Energy Fuels Inc 10-Q for FY2020 Q3
Energy Fuels Inc (UUUU)
10-Q
2020-11-02
For: 2020-09-30
View Original
Added on
April 09, 2026
About this 10-Q
Energy Fuels Inc filed this 10-Q on November 2, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).
Headline figures
Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $486K
- up 14.9% from $423K a year earlier
- Net loss
- $8.94M
- compared with a net loss of $6.94M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2020
or
For the transition period from __________ to __________
Commission File Number: 001-36204
(Exact name of registrant as specified in its charter)
| Ontario, | ||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(303 ) 974-2140
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| EFR | Toronto Stock Exchange | |||||||
| Warrants to purchase common shares | NYSE American | |||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ☐ No ☒
As of October 30, 2020, the registrant had 131,074,328 common shares, without par value, outstanding.
ENERGY FUELS INC.
FORM 10-Q
For the Quarter Ended September 30, 2020
INDEX
| Page | |||||
PART I – FINANCIAL INFORMATION | |||||
PART II – OTHER INFORMATION | |||||
SIGNATURES | |||||
3
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report and the exhibits attached hereto (the “Quarterly Report”) contain “forward-looking statements” within the meaning of applicable United States ("U.S.") and Canadian securities laws, which are included but are not limited to statements with respect to Energy Fuels Inc.’s (the “Company” or “Energy Fuels”) anticipated results and progress of the Company’s operations in future periods, planned exploration, if warranted, development of its properties, plans related to its business, and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, schedules, assumptions, future events, or performance (often, but not always, using words or phrases such as “expects” or “does not expect,” “is expected,” “is likely,” “budget,” “scheduled," "forecasts,” "intends,” “anticipates” or “does not anticipate,” "continues," “plans,” “estimates,” or “believes,” and similar expressions or variations of such words and phrases or statements stating that certain actions, events or results “may,” “could,” “would,” “might,” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements.
Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Energy Fuels believes that the expectations reflected in these forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct, and such forward-looking statements included in, or incorporated by reference into, this Quarterly Report should not be unduly relied upon. This information speaks only as of the date of this Quarterly Report.
Readers are cautioned that it would be unreasonable to rely on any such forward-looking statements and information as creating any legal rights, and that the statements and information are not guarantees and may involve known and unknown risks and uncertainties, and that actual results are likely to differ (and may differ materially) and objectives and strategies may differ or change from those expressed or implied in the forward-looking statements or information as a result of various factors. Such risks and uncertainties include global economic risks such as the occurrence of a pandemic and risks generally encountered in the exploration, development, operation, and closure of mineral properties and processing and recovery facilities, as well as risks related to the activities proposed in the President’s Budget for fiscal year 2021, including the establishment of a Uranium Reserve for the United States, and risks related to any additional recommendations of the United States Nuclear Fuel Working Group not benefiting the Company in any material way. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
•global economic risks, including the occurrence of unforeseen or catastrophic events, such as the emergence of a pandemic or other widespread health emergency (or concerns over the possibility of such an emergency), which could create economic and financial disruptions and require the Company to reduce or cease operations at some or all of its facilities for an indeterminate period of time, and which could have a material impact on the Company’s business, operations, personnel and financial condition;
•risks associated with mineral reserve and resource estimates, including the risk of errors in assumptions or methodologies;
•risks associated with estimating mineral extraction and recovery, forecasting future price levels necessary to support mineral extraction and recovery, and the Company’s ability to increase mineral extraction and recovery in response to any increases in commodity prices or other market conditions;
•uncertainties and liabilities inherent to conventional mineral extraction and recovery and/or in-situ uranium recovery operations;
•risks associated with the activities proposed in the President’s Budget for fiscal year 2021, including the establishment of a Uranium Reserve for the United States, being subject to appropriation by the Congress of the United States, and the details of implementation of the President’s Budget not yet having been defined;
•risks associated with any additional recommendations of the U.S. Nuclear Fuel Working Group not benefiting the Company in any material way;
•geological, technical and processing problems, including unanticipated metallurgical difficulties, less than expected recoveries, ground control problems, process upsets, and equipment malfunctions;
•risks associated with the depletion of existing mineral resources through mining or extraction, without replacement with comparable resources;
•risks associated with identifying and obtaining adequate quantities of alternate feed materials and other feed sources required for operation of the White Mesa Mill in Utah;
•risks associated with labor costs, labor disturbances, and unavailability of skilled labor;
4
•risks associated with the availability and/or fluctuations in the costs of raw materials and consumables used in the Company’s production processes;
•risks and costs associated with environmental compliance and permitting, including those created by changes in environmental legislation and regulation, and delays in obtaining permits and licenses that could impact expected mineral extraction and recovery levels and costs;
•actions taken by regulatory authorities with respect to mineral extraction and recovery activities;
•risks associated with the Company’s dependence on third parties in the provision of transportation and other critical services;
•risks associated with the ability of the Company to obtain, extend or renew land tenure, including mineral leases and surface use agreements, on favorable terms or at all;
•risks associated with the ability of the Company to negotiate access rights on certain properties on favorable terms or at all;
•the adequacy of the Company's insurance coverage;
•uncertainty as to reclamation and decommissioning liabilities;
•the ability of the Company’s bonding companies to require increases in the collateral required to secure reclamation obligations;
•the potential for, and outcome of, litigation and other legal proceedings, including potential injunctions pending the outcome of such litigation and proceedings;
•the ability of the Company to meet its obligations to its creditors;
•the ability of the Company to access credit facilities on favorable terms;
•risks associated with paying off indebtedness at its maturity;
•risks associated with the Company’s relationships with its business and joint venture partners;
•failure to obtain industry partner, government, and other third-party consents and approvals, when required;
•competition for, among other things, capital, mineral properties, and skilled personnel;
•failure to complete and integrate proposed acquisitions and incorrect assessments of the value of completed acquisitions;
•risks posed by fluctuations in share price levels, exchange rates and interest rates, and general economic conditions;
•risks inherent in the Company’s and industry analysts’ forecasts or predictions of future uranium, vanadium and copper price levels;
•fluctuations in the market prices of uranium, vanadium and copper, which are cyclical and subject to substantial price fluctuations;
•risks associated with the Company's uranium sales, if any, being required to be made at spot prices, unless the Company is able to enter into new long-term contracts at satisfactory prices in the future;
•risks associated with the Company's vanadium sales, if any, generally being required to be made at spot prices;
•failure to obtain suitable uranium sales terms at satisfactory prices in the future, including spot and term sale contracts;
•failure to obtain suitable vanadium sales terms at satisfactory prices in the future;
•risks associated with asset impairment as a result of market conditions;
•risks associated with lack of access to markets and the ability to access capital;
•public resistance to nuclear energy or uranium extraction and recovery;
•Governmental resistance to nuclear energy or uranium extraction or recovery;
•risks associated with inaccurate or nonobjective media coverage of the Company's activities and the impact such coverage may have on the public, the market for the Company's securities, government relations, permitting activities and legal challenges, as well as the costs to the Company of responding to such coverage;
•uranium industry competition, international trade restrictions and the impacts on world commodity prices of foreign state subsidized production;
•risks associated with the Company's involvement in industry petitions for trade remedies, including the costs of pursuing such remedies and the potential for negative responses or repercussions from various interest groups, consumers of uranium and participants in other phases of the nuclear fuel cycle;
•risks associated with governmental actions, policies, laws, rules and regulations with respect to nuclear energy or uranium extraction and recovery;
5
•risks related to potentially higher than expected costs related to any of the Company's projects or facilities;
•risks associated with the Company’s ability to recover vanadium from pond solutions at the White Mesa Mill;
•risks related to the Company’s ability to recover copper from our Canyon uranium project ores;
•risks related to securities regulations;
•risks related to stock price and volume volatility;
•risks related to the Company's ability to maintain our listing on the NYSE American and Toronto Stock Exchanges;
•risks related to the Company's ability to maintain our inclusion in various stock indices;
•risks related to dilution of currently outstanding shares, from additional share issuances, depletion of assets or otherwise;
•risks related to the Company's lack of dividends;
•risks related to recent market events;
•risks related to the Company's issuance of additional common shares ("the Common Shares") under our At-the-Market ("ATM") program or otherwise to provide adequate liquidity in depressed commodity market circumstances;
•risks related to acquisition and integration issues;
•risks related to defects in title to the Company's mineral properties;
•risks related to the Company's securities; and
•risks related to any material weakness that may be identified in our internal controls over financial reporting. If we are unable to implement and maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
This list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section heading: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report. Although we have attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated, or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, we disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Statements relating to “Mineral Reserves” or “Mineral Resources” are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the Mineral Reserves and Mineral Resources described may be profitably extracted in the future.
We qualify all the forward-looking statements contained in this Quarterly Report by the foregoing cautionary statements.
6
Cautionary Note to United States Investors Concerning Disclosure of Mineral Resources
The Company is a U.S. Domestic Issuer for United States ("U.S.") Securities and Exchange Commission ("SEC") purposes, most of its shareholders are U.S. residents, the Company is required to report its financial results under U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), and its primary trading market is the NYSE American. However, because the Company is incorporated in Canada and also listed on the Toronto Stock Exchange ("TSX"), this Quarterly Report contains certain disclosure that satisfies the additional requirements of Canadian securities laws, which differ from the requirements of United States’ securities laws. Unless otherwise indicated, all reserve and resource estimates included in this Quarterly Report, and in the documents incorporated by reference herein, have been prepared in accordance with Canadian National Instrument 43-101 - Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) classification system. NI 43-101 is a rule developed by the Canadian Securities Administrators (the “CSA”), which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.
Canadian standards, including NI 43-101, differ significantly from the requirements of SEC Industry Guide 7, and reserve and resource information contained herein, or incorporated by reference in this Quarterly Report, and in the documents incorporated by reference herein, may not be comparable to similar information disclosed by companies reporting reserve and resource information under SEC Industry Guide 7. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve” under SEC Industry Guide 7. Under SEC Industry Guide 7 standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves; the three-year historical average price, to the extent possible, is used in any reserve or cash flow analysis to designate reserves; and the primary environmental analysis or report must be filed with the appropriate governmental authority.
SEC Industry Guide 7 disclosure standards historically have not permitted the inclusion of information concerning “Measured Mineral Resources,” “Indicated Mineral Resources” or “Inferred Mineral Resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by SEC Industry Guide 7 standards. United States investors should also understand that “Inferred Mineral Resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “Inferred Mineral Resource” will ever be upgraded to a higher category. Under Canadian rules, estimated “Inferred Mineral Resources” may not form the basis of feasibility or pre-feasibility studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into mineral reserves. Investors are cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists or is economically or legally mineable.
Disclosure of “contained pounds” or “contained ounces” in a resource estimate is permitted and typical disclosure under Canadian regulations; however, SEC Industry Guide 7 historically only permitted issuers to report mineralization that does not constitute “reserves” by SEC standards as in-place tonnage and grade without reference to unit measures. The requirements of NI 43-101 for identification of “reserves” are also not the same as those of SEC Industry Guide 7, and reserves reported by the Company in compliance with NI 43-101 may not qualify as “reserves” under SEC Industry Guide 7 standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable to information made public by companies that report in accordance with SEC Industry Guide 7 standards.
On October 31, 2018, the SEC adopted the Modernization of Property Disclosures for Mining Registrants (the “New Rule”), introducing significant changes to the existing mining disclosure framework to better align it with international industry and regulatory practice including NI 43-101. The SEC adopted a two-year transition period for registrants to come into compliance with the New Rule. Accordingly, the Company will need to bring its disclosure into compliance in 2021. At this time, the Company does not know the full effect of the New Rule on its mineral resources and reserves and therefore the disclosure related to the Company’s mineral resources and reserves may be significantly different when computed using the requirements set forth in the New Rule.
7
PART I
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
ENERGY FUELS INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited) (Expressed in thousands of U.S. dollars, except per share amounts)
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Uranium concentrates | $ | $ | $ | $ | |||||||||||||||||||
| Vanadium concentrates | |||||||||||||||||||||||
| Alternate feed materials processing and other | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Costs and expenses applicable to revenues | |||||||||||||||||||||||
| Costs and expenses applicable to uranium concentrates | |||||||||||||||||||||||
| Costs and expenses applicable to vanadium concentrates | |||||||||||||||||||||||
| Costs and expenses applicable to alternate feed materials and other | |||||||||||||||||||||||
| Total costs and expenses applicable to revenues | |||||||||||||||||||||||
| Other operating costs | |||||||||||||||||||||||
| Impairment of inventories | |||||||||||||||||||||||
| Development, permitting and land holding | |||||||||||||||||||||||
| Standby costs | |||||||||||||||||||||||
| Accretion of asset retirement obligation | |||||||||||||||||||||||
| Selling costs | |||||||||||||||||||||||
| General and administration | |||||||||||||||||||||||
| Total operating loss | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Items that may be reclassified in the future to profit and loss | |||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss attributable to: | |||||||||||||||||||||||
| Owners of the Company | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Comprehensive loss attributable to: | |||||||||||||||||||||||
| Owners of the Company | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Basic and diluted loss per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
8
ENERGY FUELS INC.
Condensed Consolidated Balance Sheets
(unaudited) (Expressed in thousands of U.S. dollars, except share amounts)
| September 30, 2020 | December 31, 2019 | ||||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Trade and other receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Total current assets | |||||||||||
| Inventories, net | |||||||||||
| Operating lease right of use asset | |||||||||||
| Investments accounted for at fair value | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Mineral properties, net | |||||||||||
| Restricted cash | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable and accrued liabilities | $ | $ | |||||||||
| Current portion of operating lease liability | |||||||||||
| Current portion of warrant liabilities | |||||||||||
| Current portion of asset retirement obligation | |||||||||||
| Current portion of loans and borrowings | |||||||||||
| Total current liabilities | |||||||||||
| Warrant liabilities | |||||||||||
| Operating lease liability | |||||||||||
| Asset retirement obligation | |||||||||||
| Total liabilities | |||||||||||
| Equity | |||||||||||
Share capital Common shares, without par value, unlimited shares authorized; shares issued and outstanding | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| Total shareholders' equity | |||||||||||
| Non-controlling interests | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
| Commitments and contingencies (Note 14) | |||||||||||
See accompanying notes to the condensed consolidated financial statements.
9
ENERGY FUELS INC.
Condensed Consolidated Statements of Changes in Equity
(unaudited) (Expressed in thousands of U.S. dollars, except share amounts)
| Common Stock | Deficit | Accumulated other comprehensive income | Total shareholders' equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for cash by public offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Shares issued for cash by at-the-market offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for the vesting of restricted stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Cash paid to fund employee income tax withholding due upon vesting of restricted stock units | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Contributions attributable to non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Shares issued for cash by at-the-market offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Shares issued for cash by at-the-market offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
10
| Common Stock | Deficit | Accumulated other comprehensive income | Total shareholders' equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Shares issued for cash by public offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Shares issued for the vesting of restricted stock units | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2019 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Shares issued for cash by at-the-market offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Shares issued to settle liabilities | |||||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of stock options | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Shares issued for exercise of warrants | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Contributions attributable to non-controlling interest | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2019 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for cash by at-the-market offering | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Share issuance cost | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares issued for consulting services | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
11
ENERGY FUELS INC.
Condensed Consolidated Statements of Cash Flows
(unaudited) (Expressed in thousands of U.S. dollars)
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net loss for the period | $ | ( | $ | ( | |||||||
| Items not involving cash: | |||||||||||
| Depletion, depreciation and amortization | |||||||||||
| Share-based compensation | |||||||||||
| Change in value of Convertible Debentures | ( | ( | |||||||||
| Change in value of warrant liabilities | ( | ( | |||||||||
| Accretion of asset retirement obligation | |||||||||||
| Unrealized foreign exchange gain | ( | ( | |||||||||
| Impairment of inventories | |||||||||||
| Revision of asset retirement obligation | |||||||||||
| Other non-cash expenses | |||||||||||
| Changes in assets and liabilities | |||||||||||
| Increase in inventories | ( | ( | |||||||||
| Decrease in trade and other receivables | |||||||||||
| Increase in prepaid expenses and other assets | ( | ( | |||||||||
| Decrease in accounts payable and accrued liabilities | ( | ( | |||||||||
| Changes in deferred revenue | ( | ||||||||||
| ( | ( | ||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Purchase of property, plant and equipment | ( | ||||||||||
| Maturities and sales of marketable securities | |||||||||||
| FINANCING ACTIVITIES | |||||||||||
| Issuance of common shares for cash, net of issuance cost | |||||||||||
| Proceeds from notes payable | |||||||||||
| Cash paid to fund employee income tax withholding due upon vesting of restricted stock units | ( | ||||||||||
| Repayment of loans and borrowings | ( | ( | |||||||||
| Cash received from exercise of warrants | |||||||||||
| Cash received from exercise of stock options | |||||||||||
| Cash received from non-controlling interest | |||||||||||
| CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH DURING THE PERIOD | |||||||||||
| Effect of exchange rate fluctuations on cash held in foreign currencies | ( | ||||||||||
| Cash, cash equivalents and restricted cash - beginning of period | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH - END OF PERIOD | $ | $ | |||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Net cash paid during the period for: | |||||||||||
| Interest | $ | $ | |||||||||
| Warrant liability transferred to equity upon exercise | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
12
ENERGY FUELS INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020
(unaudited) (Tabular amounts expressed in thousands of U.S. Dollars, except share and per share amounts)
1. THE COMPANY AND DESCRIPTION OF BUSINESS
Energy Fuels Inc. was incorporated under the laws of the Province of Alberta and was continued under the Business Corporations Act (Ontario).
Energy Fuels Inc. and its subsidiary companies (collectively “the Company” or “EFI”) are engaged in uranium extraction, recovery and sales of uranium from mineral properties and the recycling of uranium bearing materials generated by third parties. As a part of these activities the Company also acquires, explores, evaluates and, if warranted, permits uranium properties. The Company’s final uranium product, uranium oxide concentrate (“U3O8” or “uranium concentrate”), is sold to customers for further processing into fuel for nuclear reactors. The Company produces vanadium as a co-product of its uranium recovery from certain of its mines as market conditions warrant and from time to time from solutions in its tailing impoundment system. The Company is also evaluating potentially processing rare earth element ("REE") ores for the recovery of REEs and uranium.
The Company is an exploration stage mining company as defined by the U.S. SEC Industry Guide 7 as it has not established the existence of proven or probable reserves on any of its properties.
2. BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) and are presented in thousands of U.S. dollars, except for share and per share amounts. Certain footnote disclosures have share prices which are presented in Canadian dollars (“Cdn$”).
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included are adequate to make the information presented not misleading.
In management’s opinion, these unaudited condensed consolidated financial statements reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company’s financial position, results of operations and cash flows on a basis consistent with that of the Company’s audited consolidated financial statements for the year ended December 31, 2019. However, the results of operations for the interim periods may not be indicative of results to be expected for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto and summary of significant accounting policies included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated.
Certain prior period amounts have been reclassified in order to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.
3. MARKETABLE SECURITIES
The following table summarizes our marketable securities by significant investment categories as of September 30, 2020:
| Cost Basis | Gross Unrealized Losses | Gross Unrealized Gains | Fair Value | |||||||||||
Marketable debt securities(1) | $ | $ | $ | $ | ||||||||||
| Marketable equity securities | ( | |||||||||||||
| Marketable securities | $ | $ | ( | $ | $ | |||||||||
(1) Marketable debt securities are comprised primarily of U.S. government notes, and also include U.S. government agencies and tradeable certificates of deposits.
The following table summarizes our marketable securities by significant investment categories as of December 31, 2019:
13
| Cost Basis | Gross Unrealized Losses | Gross Unrealized Gains | Fair Value | |||||||||||
Marketable debt securities (1) | $ | $ | $ | $ | ||||||||||
| Marketable equity securities | ( | |||||||||||||
| Marketable securities | $ | $ | ( | $ | $ | |||||||||
(1) Marketable debt securities are comprised primarily of U.S. government notes, and also include U.S. government agencies, and tradeable certificates of deposits.
During the nine months ended September 30, 2020 and 2019, we did not recognize any other-than-temporary impairment losses.
The following table summarizes the estimated fair value of our investments in marketable debt securities with stated contractual maturity dates, accounted for as available-for-sale securities and classified by the contractual maturity date of the securities:
| Due in less than 12 months | $ | ||||
| Due in 12 months to two years | |||||
| Due in greater than two years | |||||
| $ | |||||
| September 30, 2020 | December 31, 2019 | ||||||||||
Concentrates and work-in-progress(1) | $ | $ | |||||||||
| Inventory of ore in stockpiles | |||||||||||
| Raw materials and consumables | |||||||||||
| $ | $ | ||||||||||
| Inventories - by duration | |||||||||||
| Current | $ | $ | |||||||||
| Long term - raw materials and consumables | |||||||||||
| $ | $ | ||||||||||
(1) For the three and nine months ended September 30, 2020, the Company recorded an impairment loss of $0.14 million and $1.64 million in the statement of operations related to concentrates and work in progress inventories (September 30, 2019 - $2.33 million and $8.41 million).
5. PROPERTY, PLANT AND EQUIPMENT AND MINERAL PROPERTIES
The following is a summary of property, plant and equipment:
| September 30, 2020 | December 31, 2019 | ||||||||||||||||||||||||||||||||||
| Cost | Accumulated Depreciation | Net Book Value | Cost | Accumulated Depreciation | Net Book Value | ||||||||||||||||||||||||||||||
| Property, plant and equipment | |||||||||||||||||||||||||||||||||||
| Nichols Ranch | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Alta Mesa | ( | ( | |||||||||||||||||||||||||||||||||
| Equipment and other | ( | ( | |||||||||||||||||||||||||||||||||
| Property, plant and equipment total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
14
The following is a summary of mineral properties:
| September 30, 2020 | December 31, 2019 | ||||||||||
| Mineral properties | |||||||||||
| Uranerz ISR properties | $ | $ | |||||||||
| Sheep Mountain | |||||||||||
| Roca Honda | |||||||||||
| Other | |||||||||||
| Mineral properties total | $ | $ | |||||||||
6. ASSET RETIREMENT OBLIGATIONS AND RESTRICTED CASH
The following table summarizes the Company’s asset retirement obligations:
| September 30, 2020 | December 31, 2019 | ||||||||||
| Asset retirement obligation, beginning of period | $ | $ | |||||||||
| Revision of estimate | ( | ||||||||||
| Accretion of liabilities | |||||||||||
| Asset retirement obligation, end of period | $ | $ | |||||||||
| Asset retirement obligation: | |||||||||||
| Current | $ | $ | |||||||||
| Non-current | |||||||||||
| Asset retirement obligation, end of period | $ | $ | |||||||||
The asset retirement obligations of the Company are subject to legal and regulatory requirements. Estimates of the costs of reclamation are reviewed periodically by the Company and the applicable regulatory authorities. The above provision represents the Company’s best estimate of the present value of future reclamation costs, discounted using credit adjusted risk-free interest rates ranging from 9.5 % to 11.5 % and an inflation rate of 2.0 %. The total undiscounted decommissioning liability at September 30, 2020 is $41.75 million (December 31, 2019 - $41.75 million).
The following table summarizes the Company’s restricted cash:
| September 30, 2020 | December 31, 2019 | ||||||||||
| Restricted cash, beginning of period | $ | $ | |||||||||
| Additional collateral posted | |||||||||||
| Refunds of collateral | ( | ||||||||||
| Restricted cash, end of period | $ | $ | |||||||||
The Company has cash, cash equivalents and fixed income securities as collateral for various bonds posted in favor of the applicable state regulatory agencies in Arizona, Colorado, New Mexico, Texas, Utah and Wyoming, and the U.S. Bureau of Land Management and U.S. Forest Service for estimated reclamation costs associated with the White Mesa Mill, Nichols Ranch, Alta Mesa and other mining properties. Cash equivalents are short-term highly liquid investments with original maturities of three months or less. The restricted cash will be released when the Company has reclaimed a mineral property or restructured the surety and collateral arrangements. See Note 14 for a discussion of the Company’s surety bond commitments.
Cash, cash equivalents and restricted cash are included in the following accounts at September 30, 2020 and December 31, 2019:
| September 30, 2020 | December 31, 2019 | ||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other long-term assets | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
15
7. LOANS AND BORROWINGS
The Company’s interest-bearing loans and borrowings, which are recorded at amortized cost, and the Company’s Convertible Debentures, which are recorded at fair value, are as follows.
| September 30, 2020 | December 31, 2019 | ||||||||||
| Current portion of loans and borrowings: | |||||||||||
| Convertible Debentures | $ | $ | |||||||||
| Notes payable | |||||||||||
| Total current loans and borrowings | $ | $ | |||||||||
On July 24, 2012, the Company completed a bought deal public offering of 22,000 floating-rate convertible unsecured subordinated debentures originally maturing June 30, 2017 (the “Convertible Debentures”) at a price of Cdn$1,000 per Debenture for gross proceeds of Cdn$21.55 million (the “Offering”). The Convertible Debentures are convertible into Common Shares at the option of the holder. Interest is paid in cash and in addition, unless an event of default has occurred and is continuing, the Company may elect, from time to time, subject to applicable regulatory approval, to satisfy its obligation to pay interest on the Convertible Debentures, on the date it is payable under the indenture: (i) in cash; (ii) by delivering sufficient Common Shares to the debenture trustee, for sale, to satisfy the interest obligations in accordance with the indenture in which event holders of the Convertible Debentures will be entitled to receive a cash payment equal to the proceeds of the sale of such Common Shares; or (iii) any combination of (i) and (ii).
On August 4, 2016, the Company, by a vote of the Debenture holders, extended the maturity date of the Convertible Debentures from June 30, 2017 to December 31, 2020, and reduced the conversion price of the Convertible Debentures from Cdn$15.00 to Cdn$4.15 per Common Share of the Company. In addition, a redemption provision was added that will enable the Company, upon giving not less than 30 days' notice to Debenture holders, to redeem the Convertible Debentures, for cash, in whole or in part at any time after June 30, 2019, but prior to maturity, at a price of 101 % of the aggregate principal amount redeemed, plus accrued and unpaid interest (less any tax required by law to be deducted) on such Convertible Debentures up to but excluding the redemption date. A right (in favor of each Debenture holder) was also added which gave the Debenture holders the option to require the Company to purchase, for cash, on the previous maturity date of June 30, 2017, up to 20 % of the Convertible Debentures held by the Debenture holders at a price equal to 100 % of the principal amount purchased plus accrued and unpaid interest (less any tax required by law to be deducted). In the three months ended June 30, 2017, Debenture holders elected to redeem Cdn$1.13 million ($0.87 million) under this right. No additional purchases are allowed under this right. In addition, certain other amendments were made to the Indenture, as required by the U.S. Trust Indenture Act of 1939, as amended, and with respect to the addition of a U.S. Trustee in compliance therewith, as well as to remove provisions of the Indenture that no longer apply, such as U.S. securities law restrictions.
The Convertible Debentures accrue interest, payable semi-annually in arrears on June 30 and December 31 of each year at a fluctuating rate of not less than 8.5 % and not more than 13.5 %, indexed to the simple average spot price of uranium as reported on the UxC, LLC ("UxC") Weekly Indicator Price. The Convertible Debentures may be redeemed in whole or part, at par plus accrued interest and unpaid interest by the Company between June 30, 2019 and December 31, 2020 subject to certain terms and conditions, provided the volume weighted average trading price of the Common Shares of the Company on the TSX during the 20 consecutive trading days ending five days preceding the date on which the notice of redemption is given is not less than 125 % of the conversion price.
Upon redemption or at maturity, the Company will repay the indebtedness represented by the Convertible Debentures by paying to the debenture trustee in Canadian dollars an amount equal to the aggregate principal amount of the outstanding Convertible Debentures which are to be redeemed or which have matured, as applicable, together with accrued and unpaid interest thereon.
Subject to any required regulatory approval and provided no event of default has occurred and is continuing, the Company has the option to satisfy its obligation to repay the Cdn$1,000 principal amount of the Convertible Debentures, in whole or in part, due at redemption or maturity, upon at least 40 days’ and not more than 60 days’ prior notice, by delivering that number of Common Shares obtained by dividing the Cdn$1,000 principal amount of the Convertible Debentures maturing or to be redeemed as applicable, by 95 % of the volume-weighted average trading price of the Common Shares on the TSX during the 20 consecutive trading days ending five trading days preceding the date fixed for redemption or the maturity date, as the case may be.
16
On July 14, 2020, the Company redeemed Cdn$10.43 million principal amount of the Cdn$20.86 million Convertible Debentures. The Convertible Debentures were redeemable for an amount equal to 101 % of the aggregate principal amount plus accrued and unpaid interest thereon, up to but excluding July 14, 2020. On October 6, 2020, the Company redeemed the remaining Cdn$10.43 million principal amount of the Cdn$10.43 million Convertible Debentures outstanding. The Convertible Debentures were redeemable for an amount equal to 101 % of the aggregate principal amount plus accrued and unpaid interest thereon, up to but excluding October 6, 2020. As a result of the final redemption, no Debentures remain outstanding. The Convertible Debentures are no longer subject to the terms of the Indenture, and cease to be listed on the Toronto Stock Exchange.
The Company currently has no other remaining short- or long-term debt.
The Convertible Debentures are measured at fair value based on the closing price on the TSX (a Level 1 measurement) and changes are recognized in earnings. For the three and nine months ended September 30, 2020, the Company recorded a gain on revaluation of Convertible Debentures of $0.15 million and $0.15 million (September 30, 2019 – gain of $0.94 million and $0.45 million), respectively.
8. LEASES
The Company’s leases primarily include operating leases for corporate offices. These leases have remaining lease terms of less than one year to four years , and include options to extend the leases for up to five years . Certain of our leases include variable payments for lessor operating expenses that are not included within right-of-use ("ROU") assets and lease liabilities in the Condensed Consolidated Balance Sheets. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.
Beginning January 1, 2019, operating ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Operating leases in effect prior to January 1, 2019 were recognized at the present value of the remaining payments on the remaining lease term as of January 1, 2019. Because most of the Company's leases do not provide an explicit rate of return, the Company's incremental secured borrowing rate based on lease term information available at the commencement date of the lease will be used in determining the present value of lease payments. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. The Company’s operating lease expense is recognized on a straight-line basis over the lease term and is recorded in General and Administration expenses. Short-term leases, which have an initial term of 12 months or less, are not recorded in the Condensed Consolidated Balance Sheets.
Total lease cost includes the following components:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Short-term leases | |||||||||||||||||||||||
| Sublease income | ( | ( | |||||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
The weighted average remaining lease term and weighted average discount rate were as follows:
| Nine months ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Weighted average remaining lease term of operating leases | |||||||||||
| Weighted average discount rate of operating leases | % | % | |||||||||
Supplemental cash flow information related to leases was as follows:
17
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating cash flow information: | |||||||||||||||||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | $ | $ | |||||||||||||||||||
Future minimum payments of operating lease liabilities as of September 30, 2020 are as follows:
| Years Ending December 31: | |||||
| 2020 (excluding the nine months ended September 30, 2020) | $ | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| Thereafter | |||||
| Total lease payments | $ | ||||
| Less: interest | ( | ||||
| Present value of lease liabilities | $ | ||||
9. CAPITAL STOCK
Authorized capital stock
The Company is authorized to issue an unlimited number of Common Shares without par value, unlimited Preferred Shares issuable in series, and unlimited Series A Preferred Shares. The Series A Preferred Shares issuable are non-redeemable, non-callable, non-voting and with no right to dividends. The Preferred Shares issuable in series will have the rights, privileges, restrictions and conditions assigned to the particular series upon the Board of Directors approving their issuance.
Issued capital stock
On February 20, 2020, the Company completed a bought deal public offering of 11.30 million Common Shares at a price of $1.47 per share. The Company received net proceeds, after commissions and fees, of $15.14 million.
In the nine months ended September 30, 2020, the Company issued 17.66 million Common Shares under the Company’s ATM for net proceeds of $29.50 million after share issuance costs.
Share Purchase Warrants
The following table summarizes the Company’s share purchase warrants denominated in U.S. dollars. These warrants are accounted for as derivative liabilities as the functional currency of the entity issuing the warrants, Energy Fuels Inc., is Canadian dollars.
| Month Issued | Expiry Date | Exercise Price USD$ | Warrants Outstanding | Fair value at September 30, 2020 | |||||||||||||||||||
September 2016(1) | September 20, 2021 | $ | |||||||||||||||||||||
(1) The warrants issued in September 2016 are classified as Level 1 under the fair value hierarchy (Note 16). Each warrant is exercisable until September 20, 2021 and entitles the holder thereof to acquire one common share upon exercise at an exercise price of $2.45 per common share. These warrants are accounted for as a derivative liability, as the functional currency of the entity issuing the warrant is Cdn$.
10. BASIC AND DILUTED LOSS PER COMMON SHARE
18
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Loss attributable to shareholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Basic and diluted weighted average number of common shares outstanding | |||||||||||||||||||||||
| Loss per common share | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
For the three and nine months ended September 30, 2020, 6.16 million (September 30, 2019 - 5.66 million) options and warrants and the potential conversion of the Convertible Debentures have been excluded from the calculation as their effect would have been anti-dilutive.
11. SHARE-BASED PAYMENTS
The Company, under the 2018 Amended and Restated Omnibus Equity Incentive Compensation Plan (the “Compensation Plan”), maintains an equity incentive plan for directors, executives, eligible employees and consultants. Equity incentive awards include employee stock options, restricted stock units (“RSUs”) and stock appreciation rights ("SARs"). The Company issues new shares of common stock to satisfy exercises and vesting under all of its equity incentive awards. At September 30, 2020, a total of 13,027,350 Common Shares were authorized for equity incentive plan awards.
Employee Stock Options
The Company, under the Compensation Plan, may grant options to directors, executives, employees and consultants to purchase Common Shares of the Company. The exercise price of the options is set as the higher of the Company’s closing share price on the day before the grant date or the five-day volume weighted average price ("VWAP"). Stock options granted under the Compensation Plan generally vest over a period of two years or more and are generally exercisable over a period of five years from the grant date not to exceed 10 years. The value of each option award is estimated at the grant date using the Black-Scholes Option Valuation Model. There were 0.71 million options granted in the nine months ended September 30, 2020 (September 30, 2019 – 0.30 million options). At September 30, 2020, there were 1.99 million options outstanding with 1.59 million options exercisable, at a weighted average exercise price of $2.83 and $3.04 , respectively, with a weighted average remaining contractual life of 3.06 years. The fully vested options had no intrinsic value at September 30, 2020.
The fair value of the options granted under the Compensation Plan for the nine months ended September 30, 2020 was estimated at the date of grant, using the Black-Scholes Option Valuation Model, with the following weighted average assumptions:
| Risk-free interest rate | ||||||||
| Expected life | ||||||||
| Expected volatility | * | |||||||
| Expected dividend yield | % | |||||||
| Weighted average expected life of option | ||||||||
| Weighted average grant date fair value | $ | |||||||
* Expected volatility is measured based on the Company’s historical share price volatility over a period equivalent to the expected life of the options.
19
| Range of Exercise Prices | Weighted Average Exercise Price | Number of Options | |||||||||||||||
| Balance, December 31, 2018 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Exercised | ( | ||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Expired | ( | ||||||||||||||||
| Balance, December 31, 2019 | $ | $ | |||||||||||||||
| Granted | |||||||||||||||||
| Exercised | |||||||||||||||||
| Forfeited | ( | ||||||||||||||||
| Expired | ( | ||||||||||||||||
| Balance, September 30, 2020 | $ | $ | |||||||||||||||
A summary of the status and activity of non-vested stock options for the nine months ended September 30, 2020 is as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested December 31, 2019 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested September 30, 2020 | $ | ||||||||||
Restricted Stock Units
The Company grants RSUs to directors, executives and eligible employees. Awards are determined as a target percentage of base salary and generally vest over periods of three years . Prior to vesting, holders of restricted stock units do not have voting rights. The RSUs are subject to forfeiture risk and other restrictions. Upon vesting, the employee is entitled to receive one share of the Company’s common stock for each RSU for no additional payment. During the nine months ended September 30, 2020, the Company's Board of Directors issued 0.74 million RSUs under the Compensation Plan (September 30, 2019 - 0.72 million).
A summary of the status and activity of non-vested RSUs at September 30, 2020 is as follows:
| Number of Shares | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested December 31, 2019 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Forfeited | ( | ||||||||||
| Non-vested September 30, 2020 | $ | ||||||||||
The total intrinsic value and fair value of RSUs that vested and were settled for equity in the nine months ended September 30, 2020 was $1.97 million (September 30, 2019 – $2.51 million).
Stock Appreciation Rights
During the nine months ended September 30, 2019, the Company's Board of Directors issued 2.20 million stock appreciation rights (SARs) under the Compensation Plan with a fair value of $1.25 per SAR. These SARs are intended to provide additional long-term performance-based equity incentives for the Company's senior management. The SARs are performance based, because they only vest upon the achievement of performance goals designed to significantly increase shareholder value.
Each SAR outstanding entitles the holder, on exercise, to a payment in cash or shares (at the election of the Company) equal to the difference between the market price of the Common Shares at the time of exercise and $2.92 (the market price at the time of grant) over a five-year period, but vest only upon the achievement of the following performance goals: as to one-third of the
20
SARs granted upon the VWAP of the Common Shares on the NYSE American equaling or exceeding $5.00 for any continuous 90 -calendar day period; as to an additional one-third of the SARs granted, upon the VWAP of the Common Shares on the NYSE American equaling or exceeding $7.00 for any continuous 90 calendar-day period; and as to the final one-third of the SARs granted, upon the VWAP of the Common Shares on the NYSE American equaling or exceeding $10.00 for any continuous 90 calendar-day period. Further, notwithstanding the foregoing vesting schedule, no SARs may be exercised by the holder for an initial period of one year from the Date of Grant; the date first exercisable being January 22, 2020.
The share-based compensation recorded during the three and nine months ended September 30, 2020 was $0.67 million and $2.37 million (three and nine months ended September 30, 2019 - $0.71 million and $2.50 million).
At September 30, 2020, there were $0.08 million, $0.89 million and $0.49 million of unrecognized compensation costs related to the unvested stock options, RSU awards and SARs, respectively. These costs are expected to be recognized over a period of approximately two years .
12. INCOME TAXES
13. SUPPLEMENTAL FINANCIAL INFORMATION
The components of other income are as follows:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Interest income | $ | ( | $ | $ | $ | ||||||||||||||||||
| Change in value of investments accounted for at fair value | ( | ( | |||||||||||||||||||||
| Change in value of warrant liabilities | |||||||||||||||||||||||
| Change in value of Convertible Debentures | |||||||||||||||||||||||
| Foreign exchange gain (loss) | ( | ( | ( | ||||||||||||||||||||
| Other | ( | ( | ( | ||||||||||||||||||||
| Other income | $ | $ | $ | $ | |||||||||||||||||||
14. COMMITMENTS AND CONTINGENCIES
General legal matters
Other than routine litigation incidental to our business, or as described below, the Company is not currently a party to any material pending legal proceedings that management believes would be likely to have a material adverse effect on our financial position, results of operations or cash flows.
White Mesa Mill
In January 2013, the Ute Mountain Ute tribe filed a Petition to Intervene and Request for Agency Action challenging the Corrective Action Plan approved by the State of Utah Department of Environmental Quality (“UDEQ”) relating to nitrate contamination in the shallow aquifer at the White Mesa Mill site. This challenge is currently being evaluated and may involve the appointment of an administrative law judge to hear the matter. The Company does not consider this action to have any merit. If the petition is successful, the likely outcome would be a requirement to modify or replace the existing Corrective Action Plan. At this time, the Company does not believe any such modification or replacement would materially affect our financial position, results of operations or cash flows. However, the scope and costs of remediation under a revised or replacement Corrective Action Plan have not yet been determined and could be significant.
On January 19, 2018, UDEQ renewed, and on February 16, 2018 reissued with minor corrections, the White Mesa Mill’s license for another ten years, and Groundwater Discharge Permit for another five years, after which renewal periods further applications for renewal for the license and permit will need to be submitted. During the review period for each application for renewal, the Mill can continue to operate under its then existing license and permit until such time as the renewed license or permit is issued. In March 2018, the Grant Canyon Trust, Ute Mountain Ute Tribe and Uranium Watch (the “Petitioners”)
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served Petitions for Review challenging UDEQ’s renewal of the license and permit. Petitioners subsequently filed with UDEQ Requests for Appointment of an Administrative Law Judge, which they later agreed to suspend pursuant to a Stipulation and Agreement with UDEQ, effective June 4, 2018. The Company has met with representatives from all parties in order to determine whether pending administrative proceedings can be settled. Discussions are ongoing. The Company does not consider these challenges to have any merit. If such challenges are heard by the agency and are successful, the likely outcome would be a requirement to modify the renewed license and/or permit. At this time, the Company does not believe any such modification would materially affect its financial position, results of operations or cash flows.
Canyon Project
In March of 2013, the Center for Biological Diversity, the Grand Canyon Trust, the Sierra Club and the Havasupai Tribe (the “Canyon Plaintiffs”) filed a complaint in the U.S. District Court for the District of Arizona (the “District Court”) against the Forest Supervisor for the Kaibab National Forest and the U.S. Forest Service (“USFS”) seeking an order (a) declaring that the USFS failed to comply with environmental, mining, public land, and historic preservation laws in relation to our Canyon Project, (b) setting aside any approvals regarding exploration and mining operations at the Canyon Project, and (c) directing operations to cease at the Canyon Project and enjoining the USFS from allowing any further exploration or mining-related activities at the Canyon Project until the USFS fully complies with all applicable laws. In April 2013, the Plaintiffs filed a Motion for Preliminary Injunction, which was denied by the District Court in September 2013. On April 7, 2015, the District Court issued its final ruling on the merits in favor of the Defendants and the Company and against the Canyon Plaintiffs on all counts. The Canyon Plaintiffs appealed the District Court’s ruling on the merits to the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) and filed motions for an injunction pending appeal with the District Court. Those motions for an injunction pending appeal were denied by the District Court on May 26, 2015. Thereafter, Plaintiffs filed urgent motions for an injunction pending appeal with the Ninth Circuit Court of Appeals, which were denied on June 30, 2015.
The hearing on the merits at the Court of Appeals was held on December 15, 2016. On December 12, 2017, the Ninth Circuit Court of Appeals issued its ruling on the merits in favor of the Defendants and the Company and against the Canyon Plaintiffs on all counts. The Canyon Plaintiffs petitioned the Ninth Circuit Court of Appeals for a rehearing en banc. On October 25, 2018, the Ninth Circuit panel ruled on the petition for rehearing en banc. The panel withdrew its prior opinion and filed a new opinion, which affirmed with one exception the District Court’s decision. The one exception relates to one of the Plaintiffs’ claims, which had been dismissed by the District Court for lack of standing. The Ninth Circuit panel reversed itself on its standing analysis, concluded that the Plaintiffs have standing to assert this claim and remanded the claim back to the District Court to hear the merits of Plaintiffs’ claim. On September 11, 2019, the Canyon Plaintiffs filed their Motion for Summary Judgment and Memorandum in Support with the District Court, after which the Company filed its Intervenors-Defendants’ Motion for Summary Judgment on October 23, 2019. On November 15, 2019, the Canyon Plaintiffs filed their Reply in Support of their Motion for Summary Judgment. On May 22, 2020, the District Court issued its final order in favor of the Company and the U.S. Forest Service.
On July 20, 2020, the Plaintiffs filed their Notice of Appeal of the District Court’s final order, and the Ninth Circuit has since issued its Time Schedule Order setting due dates for the parties' briefs and actions required to perfect the appeal. As a part of the appeal, the Company may be required to maintain the Canyon Project on standby pending resolution of the matter. Such a prolonged delay of mining activities could have a significant impact on our future operations.
Daneros Project
On February 23, 2018, the BLM issued the Environmental Assessment ("EA"), Decision Record and FONSI for the Mine Plan of Operations Modification for the Daneros Mine. On March 29, 2018, the Southern Utah Wilderness Alliance and Grand Canyon Trust (together, the “Appellants”) filed a Notice of Appeal to the Interior Board of Land Appeals (“IBLA”) regarding the BLM’s Decision Record and FONSI and challenging the underlying EA, and the Company was subsequently permitted to intervene. This matter has been briefed and remains under consideration by IBLA at this time. The Company does not consider these challenges to have any merit; however, the scope and costs of amending or redoing the EA have not yet been determined and could be significant.
Surety Bonds
The Company has indemnified third-party companies to provide surety bonds as collateral for the Company’s asset retirement obligation. The Company is obligated to replace this collateral in the event of a default and is obligated to repay any reclamation or closure costs due. The Company currently has $20.23 million posted against an undiscounted asset retirement obligation of $41.75 million (December 31, 2019 - $20.08 million posted against an undiscounted asset retirement obligation of $41.75 million).
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Commitments
The Company is contractually obligated under a Sales and Agency Agreement appointing an exclusive sales and marketing agent for all vanadium pentoxide produced by the Company.
15. RELATED PARTY TRANSACTIONS
On May 17, 2017, the Board of Directors of the Company appointed Robert W. Kirkwood and Benjamin Eshleman III to the Board of Directors of the Company.
Mr. Kirkwood is a principal of the Kirkwood Companies, including Kirkwood Oil and Gas LLC, Wesco Operating, Inc., and United Nuclear LLC (“United Nuclear”). United Nuclear, owns a 19 % interest in the Company’s Arkose Mining Venture while the Company owns the remaining 81 %. The Company acts as manager of the Arkose Mining Venture and has management and control over operations carried out by the Arkose Mining Venture. The Arkose Mining Venture is a contractual joint venture governed by a venture agreement dated as of January 15, 2008 entered into by Uranerz Energy Corporation (a subsidiary of the Company) and United Nuclear (the “Venture Agreement”).
United Nuclear contributed $0.13 million to the expenses of the Arkose Joint Venture based on the approved budget for the nine months ended September 30, 2020 (September 30, 2019 - $46 thousand).
Mr. Benjamin Eshleman III is President of Mesteña LLC, which became a shareholder of the Company through the Company’s acquisition of Mesteña Uranium, L.L.C. (now EFR Alta Mesa LLC) in June 2016. Pursuant to the Purchase Agreement, the Alta Mesa Properties are subject to a royalty of 3.125 % of the value of the recovered U3O8 from the Alta Mesa Properties sold at a price of $65.00 per pound or less, 6.25 % of the value of the recovered U3O8 from the Alta Mesa Properties sold at a price greater than $65.00 per pound and up to and including $95.00 per pound, and 7.5 % of the value of the recovered U3O8 from the Alta Mesa Properties sold at a price greater than $95.00 per pound. The royalties are held by Mr. Eshleman and his extended family. In addition, Mr. Eshleman and certain members of his extended family are parties to surface use agreements that entitle them to surface use payments from the Acquired Companies in certain circumstances. The Alta Mesa Properties are currently being maintained on care and maintenance to enable the Company to restart operations as market conditions warrant. Due to the price of U3O8, the Company did not pay any royalty payments to the Sellers or to Mr. Eshleman or his immediate family members in the nine months ended September 30, 2020 and does not anticipate paying any royalty payments to the Sellers or to Mr. Eshleman or his immediate family members during the remainder of 2020. The Company makes surface use payments on an annual basis to Mr. Eshleman and his immediate family members and has accrued $0.32 million as of September 30, 2020.
16. FAIR VALUE ACCOUNTING
Assets and liabilities measured at fair value on a recurring basis
The following tables set forth the fair value of the Company's assets and liabilities measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy as of September 30, 2020. As required by accounting guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As of September 30, 2020, the fair values of cash and cash equivalents, restricted cash, short-term deposits, receivables, accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these instruments.
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Investments at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Marketable equity securities | |||||||||||||||||||||||
| Marketable debt securities | |||||||||||||||||||||||
| Warrant liabilities | ( | ( | |||||||||||||||||||||
| Convertible Debentures | ( | ( | |||||||||||||||||||||
| $ | ( | $ | $ | $ | ( | ||||||||||||||||||
The Company's investments are marketable equity securities which are exchange-traded and are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy. The fair value of the investments is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company.
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17. SUBSEQUENT EVENTS
Full Redemption of Convertible Debentures
On October 6, 2020, the Company redeemed the remaining Cdn$10.43 million principal amount of the Cdn$10.43 millions Convertible Debentures outstanding. The Convertible Debentures were redeemable for an amount equal to 101 % of the aggregate principal amount plus accrued and unpaid interest thereon, up to but excluding October 6, 2020. As a result of the final redemption, no Convertible Debentures remain outstanding. The Convertible Debentures are no longer subject to the terms of the Indenture, and cease to be listed on the Toronto Stock Exchange.
The Company currently has no other remaining short- or long-term debt.
Sale of shares in the Company's ATM program.
From October 1, 2020 through October 30, 2020, the Company issued 0.80 million Common Shares at a weighted average price of $1.72 for net proceeds of $1.35 million using the ATM.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements for the three and nine-month periods ended September 30, 2020, and the related notes thereto, which have been prepared in accordance with U.S. GAAP. Additionally, the following discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited consolidated financial statements included in Part II of our Annual Report on Form 10-K for the year ended December 31, 2019. This Discussion and Analysis contains forward-looking statements and forward-looking information that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors. See "Cautionary Statement Regarding Forward-Looking Statements” above.
While the Company has uranium extraction and recovery activities and generates revenue, it is considered to be in the Exploration Stage (as defined by SEC Industry Guide 7) as it has no Proven or Probable Reserves within the meaning of SEC Industry Guide 7. Under U.S. GAAP, for a property that has no Proven or Probable Reserves, the Company capitalizes the cost of acquiring the property (including mineral properties and rights) and expenses all costs related to the property incurred subsequent to the acquisition of such property. Acquisition costs of a property are depreciated over its estimated useful life for a revenue generating property or expensed if the property is sold or abandoned. Acquisition costs are subject to impairment if so indicated.
All dollar amounts stated herein are in U.S. dollars, except share and per share amounts and currency exchange rates unless specified otherwise. References to Cdn$ refer to Canadian currency, and $ to United States currency.
Overview
We provide the raw materials for the generation of clean nuclear electricity. Our primary product is a uranium concentrate (“U3O8”), or yellowcake, which when further processed becomes the fuel for nuclear energy. According to the Nuclear Energy Institute, nuclear energy provides nearly 20% of the total electricity, and 55% of the clean, carbon-free electricity, generated in the United States. The Company generates revenues from extracting and processing materials for our own account, as well as from toll processing materials for others.
Our uranium concentrate is produced from multiple sources:
•Conventional recovery operations at our White Mesa Mill (the "Mill") including:
•Processing ore from uranium mines; and
•Recycling of uranium bearing materials that are not derived from conventional ore ("Alternate Feed Materials"); and
•In-situ recovery (“ISR”) operations.
In addition, the Company has a long history of conventional vanadium recovery at the Mill, when vanadium prices support those activities. The Company recently completed a campaign to recover vanadium from solutions in the tailings management system at the Mill ("Pond Return") from which it recovered over 1.8 million pounds of high-purity vanadium. The Company is also evaluating opportunities for copper recovery from our Canyon Project and the extraction of REEs from uranium-bearing ores.
The Mill, located near Blanding, Utah, processes ore mined from the Four Corners region of the United States, as well as Alternate Feed Materials that can originate worldwide. We have the only operating uranium mill in the United States, which is also the last operating facility left in the U.S. with the ability to recover vanadium from primary ore sources. The Mill is licensed to process an average of 2,000 tons of ore per day and to produce approximately 8.0 million pounds of U3O8 per year. The Mill has separate circuits to process conventional uranium and vanadium ores as well as Alternate Feed Materials.
For the last several years, no mines have operated commercially in the vicinity of the Mill due to low uranium prices. As a result, in recent years, Mill activities have focused on processing Alternate Feed Materials for the recovery of uranium, under multiple toll processing arrangements as well as Alternate Feed Materials for our own account. Additionally, in recent years, the Mill has recovered dissolved uranium and vanadium from the Mill’s tailings management system that was not fully recovered during the Mill’s prior forty years of operations through its Pond Return program. During the three and nine months ended September 30, 2020, Mill activities focused primarily on the recovery of vanadium, along with relatively small amounts of uranium, from Pond Returns, and the recovery of uranium from Alternate Feed Materials. The Company is actively pursuing additional Alternate Feed Materials for processing at the Mill.
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The Mill also continues to pursue additional sources of feed materials. For example, a significant opportunity exists for the Company to potentially participate in the clean-up of abandoned uranium mines in the Four Corners Region of the U.S. The U.S. Justice Department and Environmental Protection Agency have announced settlements in various forms in excess of $1.5 billion to fund certain clean-up activities on the Navajo Nation. Additional cleanup settlements with other parties are also pending. Our Mill is within economic trucking distance and is uniquely positioned in this region to receive uranium-bearing materials from these cleanups and thus recycle the contained U3O8, while at the same time permanently disposing of the cleanup materials outside the boundaries of the Navajo Nation in our licensed tailing management system. There are no other facilities in the U.S capable of providing this service. In addition, as previously announced, during the second quarter of 2019, the Company began receiving shipments of material generated in the cleanup of a large, historically producing conventional uranium mine located in northwest New Mexico. In addition to generating revenue for the Company, this project, also demonstrates the ability of the Mill to responsibly cleanup projects similar to those required on the Navajo Nation.
Energy Fuels is also currently conducting process test work and evaluating minor modifications to its operations, complementary to its uranium business, to potentially enable the processing of uranium- and thorium-bearing REE ores at the Mill. These ores are expected to come from third parties, either through ore purchase, tolling, or other arrangements, and Energy Fuels expects to produce a commercially viable rare earth concentrate or concentrates, while also recycling and recovering uranium from these ores. The rare earth concentrates would then be available for commercial sale to third party REE oxide separation and recovery facilities in the U.S. and elsewhere, and/or potentially for further refinement and REE separation and recovery at the Mill (see Recent Developments - Update on Rare Earth Element Initiative, below).
The Company’s ISR operations consist of our recently producing Nichols Ranch Project and our standby operation at the Alta Mesa Project. At our Nichols Ranch Project, the Company placed its ninth header house into production in March 2017. In order to save cash and resources, the Company is deferring additional wellfield development until uranium prices recover. The Project is now on standby. The Alta Mesa Project will remain on standby in the current uranium price environment.
We believe the current spot price of uranium does not support production for the majority of global uranium producers and, accordingly, we believe that prices will recover at some point in the future, either as a result of improving market fundamentals or in response to U.S. government action to support domestic uranium production which began with the Company’s Section 232 Petition submitted on January 16, 2018 (see Recent Developments - U.S. Nuclear Fuel Working Group Update, below). In anticipation of potential price recoveries or other actions that could support increased U.S. uranium mining, we continue to maintain and advance our resource portfolio. Once prices recover or other supportive actions are taken, we stand ready to resume wellfield construction at our Nichols Ranch Project; resume wellfield construction, perform plant upgrades, conduct exploration, and resume production at our Alta Mesa facility; and mine and process resources from our Canyon Project, Daneros Project, La Sal Project and/or Whirlwind Project. The Company believes we can bring this new production to the market within approximately six to eighteen months of a positive production decision. Longer term, we expect to resume production at our other conventional mines on standby and develop our large conventional mines at Roca Honda, Henry Mountains, and/or Sheep Mountain.
Recent Developments
COVID-19
The Company is evaluating the effects of the global, novel coronavirus ("COVID-19") crisis on the Company’s objectives and projections. Due to the current uncertainty, the Company is engaged in cost-cutting measures, while retaining the operational readiness of the Company’s main production assets. The Company is also continuing to work to secure U.S. government support for U.S. uranium miners. To date, although the Company has made some operational adjustments to ensure its workforce remains protected, the Company has not been required to shut down any operations as a result of COVID-19. The Company has evaluated any potential shut down of Company production facilities as a result of COVID-19, and has determined that any such shut down could be accommodated by the Company in a manner consistent with a typical shut down of Company facilities as a result of depressed commodity prices. Management believes the Company is well-capitalized and is able to withstand any facility shutdowns or depressed share prices as a result of COVID-19 for at least the next twelve months.
Full Redemption of Convertible Debentures
On July 14, 2020, the Company redeemed Cdn$10.43 million principal amount of the Cdn$20.86 million Debentures outstanding for approximately $7.78 million. The Debentures were redeemable for an amount equal to 101% of principal plus accrued and unpaid interest thereon, up to but excluding July 14, 2020. On October 6, 2020, the Company redeemed the remaining Cdn$10.43 million principal amount of the Cdn$10.43 million Debentures outstanding for approximately $7.82 million. The Debentures were redeemable for an amount equal to 101% of principal plus accrued and unpaid interest thereon, up to but excluding October 6, 2020. As a result of the final redemption, no Debentures remain outstanding or are subject to the terms of the Indenture, and the Debentures have ceased to be listed on the Toronto Stock Exchange. See “Note 11 to the Financial Statements: Loans and Borrowings.”
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The Company proactively managed its outstanding indebtedness to ensure it had the ability to pay it off on the Company’s own timing and terms and with minimal operational disruption. The Company decided to redeem all of the Debentures prior to maturity because the U.S.-Canada exchange rate was favorable, the Company has sufficient cash available, and the Company avoided approximately US$0.46 million in interest payments in 2020 by doing so.
The Company currently has no other remaining short- or long-term debt.
Agreement to Acquire Prompt Fission Neutron (PFN) Borehole Logging Technology and Equipment
On May 6, 2020, the Company announced it had entered into an agreement to acquire from GeoInstruments Logging LLC ("GIL") all of its Prompt Fission Neutron ("PFN") technology and equipment, including all of its related intellectual property, giving Energy Fuels the exclusive right to use, license, and service this particular PFN technology globally. PFN is critical to successful uranium production particularly from many in situ recovery ("ISR") deposits, as it more accurately measures downhole in-situ U3O8 ore grade versus traditional Total Gamma and Spectral Gamma methods. On July 31, 2020, the parties closed the transaction and all such equipment and technology was transferred to the Company.
The PFN equipment and technology acquired by Energy Fuels includes: four (4) PFN tools; nine (9) gamma tools; two (2) low-mileage, heavy-duty logging trucks with logging and associated equipment; power supplies, computers, communication, and other technology; and all associated intellectual property, and the sole right to utilize and license the acquired PFN technology globally. The total consideration paid by Energy Fuels to GIL was $0.5 million cash, of which $0.15 million was paid in the second quarter of 2020 and the remainder was paid at closing in the third quarter of 2020.
Energy Fuels currently has some PFN equipment in various states of repair, which it has used for its mining operations in the past, as do other companies in the U.S. and around the world. With the acquisition of this additional PFN equipment and technology from GIL, Energy Fuels is not only able to utilize the additional equipment to ramp-up production from its ISR properties more quickly and efficiently in the event of improved market conditions, but has also secured the ability to service, repair and maintain PFN equipment currently held by the Company and others, as well as license this technology to others in the future.
Update on Rare Earth Element Initiative
On April 13, 2020, the Company announced its intent to enter the REE market following several months of review and testing, including discussions with various technical experts and the U.S. government. The U.S. government is actively seeking a domestic source of REE minerals, which are needed for national defense among other applications.
REEs are a group of 17 chemical elements (the 15 elements in the lanthanum series, plus yttrium and scandium) that have a variety of industrial, energy, military and defense uses, including automotive components, communications technology, clean energy production, consumer electronics, weapons systems, advanced magnets, lasers and numerous other applications. According to a 2017 report by the United States Geological Survey ("USGS"), China has controlled more than 90% of the global supply of REEs since the late-1990s and has placed restrictions on REE exports since 2010.
Energy Fuels believes the White Mesa Mill is uniquely suited to potentially receive and process a number of different types of ores for the recovery of REEs (along with uranium), which, if achievable on a commercial basis and subject to the receipt of any required license or permit amendments, would eliminate the current need to ship those ores to China for processing. If successful, the Company expects to offer customers tolling or processing arrangements at the White Mesa Mill. Energy Fuels does not plan to mine REE ore itself at this time.
On May 21, 2020, the Company announced it had entered into consulting agreements with Constantine Karayannopoulos and Brock O'Kelley, two REE industry experts who each have decades of experience producing commercially viable rare earth products, to aid in the development and implementation of commercial and technical REE strategies for the Company’s REE program. A chemical engineer by training with more than 25 years of experience in the rare earth industry, Mr. Karayannopoulos, was at the time of the announcement Chairman of Neo Performance Materials (TSX:NEO) (“Neo”), one of the world's leading producers of advanced industrial materials, including rare earth-based engineered products, for multiple global markets. Mr. O'Kelley played a key role in the operation of the Mountain Pass, California rare earth processing facility during the 1990s and 2000s. Both are industry veterans with extensive knowledge of REE processing facility design, start-up, operations, and downstream value-added manufacturing of advanced REE products. On July 7, 2020, Mr. Karayannopoulos was appointed President and CEO of Neo, positions he held previously with Neo. As a result of his new executive roles with Neo, his consulting agreement with the Company will end on August 6, 2020. On July 31, 2020, the Company entered into a non-exclusive Letter of Intent with Neo, under which: (i) Mr. Karayannopoulos and other Neo personnel will continue to assist Energy Fuels in developing commercial and technical aspects of the Company’s REE strategy, including the potential production of a rare earth oxide concentrate at the Mill that can be sold to REE separation facilities; and (ii) the Company and
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Neo will work together toward potentially creating a longer term mutually beneficial relationship, which may involve commitments to buy and sell all or a portion of the REE concentrate produced at the Mill or other commercial arrangements.
Energy Fuels is currently conducting process test work and evaluating minor modifications to its White Mesa Mill operations, complementary to its uranium business, to enable the processing of uranium- and thorium-bearing rare earth ores at the Mill. These ores are expected to come from third parties, either through ore purchase, tolling, or other arrangements, and Energy Fuels expects to produce a commercially viable rare earth concentrate or concentrates, while also recycling and recovering uranium from these ores. The rare earth concentrates would then be available for commercial sale to third party REE oxide separation and recovery facilities in the U.S. and elsewhere, and/or potentially for further refinement and REE separation and recovery at the Mill.
Removal and recovery of the uranium and thorium from rare earth ores is the key aspect of Energy Fuels' value proposition, as many REE separation and recovery facilities are not able to handle uranium or thorium from a technical or regulatory standpoint. The White Mesa Mill has a 40-year history of responsibly handling, processing and recycling uranium and thorium bearing materials. Therefore, it has the potential to provide a crucial link in a commercially viable U.S REE supply chain.
U.S. Nuclear Fuel Working Group Update
On January 16, 2018, the Company participated in the joint filing of a Petition for Relief under Section 232 of the Trade Expansion Act of 1962 (as amended) from Imports of Uranium Products that Threaten National Security (the “Petition”). The Petition describes how uranium and nuclear fuel from state-owned and state-subsidized enterprises in Russia, Kazakhstan, Uzbekistan and China are believed to represent a threat to U.S. national security.
On July 18, 2018, the U.S. Department of Commerce ("DOC") initiated the investigation (the “Section 232 Investigation”).
On April 14, 2019, the DOC completed the Section 232 Investigation, and the Secretary of Commerce submitted a report to the President of the United States (the “President”) containing his findings (the “Section 232 Report”).
On July 12, 2019, in response to the Section 232 Report, the President issued a memorandum, where he stated that “I agree with the Secretary that the United States uranium industry faces significant challenges in producing uranium domestically and that this is an issue of national security.” In order “to address the concerns identified by the Secretary regarding domestic uranium production and to ensure a comprehensive review of the entire domestic nuclear supply chain,” the President formed the United States Nuclear Fuel Working Group (the “Working Group”) to “examine the current state of domestic nuclear fuel production to reinvigorate the entire nuclear fuel supply chain, consistent with United States national security and nonproliferation goals.” The President instructed the Working Group to “develop recommendations for reviving and expanding domestic nuclear fuel production,” and to submit a report to the President within 90 days “setting forth the Working Group’s findings and making recommendations to further enable domestic nuclear fuel production if needed.”
On February 10, 2020, the President published his Budget for fiscal year 2021 (October 1, 2020 through September 30, 2021). The President’s Budget “Supports Nuclear Fuel Cycle Capabilities,” and states that “[o]n July 12, 2019, the President determined that ‘...the United States uranium industry faces significant challenges in producing uranium domestically and that this is an issue of national security.’ The President’s Budget establishes a Uranium Reserve for the United States to provide additional assurances of availability of uranium in the event of a market disruption.” Table 25-1 of the President’s Budget seeks congressional appropriations of $150 million per year over the next 10 years (totaling $1.5 billion over that time frame) for uranium purchases. For fiscal 2021 (October 1, 2020 through September 30, 2021), the President’s Budget seeks an appropriation of $150 million, “to remain available until expended,” as the appropriation for the first year of this 10-year program. The President’s Budget states that “Establishing a Uranium Reserve provides assurance of availability of uranium in the event of a market disruption and supports strategic U.S. fuel cycle capabilities. This action addresses immediate challenges to the production of domestic uranium and reflects the Administration’s Nuclear Fuel Working Group (NFWG) priorities. The NFWG will continue to evaluate issues related to uranium supply chain and fuel supply.”
On April 23, 2020, the Working Group published its report: Restoring America’s Competitive Nuclear Energy Advantage: A strategy to assure U.S. national security. This comprehensive strategy seeks to revive and strengthen U.S. nuclear fuel capabilities, starting with uranium mining, with the goals of supporting U.S. energy and national security, preventing geopolitical adversaries (particularly those in Russia) from using their nuclear capabilities to influence the U.S. and the world, and promoting global non-proliferation objectives and nuclear safety. The report states that "the clear outcome of the Working Group's efforts is confirmation that it is in the nation's national security interests to preserve the assets and investments of the entire U.S. nuclear enterprise and to revitalize the sector to regain U.S. global nuclear leadership." The report recommends government purchases to establish a Uranium Reserve as contemplated by the President’s Budget and other actions aimed to strengthen the entire nuclear fuel cycle.
The appropriations process is currently underway.
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The proposed budgeted activities are subject to appropriation by the Congress of the United States, and as the details of implementation of activities pursuant to the President’s Budget have not yet been defined, there can be no certainty of the outcome of the President’s Budget or any further evaluations of the Working Group. Therefore, the outcome of this process remains uncertain. If the required appropriations are not made by Congress, or if the U.S. President does not implement the activities contemplated by the President’s Budget, or implements them in a way that does not provide the required support for the Company’s activities, and uranium and vanadium markets do not otherwise improve, or as general market conditions may otherwise dictate, we may reduce our operational activities as required in order to minimize our cash expenditures while preserving our asset base for increased production in the future as market conditions may warrant.
On September 14, 2020, the DOC announced that it had obtained Russia's agreement to extend limits on uranium imports into the U.S. from Russia through 2040 under an extended Russian Suspension Agreement. This is an important step toward maintaining the long-term health of the U.S. uranium mining industry. The DOC won important concessions from Russia, including lower quotas starting in the mid-2020's, allowing only a portion of the quotas to be used for the sale of U3O8 and conversion into the U.S., and strict controls on Russian enrichment service contracts, reducing U.S. dependence on Russian uranium in the long term. While the extended Russian Suspension Agreement is an important step toward maintaining the long-term health of the U.S. uranium mining industry, it does not supplant the need for the uranium reserve as contemplated by the President's Budget and as recommended by the Working Group.
Management Streamlining
On August 20, 2020 the Company announced that it was making a number of changes to its management team in order to reduce costs, flatten the organizational structure, and focus on the ongoing growth of a new generation of U.S. uranium and REE professionals, including the following, effective September 1, 2020: (a) Mr. Scott Bakken, the Senior Director, Regulatory Affairs, became the Vice President of Regulatory Affairs, responsible for permitting and regulatory matters relating to all of the Company's operations, both conventional and ISR, and also for overall worker health and safety matters at the Company; (b) Mr. Bernard Bonifas, the Director, Wyoming Operations, became the Director of ISR Operations, responsible for all of the Company's ISR operations, including its Nichols Ranch ISR project in Wyoming and its Alta Mesa ISR project in Texas; (c) Ms. Sarai Luksch, CPA, joined the Company as Controller; (d) Ms. Dee Ann Nazarenus, the Director, Human Resources & Administration, became the Vice President of Human Resources & Administration, responsible for planning, developing, organizing, implementing, directing and evaluating all human resource functions of the Company, and directing and managing all administrative functions of the Company; and (e) Mr. Logan Shumway, the Manager of the Company's White Mesa Mill, became Director of Conventional Operations, including advancement of the Company's REE objectives, in addition to being responsible for overall White Mesa Mill management. In addition, and in support of the objective to reduce costs, effective as of August 31, 2020, Chief Operating Officer, Mr. W. Paul Goranson left the Company to pursue other opportunities, and effective as of October 31, 2020, Chief Accounting Officer, Mr. Matt Tarnowski, will be leaving the Company to pursue other opportunities.
Uranium Market Update
According to monthly price data from TradeTech LLC (“TradeTech”), uranium spot prices fell moderately during the third quarter of 2020. The uranium spot price began the quarter at $33.00 per pound on June 30, 2020 and fell 9% to $30.10 per pound on September 30, 2020. The uranium spot price was at its high of $33.00 at the beginning of the quarter on June 30, 2020, and a low of $30.00 during the week ended September 25, 2020. TradeTech price data also indicates that long-term U3O8 prices fell $2.00 during the quarter, beginning the quarter at $39.00 per pound and ending the quarter at $37.00 per pound. On October 23, 2020, TradeTech reported a spot price of $29.70 per pound.
During the quarter, significant production cuts continued in response to the global COVID-19 crisis, including Kazatomprom announcing a one-month extension to the staffing reduction at its production sites in Kazakhstan through July 2020, resulting in a total of four months of reduced activity (TradeTech, NMR, July 10, 2020). In addition, Cameco Corporation’s Cigar Lake Mine in Saskatchewan, Canada, which had been shut-down due to the pandemic, announced that this facility would restart production at the beginning of September 2020 (TradeTech, NMR, July 31, 2020). TradeTech estimates that the COVID-19 pandemic will result in reduced uranium production of approximately 14 million pounds (TradeTech, NMR, July 31, 2020). In addition, on October 5, 2020, the governments of the United States and Russia completed an amendment to the Russian Suspension Agreement, extending limits on Russian uranium imports into the United States (TradeTech, NMR, October 9, 2020). This action supports non-Russian suppliers to U.S. nuclear utilities.
The Company believes that certain uranium supply and demand fundamentals continue to point to higher uranium prices in the future, including significant production cuts in recent years and sharply reduced production in 2020 due to COVID-19 and increased demand from utilities, financial entities, traders, and producers. The Company also continues to believe a large degree
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of uncertainty exists in the market, primarily due to the size of mobile uranium inventories, transportation issues, premature reactor shutdowns in the U.S., trade issues, and the length of time of any uranium mine, conversion or enrichment shut-downs. However, the Company believes that there also exists considerable uncertainty as to the timing of a recovery in uranium markets, due to the opaque nature of inventories, secondary supplies, unfilled utility demand, and the market activity of state-owned uranium and nuclear companies.
Vanadium Market Update
During the quarter, the mid-point price of vanadium in Europe rose slightly from $5.30 per pound as of June 30, 2020 to $5.35 per pound as of September 30, 2020. According to Metal Bulletin, vanadium prices rose dramatically in the second half of 2018 due to anticipated increased demand in China, which implemented new standards requiring increased quantities of vanadium in rebar. However, in late-2018, prices began to drop sharply “when market participants realized the enforcement of the revised rebar policy was not as stringent as had been expected and after steel mills increased their use of ferro-niobium to reduce consumption of more costly vanadium” (Metal Bulletin, January 20, 2020). During the third quarter of 2020 prices have generally been flat, as a result of a quiet European spot market due to COVID-19 and a majority of material being shipped to China (Metal Bulletin, Battery Raw Material Market Report). As of October 23, 2020, the midpoint spot price of vanadium in Europe was $5.35 per pound.
Operations Update and Outlook for Year Ending December 31, 2020
Overview
Operations and Sales Outlook Overview
The Company plans to extract and/or recover limited amounts of uranium from its Nichols Ranch Project in 2020, which was placed on standby in the first quarter of 2020 due to the depletion of its existing wellfields. In addition, during 2020 the Company expects to recover uranium at the White Mesa Mill from in-circuit uranium inventories extracted from the recent vanadium Pond Return campaign, from Alternate Feed Materials and from other Pond Return activities. The vanadium Pond Return campaign conducted in 2019 was brought to a close in early 2020.
Both ISR and conventional uranium recovery is expected to be maintained at reduced levels, as a result of current uranium market conditions, until such time when market conditions improve sufficiently. Until such time that improvement in uranium market conditions is observed or suitable sales contracts can be entered into, the Company expects to defer further wellfield development at its Nichols Ranch Project. In addition, the Company expects to keep the Alta Mesa Project and its conventional mining properties on standby.
The Company is also seeking new sources of revenue, including new sources of Alternate Feed Materials and new fee processing opportunities at the White Mesa Mill that can be processed under existing market conditions (i.e., without reliance on current uranium sales prices). The Company is also evaluating opportunities to potentially recover REEs at the White Mesa Mill and will continue its support of U.S. governmental activities to support the U.S. uranium mining industry. In addition, the Company is in discussions with several parties to potentially sell certain of its non-material properties, although there are not currently any binding offers, and there can be no assurance at this time that a sale will be completed. The Company will evaluate additional acquisition and disposition opportunities that may arise.
Extraction and Recovery Activities Overview
During the nine months ended September 30, 2020, the Company recovered approximately 169,400 pounds of U3O8, all of which were for the account of the Company, which falls within the Company's previously published guidance of 125,000 to 175,000 pounds of U3O8 in the year ending December 31, 2020. The Company also recovered approximately 67,000 pounds of high-purity vanadium pentoxide (“V2O5” or “black flake”) during the nine months ended September 30, 2020 from its vanadium Pond Return campaign, which was suspended during the first quarter of 2020.
The Company has strategically opted not to enter into any uranium sales commitments for 2020. Therefore, subject to general market conditions, all 2020 uranium production is expected to be added to existing inventories, which are expected to total between 670,000 and 700,000 pounds of U3O8 at year-end. Both ISR and conventional uranium extraction and/or recovery is expected to continue to be maintained at reduced levels until such time that improvements in uranium market conditions are observed or suitable sales contracts can be entered into. All V2O5 production is expected to be sold on the spot market if prices rise significantly above current levels, but otherwise maintained in inventory.
ISR Activities
During the nine months ended September 30, 2020, the Company extracted and recovered approximately 6,200 pounds of U3O8 from its Nichols Ranch Project, which was placed on standby during the first quarter of 2020, due to the depletion of its existing
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wellfields. This amount of uranium production falls within the Company’s published guidance of approximately 6,000 pounds of U3O8 from Nichols Ranch during the year ended December 31, 2020.
As of September 30, 2020, the Nichols Ranch wellfields had nine header houses that previously extracted uranium, which are now depleted. Until such time as improvement in uranium market conditions is observed or suitable sales contracts can be procured, the Company expects to defer development of further header houses at its Nichols Ranch Project. The Company currently holds 34 fully-permitted, undeveloped wellfields at Nichols Ranch, including four additional wellfields at the Nichols Ranch wellfield, 22 wellfields at the adjacent Jane Dough wellfield, and eight wellfields at the Hank Project, which is fully permitted to be constructed as a satellite facility to the Nichols Ranch Plant.
The Company expects to continue to keep the Alta Mesa Project on standby until such time as improvements in uranium market conditions are observed or suitable sales contracts can be procured.
Conventional Activities
Conventional Extraction and Recovery Activities
During the nine months ended September 30, 2020, the Company produced 67,000 pounds of high-purity V2O5 from its Mill Pond Return program and 163,200 pounds of uranium from Alternate Feed Materials. During 2020, the Company expects to recover approximately 170,000 to 200,000 pounds of U3O8 at the White Mesa Mill and Pond Return activities from in-circuit uranium inventories extracted from the recent vanadium Pond Return campaign, from Alternate Feed Materials and from other Pond Return activities. In addition, there remains an estimated 1.5 to 3 million pounds of solubilized recoverable V2O5 inventory remaining in the tailings management facility awaiting future recovery from Pond Return as market conditions may warrant, placing the Company in a unique position to restart vanadium production quickly.
The White Mesa Mill has historically operated on a campaign basis whereby uranium and/or vanadium recovery is scheduled as mill feed, cash needs, contract requirements, and/or market conditions may warrant. The Company currently expects that planned uranium production from Alternate Feed Materials, Pond Return, and the receipt of uranium-bearing materials from mine cleanup activities will keep the Mill in operation through the remainder of 2020. The Company is also actively pursuing opportunities to process new and additional Alternate Feed Material sources and new and additional low-grade ore from third parties in connection with various uranium clean-up requirements. Successful results from these activities would allow the Mill to extend the current campaign through 2020 and beyond. In addition, if improvements in uranium market conditions are observed, or conventional mines are ramped up in response to U.S. government actions to support domestic uranium mining and/or recommendations of the Working Group, the Company would expect to be able to keep the Mill operating over a considerably longer period of time. The Company is also evaluating the recovery of REEs at the White Mesa Mill, which if successful could allow the Company to keep the Mill operating into the future.
However, in the event the Company is unable to justify full operation of the Mill through 2020, the Company expects to place uranium and/or vanadium recovery activities at the Mill on standby at that time. While on standby, the Mill would continue to dry and package material from the Nichols Ranch Plant, if operating, and continue to receive and stockpile Alternate Feed Materials for future milling campaigns. Each future milling campaign would be subject to receipt of sufficient mill feed and resulting cash flow that would allow the Company to operate the Mill on a profitable basis or to recover all or a portion of the Mill's standby costs.
Conventional Standby, Permitting and Evaluation Activities
During the nine months ended September 30, 2020, standby and environmental compliance activities continued to occur at the Canyon Project. Subject to general market conditions, during 2020, the Company plans to continue carrying out engineering, metallurgical testing, procurement and construction management activities at its low-cost Canyon Project. The timing of the Company’s plans to extract and process mineralized materials from this project will be based on the results of this additional evaluation work, along with market conditions, available financing, sales requirements, and/or permits required for copper recovery at the Mill.
The Company is selectively advancing certain permits at its other major conventional uranium projects, such as the Roca Honda Project, a large, high-grade conventional project in New Mexico. The Company will also maintain required permits at the Company’s conventional projects, including the Sheep Mountain Project, La Sal Complex, and Tony M, Whirlwind and Daneros mines. In addition, the Company will continue to evaluate the Bullfrog Property at its Henry Mountains Project. Expenditures for certain of these projects have been adjusted to coincide with expected dates of price recoveries based on the Company’s forecasts. The Company is also in discussions with several parties to potentially sell the Tony M, Daneros and other non-material properties. The Company will only sell these properties if sufficient cash and/or equity consideration is received. All of these projects potentially serve as important pipeline assets for the Company’s future conventional production capabilities, as market conditions warrant.
Sales
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During the nine months ended September 30, 2020, the Company completed no uranium sales. The Company currently has no remaining contracts, and therefore all existing uranium inventory and future production is fully unhedged to future uranium price increases.
During the nine months ended September 30, 2020, the Company did not complete the sale of any vanadium. The Company expects to continue to sell finished vanadium product, when justified, into the metallurgical industry, as well as other markets that demand a higher purity product, including the aerospace, chemical, and potentially the vanadium battery industries. The Company expects to sell to a diverse group of customers in order to maximize revenues and profits. The vanadium produced in the recent Pond Return campaign was a high-purity vanadium product of 99.6%-99.7% V2O5. The Company believes there may be opportunities to sell certain quantities of this high-purity material at a premium to reported spot prices. The Company may also retain vanadium product in inventory for future sale, depending on vanadium spot prices and general market conditions.
The Company also continues to pursue new sources of revenue, including additional Alternate Feed Materials and other sources of feed for the White Mesa Mill, in addition to evaluating the potential to recover REEs at the Mill.
The Company’s Plans in Response to U.S. Government Actions
In response to potential Congressional appropriations for the creation of a U.S. uranium reserve, and/or implementation of policy recommendations contained in the Working Group’s report, the Company is evaluating activities aimed towards increasing uranium production at all or some of its production facilities, including the currently operating White Mesa Mill, the recently operating Nichols Ranch ISR Facility, and the Alta Mesa ISR Facility, La Sal Complex and Canyon Mine, which are all currently on standby, as market conditions may warrant. The Company may commence such activities, prior to confirmation of Congressional appropriations and prior to the definition of all implementation details, as market conditions may warrant, recognizing that there can be no guarantee that the required appropriations will be forthcoming or that the implementation details will be satisfactory, and that the outcome of this process is therefore uncertain. Alternatively, the Company may defer any such activities until further clarification on implementation of the U.S. uranium reserve and/or Congressional appropriations are obtained, or market conditions otherwise warrant. No decisions on any project-specific actions to be taken in response to U.S. government actions have been made at this time.
Continued Efforts to Minimize Costs
The Company will continue to seek ways to minimize the costs of maintaining its critical properties in a state of readiness for potential improvements in market conditions and is evaluating whether additional cost-cutting measures may be warranted at this time as a result of general market conditions.
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Results of Operations
The following table summarizes the results of operations for the three and nine months ended September 30, 2020 and 2019 (in thousands of U.S. dollars):
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Uranium concentrates | $ | — | $ | — | $ | — | $ | 66 | |||||||||||||||
| Vanadium concentrates | — | 16 | — | 1,957 | |||||||||||||||||||
| Alternate feed materials processing and other | 486 | 407 | 1,274 | 3,141 | |||||||||||||||||||
| Total revenues | 486 | 423 | 1,274 | 5,164 | |||||||||||||||||||
| Costs and expenses applicable to revenues | |||||||||||||||||||||||
| Costs and expenses applicable to uranium concentrates | — | — | — | 63 | |||||||||||||||||||
| Costs and expenses applicable to vanadium concentrates | — | 16 | — | 1,476 | |||||||||||||||||||
| Costs and expenses applicable to alternate feed materials and other | — | — | — | 2,079 | |||||||||||||||||||
| Total costs and expenses applicable to revenues | — | 16 | — | 3,618 | |||||||||||||||||||
| Impairment of inventories | 138 | 2,330 | 1,644 | 8,412 | |||||||||||||||||||
| Gross margin (loss) | 348 | (1,923) | (370) | (6,866) | |||||||||||||||||||
| Other operating costs and expenses | |||||||||||||||||||||||
| Development, permitting and land holding | 1,944 | 2,310 | 2,681 | 8,051 | |||||||||||||||||||
| Standby costs | 3,451 | 869 | 8,104 | 3,204 | |||||||||||||||||||
| Accretion of asset retirement obligation | 478 | 484 | 1,434 | 1,478 | |||||||||||||||||||
| Total other operating costs and expenses | 5,873 | 3,663 | 12,219 | 12,733 | |||||||||||||||||||
| Selling, general and administration | |||||||||||||||||||||||
| Selling costs | 3 | 30 | 15 | 167 | |||||||||||||||||||
| General and administration | 3,820 | 3,216 | 11,020 | 10,692 | |||||||||||||||||||
| Total selling, general and administration | 3,823 | 3,246 | 11,035 | 10,859 | |||||||||||||||||||
| Total operating loss | (9,348) | (8,832) | (23,624) | (30,458) | |||||||||||||||||||
| Interest expense | (218) | (419) | (913) | (1,110) | |||||||||||||||||||
| Other income | 628 | 2,312 | 1,745 | 3,181 | |||||||||||||||||||
| Net loss | $ | (8,938) | $ | (6,939) | $ | (22,792) | $ | (28,387) | |||||||||||||||
| Basic and diluted loss per share | $ | (0.08) | $ | (0.07) | $ | (0.19) | $ | (0.30) | |||||||||||||||
Revenues
Previously, the Company’s revenues from uranium were based on delivery schedules under long-term contracts, which could vary from quarter to quarter. As of December 31, 2018, the Company no longer had any uranium sales contacts. Any future sales of uranium will be subject to sale in the spot market until a time when the Company can agree to terms for long-term sales contracts or potentially pursuant to direct government purchases as contemplated by the President's Budget. In the year ended December 31, 2019, the Company initiated the selling of vanadium recovered from Pond Return at the White Mesa Mill under a Sales and Agency Agreement appointing an exclusive sales and marketing agent for all vanadium pentoxide produced by the Company.
Revenues for the three months ended September 30, 2020 totaled $0.49 million, all of which was related to fees for ore received from a third-party uranium mine.
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Revenues for the three months ended September 30, 2019 totaled $0.42 million, of which $0.02 million was related to sales of 2,000 pounds of vanadium concentrates and $0.41 million related to toll processing of uranium concentrates for third parties.
Revenues for the nine months ended September 30, 2020 totaled $1.27 million, all of which was related to fees for ore received from a third-party uranium mine.
Revenues for the nine months ended September 30, 2019 totaled $5.16 million; $1.96 million was related to sales of 152,000 pounds of vanadium concentrates and $3.14 million was related to toll processing of uranium concentrates.
Operating Expenses
Uranium and Vanadium recovered and costs and expenses applicable to revenue
In the three months ended September 30, 2020, the Company recovered approximately 90 pounds of U3O8 from ISR recovery activities for the Company's own account and approximately 86,200 pounds of U3O8 from Alternate Feed Materials at White Mesa Mill. In the three months ended September 30, 2019, the Company recovered 16,000 pounds of U3O8 from ISR recovery activities for the Company's own account and 530,000 pounds of V2O5 from the Company's pond solutions.
There are no costs and expenses applicable to revenue for the three months ended September 30, 2020 as the Company did not make any concentrate sales of U3O8 or V2O5 and only collected a fee to receive ore from a third-party uranium mine for which the Company incurred de minimis costs, compared with $0.02 million for the three months ended September 30, 2019. Costs and expenses applicable to revenue for the three months ended September 30, 2019 consisted of $0.02 million from V2O5 and nil related to Alternate Feed Materials.
In the nine months ended September 30, 2020, the Company recovered 6,200 pounds of U3O8 from ISR recovery activities for the Company's own account and 67,000 pounds of V2O5 from Pond Return. The Company recovered approximately 163,200 pounds of U3O8 from the pond solutions and Alternate Feed Materials at White Mesa Mill. In the nine months ended September 30, 2019, the Company recovered 56,000 pounds of U3O8 from ISR recovery activities for the Company's own account and 1,300,000 pounds of V2O5 from the Company's pond solutions.
There are no costs and expenses applicable to revenue for the nine months ended September 30, 2020 as the Company did not make any concentrate sales of U3O8 or V2O5 and only collected a fee to receive ore from a third-party uranium mine for which the Company incurred de minimis costs, compared with $3.62 million for the nine months ended September 30, 2019. Costs and expenses applicable to revenue for the nine months ended September 30, 2019 consisted of $1.48 million from V2O5 and $2.08 million related to Alternate Feed Materials.
Other Operating Costs and Expenses
Development, permitting and land holding
For the three months ended September 30, 2020, the Company spent $1.94 million for development of the Company's properties. For the three months ended September 30, 2019, the Company spent $2.31 million primarily due to the development of the V2O5 test-mining program at the La Sal Project as well as expenses associated with ramping up V2O5 production at the White Mesa Mill.
For the nine months ended September 30, 2020, the Company spent $2.68 million for development of the Company's properties. For the nine months ended September 30, 2019, the Company spent $8.05 million primarily due to the development of the V2O5 test-mining program at the La Sal Project as well as expenses associated with ramping up V2O5 production at the White Mesa Mill.
While we expect the amounts relative to the items listed above have added future value to the Company, we expense these amounts as we do not have proven or probable reserves at any of the Company's projects under SEC Industry Guide 7.
Standby costs
The Company’s La Sal and Daneros Projects were placed on standby in 2012, as a result of market conditions. In February 2014, the Company placed its Arizona 1 Project on standby. In the beginning of 2018 as well as the beginning of 2020, the White Mesa Mill was operated at lower levels of uranium recovery, including prolonged periods of standby. Costs related to the care and maintenance of the standby mines, along with standby costs incurred while the White Mesa Mill was operating at low levels of uranium recovery or on standby, are expensed.
For the three months ended September 30, 2020, standby costs totaled $3.45 million, compared with $0.87 million in the prior year. For the nine months ended September 30, 2020, standby costs totaled $8.10 million, compared with $3.20 million in the
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prior year. The increase is primarily related to a reduction in recovery activities at the Nichols Ranch and increased project standby activities at the Mill.
Accretion
Accretion related to the asset retirement obligation for the Company’s properties were $0.48 million and $1.43 million for the three and nine months ended September 30, 2020, compared with $0.48 million and $1.48 million for the three and nine months ended September 30, 2019, respectively. This decrease is primarily due to the Company delaying the timing of estimated reclamation activities at some of its projects.
Selling, general and administrative
Selling, general and administrative expenses include costs associated with marketing uranium, corporate, general and administrative costs and intangible asset amortization from favorable contracts. Selling, general and administrative expenses consist primarily of payroll and related expenses for personnel, contract and professional services, share-based compensation expense and other overhead expenditures. Selling, general and administrative expenses totaled $3.82 million and $11.04 million for the three and nine months ended September 30, 2020, compared to $3.25 million and $10.86 million for the three and nine months ended September 30, 2019, respectively. For the three and nine months ended September 30, 2020, the Company incurred approximately $0.80 million in one-time management streamlining restructuring expenses.
Impairment of Inventories
For the three and nine months ended September 30, 2020, the Company recognized $0.14 million and $1.64 million, respectively, in impairment charges related to inventory. For the three and nine months ended September 30, 2019, the Company recognized $2.33 million and $8.41 million, respectively, in inventory impairment. The impairment of inventories is due to continued lower uranium prices versus our cost to produce at the Nichols Ranch Project.
Interest Expense and Other Income and Expenses
Interest expense
Interest expense for the three months ended September 30, 2020 was $0.22 million, compared with $0.42 million for the three months ended September 30, 2019, respectively. Interest expense for the nine months ended September 30, 2020 was $0.91 million, compared with $1.11 million for the nine months ended September 30, 2019, respectively.
Other income and expense
For the three months ended September 30, 2020, other income and expense was $0.63 million income, net. These amounts primarily consist of a mark-to-market gain on the change in the fair value of the Convertible Debentures of $0.15 million, a mark-to-market gain on the decrease in fair value of warrant liabilities of $0.31 million, a $0.26 million mark-to-market gain on investments accounted for at fair value, offset by a loss on foreign exchange of $0.11 million.
For the three months ended September 30, 2019, other income and expense was $2.31 million income, net. These amounts primarily consist of a mark-to-market gain on the change in fair value of the Convertible Debentures of $0.94 million, a mark-to-market gain on the decrease in fair value of warrant liabilities of $2.17 million, and interest income of $0.13 million, offset by a $0.59 million mark-to-market loss on investments accounted for at fair value.
For the nine months ended September 30, 2020, other income and expense was $1.75 million income, net. These amounts primarily consist of a gain on foreign exchange of $0.88 million, a $0.39 million mark-to-market gain on investments accounted for at fair value, a mark-to-market gain on the change in the fair value of the Convertible Debentures of $0.15 million, a mark-to-market gain on the decrease in fair value of warrant liabilities of $0.22 million, and interest income of $0.12 million.
For the nine months ended September 30, 2019, other income and expense was $3.18 million income, net. These amounts primarily consist of a mark-to-market gain on the change in fair value of the Convertible Debentures of $0.45 million, mark-to-market gain on the decrease in fair value of warrant liabilities of $3.28 million, and interest income of $0.39 million, offset by $0.58 million mark-to-market gain on investments accounted for at fair value.
LIQUIDITY AND CAPITAL RESOURCES
Shares issued for cash
On November 5, 2018, the Company filed a prospectus supplement to its U.S. registration statement, qualifying for distribution up to $24.50 million in aggregate Common Shares under the ATM. Then, on the same date, the Company filed a base shelf prospectus whereby the Company may sell any combination of the "Securities" as defined thereunder in one or more offerings
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having an aggregate offering price of up to $150.00 million. On May 5, 2019, the prospectus supplement to its U.S. registration statement expired, and was replaced on May 7, 2019 by a new prospectus supplement in the same amount, qualifying for distribution up to $24.50 million in aggregate Common Shares under the ATM. On December 31, 2019, the Company filed a prospectus supplement to its U.S. registration statement, qualifying for distribution up to $30.00 million in additional Common Shares under the ATM.
From October 1, 2020 through October 30, 2020, the Company issued 0.80 million Common Shares at a weighted average price of $1.72 for net proceeds of $1.35 million using the ATM.
Working capital at September 30, 2020 and future requirements for funds
At September 30, 2020, the Company had net working capital of $44.68 million, including $26.58 million in cash, $1.54 million of marketable securities, approximately 663,300 pounds of uranium finished goods inventory and approximately 1,672,000 pounds of vanadium finished goods inventory. The Company believes it has sufficient cash and resources to carry out its business plan for at least the next twelve months.
The Company is actively focused on its forward-looking liquidity needs, especially in light of the current depressed uranium markets. The Company is evaluating its ongoing fixed cost structure as well as decisions related to project retention, advancement and development. If current uranium prices persist for any extended period of time, the Company will likely be required to raise capital or take other measures to fund its ongoing operations. Significant development activities, if warranted, will require that we arrange for financing in advance of planned expenditures. In addition, we expect to continue to augment our current financial resources with external financing as our long-term business needs require. We cannot provide any assurance that we will pursue any of these transactions or that we will be successful in completing them on acceptable terms or at all.
The Company manages liquidity risk through the management of its working capital and its capital structure.
Cash and cash flows
Nine months ended September 30, 2020
Cash, cash equivalents and restricted cash were $46.81 million at September 30, 2020, compared to $32.89 million at December 31, 2019. The increase of $13.92 million was due primarily to cash provided by financing activities of $36.06 million, cash provided by investing activities of $3.19 million, offset by cash used in operating activities of $25.28 million and loss on foreign exchange on cash held in foreign currencies of $0.05 million.
Net cash used in operating activities of $25.28 million is comprised of the net loss of $22.79 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $1.91 million of depreciation and amortization of property, plant and equipment, $1.64 million impairment on inventory, share-based compensation expense of $2.37 million, accretion of asset retirement obligation of $1.43 million, other non-cash expenses of $0.65 million, a decrease in trade and other receivables of $0.29 million, offset by an increase in inventories of $5.75 million, a decrease in accounts payable and accrued liabilities of $3.36 million, an increase in prepaid expenses and other assets of $0.44 million, a $0.22 million change in warrant liabilities, an unrealized foreign exchange gain of $0.86 million, and a change in the value of Convertible Debentures of $0.15 million.
Net cash provided by investing activities was $3.19 million comprised of $3.71 million cash received from maturities of marketable securities partially offset by $0.52 million cash used for the purchase of mineral properties and property, plant and equipment.
Net cash provided by financing activities totaled $36.06 million consisting of $44.64 million net proceeds from the issuance of Common Shares from a public offering and the issuance of shares under the Company's ATM facility, and $0.13 million cash received from non-controlling interest partially offset by $8.30 million to repay loans and borrowings and $0.42 million cash paid to fund employee income tax withholding due upon vesting of restricted stock units.
Nine months ended September 30, 2019
Cash, cash equivalents and restricted cash were $34.78 million at September 30, 2019, compared to $34.29 million at December 31, 2018. The increase of $0.49 million was due primarily to cash provided by financing activities of $15.62 million, cash provided by investing activities of $19.53 million, offset by cash used in operating activities of $34.70 million and loss on foreign exchange on cash held in foreign currencies of $0.04 million.
Net cash used in operating activities of $34.70 million is comprised of the net loss of $28.39 million for the period adjusted for non-cash items and for changes in working capital items. Significant items not involving cash were $0.92 million of depreciation and amortization of property, plant and equipment, $8.41 million impairment on inventory, share-based
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compensation expense of $2.50 million, accretion of asset retirement obligation of $1.48 million, $3.28 million change in warrant liabilities, $0.45 million change in value of convertible debentures, other non-cash expenses of $2.37 million, a decrease in trade and other receivables of $0.23 million, an increase in prepaid expenses and other assets of $0.24 million, unrealized foreign exchange gain of $0.14 million, offset by a decrease in accounts payable and accrued liabilities of $2.69 million, an increase in inventories of $12.85 million and changes in deferred revenue of $2.72 million.
Net cash provided by investing activities was $19.53 million, related to cash received from the sale and maturities of marketable securities.
Net cash provided by financing activities totaled $15.62 million consisting of $14.70 million proceeds from the issuance of stock using the Company's ATM offering, $0.80 million in proceeds from notes payable and $0.15 million cash received from exercise of stock options.
Critical accounting estimates and judgments
The preparation of these consolidated financial statements in accordance with U.S. GAAP requires the use of certain critical accounting estimates and judgments that affect the amounts reported. It also requires management to exercise judgment in applying the Company’s accounting policies. These judgments and estimates are based on management’s best knowledge of the relevant facts and circumstances taking into account previous experience. Although the Company regularly reviews the estimates and judgments made that affect these financial statements, actual results may be materially different.
Significant estimates made by management include:
a. Exploration Stage
SEC Industry Guide 7 defines a reserve as “that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.” The classification of a reserve must be evidenced by a bankable feasibility study using the latest three-year price average. While the Company has established the existence of mineral resources and has successfully extracted and recovered saleable uranium from certain of these resources, the Company has not established proven or probable reserves, as defined under SEC Industry Guide 7, for these operations or any of its uranium projects. As a result, the Company is in the Exploration Stage as defined under Industry Guide 7. Furthermore, the Company has no plans to establish proven or probable reserves for any of its uranium projects.
While in the Exploration Stage, among other things, the Company must expense all amounts that would normally be capitalized and subsequently depreciated or depleted over the life of the mining operation on properties that have proven or probable reserves.
Items such as the construction of wellfields and related header houses, additions to our recovery facilities and advancement of properties will all be expensed in the period incurred. As a result, the Company’s consolidated financial statements may not be directly comparable to the financial statements of mining companies in the development or production stages.
b. Resource estimates utilized
The Company utilizes estimates of its mineral resources based on information compiled by appropriately qualified persons. The information relating to the geological data on the size, depth and shape of the deposits requires complex geological judgments to interpret the data. The estimation of future cash flows related to resources is based upon factors such as estimates of future uranium prices, future construction and operating costs along with geological assumptions and judgments made in estimating the size and grade of the resource. Changes in the mineral resource estimates may impact the carrying value of mining and recovery assets, goodwill, reclamation and remediation obligations and depreciation and impairment.
c. Depreciation of mining and recovery assets acquired
For mining and recovery assets actively extracting and recovering uranium we depreciate the acquisition costs of the mining and recovery assets on a straight-line basis over our estimated lives of the mining and recovery assets. The process of estimating the useful life of the mining and recovery assets requires significant judgment in evaluating and assessing available geological, geophysical, engineering and economic data, projected rates of extraction and recovery, estimated commodity price forecasts and the timing of future expenditures, all of which are, by their very nature, subject to interpretation and uncertainty.
Changes in these estimates may materially impact the carrying value of the Company’s mining and recovery assets and the recorded amount of depreciation.
d. Impairment testing of mining and recovery assets
The Company undertakes a review of the carrying values of its mining and recovery assets whenever events or changes in circumstances indicate that their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and net cash flows. An impairment loss is recognized when the carrying value of a mining or recovery asset is not recoverable based on this analysis. In undertaking this review, the management of the Company is
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required to make significant estimates of, among other things, future production and sale volumes, forecast commodity prices, future operating and capital costs and reclamation costs to the end of the mining asset’s life. These estimates are subject to various risks and uncertainties, which may ultimately have an effect on the expected recoverability of the carrying values of mining and recovery assets.
e. Asset retirement obligations
Asset retirement obligations are recorded as a liability when an asset that will require reclamation and remediation is initially acquired. For disturbances created on a property owned that will require future reclamation and remediation the Company records asset retirement obligations for such disturbance when occurred. The Company has accrued its best estimate of its share of the cost to decommission its mining and milling properties in accordance with existing laws, contracts and other policies. The estimate of future costs involves a number of estimates relating to timing, type of costs, mine closure plans, and review of potential methods and technical advancements. Furthermore, due to uncertainties concerning environmental remediation, the ultimate cost of the Company’s decommissioning liability could differ from amounts provided. The estimate of the Company’s obligation is subject to change due to amendments to applicable laws and regulations and as new information concerning the Company’s operations becomes available. The Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. Additionally, the expected cash flows in the future are discounted at the Company’s estimated cost of capital based on the periods the Company expects to complete the reclamation and remediation activities. Differences in the expected periods of reclamation or in the discount rates used could have a material difference in the actual settlement of the obligations compared with the amounts provided.
Recently Adopted Accounting Pronouncements
Fair Value Measurement
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, which amended the fair value measurement guidance by removing and modifying certain disclosure requirements, while also adding new disclosure requirements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty would be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments would be applied retrospectively to all periods presented upon their effective date. The Company adopted this pronouncement effective January 1, 2020.
Recently Issued Accounting Pronouncements Not Yet Adopted
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326).” The new standard is effective for reporting periods beginning after December 15, 2022 (January 1, 2023 for the Company) for Smaller Reporting Companies. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its consolidated financial statements.
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for interim and annual periods beginning after December 15, 2020 (January 1, 2021 for the Company). Early adoption is permitted. The Company is currently evaluating the impact the adoption of ASU 2019-12 will have on its consolidated financial statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to risks associated with commodity prices, interest rates, foreign currency exchange rates and credit. Commodity price risk is defined as the potential loss that we may incur as a result of changes in the market value of uranium or vanadium. Interest rate risk results from our debt and equity instruments that we issue to provide financing and liquidity for our business. The foreign currency exchange rate risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. Credit risk arises from the extension of credit throughout all aspects of our business. Industry-wide risks can also affect our general ability to finance exploration, and development of exploitable resources; such effects are not predictable or quantifiable. Market risk is the risk to the Company of adverse financial impact due to change in the fair value or future cash flows of financial instruments as a result of fluctuations in interest rates and foreign currency exchange rates. The Company currently does not have any contracts in place for the sale of vanadium.
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Commodity Price Risk
The Company is subject to market risk related to the market price of U3O8 and V2O5. The Company's existing long-term uranium contracts have expired, following the Company's April 2018 deliveries, and all uranium sales will now be required to be made at spot prices until the Company enters into new long-term contracts at satisfactory prices in the future. Future revenue beyond our current contracts will be affected by both spot and long-term U3O8 price fluctuations, which are affected by factors beyond our control, including: the demand for nuclear power; political and economic conditions; governmental legislation in uranium producing and consuming countries; and production levels and costs of production of other producing companies. The Company continuously monitors the market to determine its level of extraction and recovery of uranium and vanadium in the future.
Interest Rate Risk
The Company is exposed to interest rate risk on its cash equivalents, deposits, restricted cash, and debt. Our interest income is earned in the United States dollars and is not subject to interest rate risk. The Company was previously exposed to an interest rate risk associated with the Convertible Debentures, which is based on the spot market price of U3O8. However, all of the Convertible Debentures were redeemed as of October 6, 2020. See “Note 7 to the Financial Statements: Loans and Borrowings.” The Company does not use derivatives to manage interest rate risk.
Currency Risk
The foreign currency exchange rate risk relates to the risk that the value of financial commitments, recognized assets or liabilities will fluctuate due to changes in foreign currency rates. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign currency exchange rates. As the U.S. Dollar is the functional currency of our U.S. operations, the currency risk has been reduced. We maintain a nominal balance in foreign currency, resulting in a low currency risk relative to our cash balances. Our Convertible Debentures were denominated in Canadian Dollars and, accordingly, prior to their redemption on October 6, 2020 were exposed to currency risk.
The following table summarizes, in United States dollar equivalents, the Company’s major foreign currency (Cdn$) exposures as of September 30, 2020 ($000):
| Cash and cash equivalents | $ | 1,472 | |||
| Accounts payable and accrued liabilities | (399) | ||||
| Loans and borrowings | (7,898) | ||||
| Total | $ | (6,825) | |||
The table below summarizes a sensitivity analysis for significant unsettled currency risk exposure with respect to our financial instruments as of September 30, 2020 (assuming the Convertible Debentures were not redeemed) with all other variables held constant. It shows how net income would have been affected by changes in the relevant risk variables that were reasonably possible at that date.
| ('000s) | Change for Sensitivity Analysis | Increase (decrease) in other comprehensive income | ||||||
| Strengthening net earnings | +1% change in US dollar | $ | (91) | |||||
| Weakening net earnings | -1% change in U.S. dollar | $ | 91 | |||||
Credit Risk
Credit risk relates to cash and cash equivalents, investments available for sale, trade, and other receivables that arise from the possibility that any counterparty to an instrument fails to perform. The Company only transacts with highly rated counterparties and a limit on contingent exposure has been established for any counterparty based on that counterparty’s credit rating. The Company’s sales are attributable mainly to multinational utilities. The Company carries credit risk insurance relating to its vanadium sales, which it considers to be adequate. As of September 30, 2020, the Company’s maximum exposure to credit risk was the carrying value of cash and cash equivalents, investments available for sale, trade receivables and taxes recoverable.
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ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the U.S. SEC and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. The Chief Executive Officer and the Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of September 30, 2020 and, based on their evaluation, have concluded that the disclosure controls and procedures were not effective as of such date due to material weaknesses in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the second quarter of fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Remediation
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, we began implementing a remediation plan to address the material weakness described therein. The material weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal year 2020.
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PART II
ITEM 1. LEGAL PROCEEDINGS.
We are not aware of any material pending or threatened litigation or of any proceedings known to be contemplated by governmental authorities that are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole that was not disclosed in the Company's Form 10-K for the year ended December 31, 2019, or in this Form 10-Q for the quarter ended September 30, 2020.
ITEM 1A. RISK FACTORS.
There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURE.
The mine safety disclosures required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K are included in Exhibit 95.1 of this Quarterly Report, which is incorporated by reference into this Item 4.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Exhibits
The following exhibits are filed as part of this report:
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| Exhibit | ||||||||
| Number | Description | |||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 4.4 | ||||||||
| 4.5 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 10.5 | ||||||||
| 10.6 | ||||||||
| 10.7 | ||||||||
| 10.8 | ||||||||
| 10.9 | ||||||||
| 10.10 | ||||||||
| 23.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 95.1 | ||||||||
| 101.INS | XBRL Instance Document | |||||||
| 101.SCH | XBRL Taxonomy Extension – Schema | |||||||
| 101.CAL | XBRL Taxonomy Extension – Calculations | |||||||
| 101.DEF | XBRL Taxonomy Extension – Definitions | |||||||
| 101.LAB | XBRL Taxonomy Extension – Labels | |||||||
| 101.PRE | XBRL Taxonomy Extension – Presentations | |||||||
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| (1) | Incorporated by reference to Exhibit 3.1 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015. | ||||
| (2) | Incorporated by reference to Exhibit 3.2 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015. | ||||
| (3) | Incorporated by reference to Exhibit 3.3 of Energy Fuels’ Form F-4 filed with the SEC on May 8, 2015. | ||||
| (4) | Incorporated by reference to Exhibit 10.9 to Energy Fuels’ Form F-4 filed on May 8, 2015. | ||||
| (5) | Incorporated by reference to Exhibit 4.1 to Energy Fuels' Form 8-K filed on September 20, 2016. | ||||
| (6) | Incorporated by reference to Exhibit 4.2 to Energy Fuels' Form S-8 filed on June 24, 2015. | ||||
| (7) | Incorporated by reference to Schedule B to Energy Fuels' Schedule 14A filed on April 11, 2018. | ||||
| (8) | Incorporated by reference to Schedule C to Energy Fuels’ Schedule 14A filed on April 11, 2018. | ||||
| (9) | Incorporated by reference to Exhibit 10.1 to Energy Fuels’ Form 10-Q filed with the SEC on August 5, 2019. | ||||
| (10) | Incorporated by reference to Exhibit 10.3 to Energy Fuels’ Form 10-Q filed with the SEC on May 8, 2019. | ||||
| (11) | Incorporated by reference to Exhibit 10.4 to Energy Fuels’ Form 10-Q filed with the SEC on May 8, 2019. | ||||
| (12) | Incorporated by reference to Exhibit 1.1 to Energy Fuels’ Form 8-K filed on April 3, 2018. | ||||
| (13) | Incorporated by reference to Exhibit 14.16 to Energy Fuels’ Form 10-Q filed with the SEC on November 5, 2018. | ||||
| (14) | Incorporated by reference to Exhibit 10.10 to Energy Fuels’ Form 10-K filed with the SEC on March 17, 2020. | ||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENERGY FUELS INC.
(Registrant)
| Dated: October 30, 2020 | By: | /s/ Mark S. Chalmers | ||||||
| Mark S. Chalmers | ||||||||
| President & Chief Executive Officer | ||||||||
| Dated: October 30, 2020 | By: | /s/ David C. Frydenlund | ||||||
| David C. Frydenlund | ||||||||
| Chief Financial Officer | ||||||||
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OCTOBER 2020 THIRD EXTENSION TO CONSULTING AGREEMENT
This October 2020 Third Extension to Consulting Agreement (the “Third Extension”), effective as of October 1, 2020 (the “Effective Date”), is entered into by and between ENERGY FUELS INC., having an office at 225 Union Blvd., Suite 600, Lakewood, CO 80228 (herein referred to as “Company”), and REDWOOD EMPIRE FINANCIAL COMMUNICATIONS, a Georgia corporation, having its headquarters at 2400 Old Milton Pkwy #1101, Alpharetta, GA 30009 (herein referred to as either “Consultant” or “Redwood”). Company and Consultant are sometimes referred to herein individually as a “party” and collectively as the “parties.”
This Third Extension also includes the assignment and assumption of the Consulting Agreement (as hereinafter defined) from Liviakis Financial Communications, Inc. (“Liviakis”) to Redwood, with such assignment and assumption being entered into by and between Liviakis and Redwood, with the Company consenting thereto.
RECITALS
WHEREAS Company desires to engage the services of Consultant to represent Company in investor communications and financial public relations with existing and prospective shareholders, brokers, dealers and other investment professionals with respect to Company’s current and proposed activities, and to consult with Company’s management concerning such activities;
AND WHEREAS the Company originally entered into a Consulting Agreement with Liviakis dated as of October 1, 2017 (the “Original Agreement”), which was approved by the Company’s Board of Directors at its December 19, 2017 meeting with respect to the provision of such services up to and ending on September 30, 2018 (the “Initial Term”), and by the shareholders of the Company (the “Shareholders”) on May 30, 2018 with respect to the provision of such services during the Initial Term of the Original Agreement and up to three one-year Extensions Periods (ending no later than September 30, 2021) with a maximum of 900,000 common shares to be issued as compensation for services;
AND WHEREAS the Company and Liviakis entered into an October 2018 Amended and Restated Consulting Agreement, constituting the first extension to the Original Agreement, dated as of October 1, 2018 (the “First Extension”), which was approved by the Company’s Board of Directors on November 1, 2018 with respect to the provision of such services during the First Extension and any subsequent extension periods, with a maximum of 652,513 common shares of the Company further allotted and reserved for issuance to Liviakis as compensation for services, representing the number of shares remaining from the 900,000 approved by a vote of Shareholders after conclusion of the Initial Term;
AND WHEREAS the Company and Liviakis entered into an October 2019 Second Extension to Consulting Agreement dated as of October 1, 2019 (the “Second Extension” and together with the First Extension, the “Extensions”) on the same terms as the First Extension, save an adjustment to the Issue Price (as defined in the Second Extension), which is set to expire on September 30, 2020;
AND WHEREAS Michael Bayes, the consultant who was primarily responsible for providing services to the Company on behalf of Liviakis, recently left his position with Liviakis to form his own consulting firm, Redwood;
AND WHEREAS in recognition of Mr. Bayes’ key role in providing consulting services to the Company pursuant to the Original Agreement, as amended and extended, Liviakis has agreed to assign to Redwood, and Redwood has agreed to assume, the Original Agreement together with all Extensions (collectively, the “Consulting Agreement”);
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AND WHEREAS the parties now desire to further extend the Consulting Agreement with this Third Extension and to make certain other ancillary amendments thereto pursuant to the above-referenced Shareholder approval on May 30, 2018 and second Board approval on November 1, 2018,
AGREEMENT
NOW THEREFORE, in consideration of the mutual obligations contained herein, the parties, together with Liviakis solely for the purposes of Section 1, agree as follows:
1)Assignment and Assumption. Effective as of October 1, 2020 (the “Assignment Date”), Liviakis hereby transfers, assigns and conveys to Consultant all of Liviakis' rights, interests and obligations in and to the Consulting Agreement, and Consultant hereby accepts the foregoing assignment and assumes all such rights, interests and obligations from and after the Assignment Date, and joins in all representations, warranties, releases, and indemnities of Liviakis under the Consulting Agreement assigned to it herein (the “Assignment”). The Company, desiring consistency in the services provided pursuant to the Consulting Agreement, hereby consents to the Assignment.
2)Third Extension Term. Company hereby agrees to retain the Consultant as an independent contractor to act in a consulting capacity to Company upon the terms and conditions hereinafter set forth, and Consultant hereby agrees to provide such services to Company commencing on the Effective Date and ending on September 30, 2021 (the “Third Extension Term”), unless earlier terminated pursuant to Section 13 of this Third Extension.
3)Duties of Consultant. Subject to all applicable laws, regulations, and stock exchange rules, Consultant agrees that it will generally provide the following consulting services:
a)consult and assist Company in developing and implementing appropriate plans and means for presenting Company and its business plans, strategy and personnel to the financial community, establishing an image for Company in the financial community, and creating the foundation for subsequent financial public relations efforts;
b)introduce Company to the financial community;
c)with the cooperation of Company, maintain an awareness during the term of this Third Extension of Company’s plans, strategy and personnel, as they may evolve during such period, and consult and assist Company in communicating appropriate information regarding such plans, strategy and personnel to the financial community;
d)assist and consult with Company with respect to its (i) relations with stockholders, (ii) relations with brokers, dealers, analysts and other investment professionals, and (iii) financial public relations generally;
e)perform the functions generally assigned to stockholder relations and public relations departments in major corporations, including responding to telephone and written inquiries (which may be referred to Consultant by Company); preparing reports and other communications with or to shareholders, the investment community and the general public; consulting with respect to the timing, form, distribution and other matters related to such reports and communications; and, at Company’s request and subject to Company’s securing its own rights to the use of its names, marks, and logos, consulting with respect to corporate symbols, logos, names, the presentation of such symbols, logos and names, and other matters relating to corporate image;
f)upon Company’s direction and approval, disseminate information regarding Company to shareholders, brokers, dealers, other investment community professionals and the general investing public;
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g)upon Company’s approval, conduct meetings, in person or by telephone, with brokers, dealers, analysts and other investment professionals to communicate with them regarding Company’s plans, goals and activities, and assist Company in preparing for press conferences and other forums involving the media, investment professionals and the general investment public;
h)at Company’s request, review business plans, strategies, mission statements budgets, proposed transactions and other plans for the purpose of advising Company of the public relations implications thereof;
i)assist Company in raising capital through introductions (it is understood Consultant is not an “investment banking” firm and may not receive any commission for such introductions); and
j)otherwise perform as Company’s consultant for public relations and relations with financial professionals.
Consultant will not publish or distribute electronically or otherwise any written materials relating to Company or its business or affairs without the prior written approval of Company.
4)Allocation of Time and Energies. Consultant agrees to perform and discharge faithfully the responsibilities which may be assigned to Consultant from time to time by the officers and fully authorized representatives of Company in connection with the conduct of its financial and public relations and communications activities, so long as such activities are in compliance with applicable securities laws and regulations. Although no specific hours-per-day requirement will be required, Consultant agrees that it will perform the duties set forth in this Third Extension in a diligent and professional manner. It is explicitly understood that Consultant’s performance of its duties hereunder will in no way be measured by the price of the Company’s common shares (“Common Shares”), nor the trading volume of the Common Shares.
5)Compensation.
a)Fees.
As full and complete compensation for undertaking this engagement and for performance of the services described herein, Company shall pay to Consultant:
(i)During the Third Extension Term, US$48,000 per calendar quarter, payable in arrears, at the end of each quarter for services performed during the quarter.
b)Fees Payable in Common Shares
Subject to Section 5(d), below, all fees payable hereunder during the Third Extension Term shall be paid in Common Shares at the applicable issue price (the “Issue Price”) determined in accordance with Section 5(c), below.
The resale of all Common Shares issued under this Third Extension shall be restricted in accordance with Rule 144 under (“Rule 144”) the Securities Act of 1933 (the “Securities Act”), as adopted by the U.S. Securities and Exchange Commission (“SEC”) and applicable Canadian securities laws and Toronto Stock Exchange rules. The Common Shares to be issued under this Third Extension were duly authorized by the Company’s Board of Directors prior to the date of issuance of such shares.
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c)Determination of Issue Price.
The Issue Price will be determined as follows:
(i)the Issue Price for all Common Shares issued for services performed during the first calendar quarter of the Third Extension Term (which quarter shall start on the Effective Date and end on December 31, 2020) shall be US$2.00 per share (the “First Quarter Price”), which was the agreed upon first-quarter price for the Second Extension and constituted a price greater than US$1.9564 – the volume weighted average price of the Common Shares on the NYSE American for the 5 trading days ending on and including September 30, 2019 (the last trading day before the Second Extension’s effective date); and
(ii)the Issue Price for all Common Shares issued for services performed during each subsequent calendar quarter of the Third Extension Term shall be the greater of: (A) the First Quarter Price; and (B) the volume weighted average price of the Common Shares on the NYSE American for the 5 trading days ending on the day prior to commencement of such quarter.
d)Maximum Number of Shares to be Issued Under this Third Extension.
The maximum number of Common Shares that may be issued under this Third Extension, taken together with the Common Shares issued in respect of the Original Agreement and First and Second Extensions, shall not exceed 900,000 Common Shares in total without prior approval of the shareholders and Board of Directors of the Company, and without prior receipt of all applicable regulatory and stock exchange approvals.
6)Restricted Securities.
a)Consultant Representations & Warranties. Consultant acknowledges, represents, warrants and agrees as follows:
(i)the Common Shares will be issued by Company to Consultant in reliance on the exemption from Canadian prospectus and registration requirements set out in Section 2.24 of National Instrument 45-106 – Prospectus and Registration Exemptions adopted by the Canadian Securities Administrators and are not subject to a hold period under Canadian securities laws and regulations. Consultant acknowledges and confirms that it has not been induced to accept the Common Shares in partial satisfaction of its compensation hereunder by expectation of the engagement or continued engagement of Consultant to provide services to Company or its affiliates;
(ii)Consultant has had the opportunity to ask questions of and receive answers from Company regarding the acquisition of the Common Shares, and has received all the information regarding Company that it has requested;
(iii)Consultant acknowledges that the Common Shares are highly speculative in nature and Consultant has such sophistication and experience in business and financial matters as to be capable of evaluating the merits and risks of the investment. In connection with the delivery of the Common Shares, Consultant has not relied upon Company for investment, legal or tax advice, or other professional advice, and has in all cases sought or elected not to seek the advice of its own personal investment advisers, legal counsel and tax advisers. Consultant is able, without impairing its financial condition, to bear the economic risk of, and withstand a complete loss of the investment and it can otherwise be reasonably
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assumed to have the capacity to protect its own interests in connection with its investment in the Common Shares;
(iv)Consultant acknowledges that Company may be required to file a report of trade with applicable Canadian securities regulators containing personal information about Consultant and that Company may also be required pursuant to applicable securities laws to file this Third Extension on SEDAR and EDGAR. By executing this Third Extension, Consultant authorizes the indirect collection of the information described in this Section by all applicable securities regulators and consents to the disclosure of such information to the public through (i) the filing of a report of trade with all applicable securities regulators and (ii) the filing of this Third Extension on SEDAR and EDGAR;
(v)Consultant acknowledges that the Common Shares have not been and will not be registered under the Securities Act, or applicable state securities laws, and the Common Shares are being offered and sold to Consultant in reliance upon Rule 506(b) of Regulation D and/or Section 4(a)(2) under the Securities Act;
(vi)Consultant is an Accredited Investor as defined in Rule 501(a) of Regulation D under the Securities Act;
(vii)Consultant acknowledges that it is not acquiring the Common Shares as a result of “general solicitation” or “general advertising” (as such terms are used in Regulation D under the Securities Act), including without limitation, advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or on the internet, or broadcast over radio or television or on the internet, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising;
(viii)Consultant acknowledges that it is not acquiring the Common Shares as a result of, and will not itself engage in, any "directed selling efforts" (as defined in Regulation S under the Securities Act) in the United States in respect of any of the Common Shares which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of any of the Common Shares; provided, however, that Consultant may sell or otherwise dispose of any of the Common Shares pursuant to registration of any of the Common Shares pursuant to the Securities Act and any applicable state securities laws or under an exemption from such registration requirements and as otherwise provided herein;
(ix)Consultant understands and agrees not to engage in any hedging transactions involving any of the Common Shares unless such transactions are in compliance with the provisions of the Securities Act and in each case only in accordance with applicable state and provincial securities laws;Consultant acknowledges that the Common Shares are “restricted securities”, as such term is defined under Rule 144 of the Securities Act, and may not be offered, sold, pledged, or otherwise transferred, directly or indirectly, without prior registration under the Securities Act and applicable state securities laws, and Consultant agrees that if it decides to offer, sell, pledge or otherwise transfer, directly or indirectly, any of the Common Shares absent such registration, it will not offer, sell, pledge or otherwise transfer, directly or indirectly, any of the Common Shares, except:
A.to Company; or
B.outside the United States in an “offshore transaction” in compliance with the requirements of Rule 904 of Regulation S under the Securities Act, if available, and in compliance with applicable local laws and regulations; or
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C.in compliance with an exemption from registration under the Securities Act provided by (a) Rule 144 or (b) Rule 144A thereunder, if available, and in accordance with any applicable state securities or “Blue Sky” laws; or
D.in a transaction that does not require registration under the Securities Act or any applicable state securities laws; and
E.in the case of subparagraphs (ii), (iii) or (iv), it has furnished to Company and to Company’s transfer agent an opinion of counsel of recognized standing in form and substance satisfactory to Company and to Company’s transfer agent to such effect.
b)Legend Requirements. Consultant acknowledges that the certificates representing the Common Shares shall bear a legend in the following form:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”). THESE SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO ENERGY FUELS INC., (B) IF THE SECURITIES HAVE BEEN REGISTERED IN COMPLIANCE WITH THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS (C) IN COMPLIANCE WITH THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT IN ACCORDANCE WITH RULE 144 THEREUNDER, IF APPLICABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE LAWS AND REGULATIONS GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO ENERGY FUELS INC. AN OPINION OF COUNSEL OF RECOGNIZED STANDING, OR OTHER EVIDENCE OF EXEMPTION, REASONABLY SATISFACTORY TO ENERGY FUELS INC. HEDGING TRANSACTIONS INVOLVING THE SECURITIES REPRESENTED HEREBY MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH U.S. SECURITIES LAWS.”
Notwithstanding the foregoing, if the certificates representing the Common Shares have been held by Consultant for a period of at least six (6) months after the respective payment dates, and if Rule 144 under the Securities Act is applicable (there being no representations by Company that Rule 144 is applicable), and subject to the restrictions set forth hereof, Consultant may make sales of the Common Shares only under the terms and conditions prescribed by Rule 144 of the Securities Act or other exemptions therefrom and provided that Consultant provides an opinion of counsel of recognized standing in form and substance satisfactory to Company and Company’s transfer agent to the effect that the U.S. restrictive legend is no longer required under applicable requirements of the Securities Act.
c)TSX Requirements. The certificate(s) evidencing the Common Shares shall bear a legend (the “TSX Legend”) as required by Section 607.1 of the TSX Company Manual, substantially in the form below:
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO STOCK EXCHANGE (“TSX”); HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH THE FACILITIES OF TSX SINCE THEY ARE NOT FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH
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SECURITIES IS NOT “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON TSX.”
In accordance with Section 607.1 of the TSX Company Manual, the TSX Legend may be removed at such time as the U.S. Legend has been removed.
7)Required Approvals.
a)Stock Exchange Approvals
The issuances of Common Shares contemplated in this Third Extension were approved by the Toronto Stock Exchange on November 7, 2019 and by the NYSE American LLC on May 29, 2018.
Notice of the Assignment was provided to the Toronto Stock Exchange and to the NYSE American LLC on September 25, 2020, with confirmations thereinafter received. No further actions are required to be taken by the parties.
b)Shareholder Approval
The issuance of Common Shares hereunder was approved by the shareholders of the Company on May 30, 2018.
c)Board of Directors Approval
The issuance of Common Shares hereunder was approved by the Board of Directors of the Company on November 1, 2018.
As a result of the foregoing approvals, no further approvals are required at this time.
8)Expenses. Consultant agrees to pay for all its expenses (phone, mailing, labor, and the like), other than extraordinary items (travel required, or specifically requested, by Company, luncheons or dinners to large groups of investment professionals, investor conference calls, print advertisements in publications, and the like) approved by Company prior to it incurring an obligation for reimbursement.
9)Indemnification. Company warrants and represents that all oral communications, written documents or materials furnished to Consultant by Company with respect to financial affairs, operations, profitability and strategic planning of Company are accurate and Consultant may rely upon the accuracy thereof without independent investigation. Company will protect, indemnify and hold harmless Consultant against any claims or litigation including any damages, liability, cost and reasonable attorney’s fees as incurred with respect thereto resulting from Consultant’s communication or dissemination of any said information, documents or materials in accordance with the terms of this Third Extension. Consultant will protect, indemnify and hold harmless Company against any claims or litigation including any damages, liability, cost and reasonable attorney’s fees as incurred with respect thereto resulting from Consultant’s communication or dissemination of any information, documents or materials related to Company that had not previously been approved by Company.
10)Compliance with Laws. Consultant (on its own behalf and on behalf of any and all related parties, affiliates, owners, members, employees, officers, and directors) agrees that it (and such persons) will comply with all laws,
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rules and regulations related to the activities on behalf of Company contemplated pursuant to this Third Extension. Consultant shall provide a prominent notice on all newsletters and websites/webcasts/interview materials and other communications with investors or prospective investors in which Consultant could be perceived to be giving advice or making a recommendation that Consultant has been compensated for its services and, if applicable, received or owns stock of Company (directly or indirectly) specifically referencing Company by name and the number of shares received (directly or indirectly) and will profit from its activities on behalf of Company. If asked, Consultant agrees that it will not conceal at any time if it will, directly or indirectly, be selling shares while promoting the stock and recommending that investors purchase the stock of Company. Consultant covenants and agrees that it will at all times engage in acts, practices and courses of business that comply with Section 17(a) and (b) of the Securities Act, as amended, as well as Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and has adopted policies and procedures adequate to assure all of Consultant’s personnel are aware of the limitation on their activities, and the disclosure obligations, imposed by such laws and the rules and regulations promulgated thereunder. Consultant is aware that the federal securities laws restrict trading in Company’s securities while in possession of material non-public information concerning Company, as well as the requirements of Regulation FD that prohibit communications of material non-public information, and the requirements thereof in the event of an unintentional or inadvertent non-public disclosure. Consultant agrees to immediately inform Company in the event that an actual or potential Regulation FD disclosure has occurred and assist counsel in the method by which corrective steps should be taken. Consultant acknowledges that with respect to any Common Shares now or at any time hereafter beneficially owned by Consultant or any of its affiliates, that it will refrain from trading in Company’s securities while Consultant or any such affiliate is in possession of material non-public information concerning Company, its financial condition, or its business and affairs or prospects.
11)Representations of Consultant. Consultant represents that it is not required to maintain any licenses or registrations under federal or state regulations necessary to perform the services set forth herein, and that it is not rendering legal advice or performing accounting services, nor acting as an investment advisor or broker/dealer within the meaning of applicable federal and/or state securities laws and regulations and it is not required to register as a broker-dealer pursuant to Section 15(b) of the Exchange Act and state securities laws. Consultant further represents that the performance of the services set forth under this Second Extension will not violate any rule or provision of any regulatory agency having jurisdiction over Consultant. Consultant represents that, to the best of its knowledge, Consultant and its officers and directors are not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws. Company acknowledges that, to the best of its knowledge, it has not violated any rule or provision of any regulatory agency having jurisdiction over Company. Company represents that, to the best of its knowledge, Company is not the subject of any investigation, claim, decree or judgment involving any violation of the SEC or securities laws.
12)Status as Independent Contractor. Consultant’s engagement pursuant to this Third Extension shall be as an independent contractor, and not as an employee, officer or other agent of Company. Neither party to this Third Extension shall represent or hold itself out to be the employer or employee of the other. Consultant further acknowledges the consideration provided hereinabove is a gross amount of consideration and that Company will not withhold from such consideration any amounts as to income taxes, social security payments or any other payroll taxes. All such income taxes and other such payments shall be made or provided for by Consultant, and Company shall have no responsibility or obligations regarding such matters. Neither Company nor Consultant possesses the authority to bind the other party in any agreements without the express written consent of the entity to be bound.
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13)Termination. This Third Extension automatically terminates on September 30, 2021, at which time the Consulting Agreement shall be deemed concluded with no remaining extension periods available. Alternatively, Company may terminate this Third Extension at the end of any calendar quarter during the Term for any reason or no reason, upon providing 10 calendar days’ prior written notice to Consultant. In the event of any such termination or automatic termination, Company shall pay Consultant all fees accrued to the end of the quarter of termination. Company shall have no obligation to pay any fees to Consultant after termination. Notwithstanding the foregoing, termination in any instance shall not relieve either party from its obligations incurred prior to the effective date of termination, including the obligation to pay all accrued fees and any obligations hereunder arising out of any act or omission of the parties prior to the effective date of termination.
14)Attorneys’ Fees. If any legal action, arbitration or other proceeding is brought for the enforcement or interpretation of this Third Extension, or because of an alleged dispute, breach, default or misrepresentation in connection with or related to this Third Extension, the successful or prevailing party shall be entitled to recover reasonable attorneys’ fees and other reasonable costs incurred in connection with such action or proceeding, in addition to any other relief to which it may be entitled.
15)Waiver. The waiver by either party of a breach of any provision of this Third Extension by the other party shall not operate or be construed as a waiver of any subsequent breach by such other party.
16)Choice of Law, Jurisdiction and Venue. This Third Extension shall be governed by, construed and enforced in accordance with either the laws of the State of Colorado. The parties agree that Denver, Colorado shall be the venue of any dispute.
17)Arbitration. Any controversy or claim arising out of or relating to this Third Extension, or the alleged breach thereof, or relating to Consultant’s activities or remuneration under this Third Extension, shall be settled by binding arbitration in Denver, Colorado in accordance with customary rules of arbitration and any judgment on an award rendered by the arbitrator(s) shall be binding on the parties and may be entered in any court having jurisdiction of such matters.
18)Complete Agreement. This Third Extension contains the entire understanding of the parties relating to the subject matter hereof, and hereby supersedes and replaces any prior oral or written agreements between the parties hereto, including without limitation the Original Agreement and First and Second Extensions. This Third Extension may be modified only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought.
19)Confidentiality. In the course of carrying out its duties under this Third Extension, Consultant may from time to time receive or become aware of material, non-public information regarding Company, or proprietary information that is valuable, special and a unique asset of Company and/or its business and operations (the “Confidential Information”). Except as may be required by law, Consultant agrees to hold this Third Extension and the Confidential Information in strict confidence, according the same protection to such information as it accords to its own proprietary and confidential information for a period of two (2) years following the expiration or termination of this Third Extension. Consultant shall not disclose the Confidential Information to any third party without the prior written consent of Company. Consultant hereby acknowledges and agrees that it is aware that the securities laws of the United States prohibit any person who has received from an issuer of securities material, non-public information or insider information (such as may form part of the Confidential Information) from purchasing or selling securities of such issuer on the basis of such information or from communicating such information to any other person under circumstances in which it is reasonably foreseeable that such person is
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likely to purchase or sell such securities on the basis of such information. If Consultant becomes aware of any Confidential Information, Consultant shall not disclose such information to any party, except as may be required by law pursuant to a written opinion of competent counsel. Consultant shall instruct its officers, directors, employees, agents, and affiliates of the confidentiality obligations described herein and shall be responsible for any unauthorized disclosure by these parties.
[Remainder of Page Intentionally Left Blank]
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In witness whereof, the parties affix their signatures as of the dates set out below:
ENERGY FUELS INC. By: /s/ Mark Chalmers Mark Chalmers, President & CEO Date: October 1, 2020 | REDWOOD EMPIRE FINANCIAL COMMUNICATIONS By: /s/ Michael Bayes Michael Bayes, CEO Date: October 1, 2020 | ||||
ASSIGNMENT AND ASSUMPTION
The following hereby consent to the assignment and assumption of the Consulting Agreement pursuant to Section 1 above:
LIVIAKIS FINANCIAL COMMUNICATIONS, INC. (in its capacity as Assignor) By: /s/ John Liviakis John Liviakis, CEO Date: October 1, 2020 | REDWOOD EMPIRE FINANCIAL COMMUNICATIONS (in its capacity as Assignee) By: /s/ Michael Bayes Michael Bayes, CEO Date: October 1, 2020 | ||||
ENERGY FUELS INC. By: /s/ Mark Chalmers Mark Chalmers, President & CEO Date: October 1, 2020 | |||||
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of the 6th day of October, 2017 (the "Effective Date"), by and between Energy Fuels Resources (USA) Inc., a Delaware corporation ("EFRI"), Energy Fuels Inc., an Ontario corporation ("EFI") (EFRI and EFI are collectively referred to herein as "Energy Fuels" or the "Company") and Curtis H. Moore (“Employee”).
In consideration of the agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows:
ARTICLE I
EMPLOYMENT, REPORTING AND DUTIES
1.1 Employment. The Company hereby employs and engages the services of Employee to serve as Vice President, Marketing and Corporate Development and Employee agrees to diligently and competently serve as and perform the functions of Vice President, Marketing and Corporate Development for the compensation and benefits stated herein. A copy of Employee's current job description is attached hereto as Exhibit A, and Company and Employee agree and acknowledge that, subject to Section 4.2(b)(i), Company retains the right to reasonably add to, or remove, duties and responsibilities set forth in that job description as business or other operating reasons may arise for changes to occur. It is understood that Employee will be appointed an officer of EFI and EFRI during the term of this Agreement, but that Employee's direct employment relationship will be as an employee of EFRI.
1.2 Full-time Service. Excluding any periods of vacation and sick leave to which Employee may be entitled, Employee agrees to devote Employee's full time and energies to the responsibilities with the Company consistent with past practice and shall not, during the Term of this Agreement, be engaged in any business activity which would interfere with or prevent Employee from carrying out Employee's duties under this Agreement.
ARTICLE II
COMPENSATION AND RELATED ITEMS
2.1 Compensation.
(a) Base Salary and Benefit. As compensation and consideration for the services to be rendered by Employee under this Agreement, the Company agrees to pay Employee and Employee agrees to accept, a base salary ("Base Salary") of $174,290 per annum, less required tax withholding, which shall be paid in accordance with the Company's standard payroll practice. Employee's Base Salary may be increased from time to time, at the discretion of the Company, and after any such change, Employee's new level of Base Salary shall be Employee's Base Salary for purposes of this Agreement until the effective date of any subsequent change. Employee shall also receive benefits such as health insurance, vacation and other benefits consistent with the then applicable Company benefit plans to the same extent as other employees of the Company with similar position or level. Employee understands and agrees that Company's benefit plans may, from time to time, be modified or eliminated at Company's discretion.
(b) Bonus. In addition to the Base Salary, Employee will be eligible for the award of annual cash incentive compensation, at the discretion of the CEO of the Company. Such award is totally discretionary as determined by the CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
(c) Equity Incentive Compensation Plan. You will be eligible to participate in and receive compensation under EFI's Omnibus Equity Incentive Compensation Plan, consistent with the terms of that Plan. Any awards under that Plan are totally discretionary as determined by the CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
2.2 Annual Medical. The Company will reimburse Employee for the cost of a comprehensive annual medical examination for each year of this Agreement, provided that Employee requests such reimbursement and such reimbursement is made no later than the last day of the calendar year following the calendar year in which the examination expense was incurred. Employee will promptly notify the CEO if the annual medical examination reveals any condition which may interfere with Employee's ability to perform the essential requirements of his or her position, and if requested by the CEO, Employee will provide the details of the condition and the potential impact on his or her ability to perform the essential requirements of his or her position to enable the CEO to determine how best to accommodate Employee and protect the critical business interests of the Company.
2.3 Expenses. The Company agrees that Employee shall be allowed reasonable and necessary business expenses in connection with the performance of Employee's duties within the guidelines established by the Company as in effect at any time with respect to key employees ("Business Expenses"), including, but not limited to, reasonable and necessary expenses for food, travel, lodging, entertainment and other items in the promotion of the Company within such guidelines. The Company shall promptly reimburse Employee for all reasonable Business Expenses incurred by Employee upon Employee's presentation to the Company of an itemized account thereof, together with receipts, vouchers, or other supporting documentation.
2.4 Vacation. Employee will be entitled to four weeks of vacation each year, in addition to the 10 paid holidays each year.
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ARTICLE III
TERMINATION
3.1 Term. Employee's employment under this Agreement shall commence on the Effective Date and will end on the date (the "Initial Expiration Date") that is the second anniversary of the Effective Date, unless terminated sooner under the provisions of this Article, or extended under the terms of this Section. If neither Company nor Employee provides written notice of intent not to renew this Agreement by ninety (90) days prior to the Initial Expiration Date, this Agreement shall be automatically renewed for twelve (12) additional months, and if neither Company nor Employee provides written notice of intent not to renew this Agreement prior to ninety (90) days before the end of such additional 12-month period, this Agreement shall continue to be automatically renewed for successive additional 12-month periods until such time either Company or Employee provides written notice of intent not to renew prior to ninety (90) days before the end of any such renewal period.
3.2 Termination of Employment. Except as may otherwise be provided herein, Employee's employment under this Agreement may terminate upon the occurrence of:
(a) Notice by Company. The termination date specified in a written notice of termination that is given by the Company to Employee;
(b) Notice by Employee. Thirty (30) days after written notice of termination is given by Employee to the Company;
(c) Death or Disability. Employee's death or, at the Company's option, upon Employee's becoming disabled.
(d) Deemed Termination Without Just Cause upon a Change of Control. A deemed termination without just cause under Section 4.l(a) upon the occurrence of a Change of Control.
(e) Notice Not to Renew. If the Company or Employee gives the other a notice not to renew this Agreement under Section 3.1, employment under this Agreement shall terminate at the close of business at the end of the Initial Expiration Date or at the end of the 12-month renewal period in which timely notice not to renew was given, as the case may be. A notice by the Company not to renew shall be considered a notice of termination, resulting in the Company terminating Employee's employment under this Agreement.
Any notice of termination given by the Company to Employee under Section 3.2(a) or (e) above shall specify whether such termination is with or without just cause as defined in Section 3.4. Any notice of termination given by Employee to the Company under Section 3.2(b) above shall specify whether such termination is made with or without Good Reason as defined in Section 4.2(b).
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3.3 Obligations of the Company Upon Termination.
(a) With Just Cause/Without Good Reason. If the Company terminates Employee's employment under this Agreement with just cause as defined in Section 3.4, or if Employee terminates his employment without Good Reason as defined in Section 4.2(b), in either case whether before or after a Change of Control as defined in Section 4.2(a), then Employee's employment with the Company shall terminate without further obligation by the Company to Employee, other than payment of all accrued obligations (“Accrued Obligations”), including outstanding Base Salary, accrued vacation pay and any other cash benefits accrued up to and including the date of termination. That payment shall be made in one lump sum, less required tax withholding, within ten (10) working days after the effective date of such termination. Employee will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee's employment; and (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee's stock options will expire and Employee will have no further right to exercise the stock options. Any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any Restricted Stock Units ("RSUs") held by Employee that have vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee. Any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. The rights of Employee upon termination in respect of any other awards granted to Employee under any of the Company's equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable. Notwithstanding the foregoing, on retirement, Employee will have up to the earlier of: (A) one hundred and eighty (180) days from the effective date of retirement; and (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee's stock options will expire and Employee will have no further right to exercise the stock options.
(b) With Good Reason/Without Just Cause/Disabled/Death. If Employee terminates Employee's employment under this Agreement for Good Reason as defined in Section 4.2(b), or if the Company terminates Employee's employment without just cause as defined in Section 3.4, or if the Company terminates Employee's employment by reason of Employee becoming Disabled as defined in Section 3.5, or if Employee dies (in which case the date of Employee's death shall be considered his or her termination date), in any case whether before or after a Change of Control as defined in Section 4.2(a), or if there is a deemed termination without just cause upon a Change of Control as contemplated by Section 4.l(a), then Employee's employment with the Company shall terminate, as of the effective date of the termination, and in lieu of any other severance benefit that would otherwise be payable to Employee:
(i) the Company shall pay the following amounts to Employee (or, in the case of termination by reason of Employee becoming Disabled or upon the death of Employee, to Employee's legal representative or estate as applicable) after the effective date of such termination or in a manner and at such later time as
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specified by Employee (or Employee's legal representative), and agreed to by the Company.
(A) all Accrued Obligations, less required tax withholding, up to and including the date of termination, to be paid on the date of termination of employment, or within no more than five (5) working days thereafter, and will reimburse the Executive for all proper expenses incurred by the Executive in discharging his responsibilities to the Company prior to the effective date of termination of the Executive's employment in accordance with Section 2.3 above;
(B) an amount equal to one (1.0) (the "Severance Factor") times Employee's Base Salary in effect at the time of such termination, less required tax withholding, to be paid within thirty (30) working days after the date of termination of employment; and
(C) an amount equal to the greater of:
I. the Severance Factor times the highest total aggregate cash bonus paid in any one of Employee's last three years; or
II. fifteen percent (15%) of Employee's Base Salary in effect at the time of such termination,
less required tax withholding, to be paid within thirty (30) working days after the date of termination of employment;
(ii) Employee or Employee's legal representative will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee's employment for all cases other than the death of Employee and twelve (12) months from the effective date of termination of Employee's employment in the case of death of Employee; and (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee's stock options will expire and Employee or his or her legal representative will have no further right to exercise the stock options. Subject to Section 4.1(c), any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any RSUs held by Employee that have vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee or his or her legal representative or estate as applicable. Subject to Section 4.l(c), any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. Subject to Section 4.1(c), the rights of Employee or his or her legal representative or estate as applicable upon termination in respect of any other awards granted to Employee under any of the Company's equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable;
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(iii) Upon termination, the Company or its Successor (as defined in Section 4.1(a)), agrees to reimburse Employee the full cost of the COBRA continuation rate charged for employee and dependent coverage, through the EFRI Health and Welfare Plan on a monthly basis, for a period of months equal to twelve times the Severance Factor (the "Coverage Period"), beyond Employee's termination month. Employee and his or her dependents may, at their choosing, enroll in the COBRA continuation plan through EFRI for the first eighteen months following Employee's termination month or, if they choose, they may enroll in a separate plan of their choosing, by using the reimbursement to enroll in medical and prescription insurance of their choosing. Reimbursement at the rate described herein will continue for the Coverage Period beyond Employee's termination month, but beginning with the thirteenth month, Employee and his or her dependents will need to obtain coverage from a different source than the COBRA continuation plan through EFRI. The reimbursement will be to Employee and his or her dependents directly, will be non-taxable as a reimbursement of cost for coverage of the premiums charged by the insurance carriers for the COBRA continuation coverage for the current month of reimbursement. The reimbursed cost of COBRA coverage will be indexed annually, and will match the rate charged for any month of coverage available by the insurance carrier for Medical, Dental, and Optical coverage through EFRI for employee and spouse coverage. Both Employee and his or her dependents, will have the option of purchasing a medical plan separate from the plan offered by EFRI; and
(iv) nothing herein shall preclude the Company from granting additional severance benefits to Employee upon termination of employment.
Notwithstanding the foregoing, in the case of Disability, any Base Salary payable to Employee during the one hundred and eighty (180) day period of disability will be reduced by the amount of any disability benefits Employee receives or is entitled to receive as a result of any disability insurance policies for which the Company has paid the premiums.
3.4 Definition of Just Cause.
As used in this Agreement, the term “just cause” will mean any one or more of the following events:
(a) theft, fraud, dishonesty, misappropriation, or willful misconduct by Employee involving the property, business or affairs of the Company or the discharge of Employee's responsibilities or the exercise of his or her authority;
(b) the willful failure by Employee to properly discharge his or her responsibilities or to adhere to the policies of the Company after notice by the Company of the failure to do so and an opportunity for Employee to correct the failure within thirty (30) days from the receipt of such notice;
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(c) Employee's gross negligence in the discharge of his or her responsibilities or involving the property, business or affairs of the Company to the material detriment of the Company;
(d) Employee’s conviction of a criminal or other statutory offence that constitutes a felony or which has a potential sentence of imprisonment greater than six (6) months or Employee's conviction of a criminal or other statutory offence involving, in the sole discretion of the Board of Directors, moral turpitude;
(e)Employee's breach of a fiduciary duty owed to the Company;
(f)any breach by Employee of the covenants contained in Articles V or VI below;
(g) Employee's unreasonable refusal to follow the lawful written direction of the Chief Executive Officer of the Company on any material matter;
(h) any conduct of Employee which, in the reasonable opinion of the Chief Executive Officer of the Company or Board of Directors, is materially detrimental or embarrassing to the Company; or
(i) any other conduct by Employee that would constitute "just cause" as that term is defined at law.
If the parties disagree as to whether the Company had just cause to terminate the Executive's employment, the dispute will be submitted to binding arbitration pursuant to Section 7.9 below.
3.5 Definition of Disabled. As used herein, "Disabled" shall mean a mental or physical impairment which, in the reasonable opinion of a qualified doctor selected by mutual agreement of the Company and Employee acting reasonably, renders Employee unable, with or without reasonable accommodation, to perform with reasonable diligence the ordinary functions and duties of Employee on a full-time basis in accordance with the terms of this Agreement, which inability continues for a period of not less than 180 consecutive days. The providing of service to the Company for up to two (2) three (3) day periods during the one hundred and eighty (180) day period of disability will not affect the determination as to whether Employee is Disabled and will not restart the one hundred and eighty (180) day period of disability. If any dispute arises between the parties as to whether Employee is Disabled, Employee will submit to an examination by a physician selected by the mutual agreement of the Company and Employee, at the Company's expense. The decision of the physician will be certified in writing to the Company, and will be sent by the physician to Employee or Employee' s legally authorized representative, and will be conclusive for the purposes of determining whether Employee is Disabled. If Employee fails to submit to a medical examination within twenty (20) days after the Company' s request , Employee will be deemed to have voluntarily terminated his or her employment.
3.6 Return of Materials; Confidential Information. In connection with Employee's separation from employment for any reason, Employee shall return any and all physical property belonging to the Company, and all material of whatever type containing "Confidential Information" as defined in Section 5.2 below, including, but not limited to, any and all documents, whether in paper or electronic form, which contain Confidential Information, any customer information, production information, manufacturing-related information, pricing information, files, memoranda, reports, pass codes/access cards, training or other reference manuals, Company vehicle, telephone, gas cards or other Company credit cards, keys, computers, laptops, including any computer disks, software, facsimile machines, memory devices, printers, telephones, pagers or the like.
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3.7 Delivery of Release. Within ten (10) working days after termination of Employee's employment, and as a condition for receipt of payments set forth in Section 3.3(b)(i)(B) and (C), 3(b)(iii), and 4.l(a), the Company shall provide to Employee, or Employee's legal representative, a form of written release, which form shall be satisfactory to the Company and generally consistent with the form of release used by the Company prior to such termination of employment (the "Release") and which shall provide a full release of all claims against the Company and its corporate affiliates, except where Employee has been named as a defendant in a legal action arising out of the performance of Employee's responsibilities in which case the Release will exempt any claims which Employee or his or her legal representative or estate may have for indemnity by the Company with respect to any such legal action. As a condition to the obligation of the Company to make the payments provided for in such Sections Employee, or Employee's legal representative, shall execute and deliver the Release to the Company within the time periods provided for in said release.
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ARTICLE IV
CHANGE OF CONTROL
4.1 Effect of Change of Control. In the event of a Change of Control of the Company during the term of this Agreement, or any renewal of this Agreement the following provisions shall apply:
(a)If upon the Change of Control
i.Employee is not retained by the Company or its successor (whether direct or indirect, by purchase of assets, merger, consolidation, exchange of securities, amalgamation, arrangement or otherwise) to all or substantially all of the business and/or assets of the Company ("Successor") on the same terms and conditions as set out in this Agreement and in circumstances that would not constitute Good Reason (where Good Reason is determined by reference to Employee's employment status prior to the Change of Control and prior to any other event that could constitute Good Reason); and/or
ii.any such Successor does not, by agreement in form and substance satisfactory to Employee, expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place,
then Employee shall be deemed to be terminated without just cause upon such Change of Control and shall be entitled to the compensation and all other rights specified in Article III in the same amount and on the same terms as if terminated without just cause as set out therein, subject to the additional rights set out in paragraph (c) below;
(b) All rights of Employee in this Agreement, including without limitation all rights to severance and other rights upon a termination with or without cause, with or without Good Reason, upon a disability or upon death under Article III of this Agreement shall continue after a Change of Control in the same manner as before the Change of Control, subject to the additional rights set out in paragraph (c) below;
(c) if,
i.there is a deemed termination without cause under Section 4. l(a); or
ii.within twelve (12) months following the effective date of the Change of Control, the Company, or its successor, terminates the employment of Employee without just cause or by reason of Disability, or Employee terminates his or her employment under this Agreement for Good Reason,
then, in addition to the other rights Employee has under this Agreement, and notwithstanding any other provision in this Agreement, all of the stock options previously granted to Employee that have neither vested nor expired will automatically vest and become immediately exercisable, any period of restriction and other restrictions imposed on all RSUs shall lapse, and all RSUs shall be immediately settled and payable, and all other securities awarded shall vest and/or accelerate in accordance with Article 16 of the EFI Omnibus Equity Incentive Plan or the comparable provisions of any other equity incentive plan under which such securities may have been issued. Employee will have ninety (90) days from the effective date of the termination of Employee's employment to exercise any stock options which had vested as of the effective date of termination and thereafter Employee's stock options will expire and Employee will have no further right to exercise the stock options.
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4.2 Definitions of Change of Control and Good Reason. For the purposes of this Agreement,
(a) "Change of Control" will mean the happening of any of the following events:
(i) any transaction at any time and by whatever means pursuant to which (A) EFI goes out of existence by any means, except for any corporate transaction or reorganization in which the proportionate voting power among holders of securities of the entity resulting from such corporate transaction or reorganization is substantially the same as the proportionate voting power of such holders of EFI voting securities immediately prior to such corporate transaction or reorganization or (B) any Person (as defined in the Securities Act (Ontario)) or any group of two or more Persons acting jointly or in concert (other than EFI, a wholly-owned Subsidiary of EFI, an employee benefit plan of EFI or of any of its wholly-owned Subsidiaries (as defined in the Securities Act (Ontario)), including the trustee of any such plan acting as trustee) hereafter acquires the direct or indirect "beneficial ownership" (as defined by the Business Corporations Act (Ontario)) of, or acquires the right to exercise control or direction over, securities of EFI representing 50% or more of EFI's then issued and outstanding securities in any manner whatsoever, including, without limitation, as a result of a take-over bid, an exchange of securities, an amalgamation of EFI with any other entity, an arrangement, a capital reorganization or any other business combination or reorganization;
(ii) the sale, assignment or other transfer of all or substantially all of the assets of EFI in one or a series of transactions, whether or not related, to a Person or any group of two or more Persons acting jointly or in concert, other than a wholly -owned Subsidiary of EFI;
(iii) the dissolution or liquidation of EFI except in connection with the distribution of assets of EFI to one or more Persons which were wholly owned Subsidiaries of EFI immediately prior to such event;
(iv) the occurrence of a transaction requiring approval of EFI's shareholders whereby EFI is acquired through consolidation, merger, exchange of securities, purchase of assets, amalgamation, arrangement or otherwise by any other Person (other than a short form amalgamation or exchange of securities with a wholly-owned Subsidiary of EFI);
(v) an event set forth in (i), (ii), (iii) or (iv) has occurred with respect to EFRI or any of its direct or indirect parent companies, in which case the term "EFI" in those paragraphs will be read to mean "EFRI or such parent company" and the phrase "wholly-owned Subsidiary(ies)" will be read to mean" Affiliate(s) or wholly-owned Subsidiary(ies)"; or
(vi) the Board of Directors of the Company passes a resolution to the effect that, an event set forth in (i), (ii), (iii), (iv) or (v) above has occurred.
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(b) "Good Reason" means, without the written agreement of Employee, there is:
(i) a material reduction or diminution in the level of responsibility, or office of Employee, provided that before any claim of material reduction or diminution of responsibility may be relied upon by Employee, Employee must have provided written notice to Employee's supervisor and the EFI's Board of Directors of the alleged material reduction or diminution of responsibility and have given EFI at least thirty (30) calendar days within which to cure the alleged material reduction or diminution of responsibility;
(ii) a reduction in Base Salary of more than five (5) percent; or
(iii) a proposed, forced relocation of Employee to another geographic location greater than fifty (50) miles from Employee's office location at the time a move is requested after a Change of Control.
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ARTICLE V
CONFIDENTIALITY
5.1 Position of Trust and Confidence. Employee acknowledges that in the course of discharging his or her responsibilities, he or she will occupy a position of trust and confidence with respect to the affairs and business of the Company and its customers and clients, and that he or she will have access to and be entrusted with detailed confidential information concerning the present and contemplated mining and exploration projects, prospects, and opportunities of the Company. Employee acknowledges that the disclosure of any such confidential information to the competitors of the Company or to the general public would be highly detrimental to the best interests of the Company. Employee further acknowledges and agrees that the right to maintain such detailed confidential information constitutes a proprietary right which the Company is entitled to protect.
5.2 Definition of Confidential Information. In this Agreement, "Confidential Information" means any information disclosed by or on behalf of the Company to Employee or developed by Employee in the performance of his or her responsibilities at any time before or after the execution of this Agreement, and includes any information, documents, or other materials (including, without limitation, any drawings, notes, data, reports, photographs, audio and/or video recordings, samples and the like) relating to the business or affairs of the Company or its respective customers, clients or suppliers that is confidential or proprietary, whether or not such information:
(i) is reduced to writing;
(ii) was created or originated by an employee; or
(iii) is designated or marked as "Confidential" or "Proprietary" or some other designation or marking .
The Confidential Information includes, but is not limited to, the following categories of information relating to the Company:
(a) information concerning the present and contemplated mmmg, milling, processing and exploration projects, prospects and opportunities, including joint venture projects, of the Company;
(b) information concerning the application for perm1ttmg and eventual development or construction of the Company's properties, the status of regulatory and environmental matters, the compliance status with respect to licenses, permits, laws and regulations, property and title matters and legal and litigation matters;
(c) information of a technical nature such as ideas, discoveries, inventions, improvements, trade secrets, now-how, manufacturing processes, specifications, writings and other works of authorship;
(d) financial and business information such as the Company's business and strategic plans, earnings, assets, debts, prices, pricing structure, volume of purchases or sales, production, revenue and expense projections, historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, or other financial data whether related to the Company's business generally, or to particular products, services, geographic areas, or time periods;
(e) supply and service information such as goods and services suppliers' names or addresses, terms of supply or service contracts of particular transactions, or related information about potential suppliers to the extent that such information is not generally known to the public, and to the extent that the combination of suppliers or use of a particular supplier, although generally known or available, yields advantages to the Company, the details of which are not generally known;
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(f) marketing information, such as details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, sales forecasts or results of marketing efforts or information about impending transactions;
(g) personnel information relating to employees, contractors, or agents, such as personal histories, compensation or other terms of employment or engagement, actual or proposed promotions, hirings, resignations, disciplinary actions, terminations or reasons therefor, training methods, performance, or other employee information;
(h) customer information, such as any compilation of past, ex1stmg or prospective customer's names, addresses, backgrounds, requirements, records of purchases and prices, proposals or agreements between customers and the Company, status of customer accounts or credit, or related information about actual or prospective customers;
(i) computer software of any type or form and in any stage of actual or anticipated development, including but not limited to, programs and program modules, routines and subroutines, procedures, algorithms, design concepts, design specifications (design notes, annotations, documentation, float charts, coding sheets, and the like), source codes, object code and load modules, programming, program patches and system designs; and
(j) all information which becomes known to the Executive as a result of the Executive's employment by the Company, which the Executive acting reasonably, believes or ought to believe is confidential or proprietary information from its nature and from the circumstances surrounding its disclosure to the Executive.
5.3 Non-Disclosure. Employee, both during his or her employment and for a period of two (2) years after the termination of his or her employment irrespective of the time, manner or cause of termination, will:
(a) retain in confidence all of the Confidential Information;
(b) refrain from disclosing to any person including, but not limited to, customers and suppliers of the Company, any of the Confidential Information except for the purpose of carrying out Employee's responsibilities with the Company, and
(c) refrain from directly or indirectly using or attempting to use such Confidential Information in any way, except for the purpose of carrying out Employee's responsibilities with the Company.
Employee shall deliver promptly to the Company, at the termination of Employee's employment, or at any other time at the Company's request, without retaining any copies, all documents and other material in Employee's possession relating, directly or indirectly, to any Confidential Information.
It is understood that should Employee be subject to subpoena or other legal process to seek the disclosure of such Confidential Information, Employee will advise the Company of such process and provide the Company with the necessary information to seek to protect the Confidential Information.
5.4 Whistleblower Laws. The foregoing obligations of confidentiality set out in this Article V are subject to applicable whistleblower laws, which protect Employee's right to provide information to governmental and regulatory authorities, including communications with the U.S. Securities and Exchange Commission about possible securities law violations. Notwithstanding any other provision in this Agreement, Employee is not required to seek the Company's permission or notify the Company of any communications made in compliance with applicable whistleblower laws, and the Company will not consider any such communications to violate this
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Agreement or any other agreement between Employer and the Company or any Company policy by which Employee is bound.
ARTICLE VI
NON-SOLICITATION
6.1 Non-Solicitation. Employee agrees that during the period (the "Non-Solicitation Period") commencing on the date of this Agreement and ending twelve (12) months after the effective date of the termination of Employee's employment irrespective of the time, manner or cause of termination, Employee will not, either individually or in partnership or jointly or in conjunction with any other person, entity or organization, as principal, agent, consultant, contractor, employer, employee or in any other manner, directly or indirectly:
(a) solicit business from any customer, client or business relation of the Company, or prospective customer, client or business relation that the Company was actively soliciting, whether or not Employee had direct contact with such customer, client or business relation, for the benefit or on behalf of any person, firm or corporation operating a business which competes with the Company, or attempt to direct any such customer, client or business relation away from the Company or to discontinue or alter any one or more of their relationships with the Company, except however, that the Employee may immediately solicit any utility customer, trading partner, intermediary, broker, investor, strategic partner, joint venture partner, or other similar entity for new business that does not conflict or compete with any ongoing or active negotiations by the Company at the time of the termination that were material to the Company and that had a reasonable prospect of consummation by the Company, or
(b) hire or offer to hire or entice away or in any other manner persuade or attempt to persuade any officer, employee, consultant, independent contractor, agent, licensee, supplier, or business relation of the Company to discontinue or alter any one of their relationships with the Company.
6.2 Remedies for Breach of Restrictive Covenants. Employee acknowledges that in connection with Employee's employment he or she will receive or will become eligible to receive substantial benefits and compensation. Employee acknowledges that Employee's employment by the Company and all compensation and benefits from such employment will be conferred by the Company upon Employee only because and on the condition of Employee's willingness to commit Employee's best efforts and loyalty to the Company, including protecting the Company's confidential information and abiding by the non-solicitation covenants contained in this Agreement. Employee understands that his obligations set out in Article V and this Article VI will not unduly restrict or curtail Employee's legitimate efforts to earn a livelihood following any termination of his or her employment with the Company. Employee agrees that the restrictions contained in Article V and this Article VI are reasonable and valid and all defenses to the strict enforcement of these restrictions by the Company are waived by Employee. Employee further acknowledges that a breach or threatened breach by Employee of any of the provisions contained in Article V or this Article VI would cause the Company irreparable harm which could not be adequately compensated in damages alone. Employee further acknowledges that it is essential to the effective enforcement of this Agreement that, in addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, the Company will be entitled to seek and obtain, in a summary manner, from any Court having jurisdiction, interim, interlocutory, and permanent injunctive relief, specific performance and other equitable remedies, without bond or other security being required. In addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, in the event of a breach of any of the covenants or other obligations contained in this Agreement, the Company will be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remuneration or benefits which Employee directly or indirectly, has realized or may realize relating to, arising out of, or in connection with any such breach. Should a court of competent jurisdiction declare any of the covenants set forth in Article V or this Article VI unenforceable, the court shall be empowered to modify and reform such covenants so as to provide relief reasonably necessary to
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protect the interests of the Company and Employee and to award injunctive relief, or damages, or both, to which the Company may be entitled.
ARTICLE VII
GENERAL PROVISIONS
7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Colorado.
7.2 Assignability. This Agreement is personal to Employee and without the prior written consent of the Company shall not be assignable by Employee other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by Employee's legal representatives and heirs. This Agreement shall also inure to the benefit of and be binding upon the Company and its successors and assigns.
7.3 Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
7.4 Entire Agreement: Amendment. This Agreement constitutes the entire agreement and understanding between Employee and the Company with respect to the subject matter hereof and, except as otherwise expressly provided herein, supersedes any prior agreements or understandings, whether written or oral, with respect to the subject matter hereof, including without limitation all employment, severance or change of control agreements previously entered into between Employee and Energy Fuels. Except as may be otherwise provided herein, this Agreement may not be amended or modified except by subsequent written agreement executed by both parties hereto.
7.5 Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which together shall constitute one Agreement.
7.6 Notices. Any notice provided for in this Agreement shall be deemed delivered upon deposit in the United States mails, registered or certified mail, addressed to the party to whom directed at the addresses set forth below or at such other addresses as may be substituted therefor by notice given hereunder. Notice given by any other means must be in writing and shall be deemed delivered only upon actual receipt.
If to the Company:
c/o Energy Fuels Resources (USA) Inc. 225 Union Blvd., Suite 600
Lakewood, CO 80228
Attention: Chief Executive Officer
If to Employee:
635 S. Devinney Way
Lakewood, CO 80228-2319
7.7 Waiver. The waiver of any term or condition of this Agreement, or breach thereof, shall not be deemed to constitute the waiver of the same or any other term or condition of this Agreement, or breach thereof.
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7.8 Severability. In the event any provision of this Agreement is found to be unenforceable or invalid, such provision shall be severable from this Agreement and shall not affect the enforceability or validity of any other provision of this Agreement. If any provision of this Agreement is capable of two constructions, one of which would render the provision void and the other that would render the provision valid, then the provision shall have the construction that renders it valid.
7.9 Arbitration of Disputes. Except for disputes and controversies arising under Articles V or VI or involving equitable or injunctive relief, any dispute or controversy arising under or in connection with this Agreement shall be conducted in accordance with the Colorado Rules of Civil Procedure and, unless the parties mutually agree on an arbitrator shall be arbitrated by striking from a list of potential arbitrators provided by the Judicial Arbiter Group in Denver, Colorado. If the parties are unable to agree on an arbitrator, the arbitrator will be selected from a list of seven (7) potential arbitrators provided by the Judicial Arbiter Group in Denver. The Company and Employee will flip a coin to determine who will make the first strike. The parties will then alternate striking from the list until there is one arbitrator remaining, who will be the selected arbitrator. Unless the parties otherwise agree and subject to the availability of the arbitrator, the arbitration will be heard within sixty (60) days following the appointment, and the decision of the arbitrator shall be binding on Employee and the Company and will not be subject to appeal. Judgment may he entered on the arbitrator's award in any court having jurisdiction.
7.10 Currency. Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States dollars ($US).
7.11 Company Maximum Obligation. The compensation set out in this Agreement represents the Company's maximum obligations, and other than as set out herein, Employee will not be entitled to any other compensation, rights or benefits in connection with Employee's employment or the termination of Employee's employment.
7.12 Full Payment; No Mitigation Obligation. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Employee.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
ENERGY FUELS INC.
By: /s/ Stephen P. Antony
Name: Stephen P. Antony Title: Chief Executive Officer
Date: 10/6/2017
ENERGY FUELS RESOURCES (USA) INC.
By: /s/ David C. Frydenlund
Title: Sr. Vice President, General Counsel and
Corporate Secretary
Date: October 6, 2017
/s/ Curtis H. Moore
Name: Curtis H. Moore
Title: Vice President, Marketing and Corporate Development
Date: October 6, 2017
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' . ' '"
EXHIBIT A
JOB DESCRIPTION
Employee shall be responsible for:
GENERAL PURPOSE:
◦The purpose of the position is to manage the overall Marketing, Sales, Investor Relations, Market Intelligence, Customer Contract Administration and Corporate Communication functions for Energy Fuels.
ESSENTIAL DUTIES/RESPONSIBILITIES:
◦Develop overall corporate marketing plan and strategy, consistent with operational and financial conditions and capabilities
◦Maintain Energy Fuels' presence in the marketplace for both uranium and vanadium, both domestically and internationally
◦Identify and pursue alternate feed material opportunities for White Mesa mill
◦Identify and pursue opportunities for additional sales, and develop bidding strategies and plans
◦Lead negotiations for contracts on new sales opportunities
◦Oversee compliance with all market related contracts and purchase orders including those with uranium customers, vanadium customers, and the converters to whom Energy Fuels ships concentrates
◦Develop and maintain relationships with buyers of uranium and vanadium product.
◦Maintain routine, liaison with the mill on product shipments and shipping schedules
◦Prepare market budgets and forecasts in support of Energy Fuels' budgeting and financial requirements
◦Manage all support consultants to marketing department
◦Manage investor relations program, which may include conference & tradeshow attendance, investor & analyst relationships, investor presentations, and press releases & news flow
◦Assist in preparation of financial disclosures, including MD&A, AIF, and Annual Report
◦Manage website, marketing, branding, and paid & earned media programs
◦Manage public relations program, including political, stakeholder, and media relations
◦Supervise the Marketing Analyst/Contract Administration function
Employee shall initially report to the Chief Executive Officer of the Company, but may report to the President of the Company.
This position will be located in the Lakewood office with frequent travel as required. Performance is to be based on performance criteria, which will be evaluated once per year.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (“Agreement”) is effective as of the 1st day of September 2020 (the “Effective Date”), by and between Energy Fuels Resources (USA) Inc., a Delaware corporation (“EFRI”), Energy Fuels Inc., an Ontario corporation (“EFI”) (EFRI and EFI are collectively referred to herein as the “Company”) and Dee Ann Nazarenus (“Employee”).
In consideration of the agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows:
ARTICLE 1.
EMPLOYMENT, REPORTING AND DUTIES
1.1 Employment. The Company hereby employs and engages the services of Employee to serve as Vice President, Human Resources & Administration and Employee agrees to diligently and competently serve as and perform the functions of Vice President, Human Resources & Administration for the compensation and benefits stated herein. A copy of Employee’s current job description is attached hereto as Exhibit A, and Company and Employee agree and acknowledge that, subject to Section 4.2(b)(i), Company retains the right to reasonably add to, or remove, duties and responsibilities set forth in that job description as business or other operating reasons may arise for changes to occur. It is understood that Employee will be appointed an officer of EFI and EFRI during the term of this Agreement, but that Employee’s direct employment relationship will be as an employee of EFRI.
1.2 Fulltime Service. Excluding any periods of vacation and sick leave to which Employee may be entitled, Employee agrees to devote Employee’s full time and energies to the responsibilities with the Company consistent with past practice and shall not, during the Term of this Agreement, be engaged in any business activity which would interfere with or prevent Employee from carrying out Employee’s duties under this Agreement.
ARTICLE 2.
COMPENSATION AND RELATED ITEMS
2.1 Compensation.
a.Base Salary and Benefits. As compensation and consideration for the services to be rendered by Employee under this Agreement, the Company agrees to pay Employee and Employee agrees to accept, a base salary (“Base Salary”) of $140,000 per annum, less required tax withholding, which shall be paid in accordance with the Company’s standard payroll practice. Employee’s Base Salary may be increased from time to time, at the discretion of the Company, and after any such change, Employee’s new level of Base Salary shall be Employee’s Base Salary for purposes of this Agreement until the effective date of any subsequent change. Employee shall also receive benefits such as health insurance, vacation and
other benefits consistent with the then applicable Company benefit plans to the same extent as other employees of the Company with similar position or level. Employee understands and agrees that Company’s benefit plans may, from time to time, be modified or eliminated at Company’s discretion.
b.Bonus. In addition to the Base Salary, Employee will be eligible for the award of annual cash incentive compensation, at the discretion of the President & CEO of the Company. Such award is totally discretionary as determined by the President & CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
c.Equity Incentive Compensation Plan. You will be eligible to participate in and receive compensation under EFI’s Omnibus Equity Incentive Compensation Plan, consistent with the terms of that Plan. Any awards under that Plan are totally discretionary as determined by the President & CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
2.2 Annual Medical. The Company will reimburse Employee for the cost of a comprehensive annual medical examination for each year of this Agreement, provided that Employee requests such reimbursement and such reimbursement is made no later than the last day of the calendar year following the calendar year in which the examination expense was incurred. Employee will promptly notify the President & CEO if the annual medical examination reveals any condition which, if untreated, is likely to interfere with Employee’s ability to perform the essential requirements of his or her position, and if requested by the President & CEO, Employee will provide the details of the condition and the potential impact on his or her ability to perform the essential requirements of his or her position to enable the President & CEO to determine how best to accommodate Employee and protect the critical business interests of the Company.
2.3 Expenses. The Company agrees that Employee shall be allowed reasonable and necessary business expenses in connection with the performance of Employee’s duties within the guidelines established by the Company as in effect at any time with respect to key employees (“Business Expenses”), including, but not limited to, reasonable and necessary expenses for food, travel, lodging, entertainment and other items in the promotion of the Company within such guidelines. The Company shall promptly reimburse Employee for all reasonable Business Expenses incurred by Employee upon Employee’s presentation to the Company of an itemized account thereof, together with receipts, vouchers, or other supporting documentation.
2.4 Vacation. Employee will be entitled to five (5) weeks of vacation each year (which includes all sick leave), in addition to the 10 paid holidays each year. Carry over from one year to the next will be as per the Company’s paid leave policy.
ARTICLE 3.
TERMINATION
3.1 Term. Employee’s employment under this Agreement shall commence on the Effective Date and will end on the date (the “Initial Expiration Date”) that is the second anniversary of the Effective Date, unless terminated sooner under the provisions of this Article, or extended under the terms of this Section. If neither Company nor Employee provides written notice of intent not to renew this Agreement by ninety (90) days prior to the Initial Expiration Date, this Agreement shall be automatically renewed for twelve (12) additional months, and if neither Company nor Employee provides written notice of intent not to renew this Agreement prior to ninety (90) days before the end of such additional 12-month period, this Agreement shall continue to be automatically renewed for successive additional 12-month periods until such time either Company or Employee provides written notice of intent not to renew prior to ninety (90) days before the end of any such renewal period.
3.2 Termination of Employment. Except as may otherwise be provided herein, Employee’s employment under this Agreement may terminate upon the occurrence of:
a.Notice by Company. The termination date specified in a written notice of termination that is given by the Company to Employee;
b.Notice by Employee. Thirty (30) days after written notice of termination is given by Employee to the Company;
c.Death or Disability. Employee’s death or, at the Company’s option, upon Employee’s becoming disabled;
d.Deemed Termination Without Just Cause upon a Change of Control. A deemed termination without just cause under Section 4.1(a) upon the occurrence of a Change of Control; or
e.Notice Not to Renew. If the Company or Employee gives the other a notice not to renew this Agreement under Section 3.1, employment under this Agreement shall terminate at the close of business at the end of the Initial Expiration Date or at the end of the 12-month renewal period in which timely notice not to renew was given, as the case may be. A notice by the Company not to renew shall be considered a notice of termination, resulting in the Company terminating Employee’s employment under this Agreement.
Any notice of termination given by the Company to Employee under Section 3.2(a) or (e) above shall specify whether such termination is with or without just cause as defined in Section 3.4. Any notice of termination given by Employee to the Company under Section 3.2(b) above shall specify whether such termination is made with or without Good Reason as defined in Section 4.2(b).
3.3 Obligations of the Company Upon Termination.
a.With Just Cause/Without Good Reason. If the Company terminates Employee’s employment under this Agreement with just cause as defined in Section 3.4, or if Employee terminates his or her employment without Good Reason as defined in Section 4.2(b), in either case whether before or after a Change of Control as defined in Section 4.2(a), then Employee’s employment with the Company shall terminate without further obligation by the Company to Employee, other than payment of all accrued obligations (“Accrued Obligations”), including outstanding Base Salary, accrued vacation pay and any other cash benefits accrued up to and including the date of termination. That payment shall be made in one lump sum, less required tax withholding, within ten (10) working days after the effective date of such termination. Employee will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee’s employment; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options. Any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any Restricted Stock Units (“RSUs”) held by Employee that have vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee. Any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. The rights of Employee upon termination in respect of any Stock Appreciation Rights (“SARs”) or other awards granted to Employee under any of the Company’s equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable. Notwithstanding the foregoing, on retirement, Employee will have up to the earlier of: (A) one hundred and eighty (180) days from the effective date of retirement; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options.
b.With Good Reason/Without Just Cause/Disabled/Death. If Employee terminates Employee’s employment under this Agreement for Good Reason as defined in Section 4.2(b), or if the Company terminates Employee’s employment without just cause as defined in Section 3.4, or if the Company terminates Employee’s employment by reason of Employee becoming Disabled as defined in Section 3.5, or if Employee dies (in which case the date of Employee’s death shall be considered his or her termination date), in any case whether before or after a Change of Control as defined in Section 4.2(a), or if there is a deemed termination without just cause upon a Change of Control as contemplated by Section 4.1(a), then Employee’s employment with the Company shall terminate, as of the effective date of the termination, and in lieu of any other severance benefit that would otherwise be payable to Employee:
i. the Company shall pay the following amounts to Employee (or, in the case of termination by reason of Employee becoming Disabled or upon the death of
Employee, to Employee’s legal representative or estate as applicable) after the effective date of such termination or in a manner and at such later time as specified by Employee (or Employee’s legal representative), and agreed to by the Company, subject to being in compliance with Section 409A (“Section 409A”) of the US Internal Revenue Code of 1986, as amended (the “Code”):
A.all Accrued Obligations, less required tax withholding, up to and including the date of termination, to be paid on the date of termination of employment, or within no more than five (5) working days thereafter, and the Company will reimburse the Employee for all proper expenses incurred by the Employee in discharging his or her responsibilities to the Company prior to the effective date of termination of the Employee’s employment in accordance with Section 2.3 above; and
B.an amount equal to one (1.0) (the “Severance Factor”) times Employee’s Base Salary in effect at the time of such termination, less required tax withholding, such amount to be paid within thirty (30) calendar days after the date Employee signs the Release contemplated by Section 3.7; and
C.an amount equal to the greater of:
I.the Severance Factor times the highest total aggregate cash bonus paid in any one of Employee’s last three calendar years or the year in which Employee’s termination occurs; or
II.fifteen percent (15%) of Employee’s Base Salary in effect at the time of such termination,
less required tax withholding, such amount to be paid within thirty (30) calendar days after the date Employee signs the Release contemplated by Section 3.7;
ii. Employee or Employee’s legal representative will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee’s employment for all cases other than the death of Employee and twelve (12) months from the effective date of termination of Employee’s employment in the case of death of Employee; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee or his or her legal representative will have no further right to exercise the stock options. Subject to Section 4.1(c), any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any RSUs held by Employee that have
vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee or his or her legal representative or estate as applicable. Subject to Section 4.1(c), any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. Subject to Section 4.1(c), the rights of Employee or his or her legal representative or estate as applicable upon termination in respect of any SARs or other awards granted to Employee under any of the Company’s equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable;
iii. Upon termination, the Company or its Successor (as defined in Section 4.1(a)), agrees to reimburse Employee the full cost of the COBRA continuation rate charged for employee and dependent coverage, through the EFRI Health and Welfare Plan on a monthly basis, for a period of months equal to twelve times the Severance Factor (the “Coverage Period”), beyond Employee’s termination month. Employee and his or her dependents may, at their choosing, enroll in the COBRA continuation plan through EFRI for the first eighteen months following Employee’s termination month or, if they choose, they may enroll in a separate plan of their choosing, by using the reimbursement to enroll in medical and prescription insurance of their choosing. Reimbursement at the rate described herein will continue for the Coverage Period beyond Employee’s termination month, and beginning with the nineteenth month, Employee and his or her dependents will need to obtain coverage from a different source than the COBRA continuation plan through EFRI. The reimbursement will be to Employee and his or her dependents directly, and will be grossed up so that there is no negative tax impact to the Employee or his or her dependents for coverage of the premiums charged by the insurance carriers for the COBRA continuation coverage for the current month of reimbursement. The reimbursed cost of COBRA coverage will be indexed annually and will match the rate charged for any month of coverage available by the insurance carrier for Medical, Dental, and Optical coverage through EFRI for employee and spouse coverage. Both Employee and his or her dependents, will have the option of purchasing a medical plan separate from the plan offered by EFRI; and
iv. Nothing herein shall preclude the Company from granting additional severance benefits to Employee upon termination of employment.
Notwithstanding the foregoing, in the case of Disability, any Base Salary payable to Employee during the one hundred and eighty (180) day period of disability will be reduced by the amount of any disability benefits Employee receives or is entitled to receive as a result of any disability insurance policies for which the Company has paid the premiums.
c.Section 280G. Notwithstanding any other provisions of this Agreement, or any other plan, arrangement or agreement to the contrary, if any of the payments or benefits provided or to be provided by the Company or its affiliates to Employee or for Employee’s
benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute “parachute payments” within the meaning of Section 280G of the Code and would, but for this Section 3.3(c) be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then the following shall apply:
i. If the Covered Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes payable by Employee on the amount of the Covered Payments which are in excess of three times Employee’s “base amount” within the meaning of Section 280(G) of the Code less one dollar (the “Threshold Amount”), are greater than or equal to the Threshold Amount, Employee shall be entitled to the full benefits payable under this Agreement; and
ii. If the Threshold Amount is less than (1) the Covered Payments, but greater than (2) the Covered Payments reduced by the sum of (x) the Excise Tax and (y) the total of the Federal, state, and local income and employment taxes on the amount of the Covered Payments which are in excess of the Threshold Amount, then the Covered Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Covered Payments shall not exceed the Threshold Amount. In such event, the Covered Payments shall be reduced in the following order: (A) cash payments not subject to Section 409A; (B) cash payments subject to Section 409A; (C) equity-based payments and acceleration; and (D) non-cash forms of benefits. To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.
The determination as to which of the alternative provisions of Section 3.3(c)(ii) shall apply to Employee shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and Employee within 15 business days of the date of termination, if applicable, or at such earlier time as is reasonably requested by the Company or Employee. For purposes of determining which of the alternative provisions of Section 3.3(c)(ii) shall apply, Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of Employee’s residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and Employee.
3.4 Definition of Just Cause. As used in this Agreement, the term “just cause” will mean any one or more of the following events:
a.theft, fraud, dishonesty, or misappropriation by Employee involving the property, business or affairs of the Company or the discharge of Employee’s responsibilities or the exercise of his or her authority;
b.willful misconduct or the willful failure by Employee to properly discharge his or her responsibilities or to adhere to the policies of the Company;
c.Employee’s gross negligence in the discharge of his or her responsibilities or involving the property, business or affairs of the Company to the material detriment of the Company;
d.Employee’s conviction of a criminal or other statutory offence that constitutes a felony, or which has a potential sentence of imprisonment greater than six (6) months or Employee’s conviction of a criminal or other statutory offence involving, in the sole discretion of the Board of Directors of EFI, moral turpitude;
e.Employee’s material breach of a fiduciary duty owed to the Company;
f.any material breach by Employee of the covenants contained in Articles 5 or 6 below;
g.Employee’s unreasonable refusal to follow the lawful written direction of the President and Chief Executive Officer of the Company on any material matter;
h.any conduct of Employee which, in the reasonable opinion of the President and Chief Executive Officer of the Company or Board of Directors of EFI, is materially detrimental or embarrassing to the Company; or
i.any other conduct by Employee that would constitute “just cause” as that term is defined at law.
The Company must provide written notice to Employee prior to termination for just cause pursuant to Section 3.4 (c), (f), (g), (h), or (i) and provide Employee the opportunity to correct and cure the failure within thirty (30) days from the receipt of such notice. If the parties disagree as to whether the Company had just cause to terminate the Employee’s employment, the dispute will be submitted to binding arbitration pursuant to Section 7.10 below.
3.5 Definition of Disabled. As used herein, “Disabled” shall mean a mental or physical impairment which, in the reasonable opinion of a qualified doctor selected by mutual agreement of the Company and Employee acting reasonably, renders Employee unable, with reasonable accommodation, to perform with reasonable diligence the essential functions and duties of Employee on a full-time basis in accordance with the terms of this Agreement, which inability continues for a period of not less than 180 consecutive days. The providing of service to the Company for up to two (2) three (3) day periods during the one hundred and eighty (180) day period of disability will not affect the determination as to whether Employee is Disabled and
will not restart the one hundred and eighty (180) day period of disability. If any dispute arises between the parties as to whether Employee is Disabled, Employee will submit to an examination by a physician selected by the mutual agreement of the Company and Employee acting reasonably, at the Company’s expense. The decision of the physician will be certified in writing to the Company, and will be sent by the Physician to Employee or Employee’s legally authorized representative, and will be conclusive for the purposes of determining whether Employee is Disabled. If Employee fails to submit to a medical examination within twenty (20) days after the Company’s request, Employee will be deemed to have voluntarily terminated his or her employment.
3.6 Return of Materials; Confidential Information. In connection with Employee’s separation from employment for any reason, Employee shall return any and all physical property belonging to the Company, and all material of whatever type containing “Confidential Information” as defined in Section 5.2 below, including, but not limited to, any and all documents, whether in paper or electronic form, which contain Confidential Information, any customer information, production information, manufacturing-related information, pricing information, files, memoranda, reports, pass codes/access cards, training or other reference manuals, Company vehicle, telephone, gas cards or other Company credit cards, keys, computers, laptops, including any computer disks, software, facsimile machines, memory devices, printers, telephones, pagers or the like.
3.7 Delivery of Release. Within ten (10) working days after termination of Employee’s employment, and as a condition for receipt of payments set forth in Section 3.3(b)(i)(B) and (C), 3(b)(iii), and 4.1(a), the Company shall provide to Employee, or Employee’s legal representative, a form of written release, which form shall be satisfactory to the Company and generally consistent with the form of release used by the Company prior to such termination of employment (the “Release”) and which shall provide a full release of all claims against the Company and its corporate affiliates, except where Employee has been named as a defendant in a legal action arising out of the performance of Employee’s responsibilities in which case the Release will exempt any claims which Employee or his or her legal representative or estate may have for indemnity by the Company with respect to any such legal action. As a condition to the obligation of the Company to make the payments provided for in such Sections Employee, or Employee’s legal representative, shall execute and deliver the Release to the Company within the time periods provided for in said release.
ARTICLE 4
CHANGE OF CONTROL
4.1 Effect of Change of Control. In the event of a Change of Control of EFI during the term of this Agreement, or any renewal of this Agreement the following provisions shall apply:
a.If upon the Change of Control
i. Employee is not retained by EFI or its successor (whether direct or indirect, by purchase of assets, merger, consolidation, exchange of securities, amalgamation, arrangement or otherwise) to all or substantially all of the business and/or assets of EFI (“Successor”) on the same terms and conditions as set out in this Agreement and in circumstances that would not constitute Good Reason (where Good Reason is determined by reference to Employee’s employment status prior to the Change of Control and prior to any other event that could constitute Good Reason); and/or
ii. any such Successor does not, by agreement in form and substance satisfactory to Employee, expressly assume and agree to perform this Agreement in the same manner and to the same extent that EFI would be required to perform it if no such succession had taken place,
then Employee shall be deemed to be terminated without just cause upon such Change of Control and shall be entitled to the compensation and all other rights specified in Article 3 in the same amount and on the same terms as if terminated without just cause as set out therein, subject to the additional rights set out in paragraph (c) below;
b.All rights of Employee in this Agreement, including without limitation all rights to severance and other rights upon a termination with or without cause, with or without Good Reason, upon a disability or upon death under Article 3 of this Agreement shall continue after a Change of Control in the same manner as before the Change of Control, subject to the additional rights set out in paragraph (c) below;
c.if,
i. there is a deemed termination without cause under Section 4.1(a); or
ii. within twelve (12) months following the effective date of the Change of Control, EFI, or its successor, terminates the employment of Employee without just cause or by reason of Disability, or Employee terminates his or her employment under this Agreement for Good Reason,
then, in addition to the other rights Employee has under this Agreement, and notwithstanding any other provision in this Agreement, all of the stock options previously granted to Employee that have neither vested nor expired will automatically vest and become immediately exercisable, any period of restriction and other restrictions imposed on all RSUs shall lapse, and all RSUs shall be immediately settled and payable, the rights of Employee or his or her legal representative or estate as applicable upon termination in respect of any SARs previously granted to Employee shall be as set forth in the award agreement for any such SARs, and all other securities awarded shall vest and/or accelerate in accordance with Article 15 of the 2018 EFI Omnibus Equity Incentive Plan or the comparable provisions of any other equity incentive plan under which such securities may have been issued. Employee will have ninety (90) days from the effective date of the termination of Employee’s employment to exercise any stock options which had vested as of the effective date of termination and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options.
4.2 Definitions of Change of Control and Good Reason. For the purposes of this Agreement,
a.“Change of Control” will mean the happening of any of the following events:
i. any transaction at any time and by whatever means pursuant to which (A) EFI goes out of existence by any means, except for any corporate transaction or reorganization in which the proportionate voting power among holders of securities of the entity resulting from such corporate transaction or reorganization is substantially the same as the proportionate voting power of such holders of EFI voting securities immediately prior to such corporate transaction or reorganization or (B) any Person (as defined in the Securities Act (Ontario)) or any group of two or more Persons acting jointly or in concert (other than EFI, a wholly-owned Subsidiary of EFI, an employee benefit plan of EFI or of any of its wholly-owned Subsidiaries (as defined in the Securities Act (Ontario)), including the trustee of any such plan acting as trustee) hereafter acquires the direct or indirect “beneficial ownership” (as defined by the Business Corporations Act (Ontario)) of, or acquires the right to exercise control or direction over, securities of EFI representing 50% or more of EFI’s then issued and outstanding securities in any manner whatsoever, including, without limitation, as a result of a take-over bid, an exchange of securities, an amalgamation of EFI with any other entity, an arrangement, a capital reorganization or any other business combination or reorganization;
ii. the sale, assignment or other transfer of all or substantially all of the assets of EFI in one or a series of transactions, whether or not related, to a Person or any group of two or more Persons acting jointly or in concert, other than a wholly-owned Subsidiary of EFI;
iii. the dissolution or liquidation of EFI except in connection with the distribution of assets of EFI to one or more Persons which were wholly-owned Subsidiaries of EFI immediately prior to such event;
iv. the occurrence of a transaction requiring approval of EFI’s shareholders whereby EFI is acquired through consolidation, merger, exchange of securities, purchase of assets, amalgamation, arrangement or otherwise by any other Person (other than a short form amalgamation or exchange of securities with a wholly-owned Subsidiary of EFI);
v. a majority of the members of the Board of Directors of EFI are replaced or changed as a result of or in connection with any: (A) take-over bid, consolidation, merger, exchange of securities, amalgamation, arrangement, capital reorganization or any other business combination or reorganization involving or relating to EFI; (B) sale, assignment or other transfer of all or substantially all of the assets of EFI in one or a series of transactions, or any purchase of assets; or (C) dissolution or liquidation of EFI;
vi. during any two-year period, a majority of the members of the Board of Directors of EFI serving at the date of this Agreement is replaced by directors who are not nominated and approved by the Board of Directors of EFI;
vii. an event set forth in (i), (ii), (iii), (iv), (v) or (vi) has occurred with respect to EFRI or any of its direct or indirect parent companies, in which case the term “EFI” in those paragraphs will be read to mean “EFRI or such parent company” and the phrase “wholly-owned Subsidiary(ies)” will be read to mean “Affiliate(s) or wholly-owned Subsidiary(ies)”; or
viii. the Board of Directors of EFI passes a resolution to the effect that, an event set forth in (i), (ii), (iii), (iv), (v), (vi) or (vii) above has occurred.
b.“Good Reason” means, without the written agreement of Employee, there is:
i. a material reduction or diminution in the level of responsibility, or office of Employee, provided that before any claim of material reduction or diminution of responsibility may be relied upon by Employee, Employee must have provided written notice to Employee’s supervisor and the EFI’s Board of Directors of the alleged material reduction or diminution of responsibility and have given EFI at least thirty (30) calendar days within which to cure the alleged material reduction or diminution of responsibility;
ii. a reduction in Base Salary of more than five (5) percent; or
iii. a proposed, forced relocation of Employee to another geographic location greater than fifty (50) miles from Employee’s office location at the time a move is requested after a Change of Control.
ARTICLE 5
CONFIDENTIALITY
5.1 Position of Trust and Confidence. Employee acknowledges that in the course of discharging his or her responsibilities, he or she will occupy a position of trust and confidence with respect to the affairs and business of the Company and its customers and clients, and that he or she will have access to and be entrusted with detailed confidential information concerning the present and contemplated mining and exploration projects, prospects, and opportunities of the Company. Employee acknowledges that the disclosure of any such confidential information to the competitors of the Company or to the general public would be highly detrimental to the best interests of the Company. Employee further acknowledges and agrees that the right to maintain such detailed confidential information constitutes a proprietary right which the Company is entitled to protect.
5.2 Definition of Confidential Information. In this Agreement, “Confidential Information” means any information disclosed by or on behalf of the Company to Employee or developed by Employee in the performance of his or her responsibilities at any time before or after the execution of this Agreement, and includes any information, documents, or other materials (including, without limitation, any drawings, notes, data, reports, photographs, audio and/or video recordings, samples and the like) relating to the business or affairs of the Company or its respective customers, clients or suppliers that is confidential or proprietary, whether or not such information:
i. is reduced to writing;
ii. was created or originated by an employee; or
iii. is designated or marked as “Confidential” or “Proprietary” or some other designation or marking.
The Confidential Information includes, but is not limited to, the following categories of information relating to the Company:
a.information concerning the present and contemplated mining, milling, processing and exploration projects, prospects and opportunities, including joint venture projects, of the Company;
b.information concerning the application for permitting and eventual development or construction of the Company’s properties, the status of regulatory and environmental matters, the compliance status with respect to licenses, permits, laws and regulations, property and title matters and legal and litigation matters;
c.information of a technical nature such as ideas, discoveries, inventions, improvements, trade secrets, now-how, manufacturing processes, specifications, writings and other works of authorship;
d.financial and business information such as the Company’s business and strategic plans, earnings, assets, debts, prices, pricing structure, volume of purchases or sales, production, revenue and expense projections, historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, or other financial data whether related to the Company’s business generally, or to particular products, services, geographic areas, or time periods;
e.supply and service information such as goods and services suppliers’ names or addresses, terms of supply or service contracts of particular transactions, or related information about potential suppliers to the extent that such information is not generally known to the public, and to the extent that the combination of suppliers or use of a particular supplier, although generally known or available, yields advantages to the Company, the details of which are not generally known;
f.marketing information, such as details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, sales forecasts or results of marketing efforts or information about impending transactions;
g.personnel information relating to employees, contractors, or agents, such as personal histories, compensation or other terms of employment or engagement, actual or proposed promotions, hirings, resignations, disciplinary actions, terminations or reasons therefor, training methods, performance, or other employee information;
h.customer information, such as any compilation of past, existing or prospective customer’s names, addresses, backgrounds, requirements, records of purchases and prices, proposals or agreements between customers and the Company, status of customer accounts or credit, or related information about actual or prospective customers;
i.computer software of any type or form and in any stage of actual or anticipated development, including but not limited to, programs and program modules, routines and subroutines, procedures, algorithms, design concepts, design specifications (design notes, annotations, documentation, float charts, coding sheets, and the like), source codes, object code and load modules, programming, program patches and system designs; and
j.all information which becomes known to Employee as a result of Employee’s employment by the Company, which Employee acting reasonably, believes or ought to believe is confidential or proprietary information from its nature and from the circumstances surrounding its disclosure to Employee.
5.3 Non-Disclosure. Employee, both during his or her employment and for a period of five (5) years after the termination of his or her employment irrespective of the time, manner or cause of termination, will:
a.retain in confidence all of the Confidential Information;
b.refrain from disclosing to any person including, but not limited to, customers and suppliers of the Company, any of the Confidential Information except for the purpose of carrying out Employee’s responsibilities with the Company, and
c.refrain from directly or indirectly using or attempting to use such Confidential Information in any way, except for the purpose of carrying out Employee’s responsibilities with the Company.
Employee shall deliver promptly to the Company, at the termination of Employee’s employment, or at any other time at the Company’s request, without retaining any copies, all documents and other material in Employee’s possession relating, directly or indirectly, to any Confidential Information.
It is understood that should Employee be subject to subpoena or other legal process to seek the disclosure of such Confidential Information, Employee will advise the Company of such process and provide the Company with the necessary information to seek to protect the Confidential Information.
5.4 Whistleblower Laws. The foregoing obligations of confidentiality set out in this Article 5 are subject to applicable whistleblower laws, which protect Employee’s right to provide information to governmental and regulatory authorities, including communications with the U.S. Securities and Exchange Commission about possible securities law violations. Notwithstanding any other provision in this Agreement, Employee is not required to seek the Company’s permission or notify the Company of any communications made in compliance with applicable whistleblower laws, and the Company will not consider any such communications to violate this Agreement or any other agreement between Employer and the Company or any Company policy by which Employee is bound.
ARTICLE 6
NON-SOLICITATION
NON-SOLICITATION
6.1 Non-Solicitation. Employee agrees that during the period (the “Non-Solicitation Period”) commencing on the date of this Agreement and ending twelve (12) months after the effective date of the termination of Employee’s employment irrespective of the time, manner or cause of termination, Employee will not, either individually or in partnership or jointly or in conjunction with any other person, entity or organization, as principal, agent, consultant, contractor, employer, employee or in any other manner, directly or indirectly:
a.solicit business from any customer, client or business relation of the Company, or prospective customer, client or business relation that the Company was actively soliciting, whether or not Employee had direct contact with such customer, client or business relation, for the benefit or on behalf of any person, firm or corporation operating a business which competes with the Company, or attempt to direct any such customer, client or business relation away from the Company or to discontinue or alter any one or more of their relationships with the Company; or
b.hire or offer to hire or entice away or in any other manner persuade or attempt to persuade any officer, employee, consultant, independent contractor, agent, licensee, supplier, or business relation of the Company to discontinue or alter any one of their relationships with the Company.
6.2 Remedies for Breach of Restrictive Covenants. Employee acknowledges that in connection with Employee’s employment he or she will receive or will become eligible to receive substantial benefits and compensation. Employee acknowledges that Employee’s employment by the Company and all compensation and benefits from such employment will be conferred by the Company upon Employee only because and on the condition of Employee’s willingness to commit Employee’s best efforts and loyalty to the Company, including protecting the Company’s confidential information and abiding by the non-solicitation covenants contained in this Agreement. Employee understands that his or her obligations set out in Article 5 and this Article 6 will not unduly restrict or curtail Employee’s legitimate efforts to earn a livelihood following any termination of his or her employment with the Company. Employee agrees that the restrictions contained in Article 5 and this Article 6 are reasonable and valid and all defenses to the strict enforcement of these restrictions by the Company are waived by Employee. Employee further acknowledges that a breach or threatened breach by Employee of any of the provisions contained in Article 5 or this Article 6 would cause the Company irreparable harm which could not be adequately compensated in damages alone. Employee further acknowledges that it is essential to the effective enforcement of this Agreement that, in addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, the Company will be entitled to seek and obtain, in a summary manner, from any Court having jurisdiction, interim, interlocutory, and permanent injunctive relief, specific performance and other equitable remedies, without bond or other security being required. In addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, in the event of a breach of any of the covenants or other obligations contained in this Agreement, the Company will be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remuneration or benefits which Employee directly or indirectly, has realized or may realize relating to, arising out of, or in connection with any such breach. Should a court of competent jurisdiction declare any of the covenants set forth in Article 5 or this Article 6 unenforceable, the court shall be empowered to modify and reform such covenants so as to provide relief reasonably necessary to protect the interests of the Company and Employee and to award injunctive relief, or damages, or both, to which the Company may be entitled.
ARTICLE 7
GENERAL PROVISIONS
7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Colorado.
7.2 Assignability. This Agreement is personal to Employee and without the prior written consent of the Company shall not be assignable by Employee other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable
by Employee’s legal representatives and heirs. This Agreement shall also inure to the benefit of and be binding upon the Company and its successors and assigns.
7.3 Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
7.4 Entire Agreement; Amendment. This Agreement constitutes the entire agreement and understanding between Employee and the Company with respect to the subject matter hereof and, except as otherwise expressly provided herein, supersedes any prior agreements or understandings, whether written or oral, with respect to the subject matter hereof, including without limitation all employment, severance or change of control agreements previously entered into between Employee and the Company. Except as may be otherwise provided herein, this Agreement may not be amended or modified except by subsequent written agreement executed by both parties hereto.
7.5 Section 409A. This Agreement is intended to comply with Section 409A to the extent Section 409A is applicable to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered by the Company in a manner consistent with such intention and to avoid the pre-distribution inclusion in income of amounts deferred under this Agreement and the imposition of any additional tax or interest with respect thereto. Notwithstanding any other provision of this Agreement to the contrary, to the extent that any payment under this Agreement constitutes “nonqualified deferred compensation” under Section 409A, the following shall apply to the extent Section 409A is applicable to such payment:
a.Any payable that is triggered upon the Employee’s termination of employment shall be paid only if such termination of employment constitutes a “separation from service” under Section 409A; and
b.All expenses or other reimbursements paid pursuant to this Agreement that are taxable income to Employee shall be paid no later than the end of the calendar year next following the calendar year in which Employee incurs such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (a) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year; and (c) such payments shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense occurred. For purposes of Section 409A, Employee’s right to receive installment payments of any severance amount, if applicable, shall be treated as a right to receive a series of separate and distinct payments.
In the event that Employee is deemed on the date of termination to be a “specified employee” as defined in Section 409A, then with regard to any payment or the provision of any benefit that is
subject to Section 409A and is payable on account of a separation from service (as defined in Section 409A), such payment or benefit shall be delayed for until the earlier of (a) the first business day of the seventh calendar month following such termination of employment, or (b) Employee’s death. Any payments delayed by reason of the prior sentence shall be paid in a single lump sum, without interest thereon, on the date indicated by the previous sentence and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
7.6 Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which together shall constitute one Agreement.
7.7 Notices. Any notice provided for in this Agreement shall be deemed delivered upon deposit in the United States mails, registered or certified mail, addressed to the party to whom directed at the addresses set forth below or at such other addresses as may be substituted therefor by notice given hereunder. Notice given by any other means must be in writing and shall be deemed delivered only upon actual receipt.
If to the Company:
c/o Energy Fuels Resources (USA) Inc.
225 Union Blvd., Suite 600
Lakewood, CO 80228
Attention: President and Chief Executive Officer
If to Employee:
Dee Ann Nazarenus
8583 W. Indore Pl.
Littleton, CO 80128
7.8 Waiver. The waiver of any term or condition of this Agreement, or breach thereof, shall not be deemed to constitute the waiver of the same or any other term or condition of this Agreement, or breach thereof.
7.9 Severability. In the event any provision of this Agreement is found to be unenforceable or invalid, such provision shall be severable from this Agreement and shall not affect the enforceability or validity of any other provision of this Agreement. If any provision of this Agreement is capable of two constructions, one of which would render the provision void and the other that would render the provision valid, then the provision shall have the construction that renders it valid..
7.10 Arbitration of Disputes. Except for disputes and controversies arising under Articles 5 or 6 or involving equitable or injunctive relief, any dispute or controversy arising under or in connection with this Agreement shall be conducted in accordance with the Colorado
Rules of Civil Procedure and, unless the parties mutually agree on an arbitrator shall be arbitrated by striking from a list of potential arbitrators provided by the Judicial Arbiter Group in Denver, Colorado. If the parties are unable to agree on an arbitrator, the arbitrator will be selected from a list of seven (7) potential arbitrators provided by the Judicial Arbiter Group in Denver. The Company and Employee will flip a coin to determine who will make the first strike. The parties will then alternate striking from the list until there is one arbitrator remaining, who will be the selected arbitrator. Unless the parties otherwise agree and subject to the availability of the arbitrator, the arbitration will be heard within sixty (60) days following the appointment, and the decision of the arbitrator shall be binding on Employee and the Company and will not be subject to appeal. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
7.11 Currency. Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States dollars ($US).
7.12 Company’s Maximum Obligations. The compensation set out in this Agreement represents the Company’s maximum obligations, and other than as set out herein, Employee will not be entitled to any other compensation, rights or benefits in connection with Employee’s employment or the termination of Employee’s employment.
7.13 Full Payment; No Mitigation Obligation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
ENERGY FUELS INC.
By: /s/ Mark S. Chalmers
Name: Mark S. Chalmers
Title: President and Chief Executive Officer
Date: September 1, 2020
ENERGY FUELS RESOURCES (USA) INC.
By: /s/ Mark S. Chalmers
Name: Mark S. Chalmers
Title: President and Chief Executive Officer
Date: September 1, 2020
EMPLOYEE
/s/ Dee Ann Nazarenus
Name: Dee Ann Nazarenus
Title: Vice President of Human Resources & Administration
Date: September 1, 2020
EXHIBIT A
JOB DESCRIPTION
Employee shall be responsible for overseeing all aspects of the Company’s Department of Human Resources, and all administrative matters.
Essential duties and responsibilities include:
•Negotiating medical/dental insurance and other benefits by reviewing the best options for employees, consulting with CEO regarding participant contribution;
•Administering benefit plans (medical, dental, flex, Life, LTD, AFLAC: enrollment, funding, participant questions and claim resolution;
•Responsible for 401(k) plan: compliance, funding, procedures, enrollment meetings, participant questions and audit;
•Overseeing field administrators to ensure accurate first line communication of benefits and policies;
•Assisting area managers in recruiting professional staff and negotiating employment contracts;
•Supervising Payroll Administrator;
•Resolving issues, ensuring government reporting is filed correctly and on a timely basis;
•Formulating and recommending Human Resources policies and objectives for the entire company;
•Determining and recommending employee relations practices necessary to establish a positive employer-employee relationship and promote a high level of employee morale;
•Identifying legal requirements and government reporting regulations affecting Human Resources function (e.g., EEO, TEFRA, ERISA, and Wage & Hour).
•Monitoring exposure of the company; directing the preparation of information requested or required for compliance; approving all information submitted; and acting as primary contact with labor counsel and outside government agencies;
•Protecting interests of employees and the company in accordance with company Human Resources policies while ensuring compliance with all governmental laws and regulations. Approving recommendations for terminations. Reviewing employee appeals through complaint procedure;
•Directing a process of organizational planning that evaluates structure, job design, and manpower forecasting throughout the company;
•Coordinating activities across division lines. Evaluating plans and changes to plans. Making recommendations to senior management;
•Assisting with the wage and salary structure, pay policies, performance appraisal programs, employee benefit programs and services, and company safety and health programs. Monitoring for effectiveness and cost containments;
•Establishing standard recruiting and placement practices and procedures. Updating employee manual and new hire packets;
•Establishing in-house management training programs that address company needs across division lines (e.g., MBO, Performance Appraisal, and Interviewing);
•Providing necessary education and materials to line management and employees-workshops, manuals, employee handbooks, standardized reports;
•Selecting and coordinating use of benefit brokers, pension administrators, training specialists, and other outside sources;
•Conducting a continuing study of all Human Resources policies, programs, and practices to keep top management informed of new developments;
•Directing the preparation and maintenance of such reports as are necessary to carry out functions of department. Preparing periodic reports to top management as necessary or requested;
•Keeping supervisors informed of significant problems that jeopardize the achievement of objectives and those which are not being addressed adequately at the line management level;
•Overseeing the IT department; and
•Overseeing general administration of the Company’s offices.
Employee shall report to the President and CEO of the Company.
This position will be located in the Lakewood office with travel as required.
Performance is to be based on performance criteria, which will be evaluated once per year.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (“Agreement”) is effective as of the 1st day of September 2020 (the “Effective Date”), by and between Energy Fuels Resources (USA) Inc., a Delaware corporation (“EFRI”), Energy Fuels Inc., an Ontario corporation (“EFI”) (EFRI and EFI are collectively referred to herein as the “Company”) and Scott A. Bakken (“Employee”).
In consideration of the agreements contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and Employee hereby agree as follows:
ARTICLE 1.
EMPLOYMENT, REPORTING AND DUTIES
1.1 Employment. The Company hereby employs and engages the services of Employee to serve as Vice President, Regulatory Affairs and Employee agrees to diligently and competently serve as and perform the functions of Vice President, Regulatory Affairs for the compensation and benefits stated herein. A copy of Employee’s current job description is attached hereto as Exhibit A, and Company and Employee agree and acknowledge that, subject to Section 4.2(b)(i), Company retains the right to reasonably add to, or remove, duties and responsibilities set forth in that job description as business or other operating reasons may arise for changes to occur. It is understood that Employee will be appointed an officer of EFI and EFRI during the term of this Agreement, but that Employee’s direct employment relationship will be as an employee of EFRI.
1.2 Fulltime Service. Excluding any periods of vacation and sick leave to which Employee may be entitled, Employee agrees to devote Employee’s full time and energies to the responsibilities with the Company consistent with past practice and shall not, during the Term of this Agreement, be engaged in any business activity which would interfere with or prevent Employee from carrying out Employee’s duties under this Agreement.
ARTICLE 2.
COMPENSATION AND RELATED ITEMS
2.1 Compensation.
a.Base Salary and Benefits. As compensation and consideration for the services to be rendered by Employee under this Agreement, the Company agrees to pay Employee and Employee agrees to accept, a base salary (“Base Salary”) of $175,218 per annum, less required tax withholding, which shall be paid in accordance with the Company’s standard payroll practice. Employee’s Base Salary may be increased from time to time, at the discretion of the Company, and after any such change, Employee’s new level of Base Salary shall be Employee’s Base Salary for purposes of this Agreement until the effective date of any subsequent change. Employee shall also receive benefits such as health insurance, vacation and other benefits consistent with the then applicable Company benefit plans to the same extent as other employees of the Company with similar position or level. Employee understands and
agrees that Company’s benefit plans may, from time to time, be modified or eliminated at Company’s discretion.
b.Bonus. In addition to the Base Salary, Employee will be eligible for the award of annual cash incentive compensation, at the discretion of the President & CEO of the Company. Such award is totally discretionary as determined by the President & CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
c.Equity Incentive Compensation Plan. You will be eligible to participate in and receive compensation under EFI’s Omnibus Equity Incentive Compensation Plan, consistent with the terms of that Plan. Any awards under that Plan are totally discretionary as determined by the President & CEO of the Company, and it is understood there is no guarantee of any award, let alone an award in any particular amount.
2.2 Annual Medical. The Company will reimburse Employee for the cost of a comprehensive annual medical examination for each year of this Agreement, provided that Employee requests such reimbursement and such reimbursement is made no later than the last day of the calendar year following the calendar year in which the examination expense was incurred. Employee will promptly notify the President & CEO if the annual medical examination reveals any condition which, if untreated, is likely to interfere with Employee’s ability to perform the essential requirements of his or her position, and if requested by the President & CEO, Employee will provide the details of the condition and the potential impact on his or her ability to perform the essential requirements of his or her position to enable the President & CEO to determine how best to accommodate Employee and protect the critical business interests of the Company.
2.3 Expenses. The Company agrees that Employee shall be allowed reasonable and necessary business expenses in connection with the performance of Employee’s duties within the guidelines established by the Company as in effect at any time with respect to key employees (“Business Expenses”), including, but not limited to, reasonable and necessary expenses for food, travel, lodging, entertainment and other items in the promotion of the Company within such guidelines. The Company shall promptly reimburse Employee for all reasonable Business Expenses incurred by Employee upon Employee’s presentation to the Company of an itemized account thereof, together with receipts, vouchers, or other supporting documentation.
2.4 Vacation. Employee will be entitled to five weeks of vacation each year (which includes all sick leave), in addition to the 10 paid holidays each year. Carry over from one year to the next will be as per the Company’s paid leave policy.
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ARTICLE 3.
TERMINATION
3.1 Term. Employee’s employment under this Agreement shall commence on the Effective Date and will end on the date (the “Initial Expiration Date”) that is the second anniversary of the Effective Date, unless terminated sooner under the provisions of this Article, or extended under the terms of this Section. If neither Company nor Employee provides written notice of intent not to renew this Agreement by ninety (90) days prior to the Initial Expiration Date, this Agreement shall be automatically renewed for twelve (12) additional months, and if neither Company nor Employee provides written notice of intent not to renew this Agreement prior to ninety (90) days before the end of such additional 12-month period, this Agreement shall continue to be automatically renewed for successive additional 12-month periods until such time either Company or Employee provides written notice of intent not to renew prior to ninety (90) days before the end of any such renewal period.
3.2 Termination of Employment. Except as may otherwise be provided herein, Employee’s employment under this Agreement may terminate upon the occurrence of:
a.Notice by Company. The termination date specified in a written notice of termination that is given by the Company to Employee;
b.Notice by Employee. Thirty (30) days after written notice of termination is given by Employee to the Company;
c.Death or Disability. Employee’s death or, at the Company’s option, upon Employee’s becoming disabled;
d.Deemed Termination Without Just Cause upon a Change of Control. A deemed termination without just cause under Section 4.1(a) upon the occurrence of a Change of Control; or
e.Notice Not to Renew. If the Company or Employee gives the other a notice not to renew this Agreement under Section 3.1, employment under this Agreement shall terminate at the close of business at the end of the Initial Expiration Date or at the end of the 12-month renewal period in which timely notice not to renew was given, as the case may be. A notice by the Company not to renew shall be considered a notice of termination, resulting in the Company terminating Employee’s employment under this Agreement.
Any notice of termination given by the Company to Employee under Section 3.2(a) or (e) above shall specify whether such termination is with or without just cause as defined in Section 3.4. Any notice of termination given by Employee to the Company under Section 3.2(b) above shall specify whether such termination is made with or without Good Reason as defined in Section 4.2(b).
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3.3 Obligations of the Company Upon Termination.
a.With Just Cause/Without Good Reason. If the Company terminates Employee’s employment under this Agreement with just cause as defined in Section 3.4, or if Employee terminates his or her employment without Good Reason as defined in Section 4.2(b), in either case whether before or after a Change of Control as defined in Section 4.2(a), then Employee’s employment with the Company shall terminate without further obligation by the Company to Employee, other than payment of all accrued obligations (“Accrued Obligations”), including outstanding Base Salary, accrued vacation pay and any other cash benefits accrued up to and including the date of termination. That payment shall be made in one lump sum, less required tax withholding, within ten (10) working days after the effective date of such termination. Employee will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee’s employment; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options. Any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any Restricted Stock Units (“RSUs”) held by Employee that have vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee. Any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. The rights of Employee upon termination in respect of any Stock Appreciation Rights ("SARs") or other awards granted to Employee under any of the Company’s equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable. Notwithstanding the foregoing, on retirement, Employee will have up to the earlier of: (A) one hundred and eighty (180) days from the effective date of retirement; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options.
b.With Good Reason/Without Just Cause/Disabled/Death. If Employee terminates Employee’s employment under this Agreement for Good Reason as defined in Section 4.2(b), or if the Company terminates Employee’s employment without just cause as defined in Section 3.4, or if the Company terminates Employee’s employment by reason of Employee becoming Disabled as defined in Section 3.5, or if Employee dies (in which case the date of Employee’s death shall be considered his or her termination date), in any case whether before or after a Change of Control as defined in Section 4.2(a), or if there is a deemed termination without just cause upon a Change of Control as contemplated by Section 4.1(a), then Employee’s employment with the Company shall terminate, as of the effective date of the termination, and in lieu of any other severance benefit that would otherwise be payable to Employee:
i. the Company shall pay the following amounts to Employee (or, in the case of termination by reason of Employee becoming Disabled or upon the death of
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Employee, to Employee’s legal representative or estate as applicable) after the effective date of such termination or in a manner and at such later time as specified by Employee (or Employee’s legal representative), and agreed to by the Company, subject to being in compliance with Section 409A (“Section 409A”) of the US Internal Revenue Code of 1986, as amended (the “Code”):
A.all Accrued Obligations, less required tax withholding, up to and including the date of termination, to be paid on the date of termination of employment, or within no more than five (5) working days thereafter, and the Company will reimburse the Employee for all proper expenses incurred by the Employee in discharging his or her responsibilities to the Company prior to the effective date of termination of the Employee’s employment in accordance with Section 2.3 above; and
B.an amount equal to one (1.0) (the “Severance Factor”) times Employee’s Base Salary in effect at the time of such termination, less required tax withholding, such amount to be paid within thirty (30) calendar days after the date Employee signs the Release contemplated by Section 3.7; and
C.an amount equal to the greater of:
I.the Severance Factor times the highest total aggregate cash bonus paid in any one of Employee’s last three calendar years or the year in which Employee’s termination occurs; or
II.fifteen percent (15%) of Employee’s Base Salary in effect at the time of such termination,
less required tax withholding, such amount to be paid within thirty (30) calendar days after the date Employee signs the Release contemplated by Section 3.7;
ii. Employee or Employee’s legal representative will have up to the earlier of: (A) ninety (90) days from the effective date of termination of Employee’s employment for all cases other than the death of Employee and twelve (12) months from the effective date of termination of Employee’s employment in the case of death of Employee; or (B) the date on which the exercise period of the particular stock option expires, to exercise only that portion of the stock options previously granted to Employee that have not been exercised, but which have vested, and thereafter Employee’s stock options will expire and Employee or his or her legal representative will have no further right to exercise the stock options. Subject to Section 4.1(c), any stock options held by Employee that are not yet vested at the termination date immediately expire and are cancelled and forfeited to the Company on the termination date. Any RSUs held by Employee that have
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vested on or before the termination date shall be paid (or the shares issuable thereunder issued) to Employee or his or her legal representative or estate as applicable. Subject to Section 4.1(c), any RSUs held by Employee that are not vested on or before the termination date will be immediately cancelled and forfeited to the Company on the termination date. Subject to Section 4.1(c), the rights of Employee or his or her legal representative or estate as applicable upon termination in respect of any SARs or other awards granted to Employee under any of the Company’s equity compensation plans shall be as set forth in such plans or in the award agreement for any such awards, as applicable;
iii. Upon termination, the Company or its Successor (as defined in Section 4.1(a)), agrees to reimburse Employee the full cost of the COBRA continuation rate charged for employee and dependent coverage, through the EFRI Health and Welfare Plan on a monthly basis, for a period of months equal to twelve times the Severance Factor (the “Coverage Period”), beyond Employee’s termination month. Employee and his or her dependents may, at their choosing, enroll in the COBRA continuation plan through EFRI for the first eighteen months following Employee’s termination month or, if they choose, they may enroll in a separate plan of their choosing, by using the reimbursement to enroll in medical and prescription insurance of their choosing. Reimbursement at the rate described herein will continue for the Coverage Period beyond Employee’s termination month, and beginning with the nineteenth month, Employee and his or her dependents will need to obtain coverage from a different source than the COBRA continuation plan through EFRI. The reimbursement will be to Employee and his or her dependents directly, and will be grossed up so that there is no negative tax impact to the Employee or his or her dependents for coverage of the premiums charged by the insurance carriers for the COBRA continuation coverage for the current month of reimbursement. The reimbursed cost of COBRA coverage will be indexed annually and will match the rate charged for any month of coverage available by the insurance carrier for Medical, Dental, and Optical coverage through EFRI for employee and spouse coverage. Both Employee and his or her dependents, will have the option of purchasing a medical plan separate from the plan offered by EFRI; and
iv. Nothing herein shall preclude the Company from granting additional severance benefits to Employee upon termination of employment.
Notwithstanding the foregoing, in the case of Disability, any Base Salary payable to Employee during the one hundred and eighty (180) day period of disability will be reduced by the amount of any disability benefits Employee receives or is entitled to receive as a result of any disability insurance policies for which the Company has paid the premiums.
c.Section 280G. Notwithstanding any other provisions of this Agreement, or any other plan, arrangement or agreement to the contrary, if any of the payments or benefits provided or to be provided by the Company or its affiliates to Employee or for Employee’s
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benefit pursuant to the terms of this Agreement or otherwise (“Covered Payments”) constitute “parachute payments” within the meaning of Section 280G of the Code and would, but for this Section 3.3(c) be subject to the excise tax imposed under Section 4999 of the Code (or any successor provision thereto) or any similar tax imposed by state or local law or any interest or penalties with respect to such taxes (collectively, the “Excise Tax”), then the following shall apply:
i. If the Covered Payments, reduced by the sum of (1) the Excise Tax and (2) the total of the Federal, state, and local income and employment taxes payable by Employee on the amount of the Covered Payments which are in excess of three times Employee’s “base amount” within the meaning of Section 280(G) of the Code less one dollar (the “Threshold Amount”), are greater than or equal to the Threshold Amount, Employee shall be entitled to the full benefits payable under this Agreement; and
ii. If the Threshold Amount is less than (1) the Covered Payments, but greater than (2) the Covered Payments reduced by the sum of (x) the Excise Tax and (y) the total of the Federal, state, and local income and employment taxes on the amount of the Covered Payments which are in excess of the Threshold Amount, then the Covered Payments shall be reduced (but not below zero) to the extent necessary so that the sum of all Covered Payments shall not exceed the Threshold Amount. In such event, the Covered Payments shall be reduced in the following order: (A) cash payments not subject to Section 409A; (B) cash payments subject to Section 409A; (C) equity-based payments and acceleration; and (D) non-cash forms of benefits. To the extent any payment is to be made over time (e.g., in installments, etc.), then the payments shall be reduced in reverse chronological order.
The determination as to which of the alternative provisions of Section 3.3(c)(ii) shall apply to Employee shall be made by a nationally recognized accounting firm selected by the Company (the “Accounting Firm”), which shall provide detailed supporting calculations both to the Company and Employee within 15 business days of the date of termination, if applicable, or at such earlier time as is reasonably requested by the Company or Employee. For purposes of determining which of the alternative provisions of Section 3.3(c)(ii) shall apply, Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of Employee’s residence on the date of termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. Any determination by the Accounting Firm shall be binding upon the Company and Employee.
3.4 Definition of Just Cause. As used in this Agreement, the term “just cause” will mean any one or more of the following events:
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a.theft, fraud, dishonesty, or misappropriation by Employee involving the property, business or affairs of the Company or the discharge of Employee’s responsibilities or the exercise of his or her authority;
b.willful misconduct or the willful failure by Employee to properly discharge his or her responsibilities or to adhere to the policies of the Company;
c.Employee’s gross negligence in the discharge of his or her responsibilities or involving the property, business or affairs of the Company to the material detriment of the Company;
d.Employee’s conviction of a criminal or other statutory offence that constitutes a felony, or which has a potential sentence of imprisonment greater than six (6) months or Employee’s conviction of a criminal or other statutory offence involving, in the sole discretion of the Board of Directors of EFI, moral turpitude;
e.Employee’s material breach of a fiduciary duty owed to the Company;
f.any material breach by Employee of the covenants contained in Articles 5 or 6 below;
g.Employee’s unreasonable refusal to follow the lawful written direction of the President and Chief Executive Officer of the Company on any material matter;
h.any conduct of Employee which, in the reasonable opinion of the President and Chief Executive Officer of the Company or Board of Directors of EFI, is materially detrimental or embarrassing to the Company; or
i.any other conduct by Employee that would constitute “just cause” as that term is defined at law.
The Company must provide written notice to Employee prior to termination for just cause pursuant to Section 3.4 (c), (f), (g), (h), or (i) and provide Employee the opportunity to correct and cure the failure within thirty (30) days from the receipt of such notice. If the parties disagree as to whether the Company had just cause to terminate the Employee’s employment, the dispute will be submitted to binding arbitration pursuant to Section 7.10 below.
3.5 Definition of Disabled. As used herein, “Disabled” shall mean a mental or physical impairment which, in the reasonable opinion of a qualified doctor selected by mutual agreement of the Company and Employee acting reasonably, renders Employee unable, with reasonable accommodation, to perform with reasonable diligence the essential functions and duties of Employee on a full-time basis in accordance with the terms of this Agreement, which inability continues for a period of not less than 180 consecutive days. The providing of service to the Company for up to two (2) three (3) day periods during the one hundred and eighty (180) day period of disability will not affect the determination as to whether Employee is Disabled and will not restart the one hundred and eighty (180) day period of disability. If any dispute arises
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between the parties as to whether Employee is Disabled, Employee will submit to an examination by a physician selected by the mutual agreement of the Company and Employee acting reasonably, at the Company’s expense. The decision of the physician will be certified in writing to the Company, and will be sent by the Physician to Employee or Employee’s legally authorized representative, and will be conclusive for the purposes of determining whether Employee is Disabled. If Employee fails to submit to a medical examination within twenty (20) days after the Company’s request, Employee will be deemed to have voluntarily terminated his or her employment.
3.6 Return of Materials; Confidential Information. In connection with Employee’s separation from employment for any reason, Employee shall return any and all physical property belonging to the Company, and all material of whatever type containing “Confidential Information” as defined in Section 5.2 below, including, but not limited to, any and all documents, whether in paper or electronic form, which contain Confidential Information, any customer information, production information, manufacturing-related information, pricing information, files, memoranda, reports, pass codes/access cards, training or other reference manuals, Company vehicle, telephone, gas cards or other Company credit cards, keys, computers, laptops, including any computer disks, software, facsimile machines, memory devices, printers, telephones, pagers or the like.
3.7 Delivery of Release. Within ten (10) working days after termination of Employee’s employment, and as a condition for receipt of payments set forth in Section 3.3(b)(i)(B) and (C), 3(b)(iii), and 4.1(a), the Company shall provide to Employee, or Employee’s legal representative, a form of written release, which form shall be satisfactory to the Company and generally consistent with the form of release used by the Company prior to such termination of employment (the “Release”) and which shall provide a full release of all claims against the Company and its corporate affiliates, except where Employee has been named as a defendant in a legal action arising out of the performance of Employee’s responsibilities in which case the Release will exempt any claims which Employee or his or her legal representative or estate may have for indemnity by the Company with respect to any such legal action. As a condition to the obligation of the Company to make the payments provided for in such Sections Employee, or Employee’s legal representative, shall execute and deliver the Release to the Company within the time periods provided for in said release.
3.8 Relocation Allowance. The Company will reimburse all Employee’s reasonable documented direct costs of relocating from his current residence in Fort Collins CO to the Denver CO metro area (within a reasonable commute to the Lakewood office) up to a maximum amount of $65,000, provided such relocation occurs within two years after the Effective Date of this Agreement. This would include the costs associated with the sale of Employee’s residence in Fort Collins (i.e., reasonable realtor commissions and legal, documentation, filing and loan origination fees associated therewith), cost of moving personal possessions and family members, and a lump sum payment to cover estimated U.S. income taxes payable on the relocation costs paid to Employee, up to a total amount not to exceed $65,000.
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ARTICLE 4
CHANGE OF CONTROL
4.1 Effect of Change of Control. In the event of a Change of Control of EFI during the term of this Agreement, or any renewal of this Agreement the following provisions shall apply:
a.If upon the Change of Control
i. Employee is not retained by EFI or its successor (whether direct or indirect, by purchase of assets, merger, consolidation, exchange of securities, amalgamation, arrangement or otherwise) to all or substantially all of the business and/or assets of EFI (“Successor”) on the same terms and conditions as set out in this Agreement and in circumstances that would not constitute Good Reason (where Good Reason is determined by reference to Employee’s employment status prior to the Change of Control and prior to any other event that could constitute Good Reason); and/or
ii. any such Successor does not, by agreement in form and substance satisfactory to Employee, expressly assume and agree to perform this Agreement in the same manner and to the same extent that EFI would be required to perform it if no such succession had taken place,
then Employee shall be deemed to be terminated without just cause upon such Change of Control and shall be entitled to the compensation and all other rights specified in Article 3 in the same amount and on the same terms as if terminated without just cause as set out therein, subject to the additional rights set out in paragraph (c) below;
b.All rights of Employee in this Agreement, including without limitation all rights to severance and other rights upon a termination with or without cause, with or without Good Reason, upon a disability or upon death under Article 3 of this Agreement shall continue after a Change of Control in the same manner as before the Change of Control, subject to the additional rights set out in paragraph (c) below;
c.if,
i. there is a deemed termination without cause under Section 4.1(a); or
ii. within twelve (12) months following the effective date of the Change of Control, EFI, or its successor, terminates the employment of Employee without just cause or by reason of Disability, or Employee terminates his or her employment under this Agreement for Good Reason,
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then, in addition to the other rights Employee has under this Agreement, and notwithstanding any other provision in this Agreement, all of the stock options previously granted to Employee that have neither vested nor expired will automatically vest and become immediately exercisable, any period of restriction and other restrictions imposed on all RSUs shall lapse, and all RSUs shall be immediately settled and payable, the rights of Employee or his or her legal representative or estate as applicable upon termination in respect of any SARs previously granted to Employee shall be as set forth in the award agreement for any such SARs, and all other securities awarded shall vest and/or accelerate in accordance with Article 15 of the 2018 EFI Omnibus Equity Incentive Plan or the comparable provisions of any other equity incentive plan under which such securities may have been issued. Employee will have ninety (90) days from the effective date of the termination of Employee’s employment to exercise any stock options which had vested as of the effective date of termination and thereafter Employee’s stock options will expire and Employee will have no further right to exercise the stock options.
4.2 Definitions of Change of Control and Good Reason. For the purposes of this Agreement,
a.“Change of Control” will mean the happening of any of the following events:
i. any transaction at any time and by whatever means pursuant to which (A) EFI goes out of existence by any means, except for any corporate transaction or reorganization in which the proportionate voting power among holders of securities of the entity resulting from such corporate transaction or reorganization is substantially the same as the proportionate voting power of such holders of EFI voting securities immediately prior to such corporate transaction or reorganization or (B) any Person (as defined in the Securities Act (Ontario)) or any group of two or more Persons acting jointly or in concert (other than EFI, a wholly-owned Subsidiary of EFI, an employee benefit plan of EFI or of any of its wholly-owned Subsidiaries (as defined in the Securities Act (Ontario)), including the trustee of any such plan acting as trustee) hereafter acquires the direct or indirect “beneficial ownership” (as defined by the Business Corporations Act (Ontario)) of, or acquires the right to exercise control or direction over, securities of EFI representing 50% or more of EFI’s then issued and outstanding securities in any manner whatsoever, including, without limitation, as a result of a take-over bid, an exchange of securities, an amalgamation of EFI with any other entity, an arrangement, a capital reorganization or any other business combination or reorganization;
ii. the sale, assignment or other transfer of all or substantially all of the assets of EFI in one or a series of transactions, whether or not related, to a Person or any group of two or more Persons acting jointly or in concert, other than a wholly-owned Subsidiary of EFI;
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iii. the dissolution or liquidation of EFI except in connection with the distribution of assets of EFI to one or more Persons which were wholly-owned Subsidiaries of EFI immediately prior to such event;
iv. the occurrence of a transaction requiring approval of EFI’s shareholders whereby EFI is acquired through consolidation, merger, exchange of securities, purchase of assets, amalgamation, arrangement or otherwise by any other Person (other than a short form amalgamation or exchange of securities with a wholly-owned Subsidiary of EFI);
v. a majority of the members of the Board of Directors of EFI are replaced or changed as a result of or in connection with any: (A) take-over bid, consolidation, merger, exchange of securities, amalgamation, arrangement, capital reorganization or any other business combination or reorganization involving or relating to EFI; (B) sale, assignment or other transfer of all or substantially all of the assets of EFI in one or a series of transactions, or any purchase of assets; or (C) dissolution or liquidation of EFI;
vi. during any two-year period, a majority of the members of the Board of Directors of EFI serving at the date of this Agreement is replaced by directors who are not nominated and approved by the Board of Directors of EFI;
vii. an event set forth in (i), (ii), (iii), (iv), (v) or (vi) has occurred with respect to EFRI or any of its direct or indirect parent companies, in which case the term “EFI” in those paragraphs will be read to mean “EFRI or such parent company” and the phrase “wholly-owned Subsidiary(ies)” will be read to mean “Affiliate(s) or wholly-owned Subsidiary(ies)”; or
viii. the Board of Directors of EFI passes a resolution to the effect that, an event set forth in (i), (ii), (iii), (iv), (v), (vi) or (vii) above has occurred.
b.“Good Reason” means, without the written agreement of Employee, there is:
i. a material reduction or diminution in the level of responsibility, or office of Employee, provided that before any claim of material reduction or diminution of responsibility may be relied upon by Employee, Employee must have provided written notice to Employee’s supervisor and the EFI’s Board of Directors of the alleged material reduction or diminution of responsibility and have given EFI at least thirty (30) calendar days within which to cure the alleged material reduction or diminution of responsibility;
ii. a reduction in Base Salary of more than five (5) percent; or
iii. a proposed, forced relocation of Employee to another geographic location greater than fifty (50) miles from Employee’s office location at the time a move is requested after a Change of Control.
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ARTICLE 5
CONFIDENTIALITY
5.1 Position of Trust and Confidence. Employee acknowledges that in the course of discharging his or her responsibilities, he or she will occupy a position of trust and confidence with respect to the affairs and business of the Company and its customers and clients, and that he or she will have access to and be entrusted with detailed confidential information concerning the present and contemplated mining and exploration projects, prospects, and opportunities of the Company. Employee acknowledges that the disclosure of any such confidential information to the competitors of the Company or to the general public would be highly detrimental to the best interests of the Company. Employee further acknowledges and agrees that the right to maintain such detailed confidential information constitutes a proprietary right which the Company is entitled to protect.
5.2 Definition of Confidential Information. In this Agreement, “Confidential Information” means any information disclosed by or on behalf of the Company to Employee or developed by Employee in the performance of his or her responsibilities at any time before or after the execution of this Agreement, and includes any information, documents, or other materials (including, without limitation, any drawings, notes, data, reports, photographs, audio and/or video recordings, samples and the like) relating to the business or affairs of the Company or its respective customers, clients or suppliers that is confidential or proprietary, whether or not such information:
i. is reduced to writing;
ii. was created or originated by an employee; or
iii. is designated or marked as “Confidential” or “Proprietary” or some other designation or marking.
The Confidential Information includes, but is not limited to, the following categories of information relating to the Company:
a.information concerning the present and contemplated mining, milling, processing and exploration projects, prospects and opportunities, including joint venture projects, of the Company;
b.information concerning the application for permitting and eventual development or construction of the Company’s properties, the status of regulatory and environmental matters, the compliance status with respect to licenses, permits, laws and regulations, property and title matters and legal and litigation matters;
c.information of a technical nature such as ideas, discoveries, inventions, improvements, trade secrets, know-how, manufacturing processes, specifications, writings and other works of authorship;
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d.financial and business information such as the Company’s business and strategic plans, earnings, assets, debts, prices, pricing structure, volume of purchases or sales, production, revenue and expense projections, historical financial statements, financial projections and budgets, historical and projected sales, capital spending budgets and plans, or other financial data whether related to the Company’s business generally, or to particular products, services, geographic areas, or time periods;
e.supply and service information such as goods and services suppliers’ names or addresses, terms of supply or service contracts of particular transactions, or related information about potential suppliers to the extent that such information is not generally known to the public, and to the extent that the combination of suppliers or use of a particular supplier, although generally known or available, yields advantages to the Company, the details of which are not generally known;
f.marketing information, such as details about ongoing or proposed marketing programs or agreements by or on behalf of the Company, sales forecasts or results of marketing efforts or information about impending transactions;
g.personnel information relating to employees, contractors, or agents, such as personal histories, compensation or other terms of employment or engagement, actual or proposed promotions, hirings, resignations, disciplinary actions, terminations or reasons therefor, training methods, performance, or other employee information;
h.customer information, such as any compilation of past, existing or prospective customer’s names, addresses, backgrounds, requirements, records of purchases and prices, proposals or agreements between customers and the Company, status of customer accounts or credit, or related information about actual or prospective customers;
i.computer software of any type or form and in any stage of actual or anticipated development, including but not limited to, programs and program modules, routines and subroutines, procedures, algorithms, design concepts, design specifications (design notes, annotations, documentation, float charts, coding sheets, and the like), source codes, object code and load modules, programming, program patches and system designs; and
j.all information which becomes known to Employee as a result of Employee’s employment by the Company, which Employee acting reasonably, believes or ought to believe is confidential or proprietary information from its nature and from the circumstances surrounding its disclosure to Employee.
5.3 Non-Disclosure. Employee, both during his or her employment and for a period of five (5) years after the termination of his or her employment irrespective of the time, manner or cause of termination, will:
a.retain in confidence all of the Confidential Information;
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b.refrain from disclosing to any person including, but not limited to, customers and suppliers of the Company, any of the Confidential Information except for the purpose of carrying out Employee’s responsibilities with the Company, and
c.refrain from directly or indirectly using or attempting to use such Confidential Information in any way, except for the purpose of carrying out Employee’s responsibilities with the Company.
Employee shall deliver promptly to the Company, at the termination of Employee’s employment, or at any other time at the Company’s request, without retaining any copies, all documents and other material in Employee’s possession relating, directly or indirectly, to any Confidential Information.
It is understood that should Employee be subject to subpoena or other legal process to seek the disclosure of such Confidential Information, Employee will advise the Company of such process and provide the Company with the necessary information to seek to protect the Confidential Information.
5.4 Whistleblower Laws. The foregoing obligations of confidentiality set out in this Article 5 are subject to applicable whistleblower laws, which protect Employee’s right to provide information to governmental and regulatory authorities, including communications with the U.S. Securities and Exchange Commission about possible securities law violations. Notwithstanding any other provision in this Agreement, Employee is not required to seek the Company’s permission or notify the Company of any communications made in compliance with applicable whistleblower laws, and the Company will not consider any such communications to violate this Agreement or any other agreement between Employer and the Company or any Company policy by which Employee is bound.
ARTICLE 6
NON-SOLICITATION
NON-SOLICITATION
6.1 Non-Solicitation. Employee agrees that during the period (the “Non-Solicitation Period”) commencing on the date of this Agreement and ending twelve (12) months after the effective date of the termination of Employee’s employment irrespective of the time, manner or cause of termination, Employee will not, either individually or in partnership or jointly or in conjunction with any other person, entity or organization, as principal, agent, consultant, contractor, employer, employee or in any other manner, directly or indirectly:
a.solicit business from any customer, client or business relation of the Company, or prospective customer, client or business relation that the Company was actively soliciting, whether or not Employee had direct contact with such customer, client or business relation, for the benefit or on behalf of any person, firm or corporation operating a business which competes with the Company, or attempt to direct any such customer, client or business relation away from the Company or to discontinue or alter any one or more of their relationships with the Company; or
15
b.hire or offer to hire or entice away or in any other manner persuade or attempt to persuade any officer, employee, consultant, independent contractor, agent, licensee, supplier, or business relation of the Company to discontinue or alter any one of their relationships with the Company.
6.2 Remedies for Breach of Restrictive Covenants. Employee acknowledges that in connection with Employee’s employment he or she will receive or will become eligible to receive substantial benefits and compensation. Employee acknowledges that Employee’s employment by the Company and all compensation and benefits from such employment will be conferred by the Company upon Employee only because and on the condition of Employee’s willingness to commit Employee’s best efforts and loyalty to the Company, including protecting the Company’s confidential information and abiding by the non-solicitation covenants contained in this Agreement. Employee understands that his or her obligations set out in Article 5 and this Article 6 will not unduly restrict or curtail Employee’s legitimate efforts to earn a livelihood following any termination of his or her employment with the Company. Employee agrees that the restrictions contained in Article 5 and this Article 6 are reasonable and valid and all defenses to the strict enforcement of these restrictions by the Company are waived by Employee. Employee further acknowledges that a breach or threatened breach by Employee of any of the provisions contained in Article 5 or this Article 6 would cause the Company irreparable harm which could not be adequately compensated in damages alone. Employee further acknowledges that it is essential to the effective enforcement of this Agreement that, in addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, the Company will be entitled to seek and obtain, in a summary manner, from any Court having jurisdiction, interim, interlocutory, and permanent injunctive relief, specific performance and other equitable remedies, without bond or other security being required. In addition to any other remedies to which the Company may be entitled at law or in equity or otherwise, in the event of a breach of any of the covenants or other obligations contained in this Agreement, the Company will be entitled to an accounting and repayment of all profits, compensation, royalties, commissions, remuneration or benefits which Employee directly or indirectly, has realized or may realize relating to, arising out of, or in connection with any such breach. Should a court of competent jurisdiction declare any of the covenants set forth in Article 5 or this Article 6 unenforceable, the court shall be empowered to modify and reform such covenants so as to provide relief reasonably necessary to protect the interests of the Company and Employee and to award injunctive relief, or damages, or both, to which the Company may be entitled.
ARTICLE 7
GENERAL PROVISIONS
7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Colorado.
7.2 Assignability. This Agreement is personal to Employee and without the prior written consent of the Company shall not be assignable by Employee other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable
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by Employee’s legal representatives and heirs. This Agreement shall also inure to the benefit of and be binding upon the Company and its successors and assigns.
7.3 Withholding. The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.
7.4 Entire Agreement; Amendment. This Agreement constitutes the entire agreement and understanding between Employee and the Company with respect to the subject matter hereof and, except as otherwise expressly provided herein, supersedes any prior agreements or understandings, whether written or oral, with respect to the subject matter hereof, including without limitation all employment, severance or change of control agreements previously entered into between Employee and the Company. Except as may be otherwise provided herein, this Agreement may not be amended or modified except by subsequent written agreement executed by both parties hereto.
7.5 Section 409A. This Agreement is intended to comply with Section 409A to the extent Section 409A is applicable to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, this Agreement shall be interpreted, operated and administered by the Company in a manner consistent with such intention and to avoid the pre-distribution inclusion in income of amounts deferred under this Agreement and the imposition of any additional tax or interest with respect thereto. Notwithstanding any other provision of this Agreement to the contrary, to the extent that any payment under this Agreement constitutes “nonqualified deferred compensation” under Section 409A, the following shall apply to the extent Section 409A is applicable to such payment:
a.Any payable that is triggered upon the Employee’s termination of employment shall be paid only if such termination of employment constitutes a “separation from service” under Section 409A; and
b.All expenses or other reimbursements paid pursuant to this Agreement that are taxable income to Employee shall be paid no later than the end of the calendar year next following the calendar year in which Employee incurs such expense. With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Section 409A, (a) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (b) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year; and (c) such payments shall be made on or before the last day of Employee’s taxable year following the taxable year in which the expense occurred. For purposes of Section 409A, Employee’s right to receive installment payments of any severance amount, if applicable, shall be treated as a right to receive a series of separate and distinct payments.
In the event that Employee is deemed on the date of termination to be a “specified employee” as defined in Section 409A, then with regard to any payment or the provision of any benefit that is subject to Section 409A and is payable on account of a separation from service (as defined in
17
Section 409A), such payment or benefit shall be delayed for until the earlier of (a) the first business day of the seventh calendar month following such termination of employment, or (b) Employee’s death. Any payments delayed by reason of the prior sentence shall be paid in a single lump sum, without interest thereon, on the date indicated by the previous sentence and any remaining payments due under this Agreement shall be paid as otherwise provided herein.
7.6 Multiple Counterparts. This Agreement may be executed in multiple counterparts, each of which shall constitute an original, but all of which together shall constitute one Agreement.
7.7 Notices. Any notice provided for in this Agreement shall be deemed delivered upon deposit in the United States mails, registered or certified mail, addressed to the party to whom directed at the addresses set forth below or at such other addresses as may be substituted therefor by notice given hereunder. Notice given by any other means must be in writing and shall be deemed delivered only upon actual receipt.
If to the Company:
c/o Energy Fuels Resources (USA) Inc.
225 Union Blvd., Suite 600
Lakewood, CO 80228
Attention: President and Chief Executive Officer
If to Employee:
Scott A. Bakken
5302 Southern Cross Lane
Ft. Collins, CO 80528
7.8 Waiver. The waiver of any term or condition of this Agreement, or breach thereof, shall not be deemed to constitute the waiver of the same or any other term or condition of this Agreement, or breach thereof.
7.9 Severability. In the event any provision of this Agreement is found to be unenforceable or invalid, such provision shall be severable from this Agreement and shall not affect the enforceability or validity of any other provision of this Agreement. If any provision of this Agreement is capable of two constructions, one of which would render the provision void and the other that would render the provision valid, then the provision shall have the construction that renders it valid..
7.10 Arbitration of Disputes. Except for disputes and controversies arising under Articles 5 or 6 or involving equitable or injunctive relief, any dispute or controversy arising under or in connection with this Agreement shall be conducted in accordance with the Colorado Rules of Civil Procedure and, unless the parties mutually agree on an arbitrator shall be arbitrated by striking from a list of potential arbitrators provided by the Judicial Arbiter Group in
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Denver, Colorado. If the parties are unable to agree on an arbitrator, the arbitrator will be selected from a list of seven (7) potential arbitrators provided by the Judicial Arbiter Group in Denver. The Company and Employee will flip a coin to determine who will make the first strike. The parties will then alternate striking from the list until there is one arbitrator remaining, who will be the selected arbitrator. Unless the parties otherwise agree and subject to the availability of the arbitrator, the arbitration will be heard within sixty (60) days following the appointment, and the decision of the arbitrator shall be binding on Employee and the Company and will not be subject to appeal. Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
7.11 Currency. Except as expressly provided in this Agreement, all amounts in this Agreement are stated and shall be paid in United States dollars ($US).
7.12 Company’s Maximum Obligations. The compensation set out in this Agreement represents the Company’s maximum obligations, and other than as set out herein, Employee will not be entitled to any other compensation, rights or benefits in connection with Employee’s employment or the termination of Employee’s employment.
7.13 Full Payment; No Mitigation Obligation. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be subject to any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Employee.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.
ENERGY FUELS INC.
By: /s/ Mark S. Chalmers
Name: Mark S. Chalmers
Title: President and Chief Executive Officer
Date: September 1, 2020
ENERGY FUELS RESOURCES (USA) INC.
By: /s/ Mark S. Chalmers
Name: Mark S. Chalmers
Title: President and Chief Executive Officer
Date: September 1, 2020
EMPLOYEE
/s/ Scott A. Bakken
Name: Scott A. Bakken
Title: Vice President, Regulatory Affairs
Date: September 1, 2020
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EXHIBIT A
JOB DESCRIPTION
Employee shall be responsible for overseeing all permitting and regulatory matters relating to all of the Company's operations, both conventional and ISR, and also for overall worker health and safety matters at the Company policy level.
Essential duties and responsibilities include:
•Manages the environmental permitting and regulatory matters for new mining and processing projects.
•Manages the environmental permitting and regulatory matters for amendments to existing mine and processing licenses and permits.
•Responsible for permitting and regulatory matters relating to all of the Company’s operations, both conventional and ISR.
•Responsible for all environmental monitoring, quality assurance and reporting requirements applicable to the Company’s facilities and operations.
•Provides guidance and recommendations to Company management on safety, environmental and regulatory matters including due diligence for mergers and acquisitions.
•Prepares schedules and budget estimates for regulatory, environmental permitting, compliance, and administrative activities.
•Assists the General Counsel with safety- environmental- and regulatory- related legal matters.
•Reviews and comments on proposed safety, environmental, mining and milling laws and regulations and evaluates the impact of any such laws and regulations on the Company’s operations.
•Represents the Company effectively in public meetings and presentations to government agencies, technical organizations, and the general public.
•Provides periodic briefings and updates to the General Counsel, and other corporate personnel on the regulatory and environmental status of the Company’s various projects.
•Ensures that the Company’s operations personnel are apprised of all applicable license and permit conditions and all applicable safety, environmental mining and other laws and regulations at all of the Company’s facilities.
•Oversees all worker health and safety matters at the Company, from a Company policy perspective.
•Works with the General Counsel to ensure that the Company’s ALARA program is being fully implemented at all of the Company’s facilities and operations.
•Works with the General Counsel to ensure that the Company’s Environment, Health and Safety Policy is being complied with at all times.
•Performs other related duties as assigned.
Employee shall report to the Chief Financial Officer, General Counsel & Corporate Secretary of the Company.
This position will be located in the Lakewood office with travel as required. Performance is to be based on performance criteria, which will be evaluated once per year.
EXHIBIT 23.1
CONSENT OF MARK S. CHALMERS
I consent to the inclusion in the Quarterly Report on Form 10-Q of Energy Fuels Inc. (the “Company”) for the quarter ended September 30, 2020 (the “Quarterly Report”) of technical disclosure regarding the properties of the Company, including sampling, analytical and test data underlying such disclosure (the “Technical Information”) and of references to my name with respect to the Technical Information being filed with the United States Securities and Exchange Commission (the “SEC”) under cover of Form 10-Q.
I also consent to the filing of this consent under cover of Form 10-Q with the SEC and of the incorporation by reference of this consent and the Technical Information into the Company’s Registration Statements on Form S-3 (File Nos. 333-228158 and 333-226878), as amended, and into the Company’s Registration Statements on Form S-8 (Nos. 333-217098, 333-205182, 333-194900 and 333-226654), and any amendments thereto, filed with the SEC.
/s/ Mark S. Chalmers_______________
Name: Mark S. Chalmers
Title: President and Chief Executive Officer,
Energy Fuels Inc.
Date: October 30, 2020
EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, Mark S. Chalmers, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Energy Fuels Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||||||
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||
| /s/ Mark S. Chalmers | ||||||||
| Date: October 30, 2020 | Mark S. Chalmers | |||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
I, David C. Frydenlund, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Energy Fuels Inc.; | |||||||
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||||||
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||||||
| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||||||
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |||||||
| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||||||
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and | |||||||
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | |||||||
| /s/ David C. Frydenlund | ||||||||
| Date: October 30, 2020 | David C. Frydenlund | |||||||
| Chief Financial Officer | ||||||||
| (Principal Financial Officer) | ||||||||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Energy Fuels Inc. (the "Company") on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark S. Chalmers, President and Chief Executive Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Mark S. Chalmers | |||||
| Mark S. Chalmers | |||||
| President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Date: October 30, 2020
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Energy Fuels Inc. (the "Company") on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David C. Frydenlund, Chief Financial Officer, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ David C. Frydenlund | |||||
| David C. Frydenlund | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
Date: October 30, 2020
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 95.1
Mine Safety Disclosure
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States, and that is subject to regulation by the Federal Mine Safety and Health Administration under the Mine Safety and Health Act of 1977 (“Mine Safety Act”), are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities.
The following table sets out the information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd Frank Wall Street Reform and Consumer Protection Act for the period July 1, 2020 through September 30, 2020 covered by this report:
| Property | Section 104(a) S&S Citations2 (#) | Section 104(b) Orders3 (#) | Section 104(d) Citations and Orders4 (#) | Section 110(b)(2) Violations5 (#) | Section 107(a) Orders6 (#) | Total Dollar Value of MSHA Assess-ments Proposed7 ($) | Total Number of Mining Related Fatalities (#) | Received Notice of Pattern of Violations or Potential Thereof Under Section 104(e)8 (yes/no) | Legal Actions Pending as of Last Day of Period9 (#) | Legal Actions Initiated During Period (#) | Legal Actions Resolved During Period (#) | ||||||||||||||||||||||||
| Arizona 1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Beaver/ La Sal1 | 1 non-S&S | Nil | Nil | Nil | Nil | $130.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
| Canyon | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Daneros1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Energy Queen1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Pandora1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Rim1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Tony M1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
Whirlwind1 | Nil | Nil | Nil | Nil | Nil | $0.00 | Nil | No | Nil | Nil | Nil | ||||||||||||||||||||||||
1.The Company’s Arizona 1 Mine, Canyon Mine, Daneros Project, Energy Queen Property, Rim Project, Tony M Property, Whirlwind Project, Beaver/La Sal Property and Pandora Property were each on standby and were not mined during the period.
2.Citations and Orders are issued under Section 104 of the Federal Mine Safety and Health Act of 1977 (30 U.S.C. 814) (“MSHA”) for violations of MSHA or any mandatory health or safety standard, rule, order or regulation promulgated under MSHA. A Section 104(a) “Significant and Substantial” or “S&S” citation is considered more severe than a non-S&S citation and generally is issued in a situation where the conditions created by the violation do not cause imminent danger, but the violation is of such a nature as could significantly and substantially contribute to the cause and effect of a mine safety or health hazard. It should be noted that, for purposes of this table, S&S citations that are included in another column, such as Section 104(d) citations, are not also included as Section 104(a) S&S citations in this column.
3.A Section 104(b) withdrawal order is issued if, upon a follow up inspection, an MSHA inspector finds that a violation has not been abated within the period of time as originally fixed in the violation and determines that the period of time for the abatement should not be extended. Under a withdrawal order, all persons, other than those required to abate the violation and certain others, are required to be withdrawn from and prohibited from entering the affected area of the mine until the inspector determines that the violation has been abated.
4.A citation is issued under Section 104(d) where there is an S&S violation and the inspector finds the violation to be caused by an unwarrantable failure of the operator to comply with a mandatory health or safety standard. Unwarrantable failure is a special negligence finding that is made by an MSHA inspector and that focuses on the operator’s conduct. If during the same inspection or any subsequent inspection of the mine within 90 days after issuance of the citation, the MSHA inspector finds another violation caused by an unwarrantable failure of the operator to comply, a withdrawal order is issued, under which all persons, other than those required to abate the violation and certain others, are required to be withdrawn from and prohibited from entering the affected area until the inspector determines that the violation has been abated.
5.A flagrant violation under Section 110(b)(2) is a violation that results from a reckless or repeated failure to make reasonable efforts to eliminate a known violation of a mandatory health or safety standard that substantially and proximately caused, or reasonable could have been expected to cause, death or serious bodily injury.
6.An imminent danger order under Section 107(a) is issued when an MSHA inspector finds that an imminent danger exists in a mine. An imminent danger is the existence of any condition or practice which could reasonably be expected to cause death or serious physical harm before such condition or practice can be abated. Under an imminent danger order, all persons, other than
those required to abate the condition or practice and certain others, are required to be withdrawn from and are prohibited from entering the affected area until the inspector determines that such imminent danger and the conditions or practices which caused the imminent danger no longer exist.
7.These dollar amounts include the total amount of all proposed assessments under MSHA relating to any type of violation during the period, including proposed assessments for non-S&S citations that are not specifically identified in this exhibit, regardless of whether the Company has challenged or appealed the assessment.
8. A Notice is given under Section 104(e) if an operator has a pattern of S&S violations. If upon any inspection of the mine within 90 days after issuance of the notice, or at any time after a withdrawal notice has been given under Section 104(e), an MSHA inspector finds another S&S violation, an order is issued, under which all persons, other than those required to abate the violation and certain others, are required to be withdrawn from and prohibited from entering the affected area until the inspector determines that the violation has been abated.
9.There were no legal actions pending before the Federal Mine Safety and Health Review Commission as of the last day of the period covered by this report. In addition, there were no pending actions that are (a) contests of citations and orders referenced in Subpart B of 29 CFR Part 2700; (b) complaints for compensation referenced in subpart D of 29 CFR Part 2700; (c) complaints of discharge, discrimination or interference referenced in Subpart E of 29 CFR Part 2700; (d) applications for temporary relief referenced in Subpart F of 29 CFR Part 2700; or (e) appeals of judges’ decisions or orders to the Federal Mine Safety and Health Review Commission referenced in Subpart H of 29 CFR Part 2700.