10-K405
1
HECLA MINING COMPANY
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended DECEMBER 31, 1994
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 No. 1-8491
HECLA MINING COMPANY
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0126240
------------------------------- -----------------
( State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 208-769-4100
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which each class is registered
----------------------------------------- ------------------------------
Common Stock, par value 25c. per share )
Preferred Share Purchase Rights )
Series B Cumulative Convertible Preferred Stock, ) New York Stock Exchange
par value 25c. per share )
----------------------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase Shares of Common Stock, $.25 par value per share
---------------------------------------------------------------------
(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes /XX/. No .
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / X /
The aggregate market value of the Registrant's voting Common Stock held
by non-affiliates was $450,767,953 as of February 28, 1995. There were
48,081,915 shares of the Registrant's Common Stock outstanding as of February
28, 1995.
Documents incorporated by reference herein:
To the extent herein specifically referenced in Part III, the
information contained in the Proxy Statement for the 1995 Annual
Meeting of Shareholders of the Registrant, which has been filed with
the Commission pursuant to Regulation 14A within 120 days of the end
of the Registrant's 1994 fiscal year. See Part III.
2
PART I
ITEM 1. BUSINESS(1)
GENERAL
Hecla Mining Company ("the Company"), originally incorporated in 1891,
is principally engaged in the exploration, development and mining of
precious and nonferrous metals, including gold, silver, lead and zinc,
and certain industrial minerals. The Company owns or has interests in
a number of precious and nonferrous metals properties and industrial
minerals businesses. In 1994, the Company's attributable gold and
silver production was 127,878 ounces and 1,642,913 ounces,
respectively. The Company also shipped approximately 985,639 tons of
industrial minerals products during this period, including ball clay,
kaolin, feldspar, landscape materials, and specialty aggregates.
The Company's principal producing metals properties include the Grouse
Creek mine, located near Challis, Idaho, a gold and silver mine where
operations commenced in December 1994, in which the Company is the
operator and owns an 80% interest; the La Choya gold mine, located in
Sonora, Mexico, which began operations in February 1994; the American
Girl mine, located in Imperial County, California, a gold mine in which
the Company owns a 47% interest; the Lucky Friday silver mine, located
near Mullan, Idaho, which is a significant primary producer of silver
in North America; and the Republic gold mine, located in the state of
Washington, which completed operations in February 1995. In April
1993, operations at the Greens Creek mine, located near Juneau, Alaska,
a large polymetallic mine in which the Company owns a 29.7% interest,
were suspended by the manager of the mine in response to depressed
metals prices and a decision to resume production is currently
pending.
The Company's industrial minerals businesses consist of
Kentucky-Tennessee Clay Company (Ball Clay and Kaolin Divisions), K-T
Feldspar Corporation, K-T Clay de Mexico, S.A. de C.V., Colorado
Aggregate Company of New Mexico, and Mountain West Products, Inc. The
Company's industrial minerals segment has positioned itself as a
leading producer of three of the four basic ingredients required to
manufacture ceramic and porcelain products, including sanitaryware,
pottery, dinnerware, electric insulators, and tile. At current
production rates, the Company has over 20 years of proven and probable
mineral reserves of ball clay, kaolin and feldspar.
---------------
(1)For definitions of certain mining terms used in this
description, see "Glossary of Certain Mining Terms" at the
end of Item 1, page 38.
-1-
3
During 1994, the industrial minerals businesses provided approximately
$10.4 million of cash from operations.
On December 29, 1993, the Company, two wholly owned Canadian
subsidiaries of the Company, and Equinox Resources Ltd. (Equinox), a
mining, exploration and development company, incorporated under the
laws of the Province of British Columbia, executed an Acquisition
Agreement providing for the Company's acquisition of Equinox. Pursuant
to the Acquisition Agreement and related Plan of Arrangement, which was
consummated on March 11, 1994, (i) Equinox common shareholders received
0.3 common share of the Company (Company common shares), for each
outstanding Equinox common share, (ii) holders of Equinox's Series "A"
production participating preferred shares received newly issued
production notes of the Company with the same material terms and
conditions, and (iii) outstanding Equinox options and warrants became
exercisable for Company common shares. In connection with the
acquisition of Equinox, the Company issued approximately 6.3 million
Company common shares, including shares issuable upon exercise of
outstanding options and warrants.
The most significant properties acquired from Equinox were the American
Girl gold mine, Equinox's primary producing property, and the Rosebud
gold property. The American Girl gold mine is operated by the
Company's joint venture partner MK Gold Company (see Metals Segment -
American Girl Mine - California). In addition, the Company believes
that Equinox's Rosebud gold property, located in Pershing County,
Nevada, has significant exploration and development potential (see
Metals Segment - Rosebud Project - Nevada).
The Company's strategy is to focus its efforts and resources on
expanding its gold and silver reserves and industrial minerals
operations via a combination of acquisition and exploration efforts.
During 1995, priorities will be optimizing operating efficiency at the
newly constructed Grouse Creek mine and the completion of the Rosebud
project feasibility study by the fourth quarter 1995. In addition, the
joint venture partners will be assessing the economic viability of
reopening the Greens Creek mine based on the additional proven and
probable ore reserves established during 1994.
The Company's domestic exploration plan consists primarily of exploring
for additional reserves in the vicinity of both the Grouse Creek mine
and the Rosebud gold project. The Company's foreign exploration plan
for 1995 will focus on expanding reserves in the vicinity of the La
Choya gold mine and at other promising exploration targets in Mexico.
At the same time, the Company will continue to evaluate acquisition and
other exploration opportunities, primarily in North America, that will
complement its existing operations.
-2-
4
The Company's revenues and profitability are strongly influenced by the
world prices of silver, gold, lead and zinc. Metals prices fluctuate
widely and are affected by numerous factors beyond the Company's
control, including inflation and worldwide forces of supply and demand.
The aggregate effect of these factors is not possible to accurately
predict.
Sales of metal concentrates and metal products are made principally to
custom smelters and metal traders. Industrial minerals are sold
principally to domestic manufacturers and wholesalers. The percentage
of revenue contributed by each class of product is reflected in the
following table:
Years
--------------------------------------
Product 1994 1993 1992
-------------------- ---- ---- ----
Gold 39.0% 34.3% 30.8%
Silver 4.4 7.5 12.0
Lead 2.9 3.9 7.4
Industrial minerals 39.7 48.1 42.5
All others 14.0 6.2 7.3
Reference is made to Note 1 of Notes to Consolidated Financial Statements
for information with respect to export sales.
The table below summarizes the Company's production and average cash and
full production cost per ounce for gold and silver for each period
indicated.
Years
-----------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Gold (ounces) 127,878 95,907 101,392 147,228 196,278
Silver (ounces) 1,642,913 2,992,499 4,738,625 5,326,852 6,210,231
Lead (tons) 13,214 21,093 26,942 23,957 22,199
Zinc (tons) 2,431 7,838 19,890 15,070 13,697
Average cost per ounce of gold produced:
Cash production cost $ 273 $ 229 $ 191 $ 191 $ 180
Full cost $ 334 $ 298 $ 261 $ 279 $ 253
Average cost per ounce of silver produced:
Cash production cost $5.81 $5.45 $4.51 $4.50 $3.71
Full cost $7.17 $6.85 $5.89 $5.67 $5.45
Industrial minerals (tons shipped) 985,639 887,676 879,034 823,214 711,295
The principal executive offices of the Company are located at 6500
Mineral Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208)
769-4100.
METALS SEGMENT
GROUSE CREEK GOLD MINE - IDAHO
Operations at the Grouse Creek gold mine commenced in December 1994 with
full production levels expected to be achieved during the second
quarter of 1995. In December 1994, the Company's interest in the Grouse
Creek mine production amounted to 2,093 ounces of gold and 8,763 ounces
of silver.
The mine is located in central Idaho, 27 miles southwest of the town of
Challis in the Yankee Fork Mining District. Mineral rights comprising
the Grouse Creek gold mine cover 22.3 square miles. The Grouse Creek
gold mine consists of 18 patented lode mining claims and two patented
placer claims, 43 unpatented millsite claims, and 17 unpatented lode
claims for which patent applications are pending. With respect to the 17
unpatented lode claims, the Company has received the first half of a
Mineral Entry Final Certificate. Upon certification by a United States
Federal Mineral Examiner and issuance of patents for these claims, all of
the current proven and probable reserves at the Grouse Creek gold mine
will be located within patented mining claims. The remainder of the
mineral rights
-3-
5
in the Yankee Fork Mining District consist of 950 unpatented claims (see
Regulation of Mining Activity).
On February 8, 1994, the Company sold to Great Lakes Minerals, Inc. of
Toronto ("Great Lakes") a 20% undivided interest in the Company's Grouse
Creek gold mine. Proceeds received from the sale, totaling $13.3
million, represent the sales price of $6.8 million for 20% of the amount
spent by the Company on acquisition, exploration and development of the
project through June 30, 1993, including a fixed premium of $1.25
million, plus Great Lakes' pro-rata share of construction costs for
Grouse Creek from July 1, 1993 through January 31, 1994. Pursuant to the
acquisition and joint venture agreements, Great Lakes is required to fund
its 20% pro-rata portion of all capital and operating costs. In
addition, these agreements provide that Great Lakes has the option, at
any time prior to 12 months following the commencement of defined
commercial production at the Grouse Creek gold mine, to purchase up to an
additional 10% undivided interest in the mine and fund its increased
share of capital expenditures.
As of December 31, 1994, the Company's net book value of Grouse Creek
property, plant and equipment was $99.3 million. Based on the current
mine plan, the Company's share of additional capital costs for the mine
are expected to total approximately $0.7 million in 1995. The Company
estimates, assuming full production levels are achieved as expected
during the second quarter of 1995, that its share of total production at
the Grouse Creek gold mine will be approximately 89,000 ounces of gold in
1995.
For the Grouse Creek mine, the average life of mine cash cost per ounce
of gold is estimated at approximately $185.00 to $190.00 per ounce with
an estimated full cost of $355.00 to $360.00 per ounce of gold, although
there can be no assurance that these costs will be achieved.
Two distinct ore deposits have been identified at the Grouse Creek mine:
the Sunbeam deposit and the Grouse deposit. The Grouse deposit is mined
by both open pit and underground methods.
The following table presents the Company's share of the proven and
probable mineral reserves for the Grouse Creek gold mine as of the dates
indicated:
-4-
6
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons)(2) (oz./ton) (ozs.) (ozs./ton) (ozs.)
----- --------- ---------- ------- ---------- ----------
1994(1) 17,658,000(3) 0.041 721,600 0.92 16,206,080
----
1993(1) 12,104,000 0.055 671,200 1.07 12,972,800
----
1992 14,467,000 0.057 831,000 1.21 17,474,000
----
1991 15,018,600 0.048 719,150 1.20 17,276,810
----
-----------------
(1) 1994 and 1993 proven and probable mineral reserves
reflect only the Company's share (80%) pursuant to the
February 8, 1994, sale of a 20% interest in its Grouse
Creek mine. If the Company had only an 80% interest in
1992 and 1991, the Company's share of contained gold and
silver would have been 664,800 and 13,979,200 ounces,
respectively, in 1992 and 575,320 and 13,821,448 ounces,
respectively, in 1991.
(2) For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(3) The increase in the proven and probable mineral reserves
from 1993 to 1994 is principally due to an increase in the
metals price assumptions used in 1994 (see assumptions for
proven and probable mineral reserves in the Glossary of
Certain Mining Terms). This increase was partially offset
by a decrease in the Grouse underground reserves totaling
68,000 tons containing 53,000 ounces of gold and 136,000
ounces of silver. The decrease in underground reserves
was necessary when 1994 development encountered erratic
mineralization which was previously estimated to be
continuous.
Pursuant to the mine plan, the Sunbeam deposit and the Grouse underground
deposit are being mined simultaneously, which will be followed by the
Grouse deposit. The mine plan for the Grouse underground deposit is a
panel cut-and-fill method. The ore zone is approximately 30-feet thick
and is being mined in panels 10-feet high and 20-feet wide. Cemented
backfill is used to obtain nearly 100% extraction of the underground
deposit. Conventional underground mining equipment is used for drilling,
blasting, loading, and hauling. Mining of the Grouse underground deposit
is expected to be completed by mid-1995.
Both the Sunbeam deposit and the Grouse deposit use conventional surface
mining methods. Blasthole assays are used to determine ore grade
material. The material is segregated and hauled by off-highway trucks to
the mill. Waste material
-5-
7
is hauled to a waste dump or used as construction material in the
tailings dam. In both deposits ore is mined on 20-foot benches. The
milling process involves a 6,000-ton-per-day gold recovery facility. The
recovery process involves crushing and grinding of the ore and recovering
approximately 50% of the gold in a gravity circuit. The remaining gold
and silver is dissolved in a weak sodium cyanide solution and recovered
with carbon adsorption and Merrill-Crowe precipitation. Overall
recoveries are currently estimated at 95% gold and 59% silver for ore
from the Sunbeam deposit, 82% gold and 59% silver for ore from the Grouse
deposit and 95% gold and 82% silver from the Grouse underground deposit.
A refinery on the property produces a gold/silver dore that is further
processed by a commercial refiner. The tailings from the cyanide process
are impounded in a 15.5 million ton capacity double-lined tailings pond.
All permits for this facility are in good standing. Salmon River Electric
Cooperative, Inc. provides electrical power to the Grouse Creek gold
mine.
The Sunbeam deposit is being mined at a rate of 6,800 tons of ore per day
at a current cut-off grade of 0.025 ounce per ton of gold equivalent and
a stripping ratio of 3.2:1. The Grouse deposit will be mined at
approximately the same rate and will have a cut-off grade of 0.025 ounce
per ton of gold equivalent and a stripping ratio of 3.8:1.
Reclamation activities include the partial backfill and revegetation of
the Sunbeam deposit and the Grouse deposit and covering, recontouring and
revegetating the tailings surface and construction of a permanent
spillway. The waste dump and haul roads will be recontoured and
revegetated. Process facilities will be removed and foundations will be
buried. Concurrent reclamation practices will be employed whenever
possible. The reclamation plans have been approved by the appropriate
state and federal agencies.
The Company believes that there is potential for extending and
discovering additional gold reserves at the mine. The Company is
focusing exploration efforts on extension of known mineral deposits and
on two known mineral occurrences in the district. An exploration program
continues in 1995 to evaluate the economic potential of areas below and
adjacent to both pits.
During 1994, the Company was a party to or intervened in litigation
related to the Grouse Creek mine (see Note 8 of Notes to Consolidated
Financial Statements). In addition, on March 8, 1995, the District Court
issued an order dissolving the injunction in the Pacific Rivers
litigation described in Note 8.
As of December 31, 1994, there were 172 employees at the Grouse Creek
gold mine. The employees are not represented by a bargaining agent.
-6-
8
LA CHOYA GOLD MINE - SONORA, MEXICO
The La Choya gold mine is located 30 miles south of the U.S. border in
the State of Sonora, Mexico, and is 100% owned by the Company through a
Mexican subsidiary. The La Choya gold mine is the Company's first
operation outside the U.S. and Canada. In May 1992, the Company
exercised its option to purchase the Mexican mineral concessions related
to this property, which includes a land position of over 40,000 acres.
The La Choya gold mine commenced operations in February 1994 and produced
approximately 48,000 ounces of gold in 1994. The Company expects to
produce 75,000 ounces of gold in 1995 and approximately 50,000 ounces of
gold in each of 1996 and 1997. Current proven and probable mineral
reserves at the La Choya gold mine are expected to be substantially
depleted in 1997. The ore is mined via conventional open pit methods at a
stripping ratio of 2.48:1 utilizing a cut-off grade of 0.012 ounce of
gold per ton, crushed to two inches in size, and then cyanide leached on
a leach pad. The gold in the leach solution is processed in a carbon
recovery plant to produce a gold and silver dore, which is transported to
the U.S. for further refining. The average life of mine recovery of
contained gold ounces is estimated at approximately 88%.
An exploration drilling program continues into 1995 in an effort to
expand the gold reserves and mine life at the La Choya gold mine.
Drilling results in 1994 were successful in adding approximately 55,000
ounces of contained gold to the proven and probable reserve category. The
Company believes there is potential to discover additional gold reserves
within the mining concessions currently controlled by the Company.
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of gold produced as of the dates
indicated are set forth in the table below:
Years
-----------------------------------------
Production (100%) 1994(1) 1993 1992
----------------------- --------- --------- ---------
Ore mined (tons) 2,026,381 -- --
Ore crushed 1,979,463 -- --
Gold (ounces) 47,861 -- --
Proven and Probable
Mineral Reserves(2)
-----------------------
Total tons 6,138,000 6,138,000 4,283,000
Gold (oz. per ton) 0.032 0.037 0.039
Average Cost per Ounce
of Gold Produced
-----------------------
Cash Production Costs(3) $243 -- --
Full Production Cost(3) $337 -- --
-7-
9
---------------------------------
(1) Production at the La Choya mine commenced in February 1994.
(2) For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(3) Includes approximately $2.1 million in start-up cost
expensed in the first quarter of 1994.
As of December 31, 1994, there were 174 employees at the La Choya gold
mine. The National Union of Mine, Metallurgical and Related Workers of
the Mexican Republic is the bargaining agent for the La Choya gold mine
employees. The current labor agreement expires on September 7, 1995.
As of December 31, 1994, the Company's net book value of the La Choya
mine property, plant and equipment totaled $15.6 million. Electrical
power is provided by on-site diesel generators.
The recent decline of the Mexican peso has not and is not expected to
significantly impact results at the La Choya mine as both funding for
operations and gold sales are denominated in U.S. dollars.
LUCKY FRIDAY MINE - IDAHO
The Lucky Friday, a deep underground silver and lead mine, located in
northern Idaho and 100% owned by the Company, has been a producing mine
for the Company since 1958. The mine operated continuously until low
metals prices and rockburst activity forced the suspension of operations
in April 1986. During the shutdown, the Company's engineers began
converting portions of the mine to a mechanized underhand mining method
designed to increase productivity and reduce rockburst activity.
Production was resumed at the Lucky Friday mine in June 1987 and
continued uninterrupted until August 30, 1994, when an ore-conveyance
accident forced suspension of operations until repairs could be made.
Operations resumed on December 5, 1994, and steady-state production was
achieved in February 1995. The Company is insured for the majority of
the costs and lost production resulting from the accident.
The cash and full production cost per ounce of silver increased from
$5.54 and $6.77, respectively, in 1993 to $5.81 and $7.17, respectively,
in 1994. The increases are due principally to a decrease in the average
ore grade processed in 1994 compared to 1993, as well as lower lead,
silver and zinc production resulting from the ore-conveyance accident on
August 30, 1994. Lead and zinc are by-products in the process at the
Lucky Friday mine, the revenues from which are deducted from production
costs in
-8-
10
the calculation of production cost per ounce (see Glossary of Certain
Mining Terms).
The ore-bearing structure at the Lucky Friday mine is the Lucky Friday
Vein, a fissure vein typical of many in the Coeur d'Alene Mining
District. The ore body is located in the Revett Formation which is known
to provide excellent host rocks for a number of ore bodies in the Coeur
d'Alene District. The Lucky Friday Vein strikes northeasterly and dips
steeply to the south, with an average width of six to seven feet. The
principal ore minerals are galena and tetrahedrite, with minor amounts of
sphalerite and chalcopyrite. The ore occurs as a single continuous ore
body in and along the Lucky Friday Vein. The major part of the ore body
has extended from the 1200-foot level to and below the 5660-foot level,
which is currently being developed.
The ore produced from the mine is processed in a 1,000-ton- per-day
conventional flotation mill at a current rate of 700 tons per day at the
Lucky Friday mine site. The flotation process produces both a
silver-lead concentrate and a zinc concentrate. During 1994
approximately 97.7% of the silver, 97.5% of the lead, and 79.3% of the
zinc were recovered.
The principal mining method, underhand cut and fill, was piloted in 1985
and 1986, and has since been fully implemented. This method utilizes
mechanized equipment, a ramp system and cemented sand fill. The method
has proven effective in reducing mining costs and limiting rockburst
activity. Without this mining method, the mine would be unworkable in
certain stopes because of the unstable nature of the rock. However,
rockbursting continues to be a concern in the one-mile-deep mine.
The Lucky Friday mine's mill facility and surface and underground
equipment are in good working condition. The mill was originally
constructed approximately 33 years ago. The Company maintains and
modernizes the plant and equipment on an ongoing basis. Significant
improvements to the mill include installation of coarse ore feeder bins
in 1982, a new ball mill in 1984, installation in 1989 of a new zinc
column cell to improve the purity of zinc concentrates, and in 1991,
upgrading of tailings pumps. Improvements to the mine include
construction of the Silver Shaft and installation of a new compressor
plant during 1980 through 1983; installation of a new ventilation system
during 1985; and, since 1986, construction of a new ore pass system
servicing the Silver Shaft at the deepest levels of the mine. The net
book value of the Lucky Friday mine property and its associated plant and
equipment was $27.4 million as of December 31, 1994.
Even though recent historical production costs have exceeded revenues
realized from the sale of recovered metals, based upon management's
estimates of metal to be recovered which
-9-
11
excludes the possible development of the Gold Hunter property (see
following paragraph), and considering estimated future production costs
and metal prices, the Company's management believes that the carrying
value of the Lucky Friday mine is recoverable from future undiscounted
cash flows generated from operations and considering the estimated
salvage value of surface plant, equipment and the value associated with
property rights. In evaluating the carrying value of the Lucky Friday
mine, the Company used fixed metal prices of $5.00 per ounce of silver,
$0.30 per pound of lead and $0.57 per pound of zinc through 2004, the
estimated end of commercial production. These prices were utilized as
the Company's management believes that they are reasonable estimates of
average prices over the remaining life of the mine. In contrast to
longer-term prices used for estimating life-of-mine revenues and
resultant cash flows, the Company uses near-term estimates of metal
prices to estimate ore reserves as they more closely reflect the current
economic conditions at the measurement date. Estimated future production
costs were derived from actual production costs currently being
experienced at the Lucky Friday mine, adjusted for anticipated changes
resulting from the execution of the Company's mine production plan.
Based upon these projected factors, the Company estimates that future
cash and full production costs per ounce of silver produced over the
remaining life of the mine would be approximately $3.76 and $4.62,
respectively. As these amounts are derived from numerous estimates, the
most volatile of which are metal prices, there can be no assurance that
actual results will correspond to these estimates. With respect to the
Lucky Friday mine, the principal reasons that cash costs per ounce are
assumed to be lower than recent historical amounts are: (i) slightly
higher silver grades, somewhat offset by lower lead grades; (ii) the
effect of lead by-product revenues (which are credited against the
production costs of silver produced) at $0.30 per pound which is higher
than recent actual prices; and (iii) economic gains (i.e., lower cost per
ton of ore milled) by operating the existing mill at higher capacity than
the current levels. If the mineral resource associated with the Gold
Hunter property described below is not fully developed by the Company,
management of the Company believes that a material write-down in the
carrying value of the Lucky Friday mine is unlikely based upon present
economic conditions.
During 1991, the Company discovered several mineralized structures
containing some high-grade silver ores in an area known as the Gold
Hunter property, about 5,000 feet northwest of the existing Lucky Friday
workings. In an extensive exploration program in 1992, the Company
undertook an underground evaluation of the Gold Hunter property
mineralization. The program discovered mineralization containing
significant amounts of silver and lead in an area accessible from the
4050-foot level of the Lucky Friday mine. The exploration program and a
feasibility study were completed during 1993. In 1994, the Company
approved the first phase of
-10-
12
development of the Gold Hunter property. The first phase of development
consists primarily of driving an access drift from the 4900-foot level of
the Lucky Friday workings which will intersect the Gold Hunter ore zone
approximately 850 feet below the presently developed area. The new
access drift will require approximately 7,000 feet of development
excavation and cost approximately $4.7 million. Including the cost of
the new access drift, it is presently estimated that approximately $21
million in capital expenditures will be required to bring the Gold Hunter
into full production. The entire project is expected to take
approximately three years to complete.
The Gold Hunter property is controlled by the Company under a long-term
operating agreement, which entitles the Company, as operator, to a 79.08%
interest in the net profits from operations from the Gold Hunter
properties. The Company will be obligated to pay a royalty after it has
recouped its costs to explore and develop the properties, which as of
December 31, 1994, totaled approximately $8.8 million.
The Lucky Friday silver-lead concentrate product is shipped primarily to
the ASARCO smelter at East Helena, Montana. The silver contained in the
concentrates is returned to the Company under a tolling arrangement. The
Company then sells the tolled silver to major metal brokers. The pricing
of the silver is based on worldwide bullion markets. The lead and gold
contained in the concentrates are sold to ASARCO. The Lucky Friday zinc
concentrates are shipped to Cominco's smelter in Trail, British Columbia,
Canada, and are sold under an agreement with Cominco Ltd.
In the event agreements with ASARCO and Cominco are terminated, the
Company believes that new agreements could be negotiated with other
smelters. However, at present metal prices, increased costs associated
with transporting the concentrate product a greater distance to other
smelters may render operations at the Lucky Friday mine uneconomical
resulting in possible mine closure. If this were to occur, the Company
may be required to write down all or part of its investment in the Lucky
Friday mine.
Based on the Company's experience in operating deep mines in the Coeur
d'Alene Mining District, where the persistence of mineralization to
greater depths may be reliably inferred from operating experience and
geological data, the Company's policy is to develop new levels at a
minimum rate consistent with the requirements for uninterrupted and
efficient ore production. A new level is developed and brought into
production only to replace diminishing ore reserves from levels being
mined out. The length and strength of the ore body have not materially
diminished on the lowest developed level of the mine. Based upon this
factor, drilling data and extensive knowledge of the geologic character
of the deposit, and many years of operating experience in the Lucky
Friday mine and Coeur d'Alene Mining
-11-
13
District, there are no geologic factors known at present which appear to
prevent the assumed continuation of the Lucky Friday ore body for a
considerable distance below the lowermost working level. Although there
can be no assurance of the extent and quality of the mineralization which
may be developed at greater depths, the existing data and operating
experience justify, in the opinion of the Company's management and based
upon industry standards, the conclusion that the mineralization will
extend well below the 6200-foot level, which is the existing bottom of
the mine's Silver Shaft.
-12-
14
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of silver produced for the past five
years is set forth in the table below:
YEARS
-----------------------------------------------------------------------
Production (100%) 1994(2) 1993 1992 1991 1990
--------------------- --------- --------- --------- --------- ---------
Ore milled (tons) 124,986 179,579 175,170 152,150 147,671
Silver (ounces) 1,306,884 2,122,738 2,031,779 1,850,531 1,894,944
Gold (ounces) 605 972 965 928 916
Lead (tons) 13,214 19,795 21,336 18,857 17,333
Zinc (tons) 2,431 4,385 4,213 3,164 3,306
Proven and Probable
Mineral Reserves(1)
---------------------
Total tons 450,685 414,315 446,105 440,060 527,830
Silver (oz. per ton) 13.9 14.4 14.3 13.6 14.5
Lead (percent) 13.9 14.3 13.4 12.8 13.4
Zinc (percent) 2.9 3.0 2.3 2.8 2.7
Average Cost per Ounce
of Silver Produced
---------------------
Cash Production Costs $5.81 $5.54 $4.12 $5.01 $4.54
Full Production Cost $7.17 $6.77 $5.35 $6.20 $6.25
-----------------------------------------
(1) At the Lucky Friday mine, reserves lying above or between
developed levels are classified as proven reserves. Reserves lying
below the lowest developed level, projected to 100 feet below the
lowest level or to one-half the exposed strike length, whichever
is less, are classified as probable reserves. Mineralization
known to exist from drill-hole intercepts does not meet the
Company's current proven or probable reserve criteria and is
excluded from these reserve categories. For additional proven and
probable mineral reserve assumptions, including assumed metals
prices, see Glossary of Certain Mining Terms.
(2) Production decreases in 1994 are due primarily to the suspension
of operations resulting from the August 30, 1994 ore-conveyance
accident.
At December 31, 1994, there were 149 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky
Friday hourly employees. The current labor agreement expires on June 12,
1996, and may be continued for an additional three years if the Company
develops the Gold Hunter property. Washington Water Power Company
supplies electrical power to the Lucky Friday mine.
AMERICAN GIRL MINE - CALIFORNIA
The Company acquired the American Girl gold mine in March 1994 as part of
the Equinox acquisition. The mine property is
-13-
15
located in Imperial County, California. The property includes three
mining areas; the Padre-Madre area where mining is nearly complete, the
American Girl Canyon area which is presently being mined, and the Oro
Cruz area where development began March 1, 1995. Production from the Oro
Cruz area is expected to begin in mid-1995. The Company's share of
capital expenditures associated with the Oro Cruz area development in
1995 is expected to be approximately $4.0 million.
The cash and full production costs per ounce of gold increased from $257
and $347, respectively, in 1993 to $344 and $367, respectively, in 1994.
The increases are due principally to a decrease in the average ore grade
processed in 1994 compared to 1993. This resulted in lower gold
production in 1994 without a significant decrease in production costs.
The increase in the full production cost per ounce of gold was partially
offset by a decrease in depreciation expense in 1994.
Geology of the area is well studied. Gold mineralization is hosted along
low angle brittle faults (detachment faults) with average dips of 15 to
20 degrees. Gold occurs in the native form, most often along fracture
boundaries.
The mine is managed by MK Gold Company, the Company's joint venture
partner. The Company has a 47% interest in the mine with MK Gold having
the remaining 53% interest. MK Gold receives a monthly management fee of
2% of certain specified costs of the joint venture. Certain matters
regarding the joint venture require the approval of the management
committee. The Company and MK Gold each have two members on the joint
venture management committee.
The parent company of MK Gold recently announced its intent to sell its
interest in MK Gold. Management does not believe that any sale will
have an adverse effect on the operations at the American Girl mine
although there can be no assurance.
The American Girl mine is held through a combination of patented and
unpatented claims either owned outright or through leases. Properties
are subject to underlying net smelter return royalties ranging from 3.5%
to 12.5%.
The property contains several ore bodies from which ore has been and is
currently being mined. At the present time, ore is being mined from
surface pits and underground production areas in the American Girl
Canyon area. Ore is processed by heap leaching and conventional milling
in facilities owned by the joint venture. Electric power is generated
on-site by equipment owned by the joint venture. The total full-time
employees at the site as of December 31, 1994 was 183. Employees at the
American Girl mine are not represented by a bargaining agent. The
Company's basis in the American Girl mine property, plant and equipment
was $3.0 million at December 31, 1994.
-14-
16
Information with respect to the Company's share of production, proven and
probable mineral reserves, and average cost per ounce of gold produced
for the dates indicated are set forth in the table below:
Years
-------------------------------------
Production (47%) 1994 1993 1992(1)
-------------------------- --------- --------- ---------
Total ore processed (tons) 704,489 433,504 47,685
Gold (ounces) 30,624 35,192 1,922
Proven and Probable
Mineral Reserves (47%)(2)
--------------------------
Total tons 3,428,000(3) 1,814,200 1,151,640
Gold (oz. per ton) 0.049 0.078 0.103
Average Cost per Ounce
of Gold Produced
--------------------------
Cash Production Costs $344 $257 $348
Full Production Cost $367 $347 $406
-----------------
(1) Equinox acquired the property in December 1992; represents
data for the month ended December 31, 1992.
(2) For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(3) The increase in the mineral reserves from 1993 to 1994 is
due to additional lower-grade tons being added to the
proven and probable category during 1994.
The Company anticipates that sufficient ore exists in the American Girl,
Oro Cruz and Padre-Madre mine areas to enable surface and underground
mining to continue into 1998. The Company's share of annual gold
production is expected to be 30,000 and 35,000 ounces of gold in 1995 and
1996, respectively. Exploration for additional surface and underground
ore, which has been successful in the past, is expected to continue.
ROSEBUD GOLD PROJECT - NEVADA
The Rosebud gold project is located in the Rosebud Mining District, in
Pershing County, Nevada, and consists of 46 unpatented lode mining claims
(the "Hecla Claims"), a 52% interest in 49 lode mining claims held under
a joint venture with N.A. Degerstrom Inc. (the "Degerstrom Claims") and a
100% interest in 411 lode mining claims (the "Lac Claims") totaling
10,120 acres (the Hecla Claims, the Degerstrom Claims and the
-15-
17
Lac Claims collectively comprise the "Rosebud Project"). The Rosebud
Project may be reached from Lovelock, Nevada, by travelling a distance of
approximately 50 miles on an all weather gravel road. Capitalized
expenditures at the Rosebud Project totaled $8.1 million at December 31,
1994.
In 1993, Equinox sold a 2.5% net smelter return royalty and an option to
purchase for $2.5 million an additional 1.5% net smelter return royalty
on the property to Euro-Nevada Mining Corporation Inc. ("Euro-Nevada").
The option must be exercised within 30 days after delivery by the Company
to Euro-Nevada of a feasibility study and production decision on the
Rosebud Project.
Until 1991, all significant gold mineralization and most of the 115,000
feet of drilling in 167 holes had been completed on what is known as the
Dozer Hill Zone, a northeast trending zone extending a distance of about
1,500 feet within portions of 10 claims within the Hecla Claims and the
Lac Claims.
In 1991, 58,691 feet of drilling was carried out to test exploration
targets east of the Dozer Hill Zone and to further evaluate the property.
This exploration drilling encountered a new zone of high-grade gold
mineralization (the "East Zone") about 1,000 feet east of the Dozer Hill
Zone within portions of three claims within the Hecla Claims and Lac
Claims, although numerous low-grade drill intersections in between
suggest the two zones may be connected. Mineralization appears related
to the low angle South Ridge fault which underlies most of the area of
interest. Mineralization in the Dozer Hill Zone occurs above this fault
while mineralization in the East Zone occurs within and below this fault.
Results to date indicate that gold mineralization in the East Zone, as in
the Dozer Hill Zone and many other volcanic-hosted gold deposits, is
erratically distributed with numerous low-grade holes interspersed with
higher grade holes over an area of approximately 1,000 feet east-west and
1,000 feet north-south. Drilling has also intersected further
mineralization approximately 700 feet east of the East Zone. Hydrological
studies have also been carried out.
In 1992, an additional 35,000 feet of drilling in 56 holes was completed
on the Rosebud Project. This was followed by metallurgical studies and
permit preparation for an advanced underground exploration program. In
1993, the underground exploration program was started. During 1994 the
Company spent approximately $5.6 million at the Rosebud property.
Underground work included 3,600 feet of drifting, 25,000 feet of
underground diamond drilling, and 30,000 feet of surface diamond drilling
designed to further delineate the ore body.
-16-
18
The following table presents the proven and probable mineral reserves for
the Rosebud project as of the dates indicated:
Year Total Gold Gold Silver Silver
End Reserves Avg. Grade Content Avg. Grade Content
12/31 (Tons)(1) (oz./ton) (ozs.) (ozs./ton) (ozs.)
----- --------- ---------- ------- ---------- ----------
1994 1,641,000(2) 0.356 584,000 2.25 3,694,000
----
1993 1,984,000 0.258 512,000 1.81 3,584,000
----
-----------------
(1) For proven and probable mineral reserve assumptions,
including assumed metals prices, see Glossary of Certain
Mining Terms.
(2) The decrease in the tons of proven and probable mineral
reserves in 1994 compared to 1993 is attributable to
further delineation drilling of the ore body during 1994
which resulted in fewer reserve tons. However, this was
more than offset by a higher average gold grade per ton.
Permitting related work during 1994 included the preparation of the Plan
of Operations submitted to the Bureau of Land Management in July.
National Environmental Policy Act scoping is underway to determine any
significant impacts. Scoping will provide the basis for preparation of
final environmental assessment documents which could include an
environmental impact statement.
Activities in 1995 are expected to include detailed design and a
feasibility study in the fourth quarter. The permitting effort is
expected to continue through the majority of 1995. The Company is
subject to, among other items, obtaining the appropriate regulatory
approvals and satisfactory completion of a feasibility study and intends
to begin construction of the mine and related facilities as early as
1996. Production could follow as early as the first quarter of 1997.
Commencement of construction and production could be delayed if an
environmental impact statement is determined to be required for the
project. The feasibility study will assess the potential to produce
approximately 70,000 to 80,000 ounces of gold annually. Although the
project is in preliminary stages, if a determination is made to develop
the project, capital costs are expected to be, at a minimum,
approximately $38 million.
Patents have been applied for on 13 claims at the Rosebud property.
These claims contain all of the proven and probable reserves (see
Regulation of Mining Activity).
REPUBLIC MINE - REPUBLIC, WASHINGTON
The Company owns the Republic mine located in the Republic Mining
District near Republic, Washington, which consists of several associated
properties, a mill and ancillary surface
-17-
19
plants. In February 1995, the Company completed operations at the
Republic mine and has commenced certain reclamation work in connection
with the mine and mill closure. The Company's land position in the
Republic area consists of approximately five square miles, where the
Company may continue exploration efforts in the future. The Company's
exploration efforts since 1990 have been unsuccessful.
The cash and full production costs per ounce of gold increased from $207
and $262 in 1993 to $250 and $306 in 1994, respectively. The increases
are due principally to a decrease in the average ore grade processed in
1994 compared to 1993. This resulted in lower gold production in 1994
without a significant decrease in production costs.
In 1994, the Company recorded an additional reclamation and closure costs
accrual of $7.3 million. At December 31, 1994, the accrued reclamation
and closure costs balance totaled $8.4 million. Reclamation and closure
efforts will begin in 1995.
Also in 1994, based on its periodic reviews of the status of various
mining properties, the Company determined that certain adjustments were
appropriate to properly reflect the estimated net realizable value of the
Republic mine's property, plant and equipment. The adjustments totaled
$7.2 million as a write-down of property, plant, equipment, and supplies
inventory of the Republic mine (see Note 5 of Notes to Consolidated
Financial Statements). The remaining net book value of the Republic mine
property and its associated plant and equipment was approximately $2.5
million representing the estimated residual value as of December 31,
1994.
-18-
20
Information with respect to production, proven and probable mineral
reserves, and average cost per ounce of gold produced for the past five
years is set forth in the table below:
Years
----------------------------------------------------------------
Production (100%) 1994 1993 1992 1991 1990
---------------------- ------- ---------- ------- ------- -------
Ore milled (tons) 120,165 110,846 102,631 96,562 92,843
Gold (Au) (ounces) 39,085 49,601 58,343 77,736 81,397
Silver (Ag) (ounces) 283,326 276,688 299,957 311,445 326,346
Proven and Probable
Mineral Reserves(1)
----------------------
Total tons -- 103,533(2) 269,736 401,318 437,580
Gold (oz. per ton) -- 0.43 0.52 0.53 0.65
Silver (oz. per ton) -- 2.7 3.2 3.2 3.5
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $250 $207 $176 $143 $128
Full Production Cost $306 $262 $221 $176 $143
-----------------
(1) Reserves represent diluted in-place grades and do not
reflect losses in the recovery processes. Dilution was
effected through application of 1.0 foot on either side of
the vein for any sample thicker than 2.1 feet. For samples
thinner than 2.1 feet, dilution was effected with whatever
thickness was necessary to equal 4.0 feet. For additional
proven and probable mineral reserve assumptions, including
assumed metals prices, see Glossary of Certain Mining
Terms.
(2) In 1993 a negative mineral reserve adjustment was made
totaling approximately 39,000 ounces of gold and 235,000
ounces of silver. Most of the adjustment was necessary
when development encountered erratic mineralization in an
upper level ore zone which was previously estimated to be
continuous reducing the tonnage available for mining by
33,765 tons. Other various adjustments attributable to the
reduction totaled 867 tons.
There were 85 people employed at the Republic mine at December 31, 1994.
Employees at Republic are not represented by a bargaining agent.
-19-
21
CACTUS MINE - CALIFORNIA
The Cactus mine consists of approximately 1,600 acres of leasehold lands,
mining claims and millsites, located approximately 85 miles northeast of
Los Angeles, California, in the Mojave Mining District. The property is
readily accessible year-round by all-weather roads. The Company
currently has a 63.75% effective interest in Cactus Gold Mines Company
(Cactus) and manages Cactus' two open-pit heap leach mines, the Middle
Buttes and Shumake. The Company, as manager of Cactus, receives a
management fee equal to 2% of net revenues of Cactus as defined in the
mining venture agreement and is reimbursed for costs incurred on behalf
of Cactus.
The full production cost per ounce of gold decreased from $309 in 1993 to
$217 in 1994. The decrease is due principally to a decrease in
depreciation expense in 1994 as the property, plant and equipment were
fully depreciated in 1993.
The Middle Buttes mine began production in August 1986. During 1991,
operations were completed at the Middle Buttes mine, and the remaining
recoverable gold was processed. Development of the Shumake mine was
completed in November 1988, with commercial production beginning in
December 1988. Mining operations at the Shumake mine were completed in
February 1992. Nominal gold production is expected during 1995 as heap
leaching operations are completed. Reclamation efforts are ongoing.
The book value of the Company's interest in the Cactus mine property and
its associated plant and equipment was fully depreciated as of December
31, 1993. Southern CalEdison supplies electrical power to the Cactus
mine. As of December 31, 1994, there were 15 employees at the Cactus
mine. Employees at the Cactus mine are not represented by a bargaining
agent.
Cactus is owned 75% by Middle Buttes Partners Limited (MBPL) and 25% by
Compass Mining Inc. MBPL is a limited partnership in which the Company
is both the sole general partner (52.50%) and a limited partner (11.25%).
The Company, as general partner of MBPL, receives 75% of the production
from Cactus subject to payment of 11.25% of the net cash flows to the
other limited partner of MBPL.
-20-
22
The following table sets forth the information with respect to the
Company's share of production, proven and probable mineral reserves, and
average cost per ounce of gold produced for the past five years.
Years
-----------------------------------------------------------------------
Production (75%) 1994(1) 1993(1) 1992(1) 1991 1990
---------------------- -------- ------- ------- --------- ---------
Ore processed (tons) -- -- 315,328 1,760,714 1,750,275
Gold (ounces) 7,610 7,316 27,212 40,434 45,005
Silver (ounces) 19,555 24,165 114,415 162,760 184,349
Proven and Probable
Mineral Reserves
----------------------
Total tons -- -- -- 234,140 1,615,182
Gold (oz. per ton) -- -- -- 0.04 0.03
Average Cost per
Ounce of Gold Produced
----------------------
Cash Production Costs $217 $242 $213 $246 $226
Full Production Cost $217 $309 $337 $437 $366
-----------------
(1) Mining operations were completed in February 1992. Gold
recovery from the heap continued through 1994, but is
expected to be completed in 1995.
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball clay
operations in Kentucky, Tennessee, and Mississippi; its kaolin operations
in South Carolina and Georgia; its feldspar operations in North Carolina;
its clay slurry plant in Monterrey, Mexico; its lawn and garden products
operations in southern Idaho and western Montana; and its specialty
aggregate operations (primarily scoria) in southern Colorado and northern
New Mexico. The Company conducts these operations through five wholly
owned subsidiaries: (1) Kentucky-Tennessee Clay Company ("K-T Clay"),
which operates its Ball Clay and Kaolin Divisions; (2) K-T Feldspar
Corporation ("K-T Feldspar"), which operates the feldspar business; (3)
K-T Clay de Mexico, S.A. de C.V. ("K-T Mexico"), which operates the clay
slurry plant business; (4) Mountain West Products, Inc. ("Mountain
West"), which operates a lawn and garden products business; and (5)
Colorado Aggregate Company ("CAC"), which operates the Company's
specialty aggregate business.
-21-
23
K-T CLAY BALL CLAY DIVISION
K-T Clay is one of the nation's major suppliers of premium ball clay.
Ball clay is of sedimentary origin and consists of several basic clay
minerals along with a slight amount of organic content, a combination of
materials that gives ball clay its unique character. The principal use
of ball clay is in the ceramic and porcelain fields, which includes use
for such items as pottery, dinnerware, tile, electrical insulators and
sanitaryware. Ball clay is also used in refractories and abrasives and
has applications in other specialty industries as well.
Mining of ball clay is accomplished through strip mining methods. The
mining activity requires definition drilling and the removal of
overburden in order to expose the clay strata to be mined. Mining
activity is selective based on clay grade and strata control. The clays
are mined with loaders and backhoes, loaded into trucks and hauled to one
of K-T Clay's plants for processing. Processing of ball clay consists of
shredding and classification of clay by various grades, hammer or roller
milling to reduce particle size, drying and packaging. The grades can be
shipped in bulk or blended and bagged in order to meet a particular
customer's requirements. A particular clay or blend of several clays can
also be shipped to customers in slurry form in tanker trucks or rail
cars.
There are many grades of ball clay which K-T Clay mines, processes and
blends to meet the specifications and requirements of its various
customers. Different uses may require mixtures of ball clay having
substantially different physical properties, and K-T Clay, through many
years of experience and ongoing research performed in its laboratories,
possesses the expertise that enables it to respond to changes in customer
requirements with minimal advance notice. The marketing of ball clays is
directed from K-T Clay's headquarters in Mayfield, Kentucky. K-T Clay's
marketing personnel are trained in ceramic engineering or related
technical fields, which also has enabled K-T Clay to respond to changes
in its customer requirements.
K-T Clay mines and processes different grades of ball clays in Kentucky,
Tennessee and Mississippi. K-T Clay has identified or delineated
deposits of ball clay on numerous properties. Such properties are either
owned in fee simple or held under long-term lease. The royalties or
other holding costs of leased properties are consistent with the
industry, and the expiration of any particular lease would not affect K-T
Clay's ability to operate at current levels of operations. K-T Clay has
sufficient mineral reserve positions to maintain current operations in
excess of 20 years. K-T Clay is also continuously exploring for new
deposits of ball clay, either
-22-
24
to replace certain grades of clay that may become mined out or to locate
new deposits that can be mined at lower cost.
Minimum standards for strip mining reclamation have been established by
various governmental agencies which affect K-T Clay's ball clay mining
operations. The Tennessee Surface Mining Law and the Mississippi
Geological Economics and Topographical Survey, Division of Mining and
Reclamation, require all ball clay producers, including K-T Clay, to post
a performance bond on acreage to be disturbed. The release of the bond
is dependent on the successful grading, seeding and planting of spoil
areas associated with current mining operations. In addition, the United
States Environmental Protection Agency has issued guidelines and
performance standards which K-T Clay must meet. K-T Clay may be required
to obtain other licenses or permits from time to time, but it is not
expected that any such requirements will have a material effect upon the
Company's results of operations or financial condition.
There were 162 people employed by K-T Clay at its ball clay operations as
of December 31, 1994. Some of the hourly employees are represented by
the United Steelworkers of America. The three-year labor agreement will
expire on February 8, 1997.
K-T CLAY DE MEXICO, S.A. DE C.V.
In 1993, K-T Clay completed construction of its clay slurry plant in
Monterrey, Mexico, which now supplies clay slurry to the Mexican ceramics
industry. Prior to construction of this facility, clay slurry was
shipped by rail from K-T Clay's domestic operations. Reducing freight
costs, a bulk semi-dry clay weighing substantially less than clay
slurry is now shipped by rail from K-T Clay's domestic operations to
the K-T Mexico slurry plant in Monterrey. The clay is blended to
customer specifications and converted to a slurry form for final
shipment to its customers in the region.
Approximately $7.2 million was expended in constructing the clay slurry
plant. Further declines in the Mexican peso could adversely impact K-T
Mexico operations. K-T Mexico utilizes electrical power from the local
public utility. There were 20 people employed by K-T Mexico as of
December 31, 1994, represented by the Industrial Labor Union of Nuevo
Leon.
K-T CLAY KAOLIN DIVISION
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, including kaolin mines and
plants at Deepstep and Sandersville, Georgia, and Aiken, South Carolina.
Kaolin, or china clay, is
-23-
25
a near white clay of sedimentary origin, and is consumed in a variety of
end uses including ceramic whiteware, textile grade fiberglass, as rubber
and paper filler, and in miscellaneous plastics, adhesives and pigment
applications. Kaolin is a unique industrial mineral because of its wide
range of chemical and physical properties. The Kaolin Division of K-T
Clay mines, processes, and blends numerous grades of clay to meet the
specifications and requirements of its customers.
Markets for K-T Clay's kaolin products are similar to ball clay and
adverse shifts in market demand could occur due to mineral substitution
and decreased demand for end-use products, which could adversely impact
the demand for kaolin. Kaolin currently competes with minerals such as
calcium carbonate in many filler applications, but the substitution of
other minerals for kaolin in ceramic and fiberglass applications is
limited. The marketing of kaolin to the ceramics industry is carried out
by K-T Clay's sales force. Marketing to other industries is done through
sales and distribution agents.
Mining of kaolin is done by open-pit methods. Ore bodies are identified
and delineated by exploration drilling and overburden is removed by
scrapers down to favorable clay strata. Select mining of clay is then
accomplished by backhoe with over-the-road truck haulage to the
processing and stockpiling facilities. K-T Clay operates kaolin mines in
Georgia, serving its processing plants located at Sandersville and
Deepstep, Georgia. K-T Clay also operates kaolin mines located in South
Carolina, serving a processing plant located in Aiken, South Carolina.
Processing of the clays is completed by the air-floating method where
clay is shredded, dried, ground and separated by particle size at the
Sandersville, Deepstep and Aiken locations. In addition, clay is also
processed into a water slurry mixture at the Sandersville location.
K-T Clay's Kaolin Division holds in excess of 20 years of mineral
reserves based on current sales and product mix. Reserves are held on
fee simple and leased property. K-T Clay is also continuously exploring
for new deposits of kaolin, either to replace certain grades of kaolin
that may become mined out or to locate new deposits that can be mined
at lower cost.
The Kaolin Division operates its mines in Georgia and South Carolina
under mine permits issued by the Environmental Protection Division,
Department of Natural Resources of the State of Georgia, and the Land
Resource Conservation Commission, Division of Mining and Reclamation of
the State of South Carolina. All mines and processing plants have
current permit status and are in good standing.
-24-
26
There were 81 people employed by K-T Clay at its Kaolin Division as of
December 31, 1994, with less than 25% of the labor force being
represented by the Cement, Lime, Gypsum and Allied Workers, Division of
International Brotherhood of Boilermakers. The current labor contract at
the Sandersville, Georgia operation expires on February 28, 1997.
Both the Ball Clay and Kaolin Divisions of K-T Clay's plants and
equipment have been operational in excess of 26 years. The Company has
upgraded and modernized these facilities over the years and has a
continuing maintenance program to maintain the plant and equipment in
good physical and operating condition. The net book value of the K-T
Clay property and its associated plant and equipment was $18.1 million as
of December 31, 1994. K-T Clay utilizes power from several public
utilities as well as local utility co-operatives located in the vicinity
of K-T Clay's operating plants.
In March 1995, the Company entered into a letter of intent to purchase
additional kaolin processing facilities and reserves located in South
Carolina. The transaction is subject to the satisfactory completion of
due diligence, Board of Director approval and signing of a definitive
purchase and sale agreement.
K-T FELDSPAR CORPORATION
The Company acquired the operations and assets of K-T Feldspar on
December 13, 1990, including sodium feldspar mines and a processing plant
located near Spruce Pine, North Carolina. Feldspars are a mineral group
that are the major constituents of igneous rocks and important
constituents of other major rock types. The feldspars are the most
widespread mineral group and make up 60% of the earth's crust. Chemically
the feldspars are aluminosilicates that contain potassium, sodium and
calcium.
K-T Feldspar mines, processes and blends sodium feldspar and
feldspar-silica products. It also produces by-product mica concentrate
and construction sand. K-T Feldspar products are primarily used in the
ceramic whiteware, glass and paint industries.
Markets for feldspar have fluctuated slightly over time as a result of
mature market conditions. However, adverse shifts in market demand could
occur due to mineral substitution and decreased demand for end-use
products. Feldspar currently competes with nepheline syenite in some
market segments and substitution between minerals is linked to economics,
physical-chemical characteristics and supplier reliability. The
marketing of feldspar to the ceramics and filler industries is carried
out by K-T Clay's sales force and through sales and distribution agents.
-25-
27
Feldspar ore is mined by open-pit methods using a 40-foot bench mining
plan. Ore is drilled and blasted, loaded by hydraulic shovel or
front-end loader into off-highway dump trucks and transported to the
processing plant. K-T Feldspar operates several mine locations in the
Spruce Pine, North Carolina area, all serving the centrally located
processing plant. Processing of the feldspar ores consists of crushing,
grinding, density separation, flotation, drying and high intensity
magnetic separation.
K-T Feldspar holds in excess of 20 years of mineral reserves based on
current sales, product mix and lease terms. Reserves are held on fee
simple and leased properties.
K-T Feldspar operates its mines and plant under permits issued by the
North Carolina Department of Natural Resources and Community Development.
All permits are in good standing.
K-T Feldspar's plant and equipment have been operational in excess of 26
years. The Company has upgraded and modernized these facilities over the
years and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of the K-T Feldspar property and its associated plant and equipment was
$5.5 million as of December 31, 1994. Carolina Power & Light Company, a
regulated public utility, provides the electric power utilized for
operations at K-T Feldspar.
There were 43 employees employed by K-T Feldspar as of December 31, 1994;
none of whom are represented by a bargaining agent.
MOUNTAIN WEST PRODUCTS, INC.
The Company acquired the operations and assets of Mountain West in
December 1993. Mountain West's primary business is the purchasing,
processing and marketing of certain waste products from lumber milling
operations in the western intermountain region. These products are sold
as organic soil amendments, organic landscape mulches and organic
decorative ground cover for landscape purposes.
The waste products are purchased by Mountain West and transported by
truck for processing at its plants in Rexburg, Idaho and Superior,
Montana. The plants are located near the sources of the raw materials to
reduce transportation costs. The principal customers are lawn and garden
retail yards, lawn and garden product distributors and discount retail
chain stores. The processing plants are owned by Mountain West and the
sources of waste bark supply are held under contracts.
-26-
28
Most sales are in the western U.S. and take place in the first six months
of the year due to the seasonality of the market. The plants have
operated in excess of 14 years at Rexburg and six years at Superior. The
plants are maintained and upgraded continually and are in good working
order.
The net book value of the associated plant and equipment was
approximately $4.8 million as of December 31, 1994. Utah Power and Light
and Montana Power Company provide electrical power utilized by the
operations at Rexburg and Superior, respectively.
Mountain West had 106 employees as of December 31, 1994; none of whom are
represented by a bargaining agent.
COLORADO AGGREGATE COMPANY
CAC mines and sells volcanic rock (scoria) for use as briquettes in gas
barbecue grills, as landscaping mulch and decorative ground cover, and as
gravel bedding in aquariums. Volcanic scoria is a lightweight
clinker-like material produced during gaseous volcanic eruptions that
form cinder cones. These cones occur frequently in the geological
environment but are unique by density, texture and color.
The Company operates mines at Mesita, Colorado, and in northern New
Mexico as well as processing plants at San Acacio and Antonito, Colorado.
All mining is open pit with minimal requirements for the removal of
overburden.
The principal customers for scoria briquettes are manufacturers and
retailers of gas barbecue grills. Landscapers, distributors of
landscaping materials, lawn and garden retailers and discount chain
stores are the principal customers for scoria landscape stone.
The Mesita mine is owned by CAC. Due to the seasonal nature of CAC's
business, it is usually anticipated that most of its annual sales and
profits will be generated in the first two quarters of each calendar
year. The Company has over 17 years of mineral reserves at the Mesita,
Colorado, location and has developed in excess of six years of mineral
reserves at the Red Hill mine in northern New Mexico which is under lease
from the Bureau of Land Management.
CAC's plants and equipment have been operational in excess of 20 years.
The Company has upgraded and modernized these facilities over the years
and has a continuing maintenance program to maintain the plant and
equipment in good physical and operating condition. The net book value
of CAC's property and its associated plants and equipment was $4.0
million as of
-27-
29
December 31, 1994. Public Service Company of Colorado and San Luis
Valley Electric Co-operative provide the electric power utilized for
operations at CAC.
CAC had 71 employees as of December 31, 1994; none of whom are
represented by a bargaining agent.
SPECIALTY METALS SEGMENT
APEX FACILITY - UTAH
Acquired in 1989 from Musto Exploration Ltd., of Vancouver, British
Columbia, the Apex facility is located in Washington County approximately
23 miles west of St. George, Utah, on the east flank of the Beaverdam
Mountains at an elevation of 5,600 feet. The mine property consists of
24 patented mining claims and nine unpatented lode mining claims accessed
by year-round all-weathered roads. Two of the unpatented lode mining
claims are leased. The total surface area covered by the mine properties
is approximately 700 acres.
The Apex facility was constructed in 1984 by St. George Mining
Corporation, a wholly owned subsidiary of Musto Exploration Ltd. The
plant and equipment are in good working condition and are maintained on
an ongoing basis. Improvements to the plant since the Company acquired
it in 1989 include redesigning the plant flow sheet, increasing metals
leaching capacity, the addition of copper and germanium solvent
extraction circuits, adding copper electrowinning facilities, upgrading
liners and leak detection systems in the tailings ponds, and constructing
a tailings neutralization plant. The net book value of the Apex facility
property and its associated plant and equipment was $3.4 million as of
December 31, 1994. The Apex facility is provided electrical power by
Utah Power and Light Company.
The Company suspended mining operations and processing activities at the
Apex mine in 1990 due to depressed germanium and gallium prices. During
1994, the Apex facility continued production of cobalt chemicals and
process trials of metallurgical residues. Based on its periodic review
of the status of various mining properties, the Company determined in
1992 that a write-down of approximately $13.5 million was necessary to
properly reflect the estimated net realizable value of the Apex facility.
There were 37 employees at the Apex facility at December 31, 1994; none
of whom are represented by a bargaining agent.
Although the Company's strategy has primarily focused on expanding its
precious metal and industrial mineral operations, the Company continues
to investigate specialty mineral opportunities for its modern processing
facility located in
-28-
30
southern Utah. These opportunities include joint venture arrangements,
toll processing arrangements, and the possible sale of the facility.
On February 15, 1995, the Company entered into a letter of intent to sell
the Apex facility. The sale is subject to the Company completing certain
reclamation activities at the property as well as the satisfactory
completion of due diligence activities by the prospective purchaser and
the signing of a definitive purchase and sale agreement.
PROPERTIES ON STANDBY
GENERAL
Various mining operations of the Company have been placed on a standby
basis. Placing a mining property on a standby basis during periods of
depressed metals prices, thereby preserving a depletable asset, is common
in the mining industry. The significant properties on standby at
December 31, 1994 are described below.
GREENS CREEK MINE - ADMIRALTY ISLAND, ALASKA
At December 31, 1994, the Company held a 29.7% interest in the Greens
Creek mine, located on Admiralty Island, near Juneau, Alaska, through a
joint venture arrangement with Kennecott Greens Creek Mining Company, the
manager of the mine, a wholly owned subsidiary of Kennecott Corporation.
Greens Creek is a polymetallic deposit containing silver, zinc, gold, and
lead.
Greens Creek lies within the Admiralty Island National Monument, an
environmentally sensitive area. The Greens Creek property includes 17
patented lode claims, and one patented millsite claim in addition to
property leased from the U.S. Forest Service. The entire project is
accessed and served by 13 miles of road and consists of the mine, an ore
concentrating mill, a tailings impoundment area, a ship-loading facility,
and a ferry dock.
In February 1993, as a result of depressed metals prices, the decision
was made by the manager to suspend operations at the Greens Creek mine.
Commercial production ceased in April 1993, and the mine and mill were
placed on a standby basis. Exploration and mine development activities
have continued at the mine. All operating and environmental permits are
being maintained in anticipation of a resumption of operations once
economic conditions improve.
During operations, ore from the Greens Creek mine, a trackless
underground operation, is milled at a 1,320-ton-per-day mill at the mine
site. The mill produces saleable lead, zinc and
-29-
31
bulk lead/zinc concentrates. The three concentrate products are
predominantly sold to a number of major European and Asian smelters. A
lesser amount of the concentrates are sold to metal merchants under
short-term agreements. The concentrates are shipped from a marine
terminal located about nine miles from the mine site.
The Greens Creek mill plant facility and surface and underground
equipment are maintained in good working condition. The mill was
originally constructed about seven years ago. The manager of the joint
venture maintains the plant and equipment on an ongoing basis.
Improvements to the mill were made in 1992 directed to increasing mill
processing rates and improving metals separation capability. Specific
improvements included increasing flotation capacity by installing larger
flotation and column cells and increasing grinding capacity by
installing two vertical regrinding mills. The Greens Creek mine uses
electrical power provided by diesel-powered generators located on-site.
The net book value of the Company's interest in the Greens Creek mine
property and its associated plant and equipment was $49.3 million as of
December 31, 1994.
Even though recent historical production costs have exceeded revenues
realized from the sale of recovered metals and mining operations at the
Greens Creek mine are currently suspended, based upon management's
estimates of metal to be recovered and considering estimated future
production costs and metal prices, the Company's management believes that
the carrying value of the Greens Creek mine is recoverable from future
undiscounted cash flows generated from operations. In evaluating the
carrying value of the Greens Creek mine, the Company used fixed metal
prices of $395.00 per ounce of gold, $5.60 per ounce of silver, $0.28
per pound of lead and $0.46 per pound of zinc through 2013, the
estimated end of commercial production. These prices were utilized as the
Company's management believes that they are reasonable estimates of
average prices over the remaining life of the mine. In contrast to
longer-term prices used for estimating life-of-mine revenues and
resultant cash flows, the Company uses near-term estimates of metal
prices to estimate ore reserves as they more closely reflect the current
economic conditions at the measurement date. Estimated future production
costs were derived from actual production costs experienced at the mine,
adjusted, as necessary, for anticipated changes resulting from the
execution of the mine manager's mine production plan. Based upon these
projected factors, the Company estimates that future cash and full
production costs per ounce of silver produced over the remaining life of
the mine would be $1.98 and $4.27, respectively. As these amounts are
derived from numerous estimates, the most volatile of which are metal
prices, there can be no assurance that actual results will correspond to
these estimates. With respect to the Greens Creek mine, the principal
reason that cash costs per ounce are assumed to be
-30-
32
less than historical amounts is an increase in the grade of ore
processed.
The Greens Creek deposit consists of zinc, lead, and iron sulfides and
copper-silver sulfides and sulfosalts with substantial contained gold and
silver values, having a vein-like to blanket-like form of variable
thickness. The ore is thought to have been laid down by an "exhalative"
process (i.e., volcanic-related rifts or vents deposited base and
precious metals onto an ocean floor). Subsequently, the mineralization
was folded and faulted by multiple generations of tectonic events.
The estimated mineral reserves for the Greens Creek mine are computed by
Kennecott Greens Creek Mining Company's geology and engineering staff
with technical support from Kennecott Corporation. Geologic
interpretations and reserve methodology are reviewed, but the reserve
compilation is not independently confirmed by the Company in its
entirety. Information with respect to the Company's share of production,
proven and probable mineral reserves, and average cost per ounce of
silver produced is set forth in the table below:
Years
-----------------------------------------------------------------------------------
Production 1994(1)(29.7%) 1993(1)(2)(29.7%) 1992(28%) 1991(28%) 1990(28%)
------------------------ -------------- ----------------- ---------- ---------- ----------
Ore milled (tons) -- 33,638 123,526 120,187 107,445
Silver (ounces) -- 551,107 1,959,368 2,178,141 2,144,389
Gold (ounces) -- 2,826 9,094 10,505 10,705
Zinc (tons) -- 3,453 11,385 11,906 10,391
Lead (tons) -- 1,298 4,650 4,863 4,698
Proven and Probable
Mineral Reserves(3)
------------------------
Total tons 2,585,000 1,911,000 3,422,000 3,876,000 1,782,000
Silver (ounces per ton) 19.2 16.0 12.7 13.3 15.1
Gold (ounces per ton) 0.16 0.14 0.13 0.12 0.13
Zinc (percent) 13.1 14.4 13.2 12.8 12.4
Lead (percent) 4.7 4.7 4.0 4.0 4.2
Average Cost per
Ounce of Silver Produced
------------------------
Cash Production Costs -- $5.11 $4.82 $3.94 $2.52
Full Production Cost -- $7.16 $6.54 $5.43 $4.69
-31-
33
----------
(1) Operations were suspended in April 1993 and placed on a standby
basis.
(2) Equity during the period of active production was 28.08%, but was
increased to 29.73% by the time of the reserve determination.
(3) For proven and probable mineral reserve assumptions and
definitions, see Glossary of Certain Mining Terms.
Mineral reserve criteria and estimation techniques used for 1994 and 1993
reserves differed substantially from those used in prior years. Among
these changes were the adoption of block modeling techniques in place of
the sectional methods for a major section of the mine, a reevaluation of
cut-off criteria, and the development of refinements to in-situ net
smelter return estimates involving projected smelting terms and
distribution or recovery of metals in the three concentrate products and
metal price changes. In addition, more rigorous criteria for reserve
classification were applied to the probable reserves category. These
changes and the deduction for production in 1993 resulted in a reduction
in proven and probable mineral reserves from 3.4 million tons at December
31, 1992, to 1.9 million tons at December 31, 1993.
In 1993, drilling in the southwest area of the mine encountered an
additional mineralized zone containing higher than mine average gold and
silver content. Further drilling in the area in 1994 accounts for most
of the increase in reserves between 1993 and 1994.
In January 1994, the manager of the Greens Creek mine initiated a
feasibility study to determine the advisability of placing the mine back
into production. The feasibility study was completed during the fourth
quarter of 1994, and a decision as to the resumption of production is
pending.
As of December 31, 1994, there were 48 employees at the Greens Creek
Joint Venture. The employees at the Greens Creek Joint Venture are not
represented by a bargaining agent.
YELLOW PINE - IDAHO
The Yellow Pine gold mine is located in Valley County, Idaho, about 50
miles east of McCall in central Idaho, and is accessed by secondary roads
and air. The property consists of 26 patented claims which are held by
the Company under lease from the Bradley Mining Company of San Francisco,
California, and 57 unpatented claims. The lease provides for production
royalties equal to 6% of net smelter returns plus 10% of cumulative cash
flow, and also provides for a minimum royalty payment of $3,500 per month
reduced by current production
-32-
34
royalties. Production from the oxide mineralization ceased in 1992; the
operation has been undergoing reclamation since that time. Mineralized
sulfide material, estimated at between 15 and 20 million tons containing
approximately 0.09 ounce of gold per ton, is also located on the
property. The Company continues to seek other parties interested in the
further exploration and development of this extensive gold-bearing
deposit. The net book value of the Yellow Pine property, plant and
equipment as of December 31, 1994, was approximately $180,000.
LISBON VALLEY PROJECT - UTAH
The Company leases a block of property comprising approximately 1,100
acres of private, state and county lands in the Lisbon Valley district
about 30 miles south of Moab in San Juan County, Utah. In 1976, the
Company entered into a joint venture with Union Carbide Corporation
(which was succeeded in interest by Umetco Minerals Corporation, a wholly
owned subsidiary of Union Carbide, and in 1994 was assigned to Energy
Fuels Nuclear, Inc.) whereby Union Carbide became the operator of the
property. The Company has reserved the right to contest Umetco Minerals'
assignment to Energy Fuels Nuclear. The joint venture agreement provides
for equal sharing of all costs and production. A second agreement
provides for the milling of the Company's share of production at a mill
owned by Union Carbide which was sold to Energy Fuels Nuclear in 1994.
In December 1982, the property was placed on a maintenance and standby
basis because of the depressed markets for uranium and vanadium. It is
fully developed and ready for production mining. However, at current
metals prices, the Company believes it is uneconomical to place the
property into production. As of December 31, 1994, the Company's net
book value of the Lisbon Valley project was $500,000.
OTHER INTERESTS
URANIUM ROYALTIES
The Company receives minimum royalties from certain of its uranium
properties located in the Ambrosia District near Grants, New Mexico,
leased by the Company to Rio Algom Corporation, successor to Kerr-McGee
Corporation. The leases covering the properties continue in effect so
long as these royalties are paid, but terminate if defined mining
operations are not conducted on such properties during a continuous
period of 36 months. Although uranium mining operations have been
suspended on the properties, Rio Algom continues to recover uranium from
the underground leach solutions from which the Company will continue to
receive royalties.
The Company also holds a 2% royalty interest from uranium ores mined from
certain other properties in the Ambrosia Lake District, which are owned
by others.
-33-
35
The Company does not have current independent or verified mineral reserve
estimates for any of such properties. In addition, in view of the
severely depressed market price for uranium which now exists, uranium
royalties are immaterial to the operating results of the Company.
URANIUM MILL TAILINGS
The Company has been involved in remediation of uranium mill tailings
sites in Colorado and New Mexico. One site, in New Mexico, has been
completely reclaimed and the license released by the Nuclear Regulatory
Commission. At a site near Naturita, Colorado, where a Hecla predecessor
reprocessed uranium mill tailings under a license from the State of
Colorado, remediation activities have been in progress since 1993. The
facility was decontaminated in 1993, stabilization of wastes occurred in
1994, earthwork activities have been contracted for 1995, and completion
of remediation is planned for 1996.
EXPLORATION
The Company conducts exploration activities from its headquarters in
Coeur d'Alene, Idaho. The Company owns or controls patented and
unpatented mining claims, fee land, mineral concessions, and state and
private leases in six states in the U.S. and two Mexican states. The
Company's strategy regarding reserve replacement is to concentrate its
efforts on (1) existing operations where an infrastructure already
exists, (2) other properties presently being developed and advanced-stage
exploration properties that have been identified as having potential for
additional discoveries, and (3) advanced-stage exploration acquisition
opportunities. The Company is currently concentrating its exploration
activities at the La Choya and Grouse Creek gold mines and the Rosebud
project. The Company remains active in other exploration areas and is
seeking advanced-stage acquisition opportunities in the United States and
Mexico.
Exploration and development activities in 1994 at the Rosebud gold
property located in Pershing County, Nevada, defined 1,641,000 tons of
ore to the proven and probable mineral reserves containing 0.356 ounce
per ton gold and 2.25 ounces of silver.
Properties are continually being added to or dropped from this inventory
as a result of exploration and acquisition activities. Exploration
expenditures for the three years ended December 31, 1994, 1993 and 1992
were approximately $8.4 million, $5.7 million and $8.2 million,
respectively. Exploration expenditures for 1995 are estimated to be
approximately $6.7 million.
HEDGING ACTIVITIES
The Company's policy guidelines for hedging gold and silver production
permit management the right to utilize various hedging mechanisms for
up to 50% of the Company's annual estimated available metal production.
Hedging contracts are restricted to no longer than 24 months without
Board of Director approval and will be spread among a number of available
customers. At year end the Company had 27% of 1995 budgeted gold
production hedged utilizing spot deferred and option contracts. There
were no hedging contracts for silver outstanding. The Company's policy
with respect to lead hedging permits management to hedge 30% of estimated
annual production of lead for periods not to exceed 12 months (See Notes
1 and 3 of Notes to Consolidated Financial Statements).
-34-
36
INDUSTRY SEGMENTS
Financial information with respect to industry segments is set forth in
Note 11 of Notes to the Consolidated Financial Statements.
COMPETITION
The Company is engaged in the mining and processing of gold, silver and
other nonferrous metals and industrial minerals in the United States and
Mexico. The Company encounters strong competition from other mining
companies in connection with the acquisition of properties producing, or
capable of producing, gold, silver and industrial minerals. The Company
also competes with other mining companies in connection with the
recruiting and retention of qualified employees knowledgeable in mining
operations. Silver and gold are worldwide commodities and, accordingly,
the Company sells its production at world market prices. The table below
reflects the volatility of silver and gold prices in the last five years:
Average Metal Prices
----------------------------------------------------
Silver Gold
Year (per oz.-Handy & Harman) (per oz.-London Final)
---- ------------------------ ----------------------
1994 $5.28 $384
1993 $4.30 $360
1992 $3.94 $344
1991 $4.04 $362
1990 $4.82 $383
The Company cannot compare sales from its ball clay mining operations
with sales of other ball clay producers because the principal competitors
are either family-owned or divisions of larger, diversified companies,
but the Company believes that K- T Clay is one of the largest producers
of ball clay in the United States. With the acquisition of kaolin assets
from Cyprus Minerals Company in 1989, the Company has also become an
important producer in the United States of ceramic-grade kaolin. The
principal competitors of the Company in the ball clay industry are H. C.
Spinks Clay Company, Watts Blake Bearne & Company, and Old Hickory Clay
Company. The principal competitors of the Company in the kaolin
industry, are Albion Kaolin Company, Evans Clay Company, JM Huber
Corporation, English China Clay Company and Dry Branch Kaolin Company.
The Company, with the acquisition of Indusmin Incorporated's feldspar
assets, is also a major producer and supplier of sodium feldspar
products. The principal competitors of the Company in the feldspar
industry are Feldspar Corporation and Unimin Corporation.
The Company competes with other producers of scoria and with
manufacturers of ceramic briquettes in the production and sale of
briquettes. The Company has limited information as to the
-35-
37
size of the barbecue briquette industry, but believes that it supplies a
major portion of the scoria briquettes used in gas barbecue grills. Price
and natural product characteristics, such as color, uniformity of size,
lack of contained moisture and density, are important competitive
considerations. The Company believes that it has a significant portion
of the landscape scoria market east of the Continental Divide.
Mountain West competes with other producers of lawn and garden and soil
products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The
Company has limited information about the sales of competing products in
its overall markets but believes it supplies a significant portion of the
market for its product in the intermountain region.
With respect to the acquisition of mineral interests and exploration
activities, which in terms of continuing growth and success may be the
most important area of the Company's activities, the Company competes
with numerous persons and with companies, many of which are substantially
larger than the Company and have considerably greater resources.
REGULATION OF MINING ACTIVITY
The mining operations of the Company are subject to inspection and
regulation by the Mine Safety and Health Administration of the Department
of Labor (MSHA) under provisions of the Federal Mine Safety and Health
Act of 1977. It is the Company's policy to comply with the directives
and regulations of MSHA. In addition, the Company takes such necessary
actions as, in its judgment, are required to provide for the safety and
health of its employees. MSHA directives have had no material adverse
impact on the Company's results of operations or financial condition, and
the Company believes that it is substantially in compliance with the
regulations promulgated by MSHA.
All of the Company's exploration, development, and production activities
in the United States, Mexico, and Canada are subject to regulation under
one or more of the various environmental laws. These laws address
emissions to the air, discharges to water, management of wastes,
management of hazardous substances, protection of natural resources,
protection of antiquities and reclamation of lands which are disturbed.
The Company believes that it is in substantial compliance with applicable
environmental regulations. Many of the regulations also require permits
to be obtained for the Company's activities; these permits normally are
subject to public review processes resulting in public approval of the
activity. While these laws and regulations govern how the Company
conducts many aspects of its business, management of the Company does not
believe that they have a material adverse effect on its results
-36-
38
of operations or financial condition at this time. The Company's
projects are evaluated considering the cost and impact of environmental
regulation on the proposed activity. New laws and regulations are
evaluated as they develop to determine the impact on, and changes
necessary to, the Company's operations. It is possible that future
changes in these laws or regulations could have a significant impact on
some portion of the Company's business, causing those activities to be
economically reevaluated at that time. The Company believes that
adequate provision has been made for disposal of mine waste and mill
tailings at all of its operating and nonoperating properties in a manner
which complies with current federal and state environmental requirements.
Environmental laws and regulation may also have an indirect impact on the
Company, such as increased cost for electricity due to acid rain
provisions of the Clean Air Act Amendments of 1990. Charges by smelters
to which the Company sells its metallic concentrates and products have
substantially increased over the past several years because of
requirements that smelters meet revised environmental quality standards.
The Company has no control over the smelters' operations or their
compliance with environmental laws and regulations. If the smelting
capacity of the United States is significantly further reduced because of
environmental requirements, it is possible that the Company's operations
could be adversely affected.
The Company is also subject to regulations under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (CERCLA or
"Superfund") which regulates and establishes liability for the release of
hazardous substances, and the Endangered Species Act (ESA), which
identifies endangered species of plants and animals and regulates
activities to protect these species and their habitats. The Company has
been implicated at some Superfund sites and is involved in litigation
under the ESA (see Note 8 of Notes to Consolidated Financial Statements).
Revisions to CERCLA and ESA are being considered by Congress; the impact
on the Company of these revisions is not clear at this time.
During the past three years, the U.S. Congress considered a number of
proposed amendments to the General Mining Law of 1872, as amended (the
"General Mining Law"), which governs mining claims and related activities
on federal lands. In 1992, a holding fee of $100 per claim was imposed
upon unpatented mining claims located on federal lands. In October 1994,
a one year moratorium on processing of new patent applications was
approved. In addition, a variety of legislation is now pending before
the U.S. Congress to further amend the General Mining Law. The pending
legislation would, among other things, impose royalties and new
reclamation, environmental controls and restoration requirements. Each
of the current legislative proposals would impose some form of
-37-
39
royalty payable to the U.S. Government on the value of minerals extracted
from certain federal lands. The extent of any such changes is not
presently known and the potential impact on the Company as a result of
congressional action is difficult to predict. Although a majority of the
Company's existing mining operations occur on private or patented
property, the proposed changes to the General Mining Law could adversely
affect the Company's ability to economically develop mineral resources on
federal lands. Approximately 43% of the proven and probable gold
reserves and approximately 20% of the proven and probable silver reserves
located at the Grouse Creek project are located on fully patented mining
claims. The balance of such proven and probable mineral reserves are
located within mineral claims for which the Company has applied for
patents and has received a first half of Mineral Entry Final Certificate.
Upon the determination of the mineral character of these claims by a
Federal Mine Examiner, the Company believes patents will be issued to the
Company covering these claims. Although there can be no assurance as to
the ultimate impact of legislative action on these claims or the
Company's ability to patent these claims under the existing General
Mining Law, the Company believes that the pending legislation to amend
the General Mining Law will not adversely affect the right of the Company
to receive patents for the Grouse Creek unpatented mining claims. The
proven and probable mineral reserves at the Oro Cruz and Rosebud
properties are located on claims that are unpatented.
EMPLOYEES
As of December 31, 1994, the Company and its subsidiaries employed 1,204
people.
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE - Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned
from all metals other than the primary metal produced at each mine,
divided by the total ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self- propelled equipment.
Such underground openings are often driven in an upward or downward
spiral, much the same as a spiral staircase.
-38-
40
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
DORE -- Unrefined gold and silver bullion bars consisting of
approximately 90% precious metals which will be further refined to almost
pure metal.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FELDSPARS -- Aluminosilicates that contain potassium, sodium and calcium.
Feldspar products are primarily used in the ceramic whiteware, glass and
paint industries.
FULL PRODUCTION COSTS -- Includes all cash production costs, as defined,
plus depreciation, depletion and amortization relating to each operating
mine.
FULL PRODUCTION COSTS PER OUNCE - Calculated based upon total full
production costs, as defined, divided by the total ounces of the primary
metal produced.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HEAP LEACHING -- A process involving the percolation of a cyanide
solution through crushed ore heaped on an impervious pad or base to
dissolve minerals or metals out of the ore.
KAOLIN -- A fine, white clay used as a filler or extender in ceramics and
refractories.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be
treated in some other type of plant, such as a smelter, to affect
recovery of the pure metal.
MINERAL-BEARING MATERIAL -- Material for which quantitative estimates are
based on inferences from known mineralization, or on drill-hole samples
too few in number to allow for classification as probable mineral
reserves.
ORE -- Material that can be mined and processed at a positive cash flow.
PATENTED MINING CLAIM -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the
title of which has been conveyed from the federal government to a private
party pursuant to the patenting requirements of the General Mining Law.
PROVEN AND PROBABLE MINERAL RESERVES -- Reserves that reflect estimates
of the quantities and grades of mineralized material
-39-
41
at the Company's mines which the Company believes can be recovered and
sold at prices in excess of the cash cost of production. The estimates
are based largely on current costs and on projected prices and demand for
the Company's products. Mineral reserves are stated separately for each
of the Company's mines based upon factors relevant to each mine.
Reserves represent diluted in-place grades and do not reflect losses in
the recovery process. The Company's estimates of proven reserves and
probable reserves at December 31, 1994 and 1993 are based on gold prices
of $395 and $375 per ounce, silver prices of $5.60 and $4.50 per ounce,
lead prices of $0.28 and $0.23 per pound, and zinc prices of $0.46 and
$0.44 per pound, respectively. Proven and probable mineral reserves for
the Greens Creek and American Girl mines are based on calculations of
reserves provided to the Company by the operators of these properties
that have been reviewed but not independently confirmed by the Company.
Kennecott Greens Creek Mining Company's estimates of proven and probable
reserves for the Greens Creek mine as of December 1994 are derived from
successive generations of reserve and feasibility analyses for three
different areas of the mine each using a separate assessment of metal
prices. The prices used were:
East Ore Area West Ore Area Southwest Ore Area
------------- ------------- ------------------
Gold $340 $350 $360
Silver 4.50 4.75 5.00
Lead 0.33 0.28 0.28
Zinc 0.60 0.57 0.50
Greens Creek Mining Company's estimates of proven reserves and probable
reserves at December 31, 1993 are based on silver prices of $4.75 per
ounce, gold prices of $350 per ounce, zinc prices of $0.57 per pound, and
lead prices of $0.28 per pound. MK Gold's estimates of proven and
probable reserves at December 31, 1994 and 1993 are based on gold prices
of $400 and $380 per ounce, respectively.
Changes in reserves represent general indicators of the results of
efforts to develop additional reserves as existing reserves are depleted
through production. Grades of ore fed to process may be different from
stated reserve grades because of variation in grades in areas mined from
time to time, mining dilution and other factors. Reserves should not be
interpreted as assurances of mine life or of the profitability of current
or future operations.
PROBABLE RESERVES -- Resources for which tonnage and grade and/or quality
are computed primarily from information similar to that used for proven
reserves, but the sites for inspection, sampling and measurement are
farther apart or are otherwise less adequately spaced. The degree of
assurance, although
-40-
42
lower than that for proven reserves, is high enough to assume continuity
between points of observation.
PROVEN RESERVES -- Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches, workings or drill holes and
for which the grade and/or quality is computed from the results of
detailed sampling. The sites for inspection, sampling and measurement
are spaced so closely and the geologic character is so well defined that
size, shape, depth and mineral content of reserves are well established.
The computed tonnage and grade are judged to be accurate, within limits
which are stated, and no such limit is judged to be different from the
computed tonnage or grade by more than 20%.
RESERVES -- That part of a mineral deposit which could be economically
and legally extracted or produced at the time of the reserve
determination. Reserves are customarily stated in terms of "Ore" when
dealing with metalliferous minerals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by
rock adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed as a slurry in underground pipes to support cavities left by
extraction of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the
top which lowers and raises a conveyance for handling personnel and
materials.
STOPE -- An underground excavation from which ore has been extracted
either above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals.
The familiar 16-ounce avoirdupois pound equals 14.583 Troy Ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky
Friday mine utilizing mechanized equipment, a ramp system and cemented
sand fill. The method has proven effective in reducing mining cost and
rockburst activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in
which the unpatented claim is located, the paramount title of which
remains with the federal government. The holder of a valid, unpatented
lode mining claim is granted certain rights including the right to
explore and mine such claim under the General Mining Law.
-41-
43
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low
in grade to be mined and milled at a profit.
ITEM 2. PROPERTIES
The Company's principal mineral properties are described in Item 1 above.
The Company also has interests in a number of other mineral properties in
the United States, Canada and Mexico. Although some of such properties
are known to contain significant quantities of mineralization, they are
not considered material to the Company's operations at the present time.
Encouraging results from further exploration or increases in the market
prices of certain metals could, in the future, make such properties
considerably more important to the business of the Company taken as a
whole.
The general corporate office of the Company is located in Coeur d'Alene,
Idaho, on a tract of land containing approximately 13 acres. The Company
also owns and plans to subdivide and sell approximately 70 adjacent
acres.
The administrative offices of the Company's ball clay, kaolin and
feldspar operations are located five miles southwest of Mayfield,
Kentucky. Additionally, there are general offices and laboratory
facilities at each operating location. The Company also owns
approximately 1,600 acres of land principally for use in connection with
milling and storage operations for the industrial minerals operations.
The administrative offices of K-T Mexico are located with the clay slurry
processing facility on a parcel of land near Monterrey, Mexico.
The general offices of the scoria operations are located in Alamosa,
Colorado. The Company owns a parcel of land of approximately 20 acres in
the vicinity of Blanca, Colorado, on which are located building, storage
and shipping facilities utilized in its scoria business, and a bagging
plant for landscape scoria. An additional bagging facility, utilized for
scoria briquettes, is located at San Acacio, Colorado.
The general offices of Mountain West Products, Inc. are located in
Rexburg, Idaho. Processing facilities are located in both Rexburg, Idaho
and Superior, Montana.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 8 of the Notes to Consolidated Financial
Statements included in this report for information regarding legal
proceedings.
-42-
44
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-43-
45
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) (i) Shares of the Common Stock, par value $.25 per share of
the Company (the Common Stock), are traded on the New
York Stock Exchange, Inc., New York, New York.
(ii) The price range of the Common Stock on the New York
Stock Exchange for the past two years was as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1994 - High $15.00 $14.38 $13.50 $13.38
- Low 11.63 9.38 9.25 9.25
1993 - High $10.38 $14.50 $15.25 $11.88
- Low 7.38 9.88 9.13 9.63
(b) As of December 31, 1994, there were 13,196 holders of record of
the Common Stock.
(c) There were no Common Stock cash dividends paid in 1994 or 1993.
The amount and frequency of cash dividends are significantly
influenced by metals prices, operating results and the Company's
cash requirements.
-44-
46
ITEM 6. SELECTED FINANCIAL DATA
(dollars in thousands except for per-share amounts)
Years Ended December 31,
------------------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
Total revenue $ 133,974 $ 96,060 $ 113,986 $ 121,130 $ 165,518
========= ========= ========= ========= =========
Income (loss) before cumulative effect of
changes in accounting principles $ (24,613) $ (17,782) $ (55,173) $ (15,521) $ 2,342
Cumulative effect of changes in accounting
principles -- -- (103) -- --
--------- --------- --------- --------- ---------
Net income (loss) (24,613) (17,782) (55,276) (15,521) 2,342
Preferred stock dividends (8,050) (4,070) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) applicable to
common shareholders $ (32,663) $ (21,852) $ (55,276) $ (15,521) $ 2,342
========= ========= ========= ========= =========
Income (loss) per common share before
cumulative effect of changes in
accounting principles and after
preferred stock dividends $ (0.74) $ (0.58) $ (1.59) $ (0.46) $ 0.07
========= ========= ========= ========= =========
Net income (loss) per common share $ (0.74) $ (0.58) $ (1.59) $ (0.46) $ 0.07
========= ========= ========= ========= =========
Total assets $ 334,582 $ 346,153 $ 236,130 $ 276,856 $ 277,939
========= ========= ========= ========= =========
Long-term debt - Notes and contracts
payable(1) $ 1,960 $ 50,009 $ 71,219 $ 80,322 $ 72,554
========= ========= ========= ========= =========
Cash dividends per common share $ -- $ -- $ -- $ -- $ 0.04
========= ========= ========= ========= =========
Cash dividends per preferred share $ 3.50 $ 1.77 $ -- $ -- $ --
========= ========= ========= ========= =========
Common shares issued 48,144,274 40,320,761 36,324,517 34,062,328 32,756,077
Shareholders of record 13,196 13,549 14,859 17,127 18,032
Employees 1,204 919 826 911 981
--------------------------------
(1) Includes $94,000 and $181,000 for 1991 and 1990, respectively, of
long-term debt which is recorded in other noncurrent liabilities.
-45-
47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(1)
INTRODUCTION
The Company is primarily involved in the exploration, development, mining, and
processing of gold, silver, lead, zinc, and industrial minerals. As such, the
Company's revenues and profitability are strongly influenced by world prices of
gold, silver, lead, and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these factors is not
possible to accurately predict. In the following descriptions, where there are
changes that are attributable to more than one factor, the Company presents each
attribute in descending order relative to the attribute's importance to the
overall change.
The Company recorded net losses applicable to common shareholders for each of
the past three years in the period ended December 31, 1994. If the current
market prices of gold, silver and lead do not increase and considering the
Company's preferred dividend payment requirements, the Company expects to
continue to experience net losses applicable to common shareholders. However,
even if metals prices remain at current levels, the Company's operating cash
flows are expected to increase once anticipated production levels are achieved
at the Grouse Creek mine. The Grouse Creek mine commenced operations in
December 1994. Steady-state production levels are expected to be achieved
during the second quarter of 1995.
The volatility of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to persist. The Company
performs a comprehensive evaluation of the recoverability of its assets on a
periodic basis. The evaluation includes a review of future cash flows against
the carrying value of the asset. Moreover, a review is made on a quarterly
basis to assess the impact of significant changes in market conditions and other
factors. Asset write-downs may occur if the Company determines that the
carrying values attributed to individual assets are not recoverable given
reasonable expectations for future production and market conditions.
Based on its periodic review of the status of various mining properties, the
Company has determined that certain adjustments are appropriate to properly
reflect net realizable values during the fourth quarter of 1994. These
adjustments consisted primarily of the write-downs of properties, plants,
equipment and supplies inventory totaling $7.9 million. The major portion of
the adjustments related to the $7.2 million write-down of property,
--------------------------------
(1) For definitions of certain mining terms used in this description,
see "Glossary of Certain Mining Terms" at the end of Item 1, page 38.
-46-
48
plant, equipment and supplies inventory at the Republic mine, which will
complete operations in February 1995. The balance of the adjustments relates to
an additional $0.3 million write-down of exploration equipment and a $0.4
million write-down of the Zenda property.
In 1995, the Company expects to produce approximately 199,000 ounces of gold
compared to actual 1994 gold production of 128,000 ounces of gold. The 1995
estimated production includes 89,000 ounces from the Company's 80% interest in
the Grouse Creek mine, 75,000 ounces from the La Choya mine, 33,000 ounces from
the Company's interest in the American Girl mine and an additional 2,000 ounces
from other sources. The Company's expected gold production increase in 1995
assumes a full year of production at the Grouse Creek and La Choya mines, which
offsets the decrease in gold production due to the completion of operations at
the Republic mine in February 1995.
The Company's share of silver production for 1995 is expected to be 2,300,000
ounces compared to 1994 production of 1,643,000 ounces. The expected increase
is primarily due to new production at the Grouse Creek mine and resumption of
operations at the Lucky Friday mine in December 1994, after the ore-conveyance
accident suspended operations since August 30, 1994.
In 1994, the Company shipped 986,000 tons of industrial minerals, including ball
clay, kaolin, feldspar, and specialty aggregates. The Company's shipments of
industrial minerals is expected to increase in 1995 to 1,022,000 tons,
principally due to increased shipments of slurry from K-T Clay de Mexico.
Additionally, the Company expects to ship 690,000 cubic yards of landscape
material from Mountain West Products.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the historical consolidated
financial statements of the Company appearing elsewhere herein.
RESULTS OF OPERATIONS
---------------------
1994 vs 1993
------------
The Company acquired Equinox Resources Ltd. ("Equinox") effective March 11,
1994. The consolidated financial statements presented herein have been restated
for all periods prior to the acquisition to include the financial position,
results of operations, and cash flows of Equinox, which was accounted for as a
pooling of interests.
The Company incurred a net loss of approximately $24.6 million ($0.56 per common
share) in 1994 compared to a net loss of approximately $17.8 million ($0.47 per
common share) in 1993. After $8.1 million in dividends to preferred
shareholders of the Company's Series B Cumulative Convertible Preferred Stock,
the
-47-
49
Company's net loss applicable to common shareholders for 1994 was approximately
$32.7 million, or $0.74 per common share compared to $21.9 million, or $0.58 per
common share in 1993 after a $4.1 million preferred dividend. This loss was due
to a variety of factors, the most significant of which are noted below in
descending order of magnitude.
Sales of the Company's products increased by approximately $35.9 million, or
38.6%, in 1994 as compared to 1993, principally the result of (1) increased
product sales totaling $42.3 million, most notably from the La Choya gold mine
in Mexico, which commenced production in February 1994, and Mountain West
Products, which was acquired in December 1993; and (2) increases in the average
prices of lead and gold. These two factors were partially offset by decreased
sales of approximately $9.4 million in the metals segment attributable to (1)
the suspension of operations at the Greens Creek mine in April 1993; (2)
decreased gold production in 1994 at the Republic gold mine due to lower-grade
ore being mined and processed; and (3) decreased lead, silver and zinc
production at the Lucky Friday mine resulting in part from the temporary
suspension of operations due to the ore-conveyance accident on August 30, 1994.
The Lucky Friday mine resumed operations in December 1994.
Comparing the average metal prices for 1993 with 1994, gold increased by 7% from
$360 per ounce to $384 per ounce, silver increased by 23% from $4.30 per ounce
to $5.28 per ounce, and lead increased by 39% from $0.18 per pound to $0.25 per
pound.
Cost of sales and other direct production costs increased approximately $24.5
million, or 30.6%, in 1994 compared to 1993, primarily a result of (1)
production costs at the La Choya mine and K-T Clay de Mexico during 1994
totaling approximately $11.7 million and $2.9 million, respectively, due to the
commencement of operations at these locations in early 1994; (2) increased
production costs in 1994 at Mountain West Products (acquired in December 1993)
totaling approximately $10.4 million; and (3) increases in operating costs at
various other operations totaling approximately $7.8 million. These increases
in cost of sales and other direct production costs were partially offset by
decreases in operating costs at other operations totaling approximately $8.3
million, the two most notable of which are (1) the Greens Creek mine totaling
$4.1 million, where decreased operating costs are the result of the suspension
of operations in April 1993; and (2) the Lucky Friday mine resulting from the
temporary suspension of operations due to the ore-conveyance accident on August
30, 1994.
Cost of sales and other direct production costs as a percentage of sales from
products decreased from 86% in 1993 to 81% in 1994, primarily due to increases
in production and average metals prices realized in the metals division, as well
as, improved sales within the industrial minerals segment during 1994.
Management does not believe that the Company's cost of sales and other direct
production costs are materially different from industry norms.
-48-
50
Cash and full production cost per gold ounce increased from $229 and $298 in
1993, to $273 and $334 in 1994, respectively. The increases are mainly
attributed to the initial start-up costs at the Grouse Creek and La Choya gold
mines and decreased gold production from the Republic and American Girl gold
mines due to declining ore grades.
Cash and full production cost per silver ounce increased from $5.45 and $6.85 in
1993 to $5.81 and $7.17 in 1994, respectively. The increases are due primarily
to decreased ore grade as well as lower lead, silver and zinc production from
the Lucky Friday mine in 1994, resulting from the ore-conveyance accident on
August 30, 1994. These were partially offset by an increase in the average
price of lead and zinc in 1994. Lead and zinc are by-products in the process at
the Lucky Friday mine, the net revenues from which are deducted from production
costs in the calculation of production cost per ounce.
Other operating expenses increased by approximately $19.8 million, or 101.4%
from 1993 to 1994, due principally to (1) an increase in the provision for
closed operations and environmental matters totaling $9.0 million related
principally to the 1994 reclamation accruals for the Republic gold mine and the
Coeur d'Alene Mining District totaling $7.3 million and $1.1 million,
respectively; (2) an increase totaling $5.3 million in the reduction in carrying
value of mining properties, which relates primarily to 1994 carrying value
adjustments to certain properties, plants, equipment, and supplies inventory
totaling $7.9 million as further described in Note 5 of Notes to Consolidated
Financial Statements; (3) an increase in exploration expenditures of $2.7
million due principally to increased exploration activity during 1994 at the
Greens Creek, Grouse Creek and La Choya mines; and (4) an increase in general
and administrative costs of $3.0 million attributable primarily to costs
totaling approximately $2.2 million incurred in connection with the March 11,
1994, acquisition of Equinox.
Net other income was approximately $5.2 million in 1994 compared to $1.6 million
in 1993. The increase is primarily due to (1) an increase in royalty income of
approximately $2.8 million in 1994; (2) decreased interest costs totaling $2.6
million due to the June 1994 retirement of the Liquid Yield Option Notes
("LYONs") (see Note 7 of Notes to Consolidated Financial Statements); and (3)
the January 1994 sale of the Company's investment in Granduc Mines Ltd.
resulting in a gain of $1.3 million.
In 1994, the Company recorded an extraordinary loss totaling approximately $0.8
million on the retirement of the LYONs as further described in Note 7 of Notes
to Consolidated Financial Statements. The loss relates principally to the
write-off of the unamortized balance of deferred issuance costs related to the
debt.
Income taxes reflect a benefit of $0.5 million in 1994 compared to a $0.9
million benefit in 1993. The benefit in 1994 primarily reflects the carryback
of 1994 and prior year net operating losses
-49-
51
to reduce income taxes previously provided, partially offset by an Internal
Revenue Service settlement and a provision for state income taxes. The benefit
in 1993 primarily reflects a decrease in the deferred tax provision due to
utilization of net operating loss carryovers.
RESULTS OF OPERATIONS
---------------------
1993 vs 1992
------------
The Company acquired Equinox effective March 11, 1994. The consolidated
financial statements presented herein have been restated for all periods prior
to the acquisition to include the financial position, results of operations, and
cash flows of Equinox, which was accounted for as a pooling of interests.
A net loss of approximately $17.8 million, or $0.47 per common share, was
incurred in 1993 compared to a net loss of $55.3 million, or $1.59 per common
share, in 1992. After $4.1 million in dividends to shareholders of the
Company's Series B Cumulative Convertible Preferred Stock, the Company's net
loss applicable to common shareholders for 1993 was $21.9 million, or $0.58 per
common share. The 1993 loss was due to a variety of factors, the most
significant of which are discussed below.
Sales of products decreased by $8.7 million, or 9%, in 1993 as compared to 1992,
principally the result of (1) decreased gold production, the impact of which
totals approximately $10.9 million, due to the winding down of operations at the
Cactus mine, lower- grade ore mined and processed at the Republic mine, and the
completion of operations at the Yellow Pine mine during the third quarter of
1992; (2) decreased silver, lead and zinc production, the impact of which totals
approximately $9.4 million, due to suspension of operations at the Greens Creek
mine in April 1993, and the sale of the Company's 25% interest in the Galena
mine in May 1992; (3) decreases in the average prices of lead and zinc in 1993
compared to 1992, the impact of which totals approximately $1.7 million; (4)
decreased production of lead at the Lucky Friday mine resulting from lower lead
contained in the ore processed, the impact of which totals approximately $0.8
million; and (5) decreased sales of ball clay from Kentucky-Tennessee Clay
Company; all of which were partially offset by (1) increased revenue from the
Company's acquisition of the American Girl mine totaling $10.0 million; (2)
increased revenue from the Company's Apex facility totaling $1.8 million; (3)
increased sales of feldspar totaling $1.3 million from K-T Feldspar Corporation,
as well as increased sales of landscape products from the newly acquired
Mountain West Products, and aggregate products from Colorado Aggregate Company;
and (4) increases in the average prices of gold and silver in 1993 compared to
1992.
Cost of sales and other direct production costs decreased by $4.7 million, or
6%, in 1993 as compared to 1992, primarily a result of (1) decreased operating
costs totaling approximately $9.0 million
-50-
52
at the Greens Creek mine due to suspension of operations in April 1993; (2)
decreased operating costs totaling approximately $6.0 million at the Cactus mine
due to the completion of mining operations in February 1992; (3) decreased
operating costs totaling approximately $1.6 million resulting from the sale of
the Company's 25% interest in the Galena mine in May 1992; (4) decreased
operating costs totaling approximately $1.2 million at the Yellow Pine mine
resulting from the completion of operations during the third quarter of 1992;
and (5) decreased production costs totaling approximately $0.4 million at the
Republic mine; all of which were partially offset by (1) operating costs in 1993
totaling approximately $7.5 million associated with the newly acquired American
Girl mine; (2) increased operating costs during 1993 totaling approximately $4.5
million at the Apex facility, K-T Feldspar Corporation, Kentucky-Tennessee Clay
Company's ball clay division, and Colorado Aggregate Company; and (3) operating
costs in 1993 totaling approximately $0.3 million associated with the newly
acquired Mountain West Products.
Cost of sales and other direct production costs as a percentage of sales from
products increased from 83% in 1992 to 86% in 1993, primarily due to (1)
decreases in the gold grade at the Republic mine which decreased to 0.48 ounces
per ton of ore mined in 1993 from 0.60 ounces per ton of ore mined in 1992; (2)
declining lead and zinc prices which averaged $0.18 and $0.44 in 1993 compared
to $0.25 and $0.56 in 1992, respectively; and (3) the care and maintenance costs
associated with the Greens Creek mine which were recognized in 1993 due to the
suspension of operations in April 1993. Management does not believe that the
Company's cost of sales and other direct production costs are materially
different from industry norms.
Cash and full production cost per gold ounce increased from $191 and $261 in
1992 to $229 and $298 in 1993, respectively. The increases are due principally
to lower-grade ore being processed at the Republic mine resulting in fewer gold
ounces produced. The increase in full cost per gold ounce was partially offset
by decreasing depreciation charges due to the completion of mining operations at
the Cactus mine.
Cash and full production cost per silver ounce increased from $4.51 and $5.89 in
1992 to $5.45 and $6.85 in 1993, respectively, due primarily to lower average
prices in 1993 for lead and zinc. Lead and zinc are by-products, the revenues
from which are netted against production costs in the calculation of production
cost per ounce.
Other operating expenses decreased by $44.5 million, or 70%, in 1993 as compared
to 1992, primarily the result of (1) the 1992 reduction in carrying value of
mining properties totaling $28.4 million, including (a) a $13.5 million
write-down to reflect the estimated net realizable value of the Company's
interest in the Apex facility; (b) a $9.0 million write-down of the Consolidated
Silver property in northern Idaho and the Hog Heaven property in
-51-
53
northwest Montana due to depressed silver prices; (c) a $3.5 million write-down
to reflect the estimated net realizable value in the Company's interest in the
Lisbon Valley project in Utah; (d) a $1.9 million write-down of the Creede and
Hardscrabble gold and silver properties located in Colorado due to depressed
precious metals prices; and (e) a $0.5 million write-down of certain newly
acquired Equinox mining properties; (2) the 1992 provision for closed operations
and environmental matters totaling $13.6 million, which consisted principally of
an $8.5 million increase in the allowance for the Bunker Hill Superfund Site
remediation cost and additional idle property reclamation and closure cost
accruals of $3.3 million as further described in Note 8 of Notes to Consolidated
Financial Statements; (3) decreased domestic exploration expenditures mainly at
the Republic mine in 1993; (4) foreign exploration expenditures in Chile during
1992, nonrecurring in 1993; (5) reduced general and administrative costs in 1993
principally due to staff reductions and other cost-cutting measures at corporate
headquarters; and (6) research expenditures incurred at the Apex facility during
1992, nonrecurring in 1993; all of which were partially offset by increased
general and administrative and exploration costs in 1993 attributed to the newly
acquired Equinox properties.
Net other income was approximately $1.6 million in 1993 compared to income of
$5.5 million in 1992. The decrease is primarily due to (1) the sale of the
surface and timber rights on various nonoperating Company-owned properties in
1992 resulting in a gain of approximately $9.0 million, nonrecurring in 1993;
and (2) the sale of the Company's 25% interest in the Galena mine and adjacent
properties in May 1992, resulting in a gain of approximately $1.2 million,
nonrecurring in 1993. Both of these items were partially offset by (1)
decreased interest expense in 1993 resulting from (a) the April 29, 1993,
issuance of 2.2 million shares of Common Stock to retire the LYONs as described
in Note 7 of Notes to Consolidated Financial Statements, and (b) increased
capitalized interest related to the Grouse Creek and La Choya projects; (2) the
$2.1 million write-down in 1992 of the Company's common stock investment in
Granduc Mines Limited to reflect the apparent other-than-temporary decline in
market value of the investment, nonrecurring in 1993; and (3) increased interest
income earned in 1993 on the investment of the proceeds from the Company's
public offering of 2.3 million shares of Series B Cumulative Convertible
Preferred Stock as described in Note 10 of Notes to Consolidated Financial
Statements.
Income taxes reflect a benefit of $0.9 million in 1993 compared to a $0.3
million benefit in 1992. The benefit in 1993 primarily reflects a decrease in
the deferred tax provision due to utilization of net operating loss carryovers.
The benefit in 1992 primarily reflects the carryback of net operating losses to
reduce income taxes previously provided.
-52-
54
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond the
Company's control. Prices may change dramatically in short periods of time and
such changes have a significant effect on revenues, profits and liquidity of the
Company. The Company is subject to many of the same inflationary pressures as
the U.S. economy in general. The Company continues to implement cost-cutting
measures in an effort to reduce per unit production costs. Management believes,
however, that the Company may not be able to continue to offset the impact of
inflation over the long term through cost reductions alone. However, the market
prices for products produced by the Company have a much greater impact than
inflation on the Company's revenues and profitability. Moreover, the discovery,
development and acquisition of mineral properties are in many instances
unpredictable events. Future metals prices, the success of exploration
programs, changes in legal and regulatory requirements, and other property
transactions can have a significant impact on the need for capital.
At December 31, 1994, assets totaled approximately $334.6 million and
shareholders' equity totaled approximately $277.5 million. Cash, cash
equivalents and short-term investments decreased by $60.4 million to $7.3
million at December 31, 1994 from $67.7 million at the end of 1993. The major
sources of cash were (1) proceeds totaling approximately $63.5 million from the
Company's May 1994 public offering of 7,475,000 shares of its common stock; (2)
the maturity of short-term investments and sale of other investments totaling
approximately $32.1 million; (3) proceeds totaling approximately $13.3 million
from the sale of a 20% undivided interest in the Grouse Creek project; and (4)
proceeds of $1.8 million from common stock issued under stock option plans and
warrants. The primary uses of cash were (1) approximately $66.6 million
expended for properties, plants and equipment principally for ongoing
development of the Grouse Creek, Rosebud and American Girl/Oro Cruz projects
totaling $51.1 million, $5.6 million and $1.3 million, respectively, and
expenditures at the clay slurry facility in Mexico and the Lucky Friday mine
totaling $1.3 million and $1.1 million, respectively; (2) approximately $50.2
million required to retire all the remaining LYONs (see Note 7 of Notes to
Consolidated Financial Statements); (3) approximately $13.6 million for the
purchase of restricted investments for certain reclamation bonding and bonding
requirements in connection with the Star Phoenix litigation appeal as further
described in Note 8 of Notes to Consolidated Financial Statements; (4) dividend
payments totaling approximately $8.1 million; and (5) operating activities
requiring cash totaling approximately $5.4 million.
The Company estimates that capital expenditures to be incurred in 1995 will be
approximately $29.4 million. These expenditures consist primarily of (1)
development expenditures at the Greens Creek mine ($12.1 million, subject to the
Company's Board of Directors' approval), the Lucky Friday mine ($1.4 million),
the
-53-
55
Grouse Creek mine ($0.7 million), and the La Choya mine ($1.0 million); (2)
development expenditures at the Rosebud and American Girl/Oro Cruz projects of
approximately $5.8 million and $4.0 million, respectively; and (3) expenditures
at other operating locations totaling $4.4 million. The Company intends to
finance these capital expenditures through a combination of (1) existing cash
and cash equivalents; (2) cash flow from operating activities; and (3) amounts
available under its revolving and term loan facility (described below) which,
subject to certain conditions, provides for borrowings up to a maximum of $40.0
million.
The Company's estimate of its capital expenditure requirements assumes, with
respect to the Grouse Creek, Greens Creek and the American Girl/Oro Cruz
properties, that the Company's joint venture partners do not default with
respect to their obligations to contribute their respective portions of the
development costs and capital expenditures.
The Company's planned environmental and reclamation expenditures for 1995 are
expected to be approximately $4.3 million, principally for environmental and
reclamation activities at the Bunker Hill Superfund Site and the Durita property
(see Note 8 of Notes to Consolidated Financial Statements).
Exploration expenditures for 1995 are estimated to be approximately $6.7
million. The Company's exploration strategy is to focus further exploration at
or in the vicinity of its currently owned domestic and foreign properties.
Accordingly, 1995 domestic exploration expenditures will be incurred principally
at the Grouse Creek and Rosebud properties. Foreign exploration efforts in 1995
will center primarily on the Company's La Choya property and other exploration
targets in Mexico.
An adjustment increasing the reclamation and closure cost accrual by $10.1
million was also recorded in the fourth quarter of 1994. The adjustment relates
primarily to estimated reclamation and closure costs at the Republic gold mine
($7.3 million), the Coeur d'Alene Mining District ($1.1 million), and other
miscellaneous idle properties ($1.7 million).
On August 30, 1994, the Company entered into an unsecured revolving and term
loan facility, under the terms of which the Company can borrow up to $40.0
million. Amounts may be borrowed on a revolving credit basis through July 31,
1997, and are repayable in eight quarterly installments beginning on October 31,
1997. Borrowings bear interest at floating rates depending on the type of
advance. During the commitment period, the Company is obligated to pay an annual
fee of $130,000. The agreement contains restrictive covenants, among others,
concerning the current ratio, fixed charge coverage ratio and limitations on the
issuance of additional indebtedness. Amounts available under the facility are
based on a debt to cash flow calculation. At December 31, 1994, there were no
borrowings outstanding under the facility (see Note 7 of Notes to Consolidated
Financial Statements).
-54-
56
In the normal course of its business, the Company uses forward sales commitments
and commodity put and call option contracts to manage its exposure to
fluctuations in the prices of certain metals which it produces. Contract
positions are designed to ensure that the Company will receive a defined minimum
price for certain quantities of its production. Gains and losses, and the
related costs paid or premium received, for contracts which hedge the sales
prices of commodities are deferred and included in income as part of the hedged
transaction. Revenues from the aforementioned contracts are recognized at the
time contracts are closed out by delivery of the underlying commodity or
settlement of the net position in cash. The Company is exposed to certain
losses, generally the amount by which the contract price exceeds the spot price
of a commodity, in the event of nonperformance by the counterparties to these
agreements.
At December 31, 1994, the Company had forward sales commitments through March
31, 1995 for 3,500 ounces of gold at an average price of $375 per ounce. The
Company has also purchased options to put 102,240 ounces of gold to the
counterparties at an average price of $390 per ounce. Concurrently, the Company
sold options to allow the counterparties to call 102,240 ounces of gold from the
Company at an average price of $464 per ounce. There was no net cost associated
with the purchase and sale of these options which expire on a monthly basis
through December 1997. The London Final gold price for 1994 was $383.25. It is
not practicable for the Company to obtain or calculate the estimated fair value
of these option contracts at December 31, 1994, due to the cost of obtaining the
data. The nature and purpose of the contracts, however, do not presently expose
the Company to any significant net loss. In addition, at December 31, 1994, the
Company has sold forward 3,600 metric tons of lead at an average price of $684
per metric ton, or $0.31 per pound. These commitments extend over the period
June 1995 to January 1996. All of the aforementioned contracts are designated
as hedges at December 31, 1994.
The recent decline of the Mexican peso has not and is not expected to
significantly impact results at the La Choya mine as both funding for operations
and gold sales are denominated in dollars. However, at our K-T Mexico clay
slurry plant, sales are denominated in pesos. At December 31, 1994, Hecla has
reflected a foreign currency translation adjustment (component of shareholders'
equity) totaling $3.2 million which relates to operations at K-T Mexico.
Foreign exchange losses totaling $0.2 million have been recorded relating to
operations at the La Choya mine (see Note 1 of Notes to Consolidated Financial
Statements for further discussion of foreign currency translation). Continued
declines in the Mexican peso could further adversely impact K-T Mexico
operations.
As further described in Note 8 of Notes to Consolidated Financial Statements,
the Company has entered into a Court approved Consent Decree requiring the
Company and certain other mining companies to undertake specific remediation
work with respect to the Bunker Hill Superfund Site in northern Idaho. At
December 31, 1994, the
-55-
57
Company's allowance for Superfund site remedial action costs was approximately
$9.1 million, which the Company believes is adequate based on current estimates
of aggregate costs.
In addition, as described in Note 8 of Notes to Consolidated Financial
Statements, the Company is a defendant in two other significant actions. The
first action was filed in November 1990 by Star Phoenix and certain principals
of Star Phoenix, asserting that the Company breached the terms of Star Phoenix's
lease agreement for the Company's Star Morning mine and that the Company
interfered with certain contractual relationships of Star Phoenix relating to
the Company's 1990 termination of such lease agreement. In June 1994, judgment
was entered by the Idaho State District Court against the Company in the legal
proceeding in the amount of $10.0 million in compensatory damages and $10.0
million in punitive damages based on a jury verdict rendered in the case in late
May 1994. The Company's post-trial motions were denied by the District Court,
and the Company has appealed the judgment to the Idaho State Supreme Court.
Post-judgment interest will accrue during the appeal period; the current
interest rate is 10.5%. In order to stay the ability of Star Phoenix to collect
on the judgment during the pending of the appeal, the Company posted an appeal
bond in the amount of $27.2 million representing 136% of the District Court
judgment. The Company pledged certain investments totaling $10.0 million as
collateral for the $27.2 million appeal bond. Although the ultimate outcome of
the appeal of the judgment is subject to the inherent uncertainties of any legal
proceeding, based on the Company's analysis of the factual and legal issues
associated with the proceeding before the District Court and based upon the
opinions of outside counsel, as of the date hereof, it is management's belief
that the Company should ultimately prevail in this matter, although there can be
no assurance in this regard.
In addition, the Company has intervened in a lawsuit where certain environmental
groups are seeking an injunction against the U.S. Forest Service to halt current
and prospective logging, grazing, road building, and mining operations that may
affect endangered salmon in six national forests in Idaho. The Company's Grouse
Creek mine is located in one of these national forests (see Note 8 of Notes to
Consolidated Financial Statements).
Although the ultimate disposition of these matters and various other pending
legal actions and claims is not presently determinable, it is the opinion of the
Company's management, based upon the information available at this time, that
the expected outcome of these suits and proceedings will not have a material
adverse effect on the results of operations and financial condition of the
Company and its subsidiaries.
-56-
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of this Report for information with respect to the financial
statements filed as a part hereof, including financial statements filed
pursuant to the requirements of this Item 8.
SELECTED QUARTERLY DATA
(dollars in thousands except for per-share amounts)
First Second Third Fourth
1994: Quarter Quarter Quarter Quarter Total
---- -------- -------- -------- -------- --------
Sales of products $26,339 $38,048 $35,279 $ 29,081 $128,747
Gross profit (loss) $ (951) $ 4,021 $ 5,846 $ 915 $ 9,831
Net income (loss) $(5,651) $ 702 $ 806 $(20,470) $(24,613)
Preferred stock dividends $(2,012) $(2,013) $(2,013) $ (2,012) $ (8,050)
Net loss applicable to common
shareholders $(7,663) $(1,311) $(1,207) $(22,482) $(32,663)
Net loss per common share $ (0.19) $ (0.03) $ (0.03) $ (0.47) $ (0.74)
1993:
----
Sales of products $23,779 $26,022 $22,605 $ 20,482 $ 92,888
Gross profit (loss) $(1,346) $ 466 $ 799 $ (698) $ (779)
Net loss $(5,458) $(2,813) $(1,672) $ (7,839) $ (17,782)
Preferred stock dividends -- -- $(2,057) $ (2,013) $ (4,070)
Net loss applicable to common
shareholders $(5,458) $(2,813) $(3,729) $ (9,852) $ (21,852)
Net loss per common share $ (0.17) $ (0.07) $ (0.09) $ (0.25) $ (0.58)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
-57-
59
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information with respect to the directors of the
Company set forth under the caption "Election of Directors" in the
Company's proxy statement filed pursuant to Regulation 14A for the
annual meeting scheduled to be held on May 5, 1995 (the Proxy Statement),
which information is incorporated herein by reference. Information with
respect to executive officers of the Company is set forth as follows:
Age
at May 5,
Name 1995 Position and Term Served
------------------ --------- --------------------------------
William B. Booth 44 Vice President - Investor and
Public Affairs since May 1994;
various administrative functions
with the Company since December
1985.
Arthur Brown 54 Chairman since June 1987; Chief
Executive Officer since May
1987; President since May 1986;
Chief Operating Officer from May
1986 to May 1987; Executive Vice
President from May 1985 to May
1986; held various positions as
an officer since 1980; employed
by the Company since 1967.
Joseph T. Heatherly 64 Vice President - Controller
since May 1989; Controller from
May 1987 to May 1989; various
administrative functions with
the Company since May 1983.
J. Gary Childress 47 Vice President - Industrial
Minerals since February 1994;
President and General Manager of
Kentucky-Tennessee Clay Company
from 1987 to 1994; Senior Vice
President of Kentucky-Tennessee
Clay Company from 1986 to 1987.
Ralph R. Noyes 47 Vice President - Metal Mining
since May 1988; Manager Metal
Mining from June 1987 to May
1988; prior thereto, since 1976,
held various administrative
positions with the Company and
Day Mines, Inc.
-58-
60
Age at
May 5,
Name 1995 Position and Term Served
---------------- ------ -----------------------------------
John P. Stilwell 42 Vice President - Finance and
Treasurer since May 1994; Treasurer
since June 1991; held various
administrative positions with the
Company since May 1985.
Michael B. White 44 Vice President - General Counsel
and Secretary since May 1992;
Secretary since November 1991;
Assistant Secretary from March 1981
to November 1991; General Counsel
since June 1986; various
administrative positions since
1980.
There are no family relationships between any of the executive
officers.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Compensation of Executive Officers" in the Proxy Statement (except the
Report on the Compensation Committee on Executive Compensation set forth
therein) filed pursuant to Regulation 14A, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement filed pursuant to Regulation 14A, which information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the caption "Other
Transactions" in the Proxy Statement filed pursuant to Regulation
14A, which information is incorporated herein by reference.
-59-
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
See Index to Financial Statements on Page F-1
(a)(2) Financial Statement Schedules
See Index to Financial Statements on Page F-1
(a)(3) Exhibits
See Exhibit Index following the financial statements
(b) Reports on Form 8-K
Report on Form 8-K dated October 21, 1994, related to Phased
Closure of Republic Unit.
Report on Form 8-K dated December 21, 1994, related to First Gold
Pour at the Grouse Creek Unit.
Report on Form 8-K dated January 19, 1995, related to Court Ruling
on Operations in Certain National Forests in Idaho.
Report on Form 8-K dated January 25, 1995, related to an Order
Granting Limited Stay of Preliminary Injunction in the United
States District Court.
Report on Form 8-K dated February 2, 1995, related to the
Company's Release of Fourth quarter and Year-end Results.
-60-
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March
24, 1995.
HECLA MINING COMPANY
By /s/ Arthur Brown
----------------------------
Arthur Brown, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Arthur Brown 3/24/95 /s/ Leland O. Erdahl 3/24/95
----------------------------- -------------------------------
Arthur Brown Date Leland O. Erdahl Date
Chairman and Director Director
(principal executive officer)
/s/ J. T. Heatherly 3/24/95 /s/ William A. Griffith 3/24/95
----------------------------- -------------------------------
J. T. Heatherly Date William A. Griffith Date
Vice President - Controller Director
(principal accounting officer)
/s/ John P. Stilwell 3/24/95 /s/ Charles L. McAlpine 3/24/95
----------------------------- -------------------------------
John P. Stilwell Date Charles L. McAlpine Date
Vice President - Finance and Director
Treasurer (principal financial
officer)
/s/ John E. Clute 3/24/95 /s/ Jorge E. Ordonez 3/24/95
----------------------------- -------------------------------
John E. Clute Date Jorge E. Ordonez Date
Director Director
/s/ Joe Coors, Jr. 3/24/95 /s/ Richard J. Stoehr 3/24/95
----------------------------- -------------------------------
Joe Coors, Jr. Date Richard J. Stoehr Date
Director Director
-61-
63
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements
--------------------
Report of Independent Accountants F-2
Consolidated Balance Sheets at December 31,
1994 and 1993 F-3
Consolidated Statements of Operations for the
Years Ended December 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1994, 1993 and 1992 F-5
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
December 31, 1994, 1993 and 1992 F-6
Notes to Consolidated Financial Statements F-7 to F-34
Financial Statement Schedules*
-----------------------------
*Financial statement schedules
have been omitted as not applicable
F-1
64
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Hecla Mining Company
We have audited the accompanying consolidated balance sheets of Hecla
Mining Company and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Equinox Resources Ltd. ("Equinox") which statements reflect total assets
constituting 4% as of December 31, 1993 and revenues constituting 12% and 1%
and net loss constituting 34% and 11% for each of the two years in the period
ended December 31, 1993, respectively, of the related consolidated totals.
Separate financial statements of Equinox included in the consolidated financial
statements were audited and reported on separately by other auditors, whose
report dated February 28, 1994, expressed an unqualified opinion on those
statements before adjustments to convert Canadian dollars to U.S. dollars and
to conform certain Equinox accounting policies to U.S. generally accepted
accounting principles consistent with those of Hecla Mining Company as
described in Note 2 to the Consolidated Financial Statements. We also audited
the adjustments described in Note 2 to the Consolidated Financial Statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Hecla Mining Company
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 9 to the Consolidated Financial Statements,
the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions in 1992. In addition, as discussed
in Note 4 to the Consolidated Financial Statements, the Company changed its
method of accounting for investments as of January 1, 1994. All of the above
changes were required by Statements of Financial Accounting Standards issued by
the Financial Accounting Standards Board.
COOPERS & LYBRAND L.L.P.
Spokane, Washington
February 3, 1995, except for Note 8, as to which
the date is March 1, 1995
F-2
65
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 31,
----------------------------
1994 1993
--------- ---------
Current assets
Cash and cash equivalents $ 7,278 $ 40,031
Short-term investments -- 27,636
Accounts and notes receivable 23,516 18,841
Income tax refund receivable 247 --
Inventories 18,616 15,020
Other current assets 1,597 2,003
--------- ---------
Total current assets 51,254 103,531
Investments 6,476 6,565
Restricted investments 13,553 --
Properties, plants and equipment, net 257,908 229,055
Other noncurrent assets 5,391 7,002
--------- ---------
Total assets $ 334,582 $ 346,153
========= =========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 13,570 $ 17,312
Accrued payroll and related benefits 2,724 2,056
Preferred stock dividends payable 2,012 2,012
Accrued taxes 925 928
Accrued reclamation costs 4,254 --
--------- ---------
Total current liabilities 23,485 22,308
Deferred income taxes 359 359
Long-term debt 1,960 50,009
Accrued reclamation costs 27,162 24,947
Other noncurrent liabilities 4,098 3,858
--------- ---------
Total liabilities 57,064 101,481
--------- ---------
Commitments and contingencies (Notes 3, 5 and 8)
SHAREHOLDERS' EQUITY
Preferred stock, 25c. par value,
authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, 25c. par value, authorized 100,000,000 shares;
issued 1994 - 48,144,274, issued 1993 - 40,320,761 12,036 10,080
Capital surplus 328,995 265,687
Retained deficit (63,437) (30,774)
Net unrealized gain (loss) on investments 3,396 (8)
Foreign currency translation adjustment (3,158) --
Less common stock reacquired, at cost;
1994 - 62,355 shares, 1993 - 62,226 shares (889) (888)
--------- ---------
Total shareholders' equity 277,518 244,672
--------- ---------
Total liabilities and shareholders' equity $ 334,582 $ 346,153
========= =========
The accompanying notes are an integral part of the financial statements.
F-3
66
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)
__________
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
--------- --------- ---------
Sales of products $ 128,747 $ 92,888 $ 101,621
--------- --------- ---------
Cost of sales and other direct production costs 104,683 80,141 84,814
Depreciation, depletion and amortization 14,233 13,526 13,774
--------- --------- ---------
118,916 93,667 98,588
--------- --------- ---------
Gross profit (loss) 9,831 (779) 3,033
--------- --------- ---------
Other operating expenses
General and administrative 11,132 8,140 9,206
Exploration 8,397 5,656 8,186
Research -- 150 1,358
Depreciation and amortization 524 669 851
Provision for closed operations and environmental matters 11,353 2,327 13,608
Reduction in carrying value of mining properties 7,864 2,561 30,791
--------- --------- ---------
39,270 19,503 64,000
--------- --------- ---------
Loss from operations (29,439) (20,282) (60,967)
--------- --------- ---------
Other income (expense)
Interest and other income 5,227 3,172 12,365
Miscellaneous income (expense) (234) 102 197
Gain (loss) on investments 1,053 (64) (2,373)
Minority interest -- 43 95
Interest expense
Total interest costs (2,606) (5,224) (6,905)
Less amount capitalized 1,751 3,533 2,070
--------- --------- ---------
5,191 1,562 5,449
--------- --------- ---------
Loss before extraordinary item, income taxes and
cumulative effect of changes in accounting principles (24,248) (18,720) (55,518)
Income tax benefit 468 938 345
--------- --------- ---------
Loss before extraordinary item and cumulative effect
of changes in accounting principles (23,780) (17,782) (55,173)
Extraordinary loss on retirement of long-term debt (833) -- --
--------- --------- ---------
Loss before cumulative effect of changes in
accounting principles (24,613) (17,782) (55,173)
Cumulative effect of changes in accounting principles -- -- (103)
--------- --------- ---------
Net loss (24,613) (17,782) (55,276)
Preferred stock dividends (8,050) (4,070) --
--------- --------- ---------
Net loss applicable to common shareholders $ (32,663) $ (21,852) $ (55,276)
========= ========= =========
Net loss per common share
Loss before cumulative effect of changes in
accounting principles and after preferred stock dividends $(0.74) $(0.58) $(1.58)
Cumulative effect of changes in accounting principles -- -- (0.01)
------ ------ ------
$(0.74) $(0.58) $(1.59)
====== ====== ======
Cash dividends per common share $ -- $ -- $ --
====== ====== ======
Weighted average number of common shares outstanding 43,944 37,872 34,778
====== ====== ======
The accompanying notes are an integral part of the financial statements.
F-4
67
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
------------------------------------------------
1994 1993 1992
--------- --------- ---------
Operating activities
Net loss $ (24,613) $ (17,782) $ (55,276)
Noncash elements included in net loss
Depreciation, depletion and amortization 14,757 14,195 14,625
Deferred income tax benefit -- (964) (120)
(Gain) loss on disposition of properties, plants and equipment (354) 1,336 (9,628)
Realized (gain) loss on sale of investments (1,053) 64 2,373
Accretion of interest on long-term debt 2,495 4,465 5,602
Provision for reclamation and closure costs 11,353 1,635 13,243
Reduction in carrying value of mining properties 7,864 3,432 31,329
(Gain) loss on retirement of long-term debt 833 (323) (510)
Minority interest in net loss of subsidiary -- 43 76
Change in
Accounts and notes receivable (4,675) (2,360) 6,231
Income tax refund receivable (247) 390 --
Inventories (4,086) (669) 4,174
Other current assets 406 (554) 848
Accounts payable and accrued expenses (4,088) 5,848 221
Accrued payroll and related benefits 668 (83) (443)
Accrued taxes (3) (343) (1,770)
Accrued reclamation and noncurrent liabilities (4,608) (3,058) (2,366)
--------- --------- ---------
Net cash provided (used) by operating activities (5,351) 5,272 8,609
--------- --------- ---------
Investing activities
Purchase of investments and change in cash surrender value
of life insurance, net 114 (593) (412)
Purchase of short-term investments, net -- (27,578) 27
Proceeds from sale of investments and subsidiary 32,067 273 --
Purchase of restricted investments (13,553) -- --
Additions to properties, plants and equipment (66,559) (56,836) (23,551)
Proceeds from disposition of properties, plants and equipment 13,809 1,511 11,493
Other, net (325) (2,162) (272)
--------- --------- ---------
Net cash used by investing activities (34,447) (85,385) (12,715)
--------- --------- ---------
Financing activities
Repayment of debt -- -- (2,427)
Common stock issued under stock option plans and warrants 1,765 1,425 669
Preferred stock issuance, net of issuance costs -- 110,346 --
Preferred stock dividends (8,050) (2,058) --
Common stock issuance, net of issuance costs 63,499 6,464 --
Retirement of long-term debt including $16,283
of accreted interest (50,169) -- --
--------- --------- ---------
Net cash provided (used) by financing activities 7,045 116,177 (1,758)
--------- --------- ---------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents (32,753) 36,064 (5,864)
Net decrease in cash for the two-month period ended
December 31, 1992 -- -- (80)
Cash and cash equivalents at beginning of year 40,031 3,967 9,911
--------- --------- ---------
Cash and cash equivalents at end of year $ 7,278 $ 40,031 $ 3,967
========= ========= =========
Supplemental disclosure of cash flow information
Cash paid during year for
Interest (net of amount capitalized), including
$16,283 of accreted interest in 1994 $ 16,528 $ 347 $ 186
========= ========= =========
Income tax payments, net $ 436 $ 325 $ 222
========= ========= =========
See Notes 2 and 7 for noncash investing and financing activities.
The accompanying notes are an integral part of the financial statements.
F-5
68
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
(dollars and shares in thousands, except per share amounts)
Net
Foreign Unrealized
Preferred Stock Common Stock Retained Currency Gain
--------------- --------------- Capital Earnings Translation (Loss) on Treasury
Shares Amount Shares Amount Surplus (Deficit) Adjustment Investments Stock
------ ------ ------ ------- ---------- ---------- ----------- ------------ --------
Balances, December 31, 1991 - - $ - - 34,063 $ 8,515 $ 101,007 $ 49,429 $ - - $ (16) $ (910)
Net loss (55,276)
Stock issued under stock
option plans 73 18 423
Stock issued for Mexican
mineral concessions 185 46 1,748
Stock issued to retire
long-term debt 1,120 280 10,921
Stock issued on debenture
conversion 68 17 341
Stock issued on exercise
of warrants 60 15 268
Stock issued on acquisition
of investment in Eastmaque 69 17 341
Stock issued for property
acquisition 7 2 37
Stock issued on amalgamation
with Eastmaque 680 170 3,120
Equinox net loss for the
two-month period ended
December 31, 1992 (3,075)
----- ----- ------ ------- --------- -------- ------- ------- ------
Balances, December 31, 1992 - - - - 36,325 9,080 118,206 (8,922) - - (16) (910)
Net loss (17,782)
Preferred stock issuance,
net of issuanc 2,300 575 109,771
Preferred stock dividends
($1.77 per share) (4,070)
Stock issued under stock
option plans 227 57 1,368
Stock issued for Mountain
West Products, Inc. 655 164 6,141
Stock issued to retire
long-term debt 2,200 550 23,870
Stock issued for property
acquisition 13 4 92
Stock issued for cash, net
of issuance costs 900 225 6,239
Net change in unrealized
gain (loss) on investments 8
Treasury stock issued net
of purchase 22
----- ----- ------ ------- --------- -------- ------- ------- ------
Balances, December 31, 1993 2,300 575 40,320 10,080 265,687 (30,774) - - (8) (888)
Effect of change in
accounting for investments 635
Net loss (24,613)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans 312 78 1,419
Stock issued on exercise of
warrants 37 9 259
Stock issued for cash, net
of issuance costs 7,475 1,869 61,630
Net change in unrealized
gain (loss) on investments 2,769
Net change in foreign
currency translation
adjustment (3,158)
Treasury stock purchased (1)
----- ----- ------ ------- --------- -------- ------- ------- ------
Balances, December 31, 1994 2,300 $ 575 48,144 $12,036 $ 328,995 $(63,437) $(3,158) $ 3,396 $ (889)
===== ===== ====== ======= ========= ======== ======= ======= ======
The accompanying notes are an integral part of the financial statements.
F-6
69
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION -- The accompanying consolidated
financial statements include the accounts of Hecla Mining Company, its
majority-owned subsidiaries and its proportionate share of the accounts
of the joint ventures in which it participates. All significant
intercompany transactions and accounts are eliminated. The accompanying
consolidated financial statements of Hecla Mining Company and
subsidiaries ("Hecla") have been prepared to give effect to the
amalgamation involving Equinox Resources Ltd. ("Equinox") on March 11,
1994, which was accounted for as a pooling of interests.
Prior to November 1, 1992, Equinox's fiscal year end was October
31. Accordingly, the December 31, 1992 consolidated statement of
operations includes the results of operations for Hecla for the year
ended December 31 and for Equinox for the fiscal year ended October 31.
Subsequent to October 31, 1992, Equinox had a December 31 year end.
Equinox's sales and net loss for the two-month period ended December 31,
1992 were $1,901,000 and $3,075,000, respectively. The net loss has
been reflected in the consolidated statement of changes in shareholders'
equity during the year ended December 31, 1992.
B. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- The
Company is engaged in mining and mineral processing. Sales of metals
products are made principally to domestic and foreign custom smelters
and metal traders. Industrial minerals are sold principally to domestic
manufacturers and wholesalers. Sales to significant metals customers,
as a percentage of total sales of metals products, were as follows:
1994 1993 1992
---- ---- ----
Custom smelters 9.3% 24.0% 37.1%
Custom metal traders
Customer A 38.3% 15.1% 7.6%
Customer B 19.2% 14.8% 2.5%
Customer C 12.9% 13.7% 21.0%
Customer D 11.9% 11.7% 16.2%
Customer E 8.4% 7.6% 13.7%
During 1994, 1993 and 1992, the Company sold 13.0%, 16.7%, and
26.0%, respectively, of its products to companies in foreign countries.
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash and
F-7
70
cash equivalents and trade accounts receivable. The Company places its
cash and temporary cash investments with high credit worthy
institutions. At times such investments may be in excess of the FDIC
insurance limit. The Company routinely assesses the financial strength
of its customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
C. INVENTORIES -- Inventories are stated at the lower of average
cost or estimated net realizable value.
D. INVESTMENTS -- The Company follows the equity method of
accounting for investments in common stock of operating companies 20% to
50% owned. Investments in non-operating companies that are not intended
for resale or are not readily marketable are valued at the lower of cost
or net realizable value.
At December 31, 1994, marketable equity securities have been
categorized as available for sale and are stated at market value (see
Note 4). Realized gains and losses on the sale of these securities are
recognized in the consolidated statement of operations in the period
they are sold on a specific identification basis. Unrealized gains and
losses are included as a component of shareholders' equity net of
related deferred income taxes. At December 31, 1993, marketable equity
securities were stated at the lower of aggregate cost or quoted market
value.
Restricted investments held at December 31, 1994 (see Note 8) and
short-term investments held at December 31, 1993, represent investments
in certificates of deposits, commercial paper and U.S. Treasury Notes
and are recorded at amortized cost, plus accrued interest, which
approximates market value.
E. PROPERTIES, PLANTS AND EQUIPMENT -- Properties, plants and
equipment are stated at the lower of cost or estimated net realizable
value. Maintenance, repairs and renewals are charged to operations.
Betterments of a major nature are capitalized. When assets are retired
or sold, the costs and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or
loss is reflected in operations. Idle facilities, placed on a standby
basis, are carried at the lower of net book value or estimated net
realizable value.
Management of the Company reviews the net carrying value of all
facilities, including idle facilities, on a regular, periodic basis.
These reviews consider, among other factors, (1) the net realizable
value of each major type of asset, on a property-by-property basis, to
reach a judgment concerning possible permanent impairment of value and
any need for a write-down in asset value; (2) the ability of the Company
to fund all care, maintenance and standby costs; (3) the status and
usage of the assets, while in a standby mode, to thereby
F-8
71
determine whether some form of amortization is appropriate; and (4)
current projections of metal prices that affect the decision to reopen
or make a disposition of the assets. The Company estimates the net
realizable value of each property based on the estimated undiscounted
future cash flows that will be generated from operations at each
property, the estimated salvage value of the surface plant, equipment
and the value associated with property interests. These estimates of
undiscounted future cash flows are dependent upon estimates of metal to
be recovered from proven and probable ore reserves and, where
appropriate, from the continuity of existing, developed ore bodies,
future production costs and future metal prices over the estimated
remaining mine life.
Depreciation is based on the estimated useful lives of the assets
and is computed using straight-line, declining-balance, and
unit-of-production methods. Depletion is computed using the
unit-of-production method.
F. MINE EXPLORATION AND DEVELOPMENT -- Exploration costs are
charged to operations as incurred, as are normal development costs at
operating mines. Major mine development expenditures at operating
properties and at new mining properties not yet producing are
capitalized.
G. RECLAMATION OF MINING AREAS -- Minimum standards for mine
reclamation have been established by various governmental agencies which
affect certain operations of the Company. A reserve for mine
reclamation costs has been established for restoring certain abandoned
and currently disturbed mining areas based upon estimates of cost to
comply with existing reclamation standards. Mine reclamation costs for
operating properties are accrued using the unit-of-production method.
H. INCOME TAXES -- The Company records deferred tax liabilities
and assets for the expected future income tax consequences of events
that have been recognized in its financial statements. Deferred tax
liabilities and assets are determined based on the temporary differences
between the financial statement carrying amounts and the tax bases of
assets and liabilities using enacted tax rates in effect in the years in
which the temporary differences are expected to reverse.
I. NET LOSS PER COMMON SHARE -- Net loss per common share is
computed by adding preferred stock dividends to net loss and dividing
the result by the weighted average number of shares of common stock and
common stock equivalents (stock options and warrants) outstanding during
each reporting period unless the common stock equivalents are
anti-dilutive. Due to the net losses in 1994, 1993 and 1992, common
stock equivalents are anti-dilutive and therefore have been excluded
from the computation.
F-9
72
J. REVENUE RECOGNITION -- Sales of metal products sold directly
to smelters are recorded when they are received by the smelter, at
estimated metal prices. Recorded values are adjusted periodically and
upon final settlement. Metal in products tolled (rather than sold to
smelters) is sold under contracts for future delivery; such sales are
recorded at contractual amounts when products are available to be
processed by the smelter or refinery. Sales of industrial minerals are
recognized as the minerals are delivered.
K. INTEREST EXPENSE -- Interest costs incurred during the
construction of qualifying assets are capitalized as part of the asset
cost.
L. CASH EQUIVALENTS -- The Company considers cash equiva-lents
to consist of highly liquid investments with a remaining maturity of
three months or less when purchased.
M. FOREIGN CURRENCY TRANSLATION -- The Company operates in
Mexico with its two wholly owned subsidiaries; Minera Hecla, S.A. de
C.V. ("Minera Hecla") and K-T Clay de Mexico S.A. de C.V. ("K-T
Mexico"). The functional currency for Minera Hecla is the U.S. dollar,
whereas, the Mexican peso is the functional currency for K-T Mexico.
Accordingly, the Company translates the monetary assets and liabilities
of Minera Hecla at the year-end exchange rate while non-monetary assets
and liabilities are translated at historical rates. The Company
translates all assets and liabilities of K-T Mexico at the year- end
exchange rate. Income and expense accounts of both subsidiaries are
translated at the average exchange rate for each period. Minera Hecla
translation adjustments and transaction gains and losses are reflected
in the net loss for the period while the resulting K-T Mexico
translation adjustments are reflected as a component of shareholders'
equity.
N. RISK MANAGEMENT CONTRACTS -- In the normal course of its
business, the Company uses forward sales commitments and commodity put
and call option contracts to manage its exposure to fluctuations in the
prices of certain metals which it produces. Contract positions are
designed to ensure that the Company will receive a defined minimum price
for certain quantities of its production. Gains and losses, and the
related costs paid or premium received, for contracts which hedge the
sales prices of commodities are deferred and included in income as part
of the hedged transaction. Revenues from the aforementioned contracts
are recognized at the time contracts are closed out by delivery of the
underlying commodity or settlement of the net position in cash. The
Company is exposed to certain losses, generally the amount by which the
contract price exceeds the spot price of a commodity, in the event of
nonperformance by the counterparties to these agreements.
O. RECLASSIFICATIONS -- Certain consolidated financial statement
amounts have been reclassified to conform to the 1994
F-10
73
presentation. These reclassifications had no effect on the net loss or
retained deficit as previously reported.
NOTE 2: BUSINESS COMBINATIONS
Equinox
On December 29, 1993, Hecla, two wholly owned Canadian
subsidiaries of Hecla, and Equinox, a mining, exploration and
development company, incorporated under the laws of the Province of
British Columbia, executed an Acquisition Agreement providing for
Hecla's acquisition of Equinox. Pursuant to the Acquisition Agreement
and related Plan of Arrangement, which was consummated on March 11,
1994, (i) Equinox common shareholders received 0.3 common share of Hecla
("Hecla common shares"), for each outstanding Equinox common share, (ii)
holders of Equinox's Series "A" production participating preferred
shares received newly issued production notes of Hecla with the same
material terms and conditions, and (iii) outstanding Equinox options and
warrants became exercisable for Hecla common shares. In connection with
the acquisition of Equinox, Hecla issued approximately 6.3 million Hecla
common shares, including shares issuable upon exercise of outstanding
Equinox options and warrants.
The acquisition of Equinox has been accounted for as a
pooling-of-interests and, accordingly, the Company's consolidated
financial statements have been restated for all periods presented to
include the financial position, results of operations, and cash flows of
Equinox. The results of operations for Equinox for the period January
1, 1994 to March 11, 1994 were not material and, therefore, are not
presented. Separate operating results of the combining entities for the
two years in the period ended December 31, 1993 are as follows (in
thousands):
December 31,
--------------------
1993 1992
-------- --------
Sales of products
Hecla $ 81,847 $100,651
Equinox 11,041 970
-------- --------
$ 92,888 $101,621
======== ========
Net loss applicable to
common shareholders
Hecla $ 15,805 $ 49,289
Equinox 6,047 5,987
-------- --------
$ 21,852 $ 55,276
======== ========
The consolidated financial statements include adjustments to
conform Equinox's accounting policies to U.S. generally
F-11
74
accepted accounting principles consistent with those of Hecla,
principally relating to exploration, reclamation, and the reduction in
carrying value of mining properties. The effect of these adjustments
was to increase (decrease) Equinox's net loss by $(3,028,000) and
$396,000 during 1993 and 1992, respectively.
Eastmaque Gold Mines Ltd.
On December 8, 1992, Equinox amalgamated with Eastmaque Gold
Mines Ltd. ("Eastmaque") under the provisions of the Company Act of
British Columbia. Both companies were involved in the exploration and
development of resource properties. The transaction has been accounted
for as a purchase and the results of operations of Eastmaque have been
included in the consolidated statements of operations from the date of
amalgamation. The combination was effected through the issuance of
69,000 common shares during Equinox's fiscal year ended October 31, 1992
and 680,000 common shares on December 6, 1992 at a total deemed value of
approximately $3.6 million, the issuance of 415,000 warrants and 415,000
Class A preferred shares and costs of approximately $108,000. The
estimated fair value of the net assets of Eastmaque at the date of
amalgamation was approximately $4.8 million consisting principally of
resource property and inventory assets totalling $9.6 million offset by
liabilities of $4.8 million.
NOTE 3: INVENTORIES
Inventories consist of the following (in thousands):
December 31,
---------------------------
1994 1993
-------- --------
Concentrates, bullion, metals in transit
and other products $ 5,568 $ 2,615
Industrial minerals products 5,995 5,260
Materials and supplies 7,053 7,145
-------- --------
$ 18,616 $ 15,020
======== ========
At December 31, 1994, the Company had forward sales commitments
through March 31, 1995 for 3,500 ounces of gold at an average price of
$375 per ounce. The Company has also purchased options to put 102,240
ounces of gold to the counterparties at an average price of $390 per
ounce. Concurrently, the Company sold options to allow the
counterparties to call 102,240 ounces of gold from the Company at an
average price of $464 per ounce. There was no net cost associated with
the purchase and sale of these options which expire on a monthly basis
through December 1997. The London Final gold price for 1994 was
$383.25. It is not practicable for the Company to obtain or calculate
the estimated fair value of these option contracts at December 31, 1994,
due to the cost
F-12
75
of obtaining the data. The nature and purpose of the contracts,
however, do not presently expose the Company to any significant net
loss. In addition, at December 31, 1994, the Company has sold forward
3,600 metric tons of lead at an average price of $684 per metric ton, or
$0.31 per pound. These commitments extend over the period June 1995 to
January 1996. All of the aforementioned contracts are designated as
hedges at December 31, 1994. There are no forward sales commitments or
purchase options for silver at December 31, 1994.
NOTE 4: INVESTMENTS
The Company adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," effective
January 1, 1994. At December 31, 1994, marketable equity securities
have been categorized as available for sale and are stated at quoted
market value. At December 31, 1993, marketable equity securities were
stated at the lower of aggregate cost or quoted market value. Other
investments were recorded at cost at December 31, 1994 and 1993.
Investments consist of the following components (in thousands):
Carrying Market
Value Cost Value
--------- -------- --------
December 31, 1994
-----------------
Equity securities investments
available for sale $ 5,276 $ 1,880 $ 5,276
Other investments 1,200 1,200
------- -------
$ 6,476 $ 3,080
======= =======
December 31, 1993
-----------------
Marketable equity securities $ 377 $ 385 $ 377
Other investments 6,188 6,188
------- --------
$ 6,565 $ 6,573
======= =======
Gross unrealized gains and losses at December 31, 1994, were
$3,608,000 and $212,000, respectively.
The other investments are principally large blocks of common and
preferred stock in several mining companies, investments in various
ventures, and cash surrender value of life insurance policies. The
securities are generally restricted as to trading or marketability,
although some are traded on various exchanges.
F-13
76
Proceeds from the sales of investment securities in 1994 totaled
$2,970,000; gross realized gains and losses on such sales were
$1,366,000 and $313,000, respectively.
NOTE 5: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in
thousands):
December 31,
----------------------------
1994 1993
--------- ---------
Mining properties $ 53,304 $ 59,642
Deferred development costs 161,645 156,969
Plants and equipment 224,914 182,664
Land 6,305 6,163
--------- ---------
446,168 405,438
Less accumulated depreciation,
depletion and amortization 188,260 176,383
--------- ---------
Net carrying value $ 257,908 $ 229,055
========= =========
In the fourth quarter of 1994, based on its periodic reviews of
the status of various mining properties, the Company determined that
certain adjustments were appropriate to properly reflect estimated net
realizable values. These adjustments consisted primarily of the
write-downs of properties, plants, equipment, and supplies inventory
totaling approximately $7.9 million. The major portion of these
adjustments was related to the $7.2 million write-down of property,
plant, equipment, and supplies inventory at the Republic mine, which
will complete operations in February 1995. Also included was a $0.3
million write-down of exploration equipment and a $0.4 million
write-down of the Zenda property.
In 1993, the Company also recorded approximately $2.6 million as
a reduction of the carrying value of mineral properties. This
principally related to the American Girl/Oro Cruz Joint Venture which
was written down $1.7 million to reflect updated information regarding
reserves and operating costs. An additional $0.7 million was recorded
as a write-down of the Zenda property to reduce the carrying value to
net realizable value.
The 1992 adjustments consisted primarily of the write-downs of
various properties, plants and equipment totaling approximately $30.8
million. The major portion of the adjustments related to the $13.5
million write-down of the Company's interest in the Apex processing
facility, a hydrometallurgical processing plant near St. George, Utah.
Also in 1992, due to depressed silver prices, the Company recorded
write-downs of approximately $9.0 million related to the Consolidated
Silver and Hog Heaven silver properties,
F-14
77
located in north Idaho and northwest Montana, respectively. The Lisbon
Valley Project in Utah, a joint venture which is fully developed for
uranium and vanadium production, was also written down in 1992 by
approximately $3.5 million to its estimated net realizable value.
Included in the 1992 write-downs were approximately $1.5 million and
$0.4 million related to the Company's interests in the Creede and
Hardscrabble gold and silver properties, respectively, both located in
Colorado. Also included in the 1992 write-down is $1.1 million related
to the Zenda property and $1.7 million related to the Van Stone mine.
Both were a result of decreases in estimates of metal prices and in the
case of Van Stone, underground reserves. Certain non-recourse loans of
approximately $3.5 million which were payable only from the net
production proceeds of the Van Stone property were also written off.
The net carrying values of the major mining properties of the
Company that were on a standby or idle basis at December 31, 1994 and
1993 were approximately $53.0 million and $55.7 million, respectively.
On February 8, 1994, the Company sold a 20 percent interest in
its Grouse Creek gold project to Great Lakes Minerals Inc. of Toronto,
Ontario ("Great Lakes"). The purchase price of $6.8 million represents
20 percent of the amount spent by the Company on acquisition,
exploration and development of the project through June 30, 1993,
including a fixed premium of $1.25 million. In addition, Great Lakes
funded its pro-rata share of the total construction cost for Grouse
Creek from July 1, 1993 to the completion of the project and has the
option to increase its ownership to a maximum of 30 percent by
contributing additional funds on a proportional basis. This option
expires twelve months after commencement of operations as defined in the
agreement.
NOTE 6: INCOME TAXES
Major components of the Company's income tax provision (benefit)
are (in thousands):
1994 1993 1992
------- ------- -------
Current
Federal $ (805) $ (200) $ (390)
State 337 226 165
------- ------- -------
Total current (468) 26 (225)
------- ------- -------
Deferred
Federal - - (728) (17)
State - - (236) (103)
------- ------- -------
Total deferred - - (964) (120)
------- ------- -------
Income tax benefit $ (468) $ (938) $ (345)
======= ======= =======
F-15
78
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" and recorded a tax benefit of approximately $1.5 million
($0.049 per common share), which represents the net decrease in the
deferred tax liability as of that date.
During 1994 and 1992, for income tax purposes, the Company
carried back current operating losses to offset income recorded in prior
years and recorded income tax refunds of approximately $1,009,000 and
$390,000, respectively.
The components of the net deferred tax liability are (in
thousands):
December 31,
-----------------------------
1994 1993
-------- --------
Deferred tax assets
Accrued reclamation costs $ 10,692 $ 7,589
Investment valuation differences 864 1,754
Miscellaneous 1,441 1,106
Capital loss carryover 4,330 933
Postretirement benefits other
than pensions 852 742
Other liabilities 53 188
Deferred compensation 417 406
Accounts receivable 456 456
Foreign net operating losses 3,609 1,280
Federal net operating losses 55,414 57,961
State net operating losses 4,426 4,359
Tax credit carryforwards 3,435 1,626
-------- --------
Total deferred tax assets 85,989 78,400
Valuation allowance (67,149) (58,529)
-------- --------
Net deferred tax assets 18,840 19,871
-------- --------
Deferred tax liabilities
Properties, plants and equipment (17,333) (17,042)
Deferred income (363) (440)
Pension costs (556) (477)
Deferred state income taxes, net (947) (2,271)
-------- --------
Total deferred tax liabilities (19,199) (20,230)
-------- --------
Net deferred tax liability $ (359) $ (359)
======== ========
F-16
79
The Company has recorded a valuation allowance to reflect the
estimated amount of deferred tax assets which may not be realized
principally due to the expiration of net operating losses and tax credit
carryforwards. The changes in the valuation allowance are (in
thousands):
December 31,
----------------------------
1994 1993
-------- --------
Balance at beginning of year $(58,529) $(53,802)
Increase related to nonutilization
of net operating loss
carryforwards and nonrecognition
of deferred tax assets due to
uncertainty of recovery (8,620) (4,727)
-------- --------
Balance at end of year $(67,149) $(58,529)
======== ========
The annual tax provision (benefit) is different from the amount
which would be provided by applying the statutory federal income tax
rate to the Company's pretax income (loss). The reasons for the
difference are (in thousands):
1994 % 1993 % 1992 %
-------- --- ------- --- -------- ---
Computed "statutory"
provision (benefit) $(8,244) (34) $(6,365) (34) $(18,876) (34)
Nonutilization of net
operating losses 8,085 33 5,564 30 18,490 33
State income taxes, net of
federal tax benefit (309) (1) (137) (1) 41 --
------- --- ------- ---- ------- ---
$ (468) (2) $ (938) (5) $ (345) (1)
======= === ======= ==== ======= ===
F-17
80
Substantially all of the Company's net operating loss carryovers
are attributed to preference related items, and therefore are not
available to offset alternative minimum taxable income. However, they
are available to offset future regular taxable income. At December 31,
1994, the Company had tax basis net operating loss carryovers available
to offset future regular and alternative minimum and foreign taxable
income. These carryovers expire as follows (in thousands):
Regular Foreign
Tax Net AMT Net Net Investment
Operating Operating Operating Tax Credit
Losses Losses Losses Carryover
---------- ---------- ---------- ---------
1995 $ 12,590 $ 5 $ - - $ - -
1996 268 268 - - - -
1997 2,020 695 1,270 84
1998 11,005 308 376 482
1999 6,235 1,199 8,966 310
2000 3,089 789 - - 240
2001 4,538 1,683 - - 115
2002 2,717 346 - - - -
2003 1,792 623 - - - -
2004 16,406 532 - - - -
2005 10,744 878 - - - -
2006 23,766 3,105 - - - -
2007 27,134 8,285 - - - -
2008 28,179 21,971 - - - -
2009 12,500 6,080 - - - -
-------- ------- -------- -------
$162,983 $46,767 $ 10,612 $ 1,231
======== ======= ======== =======
The above amounts include approximately $17.9 million and $8.5
million, respectively, of regular and alternative minimum tax net
operating losses carrying over from Equinox Resources Ltd. and CoCa
Mines Inc. Due to these mergers, there will be limitations on the
amount of these net operating losses that can be utilized in any given
year to reduce certain future taxable income.
The Company has approximately $2.1 million in alternative minimum
tax credit carryovers eligible to reduce future regular tax liabilities.
During 1992, the Company used capital loss carryovers of
approximately $7.4 million to offset 1992 capital gains.
F-18
81
NOTE 7: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consists of the following (in thousands):
December 31,
--------------------------
1994 1993
-------- --------
Zero coupon convertible notes $ -- $ 48,433
Notes payable - Sunbeam 1,038 962
Production notes payable 1,185 520
Other long-term debt 83 94
-------- --------
2,306 50,009
Less: current portion (346) --
-------- --------
$ 1,960 $ 50,009
======== ========
Zero Coupon Convertible Notes
During 1989, the Company issued subordinated zero coupon
convertible notes, due June 14, 2004, with a face value at maturity of
$201,250,000. These Liquid Yield Option Notes ("LYONs") were issued at
30.832% of their face value at maturity. During 1992, the Company
exchanged 1,120,125 shares of its common stock for 30,900 outstanding
LYONs. In this noncash transaction, the Company recorded the issuance
of common stock totaling approximately $11.2 million and the reduction
of long-term debt and deferred issuance costs totaling approximately
$12.0 million and $0.3 million, respectively, recognizing a gain
totaling approximately $0.5 million.
During 1993, the Company exchanged 2.2 million shares of its
common stock for 60,400 outstanding LYONs. The Company recorded the
issuance of common stock totaling approximately $24.4 million and the
reduction of long-term debt and deferred issuance costs totaling
approximately $25.2 million and $0.5 million, respectively, recognizing
a gain from this transaction of approximately $0.3 million.
On May 11, 1994, the Company completed a public offering of its
common stock and called for redemption of the remaining 109,950 LYONs.
On June 13, 1994, the Company used approximately $50.2 million of the
net proceeds from the common stock offering to redeem the outstanding
LYONs. The Company recorded an extraordinary loss on retirement of
long-term debt totaling approximately $0.8 million in 1994, which
related principally to the write-off of the unamortized balance of
deferred issuance costs of the LYONs.
F-19
82
Notes Payable - Sunbeam
The notes are noninterest-bearing, discounted at 15% and payable
in three annual equal amounts from the date of commercial production of
the Grouse Creek property. The first installment of the notes, totaling
approximately $346,000, was paid in January 1995.
Production Notes Payable
When the Company acquired Equinox in March 1994, the then
outstanding production participating preferred shares were converted to
production notes and recorded as long-term debt. The attributes of the
production notes are identical to their predecessor production
participating preferred shares. The valuation of the production notes
as long-term debt is based on the present value of the estimated
cumulative net cash flow discounted at 10% from the American Girl/Oro
Cruz project. Based upon the repayment terms of the production notes,
the Company expects to pay the notes in full during 1997.
Revolving Credit Agreement
On August 30, 1994, the Company entered into an unsecured
revolving and term loan facility, under the terms of which the Company
can borrow up to $40.0 million. Amounts may be borrowed on a revolving
credit basis through July 31, 1997, and are repayable in eight quarterly
installments beginning on October 31, 1997. Borrowings bear interest at
floating rates depending on the type of advance. During the commitment
period, the Company is obligated to pay an annual fee of $130,000. The
agreement contains certain restrictive covenants, the most restrictive
of which relate to maintenance of a current ratio, fixed charge coverage
ratio and limitations on the issuance of additional indebtedness.
Amounts available under the facility are based on a debt to cash flow
calculation. At December 31, 1994, there were no borrowings outstanding
under the facility.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases various facilities and equipment under
noncancelable operating lease arrangements. The major facilities and
equipment leases are for terms of three to ten years.
F-20
83
Future minimum lease payments under these noncancelable operating
leases as of December 31, 1994 are as follows (in thousands):
Year Ending December 31,
------------------------
1995 $ 2,793
1996 2,537
1997 2,068
1998 1,942
1999 1,523
Thereafter 2,319
-------
Total minimum lease payments $13,182
=======
Contingencies
In October 1989, and again in February 1990, the Company was
notified by the EPA that the EPA considered the Company a Potentially
Responsible Party ("PRP") at the Bunker Hill Superfund Site located at
Kellogg, Idaho ("Bunker Hill Site"). In February 1994, the Company and
three other mining company PRPs entered into a Consent Decree with EPA
and the State of Idaho pursuant to which the Company and two of the
three companies signing the decree agreed to implement remediation work
at a portion of the Bunker Hill Site. The remediation will primarily
involve the removal and replacement of lead-contaminated soils in
residential yards within the site and is estimated to be completed by
the participating mining companies over the period of the next five to
seven years. The Consent Decree also provides for the mining companies
to reimburse EPA for a portion of the government's past costs incurred
at the Bunker Hill Site. The Consent Decree was approved and entered by
the Federal District Court in Idaho on November 17, 1994. The Consent
Decree settles the Company's response-cost liability under Superfund at
the Bunker Hill Site. Based upon the terms of the Consent Decree and an
agreement between the participating mining companies relating to the
allocation of the cost for work under the Consent Decree, the Company
has estimated and established a total allowance for liability for
remedial activity costs at the Bunker Hill Site of $9.1 million as of
December 31, 1994. Other than consulting work necessary for the
implementation of the Company's allocated portion of the remedial
activity at this site, the Company's accruals do not include any future
legal or consulting costs. The Company does not believe that these
costs will be material.
In July 1991, the Coeur d'Alene Indian Tribe (the "Tribe")
brought a lawsuit, under CERCLA, in Idaho Federal District Court against
the Company and a number of other mining companies asserting claims for
damages to natural resources located downstream from the Bunker Hill
Site over which the Tribe alleges some ownership or control. The
Company has
F-21
84
answered the Tribe's complaint denying liability for natural resource
damages and asserted a number of defenses to the Tribe's claims,
including a defense that the Tribe has no ownership or control over the
natural resources they assert have been damaged. In July 1992, in a
separate action between the Tribe and the State of Idaho, the Idaho
Federal District Court determined that the Tribe does not own the beds,
banks and waters of Lake Coeur d'Alene and the lower portion of its
tributaries, the ownership of which is the primary basis for the natural
resource damage claims asserted by the Tribe against the Company. Based
upon the Tribe's appeal of the July 1992 District Court ownership
decision to the 9th Circuit U.S. Court of Appeals, the court in the
natural resource damage litigation issued an order on October 30, 1992,
staying the court proceedings in the natural resource damage litigation
until a final decision is handed down on the question of the Tribe's
title. On December 9, 1994, the 9th Circuit Court reversed the decision
of the Idaho District Court and remanded the case of the Tribe's
ownership for trial before the District Court. The Company has been
advised that the State will seek an appeal of the 9th Circuit Court
decision to the U.S. Supreme Court. In July 1994 the United States, as
Trustee for the Coeur d'Alene Tribe, initiated a separate suit in Idaho
Federal District Court seeking a determination that the Coeur d'Alene
Tribe owns approximately the lower one-third of Lake Coeur d'Alene. The
State has denied the Tribe's ownership of any portion of Lake Coeur
d'Alene and its tributaries. The legal proceedings related to the
Tribe's natural resource damages claim against the Company and other
mining companies continue to be stayed.
In 1991, the Company initiated litigation in the Idaho State
District Court in Kootenai County, Idaho, against a number of insurance
carriers which provided comprehensive general liability insurance
coverage to the Company and its predecessors. The Company believes that
the insurance companies have a duty to defend and indemnify the Company
under their policies of insurance relating to claims asserted against
the Company by the EPA and the Tribe. In two separate decisions issued
in August 1992 and March 1993, the court ruled that the primary
insurance companies had a duty to defend the Company in the Tribe's
lawsuit, but that no carrier had a duty to defend the Company in the EPA
proceeding. At December 31, 1994, the Company has not reduced its
environmental accrual to reflect any anticipated insurance proceeds. In
January 1995, the Company entered into settlement agreements with four
of the insurance carriers named in the litigation. The Company received
a total of $2.425 million under the terms of the settlement agreements.
A portion of this settlement amount will be payable to the EPA to
reimburse the U.S. Government for past costs under the Bunker Hill
Consent Decree. Litigation is still pending against other insurers.
In December 1993, Industrial Constructors Corp. ("ICC") served the
Company with a complaint in Federal District Court
F-22
85
for the District of Idaho alleging that the Company failed to comply
with the terms of the contract between the Company and ICC relating to
the earth moving work contracted to ICC at the Company's Grouse Creek
gold project. ICC has alleged that the Company owes ICC in excess of
$5.0 million not previously paid, including an approximate $1.0 million
retention currently held by the Company under the terms of the contract.
In January 1995, the Company entered into a settlement of the litigation
with ICC pursuant to which the Company on behalf of the Grouse Creek
Joint Venture will pay ICC a total of $3.05 million (plus interest from
January 1, 1995) over a period of three months ending on April 3, 1995.
The Company has accrued and capitalized 80% of these amounts reflecting
its interest in the Grouse Creek Joint Venture.
In June 1994, a judgment was entered against the Company in Idaho
State District Court in the amount of $10.0 million in compensatory
damages and $10.0 million in punitive damages based on a jury verdict
rendered in late May 1994 with respect to a lawsuit previously filed
against the Company by Star Phoenix Mining Company ("Star Phoenix"), a
former lessee of the Star Morning Mine, over a dispute between the
Company and Star Phoenix concerning the Company's November 1990
termination of the Star Phoenix lease of the Star Morning Mine property.
A number of other claims by Star Phoenix and certain principals of the
Star Phoenix against the Company in the lawsuit were dismissed by the
State District Court. The Company's post-trial motions were denied by
the State District Court, and the Company has appealed the District
Court judgment to the Idaho State Supreme Court. Post-judgment interest
will accrue during the appeal period; the current interest rate is
10.5%. In order to stay the ability of Star Phoenix to collect on the
judgment during the pending of the appeal, the Company has posted an
appeal bond in the amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged certain investments
totaling $10.0 million as collateral for the appeal bond. This
collateral amount is included in restricted investments at December 31,
1994. Although the ultimate outcome of the appeal of the judgment is
subject to the inherent uncertainties of any legal proceeding, based
upon the Company's analysis of the factual and legal issues associated
with the proceeding before the Idaho District Court and based on the
opinions of outside counsel, as of the date hereof, it is management's
belief that the Company should ultimately prevail in this matter,
although there can be no assurance in this regard. Accordingly, the
Company has not accrued any liability associated with this litigation.
On September 15, 1994, the Company intervened in a lawsuit
brought in the U.S. District Court in Idaho by two environmental groups
against the United States Forest Service seeking to halt current and
prospective logging, grazing, road building and mining operations within
six national forests located in Idaho that may affect endangered salmon.
The lawsuit alleges that the Forest Service failed to comply with
F-23
86
certain obligations with respect to agency consultation for endangered
salmon under the Endangered Species Act in the planning process for
these national forests. The Company's Grouse Creek project is located
within one of the national forests identified in the lawsuit and could
be subject to the relief requested. Recent communications between the
applicable federal agencies regarding activities at the project indicate
that additional consultation under the Endangered Species Act will be
necessary for certain aspects of the Company's Grouse Creek project. On
January 12, 1995, the District Court issued an Order granting an
injunction against the Forest Service to halt all ongoing and future
mining, timber, grazing, and road building activity in the six national
forests that may affect the endangered salmon. The Court's Order
provided an exception to the injunction for certain projects, like the
Grouse Creek project, with determinations that the project would not
likely adversely affect the endangered salmon. The Forest Service is
required to seek court approval for all such projects to be excluded
from the injunction. The District Court has stayed the effectiveness of
the injunction to March 15, 1995, to permit the government to complete
the consultation required under the Endangered Species Act. On March 1,
1995, the government announced the completion of the required forest
planning consultation and stated there was no further need for an
injunction. Although the ultimate impact on the Grouse Creek project of
any additional consultation under the Endangered Species Act and the
pending lawsuit cannot be predicted, based on a comprehensive
environmental assessment completed with respect to developing the
Company's Grouse Creek project and the completion of the consultation,
the Company's management currently does not anticipate that these
matters will have a material adverse affect on the Company or its
financial condition.
The Company is subject to other legal proceedings and claims
which have arisen in the ordinary course of its business and have not
been finally adjudicated. Although the ultimate disposition of these
matters and various other pending legal actions and claims is not
presently determinable, it is the opinion of the Company's management,
based upon the information available at this time, that the expected
outcome of these suits and proceedings will not have a material adverse
effect on the results of operations and financial condition of the
Company and its subsidiaries.
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries have defined benefit pension
plans covering substantially all employees. One plan covering eligible
salaried and hourly employees provides retirement benefits and is based
on the employee's compensation during the highest 36 months of the last
120 months before retirement. Three other pension plans covering
eligible hourly employees provide benefits of stated amounts for each
year of service. It is the Company's policy to make contributions to
F-24
87
these plans sufficient to meet the minimum funding requirements of
applicable laws and regulations, plus such additional amounts, if any,
as the Company and its actuarial consultants consider appropriate.
Contributions are intended to provide not only for benefits attributed
to service to date, but also for those expected to be earned in the
future. Plan assets for these plans consist principally of equity
securities, insurance contracts and corporate and U.S. government
obligations.
Net periodic pension cost (income) for the plans consisted of the
following in 1994, 1993 and 1992 (in thousands):
1994 1993 1992
------- ------- -------
Service cost $ 938 $ 961 $ 872
Interest cost 1,938 1,899 1,732
Return on plan assets (2,737) (2,924) (2,849)
Amortization of transition asset (434) (434) (434)
Amortization of unrecognized
prior service cost 70 45 45
Amortization of unrecognized net
(gain) loss from earlier periods (4) 6 (305)
------- ------- -------
Net pension income $ (229) $ (447) $ (939)
======= ======= =======
The following table sets forth the funded status of the plans and
amounts recognized in the Company's consolidated balance sheets (in
thousands):
December 31,
-----------------------
1994 1993
-------- --------
Actuarial present value of
benefit obligations
Vested benefits $ 24,429 $ 27,771
Nonvested benefits 300 764
-------- --------
Accumulated benefit obligations 24,729 28,535
Effect of projected future salary
and wage increases 1,500 2,205
-------- --------
Projected benefit obligations $ 26,229 $ 30,740
======== ========
Plan assets $ 33,550 $ 35,135
Projected benefit obligations (26,229) (30,740)
-------- --------
Plan assets in excess of projected
benefit obligations 7,321 4,395
Unrecognized net gain (3,314) (253)
Unrecognized prior service cost 708 778
Unrecognized net asset
at January 1 (3,081) (3,515)
-------- --------
Pension asset recognized in
consolidated balance sheets $ 1,634 $ 1,405
======== ========
F-25
88
The projected benefit obligation was calculated applying the
following average rates:
1994 1993
---- ----
Discount rate 8.00% 6.50%
Long-term compensation increase 5.00% 5.00%
Long-term rate of return on
plan assets 8.00% 8.50%
The Company provides certain postretirement benefits, principally
health care and life insurance benefits for qualifying retired
employees. The costs of these benefits are being funded out of general
corporate funds. Prior to 1992, the cost of some of these benefits was
expensed when payments were made. Other health care and life insurance
benefits had been previously accrued. Effective January 1, 1992, the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS No. 106), which requires that these postretirement benefits be
accrued over the period in which active employees provide services to
the Company. At January 1, 1992, the cumulative effect of recording
these postretirement benefits was to increase the 1992 net loss by $1.6
million or $0.051 per share.
Net periodic postretirement benefit cost for 1994, 1993 and 1992
included the following components (in thousands):
1994 1993 1992
---- ---- ----
Service cost $ 24 $ 28 $ 22
Interest cost 141 164 179
Amortization of gain (13) -- --
---- ---- ----
Net postretirement benefit cost $152 $192 $201
==== ==== ====
F-26
89
The following table sets forth the status of the postretirement
benefits programs (other than pensions) and amounts recognized in the
Company's consolidated balance sheets (in thousands):
December 31,
-----------------
1994 1993
------- -------
Accumulated postretirement benefit obligation
Retirees $(1,317) $(1,569)
Fully eligible, active plan participants (314) (355)
Other active plan participants (290) (242)
------- -------
(1,921) (2,166)
Unrecognized net gain (470) (191)
------- -------
Accumulated postretirement benefit obligation
recognized in consolidated balance sheets $(2,391) $(2,357)
======= =======
The actuarial assumptions used in determining the Company's
accumulated postretirement benefit obligation are provided in the table
below. Due to the short period which the Company provides medical
benefits to its retirees, the increases in medical costs are assumed to
be 6% in each year. A 1% change in the assumed health care cost trend
rate would not have a significant impact on the accumulated
postretirement benefit obligation or the aggregate of service and
interest cost for 1994 or 1993.
1994 1993
----- -----
Discount rate 8.00% 6.50%
Trend rate for medical benefits 6.00% 6.00%
The Company has a Deferred Compensation Plan which permits
eligible officers and directors to defer a portion of their
compensation. The deferred compensation, which together with Company
matching amounts and accumulated interest is accrued but unfunded, is
distributable in cash after retirement or termination of employment, and
at December 31, 1994 and 1993, amounted to approximately $1.2 million.
The Company amended the Deferred Compensation Plan effective January 1,
1995. The amended plan allows the participants to defer up to a maximum
of 50% of base salary from January 1, to May 31, 1995, and up to 100% of
annual bonuses for the 1995 calendar year. The participant may elect to
receive such deferred amounts, together with interest at the Moody's
Corporate Bond Yield rate, in one payment at retirement, or on any plan
anniversary after the completion of three years as elected.
Participation in the nonqualified plan is limited to a select group of
management. The first plan year begins January 1, 1995 and ends May 31,
1995. All subsequent plan years will be June 1 to May 31.
F-27
90
The Company has an employees' Capital Accumulation Plan which is
available to all salaried and certain hourly employees after completion
of six months of service. Employees may contribute from 2% to 10% of
their compensation to the plan. Effective January 1, 1993, nonhighly
compensated employees may contribute up to 15%. The Company makes a
matching contribution of 25% of an employee's contribution up to, but
not exceeding, 5% of the employee's earnings. The Company's
contribution for 1994 was approximately $170,000, and $158,000 for both
1993 and 1992.
NOTE 10: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has 2.3 million shares of Series B Cumulative
Convertible Preferred Stock (the "Preferred Shares") outstanding.
Holders of the Preferred Shares are entitled to receive cumulative cash
dividends at the annual rate of $3.50 per share payable quarterly, when
and if declared by the Board of Directors.
The Preferred Shares are convertible in whole or in part at the
option of the holders thereof, into shares of common stock at an initial
conversion price of $15.55 per share of common stock. The Preferred
Shares are not redeemable by the Company prior to July 1, 1996. After
such date, the shares will be redeemable at the option of the Company at
any time, in whole or in part, initially at $52.45 per share and
thereafter at prices declining ratably on each July 1 to $50 per share
on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if
the Company fails to pay the equivalent of six quarterly dividends. If
these dividends are not paid, the holders of Preferred Shares, voting as
a class, shall be entitled to elect two additional directors. The
holders of Preferred Shares also have voting rights related to certain
amendments to the Company's Articles of Incorporation.
The Preferred Shares rank senior to the common stock and any
outstanding shares of Series A Preferred Shares. The Preferred Shares
have a liquidation preference of $50 per share plus all accrued and
unpaid dividends.
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursuant
to this plan, holders of common stock received one preferred share
purchase right for each common share held. The rights will be triggered
once an Acquiring Person, as defined in the plan, acquires 15% or more
of the Company's outstanding common shares. The 15% triggering
threshold may be reduced by the Board of Directors to not less than 10%.
When exercisable, the right would, subject to certain adjustments and
F-28
91
alternatives, entitle rightholders, other than the Acquiring Person or
group, to purchase common stock of the Company or the acquiring company
having a market value of twice the $47.50 exercise price of the right.
The rights are nonvoting, may be redeemed at any time at a price of 5
cents per right prior to the tenth day after an Acquiring Person
acquires 15% of the Company's common stock, and expire in 1996.
Additional details are set forth in the Rights Agreement filed with the
Securities and Exchange Commission on May 19, 1986, and in the
amendments dated November 29, 1990 and September 30, 1991.
Stock Option Plans
In connection with the Company's 1991 acquisition of CoCa Mines,
Inc., the Company assumed three preexisting CoCa employee stock option
plans.
The Company adopted a nonstatutory stock option plan in 1987.
The plan provides that options may be granted to certain officers and
key employees to purchase common stock at a price of not less than 50%
of the fair market value at the date of grant. The plan also provides
that options may be granted with a corresponding number of stock
appreciation rights and/or tax offset bonuses to assist the optionee in
paying the income tax liability that may exist upon exercise of the
options. All of the outstanding stock options under the 1987 plan were
granted at an exercise price equal to the fair market value at the date
of grant and with an associated tax offset bonus. Outstanding options
under the 1987 plan are immediately exercisable for periods up to ten
years. At December 31, 1994 and 1993, there were 18,748 and 129,148
shares, respectively, available for grant in the future under the plan.
The plan expires in 1997.
F-29
92
Transactions concerning stock options are summarized as follows:
Exercise
Shares Price
-------- ------------
Outstanding, December 31, 1991 385,628 $ 7.12-18.26
Year ended December 31, 1992
Granted 66,000 10.50
Exercised (37,525) 7.12- 8.54
Expired (7,500) 10.37
--------
Outstanding, December 31, 1992 406,603 7.12-18.26
Year ended December 31, 1993
Granted - - - -
Exercised (86,443) 7.12-12.25
Expired (18,500) 10.38-12.25
--------
Outstanding, December 31, 1993 301,660 7.12-18.26
Year ended December 31, 1994
Granted 120,000 9.63
Exercised (61,037) 7.25-10.50
Expired (13,123) 12.25
--------
Outstanding, December 31, 1994 347,500 $7.12-18.26
========
The Company also had an incentive stock option plan under which
options were granted to purchase common stock at a price not less than
the fair market value at date of grant. At December 31, 1991, 46,626
shares were outstanding under this plan at prices ranging from
$8.54-$10.87. All of these options expired in 1992 when the plan
expired.
The aggregate amounts charged (credited) to operations in
connection with the plans were $(23,000), $309,000 and $(165,000) in
1994, 1993 and 1992, respectively.
F-30
93
As a result of the acquisition of Equinox, the outstanding
options under the Equinox stock option plan became exercisable for Hecla
common shares. Transactions concerning the Equinox options, giving
effect to the common share exchange ratio, are as follows:
Exercise
Shares Price
------- ----------
Outstanding, December 31, 1991 174,000 $4.14-4.21
Year ended December 31, 1992
Granted 177,900 3.78-19.56
Exercised (36,900) 3.78
--------
Outstanding, December 31, 1992 315,000 3.78-19.56
Year ended December 31, 1993
Granted 25,500 6.00-6.52
Exercised (88,200) 3.80-6.55
--------
Outstanding, December 31, 1993 252,300 3.78-19.56
Year ended December 31, 1994
Granted - - - -
Exercised (251,400) 3.45-17.82
--------
Outstanding, December 31, 1994 900 $ 17.82
========
Warrants
As a result of the acquisition of Equinox, outstanding Equinox
warrants became exercisable for Hecla common shares. At December 31,
1994 and 1993, there were 379,506 and 415,131 warrants outstanding,
respectively, to acquire Hecla common shares at $8.08 per share, which
expire in August, 1996. If the Company's shares trade at a price of
$12.58 per share or above for 20 consecutive trading days, upon Hecla's
election and notice to warrant holders, the holders of Equinox warrants
must exercise their warrants or lose their right to exercise.
At December 31, 1993, the Company had outstanding 459,433
warrants to acquire the Company's common stock at an exercise price of
$17.81 and 12,859 warrants to acquire the Company's common stock at an
exercise price of $12.42. During 1994, 1,853 of these warrants were
exercised. The remaining warrants expired in May 1994.
F-31
94
NOTE 11: BUSINESS SEGMENTS (IN THOUSANDS)
1994 1993 1992
-------- -------- --------
Net sales to unaffiliated customers
Metals (including $18,493 in Mexico
in 1994) $ 60,828 $ 45,892 $ 58,390
Industrial minerals (including
$2,885 and $368 in Mexico in
1994 and 1993) 63,634 44,953 43,231
Specialty metals 4,285 2,043 - -
-------- -------- --------
$128,747 $ 92,888 $101,621
======== ======== ========
Income (loss) from operations
Metals (including $2,307 in Mexico
in 1994) $(24,658) $(15,418) $(40,198)
Industrial minerals (including
$(810) and $9 in Mexico in
1994 and 1993) 6,872 4,449 4,620
Specialty metals 3 (504) (15,332)
General corporate (11,656) (8,809) (10,057)
-------- -------- --------
$(29,439) $(20,282) $(60,967)
======== ======== ========
Capital expenditures
Metals (including $466 and $12,826
in Mexico in 1994 and 1993) $ 62,002 $ 45,961 $ 20,190
Industrial minerals (including
$1,352 and $5,800 in 1994 and
1993 in Mexico) 3,615 11,938 3,203
Specialty metals 453 - - - -
General corporate assets 489 548 158
-------- -------- --------
$ 66,559 $ 58,447 $ 23,551
======== ======== ========
Depreciation, depletion and amortization
Metals $ 9,699 $ 10,052 $ 9,618
Industrial minerals 4,501 3,718 4,188
Specialty metals 33 33 - -
General corporate assets 524 392 819
-------- -------- --------
$ 14,757 $ 14,195 $ 14,625
======== ======== ========
Identifiable assets
Metals (including $19,241 and
$21,028 in Mexico in 1994 and 1993) $179,258 $136,735 $138,191
Industrial minerals (including
$6,192 and $7,054 in Mexico in
1994 and 1993) 59,502 68,068 46,488
Specialty metals 6,288 4,197 - -
General corporate assets 36,507 81,486 44,206
Idle facilities 53,027 55,667 7,245
-------- -------- --------
$334,582 $346,153 $236,130
======== ======== ========
F-32
95
Net sales and identifiable assets of each segment are those that
are directly identified with those operations. General corporate assets
consist primarily of cash, receivables, investments and corporate
property, plant and equipment. As a result of depressed metals prices,
operations were suspended at the Greens Creek mine in April 1993, and
the property was placed on a care-and-maintenance basis pending
resumptions of operations. At December 31, 1994 and 1993, the Company's
recorded net book value of identifiable assets of the Greens Creek mine
was approximately $50.3 million. This amount has been classified in the
Idle Facilities category at December 31, 1994 and 1993.
NOTE 12: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret
market data and to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the
amounts the Company could realize in a current market exchange.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Potential income tax ramifications
related to the realization of unrealized gains and losses that would be
incurred in an actual sale or settlement have not been taken into
consideration.
The carrying amounts for cash and cash equivalents, accounts and
notes receivable, restricted investments and current liabilities are a
reasonable estimate of their fair values. Fair value for equity
securities investments available for sale is determined by quoted market
prices. The fair value of long-term debt is based on the discounted
value of contractual cash flows. The discount rate is estimated using
the rates currently offered for debt with similar remaining maturities.
F-33
96
The estimated fair values of the following financial instruments
are as follows (in thousands):
December 31,
----------------------------------------------------
1994 1993
---------------------- ----------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
-------- -------- -------- --------
Financial assets
Cash and cash equivalents $ 7,278 $ 7,278 $40,031 $40,031
Accounts and notes receivable 23,516 23,516 18,841 18,841
Investments
Equity securities available
for sale 5,276 5,276 377 377
Restricted 13,553 13,553
Financial liabilities - - - -
Current liabilities 23,485 23,485 22,308 22,308
Long-term debt - principal 1,960 1,804 50,009 50,009
F-34
97
HECLA MINING COMPANY and SUBSIDIARIES
FORM 10-K - December 31, 1994
INDEX TO EXHIBITS
Number and Description of Exhibits
----------------------------------
3.1(a) Certificate of Incorporation of the Registrant as amended to date.2
3.1(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant, dated as of May 16, 1991.2
3.2 By-Laws of the Registrant as amended to date.2
4.1(a) Certificate of Designations, Preferences and Rights of Series A
Junior Participating Preferred Stock of the Registrant.2
4.1(b) Certificate of Designations, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock of the Registrant.2
4.2(a) Rights Agreement dated as of May 9, 1986 between Hecla Mining Company and
Manufacturers Hanover Trust Company, which includes the form of
Certificate of Designation setting forth the terms of the Series A Junior
Participating Preferred Stock of Hecla Mining Company as Exhibit A, the
form of Right Certificate as Exhibit B and the summary of Rights to
Purchase Preferred Shares as Exhibit C.2
4.2(b) Amendment, dated as of November 9, 1990 to the Rights Agreement dated as
of May 9, 1986 between Hecla Mining Company and Manufacturers Hanover
Trust Company.2
4.2(c) Second Amendment to Rights Agreement dated September 30, 1991, between
Hecla Mining Company and Manufacturers Hanover Trust Company.2
98
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
4.2(d) Hecla Mining Company Notice Letter to
Shareholders, being holders of Rights
Certificates, appointing American Stock
Transfer & Trust Company as Rights Agent,
successor to Manufacturers Hanover Trust
Company, effective September 30, 1991,
pursuant to Section 21 of the Rights
Agreement.2
10.1(a) Credit Agreement dated as August 30, 1994,
among Registrant and Certain Subsidiaries
and NationsBank of Texas, N.A., as Agent,
and Certain Banks as Lenders.2
10.2 Employment agreement dated November 10,
1989 between Hecla Mining Company and
Arthur Brown. (Registrant has substantially
identical agreements with each of Messrs.
William B. Booth, J. Gary Childress, Joseph
T. Heatherly, Ralph R. Noyes, John P.
Stilwell, and Michael B. White. Such
substantially identical agreements are not
included as separate Exhibits.)1,2
10.3(a) Form of Executive Deferral Plan Master
Document effective January 1, 1995.1 Attached
10.3(b) Form of Director Deferral Plan Master
Plan Document effective January 1, 1995.1 Attached
10.4 1987 Nonstatutory Stock Option Plan of the
Registrant.1,2
10.5(a) Hecla Mining Company Retirement Plan for
Employees and Supplemental Retirement and
Death Benefit Plan.1,2
10.5(b) Supplemental Excess Retirement Master
Plan Document.1 Attached
10.5(c) Hecla Mining Company Nonqualified Plans
Master Trust Agreement.1 Attached
10.6 Form of Indemnification Agreement dated
May 27, 1987 between Hecla Mining Company
and each of its Directors and Officers.1,2
99
INDEX TO EXHIBITS (continued)
Number and Description of Exhibits
----------------------------------
10.7 Summary of Short-term Performance Payment
Plan.1 Attached
10.8 Acquisition Agreement dated as of
December 29, 1993, by and among Registrant
and B.P.Y.A. 1193 Holdings Ltd., 1057451
Ontario Limited and Equinox Resources Ltd.2
10.9(a) Acquisition Agreement - Grouse Creek
Project, dated January 21, 1994, among
Registrant, Great Lakes Idaho Inc. and
Great Lakes Minerals Inc.2
10.9(b) Mining Venture Agreement dated as of
February 8, 1994, between Registrant and
Great Lakes Idaho Inc.2
11. Computation of weighted average number of
common shares outstanding. Attached
21. List of subsidiaries of the registrant. Attached
23. Consent of Coopers & Lybrand to incorpor-
ation by reference of their report dated
February 3, 1995, except for Note 8, as
to which the date is March 1, 1995, on the
Consolidated Financial Statements of the
Registrant in the Registrant's Registration
Statements on Form S-3, No. 33-72832,
Form S-8, No. 33-7833, No. 33-41833,
No. 33-14758 and No. 33-40691. Attached
27. Financial Data Schedule Attached
________________________
1. Indicates a management contract or compensatory plan or arrangement.
2. These exhibits were filed as indicated on the following page and are
incorporated herein by this reference thereto.
100
Corresponding Exhibit in Annual Report on
Form 10-K, Quarterly Report on Form 10-Q,
Exhibit in Current Report on Form 8-K, Proxy Statement
this Report or Registration Statement, as Indicated
----------- ---------------------------------------
3.1(a) & (b) 3.1 (10-K for 1987 - File No. 1-8491)
3.2 2 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.1(a) & (b) 4.1(d)(c) and 4.5 (Quarterly Report on
Form 10-Q dated June 30, 1993)
4.2(a) 1 (Current Report on Form 8-K dated
May 23, 1986 - File No. 1-8491)
4.2(b) 1 (Current Report on Form 8-K dated
November 9, 1990 - File No. 1-8491)
4.2(c) 4.1(c)(10-K for 1991 - File No. 1-8491)
4.2(d) 4.1(d)(10-K for 1991 - File No. 1-8491)
10.1(a) 10.1(a)(Quarterly Report on Form 10-Q
dated September 30, 1994)
10.2 10.2(b) (10-K for 1989 - File No. 1-8491)
10.4 B (Proxy Statement dated March 20, 1987 -
File No. 1-8491)
10.5(a) 10.11(a) (10-K for 1985 - File No. 1-8491)
10.6 10.15 (10-K for 1987 - File No. 1-8491)
10.8 Exhibit 2 (Schedule 13D dated January 7,
1993 - filed by Registrant with respect
to Equinox Resources Ltd.)
10.9(a) (c)1(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)
10.9(b) (c)2(Current Report on Form 8-K dated
February 10, 1994 - File No. 1-8491)
EX-10.3A
2
FORM OF EXECUTIVE DEFERRAL PLAN MASTER DOCUMENT
1
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Effective January 1, 1995 Exhibit 10.3(a)
2
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
TABLE OF CONTENTS
Page
PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Selection, Enrollment, Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Selection by Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Eligibility; Commencement of Participation . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 3 Deferral Commitments/Interest Crediting . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Minimum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3 Election to Defer; Effect of Election Form . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 Installment Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Employer Matching Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.8 FICA and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . . . 12
ARTICLE 5 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Death Prior to Completion of Retirement Benefits . . . . . . . . . . . . . . . . . . . 13
ii
3
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Restriction in the Event of Suicide or Falsely Provided Information . . . . . . . . . . 14
ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . . . . . . . . . . . . . . 16
9.3 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 10 Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.1 Paid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.2 Unpaid Leave of Absence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 11 Termination, Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . . . 18
11.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.3 Interest Rate in the Event of a Change in Control and Interest . . . . . . . . . . . . 19
11.4 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
iii
4
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 12 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 13 Other Benefits and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
13.2 Rollover of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 14 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 15 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15.2 Interrelationship of the Plan and the Trust . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 16 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
16.4 Not a Contract of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.5 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.6 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.10 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
iv
5
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
16.11 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.12 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16.13 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16.14 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16.15 Distribution in the Event of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . 26
16.16 Taxes and Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
v
6
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group of
management and highly compensated Employees who contribute materially to the
continued growth, development and future business success of Hecla Mining
Company, a Delaware corporation, and its subsidiaries, if any, that sponsor
this Plan. This Plan shall be unfunded for tax purposes and for purposes of
Title I of ERISA.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean (i) the sum of the Deferral
Amount, all Employer Matching Amounts, and interest credited
in accordance with all the applicable interest crediting
provisions of the Plan, less (ii) all distributions made in
accordance with the Plan. This account balance shall be a
bookkeeping entry only and shall be utilized solely as a
device for the measurement and determination of the amounts to
be paid to a Participant pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to
Base Annual Salary, paid annually to a Participant as an
Employee under any Employer's annual bonus and incentive
plans.
1.3 "Annual Deferral Amount" shall mean (i) that portion of a
Participant's Base Annual Salary that a Participant elects to
have and is actually deferred, in accordance with Article 3,
for any one Plan Year, plus (ii) that portion of a
Participant's Annual Bonus that is actually deferred, in
accordance with Article 3, during any one Plan Year. In the
event of a Participant's Retirement, Disability (if deferrals
cease in accordance with Section 8.1), death or a Termination
of Employment prior to the end of a Plan Year, such year's
Annual Deferral Amount shall be the actual amount withheld
prior to such event.
1.4 "Base Annual Salary" shall mean the annual compensation,
excluding bonuses, commissions, overtime, relocation expenses,
incentive payments, non-monetary awards, directors fees and
other fees, and including automobile allowances, paid
1
7
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
to a Participant for employment services rendered to any
Employer, before reduction for compensation deferred pursuant
to all qualified, non-qualified and Code Section 125 plans of
any Employer.
1.5 "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with Article 9,
that are entitled to receive benefits under this Plan upon the
death of a Participant.
1.6 "Beneficiary Designation Form" shall mean the form established
from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate one
or more Beneficiaries.
1.7 "Board" shall mean the board of directors of the Company.
1.8 "Change in Control" shall mean the first to occur of any of
the following events:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")(a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), provided,
however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company
or (iv) any acquisition by any corporation pursuant
to a transaction which compiles with clauses (i),
(ii), and (iii) of subsection (c) below; or
(b) Individuals who, as of October 1, 1994 constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided, however, that any individual becoming a
director subsequent to October 1, 1994, whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
2
8
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with
respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), in each case, unless,
following such Business Combination, (i) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
which as a result of such transaction owns the
Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such
Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
Business Combination or the combined voting power of
the then outstanding voting securities of such
corporation except to the extent that such ownership
existed prior to the Business Combination and (iii)
at least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
3
9
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
1.9 "Claimant" shall have the meaning set forth in Section 14.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as may be
amended from time to time.
1.11 "Committee" shall mean the committee described in Article 12.
1.12 "Company" shall mean Hecla Mining Company, a Delaware
corporation.
1.13 "Crediting Rate" shall mean, for each Plan Year, the Moody's
Rate for that Plan Year, which shall be an interest rate that
is published in Moody's Bond Record under the heading of
"Moody's Corporate Bond Yield Averages--Av. Corp" and is (i)
in the case of the Plan's first Plan Year, the average
corporate bond yield for the month of September 1994, and (ii)
in the case of any subsequent Plan Year, the average corporate
bond yield for the month of March of the Plan Year that
precedes the Plan Year for which the rate is to be used.
1.14 "Deferral Amount" shall mean the sum of all of a Participant's
Annual Deferral Amounts.
1.15 "Deduction Limitation" shall mean the following described
limitation on the annual benefit that may be distributed
pursuant to the provisions of this Plan. Except as otherwise
provided, this limitation shall be applied to all
distributions under this Plan. If an Employer determines in
good faith prior to a Change in Control that there is a
reasonable likelihood that any compensation paid to a
Participant for a taxable year of the Employer would not be
deductible by the Employer solely by reason of the limitation
under Code Section 162(m), then to the extent deemed necessary
by the Employer to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan prior to
the Change in Control is deductible, the Employer may defer
all or any portion of a distribution under this Plan. Any
amounts deferred pursuant to this limitation shall continue to
be credited with interest in accordance with Section 3.5
below. The amounts so deferred and interest thereon shall be
distributed to the Participant or his or her Beneficiary (in
the event of the Participant's death) at the earliest possible
date, as determined by the Employer in good faith, on which
the deductibility of
4
10
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
compensation paid or payable to the Participant for the
taxable year of the Employer during which the distribution is
made will not be limited by Section 162(m), or if earlier, the
effective date of a Change in Control.
1.16 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's
Employer's long-term disability plan, or, if a Participant
does not participate in such a plan, a period of disability
during which the Participant would have qualified for benefits
under such a plan had the Participant been a participant in
such a plan, as determined in the sole discretion of the
Committee. If the Participant's Employer does not sponsor
such a plan or discontinues to sponsor such a plan, a
Disability shall be determined by the Committee in its sole
discretion.
1.17 "Disability Benefit" shall mean the benefit set forth in
Article 8.
1.18 "Election Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and
returns to the Committee to make an election under the Plan.
1.19 "Employee" shall mean a person who is an employee of any
Employer.
1.20 "Employer(s)" shall mean the Company and/or any of its
subsidiaries that have been selected by the Board to
participate in the Plan.
1.21 "Employer Matching Amount" shall mean any amount credited by
the Company to a Participant's account for a Plan Year in
accordance with Section 3.7 below.
1.22 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as may be amended from time to time.
1.23 "Participant" shall mean any Employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the
Plan, (iii) who signs a Plan Agreement, an Election Form and a
Beneficiary Designation Form, (iv) whose signed Plan
Agreement, Election Form and Beneficiary Designation Form are
accepted by the Committee, (v) who commences participation in
the Plan, and (vi) whose Plan Agreement has not terminated.
5
11
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
1.24 "Plan" shall mean the Company's Executive Deferral Plan, which
shall be evidenced by this instrument and by each Plan
Agreement, as may be amended from time to time.
1.25 "Plan Agreement" shall mean a written agreement, as may be
amended from time to time, which is entered into by and
between an Employer and a Participant. Each Plan Agreement
executed by a Participant shall provide for the entire benefit
to which such Participant is entitled to under the Plan, and
the Plan Agreement bearing the latest date of acceptance by
the Committee shall govern such entitlement.
1.26 "Plan Year" shall, for the first Plan Year, begin on January
1, 1995, and end on May 31, 1995. For each Plan Year
thereafter, the Plan Year shall begin on June 1 of each year
and continue through May 31.
1.27 "Preferred Rate" shall mean, for each Plan Year, an interest
rate that is equal to the Crediting Rate multiplied by 1.23.
1.28 "Pre-Retirement Survivor Benefit" shall mean the benefit set
forth in Article 6.
1.29 "Retirement", "Retires" or "Retired" shall mean, with respect
to an Employee, severance from employment from all Employers
for any reason other than a leave of absence, death or
Disability on or after the earlier of the attainment of (a)
age sixty-five (65) or (b) age fifty-five with ten (10) Years
of Service.
1.30 "Retirement Benefit" shall mean the benefit set forth in
Article 5.
1.31 "Short-Term Payout" shall mean the payout set forth in Section
4.1.
1.32 "Termination Benefit" shall mean the benefit set forth in
Article 7.
1.33 "Termination of Employment" shall mean the ceasing of
employment with all Employers, voluntarily or involuntarily,
for any reason other than Retirement, Disability, death or an
authorized leave of absence.
6
12
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
1.34 "Trust" shall mean the trust established pursuant to that
certain Master Trust Agreement, dated as of October 1, 1994,
between the Company and the trustee named therein, as amended
from time to time.
1.35 "Unforeseeable Financial Emergency" shall mean an
unanticipated emergency that is caused by an event beyond the
control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
1.36 "Years of Plan Participation" shall mean the total number of
full Plan Years a Participant has been a Participant in the
Plan prior to his or her Termination of Employment (determined
without regard to whether deferral elections are made under
this Plan). For purposes of a Participant's first Plan Year
of participation only, any partial Plan Year of participation
shall be treated as a full Plan Year. In addition, during any
period of time during which a Participant is suffering a
Disability, he or she will not be credited with any additional
Years of Plan Participation.
1.37 "Years of Service" shall mean the total number of full years
in which a Participant has been employed by one or more
Employers. For purposes of this definition, a year of
employment shall be a 365 day period (or 366 day period in the
case of a leap year) that, for the first year of employment,
commences on the Employee's date of hiring and that, for any
subsequent year, commences on an anniversary of that hiring
date. Any partial year of employment shall not be counted.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be
limited to a select group of management and highly compensated
Employees of the Employers. From that group, the Committee
shall select, in its sole discretion, Employees to participate
in the Plan.
7
13
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation,
each selected Employee shall complete, execute and return to
the Committee within 30 days of selection a Plan Agreement, an
Election Form and a Beneficiary Designation Form. In
addition, the Committee shall establish from time to time such
other enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an
Employee selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and required by
the Committee, including returning all required documents to
the Committee within 30 days of selection, that Employee shall
start participation in the Plan on the first day of the month
following the month in which the Employee completes all
enrollment requirements. If an Employee fails to meet all
such requirements within the required 30 day period, that
Employee shall not be eligible to participate in the Plan
until the first day of the Plan Year following the delivery to
and acceptance by the Committee of the required documents.
ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant may elect
to defer Base Annual Salary in an amount that is not
less than $2,000 for each deferral elected. For each
calendar year, a Participant may elect to defer
Annual Bonus that is not less than $2,000 for each
deferral elected. If no elections are made, the
amount deferred shall be zero.
(b) SHORT PLAN YEAR BASE ANNUAL SALARY. If a Participant
first becomes a Participant after the first day of a
Plan Year, or in the case of the first Plan Year of
the Plan itself, the minimum Base Annual Salary
deferral shall be an amount equal to the minimum set
forth above, multiplied by a fraction, the numerator
of which is the number of complete months remaining
in the Plan Year and the denominator of which is 12.
3.2 MAXIMUM DEFERRAL. For each Plan Year, a Participant may
elect to defer up to 50% of Base Annual Salary. For each
calendar year, a Participant may elect to defer up to 100% of
Annual Bonus.
8
14
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
(a) INITIAL PARTICIPATION. In connection with a
Participant's commencement of participation in the
Plan, the Participant shall make a deferral election
by timely delivering to the Committee (in accordance
with Section 2.3 above) a completed and signed
Election Form, which election and form must be
accepted by the Committee for a valid election to
exist. The Election Form shall provide for an
election to defer Base Annual Salary that is yet to
be earned for the Plan Year and to defer the Annual
Bonus that relates to the calendar year that follows
the calendar year in which the election is actually
being made.
(b) SUCCEEDING ELECTIONS FOR BASE ANNUAL SALARY
DEFERRALS. To make a Base Annual Salary deferral for
each succeeding Plan Year, a new Election Form must
be delivered to the Committee, in accordance with its
rules and procedures, before the end of the Plan Year
preceding the Plan Year for which the election is
made.
(c) SUCCEEDING ELECTIONS FOR ANNUAL BONUS DEFERRALS. To
make an Annual Bonus deferral for each succeeding
calendar year, a new Election Form must be delivered
to the Committee, in accordance with its rules and
procedures, before the end of the calendar year
preceding the calendar year for which the election is
made.
(d) NO ELECTION. If no Election Form is timely delivered
for a Plan Year or calendar year, as the case may be,
no Base Annual Salary or Annual Bonus, respectively,
shall be withheld for that Plan Year or calendar
year, as the case may be.
3.4 WITHHOLDING OF DEFERRAL AMOUNTS. For each Plan Year, the Base
Annual Salary portion of the Annual Deferral Amount shall be
withheld each payroll period in equal amounts from the
Participant's Base Annual Salary. The Annual Bonus portion of
the Annual Deferral Amount shall be withheld at the time the
Annual Bonus is or otherwise would be paid to the Participant.
3.5 INTEREST CREDITING PRIOR TO DISTRIBUTION. Prior to any
distribution of benefits under Articles 4, 5, 6, 7 or 8,
interest shall be credited and compounded annually on a
Participant's Account Balance as though the Annual Deferral
Amount for that
9
15
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
Plan Year was withheld at the beginning of the Plan Year or,
in the case of the first year of Plan participation, was
withheld on the date that the Participant commenced
participation in the Plan, and the Employer Matching Amount
for the Plan Year was credited on the last day of the Plan
Year. The rate of interest for crediting shall be the
Preferred Rate, except as otherwise provided in this Plan. In
the event of Retirement, Disability, death or Termination of
Employment prior to the end of a Plan Year, the basis for that
year's interest crediting will be a fraction of the full
year's interest, based on the number of full months that the
Participant was employed with the Employer during the Plan
Year prior to the occurrence of such event. If a distribution
is made under this Plan, for purposes of crediting interest,
the Account Balance shall be reduced as of the first day of
the month in which the distribution is made.
3.6 INSTALLMENT DISTRIBUTIONS. In the event a benefit is paid in
installments under Articles 5, 6 or 8, installment payment
amounts shall be determined in the following manner:
(a) Interest Rate. The interest rate to be used to
calculate installment payment amounts shall be a
fixed interest rate that is determined by averaging
the Preferred Rates for the Plan Year in which
installment payments commence and the four (4)
preceding Plan Years. If a Participant has completed
fewer than five (5) Plan Years, this average shall be
determined using the Preferred Rates for the Plan
Years during which the Participant participated in
the Plan.
(b) "Deemed" Installment Payments. For purposes of
calculating installment payment amounts only (and
notwithstanding the fact that installment payments
shall actually be paid monthly), installment payments
for each 12 month period, starting with the date that
the Participant became eligible to receive a benefit
under this Plan (the "Eligibility Date") and
continuing thereafter for each additional 12 month
period until the Participant's Account Balance is
paid in full, shall be deemed to have been paid in
one sum as of the first day of each such 12 month
period. (The result of this is that interest
crediting shall be made on an annual basis after
taking into account the "deemed" annual installment
payment for the 12 month period.)
10
16
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
(c) Amortization. Based on the interest rate determined
in accordance with Section 3.6(a) above and the
"deemed" form of installment payments determined in
accordance with Section 3.6(b) above, the
Participant's Account Balance shall be amortized in
equal annual installment payments over the term of
the specified payment period (starting as of the
Eligibility Date and stated in years rather than
months).
(d) Monthly Payments. The annual installment payment
determined in Section 3.6(c) above shall be divided
by 12, and the resulting number shall be the monthly
installment payment that is to be paid each month
during the specified monthly installment payment
period in accordance with the other terms and
conditions of this Plan.
3.7 EMPLOYER MATCHING AMOUNTS.
(a) General Rule. Subject to Section 3.7(b) below, for
each Plan Year, a Participant's Account Balance shall
be credited as of the last day of that Plan Year with
an Employer Matching Amount that is equal to the
Participant's Annual Deferral Amount actually
withheld during the Plan Year multiplied by 12.5%.
(b) Exception. Notwithstanding the provisions of Section
3.7(a) above, the Annual Deferral Amount that is
taken into account in determining the Employer
Matching Amount for a Plan Year shall not exceed the
difference between (i) 20% multiplied by the sum of
(1) the Participant's Base Annual Salary for the Plan
Year and (2) the portion of the Participant's Annual
Bonus that is paid in that Plan Year, and (ii) the
portion of the Participant's salary and/or bonus that
is deferred for the Plan Year by the Participant
under the Company's 401(k) Plan.
3.8 FICA AND OTHER TAXES. For each Plan Year in which an Annual
Deferral Amount is being withheld, the Participant's
Employer(s) shall ratably withhold from that portion of the
Participant's Base Annual Salary that is not being deferred
the Participant's share of FICA and other employment taxes
that relate to both the Annual Deferral Amount and the
Employer Matching Amount for that Plan Year. If necessary,
the Committee shall reduce the Annual Deferral Amount in order
to comply with this Section 3.8.
11
17
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. Subject to the Deduction Limitation, in
connection with each election to defer an Annual Deferral
Amount, a Participant may elect to receive a future
"Short-Term Payout" from the Plan with respect to that Annual
Deferral Amount. The Short-Term Payout shall be a lump sum
payment in an amount that is equal to the Annual Deferral
Amount plus interest credited in the manner provided in
Section 3.5 above on that amount, but using the applicable
interest rate set forth in Section 7.1 below. No Short-Term
Payout shall be available for any Employer Matching Amount.
Subject to the other terms and conditions of this Plan, each
Short-Term payout elected shall be paid within 60 days of the
first day of the Plan Year that is the latter of (i) the first
day of the Plan Year that is 3 years after the first day of
the Plan Year to which the applicable Annual Deferral Amount
election relates, or (ii) the first day of any Plan Year
thereafter elected by the Participant on the Election Form
electing the Annual Deferral Amount.
4.2 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
EMERGENCIES. If the Participant experiences an Unforeseeable
Financial Emergency, the Participant may petition the
Committee to (i) suspend any deferrals required to be made by
a Participant and/or (ii) receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the
amount reasonably needed to satisfy the Unforeseeable
Financial Emergency. If, subject to the sole discretion of
the Committee, the petition for a suspension and/or payout is
approved, suspension shall take effect upon the date of
approval and any payout shall be made within 60 days of the
date of approval. The payment of any amount under this
Section 4.2 shall not be subject to the Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a
Participant who Retires shall receive, as a Retirement
Benefit, his or her Account Balance.
12
18
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
5.2 PAYMENT OF RETIREMENT BENEFITS. A Participant, in connection
with his or her commencement of participation in the Plan,
shall elect on an Election Form to receive the Retirement
Benefit in a lump sum or in equal monthly payments (the latter
determined in accordance with Section 3.6 above) over a period
of 60, 120 or 180 months. The Participant may change his or
her election to an allowable alternative payout period by
submitting a new Election Form to the Committee, provided that
any such Election Form is submitted at least 3 years prior to
the Participant's Retirement and is accepted by the Committee
in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the
Retirement Benefit. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days
after the date the Participant Retires.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS. If a
Participant dies after Retirement but before the Retirement
Benefit is paid in full, the Participant's unpaid Retirement
Benefit payments shall continue and shall be paid to the
Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b)
in a lump sum, if requested by the Beneficiary and allowed in
the sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction
Limitation, and except as provided in Section 6.3 below, if a
Participant dies before he or she Retires, experiences a
Termination of Employment or suffers a Disability, the
Participant's Beneficiary shall receive a Pre-Retirement
Survivor Benefit equal to the Participant's Account Balance.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFITS. A Participant,
in connection with his or her commencement of participation in
the Plan, shall elect on an Election Form whether the
Pre-Retirement Survivor Benefit shall be received by his or
her Beneficiary in a lump sum or in equal monthly payments
(the latter determined in accordance with Section 3.6 above)
over a period of 60, 120 or 180 months. The Participant may
change this election to an allowable alternative
13
19
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
payout period by submitting a new Election Form to the
Committee, which form must be accepted by the Committee in its
sole discretion. The Election Form most recently accepted by
the Committee prior to the Participant's death shall govern
the payout of the Participant's Pre-Retirement Survivor
Benefit. Despite the foregoing, if the Participant's Account
Balance at the time of his or her death is less than $25,000,
or the Beneficiary petitions the Committee for a lump sum
payment, payment of the Pre-Retirement Survivor Benefit may be
made, in the sole discretion of the Committee, in a lump sum
or in installment payments that do not exceed five years in
duration. The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the date
the Committee is provided with proof that is satisfactory to
the Committee of the Participant's death.
6.3 RESTRICTION IN THE EVENT OF SUICIDE OR FALSELY PROVIDED
INFORMATION. In the event of a Participant's suicide within 2
years after the Participant first becomes a Participant, or in
the event the Participant's death is determined to be from a
bodily or mental cause or causes, the information about which
was withheld, knowingly concealed, or falsely provided by the
Participant if requested to furnish evidence of good health,
the Pre- Retirement Survivor Benefit shall be equal to the sum
of the Participant's Annual Deferral Amounts, without interest
and without all Employer Matching Amounts, all determined as
of his or her date of death.
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFITS. Subject to the Deduction Limitation, if
a Participant experiences a Termination of Employment prior to
his or her Retirement, death or Disability, the Participant
shall receive a Termination Benefit, which shall be equal to
the Participant's Account Balance, with interest credited in
the manner provided in Section 3.5 above, but using the
applicable interest rate set forth in the following schedule:
COMPLETION OF YEARS OF PLAN PARTICIPATION APPLICABLE RATE
Less than five years Crediting Rate
Five or more years Preferred Rate
14
20
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
Despite the foregoing schedule, if the Participant was a
participant in the 1985 Hecla Mining Company Deferred
Compensation Plan for Executive Officers, then for purposes of
this Section 7.1, he or she shall be treated as having
completed five Years of Plan Participation at the time of his
or her commencement of participation in this Plan.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall
be paid in a lump sum within 60 days of the Termination of
Employment.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) ELIGIBILITY. By participating in the Plan, all
Participants are eligible for this waiver.
(b) WAIVER OF DEFERRAL; CREDIT FOR PLAN YEAR OF
DISABILITY. A Participant who is determined by the
Committee to be suffering from a Disability shall be
excused from fulfilling that portion of the Annual
Deferral Amount commitment that would otherwise have
been withheld from a Participant's Base Annual Salary
and/or Annual Bonus for the Plan Year during which
the Participant first suffers a Disability. During
the period of Disability, the Participant shall not
be allowed to make any additional deferral elections.
(c) RETURN TO WORK. If a Participant returns to
employment with an Employer after a Disability
ceases, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or
her return to employment and for every Plan Year
thereafter while a Participant in the Plan; provided
such deferral elections are otherwise allowed and an
Election Form is delivered to and accepted by the
Committee for each such election in accordance with
Section 3.3 above.
8.2 DISABILITY BENEFIT. A Participant suffering a Disability
shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the
benefits provided for in Articles 4, 5, 6 or 7 in accordance
with the provisions
15
21
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
of those Articles. Notwithstanding the above, the Committee
shall have the right, in its sole and absolute discretion and
for purposes of this Plan only, to terminate a Participant's
employment at any time after such Participant is determined to
be suffering from a permanent Disability.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any
time, to designate his or her Beneficiary(ies) (both primary
as well as contingent) to receive any benefits payable under
the Plan to a beneficiary upon the death of a Participant.
The Beneficiary designated under this Plan may be the same as
or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A
Participant shall designate his or her Beneficiary by
completing and signing the Beneficiary Designation Form, and
returning it to the Committee or its designated agent. A
Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of
the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the
Participant names someone other than his or her spouse as a
Beneficiary, a spousal consent, in the form designated by the
Committee, must be signed by that Participant's spouse and
returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be cancelled.
The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and
acknowledged in writing by the Committee or its designated
agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided in Sections 9.1, 9.2 and
9.3 above or, if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the
Participant's benefits, then the Participant's designated
Beneficiary shall be deemed to be his
16
22
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
or her surviving spouse. If the Participant has no surviving
spouse, the benefits remaining under the Plan to be paid to a
Beneficiary shall be payable to the executor or personal
representative of the Participant's estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to
the proper Beneficiary to receive payments pursuant to this
Plan, the Committee shall have the right, exercisable in its
discretion, to cause the Participant's Employer to withhold
such payments until this matter is resolved to the Committee's
satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the
Plan to a Beneficiary shall fully and completely discharge all
Employers and the Committee from all further obligations under
this Plan with respect to the Participant, and that
Participant's Plan Agreement shall terminate upon such full
payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of
absence from the employment of the Employer, the Participant
shall continue to be considered employed by the Employer and
the Annual Deferral Amount shall continue to be withheld
during such paid leave of absence in accordance with Section
3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by
the Participant's Employer for any reason to take an unpaid
leave of absence from the employment of the Employer, the
Participant shall continue to be considered employed by the
Employer and the Participant shall be excused from making
deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment
status. Upon such expiration or return, deferrals shall
resume for the remaining portion of the Plan Year in which the
expiration or return occurs, based on the deferral election,
if any, made for that Plan Year. If no election was made for
that Plan Year, no deferral shall be withheld.
17
23
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
11.1 TERMINATION. Any Employer reserves the right to terminate the
Plan at any time with respect to its participating Employees
by the actions of its board of directors. Upon the
termination of the Plan, all Plan Agreements of a Participant
shall terminate and his or her Account Balance, determined as
if he or she had experienced a Termination of Employment on
the date of Plan termination or, if Plan termination occurs
after the date upon which the Participant was eligible to
Retire, the Participant had Retired on the date of Plan
termination, shall be paid to the Participant as follows.
Prior to a Change in Control, an Employer shall have the
right, in its sole discretion, and notwithstanding any
elections made by the Participant, to pay such benefits in a
lump sum or in monthly installments for up to 5 years, with
interest credited during the installment period as provided in
Section 3.6. After a Change in Control, the Employer shall be
required to pay such benefits in a lump sum. The termination
of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any
benefits under the Plan as of the date of termination;
provided however, that the Employer shall have the right to
accelerate installment payments by paying the present value
equivalent of such payments, using the Crediting Rate for the
Plan Year in which the termination occurs as the discount
rate, in a lump sum or pursuant to a different payment
schedule.
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the
Plan in whole or in part with respect to that Employer by the
actions of its board of directors; provided, however, that no
amendment or modification shall be effective to decrease or
restrict the value of a Participant's Account Balance in
existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination
of Employment as of the effective date of the amendment or
modification, or, if the amendment or modification occurs
after the date upon which the Participant was eligible to
Retire, the Participant had Retired as of the effective date
of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or
Beneficiary who has become entitled to the payment of benefits
under the Plan as of the date of the amendment or
modification; provided, however, that the Employer shall have
the right to accelerate installment payments by paying the
present value equivalent of such payments, using the Crediting
Rate for the Plan Year of the amendment or
18
24
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
modification as the discount rate, in a lump sum or pursuant
to a different payment schedule.
11.3 INTEREST RATE IN THE EVENT OF A CHANGE IN CONTROL AND
INTEREST. If a Change in Control occurs, the applicable
interest rate to be used in determining a Participant's
benefit in connection with a Termination of Employment after
the Change in Control, or a Plan termination, amendment or
modification under Sections 11.1 and 11.2, shall be the
Preferred Rate. However, the Crediting Rate for the
applicable Plan Year, and not the Preferred Rate, shall be
used as the discount rate for determining present value.
11.4 EFFECT OF PAYMENT. The full payment of the applicable benefit
under Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her
designated Beneficiaries under this Plan and the Participant's
Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
12.1 COMMITTEE DUTIES. This Plan shall be administered by a
Committee which shall consist of the Board, or such committee
as the Board shall appoint. Members of the Committee may be
Participants under this Plan. The Committee shall also have
the discretion and authority to (i) make, amend, interpret,
and enforce all appropriate rules and regulations for the
administration of this Plan and (ii) decide or resolve any and
all questions including interpretations of this Plan, as may
arise in connection with the Plan.
12.2 AGENTS. In the administration of this Plan, the Committee
may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit (including acting
through a duly appointed representative) and may from time to
time consult with counsel who may be counsel to any Employer.
12.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Committee with respect to any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations
promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
19
25
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
12.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and
hold harmless the members of the Committee against any and all
claims, losses, damages, expenses or liabilities arising from
any action or failure to act with respect to this Plan, except
in the case of willful misconduct by the Committee or any of
its members.
12.5 EMPLOYER INFORMATION. To enable the Committee to perform its
functions, each Employer shall supply full and timely
information to the Committee on all matters relating to the
compensation of its Participants, the date and circumstances
of the Retirement, Disability, death or Termination of
Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are
in addition to any other benefits available to such
Participant under any other plan or program for employees of
the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
13.2 ROLLOVER OF BENEFITS. The Company, in its sole discretion,
may designate that the benefits under any nonqualified plan
sponsored by the Company may be rolled over to this Plan. If
such a designation is made, the Participant's account balance
under that plan shall be added to his or her Account Balance
under this Plan and any such transferred account balance shall
become subject to the terms and conditions of this Plan. Upon
the completion of that rollover, the Participant's
participation in the deferred compensation plan shall cease
and he or she shall have no further interest in that plan,
unless otherwise specified by the Company. The Committee, in
its sole discretion, shall provide rules and procedures with
respect to any elections or beneficiary designations that may
be required as a result of the rollover.
20
26
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 14
CLAIMS PROCEDURES
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being
referred to below as a "Claimant") may deliver to the
Committee a written claim for a determination with respect to
the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. The claim must state
with particularity the determination desired by the Claimant.
All other claims must be made within 180 days of the date on
which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired
by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify
the Claimant in writing:
(a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary,
in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a
manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the
denial of the claim, or any part of
it;
(ii) specific reference(s) to pertinent
provisions of the Plan upon which
such denial was based;
(iii) a description of any additional
material or information necessary
for the Claimant to perfect the
claim, and an explanation of why
such material or information is
necessary; and
(iv) an explanation of the claim review
procedure set forth in Section 14.3
below.
21
27
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a
notice from the Committee that a claim has been denied, in
whole or in part, a Claimant (or the Claimant's duly
authorized representative) may file with the Committee a
written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly
authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its
sole discretion, may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision
on review promptly, and not later than 60 days after the
filing of a written request for review of the denial, unless a
hearing is held or other special circumstances require
additional time, in which case the Committee's decision must
be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the
Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan
provisions upon which the decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing
provisions of this Article 14 is a mandatory prerequisite to a
Claimant's right to commence any legal action with respect to
any claim for benefits under this Plan.
22
28
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
ARTICLE 15
TRUST
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the
Trust, and the Employers shall at least annually transfer over
to the Trust such assets as the Employers determine, in their
sole discretion, are necessary to provide for their respective
future liabilities created with respect to the Annual Deferral
Amounts and interest credits for that year.
15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions
of the Plan and the Plan Agreement shall govern the rights of
a Participant to receive distributions pursuant to the Plan.
The provisions of the Trust shall govern the rights of the
Employers, Participants and the creditors of the Employers to
the assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations under the
Plan. Each Employer's obligations under the Plan may be
satisfied with Trust assets distributed pursuant to the terms
of the Trust, and any such distribution shall reduce the
Employer's obligations under this Agreement.
ARTICLE 16
MISCELLANEOUS
16.1 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interests or claims in any property
or assets of an Employer. Any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted
assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise
to pay money in the future.
16.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment
of benefits shall be defined only by the Plan and the Plan
Agreement, as entered into between the Employer and a
Participant. An Employer shall have no obligation to a
Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
16.3 NONASSIGNABILITY. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, the
23
29
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are expressly declared to be,
unassignable and non-transferable, except that the foregoing
shall not apply to any family support obligations set forth in
a court order. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
16.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of
this Plan shall not be deemed to constitute a contract of
employment between any Employer and the Participant. Such
employment is hereby acknowledged to be an "at will"
employment relationship that can be terminated at any time for
any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in a written
employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of
any Employer, or to interfere with the right of any Employer
to discipline or discharge the Participant at any time.
16.5 FURNISHING INFORMATION. A Participant or his or her
Beneficiary will cooperate with the Committee by furnishing
any and all information requested by the Committee and take
such other actions as may be requested in order to facilitate
the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.6 TERMS. Whenever any words are used herein in the masculine,
they shall be construed as though they were in the feminine in
all cases where they would so apply; and whenever any words
are used herein in the singular or in the plural, they shall
be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so
apply.
16.7 CAPTIONS. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
24
30
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
16.8 GOVERNING LAW. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the laws of
the State of Idaho without regard to its conflicts of laws
principles.
16.9 NOTICE. Any notice or filing required or permitted to be
given to the Committee under this Plan shall be sufficient if
in writing and hand-delivered, or sent by registered or
certified mail, to the address below:
Hecla Mining Company
Executive Deferral Plan
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: Jon T. Langstaff
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing
and hand-delivered, or sent by mail, to the last known address
of the Participant.
16.10 SUCCESSORS. The provisions of this Plan shall bind and inure
to the benefit of the Participant's Employer and its
successors and assigns and the Participant and the
Participant's designated Beneficiaries.
16.11 SPOUSE'S INTEREST. The interest in the benefits hereunder of
a spouse of a Participant who has predeceased the Participant
shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
16.12 VALIDITY. In case any provision of this Plan shall be illegal
or invalid for any reason, said illegality or invalidly shall
not affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal or invalid provision
had never been inserted herein.
25
31
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
16.13 INCOMPETENT. If the Committee determines in its discretion
that a benefit under this Plan is to be paid to a minor, a
person declared incompetent or to a person incapable of
handling the disposition of that person's property, the
Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee
may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution
of the benefit. Any payment of a benefit shall be a payment
for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment
amount.
16.14 COURT ORDER. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the
Committee has been named as a party.
16.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable
to the Participant prior to receipt, a Participant
may petition the Committee for a distribution of that
portion of his or her benefit that has become
taxable. Upon the grant of such a petition, which
grant shall not be unreasonably withheld, a
Participant's Employer shall distribute to the
Participant immediately available funds in an amount
equal to the taxable portion of his or her benefit
(which amount shall not exceed a Participant's unpaid
Account Balance under the Plan). If the petition is
granted, the tax liability distribution shall be made
within 90 days of the date when the Participant's
petition is granted. Such a distribution shall
affect and reduce the benefits to be paid under this
Plan.
(b) TRUST. If the Trust terminates in accordance with
Section 3.6(e) of the Trust and benefits are
distributed from the Trust to a Participant in
accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the
extent of such distributions.
26
32
HECLA MINING COMPANY
Executive Deferral Plan
Master Plan Document
16.16 TAXES AND WITHHOLDING. The Participant's Employer(s), or the
trustee of the Trust in accordance with the terms of the
Trust, may withhold from any distribution under this Plan any
and all employment and income taxes that are required to be
withheld under applicable law.
IN WITNESS WHEREOF, the Company has signed this Plan
document as of January 1, 1995.
"Company"
HECLA MINING COMPANY,
a Delaware corporation
By: /s/ Michael B. White
-------------------------------------
Title: Vice President - General Counsel
----------------------------------
27
EX-10.3B
3
FORM OF DIRECTOR DEFERRAL PLAN MASTER DOCUMENT
1
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Effective January 1, 1995 Exhibit 10.3(b)
2
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
TABLE OF CONTENTS
Page
PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Selection, Enrollment, Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Selection by Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Enrollment Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Eligibility; Commencement of Participation . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 Deferral Commitments/Interest Crediting . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Minimum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Maximum Deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Election to Defer; Effect of Election Form . . . . . . . . . . . . . . . . . . . . 7
3.4 Withholding of Deferral Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.5 Interest Crediting Prior to Distribution . . . . . . . . . . . . . . . . . . . . . 7
3.6 Installment Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies;
Withdrawal Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.1 Short-Term Payout . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies . . . . . . . 9
ARTICLE 5 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Retirement Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Payment of Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Death Prior to Completion of Retirement Benefits . . . . . . . . . . . . . . . . . 10
i
3
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 6 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Pre-Retirement Survivor Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Payment of Pre-Retirement Survivor Benefits . . . . . . . . . . . . . . . . . . . . 11
6.3 Restriction in the Event of Suicide or Falsely Provided Information . . . . . . . . 11
ARTICLE 7 Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Termination Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Payment of Termination Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 8 Disability Waiver and Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.1 Disability Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.2 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 9 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.2 Beneficiary Designation; Change; Spousal Consent . . . . . . . . . . . . . . . . . 13
9.3 Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.4 No Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.5 Doubt as to Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.6 Discharge of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 10 Termination, Amendment or Modification . . . . . . . . . . . . . . . . . . . . . . 14
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.3 Effect of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.1 Committee Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2 Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.3 Binding Effect of Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
11.4 Indemnity of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.5 Employer Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ii
4
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 12 Other Benefits and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.1 Coordination with Other Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 16
12.2 Rollover of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 13 Claims Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.1 Presentation of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.2 Notification of Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
13.3 Review of a Denied Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.4 Decision on Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.5 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 14 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.1 Establishment of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.2 Interrelationship of the Plan and the Trust . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 15 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.1 Unsecured General Creditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.2 Employer's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.3 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
15.4 Furnishing Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.5 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.8 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
15.9 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.10 Spouse's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.11 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.12 Incompetent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.13 Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
15.14 Distribution in the Event of Taxation . . . . . . . . . . . . . . . . . . . . . . . 21
15.15 Taxes and Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
iii
5
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
PURPOSE
The purpose of this Plan is to provide specified benefits to Directors who
contribute materially to the continued growth, development and future business
success of Hecla Mining Company, a Delaware corporation, and its subsidiaries,
if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes
and for purposes of Title I of ERISA.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Account Balance" shall mean the difference between (i) the
sum of the Deferral Amount and all interest credited in
accordance with all the applicable interest crediting
provisions of the Plan, less (ii) all distributions made under
the Plan. This account balance shall be a bookkeeping entry
only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a
Participant pursuant to this Plan.
1.2 "Annual Deferral Amount" shall mean that portion of a
Participant's Director's Fees that a Participant elects to
have and is deferred, in accordance with Article 3, for any
one Plan Year. In the event of a Participant's Retirement,
Disability (if deferrals cease in accordance with Section
8.1), death or a Termination of Directorship prior to the end
of a Plan Year, such year's Annual Deferral Amount shall be
the actual amount withheld prior to such event.
1.3 "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with Article 9,
that are entitled to receive benefits under this Plan upon the
death of a Participant.
1.4 "Beneficiary Designation Form" shall mean the form established
from time to time by the Committee that a Participant
completes, signs and returns to the Committee to designate one
or more Beneficiaries.
1.5 "Board" shall mean the board of directors of the Company.
1
6
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
1.6 "Change in Control" shall mean the first to occur of any of
the following events:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")(a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), provided,
however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company
or (iv) any acquisition by any corporation pursuant
to a transaction which compiles with clauses (i),
(ii), and (iii) of subsection (c) below; or
(b) Individuals who, as of October 1, 1994 constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided, however, that any individual becoming a
director subsequent to October 1 1994, whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), in each case, unless,
following such Business Combination, (i) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately
2
7
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation which as a result of such
transaction owns the Company or all or substantially
all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination) beneficially
owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common
stock of the corporation resulting from such Business
Combination or the combined voting power of the then
outstanding voting securities of such corporation
except to the extent that such ownership existed prior
to the Business Combination and (iii) at least a
majority of the members of the board of directors of
the corporation resulting from such Business
Combination were members of the Incumbent Board at the
time of the execution of the initial agreement, or of
the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
1.7 "Claimant" shall have the meaning set forth in Section 13.1.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as may be
amended from time to time.
1.9 "Committee" shall mean the committee described in Article 11.
1.10 "Company" shall mean Hecla Mining Company, a Delaware
corporation.
1.11 "Crediting Rate" shall mean, for each Plan Year, the Moody's
Rate for that Plan Year multiplied by 1.23. The Moody's Rate
for a Plan Year shall be an interest rate that is published in
Moody's Bond Record under the heading of "Moody's
3
8
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
Corporate Bond Yield Averages -- Av. Corp," and is (i) in the
case of the Plan's first Plan Year, the average corporate bond
yield for the month of September 1994, and (ii) in the case of
any subsequent Plan Year, the average corporate bond yield for
the month of March of the Plan Year that precedes the Plan
Year for which the rate is to be used.
1.12 "Deferral Amount" shall mean the sum of all of a Participant's
Annual Deferral Amounts.
1.13 "Director" shall mean any member of the board of directors of
any Employer.
1.14 "Director's Fees" shall mean the annual fees paid by any
Employer, including retainer fees and meeting fees, as
compensation for serving on the board of directors of any
Employer.
1.15 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's
Employer's long-term disability plan, or, if a Participant
does not participate in such a plan, a period of disability
during which the Participant would have qualified for benefits
under such a plan had the Participant been a participant in
such a plan, as determined in the sole discretion of the
Committee. If the Participant's Employer does not sponsor
such a plan or discontinues to sponsor such a plan, a
Disability shall be determined by the Committee in its sole
discretion.
1.16 "Disability Benefit" shall mean the benefit set forth in
Article 8.
1.17 "Election Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and
returns to the Committee to make an election under the Plan.
1.18 "Employer(s)" shall mean the Company and/or any of its
subsidiaries that have been selected by the Board to
participate in the Plan.
1.19 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as may be amended from time to time.
1.20 "Participant" shall mean any Director (i) who is selected to
participate in the Plan, (ii) who elects to participate in the
Plan, (iii) who signs a Plan Agreement, an
4
9
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
Election Form and a Beneficiary Designation Form, (iv) whose
signed Plan Agreement, Election Form and Beneficiary
Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan
Agreement has not terminated.
1.21 "Plan" shall mean the Company's Director Deferral Plan, which
shall be evidenced by this instrument and by each Plan
Agreement, as may be amended from time to time.
1.22 "Plan Agreement" shall mean a written agreement, as may be
amended from time to time, which is entered into by and
between an Employer and a Participant. Each Plan Agreement
executed by a Participant shall provide for the entire benefit
to which such Participant is entitled to under the Plan, and
the Plan Agreement bearing the latest date of acceptance by
the Committee shall govern such entitlement.
1.23 "Plan Year" shall, for the first Plan Year, begin on January
1, 1995, and end on May 31, 1995. For each Plan Year
thereafter, the Plan Year shall begin on June 1 of each year
and continue through May 31.
1.24 "Pre-Retirement Survivor Benefit" shall mean the benefit set
forth in Article 6.
1.25 "Retirement", "Retires" or "Retired" shall mean, with respect
to a Director, severance of his or her directorship(s) with
all Employers on or after the earlier of (i) the attainment of
age seventy-five (75), or (ii) the end of the last
directorship term for which the Director is eligible to be a
Director in accordance with the Employer's policies with
respect to Directors.
1.26 "Retirement Benefit" shall mean the benefit set forth in
Article 5.
1.27 "Short-Term Payout" shall mean the payout set forth in Section
4.1.
1.28 "Termination Benefit" shall mean the benefit set forth in
Article 7.
1.29 "Termination of Directorship" shall mean the ceasing of
service as a Director of all Employers, voluntarily or
involuntarily, for any reason other than Retirement,
Disability or death.
5
10
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
1.30 "Trust" shall mean the trust established pursuant to that
certain Master Trust Agreement, dated as of October 1, 1994,
between the Company and the trustee named therein, as amended
from time to time.
1.31 "Unforeseeable Financial Emergency" shall mean an
unanticipated emergency that is caused by an event beyond the
control of the Participant that would result in severe
financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant
or a dependent of the Participant, (ii) a loss of the
Participant's property due to casualty, or (iii) such other
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be
limited to Directors of the Employers. From that group, the
Committee shall select, in its sole discretion, Directors to
participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation,
each selected Director shall complete, execute and return to
the Committee within 30 days of selection a Plan Agreement, an
Election Form and a Beneficiary Designation Form. In
addition, the Committee shall establish from time to time such
other enrollment requirements as it determines in its sole
discretion are necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided a
Director selected to participate in the Plan has met all
enrollment requirements set forth in this Plan and required by
the Committee, including returning all required documents to
the Committee within 30 days of selection, that Director shall
commence participation in the Plan on the first day of the
month following the month in which the Director completes all
enrollment requirements. If a Director fails to meet all such
requirements within the required 30 day period, that Director
shall not be eligible to participate in the Plan until the
first day of the Plan Year following the delivery to and
acceptance by the Committee of the required documents.
6
11
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 3
DEFERRAL COMMITMENTS/INTEREST CREDITING
3.1 MINIMUM DEFERRAL.
(a) MINIMUM. For each Plan Year, a Participant may elect
to defer his or her Director's Fees in the minimum
amount of $1,000. If no election is made, the amount
deferred shall be zero.
(b) SHORT PLAN YEAR. If a Participant first becomes a
Participant after the first day of a Plan Year, or in
the case of the first Plan Year of the Plan itself,
the minimum Director's Fees deferral shall be an
amount equal to the minimum set forth above,
multiplied by a fraction, the numerator of which is
the number of complete months remaining in the Plan
Year and the denominator of which is 12.
3.2 MAXIMUM DEFERRAL. For each Plan Year, a Participant may
elect to defer up to 100% of his or her Director's Fees.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM. In connection
with a Participant's commencement of participation in the
Plan, the Participant shall make a deferral election by timely
delivering to the Committee (in accordance with Section 2.3
above) a completed and signed Election Form, which election
and form must be accepted by the Committee for a valid
election to exist. For each succeeding Plan Year, a new
Election Form must be delivered to the Committee, in
accordance with its rules and procedures, before the end of
the Plan Year preceding the Plan Year for which the election
is made. If no Election Form is timely delivered for a Plan
Year, no Annual Deferral Amount shall be withheld for that
Plan Year.
3.4 WITHHOLDING OF DEFERRAL AMOUNTS. The Director's Fees for
which a deferral election is made shall be withheld at the
time those fees are or otherwise would be paid to the
Participant.
3.5 INTEREST CREDITING PRIOR TO DISTRIBUTION. Prior to any
distribution of benefits under Articles 4, 5, 6, 7 or 8,
interest shall be credited and compounded annually on a
Participant's Account Balance as though the Annual Deferral
Amount for that Plan Year was withheld at the beginning of the
Plan Year or, in the case of the first year of Plan
participation, was withheld on the date that the Participant
7
12
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
commenced participation in the Plan. The rate of interest for
crediting shall be the Crediting Rate. In the event of
Retirement, Disability, death or Termination of Directorship
prior to the end of a Plan Year, the basis for that year's
interest crediting will be a fraction of the full year's
interest, based on the number of full months that the
Participant served as a Director with the Employer during the
Plan Year prior to the occurrence of such event. If a
distribution is made under this Plan, for purposes of
crediting interest, the Account Balance shall be reduced as of
the first day of the month in which the distribution is made.
3.6 INSTALLMENT DISTRIBUTIONS. In the event a benefit is paid in
installments under Articles 5, 6 or 8, installment payment
amounts shall be determined in the following manner:
(a) INTEREST RATE. The interest rate to be used to
calculate installment payment amounts shall be a
fixed interest rate that is determined by averaging
the Crediting Rates for the Plan Year in which
installment payments commence and the four (4)
preceding Plan Years. If a Participant has completed
fewer than five (5) Plan Years, this average shall be
determined using the Crediting Rates for the Plan
Years during which the Participant participated in
the Plan.
(b) "DEEMED" INSTALLMENT PAYMENTS. For purposes of
calculating installment payment amounts only (and
notwithstanding the fact that installment payments
shall actually be paid monthly), installment payments
for each 12 month period, starting with the date that
the Participant became eligible to receive a benefit
under this Plan (the "Eligibility Date") and
continuing thereafter for each additional 12 month
period until the Participant's Account Balance is
paid in full, shall be deemed to have been paid in
one sum as of the first day of each such 12 month
period. (The result of this is that interest
crediting shall be made on an annual basis after
taking into account the "deemed" annual installment
payment for the 12 month period.)
(c) AMORTIZATION. Based on the interest rate determined
in accordance with Section 3.6(a) above and the
"deemed" form of installment payments determined in
accordance with Section 3.6(b) above, the
Participant's Account Balance shall be amortized in
equal annual installment payments
8
13
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
over the term of the specified payment period
(starting as of the Eligibility Date and stated in
years rather than months).
(d) MONTHLY PAYMENTS. The annual installment payment
determined in Section 3.6(c) above shall be divided
by 12, and the resulting number shall be the monthly
installment payment that is to be paid each month
during the specified monthly installment payment
period in accordance with the other terms and
conditions of this Plan.
3.7 TAXES. For each Plan Year in which an Annual Deferral Amount
is being withheld, the Participant's Employer(s) shall ratably
withhold from that portion of the Participant's Director's
Fees that is not being deferred the Participant's share of any
applicable taxes. If necessary, the Committee shall reduce
the Annual Deferral Amount in order to comply with this
Section 3.7.
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES; WITHDRAWAL ELECTION
4.1 SHORT-TERM PAYOUT. In connection with each election to defer
an Annual Deferral Amount, a Participant may elect to receive
a future "Short-Term Payout" from the Plan with respect to
that Annual Deferral Amount. The Short-Term Payout shall be a
lump sum payment in an amount that is equal to the Annual
Deferral Amount plus interest credited in the manner provided
in Section 3.5 above on that amount. Subject to the other
terms and conditions of this Plan, each Short-Term payout
elected shall be paid within 60 days of the first day of the
Plan Year that is the latter of (i) the first day of the Plan
Year that is 3 years after the first day of the Plan Year to
which the applicable Annual Deferral Amount election relates,
or (ii) the first day of any Plan Year thereafter elected by
the Participant on the Election Form electing the Annual
Deferral Amount.
4.2 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL
EMERGENCIES. If the Participant experiences an Unforeseeable
Financial Emergency, the Participant may petition the
Committee to (i) suspend any deferrals required to be made by
a Participant and/or (ii) receive a partial or full payout
from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such
Participant were receiving a Termination Benefit, or the
amount reasonably needed to satisfy the Unforeseeable
Financial Emergency. If,
9
14
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
subject to the sole discretion of the Committee, the petition
for a suspension and/or payout is approved, suspension shall
take effect upon the date of approval and any payout shall be
made within 60 days of the date of approval.
ARTICLE 5
RETIREMENT BENEFIT
5.1 RETIREMENT BENEFIT. A Participant who Retires shall receive,
as a Retirement Benefit, his or her Account Balance.
5.2 PAYMENT OF RETIREMENT BENEFITS. A Participant, in connection
with his or her commencement of participation in the Plan,
shall elect on an Election Form to receive the Retirement
Benefit in a lump sum or in equal monthly payments (the latter
determined in accordance with Section 3.6 above) over a period
of 60, 120 or 180 months. The Participant may change his or
her election to an allowable alternative payout period by
submitting a new Election Form to the Committee, provided that
any such Election Form is submitted at least 3 years prior to
the Participant's Retirement and is accepted by the Committee
in its sole discretion. The Election Form most recently
accepted by the Committee shall govern the payout of the
Retirement Benefit. The lump sum payment shall be made, or
installment payments shall commence, no later than 60 days
after the date the Participant Retires.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFITS. If a
Participant dies after Retirement but before the Retirement
Benefit is paid in full, the Participant's unpaid Retirement
Benefit payments shall continue and shall be paid to the
Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b)
in a lump sum, if requested by the Beneficiary and allowed in
the sole discretion of the Committee, that is equal to the
Participant's unpaid remaining Account Balance.
10
15
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Except as provided in
Section 6.3 below, if a Participant dies before he or she
Retires, experiences a Termination of Directorship or suffers
a Disability, the Participant's Beneficiary shall receive a
Pre-Retirement Survivor Benefit equal to the Participant's
Account Balance.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFITS. A Participant,
in connection with his or her commencement of participation in
the Plan, shall elect on an Election Form whether the
Pre-Retirement Survivor Benefit shall be received by his or
her Beneficiary in a lump sum or in equal monthly payments
(the latter determined in accordance with Section 3.6 above)
over a period of 60, 120 or 180 months. The Participant may
change this election to an allowable alternative payout period
by submitting a new Election Form to the Committee, which form
must be accepted by the Committee in its sole discretion. The
Election Form most recently accepted by the Committee prior to
the Participant's death shall govern the payout of the
Participant's Pre-Retirement Survivor Benefit. Despite the
foregoing, if the Participant's Account Balance at the time of
his or her death is less than $25,000, or the Beneficiary
petitions the Committee for a lump sum payment, payment of the
Pre-Retirement Survivor Benefit may be made, in the sole
discretion of the Committee, in a lump sum or in installment
payments that do not exceed five years in duration. The lump
sum payment shall be made, or installment payments shall
commence, no later than 60 days after the date the Committee
is provided with proof that is satisfactory to the Committee
of the Participant's death.
6.3 RESTRICTION IN THE EVENT OF SUICIDE OR FALSELY PROVIDED
INFORMATION. In the event of a Participant's suicide within 2
years after the Participant first becomes a Participant, or in
the event the Participant's death is determined to be from a
bodily or mental cause or causes, the information about which
was withheld, knowingly concealed, or falsely provided by the
Participant if requested to furnish evidence of good health,
the Pre- Retirement Survivor Benefit shall be equal to the sum
of the Participant's Annual Deferral Amounts, without
interest, all determined as of his or her date of death.
11
16
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 7
TERMINATION BENEFIT
7.1 TERMINATION BENEFITS. If a Participant experiences a
Termination of Directorship prior to his or her Retirement,
death or Disability, the Participant shall receive a
Termination Benefit, which shall be equal to the Participant's
Account Balance, with interest credited in the manner provided
in Section 3.5 above.
7.2 PAYMENT OF TERMINATION BENEFIT. The Termination Benefit shall
be paid in a lump sum within 60 days of the Termination of
Directorship.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
8.1 DISABILITY WAIVER.
(a) ELIGIBILITY. By participating in the Plan, all
Participants are eligible for this waiver.
(b) WAIVER OF DEFERRAL; CREDIT FOR PLAN YEAR OF
DISABILITY. A Participant who is determined by the
Committee to be suffering from a Disability shall be
excused from fulfilling that portion of the Annual
Deferral Amount commitment that would otherwise have
been withheld from a Participant's Director's Fees
for the Plan Year during which the Participant first
suffers a Disability. During the period of
Disability, the Participant shall not be allowed to
make any additional deferral elections.
(c) RETURN TO WORK. If a Participant returns to service
as a Director with an Employer after a Disability
ceases, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or
her return to service and for every Plan Year
thereafter while a Participant in the Plan; provided
such deferral elections are otherwise allowed and an
Election Form is delivered to and accepted by the
Committee for each such election in accordance with
Section 3.3 above.
8.2 DISABILITY BENEFIT. A Participant suffering a Disability
shall, for benefit purposes under this Plan, continue to be
considered to be a Director and shall be eligible
12
17
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
for the benefits provided for in Articles 4, 5, 6 or 7 in
accordance with the provisions of those Articles.
Notwithstanding the above, the Committee shall have the right,
in its sole and absolute discretion and for purposes of this
Plan only, to terminate a Participant's Directorship at any
time after such Participant is determined to be suffering from
a permanent Disability.
ARTICLE 9
BENEFICIARY DESIGNATION
9.1 BENEFICIARY. Each Participant shall have the right, at any
time, to designate his or her Beneficiary(ies) (both primary
as well as contingent) to receive any benefits payable under
the Plan to a beneficiary upon the death of a Participant.
The Beneficiary designated under this Plan may be the same as
or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A
Participant shall designate his or her Beneficiary by
completing and signing the Beneficiary Designation Form, and
returning it to the Committee or its designated agent. A
Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of
the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. If the
Participant names someone other than his or her spouse as a
Beneficiary, a spousal consent, in the form designated by the
Committee, must be signed by that Participant's spouse and
returned to the Committee. Upon the acceptance by the
Committee of a new Beneficiary Designation Form, all
Beneficiary designations previously filed shall be cancelled.
The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and
accepted by the Committee prior to his or her death.
9.3 ACKNOWLEDGMENT. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and
acknowledged in writing by the Committee or its designated
agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to
designate a Beneficiary as provided in Sections 9.1, 9.2 and
9.3 above or, if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the
Participant's
13
18
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
benefits, then the Participant's designated Beneficiary shall
be deemed to be his or her surviving spouse. If the
Participant has no surviving spouse, the benefits remaining
under the Plan to be paid to a Beneficiary shall be payable to
the executor or personal representative of the Participant's
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to
the proper Beneficiary to receive payments pursuant to this
Plan, the Committee shall have the right, exercisable in its
discretion, to cause the Participant's Employer to withhold
such payments until this matter is resolved to the Committee's
satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the
Plan to a Beneficiary shall fully and completely discharge all
Employers and the Committee from all further obligations under
this Plan with respect to the Participant, and that
Participant's Plan Agreement shall terminate upon such full
payment of benefits.
ARTICLE 10
TERMINATION, AMENDMENT OR MODIFICATION
10.1 TERMINATION. Any Employer reserves the right to terminate the
Plan at any time with respect to its participating Directors
under the Plan by the actions of its board of directors. Upon
the termination of the Plan, all Plan Agreements of a
Participant shall terminate and his or her Account Balance
shall be paid to the Participant as follows. Prior to a
Change in Control, an Employer shall have the right, in its
sole discretion, and notwithstanding any elections made by the
Participant, to pay such benefits in a lump sum or in monthly
installments for up to 5 years, with interest credited during
the installment period as provided in Section 3.6. After a
Change in Control, the Employer shall be required to pay such
benefits in a lump sum. The termination of the Plan shall not
adversely affect any Participant or Beneficiary who has become
entitled to the payment of any benefits under the Plan as of
the date of termination; provided, however, that the Employer
shall have the right to accelerate installment payments by
paying the present value equivalent of such payments, using
the Crediting Rate for the Plan Year in which the termination
occurs as the discount rate, in a lump sum or pursuant to a
different payment schedule.
14
19
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
10.2 AMENDMENT. Any Employer may, at any time, amend or modify the
Plan in whole or in part with respect to that Employer by the
actions of its board of directors; provided, however, that no
amendment or modification shall be effective to decrease or
restrict the value of a Participant's Account Balance in
existence at the time the amendment or modification is made.
The amendment or modification of the Plan shall not affect any
Participant or Beneficiary who has become entitled to the
payment of benefits under the Plan as of the date of the
amendment or modification; provided, however, that the
Employer shall have the right to accelerate installment
payments by paying the present value equivalent of such
payments, using the Crediting Rate for the Plan Year of the
amendment or modification as the discount rate, in a lump sum
or pursuant to a different payment schedule.
10.3 EFFECT OF PAYMENT. The full payment of the applicable benefit
under Articles 5, 6, 7 or 8 of the Plan shall completely
discharge all obligations to a Participant and his or her
designated Beneficiaries under this Plan and the Participant's
Plan Agreement shall terminate.
ARTICLE 11
ADMINISTRATION
11.1 COMMITTEE DUTIES. This Plan shall be administered by a
Committee which shall consist of the Board, or such committee
as the Board shall appoint. Members of the Committee may be
Participants under this Plan. The Committee shall also have
the discretion and authority to (i) make, amend, interpret,
and enforce all appropriate rules and regulations for the
administration of this Plan and (ii) decide or resolve any and
all questions including interpretations of this Plan, as may
arise in connection with the Plan.
11.2 AGENTS. In the administration of this Plan, the Committee
may, from time to time, employ agents and delegate to them
such administrative duties as it sees fit (including acting
through a duly appointed representative) and may from time to
time consult with counsel who may be counsel to any Employer.
11.3 BINDING EFFECT OF DECISIONS. The decision or action of the
Committee with respect to any question arising out of or in
connection with the administration, interpretation and
application of the Plan and the rules and regulations
15
20
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
11.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and
hold harmless the members of the Committee against any and all
claims, losses, damages, expenses or liabilities arising from
any action or failure to act with respect to this Plan, except
in the case of willful misconduct by the Committee or any of
its members.
11.5 EMPLOYER INFORMATION. To enable the Committee to perform its
functions, each Employer shall supply full and timely
information to the Committee on all matters relating to the
compensation of its Participants, the date and circumstances
of the Retirement, Disability, death or Termination of
Directorship of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 12
OTHER BENEFITS AND AGREEMENTS
12.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are
in addition to any other benefits available to such
Participant under any other plan or program for directors of
the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or
program except as may otherwise be expressly provided.
12.2 ROLLOVER OF BENEFITS. The Company, in its sole discretion,
may designate that the benefits under any nonqualified plan
sponsored by the Company may be rolled over to this Plan. If
such a designation is made, the Participant's account balance
under that plan shall be added to his or her Account Balance
under this Plan and any such transferred account balance shall
become subject to the terms and conditions of this Plan. Upon
the completion of that rollover, the Participant's
participation in the deferred compensation plan shall cease
and he or she shall have no further interest in that plan,
unless otherwise specified by the Company. The Committee, in
its sole discretion, shall provide rules and procedures with
respect to any elections or beneficiary designations that may
be required as a result of the rollover.
16
21
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
ARTICLE 13
CLAIMS PROCEDURES
13.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a
deceased Participant (such Participant or Beneficiary being
referred to below as a "Claimant") may deliver to the
Committee a written claim for a determination with respect to
the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by
the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. The claim must state
with particularity the determination desired by the Claimant.
All other claims must be made within 180 days of the date on
which the event that caused the claim to arise occurred. The
claim must state with particularity the determination desired
by the Claimant.
13.2 NOTIFICATION OF DECISION. The Committee shall consider a
Claimant's claim within a reasonable time, and shall notify
the Claimant in writing:
(a) that the Claimant's requested determination has been
made, and that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary,
in whole or in part, to the Claimant's requested
determination, and such notice must set forth in a
manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial
of the claim, or any part of it;
(ii) specific reference(s) to pertinent
provisions of the Plan upon which
such denial was based;
(iii) a description of any additional
material or information necessary
for the Claimant to perfect the
claim, and an explanation of why
such material or information is
necessary; and
(iv) an explanation of the claim review
procedure set forth in Section 14.3
below.
17
22
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
13.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a
notice from the Committee that a claim has been denied, in
whole or in part, a Claimant (or the Claimant's duly
authorized representative) may file with the Committee a
written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly
authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its
sole discretion, may grant.
13.4 DECISION ON REVIEW. The Committee shall render its decision
on review promptly, and not later than 60 days after the
filing of a written request for review of the denial, unless a
hearing is held or other special circumstances require
additional time, in which case the Committee's decision must
be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the
Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan
provisions upon which the decision was based; and
(c) such other matters as the Committee deems relevant.
13.5 LEGAL ACTION. A Claimant's compliance with the foregoing
provisions of this Article 13 is a mandatory prerequisite to a
Claimant's right to commence any legal action with respect to
any claim for benefits under this Plan.
ARTICLE 14
TRUST
14.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the
Trust, and the Employers shall at least annually transfer over
to the Trust such assets as the Employers determine, in their
sole discretion, are necessary to provide for their
18
23
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
respective future liabilities created with respect to the
Annual Deferral Amounts and interest credits for that year.
14.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions
of the Plan and the Plan Agreement shall govern the rights of
a Participant to receive distributions pursuant to the Plan.
The provisions of the Trust shall govern the rights of the
Employers, Participants and the creditors of the Employers to
the assets transferred to the Trust. Each Employer shall at
all times remain liable to carry out its obligations under the
Plan. Each Employer's obligations under the Plan may be
satisfied with Trust assets distributed pursuant to the terms
of the Trust, and any such distribution shall reduce the
Employer's obligations under this Agreement.
ARTICLE 15
MISCELLANEOUS
15.1 UNSECURED GENERAL CREDITOR. Participants and their
Beneficiaries, heirs, successors and assigns shall have no
legal or equitable rights, interests or claims in any property
or assets of an Employer. Any and all of an Employer's assets
shall be, and remain, the general, unpledged unrestricted
assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise
to pay money in the future.
15.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment
of benefits shall be defined only by the Plan and the Plan
Agreement, as entered into between the Employer and a
Participant. An Employer shall have no obligation to a
Participant under the Plan except as expressly provided in the
Plan and his or her Plan Agreement.
15.3 NONASSIGNABILITY. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which
are, and all rights to which are expressly declared to be,
unassignable and non-transferable, except that the foregoing
shall not apply to any family support obligations set forth in
a court order. No part of the amounts payable shall, prior to
actual payment, be subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate
maintenance owed by a Participant or any other person, nor
19
24
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
be transferable by operation of law in the event of a
Participant's or any other person's bankruptcy or insolvency.
15.4 FURNISHING INFORMATION. A Participant or his or her
Beneficiary will cooperate with the Committee by furnishing
any and all information requested by the Committee and take
such other actions as may be requested in order to facilitate
the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
15.5 TERMS. Whenever any words are used herein in the masculine,
they shall be construed as though they were in the feminine in
all cases where they would so apply; and whenever any words
are used herein in the singular or in the plural, they shall
be construed as though they were used in the plural or the
singular, as the case may be, in all cases where they would so
apply.
15.6 CAPTIONS. The captions of the articles, sections and
paragraphs of this Plan are for convenience only and shall not
control or affect the meaning or construction of any of its
provisions.
15.7 GOVERNING LAW. Subject to ERISA, the provisions of this Plan
shall be construed and interpreted according to the internal
laws of the State of Idaho without regard to its conflicts of
laws principles.
15.8 NOTICE. Any notice or filing required or permitted to be
given to the Committee under this Plan shall be sufficient if
in writing and hand-delivered, or sent by registered or
certified mail, to the address below:
Hecla Mining Company
Director Deferral Plan
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: Jon T. Langstaff
Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
20
25
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
Any notice or filing required or permitted to be given to a
Participant under this Plan shall be sufficient if in writing
and hand-delivered, or sent by mail, to the last known address
of the Participant.
15.9 SUCCESSORS. The provisions of this Plan shall bind and inure
to the benefit of the Participant's Employer and its
successors and assigns and the Participant and the
Participant's designated Beneficiaries.
15.10 SPOUSE'S INTEREST. The interest in the benefits hereunder of
a spouse of a Participant who has predeceased the Participant
shall automatically pass to the Participant and shall not be
transferable by such spouse in any manner, including but not
limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
15.11 VALIDITY. In case any provision of this Plan shall be illegal
or invalid for any reason, said illegality or invalidly shall
not affect the remaining parts hereof, but this Plan shall be
construed and enforced as if such illegal or invalid provision
had never been inserted herein.
15.12 INCOMPETENT. If the Committee determines in its discretion
that a benefit under this Plan is to be paid to a minor, a
person declared incompetent or to a person incapable of
handling the disposition of that person's property, the
Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of
such minor, incompetent or incapable person. The Committee
may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution
of the benefit. Any payment of a benefit shall be a payment
for the account of the Participant and the Participant's
Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment
amount.
15.13 COURT ORDER. The Committee is authorized to make any payments
directed by court order in any action in which the Plan or the
Committee has been named as a party.
15.14 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable
to the Participant prior to receipt, a
21
26
HECLA MINING COMPANY
Director Deferral Plan
Master Plan Document
Participant may petition the Committee for a distribution of
that portion of his or her benefit that has become taxable.
Upon the grant of such a petition, which grant shall not be
unreasonably withheld, a Participant's Employer shall
distribute to the Participant immediately available funds in
an amount equal to the taxable portion of his or her benefit
(which amount shall not exceed a Participant's unpaid Account
Balance under the Plan). If the petition is granted, the tax
liability distribution shall be made within 90 days of the
date when the Participant's petition is granted. Such a
distribution shall affect and reduce the benefits to be paid
under this Plan.
(b) TRUST. If the Trust terminates in accordance with
Section 3.6(e) of the Trust and benefits are
distributed from the Trust to a Participant in
accordance with that Section, the Participant's
benefits under this Plan shall be reduced to the
extent of such distributions.
15.15 TAXES AND WITHHOLDING. The Participant's Employer(s), or the
trustee of the Trust in accordance with the terms of the
Trust, may withhold from any distribution under this Plan any
and all employment and income taxes that are required to be
withheld under applicable law.
IN WITNESS WHEREOF, the Company has signed this Plan
document as of January 1, 1995.
"Company"
HECLA MINING COMPANY,
a Delaware corporation
By: /s/ Michael B. White
------------------------------------------
Title: Vice President - General Counsel
---------------------------------------
22
EX-10.5B
4
SUPPLEMENTAL EXCESS RETIREMENT MASTER PLAN
1
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Effective January 1, 1995 Exhibit 10.5(b)
2
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
TABLE OF CONTENTS
Page
PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 Definitions . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 Eligibility . . . . . . . . . . . . . . . . . . . . . 4
2.1 Selection by Committee . . . . . . . . . . . . . . . 4
2.2 Enrollment Requirements . . . . . . . . . . . . . . . 4
2.3 Commencement of Participation . . . . . . . . . . . . 4
ARTICLE 3 Benefits . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Benefits for Unmarried Persons . . . . . . . . . . . 5
3.2 Benefits for Married Participants . . . . . . . . . . 6
3.3 Pre-Retirement Death Benefit. . . . . . . . . . . . . 7
3.4 Payment of Benefits . . . . . . . . . . . . . . . . . 7
3.5 Limitation on Benefits . . . . . . . . . . . . . . . 8
3.6 Withholding and Payroll Taxes . . . . . . . . . . . . 8
3.7 Coordination of Benefits . . . . . . . . . . . . . . 9
ARTICLE 4 Termination, Amendment or Modification of the Plan . . 9
4.1 Termination . . . . . . . . . . . . . . . . . . . . . 9
4.2 Amendment . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Termination of Plan Agreement . . . . . . . . . . . . 10
ARTICLE 5 Other Benefits and Agreements . . . . . . . . . . . . 10
5.1 Coordination with Other Benefits . . . . . . . . . . 10
ARTICLE 6 Administration of the Plan . . . . . . . . . . . . . . 10
6.1 Committee Duties . . . . . . . . . . . . . . . . . . 10
6.2 Agents . . . . . . . . . . . . . . . . . . . . . . . 10
i
3
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
6.3 Binding Effect of Decisions . . . . . . . . . . . . . 10
6.4 Indemnity of Committee . . . . . . . . . . . . . . . 11
6.5 Employer Information . . . . . . . . . . . . . . . . 11
ARTICLE 7 Claims Procedures . . . . . . . . . . . . . . . . . . 11
7.1 Presentation of Claim . . . . . . . . . . . . . . . . 11
7.2 Notification of Decision . . . . . . . . . . . . . . 11
7.3 Review of a Denied Claim . . . . . . . . . . . . . . 12
7.4 Decision on Review . . . . . . . . . . . . . . . . . 12
7.5 Legal Action . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 8 Trust . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 Establishment of the Trust . . . . . . . . . . . . . 13
8.2 Interrelationship of the Plan and the Trust . . . . . 13
ARTICLE 9 Miscellaneous . . . . . . . . . . . . . . . . . . . . 13
9.1 Unsecured General Creditor . . . . . . . . . . . . . 13
9.2 Employer's Liability . . . . . . . . . . . . . . . . 13
9.3 Nonassignability . . . . . . . . . . . . . . . . . . 14
9.4 Not a Contract of Employment . . . . . . . . . . . . 14
9.5 Furnishing Information . . . . . . . . . . . . . . . 14
9.6 Terms . . . . . . . . . . . . . . . . . . . . . . . . 14
9.7 Captions . . . . . . . . . . . . . . . . . . . . . . 14
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . 14
9.9 Notice . . . . . . . . . . . . . . . . . . . . . . . 15
9.10 Successors . . . . . . . . . . . . . . . . . . . . . 15
9.11 Spouse's Interest . . . . . . . . . . . . . . . . . . 15
9.12 Validity . . . . . . . . . . . . . . . . . . . . . . 15
9.13 Incompetent . . . . . . . . . . . . . . . . . . . . . 15
9.14 Court Order . . . . . . . . . . . . . . . . . . . . . 16
9.15 Distribution in the Event of Taxation . . . . . . . . 16
ii
4
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
PURPOSE
The purpose of this Plan is to provide specified benefits to a select group of
management and highly compensated employees who contribute materially to the
continued growth, development and future business success of Hecla Mining
Company, a Delaware corporation, and its subsidiaries, if any, that sponsor this
Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I
of ERISA.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 "Actuarial Equivalent" shall mean the actuarial equivalent value an
amount payable in a different form and/or at a different date computed on
the basis of the actuarial assumptions used from time to time in the
Pension Plan. No Participant shall be deemed to have any right, vested or
nonvested, regarding the continued use of previously adopted actuarial
assumptions.
1.2 "Board" shall mean the board of directors of the Company.
1.3 "Claimant" shall have the meaning set forth in Section 7.1.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as may be amended
from time to time.
1.5 "Committee" shall mean the committee described in Article 6.
1.6 "Company" shall mean Hecla Mining Company, a Delaware corporation.
1.7 "Disability" shall mean a permanent disability as determined by the
Committee in accordance with the rules set forth in the Pension Plan
regarding the determination of a permanent disability.
1.8 "Disability Retirement Date" shall mean the "Disability Retirement Date"
as defined in Section 4(d) of the Pension Plan.
1
5
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
1.9 "Early Retirement" shall mean a Participant, who has at least ten (10)
years of aggregate Years of Service, ceasing to be an Employee of all
Employers as a result of his or her election to retire on his or her
Early Retirement Date or Early Retirement Date With 30 Years of Service
Date, as the case may be.
1.10 "Early Retirement Benefit With 30 Years Date" shall mean the date on
which a Participant is entitled to retire under Section 4(c) of the
Pension Plan.
1.11 "Early Retirement Date" shall mean the "Early Retirement Date" as
defined is the Pension Plan.
1.12 "Employer(s)" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as may be amended from time to time.
1.14 "Joint and Survivor Annuity" shall mean a benefit that is the Actuarial
Equivalent of the Participant's Vested SERP Benefit and that is payable
monthly in the form of an annuity for the life of the Participant with a
survivor annuity for the life of such Participant's spouse.
1.15 "Life Annuity" shall mean a benefit that is the Actuarial Equivalent of
the Participant's Vested SERP Benefit and that is payable monthly in the
form of an annuity for the life of the Participant.
1.16 "Normal Retirement" shall mean a Participant ceasing to be an Employee
of all Employers as a result of his or her retirement on his or her
Normal Retirement Date.
1.17 "Normal Retirement Date" shall mean the "Normal Retirement Date" as
defined in the Pension Plan.
1.18 "Participant" shall mean any employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs
a Plan Agreement, (iv) whose signed Plan Agreement Form is accepted by
the Committee, (v) who commences participation in the Plan, and (vi)
whose Plan Agreement has not terminated.
2
6
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
1.19 "Plan" shall mean the Company's Supplemental Excess Retirement Plan,
which shall be evidenced by this instrument and by each Plan Agreement,
as amended from time to time.
1.20 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant shall
provide for the entire benefit to which such Participant is entitled to
under the Plan, and the Plan Agreement bearing the latest date of
acceptance by the Committee shall govern such entitlement.
1.21 "Plan Year" shall, for the first Plan Year, begin on January 1, 1995,
and end on December 31, 1995. For each Plan Year thereafter, the Plan
Year shall begin on January 1 of each year and continue through December
31.
1.22 "Pension Plan" shall mean the Company's Retirement Plan, originally
effective January 1, 1947, as amended from time to time.
1.23 "Postponed Retirement" shall mean a Participant ceasing to be an
Employee of all Employers as a result of his or her retirement after
his or her Normal Retirement Date.
1.24 "Postponed Retirement Date" shall mean the "Postponed Retirement Date"
as defined in the Pension Plan.
1.25 "Retirement" or "Retires" shall mean, in each instance, Early
Retirement, Normal Retirement or Postponed Retirement, as the case may
be.
1.26 "SERP Benefit" shall mean a single Life Annuity, based on the life of
the Participant, that is payable monthly, commences at age sixty-five
(65) and is equal in amount to the Actuarial Equivalent of the
difference between (a) and (b) below:
(a) An amount equal to a Participant's Vested accrued benefit
under the Pension Plan, determined as if he or she had
retired on his or her Normal Retirement Date, without being
married, except that the benefit limitations under Code
Sections 401(a)(17) and 415 shall not be taken into account
in determining the amount under this Section 1.26(a); less
3
7
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
(b) An amount equal to the Participant's Vested accrued benefit
under the Pension Plan determined as if he or she had
retired on his or her Normal Retirement Date, without being
married, and by taking into account all limitations
required by the Pension Plan and applicable law.
1.27 "Termination of Employment" shall mean a Participant ceasing to be an
employee of all Employers, voluntarily or involuntarily, but shall
exclude cessation of employment with all Employers as a result of
Retirement, death or Disability.
1.28 "Trust" shall mean the trust established pursuant to that certain Master
Trust Agreement, dated as of October 1, 1994, between the Company and
the trustee named therein, as amended from time to time.
1.29 "Vested" shall mean the extent to which a Participant is vested in his
or her benefits under this Plan and shall be determined in the same
manner as vesting is determined under the Pension Plan.
1.30 "Years of Service" shall mean "Years of Service" as defined in Section 1
of the Pension Plan.
ARTICLE 2
ELIGIBILITY
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be limited to a
select group of management and highly compensated employees of the
Employers. From that group, the Committee shall select, in its sole
discretion, employees to participate in the Plan.
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
employee shall complete, execute and return to the Committee a Plan
Agreement. In addition, the Committee shall establish from time to time
such other enrollment requirements as it determines in its sole
discretion are necessary.
2.3 COMMENCEMENT OF PARTICIPATION. Provided an employee selected to
participate in the Plan has met all enrollment requirements set forth in
this Plan and required by the Committee, including returning all
required documents to the Committee, that employee shall commence
participation in the Plan on the date specified by the
4
8
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
Committee. If a selected employee fails to meet all such requirements
prior to that date, that employee shall not be eligible to participate
in the Plan until the completion of those requirements.
ARTICLE 3
BENEFITS
3.1 BENEFITS FOR UNMARRIED PERSONS. If a Participant is unmarried (as
determined in accordance with the terms and conditions of the Pension
Plan), he or she will be entitled to one of the following benefits paid
in the form of a Life Annuity, provided that the applicable eligibility
requirements for that benefit are met:
(a) NORMAL RETIREMENT BENEFIT. If a Participant retires on his or
her Normal Retirement Date, he or she shall be entitled to a
normal retirement benefit, which benefit shall be equal to his
or her Vested SERP Benefit.
(b) EARLY RETIREMENT BENEFIT. Except as provided in Section 3.1(c)
below, if a Participant completes at least ten (10) Years of
Service and thereafter takes Early Retirement, the Participant
shall be entitled to an early retirement benefit, which benefit
shall be equal to his or her Vested SERP Benefit, as reduced in
accordance with Section 4(b) of the Pension Plan for the
commencement of benefit payments before the Participant's
Normal Retirement Date.
(c) SPECIAL EARLY RETIREMENT BENEFIT. If a Participant completes
at least thirty (30) Years of Service and:
(i) retires on the first day of any month following his or
her sixtieth (60th) birthday, he or she shall be
entitled to an early retirement benefit, which benefit
shall be equal to his or her Vested SERP Benefit; or
(ii) has not attained the age of sixty (60) and has been
terminated by his or her Employers as a result of a
reduction in the work force, he or she shall be
entitled to an early retirement benefit, which shall be
equal to either (1) his or her Vested SERP Benefit, if
benefit payments commence after her or she has attained
age sixty (60), or (2) a benefit determined in
accordance with Section 3.1(b) above, if benefit
payments
5
9
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
commence after he or she has reached age fifty-five and
before he or she has attained age sixty (60).
(d) POSTPONED BENEFIT. If a Participant retires after his or her
Normal Retirement Date, he or she shall be entitled to a
postponed retirement benefit, which benefit shall be equal to
his or her Vested SERP Benefit after giving effect to any
adjustments set forth in Section 13 of the Pension Plan with
respect to Years of Service and final earnings.
(e) DISABILITY BENEFIT. Subject to the limitations set forth in
Section 4(d) of the Pension Plan with respect to a
Participant's eligibility for a disability benefit (including
examination requirements and the termination of benefits upon
the occurrence of certain events), if a Participant completes
at least ten (10) Years of Service, is found to be suffering a
Disability in accordance with Section 4(d) of the Pension Plan
and has a Disability that is not covered by any worker's
compensation act or occupational disease law, he or she shall
be entitled to a disability benefit, which shall be equal to
the Participant's Vested SERP Benefit, calculated by using his
or her Years of Service accumulated up to the time of his or
her Disability Retirement Date. If, as of his or her
Disability Retirement Date, a Participant has not completed at
least ten (10) Years of Service, he or she will be credited
with additional Years of Service in accordance with Section
4(d) of the Pension Plan. Despite the foregoing, this benefit
shall be subject to such continued eligibility conditions or
requirements as are set forth in Section 4(d) of the Pension
Plan.
(f) TERMINATION BENEFIT. If a Participant completes the required
Years of Service as set forth in Section 10 of the Pension
Plan, he or she shall be entitled to a termination benefit that
is equal to his or her Vested SERP Benefit, determined as of
the date of his or her Termination of Employment, as adjusted
in accordance with Section 4(b) of the Pension Plan for
payments, if any, that commence before the Participant's Normal
Retirement Date.
3.2 BENEFITS FOR MARRIED PARTICIPANTS. If a Participant would be entitled
to a benefit set forth in Section 3.1 above except for the fact that he
or she is married at the time that he or she becomes eligible for such a
benefit, then in lieu of the applicable Life Annuity set forth in
Section 3.1 above, the Participant shall be entitled to a benefit that
is paid in the form of a Joint and Survivor Annuity that is the
Actuarial Equivalent of the applicable benefit set forth in Section 3.1
above. This annuity will take the same
6
10
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
form as the one to be paid to the Participant under the Pension Plan;
provided, however, that any election made by the Participant under the
Pension Plan to change the payment form of his or her benefits shall be
disregarded for purposes of this Plan if made within one year prior to
the commencement of benefit payments.
3.3 PRE-RETIREMENT DEATH BENEFIT. If a married Participant dies prior to
his or her Retirement, his or her spouse shall be entitled to a
pre-retirement death benefit, which shall be equal to the survivor
portion of a Joint and Survivor Annuity, determined as if the
Participant had died on the day following the earliest day that he or
she could have taken Early Retirement, or, if later, the date of his or
her death, and the survivor portion of the annuity was fifty percent
(50%) of the annuity that the Participant would have received.
3.4 PAYMENT OF BENEFITS.
(a) RETIREMENT. Except as otherwise set forth in this Section 3.4,
the monthly benefit payments to be paid as a result of the
Participant's Retirement shall commence on the Participant's
Early Retirement Date, Early Retirement With Thirty (30) Years
of Service Date, Normal Retirement Date or Postponed Retirement
Date, and shall continue until (i) in the case of a Joint and
Survivor Annuity, the first day of the calendar month in which
the Retired Participant, or his or her spouse, dies, whichever
is later, or (ii) in the case of an Single Life Annuity, the
first day of the calendar month in which the Retired
Participant dies.
(b) DISABILITY. The monthly benefit payments to be paid as a
result of the Participant's Disability shall commence in
accordance with Section 3.4(a) as if the Participant had
retired on his or her Disability Retirement Date.
(c) TERMINATION OF EMPLOYMENT. The monthly benefit payments to be
paid as a result of the Participant's Termination of Employment
shall commence on the Participant's Normal Retirement Date,
unless the Participant has elected at any time prior to one
year before his or her Termination of Employment that his or
her termination benefit, as set forth in Section 3.1(f) above,
will be paid at an earlier time. In electing an earlier time,
the Participant may not select a date that is earlier than his
or her Early Retirement Date (determined as if he or she had
continued employment with one or more of the Employers).
7
11
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
(d) DEATH. The monthly benefit payments to be paid to the
Participant's spouse as a result of the Participant's death
shall begin on the first day of the month in which the
Participant would have become eligible for Early Retirement (or
the date of his or her death, if later), and shall continue
until the first day of the calendar month in which the
Participant's spouse dies.
(e) SPECIAL ELECTION. Despite Section 3.4(a) above, if a
Participant makes a written election, in accordance with the
rules and procedures of the Committee, at least one year prior
to his or her Early Retirement or Termination of Employer, the
monthly benefit payments to be paid the Participant may be
deferred until the first day of:
(i) any month after his or her Early Retirement or Early
Retirement With Thirty (30) Years of Service Date, as
the case may be, and before his or her Normal
Retirement Age, with respect to a benefit under Section
3.1(b) or Section 3.1(c)(i); or
(ii) a month following the Participant's sixtieth (60th)
birthday, but not later than a Participant's Normal
Retirement Date, with respect to a benefit under
Section 3.1(c)(ii).
(f) SMALL AMOUNT. If a Participant's benefits under the Pension
Plan are paid in a lump sum in accordance with Section 7 of the
Pension Plan, the Committee, in its sole discretion, may pay
the Participants benefits, if any, under this Plan in a lump
sum.
3.5 LIMITATION ON BENEFITS. Notwithstanding the foregoing provisions of
this Article 4, in no event shall a Participant or his or her spouse
receive more than one form of benefit under this Article 3.
3.6 WITHHOLDING AND PAYROLL TAXES. For each Plan Year during which a
Participant becomes Vested in a new portion of his or her SERP Benefit,
the Participant's Employer(s) shall ratably withhold from that
Participant's other compensation the Participant's share of FICA and
other employment taxes, if any, that are attributable to such vesting.
In addition, the Employers shall withhold from any and all benefits paid
under this Article 3, all federal, state and local income, employment
and other taxes required to be withheld by the Employer in connection
with the benefits paid hereunder, in amounts to be determined in the
sole discretion of the Employers.
8
12
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
3.7 COORDINATION OF BENEFITS. Despite the foregoing terms and conditions of
this Article 3, in the event of a conflict between the terms and
conditions of the Pension Plan and this Plan with respect to the
determination of benefits, the Committee, in its sole discretion, may
adjust a Participant's benefits under this Article 3 so that the
Participant receives a benefit under this Plan that, based on the terms
and conditions of the Pension Plan, is in excess of the Participant's
benefits under the Pension Plan as a result of the inapplicability of
Sections 401(a)(17) and 415 of the Code to this Plan.
ARTICLE 4
TERMINATION, AMENDMENT OR MODIFICATION OF THE PLAN
4.1 TERMINATION. Each Employer reserves the right to terminate the Plan at
any time with respect to its participating employees by the actions of
its board of directors. Despite the foregoing, the termination of the
Plan shall not decrease or restrict a Participant's, or a Participant's
spouse (if the Participant has died and the spouse is entitled to a
benefit) Vested SERP Benefit, determined on an Actuarial Equivalent
Basis. For each Participant or spouse who is receiving payments under
this Plan at the time of the termination, the Employer shall have the
right to accelerate such payments by paying the Actuarial Equivalent
value of such payments, and, upon the completion of those payments, the
Participant's Plan Agreement shall terminate. For all other
Participants and their designated Beneficiaries, upon the termination of
the Plan, all Plan Agreements shall terminate and the Actuarial
Equivalent of a Participant's Vested SERP Benefit shall be paid in a
lump sum.
4.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to its participating employees by the
actions of its board of directors; provided, however, that no amendment
or modification shall be effective to decrease or restrict a
Participant's then Vested SERP Benefit, determined on an Actuarial
Equivalent basis. The amendment or modification of the Plan shall not
affect any Participant or his or her spouse who has become entitled to
the payment of benefits under the Plan as of the date of the amendment
or modification; provided, however, that the Employer shall have the
right to accelerate payments by paying the Actuarial Equivalent value of
such payments either in a lump sum or in some other accelerated form of
payment.
9
13
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
4.3 TERMINATION OF PLAN AGREEMENT. Absent the earlier termination,
modification or amendment of the Plan, the Plan Agreement of any
Participant shall terminate upon the full payment of the applicable
benefit as provided under Article 3.
ARTICLE 5
OTHER BENEFITS AND AGREEMENTS
5.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
Participant under this Plan are in addition to any other benefits
available to such Participant under any other plan or program for
employees of the Employers. The Plan shall supplement and shall not
supersede, modify or amend any other such plan or program except as may
otherwise be expressly provided.
ARTICLE 6
ADMINISTRATION OF THE PLAN
6.1 COMMITTEE DUTIES. This Plan shall be administered by a Committee which
shall consist of the Board, or such committee as the Board shall
appoint. Members of the Committee may be Participants under this Plan.
The Committee shall also have the discretion and authority to (i) make,
amend, interpret and enforce all appropriate rules and regulations for
the administration of this Plan and (ii) decide or resolve any and all
questions including interpretations of this Plan, as may arise in
connection with the Plan.
6.2 AGENTS. In the administration of this Plan, the Committee may employ
agents and delegate to them such administrative duties as it sees fit,
(including acting through a duly appointed representative), and may from
time to time consult with counsel who may be counsel to any Employer.
6.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
10
14
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
6.4 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
the members of the Committee against any and all claims, losses,
damages, expenses or liabilities arising from any action or failure to
act with respect to this Plan, except in the case of willful misconduct
by the Committee or any of its members.
6.5 EMPLOYER INFORMATION. To enable the Committee to perform its functions,
each Employer shall supply full and timely information to the Committee
on all matters relating to the compensation of its Participants, the
date and circumstances of the retirement, Disability, death or
Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require.
ARTICLE 7
CLAIMS PROCEDURES
7.1 PRESENTATION OF CLAIM. Any Participant or the spouse of a deceased
Participant (such Participant or spouse being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after
such notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All other
claims must be made within 180 days of the date on which the event that
caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.
7.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole
or in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood
by the Claimant:
(i) the specific reason(s) for the denial of the claim, or
any part of it;
11
15
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
(ii) specific reference(s) to pertinent provisions of the
Plan upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth
in Section 8.3 below.
7.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
7.4 DECISION ON REVIEW. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood by
the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon
which the decision was based; and
(c) such other matters as the Committee deems relevant.
12
w
f
16
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
7.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
this Article 7 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
ARTICLE 8
TRUST
8.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
the Employers shall at least annually transfer over to the Trust such
assets as the Employers determine, in their sole discretion, are
necessary to provide for the Employer's future liabilities created under
this Plan.
8.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the Plan
and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the creditors
of the Employers to the assets transferred to the Trust. Each Employer
shall at all times remain liable to carry out its obligations under the
Plan. Each Employer's obligations under the Plan may be satisfied with
Trust assets distributed pursuant to the terms of the Trust, and any
such distribution shall reduce the Employer's obligations under this
Agreement.
ARTICLE 9
MISCELLANEOUS
9.1 UNSECURED GENERAL CREDITOR. Participants and their spouses, successors
and assigns shall have no legal or equitable rights, interests or claims
in any property or assets of an Employer. Any and all of an Employer's
assets shall be, and remain, the general, unpledged unrestricted assets
of the Employer. An Employer's obligation under the Plan shall be
merely that of an unfunded and unsecured promise to pay money in the
future.
9.2 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
13
17
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
9.3 NONASSIGNABILITY. Neither a Participant nor any other person shall have
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are, expressly
declared to be unassignable and non-transferable, except that the
foregoing shall not apply to any family support obligations set forth in
a court order. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant
or any other person, nor be transferable by operation of law in the
event of a Participant's or any other person's bankruptcy or insolvency.
9.4 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to
be an "at will" employment relationship that can be terminated at any
time for any reason, with or without cause, unless expressly provided in
a written employment agreement. Nothing in this Plan shall be deemed to
give a Participant the right to be retained in the service of any
Employer or to interfere with the right of any Employer to discipline or
discharge the Participant at any time.
9.5 FURNISHING INFORMATION. A Participant or his or her spouse will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
requested in order to facilitate the administration of the Plan and the
payments of benefits hereunder.
9.6 TERMS. Whenever any words are used herein in the masculine, they shall
be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular
or in the plural, they shall be construed as though they were used in
the plural or the singular, as the case may be, in all cases where they
would so apply.
9.7 CAPTIONS. The captions of the articles, sections and paragraphs of this
Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
9.8 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the laws of the State of Idaho.
14
18
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
9.9 NOTICE. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and
hand-delivered, or sent by registered or certified mail, to the address
below:
Hecla Mining Company
Supplemental Excess Retirement Plan
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
Attn: Jon T. Langstaff
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
9.10 SUCCESSORS. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's spouse.
9.11 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
9.12 VALIDITY. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal and invalid provision had never been
inserted herein.
9.13 INCOMPETENT. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may
require proof of minority, incompetency, incapacity or guardianship, as
it may deem
15
19
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's spouse, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
9.14 COURT ORDER. The Committee is authorized to make any payments directed
by court order in any action in which the Plan or the Committee has been
named as a party.
9.15 DISTRIBUTION IN THE EVENT OF TAXATION.
(a) GENERAL. If, for any reason, all or any portion of a
Participant's benefit under this Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the
Committee for a distribution of that portion of his or her
benefit that has become taxable. Upon the grant of such a
petition, which grant shall not be unreasonably withheld, a
Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed a
Participant's unpaid Account Balance under the Plan). If the
petition is granted, the tax liability distribution shall be
made within 90 days of the date when the Participant's petition
is granted. Such a distribution shall affect and reduce the
benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section
3.6(e) of the Trust and benefits are distributed from the Trust
to a Participant in accordance with that Section, the
Participant's benefits under this Plan shall be reduced to the
extent of such distributions.
16
20
HECLA MINING COMPANY
Supplemental Excess Retirement Plan
Master Plan Document
IN WITNESS WHEREOF, the Company has signed this Plan
document on January 1, 1995.
"Company"
HECLA MINING COMPANY,
a Delaware corporation
By: /s/ Michael B. White
-------------------------------------
Title: Vice President - General Counsel
--------------------------------
17
EX-10.5C
5
HECLA MINING COMPANY NONQUALIFIED PLANS MASTER
1
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Exhibit 10.5(c)
2
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
TABLE OF CONTENTS
Page
----
ARTICLE 1 Name, Intentions, Irrevocability, Deposit and Definitions . . . . . . . . . . . . . . . 1
1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Intentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Irrevocability; Creditor Claims . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Initial Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Additional Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Grantor Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 2 General Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Committee Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Administration Upon Change in Control. . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Distribution of Excess Trust Fund to Employer . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 Powers and Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Investment Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2 Investment Upon Change in Control . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Management of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Substitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.6 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Trustee Responsibility Regarding Payments on Insolvency . . . . . . . . . . . . . 14
3.8 Costs of Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.9 Trustee Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Professional Advice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.11 Payment on Court Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.12 Protective Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.13 Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
i
3
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
ARTICLE 4 Insurance Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.1 Types of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.2 Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.3 Restrictions on Trustee's Rights . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE 5 Trustee's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.2 Annual Accounting; Final Accounting . . . . . . . . . . . . . . . . . . . . 20
5.3 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 6 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 21
6.1 Resignation; Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.2 Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.3 Settlement of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 7 Controversies, Legal Actions and Counsel . . . . . . . . . . . . . . . . . . . . . 22
7.1 Controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Joinder of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3 Employment of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 8 Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Insurer Not a Party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.2 Authority of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Contract Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.4 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.5 Change of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 9 Amendment and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Final Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ii
4
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
ARTICLE 10 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.1 Directions Following Change in Control . . . . . . . . . . . . . . . . . . . 26
10.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.3 Third Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10.4 Nonassignability; Nonalienation . . . . . . . . . . . . . . . . . . . . . . 27
10.5 The Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.6 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.7 Notices and Directions . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.9 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
10.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.12 Beneficial Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.13 The Trust and Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.14 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
iii
5
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
THIS MASTER TRUST AGREEMENT ("Master Trust Agreement") is made and entered into
as of October 1, 1994, between Hecla Mining Company, a Delaware corporation
(the "Company"), and Seattle - First Bank, a national banking association (the
"Trustee"), to evidence the master trust (the "Trust") to be established,
pursuant to those nonqualified plans of the Company now or hereafter existing
that require the establishment of a trust, for the benefit of a select group of
management, highly compensated employees and/or Directors who contribute
materially to the continued growth, development and business success of the
Company and those subsidiaries of the Company, if any, that participate in the
Plans (collectively, "Subsidiaries," or singularly, "Subsidiary").
ARTICLE 1
NAME, INTENTIONS, IRREVOCABILITY,
DEPOSIT AND DEFINITIONS
1.1 NAME. The name of the Trust created by this Agreement (the "Trust")
shall be:
MASTER TRUST AGREEMENT FOR
HECLA MINING COMPANY NONQUALIFIED PLANS
1.2 INTENTIONS. The Company wishes to establish the Trust and to
contribute to the Trust assets that shall be held therein, subject to
the claims of the Company's and the Subsidiaries' creditors in the
event of their Insolvency, as herein defined, until paid to
Participants and their Beneficiaries in such manner and at such times
as specified in the Plans. It is the intention of the parties that
this Trust shall constitute an unfunded arrangement and shall not
affect the status of the Plans as unfunded plans maintained for the
purpose of providing supplemental compensation for a select group of
management, highly compensated employees and/or Directors for purposes
of Title I of ERISA (as defined below). In addition, it is the
intention of the Company and the Subsidiaries to make contributions to
the Trust to provide themselves with a source of funds to assist them
in the meeting of their liabilities under the Plans.
1.3 IRREVOCABILITY; CREDITOR CLAIMS. The Trust hereby established shall
be irrevocable. Except as otherwise provided in Section 2.5 and 9.2,
the principal of the Trust, and any earnings thereon, shall be held
separate and apart from other funds of the Company and the
Subsidiaries and shall be used exclusively for the uses and purposes
of the Participants and general creditors of the Company and the
Subsidiaries as herein
1
6
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
set forth. The Participants and their Beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any
assets of the Trust. Any rights created under the Plans and this
Master Trust Agreement shall be mere unsecured contractual rights of
the Participants and their Beneficiaries against the Company and the
Subsidiaries. Any assets held by the Trust will be subject to the
claims of the Company's and the Subsidiaries' general creditors under
federal and state law in the event of Insolvency (as defined below).
1.4 INITIAL DEPOSIT. The Company hereby deposits with the Trustee in
trust $100, which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Master
Trust Agreement.
1.5 ADDITIONAL DEFINITIONS. In addition to the definitions set forth
above, for purposes hereof, unless otherwise clearly apparent from the
context, the following terms have the following indicated meanings:
(a) "Beneficiary" shall mean one or more persons, trusts, estates
or other entities, designated in accordance with a Plan, that
are entitled to receive benefits under a Plan upon the death
of a Participant.
(b) "Board" shall mean the board of directors of the Company.
(c) "Change in Control" shall mean the first to occur of any of
the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")(a "Person") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"), provided,
however, that for purposes of this subsection (a),
the following acquisitions shall not constitute a
Change of Control: (i) any acquisition directly from
the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan
(or related
2
7
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a
transaction which compiles with clauses (i), (ii), and
(iii) of subsection (c) below; or
(ii) Individuals who, as of October 1, 1994, constitute
the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the
Board, provided, however, that any individual
becoming a director subsequent to October 1, 1994,
whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at
least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result
of an actual or threatened election contest with
respect to the election or removal of directors or
other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a
"Business Combination"), in each case, unless,
following such Business Combination, (i) all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors, as the case may be, of the corporation
which as a result of such transaction owns the
Company or all or substantially all of the Company's
assets either directly or through one or more
subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such
Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such
Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation
resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or
3
8
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
Business Combination or the combined voting power of
the then outstanding voting securities of such
corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at
least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Incumbent
Board at the time of the execution of the initial
agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(d) "Committee" shall mean the administrative committee appointed
by the Board to administer this Trust.
(e) "Director" shall mean any member of the board of directors of
the Company or any Subsidiary.
(f) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as may be amended from time to time.
(g) "Insolvent" shall have the meaning set forth in Section 3.7(a)
below.
(h) "Insolvent Entity" shall have the meaning set forth in Section
3.7(a) below.
(i) "IRS" shall mean the Internal Revenue Service.
(j) "Participant" shall mean a person who is a participant in one
or more of the Plans in accordance with their terms and
conditions.
(k) "Payment Schedule" shall have the meaning set forth in Section
3.6(b) below.
(l) "Plan(s)" shall mean one or more of the nonqualified plans
established now or in the future by the Company that require
the establishment of a trust.
(m) "Plan Year" shall mean the Plan Year chosen for this Master
Trust Agreement by the Board.
4
9
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(n) "Trust Fund" shall mean the assets held by the Trustee
pursuant to the terms of this Master Trust Agreement and for
the purposes of the Plans.
1.6 GRANTOR TRUST. The Trust is intended to be a "grantor trust," of
which the Company and the Subsidiaries are the grantors, within the
meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of
the Internal Revenue Code of 1986, as amended, and the Trust shall be
construed accordingly.
ARTICLE 2
GENERAL ADMINISTRATION
2.1 COMMITTEE DIRECTIONS. Until a Change in Control has occurred, this
Section 2.1 shall be effective and the Committee shall direct the
Trustee as to the administration of the Trust in accordance with the
following provisions:
(a) The Committee shall be identified to the Trustee by a copy of
the resolution of the Board appointing the Committee. In the
absence thereof, the Board shall be the Committee. Persons
authorized to give directions to the Trustee on behalf of the
Committee shall be identified to the Trustee by written notice
from the Committee, and such notice shall contain specimens of
the authorized signatures. The Trustee shall be entitled to
rely on such written notice as evidence of the identity and
authority of the persons appointed until a written
cancellation of the appointment, or the written appointment of
a successor, is received by the Trustee.
(b) Directions by the Committee, or its delegate, to the Trustee
shall be in writing and signed by the Committee or persons
authorized by the Committee, or may be made by such other
method as is acceptable to the Trustee.
(c) The Trustee may conclusively rely upon directions from the
Committee in taking any action with respect to this Master
Trust Agreement, including the making of payments from the
Trust Fund and the investment of the Trust Fund pursuant to
this Master Trust Agreement. The Trustee shall have no
liability for actions taken, or for failure to act, on the
direction of the Committee. The Trustee shall have no
liability for failure to act in the absence of proper written
directions.
5
10
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(d) The Trustee may request instructions from the Committee and
shall have no duty to act or liability for failure to act if
such instructions are not forthcoming from the Committee. If
requested instructions are not received within a reasonable
time, the Trustee may, but is under no duty to, act on its own
discretion to carry out the provisions of this Master Trust
Agreement in accordance with this Master Trust Agreement and
the Plans.
2.2 ADMINISTRATION UPON CHANGE IN CONTROL. In the event of a Change in
Control, the authority of the Committee to administer the Trust and
direct the Trustee, as set forth in Section 2.1 above, shall cease,
and the Trustee shall have complete authority to administer the Trust.
2.3 CONTRIBUTIONS. Except as provided in any Plan, the Company and the
Subsidiaries, in their sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property acceptable
to the Trustee in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee as provided in
this Master Trust Agreement. Neither the Trustee nor any Participant
or Beneficiary shall have any right to compel such additional
deposits. The Trustee shall have no duty to collect or enforce
payment to it of any contributions or to require that any
contributions be made, and shall have no duty to compute any amount to
be paid to it nor to determine whether amounts paid comply with the
terms of the Plans.
2.4 TRUST FUND. The contributions received by the Trustee from the
Company and the Subsidiaries shall be held and administered pursuant
to the terms of this Master Trust Agreement as a single fund without
distinction between income and principal and without liability for the
payment of interest thereon except as expressly provided in this
Master Trust Agreement. During the term of this Trust, all income
received by the Trust, net of expenses and taxes, shall be accumulated
and reinvested.
2.5 DISTRIBUTION OF EXCESS TRUST FUND TO EMPLOYER. In the event that the
Committee, prior to a Change in Control, or the Trustee acting in
reasonable reliance upon the advice of a qualified independent pension
consultant or actuary for the Trust, selected and engaged by the
Trustee as provided in Section 3.6(b) (the "Pension Consultant"),
after a Change in Control, determines that the Trust Fund exceeds 125
percent of the anticipated benefit obligations and administrative
expenses that are to be paid under the Plans, the Trustee, at the
direction of the Committee prior to a Change in Control,
6
11
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
or in accordance with the advice of the Pension Consultant after a
Change in Control, shall distribute to the Company and the
Subsidiaries such excess portion of the Trust Fund.
ARTICLE 3
POWERS AND DUTIES OF TRUSTEE
3.1 INVESTMENT DIRECTIONS. Except as provided in Section 3.2, the
Committee shall provide the Trustee with all investment instructions.
The Trustee shall neither affect nor change investments of the Trust
Fund, except as directed in writing by the Committee, and shall have
no right, duty or responsibility to recommend investments or
investment changes; provided, that the Trustee may (i) without such
prior direction, deposit cash on hand from time to time in any bank
savings account, certificate of deposit, or other instrument creating
a deposit liability for a bank, including the Trustee's own banking
department if the Trustee is a bank, or in a common trust fund
maintained by the Trustee, or an affiliate of the Trustee, whose
assets consist primarily of short term and money market investments,
the terms of whose governing instrument shall be deemed incorporated
by reference into this Trust Agreement, or (ii) upon written notice
from the Committee to the Trustee prior to a Change in Control that
the Trustee shall exercise investment discretion for the Trust, invest
in government securities, bonds with specific ratings, or stock of
"Fortune 500" companies, or other assets, all within broad investment
guidelines established by the Committee from time to time.
3.2 INVESTMENT UPON CHANGE IN CONTROL. In the event of a Change in
Control, the authority of the Committee to direct investments of the
Trust Fund shall cease and the Trustee shall have complete authority
to direct investments of the Trust Fund. The president of the Company
shall notify the Trustee in writing when a Change in Control has
occurred. The Trustee has no duty to inquire whether a Change in
Control has occurred and may rely on notification by the president of
the Company, or, if notified by any vice president, by any vice
president of the Company, of a Change in Control; provided, however,
that if any officer, former officer, director or former director of
the Company or any Subsidiary (other than the president or any vice
president of the Company), or any Participant notifies the Trustee
that there has been or there may be a Change in Control, the Trustee
shall have the duty to satisfy itself as to whether a Change in
Control has in fact occurred. The Trustee shall be entitled to obtain
and rely upon an opinion of counsel with respect to any determination
involving a Change
7
12
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
in Control. The expense of such an opinion may be charged to the
Trust Fund only if the expense was reasonable under the circumstances.
The Company and the Subsidiaries shall indemnify and hold harmless the
Trustee for any damages or costs (including attorneys' fees) that may
be incurred because of reliance on the president's or any vice
president's notice or lack thereof.
3.3 MANAGEMENT OF INVESTMENTS. Subject to Section 3.1 above, the
Committee shall have, or in the event of a Change in Control, the
Trustee shall have, without exclusion, all powers conferred on
investment fiduciaries by applicable law, unless expressly provided
otherwise herein, and all rights associated with assets of the Trust
shall be exercised by the Committee, Trustee or the person designated
by the them, and shall in no event be exercisable by or rest with
Participants. The investment fiduciary, in accordance with Sections
3.1 and 3.2, as applicable, shall have full power and authority to
invest and reinvest the Trust Fund in any investment permitted by law,
exercising the judgment and care that persons of prudence, discretion
and intelligence would exercise under the circumstances then
prevailing, considering the probable income and safety of their
capital, including, without limiting the generality of the foregoing,
the power:
(a) To invest and reinvest the Trust Fund, together with the
income therefrom, in common stock, preferred stock,
convertible preferred stock, mutual funds, bonds, debentures,
convertible debentures and bonds, mortgages, notes, time
certificates of deposit, commercial paper and other evidences
of indebtedness (including those issued by the Trustee or any
of its affiliates), other securities, policies of life
insurance, annuity contracts, options to buy or sell
securities, common trust funds of the Trustee or its
affiliates or other assets, and other property of any kind
(personal, real, or mixed, and tangible or intangible);
provided, however, that in no event may the Trustee invest in
securities (including stock or rights to acquire stock) or
obligations issued by the Company or the Subsidiaries, other
than a de minimis amount held in common investment vehicles in
which the Trustee invests;
(b) To deposit or invest all or any part of the assets of the
Trust Fund in savings accounts or certificates of deposit or
other deposits which bear a reasonable interest rate in a
bank, including the commercial department of the Trustee, if
such bank is supervised by the United States or any State;
8
13
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(c) To hold, manage, improve, repair and control all property,
real or personal, forming part of the Trust Fund and to sell,
convey, transfer, exchange, partition, lease for any term,
even extending beyond the duration of this Trust, and
otherwise dispose of the same from time to time in such
manner, for such consideration, and upon such terms and
conditions as the Trustee shall determine;
(d) To have, respecting securities, all the rights, powers and
privileges of an owner, including the power to give proxies,
pay assessments and other sums necessary for the protection of
the Trust Fund, to vote any corporate stock either in person
or by proxy, with or without power of substitution, for any
purpose; to participate in voting trusts, pooling agreements,
foreclosures, reorganizations, consolidations, mergers and
liquidations, and in connection therewith to deposit
securities with and transfer title to any protective or other
committee under such terms as advisable; to exercise or sell
stock subscriptions or conversion rights; and, regardless of
any limitation elsewhere in this instrument relative to
investment, to accept and retain as an investment any
securities or other property received through the exercise of
any of the foregoing powers;
(e) To hold in cash, without liability for interest, such portion
of the Trust Fund which, in its discretion, shall be
reasonable under the circumstances, pending investments, or
payment of expenses, or the distribution of benefits; and
(f) To take such actions as may be necessary or desirable to
protect the Trust Fund from loss due to the default on
mortgages held in the Trust including the appointment of
agents or trustees in such other jurisdictions as may seem
desirable, to transfer property to such agents or trustees, to
grant such powers as are necessary or desirable to protect the
Trust or its assets, to direct such agents or trustees, or to
delegate such power to direct, and to remove such agents or
trustees.
In addition, the Trustee shall have the following powers and
authorities:
(1) To employ such agents including custodians and
counsel as may be reasonably necessary and to pay
them reasonable compensation; to settle, compromise
or abandon all claims and demands in favor of or
against the Trust assets;
9
14
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(2) To cause title to property of the Trust to be issued,
held or registered in the individual name of the
Trustee, or in the name of its nominee(s) or agents,
or in such form that title will pass by delivery;
(3) To exercise all of the further rights, powers,
options and privileges granted, provided for, or
vested in trustees generally under the laws of the
State of Idaho, so that the powers conferred upon the
Trustee herein shall not be in limitation of any
authority conferred by law, but shall be in addition
thereto;
(4) To institute, compromise and defend actions and
proceedings; to pay or contest any claim; to settle a
claim by or against the Trustee by compromise,
arbitration, or otherwise; to release, in whole or in
part, any claim belonging to the Trust to the extent
that the claim is uncollectible;
(5) To use securities depositories or custodians and to
allow such securities as may be held by a depository
or custodian to be registered in the name of such
depository or its nominee or in the name of such
custodian or its nominee; and
(6) To do all other acts necessary or desirable for the
proper administration of the Trust Fund, as if the
Trustee were the absolute owner thereof. However,
nothing in this section shall be construed to mean
the Trustee assumes any responsibility for the
performance of any investment made by the Trustee in
its capacity as trustee under the operations of this
Master Trust Agreement.
Notwithstanding any powers granted to the Trustee pursuant to this
Master Trust Agreement or to applicable law, the Trustee shall not
have any power that could give this Trust the objective of carrying on
a business and dividing the gains therefrom, within the meaning of
section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code of 1986, as amended.
3.4 SECURITIES. Voting or other rights in securities shall be exercised
by the person or entity responsible for directing such investments,
and the Trustee shall have no duty to exercise voting or proxy or
other rights relating to any investment managed or directed by the
Committee. If any foreign securities are purchased pursuant to the
direction of
10
15
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
the Committee, it shall be the responsibility of the person or entity
responsible for directing such investments to advise the Trustee in
writing of any laws or regulations, either foreign or domestic, that
apply to such foreign securities or to the receipt of dividends or
interest on such securities.
3.5 SUBSTITUTION. Notwithstanding any provision of any Plan or the Trust
to the contrary, the Company and/or any Subsidiary shall at all times
have the power to reacquire the Trust Fund by substituting readily
marketable securities (other than stock, an obligation or other
security issued by the Company or any Subsidiary) and/or cash of an
equivalent value and such other property shall, following such
substitution, constitute the Trust Fund.
3.6 DISTRIBUTIONS.
(a) The establishment of the Trust and the payment or delivery to
the Trustee of money or other property shall not vest in any
Participant or Beneficiary any right, title, or interest in
and to any assets of the Trust. To the extent that any
Participant or Beneficiary acquires the right to receive
payments under any of the Plans, such right shall be no
greater than the right of an unsecured general creditor of the
Company and the Subsidiaries and such Participant or
Beneficiary shall have only the unsecured promise of the
Company and the Subsidiaries that such payments shall be made.
(b) Concurrent with the establishment of this Trust, the Company
shall deliver to the Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of
each Participant (and his or her Beneficiaries) on a Plan by
Plan basis, provides a formula or formulas or other
instructions acceptable to the Trustee for determining the
amounts so payable, specifies the form in which such amount is
to be paid (as provided for or available under the applicable
Plans), and the time of commencement for payment of such
amounts. The Payment Schedule shall be updated from time to
time as is necessary. Except as otherwise provided herein,
prior to a Change in Control and upon the written direction of
the Committee, the Trustee shall make payments to the
Participants and their Beneficiaries in accordance with such
Payment Schedule. After a Change in Control, the Trustee
shall engage a Pension Consultant, as defined in Section 2.5,
at the expense of the Trust, to determine the proper payment
of Trust assets to Participants, and if applicable, their
Beneficiaries. The Trustee shall be entitled to make
distributions in
11
16
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
reasonable reliance upon the determinations of such Pension
Consultant. To the extent that the Trustee acts according to
the Committee's direction, prior to a Change in Control, or
according to the determination of the Pension Consultant, after
a Change in Control, or in accordance with Section 3.7, it
shall have no liability with respect to the amount paid from
the Trust. The Trustee, at the direction of the Committee or,
after a Change in Control, on its own volition, may make any
distribution required to be made by it hereunder by delivering:
(i) Its check payable to the person to whom such
distribution is to be made, to the person, or, if
prior to a Change in Control, to the Company for
redelivery to such person; provided that before a
Change in Control, the Committee may direct the
Trustee to deliver one or more lump sum checks
payable to the Company, and the Company shall prepare
and deliver individual checks for each Participant or
Beneficiary; or
(ii) Its check payable to an insurer for the benefit of
such person, to the insurer, or, if prior to a Change
in Control, to the Company for redelivery to the
insurer; or
(iii) Contracts held on the life of the Participant to whom
or with respect to whom the distribution is being
made, to the Participant or Beneficiary, or, if prior
to a Change in Control, to the Company for redelivery
to the person to whom such distribution is to be
made; or
(iv) If a distribution is being made, in whole or in part,
of other assets, assignments or other appropriate
documents or certificates necessary to effect a
transfer of title, to the Participant or Beneficiary,
or, if prior to a Change in Control, to the Company
for redelivery to such person.
(c) If the principal of the Trust, and any earnings thereon, are
not sufficient, determined on a Plan by Plan basis, to make
payments of benefits in accordance with the terms of the
Plans, the Company and the Subsidiaries shall make the balance
of each such payment as it falls due. The Trustee shall
notify the Company and the Subsidiaries when principal and
earnings are not sufficient.
12
17
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(d) The Company and the Subsidiaries may make payment of benefits
directly to Participants or their Beneficiaries as they become
due under the terms of the Plans. The Company and the
Subsidiaries shall notify the Trustee of their decisions to
make payment of benefits directly prior to the time amounts
are payable to Participants or their Beneficiaries.
(e) Notwithstanding anything contained in this Master Trust
Agreement to the contrary, if at any time the Trust is finally
determined by the IRS not to be a "grantor trust" with the
result that the income of the Trust Fund is not treated as
income of the Company or the Subsidiaries pursuant to Sections
671 through 679 of the Internal Revenue Code of 1986, as
amended, or if a tax is finally determined by the IRS to be
payable by one or more Participants or Beneficiaries with
respect to any interest in the Plans or the Trust Fund prior
to payment of such interest to such Participant or
Beneficiary, then the Trust shall immediately terminate, the
Committee shall promptly determine each Participant's share of
the Trust Fund in accordance with the Plans, and the Trustee,
upon written direction of the Committee, shall promptly
distribute such share in a lump sum to each Participant or
Beneficiary entitled thereto, regardless of whether such
Participant's employment has terminated and regardless of form
and time of payments specified in or pursuant to the Plans.
Any remaining assets (less any expenses or costs due under
Sections 3.8 and 3.9 of this Master Trust Agreement) shall
then be paid by the Trustee to the Company and the
Subsidiaries in such amounts, and in the manner instructed by
the Committee. Prior to a Change in Control, the Trustee
shall rely solely on the directions of the Committee with
respect to the occurrence of the foregoing events and the
resulting distributions to be made, and the Trustee shall not
be responsible for any failure to act in the absence of such
direction.
(f) The Company shall make provision for the reporting and
withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plans and shall pay
amounts withheld to the appropriate taxing authorities or
determine that such amounts have been reported, withheld and
paid by the Company and the Subsidiaries.
(g) Prior to a Change in Control, payments by the Trustee shall be
delivered or mailed to addresses supplied by the Committee and
the Trustee's obligation to make such payments shall be
satisfied upon such delivery or mailing. Prior to
13
18
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
a Change in Control, the Trustee shall have no obligation to
determine the identity of persons entitled to benefits or their
mailing addresses. After a Change in Control, the Trustee shall
have such obligations; however, the Trustee may reasonably rely
upon information supplied by the Company or the Committee after
a Change in Control with respect to the identity of persons
entitled to benefits and their mailing addresses.
(h) Prior to a Change in Control, the entitlement of a Participant
or his or her Beneficiaries to benefits under the Plans shall
be determined by the Company and the Subsidiaries or such
party as they shall designate under the Plans, and any claim
for such benefits shall be considered and reviewed under the
procedures set out in the Plans.
3.7 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY.
(a) The Trustee shall cease payment of benefits to Participants
and their Beneficiaries if the Company or any Subsidiary is
Insolvent (the "Insolvent Entity"). The Insolvent Entity
shall be considered "Insolvent" for purposes of this Master
Trust Agreement if:
(i) the Insolvent Entity is unable to pay its debts as
they become due, or
(ii) the Insolvent Entity is subject to a pending
proceeding as a debtor under the United States
Bankruptcy Code.
For purposes of this Section 3.7, if an entity is determined to be
Insolvent, each Subsidiary in which such entity has an equity interest
shall also be deemed to be an Insolvent Entity. However, the
insolvency of a Subsidiary will not cause a parent corporation to be
deemed Insolvent.
(b) At all times during the continuance of this Trust, as provided
in Section 1.3 above, the principal and income of the Trust
shall be subject to claims of the general creditors of the
Company and its Subsidiaries under federal and state law as
set forth below:
(i) The Board and the president of the Company shall have
the duty to inform the Trustee in writing of the
Company's or any Subsidiary's Insolvency. If a
person claiming to be a creditor of the Company or
14
19
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
any Subsidiary alleges in writing to the Trustee that the
Company or any Subsidiary has become Insolvent, the Trustee
shall determine whether the Company or any Subsidiary is
Insolvent and, pending such determination, the Trustee shall
discontinue payment of benefits to the Insolvent Entity's
Participants or their Beneficiaries. Prior to a Change in
Control, the Trustee may conclusively rely on any determination
it receives from the Board or the president of the Company with
respect to the Insolvency of the Company or any Subsidiary.
(ii) Unless the Trustee has actual knowledge of the Company's or a
Subsidiary's Insolvency, or has received notice from the
Company, a Subsidiary, or a person claiming to be a creditor
alleging that the Company or a Subsidiary is Insolvent, the
Trustee shall have no duty to inquire whether the Company or
any Subsidiary is Insolvent. The Trustee may in all events rely
on such evidence concerning the Company's or any Subsidiary's
solvency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determination
concerning the Company's or any Subsidiary's solvency. In this
regard, the Trustee may rely upon a letter from the Company's
or a Subsidiary's auditors as to the Company's or any
Subsidiary's financial status.
(iii) If at any time the Trustee has determined that the Company or
any Subsidiary is Insolvent, the Trustee shall discontinue
payments to the Insolvent Entity's Participants or their
Beneficiaries, and shall hold the portion of the assets of the
Trust allocable to the Insolvent Entity for the benefit of the
Insolvent Entity's general creditors. Nothing in this Master
Trust Agreement shall in any way diminish any rights of
Participants or their Beneficiaries to pursue their rights as
general creditors of the Insolvent Entity with respect to
benefits due under the Plans or otherwise.
(iv) The Trustee shall resume the payment of benefits to
Participants or their Beneficiaries in accordance with this
Article 3 of this Master Trust Agreement only after the Trustee
has determined that the alleged Insolvent Entity is not
Insolvent (or is no longer Insolvent).
15
20
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3.7(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to
Participants or their Beneficiaries under the terms of the
Plans for the period of such discontinuance, less the
aggregate amount of any payments made to Participants or their
Beneficiaries by the Company or any Subsidiary in lieu of the
payments provided for hereunder during any such period of
discontinuance. Prior to a Change in Control, the Committee
shall instruct the Trustee as to such amounts, and after a
Change in Control, the Trustee shall request that the Pension
Consultant calculate and advise the Trustee with respect to
such amounts in accordance with terms and provisions of the
Plans.
3.8 COSTS OF ADMINISTRATION. The Trustee is authorized to incur
reasonable obligations in connection with the administration of the
Trust, including attorneys' fees, administrative fees and appraisal
fees. Such obligations shall be paid by the Company and the
Subsidiaries. The Trustee is authorized to pay such amounts from the
Trust Fund if the Company or the Subsidiaries fail to pay them within
60 days of presentation of a statement of the amounts due.
3.9 TRUSTEE COMPENSATION AND EXPENSES. The Trustee shall be entitled to
reasonable compensation for its services as from time to time agreed
upon between the Trustee and the Company. If the Trustee and the
Company fail to agree upon a compensation, or following a Change in
Control, the Trustee shall be entitled to compensation at a rate equal
to the rate charged by the Trustee for similar services rendered by it
during the current fiscal year for other trusts similar to this Trust.
The Trustee shall be entitled to reimbursement for expenses incurred
by it in the performance of its duties as the Trustee, including
reasonable fees for legal counsel. The Trustee's compensation and
expenses shall be paid by the Company and the Subsidiaries. The
Trustee is authorized to withdraw such amounts from the Trust Fund if
the Company or the Subsidiaries fail to pay them within 60 days of
presentation of a statement of the amounts due.
3.10 PROFESSIONAL ADVICE. The Company and the Subsidiaries specifically
acknowledge that the Trustee may find it desirable or expedient to
retain legal counsel (who may also be legal counsel for the Company
generally) or other professional advisors to advise it in connection
with the exercise of any duty under this Master Trust
16
21
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
Agreement, including, but not limited to, any matter relating to or
following a Change in Control or the Insolvency of the Company or any
Subsidiary. The Trustee shall be fully protected in acting upon the
advice of such legal counsel or advisors.
3.11 PAYMENT ON COURT ORDER. To the extent permitted by law, the Trustee
is authorized to make any payments directed by court order in any
action in which the Trustee has been named as a party. The Trustee is
not obligated to defend actions in which the Trustee is named, but
shall notify the Company or Committee of any such action and may
tender defense of the action to the Company, Committee or Participant
or Beneficiary whose interest is affected. The Trustee may in its
discretion defend any action in which the Trustee is named, and any
expenses incurred by the Trustee shall be paid by the Company and the
Subsidiaries. The Trustee is authorized to pay such amounts from the
Trust Fund if the Company or the Subsidiaries fail to pay them within
sixty (60) days of presentation of a statement of the amounts due.
3.12 PROTECTIVE PROVISIONS.
(a) Notwithstanding any other provision contained in this Master
Trust Agreement to the contrary, the Trustee shall have no
obligation to (i) determine the existence of any conversion,
redemption, exchange, subscription or other right relating to
any securities purchased of which notice was given prior to
the purchase of such securities and shall have no obligation
to exercise any such right unless the Trustee is advised in
writing by the Committee both of the existence of the right
and the desired exercise thereof within a reasonable time
prior to the expiration of the right to exercise, or (ii)
advance any funds to the Trust. Furthermore, the Trustee is
not a party to the Plans.
(b) All orders or instructions to the Trustee shall be in writing
executed by a person or persons duly authorized by resolution,
minutes, or similar action of the Company or the Committee to
give instructions to the Trustee (the "Authorized Person").
An Authorized Person may give, and the Trustee may rely upon,
facsimile instructions. An Authorized Person is responsible
to verify that every facsimile delivered to the Trustee is
legible in form, clear in content, and properly executed. The
Company understands that when facsimile communications are
used and relied upon, security procedures followed by the
Company or the Committee for their transmission may be
insufficient to guard against fraud. The Trustee shall not be
liable for the security procedures followed by the Company or
the Committee. The Trustee may require, as a
17
22
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
condition to accepting telephonic facsimile, or electronic
directives that any persons giving such directives execute the
Trustee's standard from agreement then required by the Trustee
regarding such methods of communication. In addition, with
respect to disbursements by wire, the Trustee may require that
persons requesting such disbursement conform to the Trustee's
standard policies and procedures then in effect for funds
transfer and execute the standard funds transfer agreement then
required by the Trustee.
3.13 INDEMNIFICATIONS.
(a) The Company and the Subsidiaries shall indemnify and hold the
Trustee harmless from and against all loss or liability
(including expenses and reasonable attorneys' fees) to which
it may be subject by reason of its execution of its duties
under this Trust, or by reason of any acts taken in good faith
in accordance with any directions, or acts omitted in good
faith due to absence of directions, from the Company, the
Committee or a Participant, unless such loss or liability is
due to the Trustee's gross negligence or willful misconduct.
The indemnity described herein shall be provided by the
Company and the Subsidiaries.
(b) In the event that the Trustee is named as a defendant in a
lawsuit or proceeding involving one or more of the Plans or
the Trust Fund, the Trustee shall be entitled to receive on a
current basis the indemnity payments provided for in this
Section, provided however that if the final judgement entered
in the lawsuit or proceeding holds that the Trustee is guilty
of gross negligence or willful misconduct with respect to the
Trust Fund, the Trustee shall be required to refund the
indemnity payments that it has received.
(c) All releases and indemnities provided in this Master Trust
Agreement shall survive the termination of this Master Trust
Agreement.
ARTICLE 4
INSURANCE CONTRACTS
4.1 TYPES OF CONTRACTS. To the extent that the Trustee is directed by the
Committee prior to a Change in Control to invest part or all of the
Trust Fund in insurance contracts,
18
23
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
the type and amount thereof shall be specified by the Committee. The
Trustee shall be under no duty to make inquiry as to the propriety of
the type or amount so specified.
4.2 OWNERSHIP. Each insurance contract issued shall provide that the
Trustee shall be the owner thereof with the power to exercise all
rights, privileges, options and elections granted by or permitted
under such contract or under the rules of the insurer. The exercise
by the Trustee of any incidents of ownership under any contract shall,
prior to a Change in Control, be subject to the direction of the
Committee.
4.3 RESTRICTIONS ON TRUSTEE'S RIGHTS. The Trustee shall have no power to
name a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different form)
other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy. Despite the foregoing,
the Trustee may (i) loan to the Company or any Subsidiary the proceeds
of any borrowing against an insurance policy held in the Trust Fund or
(ii) assign all, or any portion, of a policy to the Company or any
Subsidiary if under other provisions of this Master Trust Agreement
the Company or any Subsidiary is entitled to receive assets from the
Trust.
ARTICLE 5
TRUSTEE'S ACCOUNTS
5.1 RECORDS. The Trustee shall maintain accurate records and detailed
accounts of all investments, receipts, disbursements and other
transactions hereunder. Such records shall be available at all
reasonable times for inspection by the Company and Subsidiaries or
their authorized representative. The Trustee, at the direction of the
Committee, shall submit to the Committee and to any insurer such
valuations, reports or other information as the Committee may
reasonably require and, in the absence of fraud or bad faith, the
valuation of the Trust Fund by the Trustee shall be conclusive.
5.2 ANNUAL ACCOUNTING; FINAL ACCOUNTING.
(a) Within 60 days following the end of each Plan Year and within
60 days after the removal or resignation of the Trustee or the
termination of the Trust, the Trustee shall file with the
Committee a written account setting forth a description of all
properties purchased and sold, all receipts, disbursements and
other transactions effected by it during the Plan Year or, in
the case of removal,
19
24
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
resignation or termination, since the close of the previous
Plan Year, and listing the properties held in the Trust Fund as
of the last day of the Plan Year or other period and indicating
their values. Such values shall be either cost or market as
directed by the Committee in accordance with the terms of the
Plans.
(b) The Committee may approve such account either by written
notice of approval delivered to the Trustee or by its failure
to express written objection to such account delivered to the
Trustee within 60 days after the date of which such account
was delivered to the Committee.
(c) The approval by the Committee of an accounting shall be
binding as to all matters embraced in such accounting on all
parties to this Master Trust Agreement and on all Participants
and Beneficiaries, to the same extent as if such accounting
had been settled by a judgment or decree of a court of
competent jurisdiction in which the Trustee, the Committee,
the Company, the Subsidiaries and all persons having or
claiming any interest in any Plan or the Trust Fund were made
parties.
(d) Despite the foregoing, nothing contained in this Master Trust
Agreement shall deprive the Trustee of the right to have an
accounting judicially settled, if the Trustee, in the
Trustee's sole discretion, desires such a settlement.
5.3 VALUATION. The assets of the Trust Fund shall be valued at their
respective fair market values on the date of valuation, as determined
by the Trustee based upon such sources of information as it may deem
reliable, including, but not limited to, stock market quotations,
statistical evaluation services, newspapers of general circulation,
financial publications, advice from investment counselors, brokerage
firms or insurance companies, or any combination of sources. Prior to
a Change in Control, the Committee shall instruct the Trustee as to
the value of assets for which market values are not readily obtainable
by the Trustee. If the Committee fails to provide such values, the
Trustee may take whatever action it deems reasonable, including
employment of attorneys, appraisers, life insurance companies or other
professionals, the expense of which shall be an expense of
administration of the Trust Fund and payable by the Company and the
Subsidiaries. The Trustee may rely upon information from the Company
and the Subsidiaries, the Committee, appraisers or other sources and
shall not incur any liability for an inaccurate valuation based in
good faith upon such information.
20
25
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
5.4 DELEGATION OF DUTIES. The Company or the Committee, or both, may at
any time with the Trustee's written consent employ the Trustee as
their agent to perform any act, keep any records or accounts and make
any computations that are required of the Company, any Subsidiary or
the Committee by this Master Trust Agreement or the Plans. The
Trustee may be compensated for such employment and such employment
shall not be deemed to be contrary to the Trust. Nothing done by the
Trustee as such agent shall change or increase its responsibility or
liability as Trustee hereunder.
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 RESIGNATION; REMOVAL. The Trustee may resign at any time by written
notice to the Company, which shall be effective 60 days after receipt
of such notice unless the Company and the Trustee agree otherwise.
Prior to a Change in Control, the Trustee may be removed by the
Company on 60 days notice or upon shorter notice accepted by the
Trustee. After a Change in Control, the Trustee may be removed by a
majority vote of the Participants, and if a Participant is dead, his
or her Beneficiaries (who collectively shall have one vote among them
and shall vote in place of such deceased Participant), on 60 days
notice or upon shorter notice accepted by the Trustee.
6.2 SUCCESSOR TRUSTEE. If the Trustee resigns or is removed, a successor
shall be appointed by the Company, in accordance with this Section, by
the effective date of the resignation or removal under Section 6.1
above. The successor shall be a bank, trust company, or similar
independent third party that is granted corporate trustee powers under
state law. After the occurrence of a Change in Control, a successor
Trustee may not be appointed without the consent of a majority of the
Participants. If no such appointment has been made, the Trustee may
apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in
connection with the proceeding shall be allowed as administrative
expenses of the Trust.
6.3 SETTLEMENT OF ACCOUNTS. Upon resignation or removal of the Trustee
and appointment of a successor Trustee, all assets shall subsequently
be transferred to the successor Trustee. The transfer shall be
completed within 90 days after receipt of notice of resignation,
removal or transfer, unless the Company extends the time limit. Upon
the transfer of the assets, the successor Trustee shall succeed to all
of the powers and duties given to the Trustee in this Master Trust
Agreement. The resigning or removed
21
26
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
Trustee shall render to the Committee an account in the form and
manner and at the time prescribed in Section 5.2. The approval of
such accounting and discharge of the Trustee shall be as provided in
such Section.
ARTICLE 7
CONTROVERSIES, LEGAL ACTIONS AND COUNSEL
7.1 CONTROVERSY. If any controversy arises with respect to the Trust, the
Trustee shall take action as directed by the Committee or, in the
absence of such direction or after a Change in Control, as it deems
advisable, whether by legal proceedings, compromise or otherwise. The
Trustee may retain the funds or property involved without liability
pending settlement of the controversy. The Trustee shall be under no
obligation to take any legal action of whatever nature unless there
shall be sufficient property in the Trust to indemnify the Trustee
with respect to any expenses or losses to which it may be subjected.
7.2 JOINDER OF PARTIES. In any action or other judicial proceedings
affecting the Trust, it shall be necessary to join as parties the
Trustee, the Committee, the Company and the Subsidiaries. No
Participant or other person shall be entitled to any notice or service
of process. Any judgment entered in such a proceeding or action shall
be binding on all persons claiming under the Trust. Nothing in this
Master Trust Agreement shall be construed as to deprive a Participant
or Beneficiary of his or her right to seek adjudication of his or her
rights by administrative process or by a court of competent
jurisdiction.
7.3 EMPLOYMENT OF COUNSEL. The Trustee may consult with legal counsel
(who may be counsel for the Company or any Subsidiary) and shall be
fully protected with respect to any action taken or omitted by it in
good faith pursuant to the advice of counsel.
ARTICLE 8
INSURERS
8.1 INSURER NOT A PARTY. No insurer shall be deemed to be a party to the
Trust and an insurer's obligations shall be measured and determined
solely by the terms of contracts and other agreements executed by it.
22
27
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
8.2 AUTHORITY OF TRUSTEE. An insurer shall accept the signature of the
Trustee to any documents or papers executed in connection with such
contracts. The signature of the Trustee shall be conclusive proof to
the insurer that the person on whose life an application is being made
is eligible to have a contract issued on his or her life and is
eligible for a contract of the type and amount requested.
8.3 CONTRACT OWNERSHIP. An insurer shall deal with the Trustee as the
sole and absolute owner of any insurance contracts and shall have no
obligation to inquire whether any action or failure to act on the part
of the Trustee is in accordance with or authorized by the terms of the
Plans or this Master Trust Agreement.
8.4 LIMITATION OF LIABILITY. An insurer shall be fully discharged from
any and all liability for any action taken or any amount paid in
accordance with the direction of the Trustee and shall have no
obligation to see to the proper application of the amounts so paid.
An insurer shall have no liability for the operation of the Trust or
the Plans, whether or not in accordance with their terms and
provisions.
8.5 CHANGE OF TRUSTEE. An insurer shall be fully discharged from any and
all liability for dealing with a party or parties indicated on its
records to be the Trustee until such time as it shall receive at its
home office written notice of the appointment and qualification of a
successor Trustee.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 AMENDMENT. Subject to the limitations set forth in this Section 9.1,
this Master Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Plans or shall make the Trust revocable after it has become
irrevocable in accordance with Section 1.3 above. Any amendment,
change or modification shall be subject to the following rules:
(a) General Rule. Subject to Sections 9.1(b), (c) and (d) below,
this Master Trust Agreement may be amended:
(i) By the Company and the Trustee, provided, however,
that if an amendment would in any way adversely
affect the rights accrued under
23
28
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
the Plans in the Trust Fund by any Participant or
Beneficiary, each and every Participant and
Beneficiary whose rights in the Trust Fund would be
adversely affected must consent to the amendment
before this Master Trust Agreement may be so amended;
and
(ii) By the Company and the Trustee as may be necessary to
comply with laws which would otherwise render the
Trust void, voidable or invalid in whole or in part.
(b) LIMITATION. Notwithstanding that an amendment may be
permissible under Section 9.1(a) above, this Master Trust
Agreement shall not be amended by an amendment that would:
(i) Cause any of the assets of the Trust to be used for
or diverted to purposes other than for the exclusive
benefit of Participants and Beneficiaries as set
forth in the Plans, except as is required to satisfy
the claims of the Company's or a Subsidiary's general
creditors; or
(ii) Be inconsistent with the terms of any Plan, including
the terms of any Plan regarding termination,
amendment or modification of the Plan.
(c) WRITING AND CONSENT. Any amendment to this Master Trust
Agreement shall be set forth in writing and signed by the
Company and the Trustee and, if consent of any Participant or
Beneficiary is required under Section 9.1(a), the Participant
or Beneficiary whose consent is required. Any amendment may
be current, retroactive or prospective, in each case as
provided therein.
(d) THE COMPANY AND TRUSTEE. In connection with the exercise of
the rights under this Section 9.1:
(i) prior to a Change in Control, the Trustee shall have
no responsibility to determine whether any proposed
amendment complies with the terms and conditions set
forth in Sections 9.1(a) and (b) above and may
conclusively rely on the directions of the Committee
with respect thereto, unless the Trustee has
knowledge of a proposed transaction or transactions
that would result in a Change in Control; and
24
29
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
(ii) after a Change in Control, the power of the Company
to amend this Master Trust Agreement shall cease, and
the power to amend that was previously held by the
Company shall, instead, be exercised by a majority of
the Participants and, if a Participant is dead, his
or her Beneficiaries (who collectively shall have one
vote among them and shall vote in place of such
deceased Participant), with the consent of the
Trustee, provided that such amendment otherwise
complies with the requirements of Sections 9.1(a),
(b) and (c) above. The Trustee shall be entitled to
obtain an opinion of counsel with respect to the
compliance of such amendment with Sections 9.1(a),
(b) and (c). The expense of such an opinion may be
charged to the Trust Fund only if the expense was
reasonable under the circumstances.
(e) TAXATION. This Master Trust Agreement shall not be amended,
altered, changed or modified in a manner that would cause the
Participants and/or Beneficiaries under any Plan to be taxed
on the benefits under any Plan in a year other than the year
of actual receipt of benefits.
9.2 FINAL TERMINATION. The Trust shall not terminate until the date on
which Participants and their Beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plans, and on such date the
Trust shall terminate. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to the Company and the
Subsidiaries. Such remaining assets shall be paid by the Trustee to
the Company and the Subsidiaries in such amounts and in the manner
instructed by the Company, whereupon the Trustee shall be released and
discharged from all obligations hereunder. From and after the date of
termination and until final distribution of the Trust Fund, the
Trustee shall continue to have all of the powers provided herein as
are necessary or expedient for the orderly liquidation and
distribution of the Trust Fund.
ARTICLE 10
MISCELLANEOUS
10.1 DIRECTIONS FOLLOWING CHANGE IN CONTROL. Despite any other provision
of this Master Trust Agreement that may be construed to the contrary,
following a Change in Control, all powers of the Committee, the
Company and the Board to direct the Trustee under this Master Trust
Agreement shall terminate, and the Trustee shall act
25
30
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
on its own discretion, as provided in Section 3.6(b), to carry out the
terms of this Master Trust Agreement in accordance with the Plans and
this Master Trust Agreement.
10.2 TAXES. The Company and the Subsidiaries shall from time to time pay
taxes of any and all kinds whatsoever that at any time are lawfully
levied or assessed upon or become payable in respect of the Trust
Fund, the income or any property forming a part thereof, or any
security transaction pertaining thereto. To the extent that any taxes
lawfully levied or assessed upon the Trust Fund are not paid by the
Company and the Subsidiaries, the Trustee shall have the power to pay
such taxes out of the Trust Fund and the Company and the Subsidiaries
shall thereafter promptly reimburse the Trust Fund. Prior to making
any payment, the Trustee may require such releases or other documents
from any lawful taxing authority as it shall deem necessary. The
Trustee shall contest the validity of taxes in any manner deemed
appropriate by the Company or its counsel, but at the Company's and
the Subsidiaries' expense, and only if it has received an indemnity
bond or other security satisfactory to it to pay any such expenses.
The Trustee shall not be liable for any nonpayment or underpayment of
tax when it distributes any interest hereunder to a Participant or
Beneficiary. The Trustee shall prepare and file a tax return on
behalf of the Trust Fund. The Committee shall cooperate with the
Trustee in connection with the preparation and filing of any such
return.
10.3 THIRD PERSONS. All persons dealing with the Trustee are released from
inquiring into the decisions or authority of the Trustee and from
seeing to the application of any moneys, securities or other property
paid or delivered to the Trustee.
10.4 NONASSIGNABILITY; NONALIENATION. Benefits payable to Participants and
their Beneficiaries under this Master Trust Agreement may not be
anticipated, assigned (either at law or in equity), alienated,
pledged, encumbered or subjected to attachment, garnishment, levy,
execution or other legal or equitable process.
10.5 THE PLANS. The Trust and the Plans are parts of a single, integrated
employee benefit plan system and shall be construed together. In the
event of any conflict between the terms of this Master Trust Agreement
and the agreements that constitute the Plans, such conflict shall be
resolved in favor of this Master Trust Agreement.
26
31
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
10.6 APPLICABLE LAW. Except to the extent, if any, preempted by ERISA,
this Master Trust Agreement shall be governed by and construed in
accordance with the internal laws of the State of Idaho. Any
provision of this Master Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
10.7 NOTICES AND DIRECTIONS. Whenever a notice or direction is given by
the Committee to the Trustee, it shall be in the form required by
Section 2.1. Actions by the Company shall be by the Board or a duly
authorized officer, with such actions certified to the Trustee by an
appropriately certified copy of the action taken. The Trustee shall
be protected in acting upon any such notice, resolution, order,
certificate or other communication believed by it to be genuine and to
have been signed by the proper party or parties.
10.8 SUCCESSORS AND ASSIGNS. This Master Trust Agreement shall be binding
upon and inure to the benefit of the Company, the Subsidiaries and the
Trustee and their respective successors and assigns.
10.9 GENDER AND NUMBER. Words used in the masculine shall apply to the
feminine where applicable, and when the context requires, the plural
shall be read as the singular and the singular as the plural.
10.10 HEADINGS. Headings in this Master Trust Agreement are inserted for
convenience of reference only and any conflict between such headings
and the text shall be resolved in favor of the text.
10.11 COUNTERPARTS. This Master Trust Agreement may be executed in an
original and any number of counterparts, each of which shall be deemed
to be an original of one and the same instrument.
10.12 BENEFICIAL INTEREST. The Company and the Subsidiaries are the true
beneficiaries hereunder in that the payment of benefits, directly or
indirectly to or for a Participant or Beneficiary by the Trustee, is
in satisfaction of the Company's and the Subsidiaries' liability
therefor under the Plans. Nothing in this Master Trust Agreement
shall establish any beneficial interest in any person other than the
Company and the Subsidiaries.
27
32
HECLA MINING COMPANY
Nonqualified Plans
Master Trust Agreement
10.13 THE TRUST AND PLANS. This Trust, the Plans and each Participant's
Plan Agreement are part of and constitute a single, integrated
employee benefit plan and trust, shall be construed together as the
entire agreement between the Company, the Trustee, the Participants
and the Beneficiaries with regard to the subject matter thereof, and
shall supersede all previous negotiations, agreements and commitments
with respect thereto.
10.14 EFFECTIVE DATE. The effective date of this Master Trust Agreement
shall be October 1, 1994.
IN WITNESS WHEREOF the Company and the Trustee have signed this Master Trust
Agreement as of the date first written above.
TRUSTEE: THE COMPANY:
SEATTLE - FIRST NATIONAL BANK HECLA MINING COMPANY,
By: BankAmerica State Trust Company, a Delaware corporation,
its authorized agent.
By: /s/ Richard E. Cashatt By: /s/ Michael B. White
------------------------ --------------------------------
Title: Assistant Vice President Title: Vice President - General Counsel
------------------------ --------------------------------
28
EX-10.7
6
SUMMARY OF SHORT-TERM PERFORMANCE PAYMENT PLAN
1
Hecla Mining Company Exhibit 10.7
Executive Short-Term Performance Payment Plan
In August 1994, Registrant adopted a formal Executive Short-Term
Performance Payment Plan ("Plan") based on the recommendations of the
Compensation Committee of the Registrant's Board of Directors. Under the Plan,
executive officers are eligible for annual cash payments based upon a formula
established in the Plan covering the period May 1, 1994, to December 31, 1994,
and generally described below. The Plan formula for 1994 contains an overall
corporate performance element and an individual performance element. Each of
these elements was assigned a percentage weight totaling 100%. For 1994,
corporate performance was assigned a 80% weight and individual performance was
assigned a 20% weight. The Board of Directors, based on recommendations from
the Registrant's senior management, established targeted performance goals in
key areas called key success factors for the corporate element. For 1994, the
key success factors and measures for the corporate element included gold,
silver and industrial mineral production (50%), cash flow before capital
expenditures (30%), gold and silver reserves (10%), and relative share price
(10%).
Payments under the Plan are determined by the application of a
performance formula to these key success factors. At the first quarterly Board
meeting after the end of each year, actual performance results are compared
against the targeted performance goals as a percentage of the targeted goals
for the various key success factors. Actual performance must reach at least
90% of the targeted goal to be included in the performance formula. The key
success factors and the percentage weights assigned to each of the elements may
be varied from year to year at the discretion of the Board of Directors. The
corporate performance element is tied to a formula while the individual
performance is discretionary and not based upon any specific formula.
Individual performance payments for all eligible executives other than the
chief executive officer are based upon the recommendations of the chief
executive officer. The Board of Directors, upon recommendation of the
Compensation Committee, reviews and approves individual performance payments
for all eligible executives, including the chief executive officer.
The Plan provides that no performance payments may be awarded based
upon any of the corporate key success factors if the Registrant does not
achieve a net profit before taxes and preferred dividends. However, payments
derived from the individual performance element may nevertheless be available
pursuant to the Plan. The Registrant's 1994 Short-Term Performance Payments
Plan included only corporate and individual elements. In 1995, the short-term
performance plan includes targeted goals for departmental performance, in
addition to the corporate and individual performance elements. Departmental
factors may vary for each department, but include such factors as cost
management, internal customer service and production goals for metal and
industrial mineral operating divisions.
EX-11
7
COMPUTATION OF WEIGHTED AVERAGE # OF COMMON SHARES
1
FORM 10-K DECEMBER 31, 1994
COMMISSION FILE NO. 1-8491
EXHIBIT 11
HECLA MINING COMPANY AND SUBSIDIARIES
CALCULATION OF WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
For the Years Ended December 31, 1994, 1993 and 1992
Year Ended December 31,
-----------------------------------------------
1994 1993 1992
---------- ---------- ----------
Shares of common stock issued at
beginning of period 40,320,761 36,324,517 34,062,328
The incremental effect of the issuance
of new shares in exchange for
outstanding Liquid Yield Option Notes -- 1,269,217 516,981
The incremental effect of the issuance of
new shares for cash, net of issuance costs 3,450,000 242,308 --
The incremental effect of the issuance of
new shares for property -- 3,931 263
The incremental effect of the issuance of
new shares for debenture conversion -- -- 38,942
The incremental effect of the issuance of
new shares for purchase of Eastmaque's
shares -- -- 39,703
The incremental effect of the issuance of
new shares for the amalgamation with
Eastmaque -- -- 26,139
The incremental effect of the issuance
of new shares for the acquisition
of La Choya mineral concessions -- -- 85,321
The incremental effect of the issuance
of new shares under Stock Option and
Employee Stock Ownership Plans 235,571 87,485 69,755
The incremental effect of the issuance
of new shares for the acquisition of
Mountain West Products, Inc. -- 8,397 --
---------- ---------- ----------
44,006,332 37,935,855 34,839,432
Less:
Weighted average treasury shares held 62,276 63,728 60,933
---------- ---------- ----------
Weighted average number of common shares
outstanding during the period 43,944,056 37,872,127 34,778,499
========== ========== ==========
EX-21
8
LIST OF SUBSIDIARIES OF THE REGISTRANT
1
FORM 10-K DECEMBER 31, 1994
COMMISSION FILE NO. 1-8491
EXHIBIT 21
HECLA MINING COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
December 31, 1994
State or Country Percentage of
in Which Voting Securities
Organized Owned
----------------- -----------------
CoCa Mines Inc. Colorado 100 (A)
Colorado Aggregate Company of
New Mexico New Mexico 100 (A)
Consolidated Silver Corporation Idaho 67.5 (A)
Eastmaque Gold Mines (U.S.) Inc. Nevada 100 (A)
Equinox Resources (U.S.A.) Inc. Nevada 100 (A)
Equinox Resources, Inc. Nevada 100 (A)
Hecla Mining Company of
Canada Ltd. Canada 100 (A)
Kentucky-Tennessee Clay Company Delaware 100 (A)
K-T Clay de Mexico, S.A. de C.V. Mexico 100 (A)
K-T Feldspar Corporation North Carolina 100 (A)
Minera Hecla, S.A. de C.V. Mexico 100 (A)
Mountain West Products Inc. Idaho 100 (A)
(A) Included in the consolidated financial statements filed herewith.
EX-23
9
CONSENT OF COOPERS & LYBRAND
1
Exhibit 23
Form 10-K December 31, 1994
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Hecla Mining Company and subsidiaries on Form S-3 (File No. 33-72832), Forms
S-8 (File No. 33-7833, 33-41833, 33-14758 and 33-40691) of our report dated
February 3, 1995, except for Note 8 as to which the date is March 1, 1995, on
our audits of the consolidated financial statements of Hecla Mining Company and
subsidiaries as of December 31, 1994 and 1993, and for the years ended December
31, 1994, 1993 and 1992, which report is included in this Annual Report on Form
10-K.
Coopers & Lybrand L.L.P.
Spokane, Washington
March 21, 1995
EX-27
10
FINANCIAL DATA SCHEDULE
5
1,000
U.S. DOLLARS
12-MOS
DEC-31-1994
JAN-01-1994
DEC-31-1994
1
7,278
0
23,516
0
18,616
51,254
446,169
(188,261)
334,582
23,485
0
12,036
0
575
264,907
334,582
128,747
133,974
104,683
118,916
38,481
0
855
(24,248)
468
(23,780)
0
(833)
0
(32,663)
(0.74)
(0.74)