30, 2001 were $263 per ounce and were
comparable to the cash costs per ounce for the nine months ended September 30,
2000. The cash costs per ounce are comparable as a result of increased
production that was offset by increased stope mining and mine overhead costs,
compared to the same period in 2000. Total production costs per ounce produced
at Stillwater Mine in the nine months ended September 30, 2001 increased $5, or
2% to $310 per ounce from $305 per ounce in the nine months ended September 30,
2000. This increase is due to an increase in non-cash costs of $5 per ounce
relating to increased production and increased capital fixed assets. General and
administrative expenses increased $9.8 million primarily as a result of $6.6
million of increased administrative support required to transition the company
from a single site producer to a multi-location producer, $1.2 million related
to consulting services and $1.7 million attributable to management realignment.
The company also incurred $1.7 million related to a settlement of a legal
dispute with a terminated refining contract.
Operating Income. The company reported operating income of $82.5
million for the nine months ended September 30, 2001, compared with operating
income of $60.8 million for the comparable period of 2000. The higher operating
income was mainly the result of higher realized prices and increased quantities
of metals delivered to customers offset by increased general and administrative
expenses.
Net Income Before Cumulative Effect of Accounting Change. In its first
nine months of 2001, the company has provided for income taxes of $23.3 million
or 27.6% of income before taxes compared to a provision of $17.3 million, or 28%
of pretax income for the first nine months of 2000. The company reported net
income before the cumulative effect of an accounting change of $61.0 million, or
$1.55 per
16
diluted share compared to $44.4 million, or $1.13 per diluted share in the first
nine months of 2000.
Cumulative Effect of Change in Accounting for Revenue Recognition.
Effective January 1, 2000, the company changed its method of accounting for
revenue recognition. Pursuant to the guidance in Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition for Financial Statements, the company now
recognizes revenue as title passes to the customer. The change was implemented
during the fourth quarter of 2000 and was treated as a change in accounting
principle with the $6.4 million ($0.17 per basic and $0.16 per diluted share)
cumulative effect of the change on retained earnings at the beginning of 2000
included in restated net income of the first nine months of 2000. See Note 3 to
the financial statements attached for a description of new accounting standards
applicable to the company.
Net Income. The company reported net income of $61.0 million or $1.55
per diluted share for its first nine months of 2001 compared with net income of
$38.0 million, or $0.97 per diluted share for the first nine months of 2000.
EAST BOULDER PROJECT
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2001 2000 2001 2000
---- ---- ---- ----
EAST BOULDER PROJECT:
OUNCES PRODUCED (000)(1)
Palladium 7 -- 7 --
Platinum 2 -- 2 --
------ ------ ------ ------
Total 9 -- 9 --
DEVELOPMENT TONS MILLED (000) 41 -- 41 --
DEVELOPMENT MILL HEAD GRADE (OUNCE PER TON) 0.28 -- 0.28 --
TOTAL MILL RECOVERY (%) 83 -- 83 --
(1) The ounces produced at the East Boulder Project were incidental and
generated from development activities. Revenues generated from the ounces
have been credited to capitalized mine development.
During the third quarter of 2001 the East Boulder Project produced
7,000 ounces of palladium and 2,000 ounces of platinum. These ounces produced
were incidental and generated from development activities. Revenues generated
from the ounces have been credited to capitalized mine development.
During 2001, the company expects to continue underground development,
detailed engineering and commissioning of the concentrator and ancillary
facilities at East Boulder. The East Boulder Project is expected to begin
commercial production during 2002. However, new mining operations often
experience unexpected problems during the development and start-up phases, which
can result in substantial delays in reaching commercial production. The company
currently estimates the cost of developing the project to enable it to commence
initial production at approximately $370 million of which approximately $238
million has been spent as of September 30, 2001. Additional sustaining capital
expenditures will be necessary to achieve and maintain the mine's initial design
capacity of 2,000 tons of ore per day. This estimated cost and schedule may
change based upon the results of the mine planning work to be completed during
2001 and the results of the company's recently initiated optimization review.
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.
17
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital at September 30, 2001 was $35.1 million
compared to a deficit of $15.0 million at December 31, 2000. The ratio of
current assets to current liabilities was 1.5 at September 30, 2001, compared to
1.25 at December 31, 2000.
Net cash provided by operations for the nine months ended September 30,
2001, was $92.3 million compared with $76.6 million for the comparable period of
2000, an increase of $15.7 million. The increase was primarily a result of
increased net income of $23.0 million and an increase in non-cash expenses of
$5.6 million offset by an increase in net operating assets and liabilities of
$12.8 million, primarily due to an increase in accounts receivable of $20.0
million relating to the timing of cash receipts for delivery of metals sold to
customers.
A total of $156.3 million of cash was used in investing activities in
the first nine months of 2001 compared to $151.4 million in the same period of
2000. The capital expenditures primarily relate to the development of the East
Boulder Mine, the Stillwater Mine and the company's Columbus ancillary
facilities.
For the nine months ended September 30, 2001, cash provided by
financing activities was $63.7 million compared to $84.3 million for the
comparable period of 2000. The financing activities in the first nine months of
2001 were primarily attributed to new borrowings of $203 million under the
company's $250 million Credit Facility partially offset by repayment of $125
million on the prior credit facility.
As a result of the above, cash and cash equivalents decreased by $0.3
million for the first nine months of 2001 compared to an increase of $9.5
million for the comparable period of 2000.
The company intends to utilize cash on hand and expected cash flows
from operations, along with available borrowings under the existing $250 million
Credit Facility to fund its operating and capital needs. At September 30, 2001
outstanding borrowings under the Credit Facility were $200 million. See Note 6
to the financial statements for a description of the company's Credit Facility.
If PGM prices remain at or below current levels, the company may be required to
raise additional capital from public or private securities markets or from other
sources to complete its expansion plans on schedule or to fund general corporate
purposes. The company can make no assurance that additional financing, if
needed, will be available on terms favorable to the company or at all.
FORWARD LOOKING STATEMENT; 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, 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:
o price volatility of PGMs;
o worldwide economic and political events affecting the supply and demand
of palladium and platinum;
o potential cost overruns, difficulty in making reliable estimates in
connection with expansion, uncertainties involved in developing a new
mine and other factors associated with a major expansion;
o fluctuations in ore grade, tons mined, crushed or milled;
18
o variations in concentrator, smelter or refinery operations;
o geological, technical, permitting, mining or processing problems;
o availability of experienced employees;
o financial market conditions;
o compliance of the company and significant customers with marketing
contracts; and
o the other factors discussed under "Risk factors", below and in
"Business and Properties -- Risk Factors" in the company's annual
report on Form 10-K for the year ended December 31, 2000.
Investors are cautioned not to put undue reliance on forward-looking
statements. The company disclaims any obligation to update forward-looking
statements.
19
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--Forward Looking Statements; Factors That May Affect Future Results
and Financial Conditions" above.
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.
The market prices of PGMs have fallen significantly in the last few
months and may continue to fall. The price for palladium, which had reached
record high price levels of $1,115 per ounce in January has fallen sharply and
is currently approximately $320 per ounce at October 23, 2001. The price for
platinum has also fallen from $648 per ounce early in 2001 to approximately $426
per ounce at October 23, 2001. The economic contraction experienced in the
United States and worldwide may lead to further reductions in market prices of
PGMs, particularly if demand for PGMs falls in connection with reduced
automobile and electronics production. In addition, the worldwide economy may be
adversely affected by the September 2001 terrorist attacks and related
hostilities. Any such economic downturn or continued drop in prices could
adversely impact our results of operations and could impair our ability to
complete our expansion plans. Because of the recent declines in the price of
PGMs, the company has accelerated and expanded its ongoing optimization review
to consider the PGM market outlook, production, ore grade and tonnage, ounces to
be produced and timing of the company's expansion program. The review will
examine variations in production levels at both the Stillwater mine and the East
Boulder mine. In the current price environment and considering the company's
funding requirements, the company's previously announced production target of 1
million ounces per annum for 2003 may be deferred or a revised target
established.
Economic and political events in Russia could also 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. Financial, economic, or political
instability in Russia and economic problems could make Russian shipments
difficult to predict and the risk of sales from stockpiles more significant.
Volatility was evident during 1997 through 2000 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" in the company's annual report on Form 10-K for the year ended December
31, 2000 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 require the
company to deliver specific quantities of metal, or to financially settle the
obligation in the future at specific prices, the sale of call options and the
purchase of put options. At October 23, 2001, the market prices for palladium
and platinum were $320 and $426 per ounce, respectively. See Note 9 to the
financial statements attached hereto 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 may also prevent the
company from benefiting from price increases. The company has entered into
long-term sales contracts that provide a floor price for sales of a portion of
the company's production. For additional discussion of the sales contracts, see
Note 9 to the financial statements attached hereto.
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 obtain funding for its planned capital projects at Stillwater and
East Boulder, increase and sustain production at the Stillwater Mine and its
related facilities and its ability to develop and bring into production the East
Boulder Project. 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
20
company believes its goals and estimates are based upon reasonable assumptions,
the company has previously and may need to further revise its plans and cost
estimates for the Stillwater Mine and East Boulder Project as the projects
progress. Because of the recent declines in the price of PGMs, the company is
reviewing whether its previously planned sources of financing will be sufficient
to meet its capital requirements, including the completion of its expansion plan
on the previously announced schedule. The capital programs that have been
recently pursued by the company depended on operating cash flow and bank
financing premised on a more favorable PGM pricing environment than currently
exists. In light of the drop in PGM prices, the company has accelerated and
expanded its ongoing optimization review to consider the PGM market outlook,
production, ore grade and tonnage, ounces to be produced and timing of the
company's expansion program. The company's expansion plans may be adversely
affected by the results of the optimization review. See "Business and Properties
- Current Operations - East Boulder Project" and "Business and Properties -
Expansion Plans" in the company's annual report on Form 10-K for the year ended
December 31, 2000 for further discussion of the company's expansion plans. Among
the major risks to successful completion of the Expansion Plan are:
o availability of sufficient funding;
o volatility in PGM market prices;
o potential cost overruns during development of new mine operations and
construction of new facilities;
o possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits; and
o the inability to recruit sufficient numbers of skilled underground
miners.
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 2001, the company expects to continue underground development,
detailed engineering and commissioning of the concentrator and ancillary
facilities at East Boulder. The East Boulder Project is expected to begin
commercial production during 2002. However, new mining operations often
experience unexpected problems during the development and start-up phases, which
can result in substantial delays in reaching commercial production. The company
currently estimates the cost of developing the project to enable it to commence
initial production at approximately $370 million of which approximately $238
million has been spent as of September 30, 2001. Additional sustaining capital
expenditures will be necessary to achieve and maintain the mine's initial design
capacity of 2,000 tons of ore per day. This estimated cost and schedule may
change based upon the results of the mine planning work to be completed during
2001 and the company's review and optimization plan.
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.
COMPLIANCE WITH BANK CREDIT AGREEMENT - THE RESTRICTIONS IMPOSED BY OUR DEBT
AGREEMENTS COULD NEGATIVELY AFFECT OUR ABILITY TO ENGAGE IN CERTAIN ACTIVITIES.
The company's agreement with the syndicate of financial institutions
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
certain production objectives, capital cost and financial targets. Should market
prices of PGMs continue to decline, the company may not be able to comply with
the debt covenants in its credit facility. In the event the company was not able
to comply with the debt covenants, the company would seek to amend the existing
facility or to seek alternative financing. See Note 6 to the financial
statements
21
attached hereto for a discussion of the company's credit facility.
DEPENDENCE ON AGREEMENTS WITH SIGNIFICANT CUSTOMERS - WE DEPEND UPON A FEW
CUSTOMERS AND OUR SALES AND OPERATIONS COULD SUFFER IF WE LOSE ANY OF THEM.
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 1998 contracts
applied to the company's production over the five-year period from January 1999
through December 2003. Under the original contracts, the company committed
between 90% to 100% of its palladium production and 20% of its platinum
production. Metal sales were priced at a discount to market. The remaining
production is not committed under these contracts and remains available for sale
at prevailing market prices.
In November 2000 and March 2001, the company renegotiated certain of
its long-term sales contracts. The new arrangements establish higher floor and
ceiling prices on a portion of the current contracts, extend the term of the
contracts through 2010 with new floors and ceilings and increase the amount of
platinum committed. See Note 9 to the financial statements attached hereto for
additional information about sales contracts.
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. The loss of any of these
customers could have a material adverse effect on the company. 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 and platinum. In the event of a substantial decline in the market
price of palladium or platinum, 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. The contracts are designed
to limit the downside risk of metal prices at the risk of foregoing a portion of
upside price potential should market prices exceed the price ceilings. During
the first nine months of 2001, the price ceilings reduced the average price
realized by $82 per ounce as compared to the average PGM market price for the
same period. See Note 9 to the financial statements attached hereto for
additional information about the sales contracts.
22
SUBSTITUTION OF MATERIALS - USERS OF PGM'S MAY SUBSTITUTE OTHER MATERIALS FOR
PALLADIUM AND PLATINUM.
Users of PGMs may substitute other materials for palladium and
platinum. The automobile, electronics and dental industries are the three
largest sources of palladium demand. In response to supply questions and high
market prices for palladium, some automobile manufacturers may seek alternatives
to palladium and may reduce their PGM purchases. Recently, a representative of
one automobile manufacturer indicated that such manufacturer would seek to
reduce PGM loading quantities per vehicle by up to 30% over the next 12 to 18
months as engineers continue to design more efficient exhaust systems. There has
been some substitution of other metals for palladium in electronics and dental
applications. Substitution in all of these industries may increase significantly
if the PGM market prices rise or if supply becomes unreliable. Significant
substitution for any reason could result in a material PGM price decrease, which
could have a material adverse effect on the company's business, financial
condition and results of operations.
LIMITED AVAILABILITY OF ADDITIONAL MINING PERSONNEL AND UNCERTAINTY OF LABOR
RELATIONS - OUR OPERATIONS DEPEND SIGNIFICANTLY UPON THE AVAILABILITY OF
QUALIFIED MINERS, AND IF WE ARE NOT ABLE TO ATTRACT AND RETAIN THESE MINERS, OUR
PRODUCTION TARGETS MAY NOT BE MET.
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.
The company currently employs 444 miners and expects to require an additional
252 miners within the next five years. 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 1,630 employees, about 1,009
of whom are covered by a collective bargaining agreement with PACE Local 8-001,
expiring June 30, 2004. The company expects to employ approximately 1,800
persons by the end of second quarter 2002. 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.
AVAILABILITY OF ELECTRICITY - IF WE ARE UNABLE TO NEGOTIATE SATISFACTORY
LONG-TERM CONTRACTS FOR ELECTRICAL ENERGY, WE COULD EXPERIENCE A SIGNIFICANT
INCREASE IN OPERATING COSTS OR PRODUCTION DISRUPTION.
The company uses significant amounts of electrical energy at its
operations and energy prices have recently been very volatile. The total cost of
electricity in 2000 for the Stillwater Mine, the East Boulder Project and at the
smelter/refinery complex was $6.5 million. The company purchases energy at
regulated rates from Montana Power for the Stillwater Mine and the
smelter/refinery and purchases energy from Park Electric Cooperative Inc. under
a long-term contract for the East Boulder Project. Park Electric receives the
bulk of its energy supply under long-term contracts from Bonneville Power at an
average cost to Stillwater Mining of $0.026 per kWh. Actual total energy costs
at the mine site are a function of power factors, transmission and distribution
costs and administrative costs and will average $0.047 per kWh in 2001. Energy
purchased from Montana Power is covered by regulated rates through June 30,
2002. The energy portion of the rate will average $0.028 per kWh for 2001 and
the total rate, including transmission and distribution, etc., will average
$0.037 per kWh. The requirement for the company to move to deregulated supply is
currently June 2005; however, regulated rates have not been set beyond June
2002. Should the company be required to move to market prices or be unable to
negotiate satisfactory long-term contracts for electrical energy, it could
experience a significant increase in operating costs or production disruptions.
23
MINING RISKS AND POTENTIAL INADEQUACY OF INSURANCE COVERAGE - OUR BUSINESS IS
SUBJECT TO SIGNIFICANT RISKS THAT MAY NOT BE COVERED BY INSURANCE.
Underground mining and the company's milling, smelting and refining
operations involve a number of risks and hazards, including unusual and
unexpected rock formations, ground or slope failures, cave-ins and other mining
or ground-related problems, environmental hazards, industrial accidents, labor
disputes, metallurgical and other processing, smelting or refining problems,
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. During the first nine months of
2001, the company experienced three fatalities at the Stillwater Mine.
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.
DIFFICULTY OF ESTIMATING RESERVES ACCURATELY - RESERVES ARE VERY DIFFICULT TO
ESTIMATE AND RESERVE ESTIMATES MAY REQUIRE ADJUSTMENT IN THE FUTURE; CHANGES IN
ORE GRADES COULD MATERIALLY IMPACT OUR PRODUCTION.
While the company's 2000 ore reserves have been reviewed 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. Significant additional
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 Mine, 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 orebody or the processing of new or
different grades, may impair the profitability of the company in any particular
accounting period.
ITEM 3. 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. 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.
24
The company has entered into long-term sales contracts with General
Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The contracts
apply to the portions of the company's production over the period through
December 2010 and provide for a floor and ceiling price structure. See Note 9 to
the financial statements attached hereto for additional information about sales
contracts.
As of September 30, 2001, the company had sold forward 5,000 ounces of palladium
for delivery in 2001 at an average price of $706 per ounce and 15,000 ounces of
palladium for delivery in 2002 at an average price of $700 per ounce. In
addition, the company had sold forward 3,000 and 3,000 ounces of platinum for
delivery in 2001 and 2002, respectively, at an average price of $575 per ounce.
Under a financially settled forward, at each settlement date, the company
receives the difference between the forward price and the market price if the
market price is below the forward price and the company pays the difference
between the forward price and the market price if the market price is above the
forward price. The company's financially settled forwards are settled at
maturity. The company's financially settled forwards had a deferred pre-tax gain
of approximately $14.3 million at September 30, 2001.
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, the company is
exposed to changes in interest rates on the portion of its credit facility which
carries a variable interest rate based upon LIBOR. At September 30, 2001, no
amounts were outstanding under the revolving credit portion of the facility. The
credit facility provides for a $65 million five-year term loan facility (Term
A), a $135 million seven-year term loan facility (Term B) and a $50 million
revolving credit facility. The final maturity of the Term A and revolving credit
facility is December 30, 2005, while the Term B facility final maturity date is
December 31, 2007. As of September 30, 2001, the company had $65.0 million and
$134.7 million outstanding under the Term A and Term B loan facilities,
respectively, bearing interest at 6.00% and 6.75% for the Term A and Term B
facilities, respectively.
25
PART II - OTHER INFORMATION
Item 1. 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.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Employment agreement between Francis R. McAllister and the
Company dated July 23, 2001.
10.2 Employment agreement between Harry C. Smith and the Company
dated July 23, 2001.
10.3 Employment agreement between James A. Sabala and the Company
dated July 23, 2001.
10.4 Employment agreement between Ronald W. Clayton and the
Company dated July 23, 2001.
10.5 Employment agreement between Robert M. Taylor and the Company
dated July 23, 2001.
(b) Reports on Form 8-K:
None
26
SIGNATURES
Pursuant to the requirements 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)
Date: October 26, 2001 By: /s/ FRANCIS R. MCALLISTER
------------------------------------
Francis R. McAllister
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: October 26, 2001 By: /s/ JAMES A. SABALA
------------------------------------
James A. Sabala
Vice President and Chief Financial
Officer
(Principal Financial Officer)
27
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.1 Employment agreement between Francis R. McAllister and the
Company dated July 23, 2001.
10.2 Employment agreement between Harry C. Smith and the Company dated
July 23, 2001.
10.3 Employment agreement between James A. Sabala and the Company
dated July 23, 2001.
10.4 Employment agreement between Ronald W. Clayton and the Company
dated July 23, 2001.
10.5 Employment agreement between Robert M. Taylor and the Company
dated July 23, 2001.
EX-10.1
3
d91575ex10-1.txt
EMPLOYMENT AGREEMENT - FRANCIS R. MCALLISTER
EXHIBIT 10.1
STILLWATER MINING COMPANY
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated as of July 17, 2001,
as amended, is made by and between Stillwater Mining Company, a Delaware
corporation (the "Company"), and Francis McAllister ("Executive") (each
individually a "Party" and collectively, the "Parties").
RECITALS
WHEREAS, the Company desires to employ Executive and Executive desires
to be employed by the Company pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the Parties
agree as follows:
1. Employment; Duties and Scope.
(a) Position. Executive shall serve as the Company's Chief
Executive Officer and Chairman of its Board of Directors (the "Board"). For so
long as he is serving on the Board, Executive agrees to serve as a member of any
committee of the Board to which he is elected. In any and all such capacities,
Executive shall report only to the Board. Executive shall have and perform such
duties, responsibilities, and authorities as are customary for the chairman and
chief executive officer of corporations of similar size and businesses as the
Company as they may exist from time to time and as are consistent with such
positions and status.
(b) Duties; Obligations to the Company. During the Employment
Term, Executive shall devote his full business efforts and time to the Company
and the Company will be entitled to all of the benefits and profits arising from
or incident to all such work services and advice. Executive shall be responsible
for performing the business and professional services typically performed by the
chief executive officer of any company, or as may reasonably assigned to him by
the Board, subject to the general and customary supervision of the Board.
Executive agrees not to render commercial or professional services of any nature
to any person or organization, whether or not for compensation, during the
Employment Term without advance written approval of the Board, and Executive
will not directly or indirectly engage or participate during the Employment Term
in any business that is competitive in any manner with the Company's business;
provided, however, that this shall not preclude Executive from owning up to two
percent (2%) of the outstanding equity securities of a corporation whose stock
is listed on a national stock exchange or the Nasdaq.
(c) No Conflicting Obligations. Executive represents and
warrants to the Company that he is under no obligation or commitment, whether
contractual or otherwise, that is inconsistent with his obligations under this
Agreement. Executive represents and warrants that he will not use or disclose,
in connection with his employment by the Company, any trade secrets or other
proprietary information or intellectual property in which Executive or any other
person has any
right, title, or interest and that his employment by the Company as contemplated
by this Agreement will not infringe or violate the rights of any other person or
entity. Executive represents and warrants to the Company that he has returned
all property and confidential information belonging to any prior employers.
(d) Rank of Executive Within Company. As Chairman of the Board
and Chief Executive Officer of the Company, Executive shall be the Company's
highest-ranking executive.
2. Employment Term.
(a) The Initial Period of Executive's employment pursuant to
this Agreement shall begin February 12, 2001 (the "Commencement Date") and shall
end on February 11, 2004 ("Initial Period"), unless otherwise terminated by
either Party prior to the scheduled termination date as provided in Sections 9
and 10 of this Agreement; provided, however, that following a Change in Control,
(as defined in Section 10(c)(ii) below), the Employment Term (as defined below)
shall continue for no less than twenty-four (24) additional months.
(b) The Initial Period shall automatically be extended for
successive one year periods ("Renewal Period"), if not already otherwise
terminated as provided in this Agreement, unless either Party notifies the other
no later than six (6) months prior to the scheduled termination of such Initial
Period or Renewal Period, in which case Executive's employment shall terminate
upon the scheduled termination date of the applicable Initial Period or Renewal
Period.
(c) In the event that this Agreement is not renewed because
Executive has given the six-month notice prescribed in Section 2(b) on or before
the expiration of the Initial Period or any Renewal Period, such non-renewal
shall be treated as a Termination for Cause and Executive shall have the same
entitlements as provided in Section 10(b)(iii) below.
(d) The entire term of Executive's employment pursuant to this
Agreement from the Commencement Date until the date of expiration or termination
of Executive's employment pursuant to this Agreement shall be referred to herein
as the "Employment Term."
3. Board Membership. Executive currently serves as Chairman of the
Board. Executive's service on the Board at all times shall be without
additional compensation.
4. Cash Compensation.
(a) Base Salary. During the Employment Term, the Company shall
pay the Executive as compensation for his services a semi-monthly base salary at
the annualized rate of five hundred thousand dollars ($500,000), less applicable
deductions and withholdings. Such base salary shall be paid semi-monthly in
accordance with normal Company payroll practices and procedures. Executive's
base salary shall be reviewed for increase no less than every twelve (12) months
and shall be subject to decrease only in the event (and only to the extent) of
an across-the-board reduction for other senior management employees of the
Company. (The annualized base salary to be paid to Executive pursuant to this
Section 4(a), together with any subsequent modifications thereto, shall be
referred to in this Agreement as the "Base Salary.")
-2-
(b) Bonuses. Executive shall be eligible to earn an annual
target bonus equal to 50% of his Base Salary (the "Target Bonus") based upon
satisfaction of criteria determined by the Board and/or its Compensation
Committee for each year during the Employment Term, starting with the year
commencing January 1, 2001 (except that for the year 2001, the Target Bonus
amount shall be $235,750, which is a pro rata portion of the Target Bonus for
such period based on the Commencement Date). Executive shall be eligible to earn
a maximum bonus equal to 100% of his Base Salary. For 2001, the Company shall
provide Executive with written notice of that period's performance goals no
later than March 31, 2001; thereafter, written notice of the performance goals
shall be provided by February 28 of the applicable year.
5. Employee Benefits.
(a) During the Employment Term, Executive shall be eligible to
participate in such other of the Company's employee benefit plans and to receive
such benefits for which his position makes him eligible, in accordance with the
Company's plans and policies as in effect from time to time during the
Employment Term, subject in each case to the generally applicable terms and
conditions of the plan or policy in question and to the determinations of any
person or committee administering such plan or policy.
(b) Executive shall be entitled to four (4) weeks of vacation
per year during the Employment Term.
6. Business Expense Reimbursements. During the Employment Term,
Executive shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with the performance of
his duties hereunder. The Company shall reimburse Executive for such expenses
upon presentation of an itemized account and appropriate supporting
documentation, all in accordance with the Company's generally applicable
policies.
7. Relocation Costs. The Company will reimburse Executive for costs
related to his relocation to Montana, in accordance with Company's standard
relocation policy.
8. Equity.
(a) Subject to Board approval, Executive shall be granted an
option to purchase 75,000 shares of the Company's Common Stock (the "Option
Shares"), at the aggregate Fair Market Value of the Option Shares on the date of
grant, pursuant to the Company's 1998 Equity Incentive Plan. "Fair Market Value"
means as of any given date, the closing sale price per share of the Company's
common stock reported on a consolidated basis for securities listed on the
principal stock exchange or market on which the common stock is traded on the
date as of which such value is being determined or, if there is no sale on that
day, then on the last previous day on which a sale was reported. The grant and
exercise of the Option Shares shall be subject to the terms of the notice of
grant of the Option and the Company's standard form of Non-Qualified Stock
Option Agreement ("Option Agreement"), and shall be contingent upon Executive
executing such Option Agreement and, for exercise, the Company's standard form
of stock purchase agreement. The Option Shares shall have a ten (10) year term
and shall vest in three (3) equal installments on each of the first three (3)
anniversaries of the date of this Agreement, as specified in the Option
Agreement. Executive may only exercise the Option Shares to the extent that they
have vested.
-3-
(b) Executive also shall be eligible to participate in annual
option grants, if any, by the Company to its executives. Whether any option is
granted and if so, the number of shares which Executive may be granted the
option to purchase, shall be entirely within the discretion of the Board and/or
its Compensation Committee.
9. Termination of Employment. Notwithstanding the fixed term of
Executive's employment under this Agreement, the Company and Executive each may
terminate Executive's employment at any time for any or no reason with or
without Cause (as defined in Section 10(b)(ii)), upon written notice to the
other Party. Executive's employment will terminate automatically in the event of
his death. Any payments and/or benefits due Executive from the Company upon
and/or after termination are specified in Section 10.
10. Termination Payments and Benefits.
(a) Payments and Reimbursements Upon Any Termination of
Employment. In the event that Executive's employment terminates for any reason,
the Company shall pay Executive all Base Salary, any accrued but unpaid bonuses
for the period prior to the year of termination of employment, and all accrued
but unpaid vacation earned through the date of termination of employment, each
less applicable withholdings and deductions, and any reimbursement of expenses
owed pursuant to this Agreement within ten (10) days of the date of termination
("Termination Date"). Only the amounts stated in this Section 10(a), and no
severance payments or benefits, shall be due to Executive upon a termination of
his employment on the scheduled termination date of the Initial Period or
Renewal Period.
(b) Effect of Termination for Cause.
(i) In the event that the Company terminates
Executive's employment for Cause or Executive terminates employment
(including any non-renewal) without Good Reason (as defined below):
(A) Executive shall receive all payments
provided in Section 10(a) above;
(B) Executive's outstanding vested Option
Shares shall be exercisable in accordance with the terms and
time limits of the applicable Option Agreement; and
(C) any unvested Option Shares shall be
forfeited on the Termination Date.
(ii) Definition of Termination for Cause. For the
purposes of this Agreement, a termination of Executive's employment for
"Cause" means a termination of Executive's employment by the Company
based upon a determination that any one or more of the following has
occurred: (A) misfeasance or nonfeasance of duty by Executive that
which was intended to or does injure the reputation of Company or its
business or relationships; (B) conviction of, or plea of guilty or nolo
contendere by Executive to, any felony or crime involving moral
turpitude; (C) Executive's willful and continued failure to
substantially perform his duties under this Agreement (except by reason
of physical or
-4-
mental incapacity) after written notice from the Board and 15 days to
cure such failure; (D) dishonesty by Executive in performance of his
duties under this Agreement; or (E) willful and material breach of the
restrictive covenants contained in this Agreement; provided however,
that definitions (C) through (E) shall not provide Cause for
termination if such termination occurs within two (2) years following a
Change in Control. A termination of Executive's employment by the
Company for any other reason will be a termination without "Cause."
(c) Effect of Termination Without Cause or Resignation for
Good Reason Other Than Within Two Years Following A Change in Control.
(i) In the event that, at any time other than within
two (2) years following a Change in Control, the Company terminates
Executive's employment without Cause or Executive resigns his
employment for Good Reason, then, contingent upon Executive signing and
not revoking the Severance Agreement and Release attached hereto as
Exhibit A, and not breaching the provisions of Section 15 hereof, the
Company shall provide Executive with the following:
(A) all payments stated in Section 10(a)
above;
(B) a pro rata portion of Executive's Target
Bonus, less applicable withholdings and deductions, which pro
rata portion shall be determined by multiplying the Target
Bonus by a fraction, the numerator of which is the number of
days elapsed in the calendar year of the date of termination
and the denominator of which is 365 (except for 2001, when the
numerator equals the number of days elapsed since February 12
and the denominator is 322) payable within 10 days of the
Termination Date;
(C) an amount equal to the sum of (i)
Executive's annual Base Salary, plus (ii) Executive's Target
Bonus, each as in effect immediately preceding such
termination, divided by 12 ("Monthly Severance Amount"). The
Monthly Severance Amount shall be paid to Executive in 24
monthly installments, commencing no later than 30 days after
the Termination Date, and continuing until all installments
due Employee have been paid.
(D) continuation of Executive's medical,
health, and life insurance (as in effect immediately prior to
the date of termination) for a period of twenty-four (24)
months, or if not permissible or commercially reasonable to
continue the same coverage of Executive under one or more of
the insurance policies or plans, continued payment for a
period of twenty-four (24) months of the after-tax cost to the
Company of providing such coverage to Executive (as measured
immediately prior to the date of termination); provided
however, that such benefits or payments shall cease upon the
date on which Executive is eligible for similar aggregate
coverage from a subsequent employer; and
(E) the applicable accelerated vesting (if
any) of the Option Shares, pursuant to the applicable Option
Agreement.
-5-
(ii) Relevant Definitions.
(A) Change in Control. For the purposes of
this Agreement, a "Change in Control" shall mean and shall be
deemed to have occurred if any of the following events shall
have occurred:
(1) Any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
becomes the "beneficial owner" (as defined in Rule
13d-3 under 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 thirty
percent (30%) or more of the combined voting power of
the Company's then outstanding voting securities,
excluding any person who becomes such a beneficial
owner in connection with a transaction described in
clause (i) of subsection (3) below; or
(2) A change in the composition of
the Board occurring within a two-year period, as a
result of which fewer than a majority of the
directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (i) are
directors of the Company as of the date hereof, or
(ii) are elected, or nominated for election, to the
Board with the affirmative votes of at least
two-thirds (2/3) of the Incumbent Directors at the
time of such election or nomination (but shall not
include an individual whose election or nomination is
in connection with an actual or threatened election
or proxy contest, including but not limited to a
consent solicitation relating to the election of
directors to the Company); or
(3) The consummation of 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 thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least fifty-five percent (55%) of the
combined voting power of the voting 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 thirty
percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(4) The consummation of a
stockholder-approved sale, transfer, or other
disposition by the Company of all or substantially
all of the
-6-
Company's assets in complete liquidation or
dissolution of the Company, other than a sale,
transfer, or other disposition by the Company of all
or substantially all of the Company's assets to an
entity, at least sixty percent (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.
(5) Notwithstanding the foregoing
subsections (1) through (4), 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.
(B) Resignation for Good Reason. For the
purposes of this Agreement, a resignation for "Good Reason"
means a termination of Executive's employment at his
initiative following the occurrence, without Executive's
written consent, of one or more of the following events
(except as a result of a prior termination):
(1) a material diminution or change,
adverse to Executive, in Executive's positions,
titles, or offices as set forth in Section 1, status,
rank, nature of responsibilities, or authority within
the Company, or a removal of Executive from or any
failure to elect or re-elect or, as the case may be,
nominate Executive to any such positions or offices,
including as a member of the Board;
(2) the assignment to Executive of
any duties that are inconsistent with his status as
the Company's Chairman and Chief Executive Officer or
other positions held hereunder;
(3) a decrease in Executive's annual
Base Salary or Target Bonus award opportunity below
50% of Base Salary (other than an across-the-board
reduction on a percentage basis for all senior
management executives);
(4) a material reduction in the
aggregate benefits for which Executive is eligible
under the Company's benefit plans (other than an
across-the-board reduction in the aggregate benefits
for senior management executives);
(5) any other failure by the Company
to perform any material obligation under, or breach
by the Company of any material provision of, this
Agreement that is not cured within 10 business days
of receipt of written notice from Executive;
-7-
(6) upon relocation of the Executive
outside of the State of Montana;
(7) any failure to secure the
agreement of any successor corporation or other
entity to the Company to fully assume the Company's
obligations under this Agreement; or
(8) the Company and its successor(s)
shall discontinue the business of the Company.
(9) Solely for the purposes of
Section 10(d) below, any good faith determination of
Good Reason made by the Executive shall be
conclusive.
(d) Effect of Termination Without Cause or Resignation for
Good Reason Within Two (2) Years Following A Change in Control. If, upon or
within two (2) years following a Change in Control, Executive resigns his
employment with the Company for Good Reason or the Company terminates
Executive's employment without Cause, then, in lieu of the severance payments
and benefits stated in Section 10(c) above, and contingent upon Executive
signing and not revoking the Severance Agreement and Release attached hereto as
Exhibit A, and not materially breaching the provisions of Section 15 hereof, the
Company shall provide Executive with the following:
(i) all payments stated in Section 10(a) above;
(ii) a lump sum, payable within thirty (30) days of
the Termination Date, equal to three (3) times the sum of (A)
Executive's Base Salary (or if a reduction of Base Salary is the reason
for Executive's termination for Good Reason, the Base Salary in effect
immediately prior to such reduction) plus (B) the greater of (i)
Executive's Target Bonus, or (ii) the bonus paid to Executive for the
most recent calendar year, less applicable withholdings and deductions;
(iii) continuation of Executive's medical, health,
and life insurance (as in effect immediately prior to the date of
termination) for a period of thirty-six (36) months, or if not
permissible or commercially reasonable to continue the same coverage of
Executive under one or more of the insurance policies or plans,
continued payment for a period of thirty-six (36) months of the
after-tax cost to the Company of providing such coverage to Executive
(as measured immediately prior to the date of termination); provided
however, that such benefits or payments shall cease upon the date on
which Executive is eligible for similar aggregate coverage from a
subsequent employer; and
(iv) immediate accelerated vesting of all Option
Shares, pursuant to the applicable Option Agreement, with the Option
Shares remaining exercisable for the balance of the term as determined
in accordance with the terms of the Option Agreement.
(e) Termination of Employment Due to Disability.
-8-
(i) In the event that Executive's employment
terminates due to Disability, Executive shall receive the following:
(A) the payments stated in section 10(a),
provided that the Base Salary, less applicable withholdings
and deductions, shall be paid at least through the date on
which Executive is eligible to receive disability payments;
(B) A pro rata portion of the annual Target
Bonus for the year in which Executive's employment terminates,
less applicable withholdings and deductions, calculated by
multiplying the Target Bonus by a fraction, the numerator of
which is the number of days elapsed in the year as of the date
of termination, and the denominator of which is 365 (except
for 2001 when numerator equals the number of days elapsed
since February 12 and the denominator is 322) payable within
10 days of the Termination Date; and
(C) Disability benefits in accordance with
the Company's long-term disability plan.
(ii) A termination of Executive's employment due to
"Disability" shall mean a termination of Executive's employment by the
Board because physical or mental incapacity has rendered or will render
Executive unable to perform his duties as Chief Executive Officer for a
period of 180 consecutive days. The determination regarding the
existence and expected or actual duration of such incapacity shall be
made by a health professional mutually acceptable to the Company and
Executive. The Company shall provide 30 days' written notice of a
termination due to Disability, or payment in lieu thereof.
(iii) Executive's Option Shares shall vest and become
exercisable in accordance with the terms of the Option Agreement.
(f) Termination of Employment Due to Death.
(i) Executive's employment shall terminate
automatically in the event of his death.
(ii) In the event that Executive's employment
terminates due to his death, Executive (or Executive's estate) shall
receive the following:
(A) the payments stated in Section 10(a)
above, except that the Base Salary, less applicable deductions
and withholdings, shall be paid through the 90th day following
the date of death;
(B) A pro rata portion of the annual Target
Bonus for the year in which Executive's employment terminates,
less applicable deductions and withholdings, calculated by
multiplying the annual Target Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
of termination plus 90, and the denominator of which is 365
(except for 2001 when numerator equals the number of days
elapsed since February 12 plus 90, and the denominator is 322)
payable within 10 days of the Termination Date; and
-9-
(C) Executive's Option Shares shall vest and
become exercisable in accordance with the terms of the Option
Agreement.
11. Excise Tax Gross-up.
(a) Subject to Section 11(b) below, if Executive becomes
entitled to one or more payments (with a "payment" including, without
limitation, the vesting of an option or other non-cash benefit or property),
whether pursuant to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company or any affiliated company (the "Total Payments"),
which are or become subject to the tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code") (or any similar tax that may
hereafter be imposed) (the "Excise Tax"), the Company shall pay to Executive at
the time specified below an additional amount (the "Gross-up Payment") (which
shall include, without limitation, reimbursement for any penalties and interest
that may accrue in respect of such Excise Tax) such that the net amount retained
by Executive, after reduction for any Excise Tax (including any penalties or
interest thereon) on the Total Payments and any federal, state and local income
or employment tax and Excise Tax on the Gross-up Payment provided for by this
Section 11, but before reduction for any federal, state, or local income or
employment tax on the Total Payments, shall be equal to the sum of (A) the Total
Payments, and (B) an amount equal to the product of any deductions disallowed
for federal, state, or local income tax purposes because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income multiplied by the highest
applicable marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-up Payment is to be made.
For purposes of determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section 280G(b)(1) of
the Code shall be treated as subject to the Excise Tax, unless, and
except to the extent that, in the written opinion of independent
compensation consultants, counsel or auditors of nationally recognized
standing ("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section 280G(b)(4) of
the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the lesser of
(A) the total amount of the Total Payments or (B) the total amount of
excess parachute payments within the meaning of Section 280G(b)(1) of
the Code (after applying clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Independent
Advisors in accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
For purposes of determining the amount of the Gross-up
Payment, Executive shall be deemed (A) to pay federal income taxes at the
highest marginal rate of federal income taxation for
-10-
the calendar year in which the Gross-up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time the Gross-up Payment is made, Executive
shall repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to the taxing
authorities, not prior to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the portion of the
Gross-up Payment that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time the Gross-up Payment is made (including by
reason of any payment the existence or amount of which cannot be determined at
the time of the Gross-up Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest and penalties payable with
respect to such excess) at the time that the amount of such excess is finally
determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due and payable to the
taxing authorities) after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be finally determined
on or before such day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the minimum amount of
such payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code), as soon as
the amount thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to Executive, payable on the
fifth day after demand by the Company (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be computed so as not
to duplicate any prior Gross-up Payment. The Company shall have the right to
control all proceedings with the Internal Revenue Service that may arise in
connection with the determination and assessment of any Excise Tax and, at its
sole option, the Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such proceedings shall be
limited to issues with respect to which a Gross-up Payment would be payable
hereunder, and Executive shall be entitled to settle or contest any other issue
raised by the Internal Revenue Service or any other taxing authority. Executive
shall cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any position
or action that would materially increase the amount of any Gross-up Payment
hereunder.
(b) Modified Cut-Back. Notwithstanding the foregoing Section
11(a), if it shall be determined that the amount of any payment due Executive
pursuant to Section 11(a) above would
-11-
result in less than $20,000 in net after-tax value to Executive, then no
Gross-up Payment shall be made to Executive and the total payments due Executive
pursuant to Section 11(a) shall be reduced to an amount that would not result in
the imposition of any Excise Tax.
12. Indemnification. The Company will hold harmless, indemnify, and
provide a defense to Executive to the fullest extent permitted by Delaware law
with respect to any claims, actions, suits, or proceedings, brought against
Executive by reason of, or arising out of, Executive's service as, or the
performance of Executive's duties as, an employee, director, officer, and/or
agent of the Company, provided that such claims, actions, suites, or proceedings
are not found by a court or arbitrator to have arisen out of employee's
intentional misconduct or gross negligence. The Company will pay, and subject to
any legal limitations, advance all costs, expenses, and losses, including
without limitation reasonable attorneys' fees, costs of settlements, and
consequential damages, actually and necessarily incurred by Executive in
connection with the defense of any such claims, actions, suits, or proceedings,
and in connection with any appeal thereof.
13. Directors' and Officers' Insurance. The Company shall use
commercially reasonable efforts to obtain and maintain directors' and officers'
liability insurance coverage in an amount equivalent to that of a well-insured
similarly situated company; provided, however, that, the failure to obtain and
maintain such insurance after the Company has exercised such commercially
reasonable efforts shall not be a breach of the Company's obligations under this
Agreement. Any directors' and officers' liability insurance covering Executive
shall continue to apply following the period in which Executive is serving as
officer or director of the Company for actions or omissions during the period in
which Executive was acting as officer or director.
14. Non-Competition and Non-Solicitation.
(a) Necessity of Covenants. The Company and Executive
acknowledge that:
(i) The Company's business is highly competitive;
(ii) The Company maintains Confidential Information
and trade secrets (each described below), as discussed below, all of which are
zealously protected and kept secret by the Company;
(iii) In the course of his employment, Executive will
acquire certain of the Company's Confidential Information, and in the event of
any termination of Executive's employment, the Company would be adversely
affected if such information is used for the purposes of competing with the
Company;
(iv) The Company transacts business throughout the
world; and
(v) For these reasons, both the Company and Executive
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.
(b) Covenant Not to Compete. Executive agrees that from and
after the Termination Date and until one (1) year after the Termination Date, he
will not, without the express
-12-
written permission of the Company, which may be given or withheld in the
Company's sole and absolute 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 mining or the processing of metals
or minerals in the United States and throughout the world at the time of the
termination of the Employment Term. It is understood and acknowledged by both
Executive and the Company that, because the Company transacts business
worldwide, the term of this Section 15(b) shall be enforced throughout the
United States and in any other country in which the Company is doing business as
of the Termination Date.
(c) Covenant Not To Solicit. Executive agrees that from and
after the Commencement Date and until one (1) year after the Termination Date,
he will not, except on behalf of the Company or with the express written
permission of the Company, which may be given or withheld in the Company's sole
discretion, directly or indirectly solicit, or attempt to solicit (on
Executive's own behalf or on behalf of any other person or entity) the
employment or retaining of any employee or consultant of the Company or any of
the Company's affiliates.
(d) Disclosure of Outside Activities. Executive, during the
Employment Term, 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.
(e) Survival. The terms of this Section shall survive the
expiration or termination for any reason of this Agreement.
15. Confidential Information and Trade Secrets.
(a) Nondisclosure of Confidential Information. Executive has
and will acquire certain "Confidential Information" of the Company throughout
the Employment Term. For purposes of this Agreement, "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 that is
disclosed to Executive by the Company, including information conceived,
discovered, or developed by Executive. "Confidential Information" includes,
without limitation, 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." For purposes of this Agreement, the term "trade secret" shall
include any formula, pattern, device, or compilation of information which is
used in the Company's business, and which provides to the holder of such trade
secret an opportunity to obtain an advantage over competitors who do not know or
use such trade secret.
Executive agrees that he shall not use for his own benefit such
Confidential Information or trade secrets acquired during the Employment Term
and for three (3) years thereafter. Further, Executive shall not, without the
written consent of the Board 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
-13-
appropriate in connection with the performance by Executive of his duties, any
Confidential Information or trade secrets obtained by him during the Employment
Term.
(b) Return of Confidential Information. Upon any termination
of employment, Executive agrees to deliver any Company property and any
documents, notes, drawings, specifications, computer software, data and other
materials of any nature pertaining to any Confidential Information that are held
by Executive and will not take any of the foregoing, or any reproduction of any
of the foregoing, that is embodied an any tangible medium of expression,
provided that the foregoing shall not prohibit Executive from retaining his
personal phone directories and rolodexes.
(c) Exceptions. The restrictions and obligations in Section
15(a) 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 Executive of his obligations under this Agreement; (ii) is disclosed
to Executive without an obligation of confidentiality by a third party that is
not an affiliate of the Company who has the right to make such disclosure; (iii)
is developed by Executive independent of his performance of duties hereunder
without use of or benefit from the Confidential Information; (iv) was in
possession of Executive without obligations of confidentiality prior to receipt
under this Agreement; or (v) is required to be disclosed by law.
(d) Survival. The terms of this Section 15 shall survive the
expiration or termination for any reason of this Agreement.
16. Binding Arbitration.
(a) Executive and the Company each agree, to the extent
permitted by law, to arbitrate before a single neutral arbitrator, in accordance
with the National Rules for the Resolution of Employment Disputes of the
American Arbitration Association ("AAA") and Delaware law regarding discovery,
any dispute, claim, or controversy arising out of, relating to, or in connection
with this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof, or Executive's employment, recruitment to
employment, or the termination of such employment, whether in tort or contract,
pursuant to current or future statute or regulation, or otherwise, including but
not limited to claims for wrongful termination, breach of contract or
contractual obligation, discrimination, retaliation and harassment based on
race, age, sex, disability, and/or any other basis under Title VII of the Civil
Rights Act of 1964, as amended, and any and all federal, state, and local laws
and regulations, infliction of emotional distress, misrepresentation, fraud, and
claims for wages, commissions, bonuses, severance, stock options, fringe
benefits, and the like, except that the following will not be resolved by
arbitration: any dispute, claim, or controversy regarding workers' compensation
benefits, unemployment insurance benefits, or disability insurance benefits, or
regarding Section 15 of this Agreement, and/or the validity, infringement, or
enforceability of any trade secret, patent right, copyright, trademark, or any
other intellectual property.
(b) The Company shall pay the cost of the arbitration filing
and hearing fees and the cost of the arbitrator, and any other expense or cost
that is unique to arbitration or that Executive would not be required to bear if
he were free to bring the dispute or claim in court. All reasonable costs and
expenses (including fees and disbursements of counsel) incurred by Executive
-14-
pursuant to this Section 16 shall be paid on behalf of or reimbursed to
Executive promptly by the Company; provided, however, that in the event the
arbitrator(s) determine(s) that any of Executive's litigation assertions or
defenses are determined to be in bad faith or frivolous, no such reimbursements
shall be due Executive, and any such expenses already paid to Executive shall be
immediately returned by Executive to the Company. The arbitration shall take
place in the AAA location that is closest to the Company's corporate offices in
Montana. The arbitrator shall apply Delaware law, without reference to rules of
conflicts of law, to the resolution of any dispute. The arbitrator shall issue a
written award that sets forth the essential findings and conclusions on which
the award is based. Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The award shall be subject to
correction, confirmation, or vacation, as provided by Delaware law and any
applicable Delaware case law setting forth the standard of judicial review of
arbitration awards. Notwithstanding the foregoing, the parties may apply to any
court of competent jurisdiction for preliminary or interim equitable relief, or
to compel arbitration in accordance with this Section 16, without breach of this
Section 16.
(c) Executive and the Company each understand and agree that
the arbitration of any dispute or controversy shall be instead of a hearing or
trial before a court or jury. Executive and the Company each understand that
Executive and the Company are expressly waiving any and all rights to a hearing
or trial before a court or jury regarding any dispute or controversy which they
now have or which they may have in the future. Nothing in this Agreement shall
be interpreted as restricting or prohibiting Executive from filing a charge or
complaint with a federal, state, or local administrative agency charged with
investigating and/or prosecuting such charges or complaints under any applicable
federal, state, or municipal law or regulation.
(d) The terms of this Section 16 shall survive the expiration
or termination for any reason of this Agreement.
17. Essential Covenants. The covenants by Executive in Section 15 are
essential elements of this Agreement and without Executive's agreement to comply
with such covenants, the Company would not have entered into this Agreement or
employed Executive.
18. Injunctive Relief. Executive acknowledges that the injury suffered
as a result of a breach of any provision of this Agreement (including any
provision of Section 15) would be irreparable and that an award of monetary
damages to the Company for such a breach would be an inadequate remedy.
Consequently, Executive agrees that the Company will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Company will not be required to post bond or other
security in seeking such relief.
19. Assignment. The Company shall have the right to assign this
Agreement 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. The term "successors" and "assigns" shall include 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.
This Agreement and all rights of Executive hereunder shall inure to the benefit
of, and be enforceable by, Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees,
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and legatees. The rights, duties, and covenants of Executive under this
Agreement may not be assigned.
20. No Waiver. The failure of 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.
21. Notices. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if (a)
delivered personally or by facsimile, (b) one (1) day after being sent by
Federal Express or a similar commercial overnight service, or (c) three (3) days
after being mailed by registered or certified mail, return receipt requested,
prepaid and addressed to the parties or their successors in interest at the
following addresses, or at such other addresses as the parties may designate by
written notice in the manner aforesaid:
If to the Company: Stillwater Mining Company
536 East Pike Avenue
PO Box 1330
Columbus, Montana 59019
If to Executive: at the last residential address known by
the Company.
22. Severability. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
23. Entire Agreement. This Agreement, together with the Company's
Relocation Policy, and the applicable stock option and stock purchase agreements
and notices of grant referenced herein, represent the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company, and supersede and replace any and all
prior agreements and understandings concerning Executive's employment
relationship with the Company.
24. No Oral Modification, Cancellation or Discharge. This Agreement may
only be amended, canceled or discharged in a writing signed by Executive and an
authorized member of the Board.
25. Withholding. The Company shall be entitled to withhold, or cause to
be withheld, from payment any amount of withholding taxes required by law with
respect to payments made to Executive in connection with his employment
hereunder.
26. Key-Man Insurance. Executive 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 Executive that the Company may deem
necessary or advisable to protect its interests hereunder; and Executive agrees
to submit to any medical or other examination necessary for such
-16-
purposes and to assist and cooperate with the Company in preparing such
insurance; and Executive agrees that he shall have no right, title, or interest
in or to such insurance.
27. Attorneys' Fees. Should a dispute arise under this Agreement
following a Change in Control, or should any action or proceeding be commenced
to recover damages as a result of an alleged breach following a Change in
Control of the terms of this Agreement, then the successor to the Company as a
result of the Change in Control shall be required to pay the costs incurred by
Executive in connection therewith, including reasonable attorneys' fees, unless
it is determined that the dispute, action, or proceeding was frivolous or
brought by Executive in bad faith.
28. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware without reference to rules relating to conflict of law.
29. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
30. Acknowledgment. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement, in the case of
the Company by its duly authorized officer/director, as of July 23, 2001:
STILLWATER MINING COMPANY
/s/ Richard E. Gilbert
------------------------------------
By: Richard E. Gilbert
---------------------------------
Title: Chairman of Compensation
Committee
------------------------------
EXECUTIVE
/s/ FRANCIS MCALLISTER
------------------------------------
Francis McAllister
-17-
EX-10.2
4
d91575ex10-2.txt
EMPLOYMENT AGREEMENT - HARRY C. SMITH
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of July 17, 2001 as amended, 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 July 17,
2001 and ending December 31, 2001, 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
twenty-four (24) additional months. The period of Employee's employment
hereunder, including any extension or extensions pursuant to the foregoing
sentence, from the date of commencement until the date of expiration or
termination of this Agreement, is referred to hereinafter as the "Employment
Term."
ARTICLE 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
Three Hundred Thousand Dollars ($300,000) 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 ("Target"), with a maximum which shall not exceed 80%
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. Employee acknowledges that he has received a copy of the foregoing
policies.
2
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 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:
(i) base salary through the Termination Date;
(ii) a pro rata portion of Employee's Target Annual
Bonus, less applicable withholdings and deductions, which pro
rata portion shall be determined by multiplying the Target
Annual Bonus by a fraction, the numerator of which is the
number of days elapsed in the calendar year of the date of
termination and the denominator of which is 365, payable
within 10 days of the Termination Date;
(iii) an amount equal to the sum of (A) Employee's
annual Base Salary, plus (B) Employee's Target Annual Bonus,
each as in effect immediately preceding such termination,
divided by 12 ("Monthly Severance Amount"). The Monthly
Severance Amount shall be paid to Executive in 12 monthly
installments, commencing no later than 30 days after the
Termination Date, and continuing until all installments due
Employee have been paid.
(iv) continuation of Employee's medical, health, and
life insurance (as in effect immediately prior to the date of
termination) for a period of twelve (12) months, or if not
permissible or commercially reasonable to continue the same
coverage of Employee under one or more of the insurance
policies or plans, continued payment for a period of twelve
(12) months of the after-tax cost to the Company of providing
such coverage to Executive (as measured immediately prior to
the date of termination); provided however, that such benefits
or payments shall cease upon the date on which Employee is
eligible for similar aggregate coverage from a subsequent
employer.
(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
3
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 on
a percentage basis 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 on a
percentage basis 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 on a percentage basis 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;
(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); or
(ix) Solely after a Change in Control has occurred,
upon the relocation of Employee, without Employee's consent,
to a location outside of a 35-mile radius of the Employee's
then-current location, provided, however, that a relocation to
the Company's corporate headquarters in the State of Montana
shall not constitute "Good Reason".
(x) 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) misfeasance or nonfeasance of duty by Employee that which was
intended to or does injure the reputation of Company or its business or
relationships; (ii) conviction of, or plea of guilty or nolo contendere
by Employee to, any felony or crime involving moral turpitude; (iii)
Employee's willful and continued failure to substantially perform his
duties under this Agreement (except by reason of physical or mental
incapacity) after written notice from the Board and 15 days to cure
such failure; (iv) dishonesty by Employee in performance of his duties
under this Agreement; or (v) willful and material breach of the
restrictive
4
covenants contained in this Agreement; provided however, that
definitions (iii) through (v) shall not provide Cause for termination
if such termination occurs within two (2) years following a Change in
Control. A termination of Employee's employment by the Company for any
other reason will be a termination without "Cause."
(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.
(a) Death. Upon termination of Employee's employment due to
death of Employee, Employee shall be entitled to
(i) his base salary at the rate in effect at the time
of Employee's death through the 90th day following his death;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable deductions and withholdings, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
of termination plus 90, and the denominator of which is 365,
payable within 10 days of the Termination Date.
(b) Disability. 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
5
(such incapacity is hereinafter referred to as "Disability"). Upon any
such termination for Disability, Employee shall be entitled to receive
the following:
(i) his base salary at the rate in effect at the time
of Employee's disability, through the Termination Date;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable withholdings and deductions, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
as of the date of termination, and the denominator of which is
365 payable within 10 days of the Termination Date; and
(iii) disability benefits in accordance with the
Company's long-term disability plan.
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 Target Annual
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 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;
6
(iv) All accrued compensation (including base salary
and Target 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:
(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 such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") becomes
the "beneficial owner" (as defined in Rule 13d-3
under 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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding voting securities, excluding any person
who becomes such a beneficial owner in connection
with a transaction described in clause (i) of
subsection (C) below; or
(B) A change in the composition of the Board
occurring within a two-year period, as a result of
which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or
nominated for election, to the Board with the
affirmative votes of at least two-thirds (2/3) of the
Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose
election or nomination is in connection with an
actual or threatened election or proxy contest,
including but not limited to a consent solicitation
relating to the election of directors to the
Company); or
(C) The consummation of 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 thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least fifty-five percent (55%) of the
combined voting power of the voting securities of the
Company or such surviving entity or
7
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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding securities; or
(D) The consummation of a
stockholder-approved sale, transfer, or other
disposition by the Company of all or substantially
all of the Company's assets in complete liquidation
or dissolution of the Company, other than a sale,
transfer, or other disposition by the Company of all
or substantially all of the Company's assets to an
entity, at least sixty percent (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.
(E) Notwithstanding the foregoing
subsections (A) through (D), 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.
5.7 Certain Additional Payments by the Company.
(a) Subject to Section 11(b) below, if Executive becomes
entitled to one or more payments (with a "payment" including, without
limitation, the vesting of an option or other non-cash benefit or
property), whether pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any similar tax that may hereafter be imposed)
(the "Excise Tax"), the Company shall pay to Executive at the time
specified below an additional amount (the "Gross-up Payment") (which
shall include, without limitation, reimbursement for any penalties and
interest that may accrue in respect of such Excise Tax) such that the
net amount retained by
8
Executive, after reduction for any Excise Tax (including any penalties
or interest thereon) on the Total Payments and any federal, state and
local income or employment tax and Excise Tax on the Gross-up Payment
provided for by this Section 11, but before reduction for any federal,
state, or local income or employment tax on the Total Payments, shall
be equal to the sum of (A) the Total Payments, and (B) an amount equal
to the product of any deductions disallowed for federal, state, or
local income tax purposes because of the inclusion of the Gross-up
Payment in Executive's adjusted gross income multiplied by the highest
applicable marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-up Payment is to
be made. For purposes of determining whether any of the Total Payments
will be subject to the Excise Tax and the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written opinion of independent compensation consultants,
counsel or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-up Payment, Executive
shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of Executive's adjusted gross income); and (C) to have
otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-up Payment in Executive's
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made,
Executive shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined
(but, if previously paid to the taxing authorities, not prior
to the time the amount of such
9
reduction is refunded to Executive or otherwise realized as a
benefit by Executive) the portion of the Gross-up Payment that
would not have been paid if such Excise Tax had been applied
in initially calculating the Gross-up Payment, plus interest
on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest and
penalties payable with respect to such excess) at the time
that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due
and payable to the taxing authorities) after it has been
determined that the Total Payments (or any portion thereof)
are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be
finally determined on or before such day, the Company shall
pay to Executive on such day an estimate, as determined by the
Independent Advisors, of the minimum amount of such payments
and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the
event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to Executive, payable
on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount
of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. The Company shall have
the right to control all proceedings with the Internal Revenue
Service that may arise in connection with the determination
and assessment of any Excise Tax and, at its sole option, the
Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any
taxing authority in respect of such Excise Tax (including any
interest or penalties thereon); provided, however, that the
Company's control over any such proceedings shall be limited
to issues with respect to which a Gross-up Payment would be
payable hereunder, and Executive shall be entitled to settle
or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall
cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not
take any position or action that would materially increase the
amount of any Gross-up Payment hereunder.
10
(B) MODIFIED CUT-BACK. NOTWITHSTANDING THE FOREGOING
SECTION 11(A), IF IT SHALL BE DETERMINED THAT THE AMOUNT OF
ANY PAYMENT DUE EXECUTIVE PURSUANT TO SECTION 11(A) ABOVE
WOULD RESULT IN LESS THAN $20,000 IN NET AFTER-TAX VALUE TO
EXECUTIVE, THEN NO GROSS-UP PAYMENT SHALL BE MADE TO EXECUTIVE
AND THE TOTAL PAYMENTS DUE EXECUTIVE PURSUANT TO SECTION 11(A)
SHALL BE REDUCED TO AN AMOUNT THAT WOULD NOT RESULT IN THE
IMPOSITION OF ANY EXCISE TAX.
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
11
(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,
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
12
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 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.
13
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 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.
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 Montana, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Montana or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Montana.
14
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:
If to the Employee:
Harry Smith
2006 Eastridge Drive
Billings, Montana 59102
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
PO Box 1330
Columbus, Montana 59019
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.
15
IN WITNESS WHEREOF, the Company has hereunto signed its name and
Employee hereunder has signed his name, all as of July 23, 2001.
STILLWATER MINING COMPANY
By: /s/ FRANCIS MCALLISTER
--------------------------------
Name: Francis McAllister
Title: Chief Executive Officer
EMPLOYEE
/s/ HARRY SMITH
------------------------------------
Harry Smith
16
EX-10.3
5
d91575ex10-3.txt
EMPLOYMENT AGREEMENT - JAMES A. SABALA
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of July 17, 2001, as amended, 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 July 17,
2001 and ending December 31, 2001, 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
twenty-four (24) additional months. The period of Employee's employment
hereunder, including any extension or extensions pursuant to the foregoing
sentence, from the date of commencement until the date of expiration or
termination of this Agreement, is referred to hereinafter as the "Employment
Term."
ARTICLE 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 Thousand Dollars ($200,000) 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 35% of
the Employee's base salary ("Target"), with a maximum which shall not exceed 70%
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. Employee acknowledges that he has received a copy of the foregoing
policies.
2
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 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:
(i) base salary through the Termination Date;
(ii) a pro rata portion of Employee's Target Annual
Bonus, less applicable withholdings and deductions, which pro
rata portion shall be determined by multiplying the Target
Annual Bonus by a fraction, the numerator of which is the
number of days elapsed in the calendar year of the date of
termination and the denominator of which is 365 payable within
10 days of the Termination Date;
(iii) an amount equal to the sum of (A) Employee's
annual Base Salary, plus (B) Employee's Target Annual Bonus,
each as in effect immediately preceding such termination,
divided by 12 ("Monthly Severance Amount"). The Monthly
Severance Amount shall be paid to Executive in 24 monthly
installments, commencing no later than 30 days after the
Termination Date, and continuing until all installments due
Employee have been paid.
(iv) continuation of Employee's medical, health, and
life insurance (as in effect immediately prior to the date of
termination) for a period of twenty-four (24) months, or if
not permissible or commercially reasonable to continue the
same coverage of Employee under one or more of the insurance
policies or plans, continued payment for a period of
twenty-four (24) months of the after-tax cost to the Company
of providing such coverage to Executive (as measured
immediately prior to the date of termination); provided
however, that such benefits or payments shall cease upon the
date on which Employee is eligible for similar aggregate
coverage from a subsequent employer.
(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;
3
(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 on
a percentage basis 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 on a
percentage basis 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 on a percentage basis 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;
(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); or
(ix) Solely after a Change in Control has occurred,
upon the relocation of Employee, without Employee's consent,
to a location outside of a 35-mile radius of the Employee's
then-current location, provided, however, that a relocation to
the Company's corporate headquarters in the State of Montana
shall not constitute "Good Reason".
(x) 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) misfeasance or nonfeasance of duty by Employee that which was
intended to or does injure the reputation of Company or its business or
relationships; (ii) conviction of, or plea of guilty or nolo contendere
by Employee to, any felony or crime involving moral turpitude; (iii)
Employee's willful and continued failure to substantially perform his
duties under this
4
Agreement (except by reason of physical or mental incapacity) after
written notice from the Board and 15 days to cure such failure; (iv)
dishonesty by Employee in performance of his duties under this
Agreement; or (v) willful and material breach of the restrictive
covenants contained in this Agreement; provided however, that
definitions (iii) through (v) shall not provide Cause for termination
if such termination occurs within two (2) years following a Change in
Control. A termination of Employee's employment by the Company for any
other reason will be a termination without "Cause."
(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.
(a) Death. Upon termination of Employee's employment due to
death of Employee, Employee shall be entitled to
(i) his base salary at the rate in effect at the time
of Employee's death through the 90th day following his death;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable deductions and withholdings, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
of termination plus 90, and the denominator of which is 365,
payable within 10 days of the Termination Date.
5
(b) Disability. 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 the following:
(i) his base salary at the rate in effect at the time
of Employee's disability, through the Termination Date;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable withholdings and deductions, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
as of the date of termination, and the denominator of which is
365, payable within 10 days of the Termination Date; and
(iii) disability benefits in accordance with the
Company's long-term disability plan.
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 Target Annual
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 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;
6
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 Target 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:
(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 such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") becomes
the "beneficial owner" (as defined in Rule 13d-3
under 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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding voting securities, excluding any person
who becomes such a beneficial owner in connection
with a transaction described in clause (i) of
subsection (C) below; or
(B) A change in the composition of the Board
occurring within a two-year period, as a result of
which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or
nominated for election, to the Board with the
affirmative votes of at least two-thirds (2/3) of the
Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose
election or nomination is in connection with an
actual or threatened election or proxy contest,
including but not limited to a consent solicitation
relating to the election of directors to the
Company); or
(C) The consummation of 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
7
result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by
being converted into voting securities of the
surviving entity or any parent thereof) at least
fifty-five percent (55%) of the combined voting power
of the voting 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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding securities; or
(D) The consummation of a
stockholder-approved sale, transfer, or other
disposition by the Company of all or substantially
all of the Company's assets in complete liquidation
or dissolution of the Company, other than a sale,
transfer, or other disposition by the Company of all
or substantially all of the Company's assets to an
entity, at least sixty percent (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.
(E) Notwithstanding the foregoing
subsections (A) through (D), 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.
5.7 Certain Additional Payments by the Company.
(a) Subject to Section 11(b) below, if Executive becomes
entitled to one or more payments (with a "payment" including, without
limitation, the vesting of an option or other non-cash benefit or
property), whether pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax
imposed by
8
Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (or any similar tax that may hereafter be imposed) (the "Excise
Tax"), the Company shall pay to Executive at the time specified below
an additional amount (the "Gross-up Payment") (which shall include,
without limitation, reimbursement for any penalties and interest that
may accrue in respect of such Excise Tax) such that the net amount
retained by Executive, after reduction for any Excise Tax (including
any penalties or interest thereon) on the Total Payments and any
federal, state and local income or employment tax and Excise Tax on the
Gross-up Payment provided for by this Section 11, but before reduction
for any federal, state, or local income or employment tax on the Total
Payments, shall be equal to the sum of (A) the Total Payments, and (B)
an amount equal to the product of any deductions disallowed for
federal, state, or local income tax purposes because of the inclusion
of the Gross-up Payment in Executive's adjusted gross income multiplied
by the highest applicable marginal rate of federal, state, or local
income taxation, respectively, for the calendar year in which the
Gross-up Payment is to be made. For purposes of determining whether any
of the Total Payments will be subject to the Excise Tax and the amount
of such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written opinion of independent compensation consultants,
counsel or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-up Payment, Executive
shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of Executive's adjusted
9
gross income); and (C) to have otherwise allowable deductions
for federal, state, and local income tax purposes at least
equal to those disallowed because of the inclusion of the
Gross-up Payment in Executive's adjusted gross income. In the
event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time
the Gross-up Payment is made, Executive shall repay to the
Company at the time that the amount of such reduction in
Excise Tax is finally determined (but, if previously paid to
the taxing authorities, not prior to the time the amount of
such reduction is refunded to Executive or otherwise realized
as a benefit by Executive) the portion of the Gross-up Payment
that would not have been paid if such Excise Tax had been
applied in initially calculating the Gross-up Payment, plus
interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time the Gross-up Payment is made
(including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up
Payment in respect of such excess (plus any interest and
penalties payable with respect to such excess) at the time
that the amount of such excess is finally determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due
and payable to the taxing authorities) after it has been
determined that the Total Payments (or any portion thereof)
are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be
finally determined on or before such day, the Company shall
pay to Executive on such day an estimate, as determined by the
Independent Advisors, of the minimum amount of such payments
and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the
event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to Executive, payable
on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount
of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. The Company shall have
the right to control all proceedings with the Internal Revenue
Service that may arise in connection with the determination
and assessment of any Excise Tax and, at its sole option, the
Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any
taxing authority in respect of such Excise Tax (including any
interest or penalties thereon); provided, however, that the
Company's control over any such proceedings shall be limited
to issues with respect to which a Gross-up Payment would be
payable hereunder, and Executive shall be entitled to settle
or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall
cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not
take
10
any position or action that would materially increase the
amount of any Gross-up Payment hereunder.
(B) MODIFIED CUT-BACK. NOTWITHSTANDING THE
FOREGOING SECTION 11(A), IF IT SHALL BE DETERMINED
THAT THE AMOUNT OF ANY PAYMENT DUE EXECUTIVE
PURSUANT TO SECTION 11(A) ABOVE WOULD RESULT IN LESS
THAN $20,000 IN NET AFTER-TAX VALUE TO EXECUTIVE,
THEN NO GROSS-UP PAYMENT SHALL BE MADE TO EXECUTIVE
AND THE TOTAL PAYMENTS DUE EXECUTIVE PURSUANT TO
SECTION 11(A) SHALL BE REDUCED TO AN AMOUNT THAT
WOULD NOT RESULT IN THE IMPOSITION OF ANY EXCISE
TAX.
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
11
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,
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:
12
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 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
13
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 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.
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 Montana, without giving effect to any
choice of law or conflict of law
14
provision or rule (whether of the State of Montana or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Montana.
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:
If to the Employee:
James A. Sabala
3560 Masterson Circle
Billings, Montana 59106
-------------------------------------
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
PO Box 1330
Columbus, Montana 59019
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.
15
IN WITNESS WHEREOF, the Company has hereunto signed its name and
Employee hereunder has signed his name, all as of July 23, 2001.
STILLWATER MINING COMPANY
By: /s/ FRANCIS MCALLISTER
-----------------------------------
Name: Francis McAllister
Title: Chief Executive Officer
EMPLOYEE
/s/ JAMES A. SABALA
--------------------------------------
James A. Sabala
16
EX-10.4
6
d91575ex10-4.txt
EMPLOYMENT AGREEMENT - RONALD W. CLAYTON
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of July 17, 2001, as amended, is by
and between STILLWATER MINING COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (the "Company"), and Ronald W. Clayton
("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, Nye Operations for the Company.
ARTICLE 2
TERM
The term of this Agreement shall be for a period commencing on
July 17, 2001 and ending December 31, 2001, 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 eighteen (18) additional months. The period of Employee's employment
hereunder, including any extension or extensions pursuant to the foregoing
sentence, from the date of commencement until the date of expiration or
termination of this Agreement, is referred to hereinafter as the "Employment
Term."
ARTICLE 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
One Hundred Eighty-Five Thousand Dollars ($185,000) 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 30% of
the Employee's base salary ("Target"), with a maximum, which shall not exceed
60% of the Employee's base salary. At the discretion of the Board of Directors
all or part on any bonus earned may be paid in Restricted Stock.
4.3 Employee Benefits. Employee shall be eligible to receive annual
grants of stock options at the discretion of the Board of Directors. 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. Employee acknowledges that he has
received a copy of the foregoing policies.
2
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 to Employee an
amount equal to the sum of (i) Employee's annual base salary, plus (ii)
Employee's Target Annual Bonus, each as in effect immediately preceding
such termination, divided by 12 ("Monthly Severance Amount"). The
Monthly Severance Amount shall be paid to Employee in 12 monthly
installments, commencing no later than 30 days after the Termination
Date, and continuing until all installments due Employee have been
paid.
(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 on a percentage basis in such
benefits for all executive officers;
(vii) The Company and its successor(s) (as described
in subparagraph (viii) below) shall discontinue the business
of the Company;
3
(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); or
(ix) Solely after a Change in Control has occurred,
upon the relocation of Employee, without Employee's consent,
to a location outside of a 35-mile radius of the Employee's
then-current location, provided, however, that a relocation to
the Company's corporate headquarters in the State of Montana
shall not constitute "Good Reason".
(x) 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 this Agreement, a termination of
Employee for "Cause" means a termination of Employee's employment by
the Company based upon a determination that any one or more of the
following has occurred: (i) misfeasance or nonfeasance of duty by
Employee that which was intended to or does injure the reputation of
Company or its business or relationships; (ii) conviction of, or plea
of guilty or nolo contendere by Employee to, any felony or crime
involving moral turpitude; (iii) Employee's willful and continued
failure to substantially perform his duties under this Agreement
(except by reason of physical or mental incapacity) after written
notice from the Board and 15 days to cure such failure; (iv) dishonesty
by Employee in performance of his duties under this Agreement; or (v)
willful and material breach of the restrictive covenants contained in
this Agreement; provided however, that definitions (iii) through (v)
shall not provide Cause for termination if such termination occurs
within two (2) years following a Change in Control. A termination of
Employee's employment by the Company for any other reason will be a
termination without "Cause."
(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
4
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.
(a) Death. Upon termination of Employee's employment due to
death of Employee, Employee shall be entitled to
(i) his base salary at the rate in effect at the time
of Employee's death through the 90th day following his death;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable deductions and withholdings, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
of termination plus 90, and the denominator of which is 365,
payable within 10 days of the Termination Date.
(b) Disability. 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 the following:
(i) his base salary at the rate in effect at the time
of Employee's disability, through the Termination Date;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable withholdings and deductions, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
as of the date of termination, and the denominator of which is
365 payable within 10 days of the Termination Date; and
(iii) disability benefits in accordance with the
Company's long-term disability plan.
5
5.6 Termination Following a Change of Control; Benefits.
(a) In the event there is a Termination Following a Change of
Control, this Agreement shall terminate and Employee shall be entitled
to receive the following severance benefits in a lump sum within 30
days after the Termination Date:
(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 thirty (30) days after the Termination Date;
(ii) 150 percent of the Employee's Target Annual
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 18 months after the Termination
Date, including receiving the full benefit of 18 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 Target 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:
(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:
6
(A) Any "person" (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") becomes
the "beneficial owner" (as defined in Rule 13d-3
under 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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding voting securities, excluding any person
who becomes such a beneficial owner in connection
with a transaction described in clause (i) of
subsection (C) below; or
(B) A change in the composition of the Board
occurring within a two-year period, as a result of
which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or
nominated for election, to the Board with the
affirmative votes of at least two-thirds (2/3) of the
Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose
election or nomination is in connection with an
actual or threatened election or proxy contest,
including but not limited to a consent solicitation
relating to the election of directors to the
Company); or
(C) The consummation of 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 thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least fifty-five percent (55%) of the
combined voting power of the voting 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 thirty
percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(D) The consummation of a
stockholder-approved sale, transfer, or other
disposition by the Company of all or substantially
all of the Company's assets in complete liquidation
or dissolution of the Company, other than a sale,
transfer, or other disposition by the Company of all
or substantially all of the Company's assets to an
entity, at least sixty percent (60%) of the combined
voting power of the voting securities of which are
owned by stockholders of the Company in substantially
the
7
same proportions as their ownership of the Company
immediately prior to such sale.
(E) Notwithstanding the foregoing subsections
(A) through (D), 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.
5.7 Certain Additional Payments by the Company.
(a) Subject to Section 11(b) below, if Executive becomes
entitled to one or more payments (with a "payment" including, without
limitation, the vesting of an option or other non-cash benefit or
property), whether pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any similar tax that may hereafter be imposed)
(the "Excise Tax"), the Company shall pay to Executive at the time
specified below an additional amount (the "Gross-up Payment") (which
shall include, without limitation, reimbursement for any penalties and
interest that may accrue in respect of such Excise Tax) such that the
net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and Excise Tax on
the Gross-up Payment provided for by this Section 11, but before
reduction for any federal, state, or local income or employment tax on
the Total Payments, shall be equal to the sum of (A) the Total
Payments, and (B) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of
the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal,
state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining
whether any of the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written
8
opinion of independent compensation consultants, counsel or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-up Payment, Executive
shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of Executive's adjusted gross income); and (C) to have
otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-up Payment in Executive's
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made,
Executive shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined
(but, if previously paid to the taxing authorities, not prior
to the time the amount of such reduction is refunded to
Executive or otherwise realized as a benefit by Executive) the
portion of the Gross-up Payment that would not have been paid
if such Excise Tax had been applied in initially calculating
the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the
time of the Gross-up Payment), the Company shall make an
additional Gross-up Payment in respect of such excess (plus
any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due
and payable to the taxing authorities)
9
after it has been determined that the Total Payments (or any
portion thereof) are subject to the Excise Tax; provided,
however, that if the amount of such Gross-up Payment or
portion thereof cannot be finally determined on or before such
day, the Company shall pay to Executive on such day an
estimate, as determined by the Independent Advisors, of the
minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code), as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the
Company to Executive, payable on the fifth day after demand by
the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code). If more than one Gross-up
Payment is made, the amount of each Gross-up Payment shall be
computed so as not to duplicate any prior Gross-up Payment.
The Company shall have the right to control all proceedings
with the Internal Revenue Service that may arise in connection
with the determination and assessment of any Excise Tax and,
at its sole option, the Company may pursue or forego any and
all administrative appeals, proceedings, hearings, and
conferences with any taxing authority in respect of such
Excise Tax (including any interest or penalties thereon);
provided, however, that the Company's control over any such
proceedings shall be limited to issues with respect to which a
Gross-up Payment would be payable hereunder, and Executive
shall be entitled to settle or contest any other issue raised
by the Internal Revenue Service or any other taxing authority.
Executive shall cooperate with the Company in any proceedings
relating to the determination and assessment of any Excise Tax
and shall not take any position or action that would
materially increase the amount of any Gross-up Payment
hereunder.
(B) MODIFIED CUT-BACK. NOTWITHSTANDING THE
FOREGOING SECTION 11(A), IF IT SHALL BE DETERMINED
THAT THE AMOUNT OF ANY PAYMENT DUE EXECUTIVE
PURSUANT TO SECTION 11(A) ABOVE WOULD RESULT IN LESS
THAN $20,000 IN NET AFTER-TAX VALUE TO EXECUTIVE,
THEN NO GROSS-UP PAYMENT SHALL BE MADE TO EXECUTIVE
AND THE TOTAL PAYMENTS DUE EXECUTIVE PURSUANT TO
SECTION 11(A) SHALL BE REDUCED TO AN AMOUNT THAT
WOULD NOT RESULT IN THE IMPOSITION OF ANY EXCISE
TAX.
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
10
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,
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.
11
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 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
12
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 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.
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.
13
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 Montana, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Montana or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Montana.
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:
If to the Employee:
Ronald W. Clayton
PO Box 322, 33 Henery Street
Absarokee, Montana 59001
14
-------------------------------
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
536 East Pike Ave.
PO Box 1330
Columbus, Montana 59019
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.
15
IN WITNESS WHEREOF, the Company has hereunto signed its name
and Employee hereunder has signed his name, all as of July 23, 2001.
STILLWATER MINING COMPANY
By: /s/ FRANCIS MCALLISTER
------------------------------
Name: Francis McAllister
Title: Chief Executive Officer
EMPLOYEE
/s/ RONALD W. CLAYTON
----------------------------------
Ronald W. Clayton
EX-10.5
7
d91575ex10-5.txt
EMPLOYMENT AGREEMENT - ROBERT M. TAYLOR
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of July 17, 2001, as amended, is by
and between STILLWATER MINING COMPANY, a corporation duly organized and existing
under the laws of the State of Delaware (the "Company"), and Robert M. Taylor
("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, East Boulder Operations for the Company.
ARTICLE 2
TERM
The term of this Agreement shall be for a period commencing on
July 17, 2001 and ending December 31, 2001, 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 eighteen (18) additional months. The period of Employee's employment
hereunder, including any extension or extensions pursuant to the foregoing
sentence, from the date of commencement until the date of expiration or
termination of this Agreement, is referred to hereinafter as the "Employment
Term."
ARTICLE 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
One Hundred Eighty-Five Thousand Dollars ($185,000) 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 30% of
the Employee's base salary ("Target"), with a maximum, which shall not exceed
60% of the Employee's base salary. At the discretion of the Board of Directors
all or part on any bonus earned may be paid in Restricted Stock.
4.3 Employee Benefits. Employee shall be eligible to receive annual
grants of stock options at the discretion of the Board of Directors. 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. Employee acknowledges that he has
received a copy of the foregoing policies.
2
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 to Employee an
amount equal to the sum of (i) Employee's annual base salary, plus (ii)
Employee's Target Annual Bonus, each as in effect immediately preceding
such termination, divided by 12 ("Monthly Severance Amount"). The
Monthly Severance Amount shall be paid to Employee in 12 monthly
installments, commencing no later than 30 days after the Termination
Date, and continuing until all installments due Employee have been
paid.
(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 on a percentage basis in such
benefits for all executive officers;
(vii) The Company and its successor(s) (as described
in subparagraph (viii) below) shall discontinue the business
of the Company;
3
(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); or
(ix) Solely after a Change in Control has occurred,
upon the relocation of Employee, without Employee's consent,
to a location outside of a 35-mile radius of the Employee's
then-current location, provided, however, that a relocation to
the Company's corporate headquarters in the State of Montana
shall not constitute "Good Reason".
(x) 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 this Agreement, a termination of
Employee for "Cause" means a termination of Employee's employment by
the Company based upon a determination that any one or more of the
following has occurred: (i) misfeasance or nonfeasance of duty by
Employee that which was intended to or does injure the reputation of
Company or its business or relationships; (ii) conviction of, or plea
of guilty or nolo contendere by Employee to, any felony or crime
involving moral turpitude; (iii) Employee's willful and continued
failure to substantially perform his duties under this Agreement
(except by reason of physical or mental incapacity) after written
notice from the Board and 15 days to cure such failure; (iv) dishonesty
by Employee in performance of his duties under this Agreement; or (v)
willful and material breach of the restrictive covenants contained in
this Agreement; provided however, that definitions (iii) through (v)
shall not provide Cause for termination if such termination occurs
within two (2) years following a Change in Control. A termination of
Employee's employment by the Company for any other reason will be a
termination without "Cause."
(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
4
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.
(a) Death. Upon termination of Employee's employment due to
death of Employee, Employee shall be entitled to
(i) his base salary at the rate in effect at the time
of Employee's death through the 90th day following his death;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable deductions and withholdings, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
of termination plus 90, and the denominator of which is 365,
payable within 10 days of the Termination Date.
(b) Disability. 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 the following:
(i) his base salary at the rate in effect at the time
of Employee's disability, through the Termination Date;
(ii) a pro rata portion of the Target Annual Bonus
for the year in which Employee's employment terminates, less
applicable withholdings and deductions, calculated by
multiplying the Target Annual Bonus by a fraction, the
numerator of which is the number of days elapsed in the year
as of the date of termination, and the denominator of which is
365 payable within 10 days of the Termination Date; and
(iii) disability benefits in accordance with the
Company's long-term disability plan.
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5.6 Termination Following a Change of Control; Benefits.
(a) In the event there is a Termination Following a Change of
Control, this Agreement shall terminate and Employee shall be entitled
to receive the following severance benefits in a lump sum within 30
days after the Termination Date:
(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 thirty (30) days after the Termination Date;
(ii) 150 percent of the Employee's Target Annual
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 18 months after the Termination
Date, including receiving the full benefit of 18 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 Target 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:
6
(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 such term is used in
Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") becomes
the "beneficial owner" (as defined in Rule 13d-3
under 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 thirty percent (30%) or more
of the combined voting power of the Company's then
outstanding voting securities, excluding any person
who becomes such a beneficial owner in connection
with a transaction described in clause (i) of
subsection (C) below; or
(B) A change in the composition of the Board
occurring within a two-year period, as a result of
which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean
directors who either (i) are directors of the Company
as of the date hereof, or (ii) are elected, or
nominated for election, to the Board with the
affirmative votes of at least two-thirds (2/3) of the
Incumbent Directors at the time of such election or
nomination (but shall not include an individual whose
election or nomination is in connection with an
actual or threatened election or proxy contest,
including but not limited to a consent solicitation
relating to the election of directors to the
Company); or
(C) The consummation of 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 thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity or any parent
thereof) at least fifty-five percent (55%) of the
combined voting power of the voting 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 thirty
percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(D) The consummation of a
stockholder-approved sale, transfer, or other
disposition by the Company of all or substantially
all of the Company's assets in complete liquidation
or dissolution of the Company, other than a sale,
transfer, or other disposition by the Company of all
or substantially all of the Company's assets to an
entity, at least sixty
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percent (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.
(E) Notwithstanding the foregoing subsections
(A) through (D), 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.
(a) Subject to Section 11(b) below, if Executive becomes
entitled to one or more payments (with a "payment" including, without
limitation, the vesting of an option or other non-cash benefit or
property), whether pursuant to the terms of this Agreement or any other
plan, arrangement, or agreement with the Company or any affiliated
company (the "Total Payments"), which are or become subject to the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any similar tax that may hereafter be imposed)
(the "Excise Tax"), the Company shall pay to Executive at the time
specified below an additional amount (the "Gross-up Payment") (which
shall include, without limitation, reimbursement for any penalties and
interest that may accrue in respect of such Excise Tax) such that the
net amount retained by Executive, after reduction for any Excise Tax
(including any penalties or interest thereon) on the Total Payments and
any federal, state and local income or employment tax and
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Excise Tax on the Gross-up Payment provided for by this Section 11, but
before reduction for any federal, state, or local income or employment
tax on the Total Payments, shall be equal to the sum of (A) the Total
Payments, and (B) an amount equal to the product of any deductions
disallowed for federal, state, or local income tax purposes because of
the inclusion of the Gross-up Payment in Executive's adjusted gross
income multiplied by the highest applicable marginal rate of federal,
state, or local income taxation, respectively, for the calendar year in
which the Gross-up Payment is to be made. For purposes of determining
whether any of the Total Payments will be subject to the Excise Tax and
the amount of such Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written opinion of independent compensation consultants,
counsel or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-up Payment, Executive
shall be deemed (A) to pay federal income taxes at the highest
marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest
marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction
in federal income taxes which could be obtained from deduction
of such state and local taxes if paid in such year (determined
without regard to limitations on deductions based upon the
amount of Executive's adjusted gross income); and (C) to have
otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because
of the inclusion of the Gross-up Payment in Executive's
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made,
Executive shall repay to the Company at the time that the
amount of such reduction in Excise Tax is finally determined
(but, if previously paid to the taxing authorities, not prior
to the time the amount of such reduction is refunded to
9
Executive or otherwise realized as a benefit by Executive) the
portion of the Gross-up Payment that would not have been paid
if such Excise Tax had been applied in initially calculating
the Gross-up Payment, plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed
the amount taken into account hereunder at the time the
Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the
time of the Gross-up Payment), the Company shall make an
additional Gross-up Payment in respect of such excess (plus
any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Gross-up Payment provided for above shall be paid on the
30th day (or such earlier date as the Excise Tax becomes due
and payable to the taxing authorities) after it has been
determined that the Total Payments (or any portion thereof)
are subject to the Excise Tax; provided, however, that if the
amount of such Gross-up Payment or portion thereof cannot be
finally determined on or before such day, the Company shall
pay to Executive on such day an estimate, as determined by the
Independent Advisors, of the minimum amount of such payments
and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code), as soon as the amount thereof can be determined. In the
event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess
shall constitute a loan by the Company to Executive, payable
on the fifth day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the
Code). If more than one Gross-up Payment is made, the amount
of each Gross-up Payment shall be computed so as not to
duplicate any prior Gross-up Payment. The Company shall have
the right to control all proceedings with the Internal Revenue
Service that may arise in connection with the determination
and assessment of any Excise Tax and, at its sole option, the
Company may pursue or forego any and all administrative
appeals, proceedings, hearings, and conferences with any
taxing authority in respect of such Excise Tax (including any
interest or penalties thereon); provided, however, that the
Company's control over any such proceedings shall be limited
to issues with respect to which a Gross-up Payment would be
payable hereunder, and Executive shall be entitled to settle
or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall
cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not
take any position or action that would materially increase the
amount of any Gross-up Payment hereunder.
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(B) MODIFIED CUT-BACK. NOTWITHSTANDING THE
FOREGOING SECTION 11(A), IF IT SHALL BE DETERMINED
THAT THE AMOUNT OF ANY PAYMENT DUE EXECUTIVE
PURSUANT TO SECTION 11(A) ABOVE WOULD RESULT IN LESS
THAN $20,000 IN NET AFTER-TAX VALUE TO EXECUTIVE,
THEN NO GROSS-UP PAYMENT SHALL BE MADE TO EXECUTIVE
AND THE TOTAL PAYMENTS DUE EXECUTIVE PURSUANT TO
SECTION 11(A) SHALL BE REDUCED TO AN AMOUNT THAT
WOULD NOT RESULT IN THE IMPOSITION OF ANY EXCISE
TAX.
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;
11
(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,
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.
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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 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.
13
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 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.
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 Montana, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Montana or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Montana.
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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:
If to the Employee:
Robert M. Taylor
PO Box 1296
Big Timber, Montana 59011
-----------------------------------
If to the Company:
Vice President, Human Resources
Stillwater Mining Company
536 East Pike Ave.
PO Box 1330
Columbus, Montana 59019
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.
15
IN WITNESS WHEREOF, the Company has hereunto signed its name
and Employee hereunder has signed his name, all as of July 23, 2001.
STILLWATER MINING COMPANY
By: /s/ FRANCIS MCALLISTER
----------------------------
Name: Francis McAllister
Title: Chief Executive Officer
EMPLOYEE
/s/ ROBERT M. TAYLOR
--------------------------------
Robert M. Taylor
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