<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1994
REGISTRATION NO. 33-76472
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HECLA MINING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 1040 82-0126240
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
6500 MINERAL DRIVE
COEUR D'ALENE, IDAHO 83814-8788
(208) 769-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL B. WHITE
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HECLA MINING COMPANY
6500 MINERAL DRIVE
COEUR D'ALENE, IDAHO 83814-8788
(208) 769-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
DAVID A. KATZ, ESQ. BRICE T. VORAN, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ SHEARMAN & STERLING
51 WEST 52ND STREET 725 SOUTH FIGUEROA ST., 21ST FL.
NEW YORK, NEW YORK 10019 LOS ANGELES, CALIFORNIA 90017
(212) 403-1000 (213) 239-0300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effective date of this Registration
Statement.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.25 per share(2)......................... 7,475,000 shares(3) $12.00 $89,700,000 $30,931.25
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 on the basis of the average high and low prices reported on the
New York Stock Exchange Composite Tape on March 9, 1994.
(2) Also being registered are the Preferred Share Purchase Rights of Hecla
Mining Company associated with the Common Stock.
(3) Includes 975,000 shares subject to the Underwriters' over-allotment option.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 15, 1994
PROSPECTUS
6,500,000 SHARES
[LOGO] HECLA MINING COMPANY
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $0.25 per share (the "Common
Stock"), offered hereby (the "Shares") are being sold by Hecla Mining Company, a
Delaware corporation (the "Company").
The Common Stock is listed on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "HL." On March 14, 1994, the last reported sale price
of the Common Stock on the NYSE was $12 7/8 per share. See "Price Range of
Common Stock."
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO CONSIDERATION OF AN INVESTMENT IN THE SHARES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)................................ $ $ $
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters options exercisable within 30 days
after the date hereof to purchase up to 975,000 additional shares of Common
Stock solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The Shares are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Shares
will be made in New York, New York on or about , 1994.
------------------------
MERRILL LYNCH & CO. SALOMON BROTHERS INC
------------------------
The date of this Prospectus is , 1994.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Documents filed by the Company can
also be inspected at the offices of the New York Stock Exchange, Inc. (the
"NYSE"), 20 Broad Street, New York, New York 10005, on which exchange certain of
the Company's securities are listed.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments thereto, the "Registration Statement") filed by
the Company with the Commission under the Securities Act of 1933, as amended
(the "Securities Act"). This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the shares of Common Stock offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-8491) are incorporated in this Prospectus by reference and hereby made a part
hereof: (i) the Company's Annual Report on Form 10-K for the year ended December
31, 1993; (ii) the Company's Proxy Statement, dated March 28, 1994, for the
Annual Meeting of Stockholders to be held on May 6, 1994 (except for pages 8
through 12 thereof); (iii) the description of Common Stock contained in the
Registration Statement on Form 8-B, dated May 6, 1983, filed under Section 12 of
the Exchange Act, including any amendment or report filed for the purpose of
updating such description; (iv) the description of the Company's Preferred Share
Purchase Rights contained in the Registration Statement on Form 8-A, dated May
19, 1986, filed under Section 12 of the Exchange Act, as amended by the
description contained in the Current Report on Form 8-K, dated November 9, 1990,
including any other amendment or report filed for the purpose of updating such
description; (v) the description of the CoCa Warrants (as hereinafter defined)
contained in the Registration Statement on Form 8-A, dated May 17, 1989, of CoCa
Mines, Inc., as amended by CoCa Mines, Inc.'s Form 8 (Amendment No. 1), dated
July 2, 1991, as amended by the Company's Form 8 (Amendment No. 2), dated May 8,
1992; (vi) the description of the Company's Series B Cumulative Convertible
Preferred Stock contained in the Registration Statement on Form 8-A, dated June
18, 1993, filed under Section 12 of the Exchange Act; (vii) the description of
the Company's Liquid Yield Option Notes due 2004 contained in the Registration
Statement on Form 8-A, dated June 5, 1989, filed under Section 12 of the
Exchange Act; and (viii) the Company's Current Report on Form 8-K dated March
11, 1994.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the shares of Common Stock, shall
2
<PAGE> 4
be deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such reports and documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference, other
than exhibits to such documents (except for exhibits that are specifically
incorporated by reference herein). Requests for such copies should be directed
to the Company's principal executive offices located at 6500 Mineral Drive,
Coeur d'Alene, Idaho 83814-8788, to the attention of Mr. Michael B. White,
Secretary (telephone no. (208) 769-4100).
3
<PAGE> 5
PROSPECTUS SUMMARY
This Summary does not purport to be complete and is qualified in its
entirety by reference to, and should be read in conjunction with, the more
detailed information and consolidated financial statements and notes thereto
included elsewhere or incorporated by reference in this Prospectus. Unless
indicated otherwise or the context otherwise requires: (i) the information
contained in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised; (ii) references to "Hecla" or the "Company" refer to
Hecla Mining Company, a Delaware corporation, and its subsidiaries; (iii)
references to the "Common Stock" refer to the Common Stock, par value $0.25 per
share, of the Company and references to the "Shares" are to the 6,500,000 shares
of Common Stock being offered hereby; (iv) references to the "Offering" refer to
the Shares being offered hereby; and (v) references to "ounce" or "oz." refer to
a troy ounce. Terms not defined in this Summary are defined elsewhere herein or
in the "Glossary of Certain Mining Terms."
THE COMPANY
The Company, originally incorporated in 1891, is principally engaged in the
exploration, development, mining and processing of precious and non-ferrous
metals, including gold, silver, lead and zinc, and certain industrial minerals.
At December 31, 1993, the Company had approximately 1.9 million and 53.4 million
ounces of proven and probable gold and silver reserves, respectively (including
approximately 650,000 and 4.0 million ounces, respectively, as a result of the
Company's acquisition of Equinox Resources Ltd. in March 1994 as described
below).
The Company's principal metals properties include the La Choya gold mine,
located in Sonora, Mexico, which began operations in January 1994; the Lucky
Friday silver and lead mine, located near Mullan, Idaho, which is a significant
primary producer of silver in North America; the American Girl gold mine and the
Oro Cruz gold project, both located in Imperial County, California, which were
acquired in March 1994; the Republic gold mine, located in the state of
Washington; the Grouse Creek gold project, located near Challis, Idaho, which is
intended to be operational in the fourth quarter of 1994; the Rosebud gold
project, located in Pershing County, Nevada, which was acquired in March 1994;
and the Greens Creek mine, located near Juneau, Alaska, a polymetallic mine
placed on standby in 1993, in which Hecla owns a 29.7% interest.
As part of the Company's strategy to acquire and develop precious metals
properties, primarily in North America, the Company acquired on March 11, 1994,
Equinox Resources Ltd., a gold exploration and development company headquartered
in Vancouver, British Columbia ("Equinox"). The Company's principal reason for
the acquisition of Equinox was the opportunity to acquire the Rosebud gold
project, located in Pershing County, Nevada, in which Equinox had a 100%
interest and the American Girl gold mine, in which Equinox had a 50% interest
and which is operated by a joint venture partner. The Company believes that the
Rosebud gold project, which had proven and probable gold reserves of 512,000
contained ounces as of December 31, 1993, has significant exploration and
development potential. Equinox's share of gold production at the American Girl
gold mine in 1993 was approximately 35,000 ounces.
The Company expects its gold production to increase from approximately
61,000 ounces in 1993 to approximately 131,000 ounces in 1994, with nearly half
of the expected 1994 gold production to come from the La Choya gold mine.
Assuming the timely commencement of production at the Grouse Creek gold project
in the fourth quarter of 1994, the Company's total 1994 gold production could
increase by up to 53,000 ounces (representing its 80% share of the project) to a
total of approximately 184,000 ounces. In addition, the Company intends to
develop the Rosebud gold project upon satisfactory completion of a feasibility
study which is currently expected to be finalized by late 1995. Development of
the Rosebud gold project could begin shortly thereafter with production
commencing in late 1996 at the earliest. The feasibility study will assess the
potential to produce approximately 70,000 to 80,000 ounces of gold annually. See
"Business -- Development Projects." As a result of the continued development of
the Grouse Creek gold project and the Equinox acquisition, the Company believes
that its 1995 attributable gold production will exceed 200,000 ounces.
Although depressed silver prices have impacted the Company's silver
production in recent years, the Company believes that it is well positioned to
respond to an increase in silver prices, by expanding production
4
<PAGE> 6
at its Lucky Friday mine by developing the Gold Hunter project and through the
recommencement of operations at the Greens Creek mine. In 1993, drilling in the
southwest area of the Greens Creek property encountered a significant additional
mineralized zone containing higher than mine average gold and silver content.
Although there can be no assurance that this additional material can be
economically mined, drilling is continuing to define the nature and extent of
the resource. A feasibility study currently is being undertaken in order to
determine the advisability of placing the mine back into operation. If the
decision is made to reopen the Greens Creek mine and production commences by
1997, when combined with the potential for estimated increased silver production
at the Lucky Friday mine, the Grouse Creek project and the Rosebud project, the
Company's attributable share of annual silver production could exceed 8.0
million ounces in 1997, compared to approximately 3.0 million ounces in 1993.
During the next several years, the Company intends to concentrate its
exploration efforts at or in the vicinity of its existing and proposed mining
properties, including Grouse Creek, La Choya, Republic, Greens Creek, Rosebud,
American Girl and Lucky Friday. The Company and its joint venture partners own
or control significant land positions surrounding these existing and proposed
mining operations. In addition, the Company will continue to evaluate
acquisition and exploration opportunities, primarily in North America.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (ball clay and kaolin divisions), K-T Feldspar Corporation,
Mountain West Bark Products, Inc. (bark and scoria) and Colorado Aggregate
Company of New Mexico. Hecla's industrial minerals segment is a leading producer
of three of the four basic ingredients required to manufacture ceramic and
porcelain products, including sanitaryware, pottery, dinnerware, electric
insulators and ceramic tile. At current production rates, the Company has over
20 years of proven and probable reserves of ball clay, kaolin and feldspar.
For a discussion of recent developments involving the Company, including
the acquisition of Equinox and the sale of a 20% joint venture interest in the
Grouse Creek gold project, see "Recent Developments."
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby............... 6,500,000 shares
Common Stock Outstanding:
Before the Offering (1).............. 40,509,931 shares
After the Offering................... 47,009,931 shares
Use of Proceeds........................... To provide funds to redeem the Company's Liquid
Yield Option Notes due 2004 (the "LYONs") on or
about June 14, 1994, and for other general
corporate purposes including the further
exploration and development of the Company's
mining properties. See "Use of Proceeds" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Financial Condition and Liquidity."
NYSE Symbol............................... HL
</TABLE>
- ---------------
(1) As of March 11, 1994; includes approximately 5.9 million shares of Common
Stock issuable in connection with the Company's Equinox acquisition
completed on March 11, 1994; excludes (a) 302,560 shares of Common Stock
issuable upon exercise of outstanding stock options (at an average exercise
price of $10.52 per share); (b) 887,423 shares of Common Stock issuable upon
exercise of outstanding warrants (at an average exercise price of $13.40 per
share), including 427,990 shares of Common Stock issuable upon exercise of
outstanding warrants with exercise prices less than the current market price
(see "Description of Capital Stock -- Warrants to Purchase Common Stock");
and (c) 7,395,498 shares of Common Stock issuable upon conversion of the
Company's Series B Cumulative Convertible Preferred Stock (at a conversion
price of $15.55 per share).
INVESTMENT CONSIDERATIONS
For information concerning certain factors that should be considered by
prospective investors, see "Investment Considerations."
6
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL DATA
The consolidated financial data shown below as of December 31, 1993, and
each of the years in the five-year period ended December 31, 1993 (other than
the data under the caption "Segment Data") have been derived from, and should be
read in conjunction with, the Company's consolidated financial statements which
have been audited by Coopers & Lybrand. See "Index to Financial Statements."
This data does not reflect the acquisition and consolidation of Equinox, which
was completed on March 11, 1994, and which will be accounted for as a pooling of
interests. See "Summary Condensed Pro Forma Combined Financial Information." For
historical financial information with respect to Equinox, reference is made to
Equinox's historical financial statements incorporated herein by reference. See
"Information Incorporated by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of products........................... $118,931 $152,106 $117,568 $100,651 $ 81,847
Gross profit................................ 11,105 20,857 11,554 3,870 446
Provision for closed operations and
environmental matters(1).................. (706) (2,970) (3,638) (12,670) (2,307)
Reduction in carrying value of mining
properties(2)............................. (3,308) -- -- (27,928) (200)
Loss from operations........................ (13,438) (1,258) (14,061) (55,043) (14,044)
Other gain (loss) on investments(3)......... (8,808) 78 212 (2,176) (144)
Net income (loss)........................... (20,449) 6,711 (15,430) (49,289) (11,735)
Preferred stock dividends................... -- -- -- -- (4,070)
Net income (loss) applicable to common
shareholders.............................. (20,449) 6,711 (15,430) (49,289) (15,805)
Net income (loss) per common share.......... (0.68) 0.22 (0.51) (1.60) (0.48)
Weighted average number of common shares
outstanding............................... 30,049 30,053 30,094 30,866 32,915
OTHER FINANCIAL DATA:
Depreciation, depletion and amortization.... $ 22,582 $ 25,502 $ 21,853 $ 14,312 $ 10,961
Capital expenditures........................ 45,732 33,718 18,885 23,176 52,671
Exploration expense......................... 10,297 8,430 5,693 7,659 4,353
SEGMENT DATA:
Sales of products
Gold operations........................... $ 48,194 $ 75,398 $ 51,772 $ 31,733 $ 21,375
Silver operations......................... 37,381 40,954 25,272 25,687 13,476
Industrial minerals operations............ 33,356 34,971 40,524 43,231 44,953
Specialty metals operations............... -- 783 -- -- 2,043
-------- -------- -------- -------- --------
Total............................. $118,931 $152,106 $117,568 $100,651 $ 81,847
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Gross profit (loss)
Gold operations........................... $ 20,822 $ 27,913 $ 12,824 $ 6,812 $ 5,241
Silver operations......................... (13,360) (5,225) (7,485) (7,954) (9,329)
Industrial minerals operations............ 3,643 2,203 6,215 5,012 5,038
Specialty metals operations............... -- (4,034) -- -- (504)
-------- -------- -------- -------- --------
Total............................. $ 11,105 $ 20,857 $ 11,554 $ 3,870 $ 446
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
-------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 77,621 $ 81,223 $110,956
Total assets........................................ 332,878 346,153 375,886
Long-term debt obligations.......................... 49,489 50,009 1,576
Shareholders' equity................................ 240,063 244,672 322,838
</TABLE>
7
<PAGE> 9
NOTES TO SUMMARY CONSOLIDATED FINANCIAL DATA
(1) The provision for closed operations and environmental matters for all
periods presented represents costs incurred in connection with the care and
maintenance of closed properties as well as costs related to environmental
and reclamation expenses. As further discussed in Note 8 of Notes to
Consolidated Financial Statements, the Company expensed $2.8 million, $8.6
million and $0.8 million in 1991, 1992 and 1993, respectively, principally
in connection with the clean-up of the Bunker Hill Superfund Site in
northern Idaho. In addition, the Company expensed $2.7 million in 1990,
principally in connection with such clean-up.
(2) Based on its periodic reviews of the status of various mining properties,
the Company determined in 1989, and again in 1992, that certain adjustments
were appropriate to properly reflect the estimated net realizable values of
several of its properties. These adjustments consisted primarily of
write-downs of various properties, plants and equipment totaling
approximately $3.3 million and $27.9 million in 1989 and 1992, respectively.
The write-down in 1989 related to the Company's interests in the Durita and
Escalante properties. As further discussed in Note 5 of Notes to
Consolidated Financial Statements, the adjustment in 1992 related to the
$13.5 million write-down of the Company's interest in the Apex facility,
which was designed to process germanium and gallium, and write-downs of
approximately $9.0 million related to the Consolidated Silver and Hog Heaven
silver properties, located in northern Idaho and northwest Montana,
respectively. The Lisbon Valley project in Utah, a joint venture which was
fully developed for uranium and vanadium production, was also written down
by approximately $3.5 million due to continued depressed uranium prices.
Other gold and silver properties written down in the 1992 adjustment
included the Creede and Hardscrabble properties totaling $1.5 million and
$0.4 million, respectively, both located in Colorado.
(3) During 1989, the Company sold 952,900 shares of Sunshine Mining Company
("Sunshine") common stock for $3.6 million, realizing a loss of $4.8
million. In connection with the Company's decision to liquidate its holdings
in Sunshine common stock, the Company transferred the remaining investment
to a current asset classification and recognized an additional loss of $4.2
million for the difference between the market value of the securities and
the remaining book value recorded on the Company's balance sheet. During
1992, the Company wrote down its common stock investment in Granduc Mines
Limited to current estimated market value. The resulting $2.1 million
write-down was recorded to reflect the decline in market value of the common
stock investment due to continued depressed metals prices. In January 1994,
the Company sold its entire interest in Granduc Mines Limited for net
proceeds of approximately $2.8 million. See "Recent Developments -- Granduc
Mines."
(4) Illustrates pro forma adjustments to give effect to the Equinox acquisition
on a pooling of interests basis as of December 31, 1993. See "Condensed Pro
Forma Combined Financial Information."
(5) After giving effect to the Offering and the use of the net proceeds
therefrom. See "Use of Proceeds."
8
<PAGE> 10
SUMMARY CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth certain condensed pro forma combined
financial information of the Company and Equinox to illustrate the effects of
their combination accounted for as a pooling-of-interests. Accordingly, the
financial information of the Company and Equinox (as adjusted) has been combined
on a pooling-of-interests basis, as described elsewhere herein, for all periods
presented. This pro forma information should be read in conjunction with the
historical financial statements and selected financial data of the Company and
Equinox, including the notes thereto, which are included elsewhere, or
incorporated by reference, herein, and in conjunction with the Condensed Pro
Forma Combined Financial Information, including the notes thereto, included
elsewhere herein. The pro forma combined financial information does not purport
to represent what the combined financial information actually would have been
had the combination occurred at the beginning of the periods presented or to
project the combined financial position or results of operations of the combined
companies for any future date or period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of products.......................................... $117,568 $101,621 $ 92,888
Gross profit (loss)........................................ 11,554 3,033 (779)
Net loss applicable to common shareholders................. (15,521) (54,500) (22,474)
Net loss per common share.................................. (0.46) (1.57) (0.59)
Cash dividends per common share............................ -- -- --
Weighted average number of common shares outstanding....... 33,579 34,778 38,010
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................ $ 36,781 $ 21,264 $ 81,223
Total assets............................................... 276,856 236,130 346,153
Long-term debt obligations................................. 80,322 71,219 50,009
Shareholders' equity....................................... 158,095 117,438 244,672
</TABLE>
9
<PAGE> 11
RESERVE DATA(1)
<TABLE>
<CAPTION>
HECLA'S
SHARE ORE GRADE
OF --------------------------------------------- CONTAINED OUNCES
RESERVES GOLD SILVER LEAD ZINC ----------------------
(TONS) (OZ./TON) (OZ./TON) (PERCENT) (PERCENT) GOLD SILVER
---------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PRODUCING PROPERTIES(2)
La Choya................. 6,138,000 0.037 -- -- -- 225,500 --
American Girl(3)......... 1,785,520 0.078 -- -- -- 138,832 --
Republic................. 103,533 0.430 2.69 -- -- 44,373 278,183
Lucky Friday............. 414,315 -- 14.40 14.30 3.00 -- 5,976,380
Greens Creek(4).......... 1,911,000 0.140 16.00 4.70 14.40 267,540 30,576,000
--------- ----------
Subtotal................................................................... 676,245 36,830,563
--------- ----------
DEVELOPMENT PROJECTS
Grouse Creek(5).......... 12,104,000 0.055 1.07 -- -- 671,200 12,972,800
Rosebud(6)............... 1,984,000 0.258 1.81 -- -- 512,000 3,591,000
--------- ----------
Subtotal................................................................... 1,183,200 16,563,800
--------- ----------
Total...................................................................... 1,859,445 53,394,363
--------- ----------
--------- ----------
</TABLE>
- ---------------
(1) The reserve data is presented as of December 31, 1993 and includes reserves
as of such date for properties acquired in the Equinox acquisition completed
on March 11, 1994. The Company's estimates of proven and probable reserves
for the properties it operates are based upon a gold price of $375 per
ounce, a silver price of $4.50 per ounce, a zinc price of $0.44 per pound
and a lead price of $0.23 per pound. For more detailed information
concerning the Company's reserves and the ownership, operation and
development of the Company's properties, see "Business." Estimates of proven
and probable reserves at the Greens Creek mine were prepared by the mine
manager and are based upon a gold price of $350 per ounce, a silver price of
$4.75 per ounce, a zinc price of $0.57 per pound and a lead price of $0.28
per pound. Estimates of proven and probable reserves at the American Girl
gold mine (including the Oro Cruz gold project) were prepared by the mine
manager and are based upon a gold price of $380 per ounce.
(2) The reserves at Cactus were mined out in February 1992, operations at Yellow
Pine were completed in August 1992 and the Company's interest in Galena was
sold in June 1992. Therefore, Cactus, Yellow Pine and Galena are not shown
as producing properties. See "-- Company Production Data."
(3) The American Girl mine was acquired in the Equinox acquisition in March
1994. Includes reserve information from the Oro Cruz project. See
"Business -- Metals Segment -- Producing Properties -- American Girl
Mine/Oro Cruz Gold Project." The American Girl mine is presented on a 50%
basis and the Oro Cruz project is presented on a 44% basis pursuant to joint
venture arrangements.
(4) The Company's interest in the Greens Creek mine is 29.7%. In April 1993,
operations at Greens Creek were suspended by the mine manager due to the
depressed market prices for the various metals produced at the mine. See
"Business -- Suspended Operations -- Greens Creek Mine."
(5) Presented on an 80% basis pursuant to the Company's joint venture agreements
with Great Lakes. See "Recent Developments -- Sale of Grouse Creek Joint
Venture Interest."
(6) The Rosebud gold project was acquired in the Equinox acquisition in March
1994.
10
<PAGE> 12
COMPANY PRODUCTION DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1989 1990 1991 1992 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
GOLD (ounces)
Republic..................... 74,335 81,397 77,736 58,343 49,601
Cactus(2).................... 44,567 45,005 40,434 27,212 7,316
Yellow Pine(3)............... -- 57,747 17,542 2,013 --
Other Gold Production........ 8,292 12,129 11,516 10,086 3,798
--------- --------- --------- --------- ---------
Total Gold Produced..... 127,194 196,278 147,228 97,654 60,715
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Cash Production
Cost per ounce(4)............ $179 $180 $191 $188 $212
Weighted Average Full Production
Cost per ounce(4)............ $223 $253 $279 $258 $268
SILVER (ounces)
Lucky Friday................. 1,904,038 1,894,944 1,850,531 2,031,779 2,122,738
Greens Creek(5).............. 1,446,365 2,144,389 2,178,141 1,959,368 551,107
Galena(6).................... 770,136 768,716 815,763 323,786 --
Escalante(7)................. 1,626,965 784,919 -- -- --
Other Silver Production...... 611,337 617,263 482,417 415,915 300,853
--------- --------- --------- --------- ---------
Total Silver Produced... 6,358,841 6,210,231 5,326,852 4,730,848 2,974,698
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Cash Production
Cost per ounce(4)............ $4.29 $3.71 $4.50 $4.51 $5.45
Weighted Average Full Production
Cost per ounce(4)............ $7.55 $5.45 $5.67 $5.89 $6.85
OTHER (tons)
Total Lead Produced............... 18,779 22,199 23,957 25,986 21,093
Total Zinc Produced............... 8,812 13,697 15,070 15,598 7,838
Total Industrial Minerals
Shipped......................... 709,895 711,295 823,214 879,034 887,676
</TABLE>
- ---------------
(1) The table presents for each period indicated: (a) the Company's annual
production for the primary metal produced at each of the Company's
then-operating mines; (b) the weighted average annual cash and full
production costs per ounce, for the primary metals produced, which costs
have been reduced by credits from the sale of by-product metals; and (c) the
annual production tonnage of lead, zinc and total industrial minerals.
(2) The mining operations at Cactus were completed in February 1992. Minimal
gold recovery from the heap is expected in 1994, after which time recovery
operations are expected to be completed.
(3) Mining operations at Yellow Pine were suspended during 1989 and completed in
1992.
(4) Weighted average cash production costs per ounce include all direct and
indirect cash operating costs incurred at each operating mine, net of
revenues earned from the production of by-product metals, divided by the
total ounces of primary metal produced. Weighted average full production
costs per ounce include all cash production costs, plus depreciation,
depletion and amortization relating to each operating mine, divided by total
ounces of the primary metal produced.
(5) The Company's current interest in the Greens Creek joint venture is 29.7%
and prior to that was approximately 28%. In April 1993, operations at Greens
Creek were suspended by the mine manager due to the depressed market prices
for the various metals produced at the mine. See "Business -- Suspended
Operations -- Greens Creek Mine."
(6) In June 1992, the Company sold its 25% interest in the Galena silver mine.
(7) Commercial production at Escalante was completed in August 1990.
11
<PAGE> 13
COMPANY PRO FORMA PRODUCTION DATA(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1992 1993
--------- ----------
<S> <C> <C>
GOLD (ounces)
Hecla......................................................... 97,654 60,715
Equinox....................................................... 3,738 36,335
--------- ----------
Pro Forma Total Gold Produced............................ 101,392 97,050
--------- ----------
--------- ----------
SILVER (ounces)
Hecla......................................................... 4,730,848 2,974,698
Equinox....................................................... 7,777 20,568
--------- ----------
Pro Forma Total Silver Produced.......................... 4,738,625 2,995,266
--------- ----------
--------- ----------
LEAD (tons)
Hecla......................................................... 25,986 21,093
Equinox....................................................... 956 216
--------- ----------
Pro Forma Total Lead Produced............................ 26,942 21,309
--------- ----------
--------- ----------
ZINC (tons)
Hecla......................................................... 15,598 7,838
Equinox....................................................... 4,292 474
--------- ----------
Pro Forma Total Zinc Produced............................ 19,890 8,312
--------- ----------
--------- ----------
</TABLE>
- ---------------
(1) The table presents the annual attributable production of gold, silver, lead
and zinc for the years indicated for each of the Company and Equinox and the
combined companies on a pro forma basis. The acquisition of Equinox was
completed on March 11, 1994 and will be accounted for as a
pooling-of-interests.
12
<PAGE> 14
INVESTMENT CONSIDERATIONS
In addition to the other information set forth in the Prospectus,
prospective investors should carefully consider the following factors prior to
making any investment in the Shares.
RECENT LOSSES
The Company has experienced losses from operations for each of the last
five years. For the year ended December 31, 1993, the Company reported a net
loss of approximately $11.7 million (before preferred dividends of $4.1 million)
or $0.36 per common share compared to a net loss of $49.3 million or $1.60 per
common share for 1992. The 1993 net loss resulted primarily from decreases in
the Company's gold and silver production and the continued depressed average
prices of lead and zinc. The 1992 net loss includes an $11.8 million
environmental accrual, approximately $30.0 million for the write-down of the
Company's investments in various properties and assets and a charge of $1.6
million, or $0.05 a share, and a benefit of $1.5 million, or $0.05 a share, to
reflect accounting principle changes for certain postretirement employee
benefits and income taxes, respectively. If the current market prices of gold,
silver and lead do not increase, combined with the Company's preferred dividend
payment requirements, the Company expects to continue to experience net losses
applicable to common shareholders during the next three years.
DECLINE IN PRODUCTION
The Company's future gold production will be dependent upon the Company's
success in developing new reserves, including the continued development of the
Grouse Creek project as well as exploration efforts at the Republic and La Choya
gold mines and the Rosebud gold project. See "-- Project Development" and
"-- Exploration." The Company mined out its reserves at its Cactus and Yellow
Pine mines in 1992, and currently estimates that the gold reserves at the
Republic mine will be depleted in 1995. As a result, the Company's gold
production declined to approximately 61,000 ounces in 1993 from approximately
98,000 ounces in 1992 and approximately 147,000 ounces in 1991.
The Company's total silver production declined to approximately 3.0 million
ounces in 1993, compared to 4.7 million ounces in 1992, principally as a result
of the suspension of mining operations at the Greens Creek mine (in which the
Company owns a 29.7% interest) due to depressed metals prices. If metals prices
decline, the Company could determine that it is not economically feasible to
continue development of a project or continue commercial production at some of
its properties. See "-- Metal Price Volatility" and "Metals Prices."
PROJECT DEVELOPMENT
Currently, the Company's largest development property is the Grouse Creek
gold project which the Company anticipates will be placed into production during
the fourth quarter of 1994. The Company owns an 80% joint venture interest in
the Grouse Creek project. The Company currently estimates that its share of
future capital expenditures for the Grouse Creek gold project will total
approximately $50.0 million in 1994 and $3.4 million in 1995 assuming its joint
venture partner is able to make all of its required payments. See "-- Joint
Venture Arrangements" and "Recent Developments -- Sale of Grouse Creek Joint
Venture Interest."
The Company's estimated capital expenditures for the Grouse Creek gold
project are based upon currently available data and could increase or decrease
depending upon a number of factors beyond the Company's control. In addition,
the Company will not be able to commence production until virtually all of the
capital expenditures have been incurred. Thus, if capital expenditures are
higher than currently estimated, the Company may not be able to begin mining
operations until such time as additional financing is arranged, and there can be
no assurance that additional financing will be available.
Particularly in development projects, reserve estimates are, to a large
extent, based upon data from drill holes and different results may be
encountered when the ore bodies are exposed and mining begins. Although the
Company has engaged in feasibility and engineering activities at Grouse Creek,
Rosebud and its other
13
<PAGE> 15
development projects, including testing to determine recovery rates of metals
from the ore, since development projects usually have no prior operating history
it is possible that the Company may experience different economic returns from
such projects than it currently forecasts. It is not unusual in new mining
operations to experience unexpected problems during the development phase. As
described under "-- Mining Risks and Insurance," the business of mining is
subject to a number of risks and hazards, and there can be no assurance that
these risks and hazards can be avoided in the development of these projects.
EXPLORATION
Mineral exploration, particularly for gold and silver, is highly
speculative in nature, involves many risks and frequently is nonproductive.
There can be no assurance that the Company's mineral exploration efforts will be
successful. Once mineralization is discovered, it may take a number of years
from the initial phases of drilling until production is possible, during which
time the economic feasibility of production may change. Substantial expenditures
are required to establish ore reserves through drilling to determine
metallurgical processes to extract the metals from the ore, and, in the case of
new properties, to construct mining and processing facilities. As a result of
these uncertainties, no assurance can be given that the Company's exploration
programs will result in the expansion or replacement of existing reserves which
are being depleted by current production.
METAL PRICE VOLATILITY
Because a significant portion of the Company's revenues are derived from
the sale of gold, silver, lead and zinc, the Company's earnings are directly
related to the prices of these metals. Gold, silver, lead and zinc prices
fluctuate widely and are affected by numerous factors beyond the Company's
control, including expectations for inflation, speculative activities, the
relative exchange rate of the U.S. dollar, global and regional demand and
production, political and economic conditions and production costs in major
producing regions. The aggregate effect of these factors, all of which are
beyond the Company's control, is impossible for the Company to predict. If the
market price for these metals falls below the Company's full production costs
and remains at such level for any sustained period, the Company will experience
additional losses and may determine to discontinue the development of a project
or mining at one or more of its properties. As described above under "-- Recent
Losses," the Company has experienced losses from operations in each of the last
five years due, in part, to depressed metals prices. While the Company has
periodically used limited hedging techniques to reduce a portion of the
Company's exposure to the volatility of gold, silver and zinc prices, there can
be no assurance that it will be able to do so as effectively in the future. For
a history of recent gold, silver, lead and zinc prices, see "Metals Prices."
COMPETITION FOR PROPERTIES
Because mines have limited lives based on proven ore reserves, the Company
is continually seeking to replace and expand its reserves. The Company
encounters strong competition from other mining companies in connection with the
acquisition of properties producing or capable of producing gold, silver, lead,
zinc and industrial minerals. As a result of this competition, some of which is
with companies with greater financial resources than the Company, the Company
may be unable to acquire attractive mining properties on terms it considers
acceptable. In addition, there are a number of uncertainties inherent in any
program relating to the location of economic ore reserves, the development of
appropriate metallurgical processes, the receipt of necessary governmental
permits and the construction of mining and processing facilities. Accordingly,
there can be no assurance that the Company's programs will yield new reserves to
replace and expand current reserves.
RESERVES
The ore reserve figures presented or incorporated by reference in this
Prospectus are, in large part, estimates made by the Company's technical
personnel, and no assurance can be given that the indicated level of recovery of
these metals will be realized. Reserves estimated for properties that have not
yet commenced production may require revision based on actual production
experience. Market price fluctuations of the
14
<PAGE> 16
Company's metals, as well as increased production costs or reduced recovery
rates, may render ore reserves containing relatively lower grades of
mineralization uneconomic and may ultimately result in a restatement of
reserves. Moreover, short-term operating factors relating to the ore reserves,
such as the need for sequential development of ore bodies and the processing of
new or different ore grades, may adversely affect the Company's profitability in
any particular accounting period.
The Company's estimates of proven and probable reserves at December 31,
1993 for the properties it operates are based on a gold price of $375 per ounce,
a silver price of $4.50 per ounce, a zinc price of $0.44 per pound and a lead
price of $0.23 per pound. Proven and probable reserves at the American Girl mine
at December 31, 1993, which are calculated by the mine manager, are based upon a
gold price of $380 per ounce. Proven and probable reserves at December 31, 1993
at the Greens Creek mine, which are calculated by the mine manager, are based
upon a gold price of $350 per ounce, a silver price of $4.75 per ounce, a zinc
price of $0.57 per pound, and a lead price of $0.28 per pound, which prices are
recommended by the manager and approved by the joint venture participants.
JOINT VENTURE ARRANGEMENTS
The Grouse Creek gold project, the Greens Creek mine, the American Girl
gold mine (including the Oro Cruz gold project) and certain of the Company's
other mining properties are operated through joint ventures. The Company owns an
undivided interest in the assets of the ventures and, pursuant to its joint
venture agreements, is severally liable for its share of the liabilities of the
ventures. Under the joint venture agreements, the joint venture partners are
entitled to indemnification from the other joint venture partners and are liable
only for the liabilities of the joint ventures in proportion to their interest
therein. As a matter of partnership law, if the joint venture partner fails to
honor its obligation (including as a result of insolvency), the Company could
incur losses in excess of its pro rata share of the joint venture.
The Company's estimates of its development costs and capital expenditures
assume that its joint venture partners will not default in their obligations to
contribute their respective portions of such costs and expenditures. If there is
such a default, there can be no assurance that the Company will have the
resources available to contribute additional capital to these projects.
Accordingly, there can be no assurance that the Company's cash flow from
operations and its capital resources will be sufficient to achieve planned
levels of expenditures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and Liquidity."
With respect to the Grouse Creek gold project, the Company's joint venture
partner is Great Lakes Minerals Inc. of Toronto ("Great Lakes") and the Company
acts as the project manager and will become the mine manager once operations
commence. Generally, the manager for a particular project controls day-to-day
operating decisions and most other major decisions for the project. At the
Greens Creek mine, one of the Company's joint venture partners, Kennecott Greens
Creek Mining Company ("Kennecott"), acts as the mine manager, see
"Business -- Metals Segments -- Suspended Operations" and at the American Girl
gold mine, the Company's joint venture partner, MK Gold Company ("MK Gold"),
acts as the mine manager. See "Business -- Metals Segment -- Producing
Properties -- American Girl Gold Mine/Oro Cruz Gold Project." Disagreement with
a joint venture partner as to the major decisions affecting a project's
operations may have an adverse impact on the project.
GOVERNMENT REGULATION AND LEGAL PROCEEDINGS
The Company's activities are subject to extensive federal, state, local and
foreign laws and regulations controlling not only the mining of and exploration
for mineral properties, but also the possible effects of such activities upon
the environment. Permits from a variety of regulatory authorities are required
for many aspects of mine operation and reclamation. Future legislation and
regulations could cause additional expense, capital expenditures, restrictions
and delays in the development of the Company's properties, the extent of which
cannot be predicted. In the context of environmental permitting, including the
approval of reclamation plans, the Company must comply with known standards,
existing laws and regulations which may entail greater or lesser costs and
delays depending on the nature of the activity to be permitted and how
stringently the
15
<PAGE> 17
regulations are implemented by the permitting authority. While it is possible
that the costs and delays associated with the compliance with such laws,
regulations and permits could become such that the Company would not proceed
with the development or operation of a mine, the Company is not aware of any
material environmental constraint affecting its existing mines or development
properties that would preclude the economic development or operation of any
specific mine or property. Further, the Company is not aware of any current
environmental law or regulation that would reasonably be expected to have a
material adverse effect on the Company's business or financial condition. For a
discussion of the Company's remediation activities and pending environmental
claims, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition and Liquidity" and Note 8 to the
Company's Consolidated Financial Statements included elsewhere herein (see
"Index to Financial Statements").
PENDING LEGISLATION
In 1992, the U.S. Congress considered a number of proposed amendments to
the General Mining Law of 1872, as amended (the "General Mining Law"), which
governs mining claims and related activities on federal lands. A holding fee of
$100 per claim was imposed upon unpatented mining claims located on federal
lands. In addition, a variety of legislation is now pending before the U.S.
Congress to further amend the General Mining Law. The pending legislation would,
among other things, impose royalties and new reclamation, environmental controls
and restoration requirements. Each of the current legislative proposals would
impose some form of royalty payable to the U.S. Government on the value of
minerals extracted from certain federal lands. The extent of any such changes is
not presently known and the potential impact on the Company as a result of
congressional action is difficult to predict. Although a majority of the
Company's existing mining operations occur on private or patented property, the
proposed changes to the General Mining Law could adversely affect the Company's
ability to economically develop mineral resources on federal lands.
Approximately 43% of the proven and probable gold reserves and approximately 20%
of the proven and probable silver reserves located at the Grouse Creek project
are located on fully patented mining claims. The balance of such proven and
probable reserves are located within mineral claims for which the Company has
applied for patents and has received a first half of Mineral Entry Final
Certificate. Upon the determination of the mineral character of these claims by
a Federal Mine Examiner, the Company believes patents will be issued to the
Company covering these claims. Although there can be no assurance as to the
ultimate impact of legislative action on these claims or the Company's ability
to patent these claims under the existing General Mining Law, the Company
believes that the pending legislation to amend the General Mining Law will not
adversely affect the right of the Company to receive patents for the Grouse
Creek unpatented mining claims. The proven and probable reserves at the Oro Cruz
and Rosebud properties are located on claims that are unpatented.
TITLE TO PROPERTIES
The validity of unpatented mining claims, which constitute a significant
portion of the Company's undeveloped property holdings in the United States, is
often uncertain and may be contested. Although the Company has attempted to
acquire satisfactory title to its undeveloped properties, the Company, in
accordance with mining industry practice, does not generally obtain title
opinions until a decision is made to develop a property, with the attendant risk
that some titles, particularly titles to undeveloped properties, may be
defective.
MINING RISKS AND INSURANCE
The business of mining is generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations, cave-ins, flooding and
periodic interruptions due to inclement or hazardous weather conditions. Such
risks could result in damage to, or destruction of, mineral properties or
producing facilities, personal injury, environmental damage, delays in mining,
monetary losses and possible legal liability. Although the Company maintains
insurance within ranges of coverage consistent with industry practice, no
assurance can be given that such insurance will be available at economically
feasible premiums. Insurance against environmental risks (including potential
for pollution or other hazards as a result of disposal waste products occurring
from
16
<PAGE> 18
exploration and production) is not generally available to the Company or to
other companies within the industry. To the extent the Company is subject to
environmental liabilities, the payment of such liabilities would reduce the
funds available to the Company. Should the Company be unable to fund fully the
cost of remedying an environmental problem, the Company might be required to
suspend operations or enter into interim compliance measures pending completion
of the required remedy.
SMELTING CAPACITY
The Company sells substantially all of its metallic concentrates to
smelters which are subject to extensive regulations including environmental
protection laws. The Company has no control over the smelters' operations or
their compliance with environmental laws and regulations. If the smelting
capacity available to the Company was significantly further reduced because of
environmental requirements or otherwise, it is possible that the Company's
operations could be adversely affected.
FOREIGN OPERATIONS
The Company's La Choya gold mine is located in Sonora, Mexico. The Company
also has development projects and mining investments in Mexico, Canada and
Bolivia. Such projects and investments could be adversely affected by exchange
controls, currency fluctuations, taxation and laws or policies of the United
States affecting foreign trade, investment and taxation, which, in turn, could
affect the Company's current or future foreign operations.
METALS PRICES
The following table sets forth the average closing prices of the following
metals for 1980, 1985, and each year thereafter and the present year through
February 28, 1994.
<TABLE>
<CAPTION>
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gold(1)
(per oz.).................... $612.56 $317.26 $367.51 $446.47 $437.05 $381.43 $383.46 $362.18 $343.73 $359.77 $384.39
Silver(2)
(per oz.).................... 20.63 6.14 5.47 7.01 6.53 5.50 4.82 4.04 3.94 4.30 5.20
Lead(3)
(per lb.).................... 0.41 0.18 0.18 0.27 0.30 0.30 0.37 0.25 0.25 0.18 0.22
Zinc(4)
(per lb.).................... 0.34 0.36 0.34 0.36 0.56 0.78 0.69 0.51 0.56 0.44 0.45
</TABLE>
- ---------------
(1) London Final.
(2) Handy & Harman.
(3) London Metals Exchange -- Cash.
(4) London Metals Exchange -- Special High Grade -- Cash.
On March 11, 1994, the closing prices of these metals were: gold -- $386.65
per oz.; silver -- $5.40 per oz.; lead -- $0.20 per lb.; and zinc -- $0.42 per
lb.
17
<PAGE> 19
THE COMPANY
The Company, originally incorporated in 1891, is principally engaged in the
exploration, development, mining and processing of precious and non-ferrous
metals, including gold, silver, lead and zinc, and certain industrial minerals.
At December 31, 1993, the Company had approximately 1.9 million and 53.4 million
ounces of proven and probable gold and silver reserves, respectively (including
approximately 650,000 and 4.0 million ounces, respectively, as a result of the
Company's acquisition on March 11, 1994 of Equinox, a gold exploration and
development company headquartered in Vancouver, British Columbia).
The Company's principal metals properties include the La Choya gold mine,
located in Sonora, Mexico, which began operations in January 1994; the Lucky
Friday silver and lead mine, located near Mullan, Idaho, which is a significant
primary producer of silver in North America; the American Girl gold mine and the
Oro Cruz gold project, both located in Imperial County, California, which were
acquired in March 1994 as part of the Equinox acquisition; the Republic gold
mine, located in the state of Washington; the Grouse Creek gold project, located
near Challis, Idaho, which is intended to be operational in the fourth quarter
of 1994; the Rosebud gold project, located in Pershing County, Nevada, which was
acquired in March 1994 as part of the Equinox acquisition; and the Greens Creek
mine, located near Juneau, Alaska, a polymetallic mine placed on standby in
1993, in which Hecla owns a 29.7% interest.
During the next several years, the Company intends to concentrate its
exploration efforts at or in the vicinity of its existing and proposed mining
properties, including Grouse Creek, La Choya, Republic, Greens Creek, Rosebud,
American Girl and Lucky Friday. The Company and its joint venture partners own
or control significant land positions surrounding these existing and proposed
mining operations. In addition, the Company will continue to evaluate
acquisition and exploration opportunities, primarily in North America.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (ball clay and kaolin divisions), K-T Feldspar Corporation,
Mountain West Bark Products, Inc. (bark and scoria) ("Mountain West Products")
and Colorado Aggregate Company of New Mexico. Hecla's industrial minerals
segment is a leading producer of three of the four basic ingredients required to
manufacture ceramic and porcelain products, including sanitaryware, pottery,
dinnerware, electric insulators and ceramic tile. At current production rates,
the Company has over 20 years of proven and probable reserves of ball clay,
kaolin and feldspar.
The Company's principal executive offices are located at 6500 Mineral
Drive, Coeur d'Alene, Idaho 83814-8788, telephone (208) 769-4100.
RECENT DEVELOPMENTS
EQUINOX ACQUISITION
On March 11, 1994, Hecla completed its acquisition of Equinox, an
exploration, development and mining company headquartered in Vancouver, British
Columbia, whose assets consist primarily of metals properties located in the
United States. The transaction was treated as a pooling of interests for
financial reporting and accounting purposes. The Company issued approximately
5.9 million shares of Common Stock for Equinox's outstanding common shares
representing an exchange ratio of 0.3 share of Common Stock for each Equinox
common share. In addition, approximately 400,000 shares of Common Stock are
issuable upon exercise of outstanding Equinox Warrants (as hereinafter defined)
and Equinox options. Following the acquisition, Equinox was liquidated so that
all of its direct subsidiaries became direct subsidiaries of the Company. In
connection with the acquisition, the Company also issued production notes
related to production at the American Girl mine and Oro Cruz project, with an
aggregate redemption price of Canadian $2,075,655 ("Hecla Production Notes").
SALE OF GROUSE CREEK JOINT VENTURE INTEREST
On February 8, 1994, the Company sold a 20% undivided interest in the
Company's Grouse Creek gold project to Great Lakes for $13,280,857. Pursuant to
the acquisition and joint venture agreements related to
18
<PAGE> 20
such sale, Great Lakes is required to fund its 20% pro rata portion of capital
expenditures required to bring the Grouse Creek project to commercial production
(including its portion of capital expenditures incurred to date). In addition,
these agreements provide that Great Lakes has the option at any time prior to 12
months following the commencement of commercial production at the Grouse Creek
project to purchase up to an additional 10% undivided interest in the project.
Under its agreements with the Company, Great Lakes would pay the Company an
amount estimated at approximately $277,000 for each additional 1% undivided
interest in the Grouse Creek project, and would in addition fund its increased
share of all capital expenditures.
Great Lakes funded the purchase of its 20% interest in the Grouse Creek
project from the sale in an underwritten public offering of 17,500,000 Great
Lakes common shares at a price of Canadian $2.00 per common share for gross
proceeds of Canadian $35,000,000. Great Lakes is required to fund its portion of
the capital expenditure requirements for the Grouse Creek project with the net
proceeds of such offering. Pursuant to its agreements with Great Lakes, the
Company purchased 825,000 Great Lakes common shares at the offering price of
Canadian $2.00 per common share, using $1,229,875 of the proceeds received by
the Company for the purchase of Great Lakes' interest in the Grouse Creek
project. In addition, as part of this transaction, Great Lakes issued to the
Company a warrant entitling Hecla to acquire up to 500,000 additional Great
Lakes common shares at Canadian $2.50 per share, subject to adjustment in
certain circumstances.
MOUNTAIN WEST PRODUCTS ACQUISITION
On December 1, 1993, the Company's industrial minerals segment completed
the acquisition of all the outstanding capital stock of Mountain West Products,
a privately held company based in Rexburg, Idaho, which produces decorative
bark, scoria, peat and soil additives sold into the landscape market primarily
in the western United States. In accordance with the terms of the acquisition
agreement dated October 26, 1993, Hecla issued 655,000 shares of Common Stock to
the former shareholders of Mountain West Products in exchange for their
interests.
GRANDUC MINES
On January 24, 1994, Hecla sold its entire interest in Granduc Mines
Limited, a Vancouver, British Columbia based company, by selling a total of
2,815,300 Granduc Mines Limited shares to two Toronto based companies. As a
result of this transaction, the Company realized net proceeds of approximately
$2.8 million.
USE OF PROCEEDS
The aggregate net proceeds to the Company from the sale of the Shares
offered hereby are estimated to be approximately $ million (or approximately
$ million if the Underwriters' over-allotment option is exercised in full).
The net proceeds from the Offering will be used as follows: (i) approximately
$50,180,000 to redeem on or about June 14, 1994, all $109,950,000 principal
amount of LYONs currently outstanding at a redemption price of $456.39 per
$1,000 principal amount (the LYONs have a yield to maturity of 8% per annum,
based upon their original issue price) and (ii) for other general corporate
purposes, including the additional exploration and development of reserves at
the Rosebud project, Greens Creek mine, and the Gold Hunter property at the
Lucky Friday mine. Pending their use for the purposes set forth above, the
Company will invest the net proceeds or a part thereof in short-term,
interest-bearing instruments or other investment grade securities.
19
<PAGE> 21
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the NYSE and is traded under the symbol "HL."
The following table sets forth for the calendar periods indicated, the high and
low sale prices per share of the Common Stock as reported on the NYSE Composite
Tape:
<TABLE>
<CAPTION>
CALENDAR YEAR HIGH LOW
----------------------------------------------------------------------- ---- ---
<S> <C> <C>
1991
First Quarter........................................................ $ 10 1/4 $ 6 5/8
Second Quarter....................................................... 12 8 5/8
Third Quarter........................................................ 12 5/8 9 1/2
Fourth Quarter....................................................... 12 1/4 9 7/8
1992
First Quarter........................................................ 12 1/4 10
Second Quarter....................................................... 10 7/8 8 7/8
Third Quarter........................................................ 10 5/8 8 3/4
Fourth Quarter....................................................... 9 1/8 7 1/4
1993
First Quarter........................................................ 10 1/2 7 3/8
Second Quarter....................................................... 14 1/2 9 7/8
Third Quarter........................................................ 15 1/4 9 1/8
Fourth Quarter....................................................... 12 1/8 9 5/8
1994
First Quarter (through March 14, 1994)............................... 13 5/8 11 1/2
</TABLE>
On March 14, 1994 the last reported sale price of the Common Stock on the
NYSE Composite Tape was $12 7/8 per share.
The Company last paid cash dividends on its Common Stock of $0.05 per share
in the fourth quarter of 1990. A determination to pay future dividends on the
Common Stock and the amount thereof will be made by the Company's Board of
Directors and will depend on the Company's future earnings, capital
requirements, financial condition and other relevant factors. The Company's
ability to pay dividends is subject to certain restrictions contained in its $30
million long-term revolving credit facility. See "Description of Credit
Facility."
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the actual capitalization of the Company and
its subsidiaries as of December 31, 1993, on a pro forma basis assuming
consummation of the Equinox acquisition on December 31, 1993 and as adjusted to
reflect the effect of the sale of the Shares offered hereby (assuming no
exercise of the Underwriters' over-allotment option) and the use of the net
proceeds therefrom (see "Use of Proceeds"). The following information should be
read in conjunction with the Consolidated Financial Statements and related notes
contained elsewhere or incorporated by reference herein. See "Index to Financial
Statements."
<TABLE>
<CAPTION>
DECEMBER 31, 1993
--------------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
SHORT-TERM DEBT:...................................... $ -- $ -- $--
-------- ------------ --------------
-------- ------------ --------------
LONG-TERM DEBT:
Liquid Yield Option Notes due 2004(3)............... $ 48,433 $ 48,433 $--
Revolving Credit Facility(4)........................ -- -- --
Other............................................... 1,056(5) 1,576(6) 1,576
-------- ------------ --------------
Total long-term debt........................ 49,489 50,009 1,576
-------- ------------ --------------
SHAREHOLDERS' EQUITY:
Preferred Stock, $0.25 par value, authorized
5,000,000 shares; no shares of Series A Preferred
Shares issued and outstanding, and 2,300,000
shares of Convertible Preferred Stock ($50.00
liquidation preference per share) issued and
outstanding...................................... 575 575 575
Common Stock, $0.25 par value, authorized
100,000,000 shares; 34,644,734 shares
outstanding(7)(8)................................ 8,661 10,080 11,705
Capital surplus..................................... 238,601 265,687 342,228
Earnings (deficit) retained in the business......... (6,878) (30,774) (30,774)
Net unrealized loss on marketable equity
securities....................................... (8) (8) (8)
Treasury stock reacquired at cost, 62,226 shares.... (888) (888) (888)
-------- ------------ --------------
Total shareholders' equity.................. 240,063 244,672 322,838
-------- ------------ --------------
Total capitalization........................ $289,552 $294,681 $324,414
-------- ------------ --------------
-------- ------------ --------------
</TABLE>
- ---------------
(1) Gives effect to the Equinox acquisition on a pooling of interests basis as
of December 31, 1993. See "Condensed Pro Forma Combined Financial
Information."
(2) Assumes an issue price of $12 7/8 per Share in the Offering.
(3) Assumes that $48,433,000 of the net proceeds of the Offering is used to
redeem all of the outstanding LYONs, based upon the principal amount
outstanding as of December 31, 1993. At June 14, 1994, $50,180,000 of the
net proceeds will be required to redeem the LYONs at a redemption price of
$456.39 per $1,000 principal amount. See "Description of LYONs."
(4) The Company's revolving credit facility allows the Company to borrow up to
$30,000,000. The Company currently has no amounts outstanding under such
facility. See "Description of Credit Facility."
(5) Other long-term debt includes $962,000 of non-interest bearing notes,
representing the present value of payments owed to certain former
shareholders of CoCa Mines, Inc. in connection with the development of the
Grouse Creek project. The face amount of the obligation is approximately
$1.0 million, which is payable in three equal annual installments beginning
on the date the Grouse Creek project commences commercial production.
(6) Includes present value of Hecla Production Notes in the amount of $520,000;
the Hecla Production Notes have an aggregate redemption price of Canadian
$2,075,655. The Hecla Production Notes are payable from the net cash flows
of the American Girl gold mine/Oro Cruz gold project.
(7) For purposes of the Pro Forma calculations, 40,320,761 shares of Common
Stock are considered outstanding and, for purposes of the "As Adjusted"
calculations, 46,820,761 shares of Common Stock are considered outstanding,
excluding in each case the issuance of 251,400 shares issued pursuant to the
exercise of Equinox options subsequent to December 31, 1993.
(8) Excludes as of December 31, 1993 (i) 553,960 shares of Common Stock issuable
upon exercise of outstanding Hecla and Equinox stock options (at an average
exercise price of $7.51 per share); (ii) 887,423 shares of Common Stock
issuable upon exercise of outstanding Hecla and Equinox warrants (at an
average exercise price of $13.40 per share), including 427,990 shares of
Common Stock issuable upon exercise of outstanding warrants with exercise
prices less than the current market price (see "Description of Capital
Stock -- Warrants to Purchase Common Stock"); and (iii) 7,395,498 shares of
Common Stock issuable upon conversion of the Company's Series B Cumulative
Convertible Preferred Stock (at a conversion price of $15.55 per share).
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data shown below as of and for the end
of each of the years in the five-year period ended December 31, 1993 have been
derived from, and should be read in conjunction with, the Company's consolidated
financial statements which have been audited by Coopers & Lybrand. See "Index to
Financial Statements." This data does not reflect the acquisition and
consolidation of Equinox, which was completed on March 11, 1994, and will be
accounted for as a pooling of interests. See "Condensed Pro Forma Combined
Financial Information." For historical financial information with respect to
Equinox, reference is made to Equinox's historical financial statements
incorporated herein by reference. See "Information Incorporated by Reference."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales of products........................... $118,931 $152,106 $117,568 $100,651 $ 81,847
Cost of sales and other direct production
costs..................................... 85,780 106,349 84,853 83,288 71,109
Depreciation, depletion and amortization.... 22,046 24,900 21,161 13,493 10,292
-------- -------- -------- -------- --------
Gross profit................................ 11,105 20,857 11,554 3,870 446
-------- -------- -------- -------- --------
Other operating expenses:
General and administrative................ 9,252 10,113 14,054 8,520 6,961
Exploration............................... 10,297 8,430 5,693 7,659 4,353
Research.................................. 444 -- 1,538 1,317 --
Depreciation and amortization............. 536 602 692 819 669
Provision for closed operations and
environmental matters(1)............... 706 2,970 3,638 12,670 2,307
Reduction in carrying value of mining
properties(2).......................... 3,308 -- -- 27,928 200
-------- -------- -------- -------- --------
Total other operating expenses.............. 24,543 22,115 25,615 58,913 14,490
-------- -------- -------- -------- --------
Loss from operations........................ (13,438) (1,258) (14,061) (55,043) (14,044)
-------- -------- -------- -------- --------
Other income (expense):
Interest and other income................. 3,285 10,563 2,219 12,428 2,965
Other gain (loss) on investments(3)....... (8,808) 78 212 (2,176) (147)
Minority interest in net loss of
consolidated subsidiary................ -- 70 484 95 43
Interest expense:
Total interest cost.................... (5,637) (6,073) (6,985) (6,905) (5,023)
Less amount capitalized................ 1,040 591 145 2,070 3,533
-------- -------- -------- -------- --------
Total other income (expense)................ (10,120) 5,229 (3,925) 5,512 1,371
-------- -------- -------- -------- --------
Income (loss) before taxes and cumulative
effect of changes in accounting
principles................................ (23,558) 3,971 (17,986) (49,531) (12,673)
Income tax benefit.......................... (3,109) (2,740) (2,556) (345) (938)
Cumulative effect of changes in accounting
principles(4)............................. -- -- -- (103) --
-------- -------- -------- -------- --------
Net income (loss)........................... (20,449) 6,711 (15,430) (49,289) (11,735)
Preferred stock dividends................... -- -- -- -- (4,070)
-------- -------- -------- -------- --------
Net income (loss) applicable to common
shareholders.............................. $(20,449) $ 6,711 $(15,430) $(49,289) $(15,805)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) per common share.......... $ (0.68) $ 0.22 $ (0.51) $ (1.60) $ (0.48)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average number of common shares
outstanding............................... 30,049 30,053 30,094 30,866 32,915
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 34,834 $ 37,639 $ 34,317 $ 20,270 $ 77,621
Total assets................................ 261,624 270,085 258,121 222,443 332,878
Long-term debt obligations.................. 67,009 71,062 76,866 70,382 49,489
Shareholders' equity........................ 157,536 163,654 149,717 113,719 240,063
</TABLE>
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA
(1) The provision for closed operations and environmental matters for all
periods presented represents costs incurred in connection with the care and
maintenance of closed properties as well as costs related to environmental
and reclamation expenses. As further discussed in Note 8 of Notes to
Consolidated Financial Statements, the Company expensed $2.8 million, $8.6
million and $0.8 million in 1991, 1992 and 1993, respectively, principally
in connection with the clean-up of the Bunker Hill Superfund Site in
northern Idaho. In addition, the Company expensed $2.7 million in 1990,
principally in connection with such clean-up.
(2) Based on its periodic reviews of the status of various mining properties,
the Company determined in 1989, and again in 1992, that certain adjustments
were appropriate to properly reflect the estimated net realizable values of
several of its properties. These adjustments consisted primarily of
write-downs of various properties, plants and equipment totaling
approximately $3.3 million and $27.9 million in 1989 and 1992, respectively.
The write-down in 1989 related to the Company's interests in the Durita and
Escalante properties. As further discussed in Note 5 of Notes to
Consolidated Financial Statements, the adjustment in 1992 related to the
$13.5 million write-down of the Company's interest in the Apex facility,
which was designed to process germanium and gallium, and write-downs of
approximately $9.0 million related to the Consolidated Silver and Hog Heaven
silver properties, located in northern Idaho and northwest Montana,
respectively. The Lisbon Valley project in Utah, a joint venture which was
fully developed for uranium and vanadium production, was also written down
by approximately $3.5 million due to continued depressed uranium prices.
Other gold and silver properties written down in the 1992 adjustment
included the Creede and Hardscrabble properties totaling $1.5 million and
$0.4 million, respectively, both located in Colorado.
(3) During 1989, the Company sold 952,900 shares of Sunshine common stock for
$3.6 million, realizing a loss of $4.8 million. In connection with the
Company's decision to liquidate its holdings in Sunshine common stock, the
Company transferred the remaining investment to a current asset
classification and recognized an additional loss of $4.2 million for the
difference between the market value of the securities and the remaining book
value on the Company's balance sheet. During 1992, the Company wrote down
its common stock investment in Granduc Mines Limited to current estimated
market value. The resulting $2.1 million write-down was recorded to reflect
the decline in market value of the common stock investment due to continued
depressed metals prices. In January 1994, the Company sold its entire
interest in Granduc Mines Limited for net proceeds of approximately $2.8
million. See "Recent Developments -- Granduc Mines."
(4) Effective January 1, 1992, the Company prospectively adopted the provisions
of Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" ("SFAS No. 106")
and Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). The cumulative effect of adopting SFAS No.
106 was to increase the 1992 net loss by approximately $1.6 million. The
cumulative effect of adopting SFAS No. 109 was to decrease the 1992 net loss
by approximately $1.5 million.
23
<PAGE> 25
CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following condensed pro forma combined balance sheet and condensed pro
forma combined statements of operations (collectively, the "Pro Forma Financial
Statements") were prepared by Hecla to illustrate the estimated effects of the
business combination to be accounted for as a pooling of interests under U.S.
generally accepted accounting principles ("GAAP"). Accordingly, the financial
information of Hecla and Equinox has been combined for all periods presented.
All amounts in the Pro Forma Financial Statements are stated in U.S. dollars
unless otherwise stated. The Pro Forma Financial Statements give retrospective
effect to material differences between Hecla's and Equinox's accounting policies
which are expected to have a material impact on the combined financial
statements. The Pro Forma Financial Statements do not purport to represent what
the combined financial position or results of operations actually would have
been if the combination had occurred at the beginning of the periods or to
project the combined financial position or results of operations for any future
date or period.
The Pro Forma Financial Statements should be read in conjunction with the
historical consolidated financial statements, including the notes thereto, of
Hecla (prepared in accordance with U.S. GAAP) and of Equinox (prepared in
accordance with Canadian GAAP), which are included elsewhere or incorporated by
reference in this document. Equinox's historical financial statements have been
restated into U.S. dollars and then adjusted to conform with U.S. GAAP and
Hecla's accounting policies, format and classification.
The Pro Forma Financial Statements are presented utilizing the
pooling-of-interests method of accounting whereby the recorded assets,
liabilities, shareholders' equity and results of operations of Hecla and Equinox
become the combined assets, liabilities, shareholders' equity and results of
operations. The Pro Forma Financial Statements also include pro forma
adjustments which are based upon available information and certain assumptions
that management of Hecla believes are reasonable in the circumstances.
24
<PAGE> 26
CONDENSED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1993
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT AS NOTED FOR EQUINOX HISTORICAL)
<TABLE>
<CAPTION>
EQUINOX
-----------------------------------------------------------------
U.S. GAAP
ADJUSTMENT TO AND
HISTORICAL RESTATE INTO CONFORMING HISTORICAL HECLA PRO FORMA
(CANADIAN DOLLARS) U.S. DOLLARS ADJUSTMENTS AS ADJUSTED HISTORICAL COMBINED
------------------ -------------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents..................... $ 2,833 $ (693) $ $ 2,140 $ 37,891 $ 40,031
Investments....................... 127 (31) 96 27,540 27,636
Accounts and notes
receivable...................... 2,479 (607) 110(5) 1,982 16,859 18,841
Inventories....................... 2,601 (637) 34(5) 1,998 13,022 15,020
Other current assets.............. 114 (28) 2(5) 88 1,915 2,003
-------- ------- ----------- ----------- ---------- ---------
Total current assets............ 8,154 (1,996) 146 6,304 97,227 103,531
Investments......................... 182 (44) 216 (4) 354 6,211 6,565
Properties, plants and equipment,
net............................... 13,494 (2,936) (2,282)(1) 6,185 222,870 229,055
(2,091)(3)
Other noncurrent assets............. 70 (1) 432 6,570 7,002
362 (2)
-------- ------- ----------- ----------- ---------- ---------
Total assets.................... $ 21,830 $ (4,976) $(3,579) $13,275 $332,878 $346,153
-------- ------- ----------- ----------- ---------- ---------
-------- ------- ----------- ----------- ---------- ---------
Current liabilities:
Accounts payable and accrued
expenses........................ $ 3,226 $ (789) $ 265 (5) $ 2,702 $ 19,606 $ 22,308
-------- ------- ----------- ----------- ---------- ---------
Total current liabilities....... 3,226 (789) 265 2,702 19,606 22,308
Long-term debt...................... 1,623 (397) (706)(3) 520 49,489 50,009
Other noncurrent liabilities........ 4,217 4,217
Accrued reclamation costs........... 6,729 (1,647) 362 (2) 5,444 19,503 24,947
-------- ------- ----------- ----------- ---------- ---------
Total liabilities............... 11,578 (2,833) (79) 8,666 92,815 101,481
-------- ------- ----------- ----------- ---------- ---------
Shareholders' equity:
Preferred stock................... 575 575
Common stock...................... 35,261 (6,756) 28,505 8,661 10,080 (6)
Capital surplus................... 238,601 265,687 (6)
Retained earnings (deficit)......... (25,009) 4,613 (2,212)(1) (23,896) (6,878) (30,774)
(1,385)(3)
(119)(5)
216 (4)
Treasury stock and other............ (896) (896)
-------- ------- ----------- ----------- ---------- ---------
Total shareholders' equity...... 10,252 (2,143) (3,500) 4,609 240,063 244,672
-------- ------- ----------- ----------- ---------- ---------
Total liabilities and
shareholders' equity.......... $ 21,830 $ (4,976) $(3,579) $13,275 $332,878 $346,153
-------- ------- ----------- ----------- ---------- ---------
-------- ------- ----------- ----------- ---------- ---------
</TABLE>
See Notes to Condensed Pro Forma Combined Balance Sheet.
25
<PAGE> 27
NOTES TO CONDENSED PRO FORMA COMBINED BALANCE SHEET
(ALL AMOUNTS ARE IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
The Equinox Historical balance sheet at December 31, 1993 has been adjusted
to reflect (i) restatement of Canadian dollars to U.S. dollars (based on the
exchange rate as of December 31, 1993 of $0.755 U.S. dollar for each Canadian
dollar) and (ii) presentation in accordance with U.S. GAAP and the accounting
policies, format and classification utilized by Hecla. The following adjustments
were made to reflect the Equinox Canadian dollar balance sheets in conformity
with Hecla's presentation and U.S. GAAP:
(1) Equinox capitalizes exploration expenditures incurred on properties
identified as having development potential. Hecla expenses exploration costs
as incurred. Properties, plants and equipment was reduced $2,282,000 at
December 31, 1993 to reverse exploration costs which previously were
capitalized by Equinox. A reclamation bond for $70,000 was reclassed to
other noncurrent assets from properties, plants and equipment in connection
with this adjustment.
(2) Adjustments of $362,000 to other noncurrent assets and accounts payable and
accrued expenses reflect reclassifications of certain reclamation bonds and
existing accrued reclamation costs. Hecla's accounting policy is to accrue
future reclamation costs over the operating life of the facility, based on
current environmental regulatory requirements. As a result of this policy,
accrued reclamation costs were increased to the following balances as of
December 31, 1992.
<TABLE>
<CAPTION>
EQUINOX PROPERTY
--------------------
<S> <C>
Van Stone Mine................................................... $1,300,000
J&L Property..................................................... 200,000
Buckhorn Mine.................................................... 1,315,000
Kirkland Lake.................................................... 157,000
----------
Total....................................................... $2,972,000
----------
----------
</TABLE>
During the year ended December 31, 1993, Equinox accrued $2,084,000 for
reclamation costs associated with these properties.
(3) Reduction in the carrying value of the American Girl gold mine and Oro Cruz
gold project by $2,400,000 to reflect valuation of properties using Hecla's
methodology. Depreciation expense of $309,000 recorded by Equinox for the
three-month period ended December 31, 1993 was reversed. The reduction is
based upon a fourth quarter 1993 feasibility study which indicates that less
cash flow will be received from the property than originally anticipated. As
a result, the balance of production participating preferred shares payable,
which is based upon cash flows from operations, has decreased approximately
$706,000. The write-down was effective October 1, 1993.
(4) Reversal of a portion of the write-down of Equinox's investment in Pan
American Minerals Corporation as of December 31, 1993. Equinox recorded a
write-down to $1 in the year ended December 31, 1993.
(5) Equinox has a 23.56% interest in the Buckhorn mine. Equinox wrote off its
investment in Buckhorn in 1989. Since that date, Equinox has not included
its proportionate share of Buckhorn in its consolidated financial
statements, Hecla's policy is to consolidate such investments in its
financial statements. The amounts recorded to reflect Equinox's December 31,
1993 proportional share of Buckhorn's financial statements are as follows:
<TABLE>
<S> <C>
Accounts receivable.............................................. $ 110,000
Inventories...................................................... 34,000
Other current assets............................................. 2,000
Accounts payable and accrued expenses............................ 265,000
Retained earnings (deficit)...................................... (119,000)
</TABLE>
26
<PAGE> 28
(6) The exchange of each Equinox common share (without par value) for 0.3 of a
Hecla common share at December 31, 1993 results in the transfer of
$27,086,000 from common stock of Equinox to capital surplus of Hecla as
follows:
<TABLE>
<S> <C>
Net book value of Equinox shares outstanding.................... $28,505,000
Hecla shares exchanged (5,676,027 shares at December 31, 1993 at
$0.25 par value).............................................. (1,419,000)
-----------
Difference transferred to capital surplus....................... $27,086,000
-----------
-----------
</TABLE>
27
<PAGE> 29
CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EQUINOX
HECLA HISTORICAL AS PRO FORMA PRO FORMA
HISTORICAL ADJUSTED(1) ADJUSTMENTS COMBINED
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales of Products......................... $ 81,847 $11,041 $ $ 92,888
---------- --------------- ----------- ---------
Costs of sales and other direct
production costs........................ 71,109 9,032 80,141
Depreciation, depletion, and
amortization............................ 10,292 3,543 (309)(3) 13,526
---------- --------------- ----------- ---------
81,401 12,575 (309) 93,667
---------- --------------- ----------- ---------
Gross profit (loss).................. 446 (1,534) (309) (779)
---------- --------------- ----------- ---------
Other operating expenses
General and administrative.............. 6,961 1,179 8,140
Exploration............................. 4,353 175 1,128 (2) 5,656
Research................................ 150 150
Depreciation and amortization........... 669 669
Provision for closed operations and
environmental matters................ 2,307 2,104 (2,084)(5) 2,327
Reduction in carrying value of mining
properties........................... 200 3,272 (2,605)(2) 2,561
1,694 (3)
---------- --------------- ----------- ---------
14,490 6,880 (1,867) 19,503
---------- --------------- ----------- ---------
Loss from operations................. (14,044) (8,414) (2,176) (20,282)
Other income (expense).................... 1,371 (661) (230)(4) 940
---------- --------------- ----------- ---------
Income (loss) before income taxes......... (12,673) (9,075) (2,406) (19,342)
Income tax benefit........................ 938 938
---------- --------------- ----------- ---------
Net income (loss)......................... (11,735) (9,075) (2,406) (18,404)
Dividend on preferred shares.............. 4,070 4,070
---------- --------------- ----------- ---------
Net income (loss) applicable to common
shareholders............................ $ (15,805) $(9,075) $(2,406) $ (22,474)
---------- --------------- ----------- ---------
---------- --------------- ----------- ---------
Net income (loss) per common share........ $ (0.48) $ (0.59)
---------- ---------
---------- ---------
Weighted average common shares used in
computation............................. 32,915 38,010(6)
---------- ---------
---------- ---------
</TABLE>
See Notes to Condensed Pro Forma Combined Statements of Operations.
28
<PAGE> 30
CONDENSED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EQUINOX
HECLA HISTORICAL AS PRO FORMA PRO FORMA
HISTORICAL ADJUSTED(1) ADJUSTMENTS COMBINED
---------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales of products.......................... $ 100,651 $ 970 $ $ 101,621
---------- -------------- ----------- ---------
Costs of sales and other direct production
costs.................................... 83,288 1,526 84,814
Depreciation, depletion, and
amortization............................. 13,493 281 13,774
---------- -------------- ----------- ---------
96,781 1,807 98,588
---------- -------------- ----------- ---------
Gross profit (loss).............. 3,870 (837) 3,033
---------- -------------- ----------- ---------
Other operating expenses
General and administrative............... 8,520 686 9,206
Exploration.............................. 7,659 131 396 (2) 8,186
Research................................. 1,317 41 1,358
Depreciation and amortization............ 819 32 851
Provision for closed operations and
environmental matters................. 12,670 938 (5) 13,608
Reduction in carrying value of mining
properties............................ 27,928 3,842 (979)(2) 30,791
---------- -------------- ----------- ---------
58,913 4,732 355 64,000
---------- -------------- ----------- ---------
Loss from operations............. (55,043) (5,569) (355) (60,967)
Other income (expense)..................... 5,512 754 (41)(2)(4) 6,225
---------- -------------- ----------- ---------
Income (loss) before income taxes and
cumulative effect of changes in
accounting principles.................... (49,531) (4,815) (396) (54,742)
Income tax benefit......................... (345) (345)
---------- -------------- ----------- ---------
Income (loss) before cumulative effect of
changes in accounting principles......... (49,186) (4,815) (396) (54,397)
Cumulative effect of changes in accounting
principles (income taxes and post
retirement benefits other than
pensions)................................ (103) (103)
---------- -------------- ----------- ---------
Net income (loss).......................... $ (49,289) $ (4,815) $(396) $ (54,500)
---------- -------------- ----------- ---------
---------- -------------- ----------- ---------
Net income (loss) per common share:
Income (loss) before cumulative effect of
changes in accounting principles...... $ (1.59) $ (1.56)
Cumulative effect of changes
in accounting principles.............. (0.01) (0.01)
---------- ---------
$ (1.60) $ (1.57)
---------- ---------
---------- ---------
Weighted average common shares used
in computation........................... 30,866 34,778(6)
---------- ---------
---------- ---------
</TABLE>
See Notes to Condensed Pro Forma Combined Statements of Operations.
29
<PAGE> 31
CONDENSED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EQUINOX
HECLA HISTORICAL AS PRO FORMA PRO FORMA
HISTORICAL ADJUSTED(1) ADJUSTMENTS COMBINED
---------- --------------- ------------ ---------
<S> <C> <C> <C> <C>
Sales of products.................... $117,568 $ $ $117,568
---------- --------------- ------------ ---------
Costs of sales and other direct
production costs................... 84,853 84,853
Depreciation, depletion, and
amortization....................... 21,161 21,161
---------- --------------- ------------ ---------
106,014 106,014
---------- --------------- ------------ ---------
Gross profit (loss)........ 11,554 11,554
---------- --------------- ------------ ---------
Other operating expenses
General and administrative......... 14,054 929 14,983
Exploration........................ 5,693 37 633 (2) 6,363
Research........................... 1,538 1,538
Depreciation and amortization...... 692 45 737
Provision for closed operations and
environmental matters........... 3,638 126 (5) 3,764
Reduction in carrying value of
mining properties............... 568 (527)(2) 41
---------- --------------- ------------ ---------
25,615 1,579 232 27,426
---------- --------------- ------------ ---------
Loss from operations....... (14,061) (1,579) (232) (15,872)
Other income (expense)............... (3,925) 1,086 634 (2,205)
---------- --------------- ------------ ---------
Income (loss) before income taxes.... (17,986) (493) 402 (18,077)
Income tax benefit................... (2,556) (2,556)
---------- --------------- ------------ ---------
Net income (loss).................... $(15,430) $ (493) $ 402 $(15,521)
---------- --------------- ------------ ---------
---------- --------------- ------------ ---------
Net income (loss) per common share... $ (0.51) $ (0.46)
---------- ---------
---------- ---------
Weighted average common shares used
in computation..................... 30,094 33,579 (6)
---------- ---------
---------- ---------
</TABLE>
See Notes to Condensed Pro Forma Combined Statements of Operations.
30
<PAGE> 32
NOTES TO CONDENSED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(ALL AMOUNTS ARE IN U.S. DOLLARS UNLESS OTHERWISE INDICATED)
(1) The Equinox historical statements of operations for the years ended
December 31, 1993, 1992 and 1991 have been adjusted to reflect (a)
translation of Canadian dollar amounts into U.S. dollars using the average
exchange rate for each period (approximately $0.775 U.S. dollar for each
Canadian dollar for the year 1993, $0.839 in the year 1992, and $0.871 in
the year 1991) and (b) presentation in accordance with U.S. GAAP and the
accounting policies, format and classification utilized by Hecla.
Prior to November 1, 1992, Equinox's fiscal year end was October 31.
Accordingly, the December 31, 1992 and 1991 condensed pro forma combined
statements of operations include the fiscal year results for Hecla for the
year ended December 31 and for Equinox for the fiscal year ended October
31. Subsequent to October 31, 1992, Equinox had a December 31 year end.
Accordingly, the year ended December 31, 1993 reflects operating results
from January 1 through December 31, 1993 for both Hecla and Equinox.
Equinox pro forma sales and net loss for the two month period ended
December 31, 1992 were $1,901,000 and $3,076,000, respectively. The net
loss was added to the combined December 31, 1992 deficit on a pro forma
basis.
(2) Equinox capitalizes exploration expenditures incurred and investments in
exploration companies where exploration expenditures were incurred on
properties identified as having development potential. Hecla expenses such
exploration related expenditures as incurred. Exploration has been
increased to expense amounts which were capitalized by Equinox. Subsequent
reductions in the carrying value of mining properties of Equinox have been
correspondingly reduced. Likewise, gains recognized on the subsequent sales
of certain Equinox exploration properties have been increased.
(3) Represents the write-down of the American Girl mine and Oro Cruz project
during 1993. See Note (3) to the Condensed Pro Forma Combined Balance
Sheet.
(4) Represents Equinox's proportionate share of the Buckhorn mine operating
results and the partial reversal of the 1993 writedown of Equinox's
investment in Pan American Minerals Corporation. See Notes (4) and (5) to
the Condensed Pro Forma Combined Balance Sheet.
(5) Represents conforming adjustment for reclamation costs as follows (see Note
(2) to the Condensed Pro Forma Combined Balance Sheet):
<TABLE>
<CAPTION>
1993 1992 1991
----------- -------- --------
<S> <C> <C> <C>
Van Stone............................ $ (938,000) $938,000 $
Buckhorn............................. (946,000)
J&L Property......................... (200,000) 126,000
----------- -------- --------
Total...................... $(2,084,000) $938,000 $126,000
----------- -------- --------
----------- -------- --------
</TABLE>
Credit amounts represent reversals of reclamation costs recorded by Equinox
in fiscal years after the pro forma adjustment was made.
(6) Adjusted to reflect the increase in the number of shares of Hecla Common
Stock that would have been issued pursuant to the exchange ratio, for the
weighted average number of Equinox common shares outstanding during each
period.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is primarily involved in the exploration, development, mining
and processing of gold, silver, lead, zinc and industrial minerals. As such, the
Company's revenues and profitability are strongly influenced by world prices of
gold, silver, lead and zinc, which fluctuate widely and are affected by numerous
factors beyond the Company's control, including inflation and worldwide forces
of supply and demand. The aggregate effect of these factors is not possible to
accurately predict.
The Company recorded net losses applicable to common shareholders for each
of the past three years ended December 31, 1993, primarily as a result of: (i) a
reduction in carrying values of certain mining properties, losses on investments
and provisions for closed operations and environmental matters totaling $2.7
million in 1993, $42.7 million in 1992 and $3.6 million in 1991; (ii) decreased
gold production due to the depletion of oxide ore reserves at the Cactus and
Yellow Pine mines and the decline in ore grade at the Republic mine; and (iii)
depressed gold, silver, lead and zinc prices. If the current market prices of
gold, silver and lead do not increase and as a result of the Company's preferred
dividend payment requirements, the Company expects to continue to experience net
losses applicable to common shareholders, even with the planned gold production
from the commencement of commercial production at the Grouse Creek project in
late 1994. However, the Company's operating cash flows are expected to increase
subsequent to the commencement of commercial production at this project even if
metals prices remain at current levels. See "Investment
Considerations -- Project Development."
The volatility of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its assets, exercise judgment as to
whether price changes are temporary or are likely to persist. The Company
performs a comprehensive evaluation of the recoverability of its assets on a
periodic basis. The evaluation includes a review of future cash flows against
the carrying value of the asset. Moreover, a review is made on a quarterly basis
to assess the impact of significant changes in market conditions and other
factors. Asset write downs may occur if the Company determines that the carrying
values attributed to individual assets are not recoverable given reasonable
expectations for future market conditions.
In 1994, the Company expects to produce approximately 131,000 ounces of
gold, including 63,000 ounces from the La Choya mine, 38,000 ounces of gold from
the Republic mine, 24,000 ounces from the American Girl mine and an additional
6,000 ounces of gold from other sources. Assuming the timely commencement of
production at the Grouse Creek project in the fourth quarter of 1994, the
Company's planned 1994 total gold production could increase by up to 53,000
ounces to 184,000 ounces, based upon its 80% interest in the project. The
Company's expected gold production increase in 1994 assumes a full year of
production at the La Choya project and the start-up of production at the Grouse
Creek project in the fourth quarter of 1994, which offsets the decrease in gold
production at the Republic mine. The Company's actual level of gold production
for 1994 will depend, in significant part, upon the timely commencement of
production at the Grouse Creek property. See "Business -- Development Projects."
The Company's share of silver production for 1994 is expected to be 2.7
million ounces compared to actual 1993 silver production of 3.0 million ounces.
The expected decrease in silver production is primarily due to the suspension of
operations at the Greens Creek mine in April 1993.
In 1993, the Company shipped 888,000 tons of industrial minerals, including
ball clay, kaolin, feldspar and specialty aggregates. The Company's production
of industrial minerals is expected to increase in 1994 to 945,000 tons,
principally due to increased shipments of ball clay and kaolin. Additionally,
the Company expects to ship 591,000 cubic yards of landscape material from its
newly acquired subsidiary, Mountain West Products.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the historical
Consolidated Financial Statements of the Company appearing elsewhere herein and
the historical Consolidated Financial Statements of Equinox incorporated by
reference
32
<PAGE> 34
herein. See "Index to Financial Statements," "Available Information" and
"Information Incorporated by Reference."
RESULTS OF OPERATIONS
1993 VS. 1992
A net loss of approximately $11.7 million, or $0.36 per common share, was
incurred in 1993 compared to a net loss of $49.3 million, or $1.60 per common
share, in 1992. After $4.1 million in dividends to preferred shareholders of the
Company's Series B Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock"), the Company's net loss applicable to common shareholders for
1993 was $15.8 million, or $0.48 per common share. The 1993 loss was due to a
variety of factors, the most significant of which are discussed below.
Sales of products decreased by $18.8 million, or 19%, in 1993 as compared
to 1992, principally the result of (i) decreased gold production due to the
winding down of operations at the Cactus mine, lower-grade ore being mined and
processed at the Republic mine, and the completion of operations at the Yellow
Pine mine during the third quarter of 1992; (ii) decreased silver, lead, and
zinc production due to suspension of operations at the Greens Creek mine in
April 1993, and the sale of the Company's 25% interest in the Galena mine in May
1992; (iii) decreases in the average prices of lead and zinc in 1993 compared to
1992; (iv) decreased production of lead at the Lucky Friday mine resulting from
lower lead contained in the ore processed; and (v) decreased sales of ball clay
from Kentucky-Tennessee Clay Company; all of which were partially offset by (a)
increased revenue from the Company's Apex facility; (b) increased sales of
feldspar from K-T Feldspar Corporation, clay slurry products from the recently
completed slurry plant in Monterrey, Mexico, landscape products from the newly
acquired Mountain West Products, and aggregate products from Colorado Aggregate
Company; and (c) increases in the average prices of gold and silver in 1993
compared to 1992.
Cost of sales and other direct production costs decreased by $12.2 million,
or 15%, in 1993 as compared to 1992, primarily a result of (i) decreased
operating costs at the Greens Creek mine due to suspension of operations in
April 1993; (ii) decreased operating costs at the Cactus mine due to the
completion of mining operations in February 1992; (iii) decreased operating
costs resulting from the sale of the Company's 25% interest in the Galena mine
in May 1992; (iv) decreased operating costs at the Yellow Pine mine resulting
from the completion of operations during the third quarter of 1992; and (v)
decreased production costs at the Republic mine; all of which were partially
offset by (a) increased operating costs during 1993 at the Apex facility, K-T
Feldspar Corporation, Kentucky-Tennessee Clay Company's ball clay division, and
Colorado Aggregate Company; and (b) operating costs in 1993 associated with the
newly acquired Mountain West Products.
Depreciation, depletion and amortization expense decreased by approximately
$3.2 million, or 24%, in 1993 as compared to 1992, primarily as a result of (i)
the suspension of operations at the Greens Creek mine in April 1993, as well as
the completion of mining operations at the Cactus mine in February 1992 and the
Yellow Pine mine during the third quarter of 1992, where depreciable assets were
depreciated primarily on a unit-of-production basis; and (ii) significant assets
at Kentucky-Tennessee Clay Company's ball clay division reaching the end of
their depreciable lives. Both were partially offset by increased depreciation
expense due to increased ore tons mined during 1993 at the Lucky Friday and
Republic mines where significant depreciable assets are depreciated on a
unit-of-production basis.
Other operating expenses decreased by $44.4 million, or 75%, in 1993 as
compared to 1992, primarily the result of (i) the 1992 reduction in carrying
value of mining properties totaling $27.9 million, nonrecurring in 1993,
including (a) a $13.5 million write-down to reflect the estimated net realizable
value of the Company's interest in the Apex facility; (b) a $9.0 million
write-down of the Consolidated Silver property in northern Idaho and the Hog
Heaven property in northwest Montana due to depressed silver prices; (c) a $3.5
million write-down to reflect the estimated net realizable value in the
Company's interest in the Lisbon Valley project in Utah; and (d) a $1.9 million
write-down of the Creede and Hardscrabble gold and silver properties located in
Colorado due to depressed previous metals prices; (ii) the 1992 provision for
closed operations and
33
<PAGE> 35
environmental matters totaling $12.7 million, nonrecurring in 1993, which
consisted principally of an $8.5 million increase in the allowance for the
Bunker Hill Superfund Site remediation costs and additional idle property
reclamation and closure costs accruals of $3.3 million as further described in
Note 8 of Notes to Consolidated Financial Statements; (iii) decreased domestic
exploration expenditures mainly at the Republic mine in 1993; (iv) foreign
exploration expenditures in Chile during 1992, nonrecurring in 1993; (v) reduced
general and administrative costs in 1993 principally due to staff reductions and
other cost-cutting measures at corporate headquarters; and (vi) research
expenditures incurred at the Apex facility during 1992, nonrecurring in 1993.
Other income (expense) netted to income of approximately $1.4 million in
1993 compared to income of $5.5 million in 1992. The decrease is primarily due
to (i) the sale of surface and timber rights on various nonoperating
Company-owned properties in 1992 resulting in a gain of approximately $9.0
million, nonrecurring in 1993; and (ii) the sale of the Company's 25% interest
in the Galena mine and adjacent properties in May 1992 resulting in a gain of
approximately $1.2 million, nonrecurring in 1993. Both of these items were
partially offset by (a) decreased interest expense in 1993 resulting from (I)
the April 29, 1993 issuance of 2.2 million shares of Common Stock for 60,400 of
its outstanding LYONs as described in Note 7 of Notes to Consolidated Financial
Statements, and (II) increased capitalized interest related to the Grouse Creek
and La Choya projects; and (b) the $2.1 million write-down in 1992 of the
Company's common stock investment in Granduc Mines Limited to reflect the
apparent other-than-temporary decline in market value of the investment,
nonrecurring in 1993; and (c) increased interest income earned in 1993 on the
investment of the proceeds from the Company's public offering of 2.3 million
shares of Series B Preferred Stock as described in Note 10 of Notes to
Consolidated Financial Statements.
Income taxes reflect a benefit of $0.9 million in 1993 compared to a $0.3
million benefit in 1992. The benefit in both periods reflects the carryback of
1993 and 1992 net operating losses to reduce income taxes previously provided.
1992 VS. 1991
The net loss for 1992 was $49.3 million, or $1.60 per common share,
compared to net loss of $15.4 million, or $0.51 per common share, for 1991.
Sales of products decreased by $16.9 million, or 14%, from 1991 to 1992,
principally as a result of (i) decreased gold production at the Republic and
Cactus mines due to lower-grade ore mined and processed, and the completion of
operations at the Yellow Pine mine in August 1992; (ii) decreases in the average
prices of gold, silver and lead in 1992 compared to 1991; (iii) decreased silver
production resulting from the 1992 sale of the Company's 25% interest in the
Galena mine; and (iv) decreased silver, zinc, lead and gold production at the
Greens Creek mine due to lower-grade ore mined and processed; all of which were
partially offset by (a) increased silver, lead and zinc production at the Lucky
Friday mine; (b) increased sales of specialty aggregates from Colorado Aggregate
Company during 1992; (c) increases in the average price of zinc; (d) increased
sales of feldspar from K-T Feldspar Corporation during 1992; and (e) increased
sales from the kaolin division of the Kentucky-Tennessee Clay Company during
1992.
Cost of sales and other direct production costs decreased $1.6 million, or
2%, from 1991 to 1992 primarily due to (i) decreased operating costs resulting
from the completion of operations at the Yellow Pine mine in August 1992; (ii)
decreased operating costs at the Cactus mine due to the completion of mining
operations in February 1992; (iii) decreased operating costs incurred resulting
from the sale of the Company's 25% interest in the Galena mine; and (iv)
decreased operating costs at the Republic and Lucky Friday mines; all of which
were partially offset by (a) increased operating costs at the Greens Creek mine;
and (b) increased operating costs at Colorado Aggregate Company,
Kentucky-Tennessee Clay Company and K-T Feldspar Corporation.
Depreciation, depletion and amortization decreased by approximately $7.7
million, or 36%, primarily as a result of the completion of mining operations at
the Cactus mine in February 1992 where depreciation was based on ore tons mined;
and to a lesser extent (i) the completion of operations at the Yellow Pine mine
in August 1992; and (ii) the sale of the Company's 25% interest in the Galena
mine; all of which were partially
34
<PAGE> 36
offset by increased ore tons mined at the Lucky Friday mine where significant
depreciable assets are being depreciated based on ore tons mined.
Other operating expenses increased by $33.3 million, or 130%, due
principally to (i) the reduction in carrying value of mining properties totaling
$27.9 million including (a) $13.5 million write-down to reflect the estimated
net realizable value of the Company's interest in the Apex facility, a
hydrometallurgical processing plant near St. George, Utah; (b) $9.0 million
write-down of the Consolidated Silver property in northern Idaho and the Hog
Heaven property in northwest Montana due to depressed silver prices; (c) $3.5
million write-down to reflect the estimated net realizable value of the
Company's interest in the Lisbon Valley project in Utah, a joint venture project
fully developed for uranium and vanadium production; and (d) $1.9 million
write-down of the Creede and Hardscrabble gold and silver properties located in
Colorado due to continued depressed precious metals prices; (ii) the provision
for closed operations and environmental matters totaling $12.7 million which
consisted principally of an $8.5 million 1992 increase in the allowance for the
Bunker Hill Superfund Site remediation costs and additional idle property
reclamation and closure costs accrual of $3.3 million as further described in
Note 8 of Notes to Consolidated Financial Statements; and (iii) increased
exploration expenditures at the Republic and Lucky Friday mines during 1992; all
of which were partially offset by decreased general and administrative costs
principally due to (a) 1991 expenses incurred in connection with the June 26,
1991, merger of CoCa Mines, Inc. ("CoCa Mines"), nonrecurring in 1992; (b)
decreased other general and administrative costs resulting from closing the CoCa
Mines office; and (c) other general and administrative cost reduction efforts.
Other income (expense) changed from expense of $3.9 million in 1991 to
income of $5.5 million in 1992, primarily as a result of (i) the sale of surface
and timber rights on various nonoperating Company-owned properties in 1992
resulting in a gain of approximately $9.0 million; (ii) the 1992 sale of the
Company's 25% interest in the Galena mine and adjacent properties located in
northern Idaho, resulting in a gain of approximately $1.2 million; (iii) the
exchange of 1,120,125 shares of the Common Stock for 30,900 of the Company's
outstanding LYONs resulting in a gain of approximately $0.5 million and a
reduction of interest expense in 1992; and (iv) increased capitalized interest
relating to the Grouse Creek and La Choya projects in 1992; all of which were
partially offset by the $2.1 million write-down of the Company's common stock
investment in Granduc Mines Limited to reflect the apparent other-than-temporary
decline in the market value of the investment.
Income taxes reflect a benefit of $0.3 million in 1992 compared to a $2.6
million benefit in 1991. The benefit in both periods reflects the carryback of
1992 and 1991 net operating losses to reduce income taxes previously provided.
In 1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions. The adoption of SFAS No. 109,
"Accounting for Income Taxes", resulted in a $1.5 million benefit as of January
1, 1992. The effect of adopting SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," resulted in an additional expense
of $1.6 million as of January 1, 1992. The net cumulative effect of both of
these accounting changes was to increase the 1992 loss by $0.1 million.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond the
Company's control. Prices may change dramatically in short periods of time and
such prices have a significant effect on revenues, profits and liquidity of the
Company. The Company is subject to many of the same inflationary pressures as
the U.S. economy in general. To date, the Company has been successful in
implementing cost-cutting measures which have reduced per unit production costs.
Management believes, however, that the Company may not be able to continue to
offset the impact of inflation over the long-term through cost reductions alone.
However, the market prices for products produced by the Company have a much
greater impact than inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of mineral properties are
in many instances unpredictable events. Future metals prices, the success of
exploration programs, changes in legal and regulatory
35
<PAGE> 37
requirements and other property transactions can have a significant impact on
the need for capital. See "Investment Considerations."
At December 31, 1993, assets totaled approximately $332.9 million and
shareholders' equity totaled approximately $240.1 million. Cash and cash
equivalents and short-term investments increased by $62.1 million to $65.4
million at December 31, 1993 from $3.3 million at the end of 1992. In 1993, the
major sources of cash were the $110.3 million net proceeds received from the
June 29, 1993, issuance of 2.3 million shares of Series B Preferred Stock as
described further in Note 10 of Notes to Consolidated Financial Statements and
approximately $8.6 million net cash from operating activities. The major uses of
cash were for (i) the development costs incurred in connection with the Grouse
Creek and La Choya projects (approximately $27.9 million and $12.2 million,
respectively); (ii) expenditures at the clay slurry facility in Mexico
(approximately $4.4 million); and (iii) preferred dividend payments ($4.1
million).
The Company estimates that capital expenditures to be incurred in 1994 will
be approximately $62.2 million, after giving effect to the sale of 20% of the
Company's interest in the Grouse Creek project, which was completed in February
1994. These expenditures are expected to consist primarily of (i) the Company's
share of further development expenditures at the Grouse Creek project totaling
approximately $50.0 million; (ii) the Company's share of further development
expenditures at the Greens Creek mine totaling approximately $3.4 million; and
(iii) development expenditures at the Rosebud and Oro Cruz projects totaling
approximately $3.7 million and $1.3 million, respectively. The Company intends
to finance these capital expenditures through a combination of: (i) existing
cash, cash equivalents and short-term investments; (ii) the proceeds from the
sale of a minority joint venture interest in the Grouse Creek project (see
"Recent Developments -- Sale of Grouse Creek Joint Venture Interest"); (iii)
cash flow from operating activities; and (iv) the net proceeds of the Offering
following redemption of the LYONs (see "Use of Proceeds"). In addition, the
Company may borrow additional funds under its revolving credit facility which,
subject to certain conditions, provides for borrowings up to a maximum of $30.0
million. See "Description of Credit Facility." The Company's estimates of its
capital expenditures assume with respect to the Grouse Creek, Greens Creek and
Oro Cruz properties, that the Company's joint venture partners do not default
with respect to their obligations to contribute their respective portions of
development costs and capital expenditures. See "Investment
Considerations -- Joint Venture Arrangements."
The Company's planned environmental and reclamation expenditures for 1994
are expected to be approximately $7.4 million, principally for environmental and
reclamation activities at the Bunker Hill and California Gulch Superfund Sites,
at the Yellow Pine, Escalante and Durita properties and at certain sites
acquired in the Equinox acquisition.
Exploration expenditures for 1994 are estimated to be approximately $6.2
million. The Company's exploration strategy is to focus further exploration at
or in the vicinity of its currently owned properties. Accordingly, 1994
exploration expenditures will be incurred principally at the Republic, Grouse
Creek and La Choya properties. As described under "Business -- Metals
Segment -- Producing Properties -- Republic," if no additional gold reserves are
developed at the Republic mine, certain write-downs may be required.
The Company has a secured reducing credit facility that provides for credit
advances of up to $30.0 million. The availability of advances under this
facility reduce beginning December 31, 1995 and is subject to certain other
limitations, with the balance due at maturity on December 31, 1996. Borrowings
under the facility are secured by the Company's accounts receivable,
inventories, specified marketable securities and certain cash equivalents. See
"Description of Credit Facility" for a description of the revolving credit
facility, including the covenants therein and limitations on the payments of
dividends. As of December 31, 1993, the Company had no outstanding borrowings
under the revolving credit facility.
The Company currently has outstanding $109,950,000 aggregate principal
amount of LYONs which are currently convertible into 20.824 shares of the Common
Stock per $1,000 principal amount of LYONs. See "Description of LYONs." Pursuant
to the terms of the indenture governing the LYONs, on June 14, 1994, holders of
LYONs may, pursuant to the Put Feature (as hereinafter defined), require the
Company to purchase LYONs held by them at a purchase price of $456.39 per $1,000
principal amount of LYONs. The purchase price may be paid, at the option of the
Company, in cash, in shares of Common Stock (valued at the
36
<PAGE> 38
market price of the Common Stock) or in the Company's Subordinated Extension
Notes due 2004; but because of the Company's need to utilize cash for planned
capital expenditures, it is probable that, absent consummation of the Offering,
it will pay for any LYONs delivered to it pursuant to the Put Feature by issuing
common stock. The Company is unable to predict how many LYONs it may be required
to purchase pursuant to the Put Feature, and the Company cannot predict what
effect the Put Feature will have on the market price of the Common Stock.
The Company is currently considering several alternatives with respect to
the Put Feature. Among the alternatives being examined by the Company is the
Offering with a portion of the proceeds being used to pay cash to redeem the
LYONs (and any remaining proceeds would be used for Company capital
expenditures). Alternatively, the Company is also considering amending certain
terms of the LYONs in order to make it less likely that the Put Feature will be
exercised on June 14, 1994, including changing the conversion ratio to increase
the number of shares of Common Stock that would be issuable for each LYON. If
either of these alternatives is pursued, then additional shares of Common Stock
could be issued, although the Company's intent with respect to these
alternatives is to issue less shares of Common Stock (other than any securities
sold to raise additional funds for capital expenditures) than would be the case
if the Company was required to repurchase all of the outstanding LYONs pursuant
to the Put Feature on June 14, 1994. If the Company takes no action with respect
to the Put Feature and is required to purchase all of the outstanding LYONs on
June 14, 1994, based upon current market prices ($12 7/8 on March 14, 1994), the
Company would have to issue approximately 3.9 million shares of Common Stock.
There can be no assurance that the Company will determine to pursue, or be
successful in pursuing, any alternative (including and in addition to the
alternatives discussed above) to reduce the likelihood that the Put Feature will
result in the issuance of a significant amount of Common Stock.
In December 1993, the Company acquired all of the issued and outstanding
common stock of Mountain West Products through the issuance of 655,000 shares of
Common Stock. Mountain West Products is engaged primarily in the acquisition,
mining and processing of decorative bark, scoria and specialty aggregates. The
transaction has been accounted for as a purchase. See "Recent
Developments -- Mountain West Products Acquisition" and Note 2 of Notes to
Consolidated Financial Statements for additional information.
In March 1994, the Company completed its acquisition of Equinox by issuing
approximately 5.9 million shares of Common Stock, in addition to approximately
400,000 shares issuable upon the exercise of Equinox Warrants and Equinox
options. The Company also issued 1,383,770 Hecla Production Notes with a maximum
redemption price of Canadian $1.50 per note. The transaction was treated as a
pooling of interests for financial reporting and accounting purposes.
As further described in Note 8 of Notes to Consolidated Financial
Statements, the Company has been notified by the United States Environmental
Protection Agency ("EPA") that it has been designated by the EPA as a
potentially responsible party with respect to several Superfund sites. At
December 31, 1993, the Company's allowance for Superfund site remedial action
costs was approximately $10.7 million, which the Company believes is adequate
based on current estimates of aggregate costs. Although the ultimate disposition
of these and various other pending legal actions and claims is not presently
determinable, it is the opinion of the Company's management, based upon the
information available at this time, that the outcome of these suits and
proceedings will not have a material adverse effect on the results of operations
and financial condition of the Company and its subsidiaries.
OTHER
In November 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112"). This statement requires companies to
recognize the obligation to provide postemployment benefits if the obligation is
attributable to employees' services already rendered, employees' rights to those
benefits have accumulated or vested, payment of the benefits is probable and the
amount of the benefits can be reasonably estimated. The statement requires the
Company to make the necessary changes in accounting for these postemployment
benefits effective January 1, 1994. It is the opinion of the Company's
management that the adoption of SFAS No. 112 will not have a material effect on
the results of operations or financial condition of the Company and its
subsidiaries.
37
<PAGE> 39
BUSINESS
The Company, originally incorporated in 1891, is principally engaged in the
exploration, development and mining of precious and non-ferrous metals,
including gold, silver, lead and zinc, and certain industrial minerals. The
Company owns or has interests in a number of precious and non-ferrous metal
properties and five industrial minerals businesses. In 1993, the Company's
attributable gold and silver production was approximately 61,000 ounces and 3.0
million ounces, respectively. The Company also shipped approximately 888,000
tons of industrial minerals products in 1993, including ball clay, kaolin,
feldspar and specialty aggregates. At December 31, 1993, the Company had
approximately 1.9 million and 53.4 million ounces of proven and probable gold
and silver reserves, respectively (including approximately 650,000 and 4.0
million ounces, respectively, as a result of the Company's acquisition of
Equinox).
The Company's principal metals properties include the La Choya gold mine,
located in Sonora, Mexico, which began operations in January 1994; the Lucky
Friday silver and lead mine, located near Mullan, Idaho, which is a significant
primary producer of silver in North America; the American Girl gold mine and the
Oro Cruz gold project, both located in Imperial County, California, which were
acquired in March 1994; the Republic gold mine, located in the state of
Washington; the Grouse Creek gold project, located near Challis, Idaho, which is
intended to be operational in the fourth quarter of 1994; the Rosebud gold
project, located in Pershing County, Nevada, which was acquired in March 1994;
and the Greens Creek mine, located near Juneau, Alaska, a polymetallic mine
placed on standby in 1993, in which Hecla owns a 29.7% interest.
As part of the Company's strategy to acquire and develop precious metals
properties, primarily in North America, the Company acquired on March 11, 1994,
Equinox, a gold exploration and development company headquartered in Vancouver,
British Columbia. The Company's principal reason for the acquisition of Equinox
was the opportunity to acquire the Rosebud gold project, located in Pershing
County, Nevada, in which Equinox had a 100% interest, and the American Girl gold
mine, in which Equinox had a 50% interest and which is operated by a joint
venture partner. The Company believes that the Rosebud gold project, which had
proven and probable gold reserves of 512,000 contained ounces as of December 31,
1993, has significant exploration and development potential. Equinox's share of
gold production at the American Girl mine in 1993 was approximately 35,000
ounces.
The Company expects its gold production to increase from approximately
61,000 ounces in 1993 to approximately 131,000 ounces in 1994, with nearly half
of the 1994 gold production to come from the La Choya gold mine. Assuming the
timely commencement of production at the Grouse Creek gold project in the fourth
quarter of 1994, the Company's total 1994 gold production could increase by up
to 53,000 ounces (representing its 80% share of the project) to a total of
approximately 184,000 ounces. In addition, the Company intends to develop the
Rosebud gold project upon satisfactory completion of a feasibility study which
is currently expected to be finalized by late 1995. Development of Rosebud could
begin shortly thereafter with production commencing in late 1996 at the
earliest. The feasibility study will assess the potential to produce
approximately 70,000 to 80,000 ounces of gold annually. See
"Business -- Development Projects." As a result of the development of the Grouse
Creek project and the Equinox acquisition, the Company believes that its 1995
attributable gold production will exceed 200,000 ounces.
Although depressed silver prices have impacted the Company's silver
production in recent years, the Company believes that it is well positioned to
respond to an increase in silver prices, by expanding production at its Lucky
Friday mine by developing the Gold Hunter project and through the recommencement
of operations at the Greens Creek mine. In 1993, drilling in the southwest area
of the Greens Creek property encountered a significant additional mineralized
zone containing higher than mine average gold and silver content. Although there
can be no assurance that this additional material can be economically mined,
drilling is continuing to define the nature and extent of the resource. A
feasibility study currently is being undertaken in order to determine the
advisability of placing the mine back into operation. If the decision is made to
reopen the Greens Creek mine, production is expected to commence by 1997, and
when combined with the potential for estimated increased silver production at
the Lucky Friday mine, the Grouse Creek project and the Rosebud project, the
Company's attributable share of annual silver production could exceed 8.0
million ounces in 1997, compared to approximately 3.0 million ounces in 1993.
38
<PAGE> 40
During the next several years, the Company intends to concentrate its
exploration efforts at or in the vicinity of its existing and proposed mining
properties, including Grouse Creek, La Choya, Republic, Greens Creek, Rosebud,
American Girl and Lucky Friday. The Company and its joint venture partners own
or control significant land positions surrounding these existing and proposed
mining operations. In addition, the Company will continue to evaluate
acquisition and exploration opportunities, primarily in North America.
The Company's industrial minerals businesses consist of Kentucky-Tennessee
Clay Company (ball clay and kaolin divisions), K-T Feldspar Corporation,
Mountain West Products (bark and scoria) and Colorado Aggregate Company of New
Mexico. Hecla's industrial minerals segment is a leading producer of three of
the four basic ingredients required to manufacture ceramic and porcelain
products, including sanitaryware, pottery, dinnerware, electric insulators and
ceramic tile. At current production rates, the Company has over 20 years of
proven and probable reserves of ball clay, kaolin and feldspar.
In 1993, the Company's industrial minerals operations provided
approximately $6.6 million of cash from operations which served to partially
offset the impact of decreasing cash flow from the metals segment. Since 1988,
the Company has significantly increased its shipments of industrial minerals,
principally as a result of the acquisition of the kaolin operations of Cyprus
Minerals Corporation in 1989 and of the feldspar assets now held by K-T Feldspar
in 1990. In December 1993, the Company completed its acquisition of Mountain
West Products, which produces timber bark, scoria, peat and soil additives sold
in the landscape market. In 1994, the Company expects to ship approximately
945,000 tons of industrial minerals in addition to approximately 591,000 cubic
yards of landscape material from Mountain West Products.
STRATEGY
During much of its 103-year history, Hecla has been a leading U.S. primary
producer of silver and lead and, more recently, a significant supplier of gold
and industrial minerals. As part of the Company's strategy to expand its
minerals resource base, Hecla has implemented acquisition, development and
exploration programs designed to increase its production and reserves of
precious metals, principally gold and silver, as well as to expand the Company's
industrial minerals business. This strategy has resulted in several significant
acquisitions, including the acquisition of the Grouse Creek gold property in
connection with the 1991 acquisition of CoCa Mines, the 1992 acquisition of the
La Choya gold project in Mexico and the 1994 acquisition of Equinox, including
the American Girl gold mine and Rosebud gold project.
The Company's strategy for the next year is to focus its resources and
efforts on the continued development and construction of the Grouse Creek gold
project and over the next two years to undertake feasibility studies on the
Rosebud gold project. The Company is also evaluating the feasibility of
expanding its annual silver production, primarily through its share of
production at the Greens Creek mine, assuming that the decision is made to
resume operations, and through successful development efforts at the Gold Hunter
property which is adjacent to the Lucky Friday silver and lead mine, if such
development decision is made. If the decision is made to reopen the Greens Creek
mine by 1997, when combined with estimated silver production at the Grouse
Creek, Lucky Friday and Rosebud properties, the Company's share of annual silver
production could exceed 8.0 million ounces in 1997.
During the next several years, the Company intends to concentrate its
exploration efforts at or in the vicinity of its existing and proposed mining
properties, including Grouse Creek, La Choya, Republic, Greens Creek, Rosebud,
American Girl and Lucky Friday. The Company owns or controls significant land
positions surrounding these existing and proposed mining operations. In
addition, the Company will continue to evaluate acquisition and exploration
opportunities, primarily in North America, which will complement its existing
operations. To a lesser extent, the Company will also continue to search for
opportunities to develop and produce precious metals at several exploration
projects in the United States, Canada, Mexico and Bolivia.
The references above and elsewhere in this Prospectus to the ranking of the
Company's mines and business segments in their respective markets are based on
publicly available information derived from annual reports, trade publications
and other public sources that the Company believes are accurate.
39
<PAGE> 41
METALS SEGMENT
The Company's principal precious metals properties consist of six
properties in the United States, one operation in Mexico and a number of other
exploration properties in the United States. These properties include the La
Choya, Republic and American Girl gold mines, the Greens Creek and Lucky Friday
silver mines and the Grouse Creek and Rosebud gold projects.
Gold is the Company's largest single source of sales and gross profit
within the metals segment. The Company expects to produce approximately 131,000
ounces of gold in 1994, including 63,000 ounces from the La Choya gold mine,
38,000 ounces of gold from the Republic mine, 24,000 ounces from its share of
the American Girl mine and an additional 6,000 ounces of gold from other
sources. Assuming the timely commencement of construction at the Grouse Creek
project in the fourth quarter of 1994, the Company's planned 1994 gold
production could increase by up to 53,000 ounces (representing its 80% share of
the project) to a total of 184,000 ounces.
PRODUCING PROPERTIES
La Choya Gold Mine. The La Choya gold mine, located 30 miles south of the
U.S. border in the State of Sonora, Mexico and 100% owned by Hecla, is Hecla's
first operation outside the U.S. and Canada. In May 1992, Hecla exercised its
option to purchase the Mexican mineral concessions related to this property,
which includes a land position of over 36,000 acres.
The La Choya gold mine commenced operations in January 1994. The Company
expects to produce approximately 63,000 ounces of gold in each of 1994, 1995 and
1996 from the mine. Current proven and probable gold reserves at the La Choya
gold mine are expected to be substantially depleted in 1996 or early 1997. The
ore is mined at a stripping ratio of 2.48:1 utilizing a cut-off grade of 0.012
ounces of gold per ton, crushed to one inch in size, and then cyanide leached on
a leach pad. The gold in the leach solution is processed in a carbon recovery
plant to produce a gold and silver dore, which is transported to the U.S. for
further refining to pure metals.
The following table presents the proven and probable ore reserves for the
years ended December 31, 1992 and 1993, respectively, at the La Choya gold mine.
<TABLE>
<CAPTION>
GOLD
---------------------------
TOTAL RESERVES AVERAGE GRADE CONTAINED
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES
------------------------------------------- -------------- ------------- ---------
<S> <C> <C> <C>
1992....................................... 4,283,277 0.039 167,000
1993....................................... 6,138,000 0.037 225,500
</TABLE>
Reserves represent diluted in place grades and do not reflect losses in the
recovery process. The estimates of reserves at December 31, 1993 and 1992 are
based on gold prices of $375 per ounce and $350 per ounce, respectively. The
present cut-off grade for reserve calculations at the mine is 0.012 ounces of
gold per ton.
For the La Choya mine, the average life-of-mine cash cost per ounce of gold
is estimated at approximately $210 to $220 per ounce, with an estimated average
full cost of $310 to $320 per ounce of gold, although there can be no assurance
that these costs will be achieved. Such projections do not give effect to any
additional reserves which may be proven as a result of the Company's continuing
exploration efforts at the La Choya mine. As of December 31, 1993, the Company
has spent approximately $18.8 million (excluding capitalized interest) on the
purchase and development of the La Choya gold mine.
An exploration drilling program is planned for 1994 to expand the gold
reserves at the La Choya gold mine. The Company believes there is the potential
to discover additional gold reserves within the mining concessions currently
controlled by Hecla. The drilling program will continue with the objective of
expanding the current project and extending the life of the mine.
At December 31, 1993, there were 87 employees at the La Choya gold mine.
The National Union of Mine, Metallurgical and Related Workers of the Mexican
Republic is the bargaining agent for the La Choya gold mine employees. The
current labor agreement expires on September 7, 1994.
40
<PAGE> 42
American Girl Gold Mine/Oro Cruz Gold Project. The American Girl gold mine
and the Oro Cruz gold project are located in Imperial County, California.
Geology of the area is not complex and has been well studied. Mineralization is
hosted along low angle brittle faults (detachment faults) with average dips of
15 to 20 degrees. Gold occurs in the native form, most often along fracture
boundaries. The American Girl mine and the Oro Cruz project are located in an
area that has experienced high levels of seismic activity.
The Company acquired the American Girl mine and Oro Cruz project in March
1994 as part of the Equinox acquisition. The American Girl mine and the Oro Cruz
project are each managed by MK Gold, the Company's joint venture partner. The
Company and MK Gold each have a 50% interest in the American Girl mine and the
Company has a 44% interest in the Oro Cruz project with MK Gold having the
remaining 56% interest. MK Gold receives a monthly management fee of 2% of
certain specified costs of the joint ventures. Certain matters regarding the
joint ventures require the approval of management committees and each of the
Company and MK Gold have two members on the committees. The Company and MK Gold
are currently negotiating to combine the American Girl joint venture and the Oro
Cruz joint venture into a single joint venture in which the Company is expected
to have a 47% interest and MK Gold a 53% interest, with MK Gold remaining as the
manager of the joint venture.
The property is held through a combination of patented and unpatented
claims either owned outright or through leases. The American Girl mine contains
several ore bodies from which ore has been and is currently being extracted.
Mined ore is processed through heap leach and conventional mill facilities owned
by the joint venture. The American Girl consists of two open pit heap leach
operations, and an underground operation.
The Company anticipates that sufficient ore reserves at the American Girl
mine exist to enable surface mining to continue until late 1994 and underground
mining to continue until mid-1995, following which mining is anticipated to
start at the Oro Cruz project.
The crushing plant is currently crushing approximately 70,000 tons per
month of materials from open pit operations and 20,000 tons per month of
materials from underground operations. The carbon absorption plant has been
modified to increase plant capacity to budgeted production levels. The heap
leach facilities are currently operating at a recovery rate of approximately
60%. The conventional leach plant (mill) designed with a 500 tons per day
capacity is currently operating at a recovery rate of approximately 90% and an
average throughput of 648 tons of ore per day.
The following table presents selected operating data for Equinox's share of
the American Girl mine for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1992(1) 1993
-------- --------
<S> <C> <C>
Total tons processed................................................ 47,685 433,504
Average recovered grade:
(oz. of gold per ton)............................................. 0.045 0.082
Ounces of gold produced............................................. 1,922 35,324
Average cost per ounce of gold produced:
Cash production cost.............................................. $348 $279
Full production cost.............................................. 406 380
</TABLE>
- ---------------
(1) Equinox acquired the property in December 1992; represents production for
the month ended December 31, 1992.
The following table presents the Company's share of the proven and probable
gold reserves for the years ended December 31, 1992 and 1993, respectively, at
the American Girl gold mine/Oro Cruz gold project.
<TABLE>
<CAPTION>
GOLD
---------------------------
TOTAL RESERVES AVERAGE GRADE CONTAINED
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES
------------------------------------------- -------------- ------------- ---------
<S> <C> <C> <C>
1992....................................... 1,151,640 0.103 119,892
1993....................................... 1,785,520 0.078 138,832
</TABLE>
41
<PAGE> 43
Reserves were estimated by the mine manager using a gold price of $380 per
ounce for both 1992 and 1993. The cut off grade for open pit reserves varies
from 0.015 to 0.020 ounces of gold per ton depending upon the distance to the
processing facility, among other factors. The cut off grade for the underground
reserves is 0.125 ounces of gold per ton.
The Oro Cruz project covers approximately 3,500 acres and adjoins the
existing American Girl mine operations. Reserves at the Oro Cruz project are
estimated at 2,073,000 tons at 0.057 ounces per ton minable by open pit methods.
Underground estimated reserves are 335,000 tons at a grade of 0.245 ounces per
ton. The total indicated gold content is approximately 200,000 ounces, of which
88,000 ounces would be the Company's share.
The properties are subject to an underlying net smelter return royalty
ranging from 3.5% to 12.5%, depending upon gold price and the recovery of
capital costs.
In December 1991, the Oro Cruz joint venture was notified by permitting and
regulatory agencies that an Environmental Impact Statement would be required
before mining could take place on the Oro Cruz property. Environmental
permitting began in January 1992. Operating permits are anticipated to be
received in mid-1994. The Company intends to pay $1.3 million as its share of
capital expenditures at the Oro Cruz property in 1994.
Republic Gold Mine. The Republic gold mine, located in northeast
Washington State and 100% owned by the Company, was the Company's principal
gold-producing property in 1993. The grade of ore recovered during 1993 declined
to an average of 0.48 ounces per ton as the higher grade portions of the Golden
Promise area have been mined out. Consequently, Republic's gold production in
1993 declined to 49,600 ounces, compared with 58,300 ounces produced in 1992. At
the same time, due to an ongoing emphasis on increasing operating efficiencies
and lowering costs, the Republic mine lowered its average cash production cost
per ton of ore mined during 1993 to approximately $98 per ton, compared to
approximately $108 in 1992 and $123 per ton in 1991. The operating efficiencies
were derived from increased mechanization of mining operations resulting in
increased tons mined and processed. However, due to declining gold ore grade and
decreasing by-product prices, average cash production costs per ounce of gold at
the Republic mine increased to $207 in 1993 from $176 in 1992 and $143 in 1991,
respectively.
The Republic gold mine is an underground operation using both conventional
and smaller-scaled mechanized underground mining methods. It produces
gold-silver ore which is processed in a 325-ton-per-day flotation and
cyanidation mill located on the property. Products from the mill include a
gold-silver flotation concentrate and a gold-silver dore. Combined average
recovery in 1993 of the two mill products was 91% for the gold and 80% for the
silver contained in the ore. The Company's land position in the Republic area
consists of approximately five square miles, where the Company is currently
focusing significant exploration and development efforts in search of additional
gold mineralization (see "-- Exploration Activities").
The following table presents selected operating data for the Republic gold
mine for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total tons mined................................. 82,961 92,843 96,562 102,631 110,846
Average recovered grade:
(oz. of gold per ton).......................... 0.90 0.88 0.81 0.60 0.48
(oz. of silver per ton)........................ 3.60 3.50 3.20 3.60 3.10
Ounces of gold produced.......................... 74,335 81,397 77,736 58,343 49,601
Ounces of silver produced........................ 301,432 326,346 311,445 299,957 276,688
Average cost per ounce of gold produced:
Cash production cost........................... $121 $128 $143 $176 $207
Full production cost........................... 130 143 176 220 262
</TABLE>
During 1990, Hecla drove an underground decline into the mine, which
provides secondary access to the Golden Promise area and a base for further
exploration. Exploration at Republic has been emphasized over
42
<PAGE> 44
the past three years in an effort to replenish the mine's gold reserves. No new
proven or probable gold reserves were discovered in 1993, causing a decrease in
known ore reserves from 140,263 contained ounces of gold at the beginning of
1993 to 44,373 contained ounces of gold at the beginning of 1994. The Company
estimates that if additional gold reserves are not discovered at the Republic
mine through Hecla's ongoing exploration program, gold reserves at the Republic
mine will be substantially depleted in early 1995 and mining will cease. Should
it be determined that no additional gold reserves can be economically developed
at the Republic mine, the Company may be required to write down all or a part of
its investment in the Republic mine, which at December 31, 1993 amounted to
approximately $11.4 million.
The following table presents the proven and probable ore reserves for the
years ended December 31, 1990, 1991, 1992, and 1993, respectively, at the
Republic gold mine.
<TABLE>
<CAPTION>
GOLD SILVER
--------------------- ---------------------
TOTAL AVERAGE AVERAGE
RESERVES GRADE CONTAINED GRADE CONTAINED
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES (OZ./TON) OUNCES
------------------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1990................................. 437,580 0.65 284,427 3.5 1,531,530
1991................................. 401,318 0.53 212,699 3.2 1,276,191
1992................................. 269,736 0.52 140,263 3.2 865,853
1993................................. 103,533 0.43 44,373 2.7 278,183
</TABLE>
Reserves represent diluted in place grades and do not reflect losses in the
recovery process. The estimates of reserves at December 31, 1993, 1992, 1991 and
1990 are based on gold prices per ounce of $375, $350, $375 and $400,
respectively, and silver prices per ounce of $4.50, $4.00, $4.50 and $5.00,
respectively. The present cut-off grade for reserve calculations at the mine is
0.24 ounces of gold per ton.
In 1993, the Company adjusted ore reserves downward at the Republic mine by
approximately 39,000 ounces of gold and 235,000 ounces of silver. Most of the
adjustment became necessary when development encountered erratic mineralization
in an upper level ore zone which was previously estimated to be continuous
reducing the tonnage available for mining by 33,765 tons. Other various
adjustments attributable to the reduction totaled 867 tons.
There were 116 people employed at the Republic mine at December 31, 1993.
Employees at the Republic mine are not represented by a bargaining agent.
Lucky Friday Mine. The Lucky Friday, a deep underground silver and lead
mine, located in northern Idaho and 100% owned by Hecla, has been a producing
mine for the Company since 1958. Moreover, in 1983 and 1985, the Lucky Friday
mine was the nation's top silver producer, producing approximately 5.0 million
ounces of silver annually. The mine operated continuously until low metals
prices and rockburst activity forced the suspension of operations in April 1986.
During the shutdown, Hecla's engineers began converting portions of the mine to
the Lucky Friday Underhand Longwall mechanized mining method designed to
increase productivity and reduce rockburst activity. Production was resumed at
the Lucky Friday mine in June 1987, and has continued uninterrupted since that
time.
During 1993, through the implementation of cost-saving measures, the
Company was able to decrease its cash operating costs per ton mined at the mine
to $68 per ton, compared to $74 in 1992. However, the cash cost per ounce of
silver produced at Lucky Friday increased from $4.12 per ounce in 1992 to $5.54
per ounce in 1993, due to the decline in prices of by-product metals, primarily
lead. See "Metals Prices."
The full implementation of the mechanized underhand mining method has been
primarily responsible for the successful reduction in operating costs at the
mine. This method utilizes diesel-fueled, rubber-tired equipment underground, a
ramp system and cemented sand fill and has not only been effective in reducing
operating costs, but also in limiting rockburst activity and improving safety.
Without this mining method, the mine would likely be unworkable in certain
working areas because of the unstable nature of the rock in those areas. The
Company continues to implement cost reduction measures at the mine.
43
<PAGE> 45
Ore extracted from the mine is processed in a 1,000-ton-per-day
conventional flotation mill at a current rate of 700 tons per day at the mine
site. The flotation process produces both a silver-lead concentrate and a zinc
concentrate. During 1993, approximately 98% of the silver, 97% of the lead and
86% of the zinc was recovered.
The following table presents operating data for the Lucky Friday mine for
the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total tons mined.......................... 138,720 147,671 152,150 175,170 179,579
Average recovered grade:
(oz. of silver per ton)................. 13.70 12.80 12.20 11.50 12.03
(percent lead).......................... 11.60 11.70 12.40 12.30 11.27
(percent zinc).......................... 2.30 2.20 2.10 2.70 2.88
Ounces of silver produced................. 1,904,038 1,894,944 1,850,531 2,031,779 2,122,738
Tons of lead produced..................... 16,094 17,333 18,857 21,336 19,795
Tons of zinc produced..................... 3,253 3,306 3,164 4,213 4,385
Average cost per ounce of silver produced:
Cash production cost.................... $4.57 $4.54 $5.01 $4.12 $5.54
Full production cost.................... 6.35 6.25 6.20 5.35 6.77
</TABLE>
The length and grade of the ore body have not materially diminished on the
lowest level of the mine. Based upon this factor, drilling data, extensive
knowledge of the geologic character of the deposit and many years of experience
in the Lucky Friday mine and the Coeur d'Alene Mining District, the Company
believes that there are no geologic factors known at present which appear to
prevent the continuation of the Lucky Friday ore body for a considerable
distance beneath the 6,200 foot working level which is the existing bottom of
the mine's silver shaft.
The following table presents the proven and probable ore reserves for the
years ended December 31, 1990, 1991, 1992 and 1993, respectively, at the Lucky
Friday silver and lead mine.
<TABLE>
<CAPTION>
SILVER
---------------------
TOTAL AVERAGE
RESERVES GRADE CONTAINED LEAD ZINC
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES (PERCENT) (PERCENT)
-------------------------------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1990.................................. 527,830 14.5 7,653,535 13.4 2.7
1991.................................. 440,060 13.6 5,984,816 12.8 2.8
1992.................................. 446,105 14.3 6,398,265 13.4 2.3
1993.................................. 414,315 14.4 5,976,380 14.3 3.0
</TABLE>
Reserves represent diluted in place grades and do not reflect losses in the
recovery process. The estimates of reserves at December 31, 1993, 1992, 1991 and
1990 are based on silver prices of $4.50, $4.00, $4.50 and $5.00 per ounce,
respectively, zinc prices of $0.44, $0.55, $0.50 and $0.65 per pound,
respectively, and a lead price of $0.23, $0.30, $0.30 and $0.35 per pound,
respectively. The present cut-off value for reserve calculations at the mine is
$54.00 per ton of ore.
During 1991, Hecla discovered several mineralized structures containing
some high-grade silver ores in an area known as the Gold Hunter property, about
5,000 feet northwest of the existing Lucky Friday workings. In an extensive
exploration program in 1992 and early 1993, the Company undertook an underground
evaluation of the Gold Hunter property mineralization. The program discovered
mineralization containing significant amounts of silver and lead in an area
accessible from the 4,050-foot level of the Lucky Friday mine. The exploration
program was completed during 1993. The Company's decision regarding development
of the Gold Hunter property is pending. The Gold Hunter deposit is controlled by
Hecla under a long-term operating agreement, which entitles Hecla, as operator,
to a 79.08% interest in the net profits from operations from the Gold Hunter
properties. The Company will be obligated to pay a royalty after it has recouped
its costs to
44
<PAGE> 46
explore and develop the properties, which as of December 31, 1993, totaled
approximately $7.9 million. If the Gold Hunter property is further developed,
the Company estimates that approximately $10 to $15 million of capital
expenditures would be required.
At December 31, 1993, there were 139 employees at the Lucky Friday mine.
The United Steelworkers of America is the bargaining agent for the Lucky Friday
hourly employees. The current labor agreement was renewed in 1993 and expires on
June 12, 1996 and will be continued for an additional three years if the Company
develops the Gold Hunter property.
Cactus Gold Mine. As a result of its acquisition of CoCa Mines in 1991,
the Company currently holds a 63.75% interest in Cactus Gold Mines Company and
manages Cactus' producing open pit heap leach mine, located approximately 85
miles northeast of Los Angeles, California, in the Mojave Mining District. The
Company's share of gold production at the mine totaled 27,212 ounces for 1992
and 7,316 ounces for 1993. The deposit at the Cactus mine was mined out in
February 1992, but the Company's share of gold recovery from the heap, which is
estimated to total an additional 3,200 ounces, will continue through mid-1994,
with gradually decreasing production as cyanide neutralization processes in the
heap are completed.
DEVELOPMENT PROJECTS
The Company currently has two gold development projects: the Grouse Creek
project in Idaho and the Rosebud project in Nevada. The information below with
respect to such projects should be read together with "Investment
Considerations -- Project Development"; "-- Reserves"; "-- Government Regulation
and Legal Proceedings"; and "-- Pending Legislation."
Grouse Creek Gold Project. The Company acquired a large block of patented
and unpatented mining claims, known as the Grouse Creek project, as a result of
its acquisition of CoCa Mines in 1991. The Grouse Creek project will be a gold
and silver producing property. The Company's current mineral rights cover 21.4
square miles in central Idaho, 27 miles southwest of the town of Challis in the
historical Yankee Fork Mining District. Currently 43% of the proven and probable
gold reserves and 20% of the proven and probable silver reserves are located on
fully patented mining claims. The Grouse Creek project consists of 18 patented
lode mining claims, 2 patented placer claims, 43 millsite claims (pending start
of construction), and 17 unpatented lode claims for which patent applications
are pending and the Company has received the first half of a Mineral Entry Final
Certificate. Upon certification by a Federal Mineral Examiner and issuance of
patents for the latter 17 lode claims, all of the current proven and probable
ore reserves at the Grouse Creek project will be located within patented mining
claims. The remainder of the mineral rights included in the Company's Yankee
Fork claim block consists of 846 unpatented claims. See "Investment
Considerations -- Pending Legislation." All major environmental and construction
permits have been approved for the current project.
In February 1994, the Company completed the sale of a 20% undivided
interest in the Grouse Creek project to Great Lakes. Great Lakes has paid its
20% share of capital expenditures made to date and is responsible for 20% of all
remaining capital expenditures. Until 12 months after the commencement of
commercial production at Grouse Creek, Great Lakes has the right to purchase up
to an additional 10% undivided interest in the project and, in addition, fund
its increased share of capital expenditures incurred. See "Recent
Developments -- Sale of Grouse Creek Joint Venture Interest."
For purposes of this Prospectus, unless otherwise indicated, the
discussions regarding Grouse Creek assume that Hecla has an 80% undivided
interest in the project and is required to fund 80% of the capital expenditure
requirements for the project. To the extent Great Lakes is unable or unwilling
to fund its share of expenses, the Company may be required to make up any
shortfall, although pursuant to the Company's joint venture agreement with Great
Lakes this would increase the Company's ownership interest in the project. See
"Investment Considerations -- Joint Venture Arrangements."
As of December 31, 1993, the Company and its predecessors had expended
approximately $54.0 million (excluding capitalized interest) on its share of the
acquisition, exploration and development of the Grouse Creek project. Based on
the current mine plan, the Company's share of capital costs for the project over
the next two years are expected to total approximately $53.0 million, with
approximately $50.0 million spent in
45
<PAGE> 47
1994 and approximately $3.0 million (primarily for equipment) during 1995. The
Company expects production startup to occur in the fourth quarter 1994, with
full production achieved in 1995.
The Company and its predecessors identified two distinct mineral deposits
at the Grouse Creek project: the Sunbeam deposit; and the Grouse deposit, which
includes the Grouse pit (the "Upper Grouse Pit") and the Grouse underground
high-grade ore zone (the "Underground Deposit"). The Sunbeam deposit, containing
both gold and silver, is a volcanic-hosted epithermal precious metal system
contained within a rhyolitic flow-dome and underlying pyroclastic rocks. Ore is
structurally controlled and occurs in silicified and argillized shear and
fracture zones that strike northeast. Gold and silver occur primarily as native
gold and electrum, with minor amounts of silver sulfides and sulfosalts. Ore
zones in the Sunbeam deposit have good continuity vertically and along strike.
The Grouse deposit, which also contains both gold and silver, is a volcanic
and lacustrine sedimentary-hosted epithermal precious metal system contained
within lacustrine sediments and underlying pyroclastic rocks. Ore is
stratigraphically and structurally controlled and occurs as roughly stratabound
and silicified ore zones. Gold and silver occur as electrum, native silver and
silver sulfides and sulfosalts in the Upper Grouse Pit ore zones and as native
gold, electrum, and possibly auriferous pyrite in the Underground Deposit. Ore
zones in the Grouse deposit have good continuity.
As a result of the drilling program conducted in 1991 and 1992, the Company
discovered the Underground Deposit, a high-grade gold ore zone beneath the
proposed Upper Grouse Pit, approximately 500 feet below the existing surface.
The Company has modified its current mine plan to include a drift to gain access
to, and mine, the Underground Deposit. The Underground Deposit is open at depth
and has good potential to contain additional high grade ore.
The Sunbeam deposit was defined by 721 reverse circulation test holes
totalling 198,097 feet and 22 diamond drill core holes totalling 7,152 feet.
Test hole drilling has been completed on an approximate 75 foot grid over the
Sunbeam deposit. The deposit is above the water table. The Upper Grouse Pit has
been defined by 416 reverse circulation test holes totalling 175,508 feet and 22
diamond core drill holes totalling 8,488 feet. The higher sections of the
deposit are drilled on an approximate 75 to 100 feet grid. Portions of the Upper
Grouse Pit ore body are below the water table. The deeper high-grade gold ore
zone in the Underground Deposit ore body has been defined by a reverse
circulation test hole grid pattern on approximately 50 foot centers.
Proven and probable ore reserves have increased significantly at Grouse
Creek since Hecla acquired the property. Drilling programs conducted each year
since 1991 increased the contained ounces of gold in the deposit by
approximately 50%, from 551,800 ounces in 1990 to 831,000 ounces in 1992 (of
which the Company has an 80% share). This increase in the proven and probable
reserves includes approximately 96,000 ounces of probable reserves attributable
to the Underground Deposit.
The following table presents the Company's share of the proven and probable
ore reserves for the Grouse Creek project for the years ended December 31, 1990,
1991, 1992 and 1993, respectively. (All periods prior to 1993 are presented on a
100% Hecla basis; 1993 is presented on an 80% basis to reflect the sale of the
20% joint venture interest to Great Lakes.)
<TABLE>
<CAPTION>
GOLD SILVER
----------------------- --------------------------
TOTAL AVERAGE AVERAGE
RESERVES GRADE CONTAINED GRADE CONTAINED
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES (OZ./TON) OUNCES
------------------------ ----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1990.................... 9,513,000 0.058 551,800 1.5 14,270,000
1991.................... 15,018,600 0.048 719,150 1.2 17,276,810
1992.................... 14,467,000 0.057 831,000 1.2 17,474,000
1993.................... 12,104,000 0.055 671,200 1.1 12,972,800
</TABLE>
Reserves represent diluted in place grades and do not reflect losses in the
recovery process. The estimates of reserves at December 31, 1993, 1992, 1991 and
1990 are based on gold prices of $375, $350, $375 and $400 per ounce,
respectively, and silver prices of $4.50, $4.00, $6.00 and $5.00 per ounce,
respectively.
46
<PAGE> 48
Pursuant to the current mine plan, the Sunbeam deposit and the Underground
Deposit will be mined simultaneously beginning in the fourth quarter of 1994,
followed by the Upper Grouse Pit. The current mine plan for the Underground
Deposit proposes a panel cut and fill method. The ore zone is approximately 30
feet thick and will be mined in panels 10 feet high and 20 feet wide. Cemented
backfill will be used to obtain nearly 100% extraction of the underground
reserve. Conventional underground mining equipment will be used for drilling,
blasting, loading and hauling. Both the Sunbeam pit and the Upper Grouse Pit
will use conventional surface mining methods. Blasthole assays will be used to
determine ore grade material. This material will be segregated and hauled by
off-highway trucks to the processing plant. Waste material will be hauled to a
waste storage area or will be used as construction material in the tailings dam.
Both pits will mine ore on 20 foot benches.
The milling process involves a 6,000 ton per day gold recovery facility.
This process involves crushing and grinding of the ore and recovering
approximately 50% of the gold in a gravity circuit. The remaining gold and
silver is dissolved in a weak sodium cyanide solution and recovered with carbon
adsorption and Merrill Crowe precipitation. Overall recoveries are currently
estimated at 94% gold and 41% silver for ore from the Sunbeam deposit, and 74%
gold and 64% silver for ore from the Upper Grouse Deposit and 95% gold and 85%
silver from the Underground Deposit. A refinery on the property will produce
dore that will be sold to commercial refiners. The tailings from the cyanide
process will be impounded in a 15.5 million ton capacity double-lined tailings
pond. The permit for this facility has been approved.
The Sunbeam pit will be mined at a rate of 7,700 tons per day at a cut-off
grade of 0.020 ounces per ton of gold equivalent (a combination of the value of
the contained gold and silver based upon a ratio of 180 ounces of silver per
ounce of gold) and a stripping ratio of 3.2:1. The Upper Grouse Pit will be
mined at approximately the same rate and will have a cut-off grade of 0.031
ounces per ton of gold equivalent (a combination of the value of the contained
gold and silver based upon a ratio of 100 ounces of silver per ounce of gold)
and a stripping ratio of 5.1:1. Based upon the information developed to date,
the Underground Deposit is expected to be in production in 1994 and 1995
producing a total of approximately 96,000 ounces of gold and 400,000 ounces of
silver.
The Company estimates that its share of total production at the Grouse
Creek project will be 53,000, 102,000 and 88,000 ounces of gold in 1994, 1995
and 1996, respectively, including the gold production attributable to the
Underground Deposit. After 1996, based upon existing reserves, the Company's
share of annual production will decline from approximately 78,000 ounces of gold
in 1997 to approximately 66,000 ounces of gold in the year 2001, when current
proven and probable reserves are expected to be substantially depleted. Based
upon proven and probable reserves at December 31, 1993, the Company's share of
total gold production is expected to be 563,000 ounces during the life of the
project. Based upon proven and probable reserves at December 31, 1993, the
Company's share of total silver production is expected to be approximately 7.9
million ounces during the life of the project, including 6.8 million ounces for
the years 1998-2001. The average life-of-mine cash cost per ounce of gold is
estimated at approximately $185 to $190 per ounce, with an estimated average
full cost of $355 to $360 per ounce of gold, although there can be no assurance
that these costs will be achieved. Such projections do not give effect to any
additional reserves which may be proven as a result of continuing exploration
activities at the Grouse Creek project.
Reclamation activities include the partial backfill and revegetation of the
Sunbeam Deposit and Upper Grouse Pit; covering, recontouring and revegetating of
the tailing surface; and construction of a permanent spillway. The waste dump
and haul roads will be recontoured and revegetated. Process facilities will be
removed and foundations will be buried. Concurrent reclamation practices will be
employed whenever possible. These reclamation plans have been approved by the
appropriate state and federal agencies.
The Company believes that there is excellent potential for extending and
discovering additional gold reserves at the project including high grade
mineralization along the lower contact between the ash flow tuffs. To date, the
Company has identified 15 exploration targets. Within the immediate area of the
Upper Grouse Pit, Hecla also believes that there could be additional high grade
zones accessible through the underground operation. An exploration program will
be undertaken during 1994 to evaluate the economic potential of areas below and
adjacent to the Upper Grouse Pit.
47
<PAGE> 49
Rosebud Gold Project. The Rosebud gold project is located in the Rosebud
Mining District, in Pershing County, Nevada, and consists of 46 unpatented lode
mining claims (the "Hecla Claims"), a 52% interest in 49 lode mining claims held
under a joint venture with N.A. Degerstrom Inc. (the "Degerstrom Claims") and a
100% interest in 411 lode mining claims (the "Lac Claims") totalling 10,120
acres (the Hecla Claims, the Degerstrom Claims and the Lac Claims collectively
comprise the "Rosebud Project"). The Rosebud Project may be reached from
Lovelock, Nevada by travelling a distance of approximately 50 miles on an all
weather gravel road.
In 1993, Equinox sold a 2.5% net smelter return royalty and an option to
purchase for $2.5 million an additional 1.5% net smelter return royalty on the
property to Euro-Nevada Mining Corporation Inc. ("Euro-Nevada"). The option must
be exercised within 30 days after delivery by the Company to Euro-Nevada of a
feasibility study and production decision on the Rosebud Project.
Until 1991, all significant gold mineralization and most of the 115,000
feet of drilling in 167 holes had been completed on what is known as the Dozer
Hill Zone, a northeast trending zone extending a distance of about 1,500 feet
within portions of 10 claims within the Hecla Claims and the Lac Claims.
In 1991, 58,691 feet of drilling was carried out to test exploration
targets east of the Dozer Hill Zone and to further evaluate the property. This
exploration drilling encountered a new zone of high grade gold mineralization
(the "East Zone") about 1,000 feet east of the Dozer Hill Zone within portions
of three claims within the Hecla Claims and Lac Claims, although numerous low
grade drill intersections in between suggest the two zones may be connected.
Mineralization appears related to the low angle South Ridge fault which
underlies most of the area of interest. Mineralization in the Dozer Hill Zone
occurs above this fault while mineralization in the East Zone occurs within and
below this fault.
Results to date indicate that gold mineralization in the East Zone, as in
the Dozer Hill Zone and many other volcanic-hosted gold deposits, is erratically
distributed with numerous low grade holes interspersed with higher grade holes
over an area of approximately 1,000 feet east-west and 500 feet north-south.
Drilling has also intersected further mineralization approximately 700 feet east
of the East Zone. Hydrological studies have also been carried out.
In 1992, an additional 35,000 feet of drilling in 56 holes was completed on
the Rosebud Project. This was followed by metallurgical studies and permit
preparation for an advanced underground exploration program. In 1993, the
underground exploration program was started. To date, exploration efforts have
established proven and probable ore reserves totaling 1,984,000 tons containing
approximately 512,000 ounces of gold and 3.6 million ounces of silver.
The Company's and its predecessors' expenditures on the Rosebud Project to
December 31, 1993 were approximately $4.2 million which consist of acquisition
and drilling program expenditures.
During 1994 the Company intends to spend approximately $3.7 million at the
Rosebud property. Underground work will include 3,600 feet of drifting and
25,000 feet of underground diamond drilling. Permitting related work will
include the preparation and submission of the plan of operations for the
property followed by the preparation of the Draft Environmental Impact
Statement. Engineering activities will be related to the preparation of
permitting documents, detailed mine design upon completion of the drifting and
drilling programs and metallurgical testing which will support detailed mill
design.
Activities in 1995 are expected to include detailed design and a final
feasibility study in the second quarter. The permitting effort is expected to
continue through the majority of 1995. The Company is subject to, among other
items, obtaining the appropriate regulatory approvals and satisfactory
completion of a feasibility study and intends to begin construction of the mine
and related facilities in early 1996. Production could follow as early as late
1996. The feasibility study will assess the potential to produce approximately
70,000 to 80,000 ounces of gold annually. Although the project is in preliminary
stages, if a determination is made to develop the project, capital costs are
expected to be, at a minimum, approximately $38 million.
Patents have been applied for on 13 claims at the Rosebud property. These
claims contain all of the proven and probable reserves.
48
<PAGE> 50
SUSPENDED OPERATIONS
Greens Creek Mine. The Company currently holds a 29.7% interest in the
Greens Creek mine, located on Admiralty Island, near Juneau, Alaska, through a
joint venture arrangement with Kennecott, the manager of the mine, a wholly
owned subsidiary of Kennecott Corporation, and CSX Alaska Mining Inc. Greens
Creek is primarily a silver mine although it also produces zinc, gold and lead.
In February 1993, as a result of continued depressed metal prices, the
decision was made by the mine manager to suspend operations at the Greens Creek
mine. Commercial production ceased in April 1993 and the mine and mill were
placed on a standby basis. However, limited mine development activities have
continued at the mine. The Company has been informed by the mine manager that
all operating and environmental permits will be maintained in anticipation of a
resumption of operations once economic conditions improve.
At the Greens Creek mine, ore is milled at a 1,225-ton-per-day mill which
produces three concentrates including lead, zinc and bulk lead/zinc. During 1992
the cash costs per ton milled increased 4.9% from $103 per ton in 1991 to $108
per ton in 1992, primarily due to increased milling and mining costs. The cash
costs per ounce of silver increased from $3.94 per ounce in 1991 to $4.82 per
ounce in 1992 because of the significant decline in the prices of by-product
metals, principally zinc and lead. See "Metals Prices."
The following table presents operating data for the Greens Creek mine for
the periods indicated based upon Hecla's then-current interest in the mine,
which was 29.7% as of December 31, 1993.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1990 1991 1992 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Hecla's share of total tons mined................. 107,445 120,187 123,526 33,638
Average recovered grade:
(oz. of silver per ton)......................... 20.00 18.10 20.80 20.70
(oz. of gold per ton)........................... 0.10 0.09 0.11 0.13
(percent lead).................................. 4.40 4.00 4.70 4.60
(percent zinc).................................. 9.70 9.90 10.80 11.30
Hecla's share of ounces of silver produced........ 2,144,389 2,178,141 1,959,368 551,107
Hecla's share of ounces of gold produced.......... 10,705 10,505 9,094 2,826
Hecla's share of tons of lead produced............ 4,698 4,863 4,650 1,298
Hecla's share of tons of zinc produced............ 10,391 11,906 11,385 3,453
Average cost per ounce silver produced:
Cash production costs........................... $2.52 $3.94 $4.82 $5.11
Full production costs........................... 4.69 5.43 6.54 7.16
</TABLE>
The following table presents Hecla's share of the proven and probable ore
reserves for the Greens Creek silver mine for the following periods.
<TABLE>
<CAPTION>
SILVER GOLD
HECLA'S ---------------------- ---------------------
SHARE OF AVERAGE AVERAGE
RESERVES GRADE CONTAINED GRADE CONTAINED LEAD ZINC
YEAR ENDED DECEMBER 31, (TONS) (OZ./TON) OUNCES (OZ./TON) OUNCES (PERCENT) (PERCENT)
- -------------------------------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1990............................ 1,776,400 15.1 26,823,640 0.13 231,000 4.2 12.4
1991............................ 3,876,000 13.3 51,524,678 0.12 473,267 4.0 12.8
1992............................ 3,422,000 12.7 43,322,519 0.13 452,171 4.1 13.3
1993............................ 1,911,000 16.0 30,576,000 0.14 267,540 4.7 14.4
</TABLE>
Reserves represent diluted in place grades and do not reflect losses in the
recovery process. Reserve estimates at December 31, 1993, 1992, 1991 and 1990
were calculated by the manager of the mine using prices of $4.75, $4.50, $4.00
and $5.74 per ounce for silver, respectively, $350, $340, $365 and $402 per
ounce for gold, respectively, $0.57, $0.60, $0.46 and $0.51 per pound for zinc,
respectively, and $0.28, $0.33, $0.25 and $0.30 per pound for lead,
respectively.
49
<PAGE> 51
Ore reserve criteria and estimation techniques used for year-end 1993
reserves at the Greens Creek mine differed substantially from those used in
prior years. Among these changes were the adoption of block modeling techniques
in place of the sectional methods for a major section of the mine, a
reevaluation of cut-off criteria, and the development of refinements to in-site
net smelter return estimates involving projected smelting terms and distribution
or recovery of metals in the three concentrate products and metal price changes.
In addition, more rigorous criteria for reserve classification were applied to
the probable reserves category. These changes and the deduction for production
in 1993 resulted in a reduction in proven and probable mineral reserves from 3.4
million tons as of December 31, 1992, to 1.9 million tons as of December 31,
1993.
In 1993, drilling in the southwest area of the Greens Creek mine
encountered an additional mineralized zone containing higher than mine average
gold and silver content. The Company's interest in this mineral-bearing material
would amount to approximately 840,000 tons at 33.71 ounces of silver per ton,
0.27 ounce of gold per ton, 13.36% zinc, and 5.84% lead. Sufficient drilling in
the southwest area has not yet been completed to classify the mineralized zone
as proven and probable mineral reserves. Drilling is expected to continue in
1994 to define the nature and extent of this resource.
In January 1994, the manager of the Greens Creek mine initiated a
feasibility study to determine the economic viability of placing the mine,
including the mineral-bearing material of the southwest area, back into
production. The feasibility study is expected to be completed during the fourth
quarter of 1994 or the first quarter of 1995.
At December 31, 1993 there were 26 employees at the Greens Creek mine. The
employees at the Greens Creek mine are not represented by a bargaining agent.
EXPLORATION ACTIVITIES
The Company conducts exploration activities from its headquarters in Coeur
d'Alene, Idaho. The Company owns or controls patented and unpatented mining
claims, fee land, state and private leases in ten states, Canada and Bolivia. In
addition, the Company has a number of interests in exploration concessions in
Sonora, Mexico. The Company is currently concentrating its exploration
activities at or near the vicinity of the Republic gold mine (see "-- Producing
Properties -- Republic Gold Mine"), the Rosebud project (see "-- Development
Projects -- Rosebud Gold Project"), the Grouse Creek project (see
"-- Development Projects -- Grouse Creek Gold Project"), the La Choya project
(see "-- Producing Properties -- La Choya Gold Project"), the American Girl mine
and Oro Cruz project (see "-- Producing Properties -- American Girl Gold
Mine/Oro Cruz Gold Project"), and the Lucky Friday mine (see "-- Producing
Properties -- Lucky Friday Mine").
OTHER GOLD MINERALIZATION
Golden Eagle/Yellow Pine. In 1988, Hecla's geologists discovered the
Golden Eagle deposit, near the Republic gold mine which is a lower grade sulfide
deposit of refractory gold. The deposit contains approximately 10 million tons
of material at an average grade of 0.10 ounces of gold per ton. The Company
believes that any development of this deposit would require a major joint
venture partner. At the Yellow Pine gold mine, 15 to 20 million tons of
mineralized sulfide material containing approximately 0.10 ounces of gold per
ton have been discovered. As with the Republic sulfide deposit, gold is more
difficult to economically recover from these materials. On a combined basis, the
two sulfide deposits at Republic and Yellow Pine contain approximately 3 million
ounces of gold.
J & L Property. The J & L property contains a massive sulfide deposit
consisting of gold, silver, lead and zinc mineralization. The J & L property is
located near Revelstoke, British Columbia. The Company has a 69% effective
interest in the J & L property.
50
<PAGE> 52
INDUSTRIAL MINERALS SEGMENT
The Company's principal industrial minerals assets are its ball clay
operations in Kentucky, Tennessee and Mississippi; its kaolin operations in
South Carolina and Georgia; its feldspar operations in North Carolina; and its
specialty aggregate operations (primarily scoria and bark) in southern Colorado,
northern New Mexico and Idaho. The Company conducts these operations through
four wholly owned subsidiaries: (i) K-T Clay, which operates its ball clay and
kaolin divisions; (ii) K-T Feldspar, which operates the feldspar business; and
(iii) CAC and Mountain West Products, which operate the Company's specialty
aggregate and landscape bark business.
The Company's strategy is to continue to grow the industrial minerals
segment principally through the expansion of existing market shares, new product
development and the acquisition of additional minerals businesses that
complement existing operations. Hecla's industrial mineral revenues and reserves
increased significantly in recent years principally due to the acquisitions of
the kaolin operations of Cyprus Minerals Company in 1989 and the feldspar
operations of Indusmin Incorporated in 1990. As a result of these acquisitions,
in combination with the Company's preexisting industrial minerals operations,
Hecla has positioned itself as a leading producer of three of the four basic
ingredients required to produce ceramic products.
During 1993, K-T Clay focused attention on expanding its presence in
Mexico. A clay slurry plant, constructed in Monterrey, Mexico, supplies raw
materials to the Mexican ceramics industry. In addition, two U.S. processing
plants were expanded to improve packaging automation, which increased plant
capacity. More efficient clay production systems were also implemented, further
improving the quality of K-T Clay's products. K-T Clay's ball clay and kaolin
divisions, and K-T Feldspar each hold in excess of 20 years of reserves based on
current sales and product mix.
The following table sets forth information with respect to total industrial
minerals revenue and production for the past five years.
<TABLE>
<CAPTION>
YEAR REVENUE (000'S) TONS SHIPPED
------------------------ ---------------- -------------
<S> <C> <C>
1993.................... $44,953 887,676
1992.................... 43,231 879,034
1991.................... 40,524 823,214
1990.................... 34,971 711,295
1989.................... 33,356 709,895
</TABLE>
Following the acquisition of Mountain West Products in December 1993,
14,422 cubic yards of product were produced for the month of December.
K-T CLAY BALL CLAY DIVISION
K-T Clay is one of the nation's major suppliers of premium ball clay. Ball
clay is of sedimentary origin and consists of several basic clay minerals along
with a slight amount of organic content; a combination of materials that gives
ball clay its unique character. The principal use of ball clay is in the ceramic
and porcelain fields, which includes use for such items as pottery, dinnerware,
wall tile, electrical insulators and sanitaryware. Ball clay is also used in
refractories and abrasives and also has applications in other specialty
industries. K-T Clay mines many grades of ball clay, then processes and blends
the clays to meet the specifications and requirements of various customers.
Different uses may require mixtures of ball clay having substantially different
physical properties. K-T Clay, through many years of experience and ongoing work
in its laboratories, possesses a degree of expertise that enables it to meet
customer requirements with minimal advance notice.
K-T CLAY KAOLIN DIVISION
K-T Clay acquired the kaolin operations and assets of Cyprus Minerals
Company's clay division on February 17, 1989, including kaolin mines and plants
at Deepstep and Sandersville, Georgia, and Aiken,
51
<PAGE> 53
South Carolina. Kaolin, or china clay, is a relatively pure white clay of
sedimentary origin, and is consumed in a variety of end uses including ceramic
whiteware, textile grade fiberglass, as rubber and paper filler, and in
miscellaneous plastics, adhesives and pigment applications. Kaolin is a unique
industrial mineral because of its wide range of chemical and physical
properties. The kaolin division of K-T Clay mines, processes, and blends
numerous grades of clay to meet the specifications and requirements of its
customers.
K-T FELDSPAR CORPORATION
The Company acquired the feldspar operations and assets of Indusmin
Incorporated on December 13, 1990, including sodium feldspar mines and a
processing plant located near Spruce Pine, North Carolina. Feldspars are the
major constituents in igneous rocks and important constituents of other major
rock types. K-T Feldspar mines, processes, and blends sodium feldspar and
feldsparsilica products. It also produces by-product mica concentrate and
construction sand. K-T Feldspar products are primarily used in the ceramic
whiteware, glass, and paint industries.
MOUNTAIN WEST PRODUCTS
The Company acquired Mountain West Products in December 1993. Mountain West
Products, a wholly owned subsidiary located in southern Idaho, purchases,
processes and markets timber bark, scoria, peat and soil additives. These
products are sold as organic soil amendments, organic landscape mulches and
organic decorative ground cover for landscape purposes. Mountain West Products
shipped a total of 14,422 cubic yards of landscape material for the month of
December 1993, and is expected to increase its total shipments to 591,000 cubic
yards for all of 1994.
COLORADO AGGREGATE COMPANY OF NEW MEXICO
CAC, a wholly owned subsidiary located in southern Colorado and in northern
New Mexico, mines and sells scoria, primarily for landscaping and for use as
briquettes in gas barbecue grills. CAC also produces brightly painted aquarium
gravel, as well as other specialty aggregate products.
MARKETING
K-T Clay and K-T Feldspar products are marketed to the ceramics industry by
K-T Clay employees trained in ceramic engineering or related technical fields.
The experienced sales force allows K-T Clay to rapidly adjust to and meet new
requirements of its customers. K-T Clay enjoys the marketing advantage of having
one sales force offering three of the four products needed by ceramics
manufacturers: ball clay, kaolin and feldspar. The majority of K-T Clay's
products are used in the ceramics and porcelain industry. Marketing of kaolin
and feldspar to industries other than the ceramics and porcelain industry is
carried out through sales and distribution agents. Mountain West Products' and
CAC's products are marketed by their employees and sales and distribution
agents.
COMPETITION
The Company's principal competitors in ball clay mining operations are
generally either family-owned or divisions of larger, diversified companies.
Based upon available information, the Company believes that K-T Clay is the
largest producer of ball clay in the U.S. The principal competitors of the
Company in the ball clay industry are H. C. Spinks Clay Company, Watts Blake
Bearne & Company, and Old Hickory Clay Company. The Company has also become a
significant U.S. producer of ceramic-grade kaolin. The principal competitors of
the Company in the kaolin industry are Albion Kaolin Company, Evans Clay
Company, JM Huber Corporation and Dry Branch Kaolin Company. The Company, with
the acquisition of Indusmin Incorporated's feldspar assets, is also a major
producer and supplier of sodium feldspar products. The principal competitors of
the Company in the feldspar industry are Feldspar Corporation and Unimin
Corporation.
Mountain West Products competes with other producers of lawn and garden and
soil products, decorative bark products and landscape mulches. The principal
competitors are either privately owned companies or divisions of larger
diversified companies that operate in numerous regional markets. The Company has
limited
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<PAGE> 54
information about the sales of competing products in its overall markets but
believes it supplies a significant portion of the market for its product in the
United States intermountain region.
CAC competes with other producers of scoria and with manufacturers of
ceramic briquettes in the production and sale of briquettes. The Company
believes that CAC supplies a major portion of the scoria briquettes used in gas
barbecue grills. Price and natural product characteristics, such as color,
uniformity of size, lack of contained moisture and density, are important
competitive considerations to CAC's customers. The Company also believes that it
is competitive in the landscape scoria market east of the Continental Divide.
SPECIALTY METALS SEGMENT
Although the Company's strategy has primarily focused on expanding its
precious metal and industrial mineral operations, the Company continues to
investigate specialty mineral opportunities for its Apex processing facility
located in southern Utah. During 1993, the Apex facility continued production of
cobalt chemicals and process trials of metallurgical residues. The Company plans
to continue to develop the Apex facility to produce cobalt chemicals and
specialty metals, assuming satisfactory economics can be achieved.
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<PAGE> 55
DESCRIPTION OF LYONS
The LYONs were issued under an indenture dated as of June 1, 1989 (the
"Indenture"), between the Company and Manufacturers Hanover Trust Company, a New
York corporation, as trustee (the "Trustee"). The following summaries of certain
provisions of the LYONs and the Indenture describe the material terms but do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the LYONs and the Indenture, including
the definitions therein of certain terms which are not otherwise defined in this
Prospectus. The Indenture is filed as an exhibit to this Registration Statement
and is incorporated by reference herein. See "Available Information."
The LYONs are unsecured obligations of the Company limited to $201,250,000
aggregate principal amount at maturity and mature on June 14, 2004. Currently,
the Company has outstanding LYONs with an aggregate principal amount at maturity
of $109,950,000. The LYONs were issued at an issue price of $308.32 per LYON,
which represents a yield to maturity of 8.00% per annum computed on a semiannual
bond equivalent basis from June 14, 1989.
A holder of a LYON may convert it into Common Stock of the Company at any
time before the close of business on June 14, 2004; provided, however, that if a
LYON is called for redemption, the holder may convert it only until the close of
business on the Redemption Date.
The initial Conversion Rate is 20.824 shares of Common Stock per LYON,
subject to adjustment upon the occurrence of certain events. The Indenture
permits the Company to increase the Conversion Rate from time to time.
If the Company is a party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, the right to
convert a LYON into Common Stock may be changed into a right to convert it into
securities, cash or other assets of the Company or another person.
No sinking fund is provided for the LYONs. The Company may redeem the LYONs
as a whole at any time, or from time to time in part. The table below shows the
Redemption Prices of a LYON per $1,000 principal amount, at June 14, 1994, at
each June 14 thereafter prior to maturity and at maturity on June 14, 2004,
which prices reflect the accrued Original Issue Discount calculated to each such
date. The Redemption Price of a LYON redeemed between such dates would include
an additional amount reflecting the additional Original Issue Discount accrued
since the next preceding date in the table.
<TABLE>
<CAPTION>
ACCRUED
ORIGINAL
ISSUE
DISCOUNT REDEMPTION
LYON AT PRICE
REDEMPTION DATE ISSUE PRICE(1) 8.00%(2) (1) + (2)
----------------------------------------------------- -------------- -------- ----------
<S> <C> <C> <C>
June 14, 1994........................................ $ 308.32 $ 148.07 $ 456.39
June 14, 1995........................................ 308.32 185.31 493.63
June 14, 1996........................................ 308.32 225.59 533.91
June 14, 1997........................................ 308.32 269.16 577.48
June 14, 1998........................................ 308.32 316.28 624.60
June 14, 1999........................................ 308.32 367.25 675.57
June 14, 2000........................................ 308.32 422.37 730.69
June 14, 2001........................................ 308.32 482.00 790.32
June 14, 2002........................................ 308.32 546.48 854.80
June 14, 2003........................................ 308.32 616.24 924.56
At maturity.......................................... 308.32 691.68 1,000.00
</TABLE>
On June 14, 1994 (the "Purchase Date"), the Company will purchase, at the
option of the Holder, any outstanding LYON for which a written purchase notice
(the "Purchase Notice") has been delivered by the Holder to the office of the
Paying Agent at any time on or prior to the Purchase Date and not withdrawn,
subject to certain additional conditions (the "Put Feature"). The Purchase Price
payable to the Holder of a
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<PAGE> 56
LYON delivering a Purchase Notice is $456.39 (Issue Price plus accrued Original
Issue Discount to the Purchase Date) payable by the Company (the "Purchase
Price"), at its option, entirely either in cash, shares of Common Stock or
Extension Notes, but not in any combination thereof (except for the payment of
cash for fractional shares of Common Stock or fractional Extension Notes).
If the Company elects to pay the Purchase Price in shares of Common Stock,
the number of shares to be delivered in respect of the Purchase Price shall be
equal to the Purchase Price divided by the Market Price of the Common Stock.
Shares of Common Stock issued upon purchase of the LYONs in accordance with the
provisions of the Indenture and prior to the Distribution Date (as defined
below), shall also be entitled to receive Rights (as defined below), under the
terms and subject to the conditions of the Rights Plan (as defined below). If
the Company elects to pay the Purchase Price in Extension Notes, the aggregate
principal amount of Extension Notes to be issued in respect of the Purchase
Price shall be equal to the Purchase Price. However, no fractional shares of
Common Stock and no Extension Notes in denominations of other than $1,000
principal amount or an integral multiple thereof (valued at par) will be
delivered upon any purchase by the Company of LYONs through the delivery of any
such security in payment of the Purchase Price. Instead, the Company will pay
cash based on the Market Price for all fractional shares of Common Stock or cash
based on the principal amount (valued at par) for all fractional Extension
Notes. The "Market Price" means the average of the Sale Price (as defined below)
of the Common Stock for the five Business Day period ending three Business Days
prior to the Purchase Date, appropriately adjusted to take into account the
occurrence during the eight Business Days preceding such Purchase Date of
certain events that would result in an adjustment of the Conversion Rate with
respect to the Common Stock. The "Sale Price" of the Common Stock on any date
means the closing sale price (or if no closing sale price is reported, the
average of the high and low bid prices) on such date as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is traded or, if the Common Stock is not listed on a
United States national or regional stock exchange, as reported by the National
Association of Securities Dealers Automated Quotation System. Because the Market
Price of the Common Stock is determined prior to the Purchase Date, Holders of
LYONs bear the market risk with respect to the value of the Common Stock to be
received from the date such Market Price is determined to the Purchase Date.
The Company's right to purchase LYONs with Extension Notes or shares of
Common Stock is subject to the Company satisfying various conditions, including:
(i) the registration of the Extension Notes or the Common Stock, as the case may
be, under the Securities Act and the Exchange Act, if applicable; (ii) the
qualification of an Extension Indenture covering the Extension Notes under the
Trust Indenture Act of 1939, as amended, if applicable; and (iii) any necessary
qualification or registration under applicable state law or the availability of
an exemption from such qualification or registration. If such conditions are not
satisfied by June 14, 1994, the Company will pay the Purchase Price of the LYONs
in cash. No LYONs may be purchased if there has occurred and is continuing an
Event of Default.
Because of the Company's need to utilize cash for planned capital
expenditures, unless the Offering is completed successfully, the Company expects
to pay for any LYONs delivered to it pursuant to the Put Feature by issuing
Common Stock. See "Use of Proceeds." The Company is unable to predict how many
LYONs it may be required to purchase pursuant to the Put Feature. If the Company
were required to purchase all of the LYONs on June 14, 1994 pursuant to the Put
Feature, assuming a market price of the Common Stock of $12 7/8 (the closing
price on the New York Stock Exchange on March 14, 1994), the Company would issue
approximately 3.9 million shares of Common Stock, representing approximately
8.8% of the Company's Common Stock outstanding after such issuance. The Company
cannot predict what effect the Put Feature will have on the market price of the
Common Stock. For a discussion of other alternatives being considered with
respect to the LYONs, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and Liquidity."
In the event of any Change in Control (as defined in the Indenture) of the
Company occurring on or prior to June 14, 1994, each Holder of LYONs will have
the right, at the Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to purchase all or any part (provided that the
principal amount at maturity must be $1,000 or an integral multiple thereof) of
the Holder's LYONs on the date that is 35 business days after the occurrence of
such Change in Control (the "Change in Control Purchase Date") at
55
<PAGE> 57
a cash price equal to the Issue Price plus accrued Original Issue Discount to
the Change in Control Purchase Date.
The Indenture provides that, if an Event of Default specified therein shall
have happened and be continuing, either the Trustee or the Holders of not less
than 25% in aggregate principal amount at maturity of the LYONs then outstanding
may declare the Issue Price of the LYONs plus the Original Issue Discount on the
LYONs accrued to the date of such declaration to be immediately due and payable.
In the case of certain events of bankruptcy or insolvency, the Issue Price of
the LYONs plus the Original Issue Discount accrued thereon to the occurrence of
such event shall automatically become and be immediately due and payable.
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<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to the Company's capital stock
describe the material terms but are subject to the detailed provisions of the
Company's Certificate of Incorporation, and by-laws, as amended (the "By-Laws"),
and to the Rights Agreement (as defined below). These statements do not purport
to be complete and are qualified in their entirety by reference to the terms of
the Certificate of Incorporation, the By-Laws and the Rights Agreement, which
are incorporated by reference in this Prospectus.
COMMON STOCK AND PREFERRED STOCK
The Company is authorized to issue 100 million shares of Common Stock,
$0.25 par value per share, of which 40,509,931 shares of Common Stock were
issued as of March 11, 1994 (giving effect to the 5,927,428 shares issuable in
connection with the Equinox acquisition), including 62,230 treasury shares. The
Company is authorized to issue five million shares of Preferred Stock, of which
2.3 million shares of the Company's Series B Preferred Stock are currently
outstanding.
The Preferred Stock is issuable in series with such voting rights, if any,
designations, powers, preferences and other rights and such qualifications,
limitations and restrictions as may be determined by the Board of Directors of
the Company. The Board may fix the number of shares constituting each series and
increase or decrease the number of shares of any series.
Subject to the rights of the holders of any outstanding shares of Preferred
Stock, each share of Common Stock is entitled to one vote on all matters
presented to the shareholders, with no cumulative voting rights; to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor; and in the event of liquidation or dissolution of the
Company, to share ratably in any distribution of the Company's assets. Holders
of shares of Common Stock do not have preemptive rights or other rights to
subscribe for unissued or treasury shares or securities convertible into such
shares, and no redemption or sinking fund provisions are applicable. All
outstanding shares of Common Stock are fully paid and nonassessable.
SERIES B PREFERRED STOCK
The Series B Preferred Stock ranks senior to the Common Stock and any
shares of Series A Junior Participating Preferred Shares issued pursuant to the
Rights with respect to payment of dividends and amounts upon liquidation,
dissolution or winding up. While any shares of Series B Preferred Stock are
outstanding, Hecla may not authorize the creation or issue of any class or
series of stock that ranks senior to the Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up without the consent of
the holders of at least 66 2/3% of the outstanding shares of Series B Preferred
Stock and any other series of Preferred Stock ranking on a parity with the
Series B Preferred Stock as to dividends and upon liquidation, dissolution or
winding up (a "Parity Stock"), voting as a single class without regard to
series.
Holders of shares of Series B Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of Hecla out of assets of
Hecla legally available therefor, cumulative cash dividends at the rate per
annum of $3.50 per share of Series B Preferred Stock.
Hecla will not (i) declare, pay or set apart funds for the payment of any
dividend or other distribution with respect to any Junior Stock (as defined
below) or (ii) redeem, purchase or otherwise acquire for consideration any
Junior Stock or Parity Stock through a sinking fund or otherwise (except by
conversion into or exchange for shares of Junior Stock and other than a
redemption or purchase or other acquisition of shares of Common Stock of Hecla
made for purposes of an employee incentive or benefit plan of Hecla or any
subsidiary), unless all accrued and unpaid dividends with respect to the Series
B Preferred Stock and any Parity Stock at the time such dividends are payable
have been paid or funds have been set apart for payment of such dividends. As
used herein, (i) the term "dividend" does not include dividends payable solely
in shares of Junior Stock on Junior Stock, or in options, warrants or rights to
holders of Junior Stock to subscribe for or purchase any Junior Stock, and (ii)
the term "Junior Stock" means the Common Stock, any Series A Junior
Participating Preferred Shares issued pursuant to the Rights, and any other
class of capital stock of Hecla now
57
<PAGE> 59
or hereafter issued and outstanding that ranks junior as to the payment of
dividends or amounts payable upon liquidation, dissolution and winding up to the
Series B Preferred Stock.
The Series B Preferred Stock is not redeemable prior to July 1, 1996. On
and after such date, the Series B Preferred Stock is redeemable at the option of
Hecla, in whole or in part, at $52.45 per share if redeemed during the
twelve-month period beginning July 1, 1996 declining to $50.00 per share July 1,
2003 and thereafter, plus, in each case, all dividends accrued and unpaid on the
Convertible Preferred Stock up to the date fixed for redemption.
The holders of shares of Series B Preferred Stock will be entitled to
receive, in the event of any liquidation, dissolution or winding up of Hecla,
whether voluntary or involuntary, $50.00 per share of Series B Preferred Stock
plus an amount per share of Series B Preferred Stock equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holders (the "Liquidation Preference"), and no more.
Until the holders of the Series B Preferred Stock have been paid the Liquidation
Preference in full, no payment will be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of Hecla.
Except as indicated below or in the Series B Preferred Certificate of
Designations, or except as otherwise from time to time required by applicable
law, the holders of Series B Preferred Stock will have no voting rights and
their consent shall not be required for taking any corporate action. When and if
the holders of Series B Preferred Stock are entitled to vote, each holder will
be entitled to one vote per share. If the equivalent of six quarterly dividends
payable on the Series B Preferred Stock have not been declared and paid or set
apart for payment, whether or not consecutive, the number of directors then
constituting the Board of Directors of Hecla shall be increased by two and the
holders of the Series B Preferred Stock and any other series of Parity Stock
similarly affected, voting as a single class without regard to series, will be
entitled to elect such two additional directors at the next annual meeting and
each subsequent meeting, until such time as all cumulative dividends have been
paid in full.
Each share of Series B Preferred Stock will be convertible, in whole or in
part at the option of the holders thereof, into shares of Common Stock at a
conversion price of $15.55 per share of Common Stock (equivalent to a conversion
rate of approximately 3.2154 shares of Common Stock for each share of Series B
Preferred Stock), subject to adjustment as described below (the "Conversion
Price").
The Conversion Price is subject to adjustment upon certain events,
including (i) dividends (and other distributions) payable in Common Stock on any
class of capital stock of Hecla, (ii) the issuance to all holders of Common
Stock of certain rights or warrants (other than the Rights or any similar rights
issued under any successor shareholders rights plan) entitling them to subscribe
for or purchase Common Stock or securities which are convertible into Common
Stock, (iii) subdivisions, combinations and reclassifications of Common Stock,
and (iv) distributions to all holders of Common Stock of evidences of
indebtedness of Hecla or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and dividends
and distributions paid in cash out of the profits or surplus of Hecla).
WARRANTS TO PURCHASE COMMON STOCK
CoCa Warrants. As a result of the acquisition of Geodome Resources Limited
by CoCa Mines in 1989, and the acquisition of CoCa Mines by the Company in 1991,
as of March 1, 1994, the Company has outstanding 459,433 warrants to acquire
Common Stock at an exercise price of $17.81 and 12,859 warrants to acquire
Common Stock at an exercise price of $12.42 (collectively, the "CoCa Warrants").
The CoCa Warrants are exercisable until May 5, 1994. However, the CoCa Warrants
will expire if, at any time after May 15, 1990, upon 60 calendar days' prior
notice, the Common Stock has had an average per share closing public market
price of not less than $22.24 for at least 60 consecutive trading days prior to
such expiration notice.
Equinox Warrants. As a result of the Company's acquisition of Equinox in
March 1994, warrants issued by Equinox on December 8, 1992 in connection with
Equinox's acquisition of another company ("Equinox Warrants") were assumed by
Hecla. The Equinox Warrants are exercisable for a total of 415,131 shares of
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<PAGE> 60
Common Stock at an exercise price of Canadian $11.33 per share (equivalent to
U.S.$8.32 using the exchange rate on March 11, 1994). The Equinox Warrants
expire on August 31, 1996. If the Common Stock trades higher than Canadian
$16.67 for 20 consecutive trading days, the holders of Equinox Warrants must
exercise their warrants or lose the right to exercise. The terms of the Equinox
Warrants are set forth in the warrant transfer agency agreement made as of
December 8, 1992 between Equinox and Montreal Trust Company of Canada, which
agreement has been assumed by the Company.
RIGHTS
Upon the terms and subject to the conditions of the Rights Agreement, a
holder of a Right is entitled to purchase one one-hundredth of a Series A
Preferred Share at an exercise price of $47.50. The Rights are currently
represented by the certificates for the Common Stock and are not transferable
apart therefrom. Transferable Rights certificates will be issued at the earlier
of (i) the tenth day after the public announcement that any person or group has
acquired beneficial ownership of 15% or more of the Common Stock (an "Acquiring
Person") or (ii) the tenth day after a person commences, or announces an
intention to commence, a tender or exchange offer the consummation of which
would result in any person or group becoming an Acquiring Person. The 15%
threshold for becoming an Acquiring Person may be reduced by the Board of
Directors of Hecla to not less than 10% prior to any such acquisition.
The Rights are subject to adjustment in several circumstances. In
particular, (i) in the event Hecla is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at the
exercise price of the Right, that number of shares of common stock of the
acquiror which at the time of such transaction would have a market value of two
times the exercise price of the Rights and (ii) in the event any person or group
becomes an Acquiring Person, each holder of a Right (other than Rights
beneficially owned by the Acquiring Person, which will become void) will
thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the exercise price of the Right.
All the outstanding Rights may be redeemed by Hecla for $0.05 per Right
prior to the tenth day following the date on which it was announced that a
person or group became an Acquiring Person. Under certain circumstances, the
Board of Directors of the Company may decide to exchange each Right (except
Rights held by an Acquiring Person) for one share of Common Stock. The Rights
will expire on May 19, 1996 unless earlier redeemed.
As long as the Rights are attached to and evidenced by the certificates
representing the Common Stock, Hecla will continue to issue one Right with each
share of Common Stock that shall become outstanding. A Right is presently
attached to each issued and outstanding share of Common Stock. So long as the
Rights are outstanding, the Company will issue one Right with each new share of
Common Stock issued.
The Rights have certain antitakeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors of the Company. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of the Company since the Rights may be redeemed by the
Company prior to the consummation of such transactions.
The Rights Agreement is attached as an exhibit to the Company's
Registration Statement on Form 8-A dated May 19, 1986. The Rights Agreement was
amended effective November 29, 1990 and such amendment is attached as an exhibit
to the Company's Current Report on Form 8-K dated November 9, 1990 (as amended,
the "Rights Agreement"). The description of the Rights found in each of the
foregoing Form 8-A and Form 8-K has been incorporated by reference herein and
copies of such Forms can be obtained in the manner set forth under "Information
Incorporated By Reference."
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions in the Company's Certificate of Incorporation and
By-Laws may in certain circumstances have an antitakeover effect. These
provisions (1) classify the Board of Directors into three classes, as
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<PAGE> 61
nearly equal in number as possible, each of which serve for three years, with
one class being elected each year; (2) provide that directors may be removed
only for cause and only with the approval of the holders of at least 80% of the
voting power of the capital stock of the Company entitled to vote generally in
the election of directors (the "Voting Stock"); (3) provide that any vacancy on
the Board of Directors shall be filled only by the remaining directors then in
office, though less than a quorum; (4) require that shareholder action be taken
at an annual or special meeting of shareholders and prohibit shareholder action
by consent; (5) provide that special meetings of shareholders of the Company may
be called only by the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors; and (6) provide that the shareholder
vote required to alter, amend or repeal the foregoing provisions is 80% of the
then-outstanding Voting Stock.
The Certificate of Incorporation authorizes the issuance of five million
shares of Preferred Stock of which 2.3 million shares have been issued as Series
B Preferred Stock. In addition, sufficient shares of Preferred Stock have been
reserved for issuance upon exercise of the Rights. It would be possible, within
the limitations imposed by applicable law and the applicable rules of the New
York Stock Exchange upon which the Common Stock is listed, for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with voting rights (including class voting rights) or other rights, powers and
preferences which could impede the success of a proposed merger, tender offer,
proxy contest or other attempt to gain control of the Company. In a takeover or
similar situation, the issuance by the Board of Directors of Preferred Stock
having voting rights could dilute the voting power of the shares of Common Stock
held by a potential acquiror. Moreover, if the Preferred Stock were to be issued
with class voting rights such an issuance could potentially confer veto power
over the proposed transaction on a party friendly to the Company's management.
The Certificate of Incorporation also requires the approval by the holders
of 80% of the then-outstanding Voting Stock as a condition for mergers and
certain other business combinations of the Company ("Business Combinations")
with any holder of more than 12 1/2% of such Voting Stock (an "Interested
Shareholder") unless the transaction is either approved by at least a majority
of the members of the Board of Directors who are unaffiliated with the
Interested Shareholder and were directors before the Interested Shareholder
became an Interested Shareholder (the "Continuing Directors") or certain minimum
price and procedural requirements are met.
While the foregoing provisions contained in the Certificate of
Incorporation and By-Laws as well as those in the Rights Plan are intended to
encourage persons seeking to acquire control of the Company to initiate such an
acquisition through arm's-length negotiations with the Board of Directors, they
could also have the effect of discouraging a third party from making a tender
offer (including an offer at a substantial premium over the then-current market
value of the Common Stock) or otherwise attempting to obtain control of the
Company even though such an attempt might be beneficial to the Company and its
shareholders. Since such provisions may have the effect of giving the Board of
Directors more bargaining powers in negotiations with potential acquirors, they
could also result in the Board of Directors using such bargaining power not only
to try to negotiate a favorable price for an acquisition but also to negotiate
more favorable terms for the management or the Board of Directors.
DESCRIPTION OF CREDIT FACILITY
The following summary of the Company's revolving credit facility does not
purport to be complete and is qualified in its entirety by reference to the
agreement (including the amendments thereto) for such facility, a copy of which
has been filed as an exhibit to this Registration Statement. See "Available
Information."
The Company is a party to a secured reducing revolving credit agreement
dated January 25, 1993 (as amended on April 12, 1993, August 11, 1993 and
November 9, 1993) with a group of banks including Mase Westpac Limited, New York
Branch, as agent, which currently provides for reducing revolving credit
advances of up to $30.0 million. The facility must be repaid in its entirety no
later than December 31, 1996.
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<PAGE> 62
Pursuant to the terms of the credit facility, as amended, the availability
under the revolving credit facility reduces as follows:
<TABLE>
<CAPTION>
BASE MAXIMUM
SCHEDULED COMMITMENT AMOUNT
REDUCTION DATE REDUCTION AVAILABLE
---------------------------------------------- ----------- -----------
<S> <C> <C>
December 31, 1995............................. $ 3,750,000 $26,250,000
March 31, 1996................................ 3,750,000 22,500,000
June 30, 1996................................. 3,750,000 18,750,000
September 30, 1996............................ 3,750,000 15,000,000
December 31, 1996............................. 15,000,000 --
</TABLE>
Commitment fees are 1/2 of 1 percent on the average daily unused portion of
the maximum available amount of the base commitment. The interest rate options
are a specified bank's reference rate plus 1/2 percent, a CD Rate plus 1 5/8
percent or the Offshore Rate plus 1 1/2 percent, each as defined in the
agreement for the facility. No compensating balances are required. Borrowings
under the agreement are collateralized by the Company's accounts receivable,
inventories and specified marketable securities and cash equivalents. The
agreement contains restrictive covenants concerning the maintenance of a minimum
net worth, current ratio, leverage ratio and fixed charge coverage ratio. The
agreement for the revolving credit facility restricts the Company from paying
any dividends while there is an Event of Default (as defined in such agreement).
Among other things, there will be an Event of Default if the Company violates
the restrictive covenants described above.
As of March 14, 1994, there were no amounts outstanding under the revolving
credit facility.
CERTAIN UNITED STATES TAX CONSEQUENCES
FOR NON-U.S. SHAREHOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of shares of
Common Stock by a person that is a "Non-U.S. Shareholder." For purposes of this
discussion, a "Non-U.S. Shareholder" means any person other than (i) an
individual who is a citizen or resident of the United States, (ii) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, or (iii) an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
This discussion is for general information only and does not consider all
aspects of United States federal tax consequences that may be relevant to a
particular Non-U.S. Shareholder in light of such shareholder's particular tax
position, and does not deal with state, local or foreign tax consequences. This
discussion is based on the Internal Revenue Code, existing and proposed Treasury
regulations, and judicial and administrative interpretations as of the date
hereof, all of which are subject to change. Prospective investors are urged to
consult their own tax advisors with respect to the United States federal, state
and local tax consequences of owning and disposing of the Common Stock, as well
as any tax consequences arising under the laws of any other taxing jurisdiction.
DIVIDENDS
In the event that dividends are paid on the Common Stock, any such
dividends paid to a Non-U.S. Shareholder will be subject to withholding of
United States federal income tax at a rate of 30% of the amount of the dividend
(or a lower rate prescribed by an applicable income tax treaty). However, if the
dividend is effectively connected with the conduct of a United States trade or
business by the Non-U.S. Shareholder and the Non-U.S. Shareholder properly files
Internal Revenue Service Form 4224 (or such other applicable form required by
the Internal Revenue Service) with the Company or its dividend-paying agent,
then the dividend (i) will not be subject to income tax withholding, and (ii)
except to the extent that an applicable income tax treaty provides otherwise,
will be subject to United States federal income tax at progressive rates of tax.
In the case of a Non-U.S. Shareholder that is a corporation, such effectively
connected dividend income may also be
61
<PAGE> 63
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the repatriation from the United States of effectively connected
earnings and profits) at a 30% rate (or a lower rate prescribed by an applicable
income tax treaty).
A Non-U.S. Shareholder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the Internal Revenue Service.
The Company is required to report annually to the Internal Revenue Service
and each Non-U.S. Shareholder the amount of dividends paid to, and the income
tax withheld with respect to, such shareholder. Such information may also be
made available by the Internal Revenue Service to the tax authorities of the
country in which the Non-U.S. Shareholder resides.
DISPOSITION OF COMMON STOCK
Because the Company is a "U.S. real property holding corporation", a
Non-U.S. Shareholder who held, directly or indirectly, at any time during the
five-year period ending on the date of disposition of shares of Common Stock,
more than 5% of any class of stock of the Company that is regularly traded on an
established securities market within the meaning of the applicable Treasury
regulations will be subject to United States federal income tax on the gain
realized upon such disposition. Non-U.S. Shareholders will also be subject to
U.S. federal income tax on the gain realized upon a disposition of shares of
Common Stock of (i) the gain is effectively connected with a United States trade
or business carried on by the Non-U.S. Shareholder and, if an income tax treaty
applies, attributable to a United States permanent establishment maintained by
the Non-U.S. Shareholder, (ii) the Non-U.S. Shareholder is an individual who
holds the Common Stock as a capital asset, such shareholder is present in the
United States for 183 days or more in the taxable year of the disposition and
either the Non-U.S. Shareholder has a "tax home" in the United States for United
States federal income tax purposes or the sale is attributable to an office or
other fixed place of business maintained by the Non-U.S. Shareholder in the
United States or (iii) the Non-U.S. Shareholder is subject to a tax pursuant to
the provisions of United States tax law applicable to certain United States
expatriates.
ESTATE TAX
Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as specifically defined for U.S. federal estate tax
purposes) of the United States at the time, of his or her death will be
includable in the individual's gross estate for United States federal estate tax
purposes and thus subject to United States federal estate tax, unless an
applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
United States information reporting requirements (other than the reporting
of dividend payments for purposes of the 30% income tax withholding discussed
under "Dividends" above) and backup withholding tax generally will not apply to
a dividend payment made outside the United States to a Non-U.S. Shareholder, if
the dividend is either subject to the 30% withholding tax discussed above or is
subject to a reduced rate of such withholding tax under an applicable income tax
treaty. Otherwise, information reporting and backup withholding tax at a 31%
rate may apply to dividends paid on the Common Stock to a Non-U.S. Shareholder
who fails to certify its non-U.S. status under penalties of perjury in the
manner required by United States law or otherwise fails to establish an
exemption.
In addition, the payment of the proceeds of the sale of shares of Common
Stock to or through the United States office of a broker will be subject to
information reporting and possible 31% backup withholding unless the owner
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. The payment of the proceeds of the sale of shares of
Common Stock to or through the foreign office of a broker generally will not be
subject to this backup withholding tax. In the case of the payment of proceeds
from the disposition of shares of Common Stock through a foreign office of a
broker that is a United States person or a "U.S. related person," existing
regulations require information reporting but not backup withholding on the
payment unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Shareholder and
62
<PAGE> 64
the broker has no actual knowledge to the contrary. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for United States
federal income tax purposes, or (ii) a foreign person, 50% or more of whose
gross income from all sources for the three-year period ending with the close of
its taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. Proposed
Treasury regulations which have not been finally adopted contain a similar rule
with respect to information reporting by a broker that is a United States person
or a "U.S. related person." However, under the proposed regulations, such a
person may only rely on documentary evidence to avoid information reporting if
the foreign office "effects" the sale at such foreign office. Any amounts
withheld under the backup withholding rules from a payment to a Non-U.S.
Shareholder will be allowed as a refund or a credit against such Non-U.S.
Shareholder's United States federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review
by the Internal Revenue Service, and their application to the Common Stock could
be changed by future regulations.
63
<PAGE> 65
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and each of the underwriters named
below (the "Underwriters"), the Company has agreed to sell to the Underwriters,
and each of the Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company, the
respective number of Shares set forth opposite each such Underwriter's name. The
Underwriters will be committed to purchase all of the Shares if any are
purchased. Under certain circumstances, the commitments of non-defaulting
Underwriters may be increased as set forth in the Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Salomon Brothers Inc....................................................
----------
Total...................................................... 6,500,000
----------
----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Shares to the public at the public offering price set
forth on the cover page of the Prospectus and to certain dealers at such price
less a concession not in excess of $ per Share. The Underwriters may
allow, and such dealers may reallow, a discount not to exceed $ per Share to
certain other dealers. After the Offering, the public offering price, concession
and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of this Prospectus, to purchase up to 975,000 additional
Shares at the initial public offering price less the underwriting discount. The
Representatives may exercise this option only to cover over-allotments, if any,
made on the sale of Shares offered hereby. To the extent that the
Representatives exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage of
such shares as the number of Shares to be purchased by each such Underwriter
shown in the foregoing table bears to the total number of Shares initially
offered hereby.
The Company has agreed, for a period of 180 days after the date of this
Prospectus, not to, without the prior written consent of the Representatives,
offer, sell or offer to sell, grant any option for the sale of, or otherwise
dispose of directly or indirectly, any shares of Common Stock or securities
convertible into Common Stock, other than the sale of the Shares to the
Underwriters and other than conversions of existing convertible securities,
exercises of any outstanding options or warrants, grants of Common Stock or
options pursuant to the Company's employee plans, and pursuant to the Rights.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
64
<PAGE> 66
Each of the Representatives, from time to time, performs investment banking
and other financial services for the Company.
LEGAL MATTERS
The validity of the Shares and certain other legal matters relating to the
Offering will be passed upon for the Company by Wachtell, Lipton, Rosen & Katz,
New York, New York. The validity of the Shares offered hereby will be passed
upon for the Underwriters by Shearman & Sterling, Los Angeles, California.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company included or incorporated by reference in this Prospectus and
elsewhere in the Registration Statement have been included or incorporated
herein in reliance on the report of Coopers & Lybrand, independent accountants,
given on the authority of that firm as experts in accounting and auditing. The
consolidated financial statements of Equinox incorporated by reference in this
Prospectus and elsewhere in the Registration Statement have been incorporated
herein in reliance on the report of Deloitte & Touche, chartered accountants,
given on the authority of that firm as experts in accounting and auditing.
65
<PAGE> 67
GLOSSARY OF CERTAIN MINING TERMS
BALL CLAY -- A fine-grained, plastic, white firing clay used principally
for bonding in ceramic ware.
CASH PRODUCTION COSTS -- Includes all direct and indirect operating cash
costs incurred at each operating mine.
CASH PRODUCTION COSTS PER OUNCE -- Calculated based upon total cash
production costs, as defined herein, net of by-product revenues earned from all
metals other than the primary metal produced at each mine, divided by the total
ounces of the primary metal produced.
DECLINE -- An underground passageway connecting one or more levels in a
mine, providing adequate traction for heavy, self-propelled equipment. Such
underground openings are often driven in an upward or downward spiral, much the
same as a spiral staircase.
DEVELOPMENT -- Work carried out for the purpose of opening up a mineral
deposit and making the actual ore extraction possible.
DORE -- Unparted gold and silver poured into molds when molten to form
buttons or bars. Further refining is necessary to separate the gold and silver.
DRIFT -- A horizontal passage underground.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FELDSPARS -- Aluminosilicates that contain potassium, sodium and calcium.
Feldspar products are primarily used in the ceramic whiteware, glass and paint
industries.
FULL PRODUCTION COSTS -- Includes all cash production costs, as defined,
plus depreciation, depletion and amortization relating to each operating mine.
FULL PRODUCTION COSTS PER OUNCE -- Calculated based upon total full
production costs, as defined, divided by the total ounces of the primary metal
produced.
GRADE -- The average assay of a ton of ore, reflecting metal content.
HEAP LEACHING -- A process involving the percolation of a cyanide solution
through crushed ore heaped on an impervious pad or base to dissolve minerals or
metals out of the ore.
KAOLIN -- A fine, white clay used as a filler or extender in ceramics and
refractories.
MILL -- A processing plant that produces a concentrate of the valuable
minerals or metals contained in an ore. The concentrate must then be treated in
some other type of plant, such as a smelter, to effect recovery of the pure
metal.
ORE -- Material that can be mined and processed at a positive cash flow.
PATENTED MINING CLAIM -- A parcel of land originally located on federal
lands as an unpatented mining claim under the General Mining Law, the title of
which has been conveyed from the federal government to a private party pursuant
to the patenting requirements of the General Mining Law.
PROBABLE RESERVES -- Resources for which tonnage and grade are computed
primarily from specific measurements, samples or production data, and partly
from projection for a reasonable distance on geologic evidence. The sites
available for inspection, measurement and sampling are too widely or otherwise
inappropriately spaced to permit the mineral bodies to be outlined completely,
or the grade established throughout.
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in workings and drill holes and for which the grade is computed from
the results of detailed sampling. The sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so well defined
that size, shape and mineral content are all established. The computed tonnage
and grade are judged to be accurate, within
66
<PAGE> 68
limits which are stated, and no such limit is judged to be different from the
computed tonnage or grade by more than 20%.
RESERVES -- That part of a mineral deposit that can be economically and
legally extracted or produced at the time of the reserve determination. Reserves
are customarily stated in terms of "ore" when dealing with metals.
ROCKBURST -- Explosive rock failures caused by the pressure exerted by rock
adjacent to mine openings far below the surface.
SAND FILL -- The coarser fraction of concentrator tailings, which is
conveyed underground in pipes as a slurry to support cavities left by extraction
of ore.
SHAFT -- A vertical or steeply inclined excavation for the purpose of
opening and servicing a mine. It is usually equipped with a hoist at the top
which lowers and raises a conveyance for handling personnel and materials.
STOPE -- An underground excavation from which ore has been extracted either
above or below mine level.
TROY OUNCE -- Unit of weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 troy ounces.
UNDERHAND MINING -- The primary mining method employed in the Lucky Friday
mine utilizing mechanized equipment, a ramp system and cemented sandfill. The
method has proven effective in reducing mining cost and rockburst activity.
UNPATENTED MINING CLAIM -- A parcel of property located on federal lands
pursuant to the General Mining Law and the requirements of the state in which
the unpatented claim is located, the paramount title of which remains with the
federal government. The holder of a valid, unpatented load mining claim is
granted certain rights including the right to explore and mine such claim under
the General Mining Law.
VEIN -- A mineralized zone having a more or less regular development in
length, width and depth which clearly separates it from neighboring rock.
WASTE -- Barren rock in a mine, or mineralized material that is too low in
grade to be mined and milled at a profit.
67
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Hecla Mining Company Audited Year-End
Financial Statements:
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets at December 31, 1993 and 1992........................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993,
1992 and 1991.................................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
1992 and 1991.................................................................... F-5
Consolidated Statement of Changes in Shareholders' Equity for the Years Ended
December 31, 1993, 1992 and 1991................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 70
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Hecla Mining Company
We have audited the accompanying consolidated balance sheets of Hecla
Mining Company and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hecla Mining
Company and subsidiaries as of December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes 6 and 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions in 1992.
COOPERS & LYBRAND
Spokane, Washington
February 3, 1994, except for Note 5,
as to which the date is February 8, 1994
F-2
<PAGE> 71
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 37,891 $ 3,287
Short-term investments............................................... 27,540 --
Accounts and notes receivable........................................ 16,859 15,290
Income tax refund receivable......................................... -- 390
Inventories.......................................................... 13,022 12,652
Other current assets................................................. 1,915 1,349
-------- --------
Total current assets......................................... 97,227 32,968
Investments............................................................ 6,211 4,822
Properties, plants and equipment, net.................................. 222,870 179,827
Other noncurrent assets................................................ 6,570 4,826
-------- --------
Total assets................................................. $332,878 $222,443
-------- --------
-------- --------
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses................................ $ 14,610 $ 9,003
Accrued payroll and related benefits................................. 2,056 2,139
Preferred stock dividends payable.................................... 2,012 --
Accrued taxes........................................................ 928 1,271
Current portion of deferred income taxes............................. -- 285
-------- --------
Total current liabilities.................................... 19,606 12,698
Deferred income taxes.................................................. 359 1,038
Long-term debt......................................................... 49,489 70,382
Accrued reclamation costs.............................................. 19,503 20,108
Other noncurrent liabilities........................................... 3,858 3,723
-------- --------
Total liabilities............................................ 92,815 107,949
-------- --------
Minority interest in consolidated subsidiary........................... -- 775
-------- --------
Commitments and contingencies (Notes 2, 3 and 8)
SHAREHOLDERS' EQUITY
Preferred stock, 25c par value, authorized 5,000,000 shares, issued and
outstanding 1993 -- 2,300,000, liquidation preference $117,012....... 575 --
Common stock, 25c par value, authorized 100,000,000 shares; issued
1993 -- 34,644,734, issued 1992 -- 31,651,192........................ 8,661 7,912
Capital surplus........................................................ 238,601 97,806
Retained earnings (deficit)............................................ (6,878) 8,927
Net unrealized loss on marketable equity securities.................... (8) (16)
Less common stock reacquired, at cost; 1993 -- 62,226 shares,
1992 -- 63,753 shares................................................ (888) (910)
-------- --------
Total shareholders' equity................................... 240,063 113,719
-------- --------
Total liabilities and shareholders' equity................... $332,878 $222,443
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 72
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Sales of products.......................................... $ 81,847 $100,651 $117,568
-------- -------- --------
Cost of sales and other direct production costs............ 71,109 83,288 84,853
Depreciation, depletion and amortization................... 10,292 13,493 21,161
-------- -------- --------
81,401 96,781 106,014
-------- -------- --------
Gross profit.......................................... 446 3,870 11,554
-------- -------- --------
Other operating expenses:
General and administrative............................... 6,961 8,520 14,054
Exploration.............................................. 4,353 7,659 5,693
Research................................................. -- 1,317 1,538
Depreciation and amortization............................ 669 819 692
Provision for closed operations and environmental
matters............................................... 2,307 12,670 3,638
Reduction in carrying value of mining properties......... 200 27,928 --
-------- -------- --------
14,490 58,913 25,615
-------- -------- --------
Loss from operations.................................. (14,044) (55,043) (14,061)
-------- -------- --------
Other income (expense):
Interest and other income................................ 2,965 12,428 2,219
Other expense............................................ (3) (61) (17)
Gain (loss) on investments............................... (144) (2,115) 229
Minority interest in net loss of consolidated
subsidiary............................................ 43 95 484
Interest expense:
Total interest cost................................... (5,023) (6,905) (6,985)
Less amount capitalized............................... 3,533 2,070 145
-------- -------- --------
1,371 5,512 (3,925)
-------- -------- --------
Loss before income taxes and cumulative effect of changes
in accounting principles................................. (12,673) (49,531) (17,986)
Income tax benefit......................................... 938 345 2,556
-------- -------- --------
Loss before cumulative effect of changes in accounting
principles............................................... (11,735) (49,186) (15,430)
Cumulative effect of changes in accounting principles...... -- (103) --
-------- -------- --------
Net loss................................................... (11,735) (49,289) (15,430)
Preferred stock dividends.................................. (4,070) -- --
-------- -------- --------
Net loss applicable to common shareholders................. $(15,805) $(49,289) $(15,430)
-------- -------- --------
-------- -------- --------
Net loss per common share:
Loss before cumulative effect of changes in accounting
principles and after preferred stock dividends........ $ (0.48) $ (1.59) $ (0.51)
Cumulative effect of changes in accounting principles.... -- (0.01) --
-------- -------- --------
$ (0.48) $ (1.60) $ (0.51)
-------- -------- --------
-------- -------- --------
Cash dividends per common share............................ $ -- $ -- $ --
-------- -------- --------
-------- -------- --------
Weighted average number of common shares outstanding....... 32,915 30,866 30,094
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 73
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss..................................................... $(11,735) $(49,289) $(15,430)
Noncash elements included in net loss:
Depreciation, depletion and amortization.................. 10,961 14,312 21,853
Deferred income tax benefit............................... (964) (120) (1,429)
Loss (gain) on disposition of properties, plants and
equipment............................................... 1,300 (9,628) (1,865)
(Gain) loss on investments................................ 144 2,115 (229)
Accretion of interest on long-term debt................... 4,349 5,602 5,891
Provision for reclamation and closure costs............... 1,635 12,305 2,898
Reduction in carrying value of mining properties.......... 200 27,928 --
Gain on retirement of long-term debt...................... (323) (510) --
Minority interest in net loss of consolidated
subsidiary.............................................. 43 95 484
Change in:
Accounts and notes receivable............................. (1,569) 5,869 (844)
Income tax refund receivable.............................. 390 -- --
Inventories............................................... (370) 4,162 (3,047)
Other current assets...................................... (566) 849 (920)
Accounts payable and accrued expenses..................... 5,607 188 (2,808)
Accrued payroll and related benefits...................... (83) (443) --
Preferred stock dividends payable......................... 2,012 -- --
Accrued taxes............................................. (343) (1,770) 359
Noncurrent liabilities.................................... (2,105) (2,184) (160)
-------- -------- --------
Net cash provided by operating activities.................... 8,583 9,481 4,753
-------- -------- --------
Investing activities:
Purchase of investments and increase in cash surrender value
of life insurance......................................... (554) (117) (219)
Purchase of short-term investments, net...................... (27,540) -- --
Proceeds from sale of investments and subsidiary............. 273 -- 738
Additions to properties, plants and equipment................ (52,671) (23,176) (18,885)
Proceeds from disposition of properties, plants and
equipment................................................. 1,282 11,493 1,036
Other, net................................................... (2,105) (272) 1,012
-------- -------- --------
Net cash applied to investing activities..................... (81,315) (12,072) (16,318)
-------- -------- --------
Financing activities:
Repayment on gold loan....................................... -- -- (1,387)
Common stock issued under stock option plans................. 1,060 296 1,500
Preferred stock issuance, net of issuance costs.............. 110,346 -- --
Acquisition of treasury stock................................ -- -- (4)
Preferred stock dividends.................................... (4,070) -- --
-------- -------- --------
Net cash provided by financing activities.................... 107,336 296 109
-------- -------- --------
Change in cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents......... 34,604 (2,295) (11,456)
Cash and cash equivalents at beginning of year............... 3,287 5,582 17,038
-------- -------- --------
Cash and cash equivalents at end of year..................... $ 37,891 $ 3,287 $ 5,582
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest (net of amount capitalized)...................... $ 318 $ 159 $ 182
-------- -------- --------
-------- -------- --------
Income tax payments, net.................................. $ 49 $ 222 $ 171
-------- -------- --------
See Notes 2, 5, and 7 for noncash investing and financing activities.
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 74
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
PREFERRED STOCK COMMON STOCK RETAINED LOSS ON
--------------- --------------- CAPITAL EARNINGS TREASURY MARKETABLE EQUITY
SHARES AMOUNT SHARES AMOUNT SURPLUS (DEFICIT) STOCK SECURITIES
------ ------ ------ ------ -------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1990....... $ 30,119 $7,530 $ 83,397 $ 73,646 $ (906) $ (13)
Net loss........................ (15,430)
Net change in unrealized loss on
marketable equity
securities.................... (3)
Stock issued under stock option
plans
Hecla......................... 26 6 141
CoCa.......................... 130 32 1,147
Stock issued under CoCa employee
stock ownership plan.......... 34 9 165
Acquisition of treasury stock..... (4)
------ ------ ------ ------ -------- --------- -------- -----
Balances, December 31, 1991....... 30,309 7,577 84,850 58,216 (910) (16)
Net loss........................ (49,289)
Stock issued under stock option
plans
Hecla......................... 17 4 117
CoCa.......................... 20 5 170
Stock issued for Mexican mineral
concessions................... 185 46 1,748
Stock issued
to retire long-term debt...... 1,120 280 10,921
------ ------ ------ ------ -------- --------- -------- -----
Balances, December 31, 1992....... 31,651 7,912 97,806 8,927 (910) (16)
Net loss........................ (11,735)
Preferred stock dividends ($1.77
per share).................... (4,070)
Stock issued under stock option
plans
Hecla......................... 87 22 590
CoCa.......................... 52 13 435
Net change in unrealized loss on
marketable equity
securities.................... 8
Treasury stock issued net
of purchase................... (12) 22
Stock issued for Mountain West
Products...................... 655 164 6,141
Preferred stock issuance, net of
issuance costs................ 2,300 575 109,771
Stock issued to retire
long-term debt................ 2,200 550 23,870
------ ------ ------ ------ -------- --------- -------- -----
Balances, December 31, 1993....... 2,300 $575 34,645 $8,661 $238,601 $ (6,878) $ (888) $ (8)
------ ------ ------ ------ -------- --------- -------- -----
------ ------ ------ ------ -------- --------- -------- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 75
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- Hecla Mining
Company and its subsidiaries (the Company) are engaged in mining and mineral
processing. Sales of metals products are made principally to domestic and
foreign custom smelters and metal traders. Industrial minerals are sold
principally to domestic manufacturers and wholesalers. Sales to significant
metals customers, as a percentage of total sales of metals products, were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Custom smelters........................................ 27.3% 37.5% 26.9%
Custom metal traders:
Customer A........................................ 17.1% 21.3% 15.2%
Customer B........................................ 16.8% 16.5% 21.8%
Customer C........................................ 15.5% 14.0% 11.8%
Customer D........................................ 13.3% 7.7% 13.7%
</TABLE>
During 1993, 1992 and 1991, the Company sold 19%, 26%, and 17% of its
products to companies in foreign countries, respectively.
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with high
credit worthy institutions. At times such investments may be in excess of the
FDIC insurance limit. The Company routinely assesses the financial strength of
its customers and, as a consequence, believes that its trade accounts receivable
credit risk exposure is limited.
B. BASIS OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company, its majority-owned subsidiaries and its
proportionate share of the accounts of the joint ventures in which it
participates. All significant intercompany transactions and accounts are
eliminated.
C. INVENTORIES -- Inventories are stated at the lower of average cost or
estimated net realizable value.
D. INVESTMENTS -- The Company follows the equity method of accounting for
investments in common stock of operating companies 20% to 50% owned. Investments
in non-operating companies that are not intended for resale or are not readily
marketable are valued at the lower of cost or net realizable value. The carrying
value of marketable equity securities is based on the lower of aggregate cost or
quoted market value. The cost of investments sold is determined by specific
identification.
Short-term investments represent investments in certificates of deposits,
commercial paper and U.S. Treasury Notes recorded at amortized cost, plus
accrued interest, which approximates market value.
E. PROPERTIES, PLANTS AND EQUIPMENT -- Properties, plants and equipment are
stated at the lower of cost or estimated net realizable value. Maintenance,
repairs and renewals are charged to operations. Betterments of a major nature
are capitalized. When assets are retired or sold, the costs and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in operations. Idle facilities,
placed on a standby basis, are carried at the lower of net book value or
estimated net realizable value.
Management of the Company reviews the net carrying value of all facilities,
including idle facilities, on a regular, periodic basis. These reviews consider,
among other factors, (1) the net realizable value of each major type of asset,
on a property-by-property basis, to reach a judgment concerning possible
permanent impairment of value and any need for a write-down in asset value, (2)
the ability of the Company to fund all care, maintenance and standby costs, (3)
the status and usage of the assets, while in a standby mode, to thereby
F-7
<PAGE> 76
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determine whether some form of amortization is appropriate, and (4) current
projections of metal prices that affect the decision to reopen or make a
disposition of the assets.
Depreciation is based on the estimated useful lives of the assets and is
computed using straight-line, declining-balance, and unit-of-production methods.
Depletion is computed using the unit-of-production method.
F. MINE EXPLORATION AND DEVELOPMENT -- Exploration costs are charged to
operations as incurred, as are normal development costs at operating mines.
Major mine development expenditures at operating properties and at new mining
properties not yet producing are capitalized.
G. RECLAMATION OF MINING AREAS -- Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. A reserve for mine reclamation costs has been
established for restoring certain abandoned and currently disturbed mining areas
based upon estimates of cost to comply with existing reclamation standards. Mine
reclamation costs for operating properties are accrued using the
unit-of-production method.
H. INCOME TAXES -- In the fourth quarter of 1992, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"), retroactive to January 1, 1992. SFAS No. 109
requires a company to recognize deferred tax liabilities and assets for the
expected future income tax consequences of events that have been recognized in a
company's financial statements. Under this method, deferred tax liabilities and
assets are determined based on the temporary differences between the financial
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the temporary differences are expected
to reverse. In 1991, the Company utilized the liability method of accounting for
income taxes as required by Statement of Financial Accounting Standards No. 96.
I. NET LOSS PER COMMON SHARE -- Net loss per common share is computed by
adding preferred stock dividends to net loss and dividing the result by the
weighted average number of shares of common stock and common stock equivalents
(stock options) outstanding during each reporting period unless the common stock
equivalents are anti-dilutive. Due to the net losses in 1993, 1992 and 1991,
common stock equivalents are anti-dilutive and therefore have been excluded from
the computation.
J. REVENUE RECOGNITION -- Sales of metal products sold directly to smelters
are recorded when they are received by the smelter, at estimated metal prices.
Recorded values are adjusted periodically and upon final settlement. Metal in
products tolled (rather than sold to smelters) is sold under contracts for
future delivery; such sales are recorded at contractual amounts when products
are available to be processed by the smelter or refinery. Sales of industrial
minerals are recognized as the minerals are delivered.
K. INTEREST EXPENSE -- Interest costs incurred during the construction of
qualifying assets are capitalized as part of the asset cost.
L. CASH EQUIVALENTS -- The Company considers cash equivalents to consist of
highly liquid investments with a remaining maturity of three months or less when
purchased. For investments characterized as cash equivalents, the carrying value
is a reasonable estimate of fair value.
M. FOREIGN CURRENCY TRANSLATION -- All assets and liabilities of the
Company's Canadian and Mexican operations are translated to U.S. dollars using
the exchange rate at the balance sheet date. Income and expense items are
translated using average exchange rates. Gains and losses from foreign currency
transactions are included in operations.
F-8
<PAGE> 77
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: BUSINESS COMBINATIONS
Equinox Resources Limited
On December 29, 1993, the Company, two wholly owned Canadian subsidiaries
of the Company, and Equinox Resources Ltd. ("Equinox"), a mining, exploration
and development company, incorporated under the laws of the Province of British
Columbia and headquartered in Vancouver, Canada, executed an Acquisition
Agreement providing for the Company's acquisition of Equinox. Pursuant to the
Acquisition Agreement and related Plan of Arrangement, upon consummation of the
transactions contemplated thereby, (i) Equinox common shareholders will receive
0.3 common share of the Company ("Company common shares"), for each outstanding
Equinox common share, (ii) holders of Equinox's Series "A" production
participating preferred shares will receive newly issued production notes of the
Company with the same material terms and conditions, and (iii) outstanding
Equinox options and warrants will become exercisable for Company common shares.
In connection with the acquisition of Equinox, the Company expects to issue
approximately 6.3 million Company common shares, including shares issuable upon
exercise of outstanding Equinox options and warrants.
The Board of Directors of the Company and Equinox have each approved the
Acquisition Agreement. However, the transactions contemplated by the Acquisition
Agreement are subject to a number of conditions including, without limitation,
approval by Equinox shareholders, and approval by a Canadian court of the Plan
of Arrangement.
Assuming the transaction is consummated as planned, the acquisition will be
treated as a pooling-of-interests, and accordingly, the consolidated financial
statements will be restated to reflect the accounts of Equinox.
Pro forma unaudited results of operations assuming the merger had occurred
on January 1, 1991, are as follows (in thousands except per-share data):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales.......................................... $ 93,760 $101,621 $117,568
Net loss applicable to common shareholders......... (18,180) (55,276) (15,521)
Net loss per common share.......................... (0.60) (1.59) (0.46)
</TABLE>
The pro forma information above includes adjustments related to conforming
Equinox's accounting policies for income taxes, reclamation, asset
recoverability, and exploration costs to those of the Company.
Mountain West Bark Products, Inc.
In December 1993, the Company acquired all of the issued and outstanding
common stock of Mountain West Bark Products, Inc. ("Mountain West") through the
issuance of 655,000 shares of the Company's common stock. Mountain West is
engaged primarily in the purchasing, processing and marketing of certain waste
products from lumber milling operations in the western intermountain region.
These products are sold as soil amendments, landscape mulches and decorative
ground cover for landscape purposes. The transaction has been accounted for as a
purchase and, accordingly, the acquired assets and liabilities have been
recorded at their estimated fair value at December 1, 1993, the date of the
acquisition. Mountain West's operating results have been included in the
consolidated financial statements since that date and were immaterial to the
Company. Results of operations of Mountain West prior to December 1, 1993, were
not material and, therefore, are not presented. The value of the Company's
common shares issued in this transaction was approximately $6,305,000. Goodwill
of $1,733,000 was recorded in the transaction and is being amortized
straight-line over 15 years.
F-9
<PAGE> 78
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1992
------- -------
<S> <C> <C>
Concentrates and metals in transit and other products............ $ 1,189 $ 1,779
Industrial minerals products..................................... 5,260 4,192
Materials and supplies........................................... 6,573 6,681
------- -------
$13,022 $12,652
------- -------
------- -------
</TABLE>
At December 31, 1993, the Company had forward sales commitments for 4,500
ounces of gold at an average price of $363 per ounce. The commitments are for
delivery in February 1994. There is no silver committed to forward sales at
December 31, 1993. The Company purchased options to put 41,880 ounces of gold to
the counterparties at an average price of $385 per ounce. Concurrently, the
Company sold options to allow the counterparties to call 41,880 ounces of gold
from the Company at an average price of $453 per ounce. There was no net cost
associated with the purchase and sale of these options.
NOTE 4: INVESTMENTS
Investments consist of the following components (in thousands):
<TABLE>
<CAPTION>
CARRYING MARKET
VALUE COST VALUE
------- ------ ------
<S> <C> <C> <C>
December 31, 1993:
Marketable equity securities.................................... $ 23 $ 31 $ 23
Other investments............................................... 6,188 6,188
------- ------
$ 6,211 $6,219
------- ------
------- ------
December 31, 1992:
Marketable equity securities.................................... $ 16 $ 32 $ 16
Other investments............................................... 4,806 4,806
------- ------
$ 4,822 $4,838
------- ------
------- ------
</TABLE>
At December 31, 1993, the portfolio of noncurrent marketable equity
securities includes gross unrealized gains of approximately $9,000 and gross
unrealized losses of approximately $17,000. The other investments are
principally large blocks of common and preferred stock in several mining
companies, investments in various ventures, and cash surrender value of life
insurance policies. The securities are generally restricted as to trading or
marketability, although some are traded on various exchanges.
At December 31, 1993, other investments with a carrying value of $5,430,632
had an estimated fair value of $7,689,811 based on the quoted market price for
such securities and cash values of life insurance policies. For the remaining
other investments, for which there are no reliable quoted market prices, a
reasonable estimate of fair value could not be made without incurring excessive
costs.
During the fourth quarter of 1992, the Company wrote down its common stock
investment in Granduc Mines Limited (Granduc) to current estimated market value.
The $2.1 million write-down of this investment was recorded to reflect the
apparent other-than-temporary decline in market value of the common stock
investment due to continued depressed metal prices. At December 31, 1993, the
Company's carrying value of its Granduc common stock investment was
approximately $1,488,000.
F-10
<PAGE> 79
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On January 24, 1994, the Company sold its entire investment in Granduc by
selling 2,000,000 Granduc common shares to Conwest Exploration Company Limited
and 815,330 Granduc common shares to Jascan Resources Inc., both of which are
Toronto, Ontario, Canada-based companies. The Company recognized a gain on the
sale of approximately $1,327,000 in the first quarter of 1994.
On June 30, 1993, the Company sold substantially all of its interest in
Acadia Mineral Ventures Limited, a previously consolidated subsidiary, to
Kingswood Resources, Inc., a Canadian exploration and development company, for
Canadian $350,000 cash, plus 5,000,000 Kingswood Resources, Inc. common shares.
The Company recognized a loss on the sale of approximately $120,000 in the
second quarter of 1993.
NOTE 5: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
Mining properties.............................................. $ 54,984 $ 39,811
Deferred development costs..................................... 154,005 127,529
Plants and equipment........................................... 178,640 167,873
Land........................................................... 6,163 6,176
-------- --------
393,792 341,389
Less accumulated depreciation, depletion and amortization...... 170,922 161,562
-------- --------
Net carrying value............................................. $222,870 $179,827
-------- --------
-------- --------
</TABLE>
Based on its periodic reviews of the status of various mining properties
and investments, the Company determined in the fourth quarter of 1992 that
certain adjustments were appropriate to properly reflect estimated net
realizable values. These adjustments consisted primarily of the write-downs of
various properties, plants and equipment totaling approximately $28.0 million.
The major portion of the adjustments related to the $13.5 million write-down of
the Company's interest in the Apex processing facility, a hydrometallurgical
processing plant near St. George, Utah. The Company continues to evaluate the
feasibility of custom recoveries of specialty metals and chemical products. Also
in 1992, due to depressed silver prices, the Company recorded write-downs of
approximately $9.0 million related to the Consolidated Silver and Hog Heaven
silver properties, located in North Idaho and northwest Montana, respectively.
The Lisbon Valley Project in Utah, a joint venture which is fully developed for
uranium and vanadium production, was also written down in 1992 by approximately
$3.5 million to its estimated net realizable value. Included in the 1992
write-downs were approximately $1.5 million and $0.4 million related to the
Company's interests in the Creede and Hardscrabble gold and silver properties,
respectively, both located in Colorado.
On May 19, 1992, the Company acquired interests in a number of Mexican
mineral concessions for approximately $2.9 million. The purchase consideration
included the issuance of 184,862 shares of the Company's common stock valued at
$1.8 million.
The net carrying values of the major mining properties of the Company that
were on a standby or idle basis at December 31, 1993 and 1992 were approximately
$55.3 million and $5.3 million, respectively. Operations at the Greens Creek
mine, with a net carrying value of $49.2 million at December 31, 1993, were
suspended in April 1993 pending improvement in lead, zinc and silver prices.
On February 8, 1994, the Company sold a 20 percent interest in its Grouse
Creek gold project to Great Lakes Minerals Inc. of Toronto, Ontario. The
purchase price of $6.8 million represents 20 percent of the amount spent by the
Company on acquisition, exploration and development of the project through June
30, 1993, including a fixed premium of $1.25 million. In addition, Great Lakes
will fund its pro-rata share of the
F-11
<PAGE> 80
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
total construction cost for Grouse Creek from July 1, 1993 to the completion of
the project which is currently estimated at $90 million, and has the option to
increase its ownership to a maximum of 30 percent by contributing additional
funds on a proportional basis.
NOTE 6: INCOME TAXES
Major components of the Company's income tax provision (benefit) are as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -------
<S> <C> <C> <C>
Current:
Federal................................................ $(200) $(390) $(1,375)
State.................................................. 226 165 248
----- ----- -------
Total current.................................. 26 (225) (1,127)
----- ----- -------
Deferred:
Federal................................................ (728) (17) (1,390)
State.................................................. (236) (103) (39)
----- ----- -------
Total deferred................................. (964) (120) (1,429)
----- ----- -------
Income tax benefit....................................... $(938) $(345) $(2,556)
----- ----- -------
----- ----- -------
</TABLE>
Effective January 1, 1992, the Company adopted the provisions of SFAS No.
109. As of January 1, 1992, the Company recorded a tax benefit of approximately
$1.5 million ($0.049 per common share), which represents the net decrease in the
deferred tax liability as of that date. This has been reflected in the
consolidated statement of operations as a component of the cumulative effect of
changes in accounting principles.
In 1992 and 1991, for income tax purposes, the Company carried back current
operating losses to offset income recorded in prior years and recorded income
tax refunds of approximately $390,000 and $2.2 million, respectively.
The sources of significant temporary differences which gave rise to the
deferred tax provision (benefit) and their effects were as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Depreciation, depletion, deferred development and exploration
costs....................................................... $ 5,739 $ 196 $ 311
Utilization of capital losses................................. (941) 2,428 (1,740)
Reclamation costs............................................. 476 (3,457) (87)
Reduction in carrying values of mining properties, plants
and equipment............................................... -- (8,826) --
Gain on sale of mineral property.............................. -- -- (466)
Unrealized losses on marketable equity securities............. (84) (1,491) 580
Increase of investment tax credits available to reduce
deferred taxes.............................................. -- -- (109)
Change in valuation allowance associated with the ability to
use net operating losses.................................... (6,361) 11,168 --
Postretirement benefits....................................... (3) (543) --
Alternative minimum tax credit carryforward................... 156 390 --
Other, net.................................................... 54 15 82
------- ------- -------
$ (964) $ (120) $(1,429)
------- ------- -------
------- ------- -------
</TABLE>
F-12
<PAGE> 81
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax liability as of December 31, 1993
and 1992, were as follows (in thousands):
<TABLE>
<CAPTION>
1993
-------------------------------------
DEFERRED TAX
------------------------
ASSETS LIABILITIES TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Accrued reclamation costs.................................. $ 5,739 $ 5,739
Investment valuation differences........................... 1,754 1,754
Miscellaneous.............................................. 2,039 2,039
Postretirement benefits other than pensions................ 742 742
Other liabilities.......................................... 188 188
Deferred compensation...................................... 406 406
Accounts receivable........................................ 456 456
Properties, plants and equipment........................... $ (19,309) (19,309)
Deferred income............................................ (440) (440)
Pension costs.............................................. (477) (477)
Deferred state income taxes, net........................... (2,271) (2,271)
-------- ----------- --------
Total temporary differences........................... 11,324 (22,497) (11,173)
-------- ----------- --------
Mexican net operating losses............................... 1,280 1,280
Federal net operating losses............................... 55,598 55,598
State net operating losses................................. 4,359 4,359
Tax credit carryforwards................................... 1,626 1,626
-------- ----------- --------
Total net operating losses and tax credits................. 62,863 62,863
-------- ----------- --------
Valuation allowance........................................ (52,049) (52,049)
-------- ----------- --------
Net deferred tax assets and liabilities.................... $ 22,138 $ (22,497) $ (359)
-------- ----------- --------
-------- ----------- --------
</TABLE>
F-13
<PAGE> 82
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1992
-------------------------------------
DEFERRED TAX
------------------------
ASSETS LIABILITIES TOTAL
-------- ----------- --------
<S> <C> <C> <C>
Accrued reclamation costs.................................. $ 5,833 $ 5,833
Investment valuation differences........................... 1,670 1,670
Miscellaneous.............................................. 1,236 1,236
Postretirement benefits other than pensions................ 738 738
Other liabilities.......................................... 698 698
Deferred compensation...................................... 532 532
Accounts receivable........................................ 456 456
Properties, plants and equipment........................... $ (13,570) (13,570)
Deferred income............................................ (516) (516)
Pension costs.............................................. (315) (315)
Deferred state income taxes, net........................... (1,153) (1,153)
-------- ----------- --------
Total temporary differences........................... 11,163 (15,554) (4,391)
-------- ----------- --------
Federal net operating losses............................... 46,645 46,645
State net operating losses................................. 3,248 3,248
Tax credit carryforwards................................... 1,630 1,630
Alternative minimum tax credit carryforwards............... 156 156
-------- ----------- --------
Total net operating losses and tax credits................. 51,679 51,679
-------- ----------- --------
Valuation allowance........................................ (48,611) (48,611)
-------- ----------- --------
Net deferred tax assets and liabilities.................... $ 14,231 $ (15,554) $ (1,323)
-------- ----------- --------
-------- ----------- --------
</TABLE>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to
expiration of net operating losses and tax credit carryforwards. The change in
the valuation allowance is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Balance at beginning of year................................... $(48,611) $(26,148)
Net increase in allowance related to uncertainty of recovery of
net operating loss carryforwards............................. (3,438) (24,891)
Utilization of capital loss carryforwards...................... -- 2,428
-------- --------
Balance at end of year......................................... $(52,049) $(48,611)
-------- --------
-------- --------
</TABLE>
The annual tax benefit is different from the amount which would be provided
by applying the statutory federal income tax rate to the Company's pretax loss.
The reasons for the difference are as follows (in thousands):
<TABLE>
<CAPTION>
1993 % 1992 % 1991 %
------- --- -------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Computed "statutory" benefit...................... $(4,309) (34) $(16,841) (34) $(6,115) (34)
Effect of adjustments associated with the
alternative minimum tax......................... -- -- -- -- 3,594 20
Investment and foreign tax credits................ -- -- -- -- (202) (1)
Nonutilization of net operating losses............ 3,508 28 16,455 33 -- --
State income taxes, net of federal tax benefit.... (137) (1) 41 -- 167 1
------- --- -------- --- ------- ---
Income tax benefit................................ $ (938) (7) $ (345) (1) $(2,556) (14)
------- --- -------- --- ------- ---
------- --- -------- --- ------- ---
</TABLE>
F-14
<PAGE> 83
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's net operating loss carryovers are attributed to
preference related items, and therefore are not available to offset alternative
minimum taxable income. However, they are available to offset future regular
taxable income. At December 31, 1993, the Company had tax basis net operating
loss carryovers available to offset future regular and alternative minimum
taxable income. These carryovers expire as follows (in thousands):
<TABLE>
<CAPTION>
REGULAR TAX NET ALTERNATIVE MINIMUM TAX
OPERATING LOSSES NET OPERATING LOSSES
---------------- -----------------------
<S> <C> <C>
1994.................................... $ 11,009 $
1995.................................... 12,590 5
1996.................................... 268 268
1997.................................... 2,020 695
1998.................................... 11,005 308
1999.................................... 6,235 1,199
2000.................................... 3,089 789
2001.................................... 4,538 1,683
2002.................................... 1,359 346
2003.................................... 1,150 623
2004.................................... 13,131 532
2005.................................... 17,201 878
2006.................................... 25,000 3,105
2007.................................... 27,088 17,414
2008.................................... 27,840 22,731
---------------- ----------
$163,523 $50,576
---------------- ----------
---------------- ----------
</TABLE>
In addition to the above, the Company had Mexican tax net operating loss
carryovers totaling $1,280,000, which expire in 1998.
During 1992, the Company used prior year capital loss carryovers of
approximately $7.4 million to offset 1992 capital gains. At December 31, 1993,
for income tax purposes, the Company had approximately $6.0 million of
alternative minimum tax net operating losses generated by CoCa Mines Inc.
("CoCa") prior to its merger with the Company in 1991. Due to the merger, there
are limitations on the amount of these net operating losses that can be utilized
in any given year to reduce certain future taxable income.
NOTE 7: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt at December 31, 1993 and 1992, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Zero coupon convertible notes.................................... $48,433 $69,376
Notes payable.................................................... 962 917
Other long-term debt............................................. 94 89
------- -------
$49,489 $70,382
------- -------
------- -------
</TABLE>
Zero Coupon Convertible Notes
During 1989, the Company issued subordinated zero coupon convertible notes,
due June 14, 2004, with a face value at maturity of $201,250,000. These Liquid
Yield Option Notes ("LYONs") were issued at 30.832% of their face value at
maturity which results in an 8% yield compounded semiannually to maturity. These
notes are carried net of original issue discount, which is being amortized by
the interest method over the
F-15
<PAGE> 84
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
life of the issue. The outstanding balances at December 31, 1993 and 1992,
include the accrued original issue discount. The noteholder, at his option, may
convert each note with a face value of $1,000 into 20.824 shares of the
Company's common stock. The notes are redeemable in cash at any time at the
option of the Company, in whole or in part, at redemption prices equal to the
issue price plus original issue discount to the date of redemption. The Company
will purchase any note with a face value of $1,000 at the option of the holder
on June 14, 1994 ("Put Feature"), at a purchase price of $456.39 (issue price
plus original issue discount to such date). The Company, at its option, may pay
such purchase price in cash, shares of common stock or extension notes, but not
in any combination thereof. However, because of the Company's need to utilize
cash for planned capital expenditures, absent any action by the Company, it will
pay for any LYONs delivered to it pursuant to the Put Feature by issuing Company
common stock. The Company is unable to predict how many LYONs it may be required
to purchase pursuant to the Put Feature and cannot predict what effect the Put
Feature will have on the market price of Company common stock.
The Company is currently considering several alternatives with respect to
the Put Feature. Among the alternatives being examined by the Company is the
sale of additional shares of the Company's common stock (or other Company
securities) with the proceeds of such an offering being used either to redeem
all of the outstanding LYONs or to pay cash for LYONs delivered to the Company
pursuant to the Put Feature (and any remaining proceeds would be used for the
Company's capital expenditures). The Company is also considering amending
certain terms of the LYONs in order to make it less likely that the Put Feature
will be exercised on June 14, 1994, including changing the conversion ratio to
increase the number of shares of the Company's common stock that would be
issuable for each LYON. If either of these alternatives is pursued, then
additional shares of Company common stock could be issued, although the
Company's intent with respect to these alternatives is to issue less shares of
Company common stock (other than any securities sold to raise additional funds
for capital expenditures) than would be the case if the Company was required to
repurchase all of the outstanding LYONs pursuant to the Put Feature on June 14,
1994. However, if the Company takes no action with respect to the Put Feature
and is required to purchase all of the outstanding LYONs on June 14, 1994, based
upon current market prices ($11.63 on December 31, 1993), the Company would have
to issue approximately 4,300,000 shares of Company common stock. There can be no
assurance that the Company will determine to pursue, or be successful in
pursuing, any alternative (including and in addition to the alternatives
discussed above) to reduce the likelihood that the Put Feature will result in
the issuance of a significant amount of the Company's common stock.
At December 31, 1993, remaining deferred debt issuance costs of
approximately $1.4 million incurred in connection with the issuance of this debt
is being amortized using the interest method over the life of the issue.
On May 19, 1992, the Company exchanged 1,120,125 shares of its common stock
for 30,900 outstanding LYONs. In the noncash transaction, the Company recorded
the issuance of common stock totaling approximately $11.2 million and the
reduction of long-term debt and deferred issuance costs totaling approximately
$12.0 million and $0.3 million, respectively, recognizing a gain totaling
approximately $0.5 million.
On April 29, 1993, the Company exchanged 2.2 million shares of its common
stock for 60,400 outstanding LYONs. The Company recorded the issuance of common
stock totaling approximately $24.4 million and the reduction of long-term debt
and deferred issuance costs totaling approximately $25.2 million and $0.5
million, respectively, recognizing a gain from this transaction of approximately
$0.3 million. The market value of the outstanding LYONs at December 31, 1993, is
$48.4 million based on quoted market prices for the debt.
F-16
<PAGE> 85
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes Payable
The notes are noninterest-bearing, discounted at 15% and payable in three
annual equal amounts from the date of commercial production of the Grouse Creek
property which is currently estimated to be October 1994. The fair value of
these notes payable approximates the carrying value at December 31, 1993.
Revolving Credit Agreement
On January 25, 1993, the Company entered into a secured reducing revolving
credit facility. The agreement provided for reducing revolving credit advances
of up to $24.0 million. On November 11, 1993, the Company amended this agreement
to provide for reducing revolving credit advances of up to $30.0 million. There
were no outstanding borrowings under this agreement at December 31, 1993.
Pursuant to the amended agreement, the availability under the facility reduces
as follows:
<TABLE>
<CAPTION>
SCHEDULED BASE COMMITMENT BASE COMMITMENT
REDUCTION DATE REDUCTION AVAILABLE
----------------------------------------- --------------- ---------------
<S> <C> <C>
December 31, 1995........................ $ 3,750,000 $26,250,000
March 31, 1996........................... 3,750,000 22,500,000
June 30, 1996............................ 3,750,000 18,750,000
September 30, 1996....................... 3,750,000 15,000,000
December 31, 1996........................ 15,000,000 --
</TABLE>
Commitment fees are 1/2 of 1 percent on the average daily unused portion of
the base commitment. The interest rate options are a specified bank's reference
rate plus 1/2 percent, a CD Rate plus 1 5/8 percent or the Offshore Rate plus
1 1/2 percent. No compensating balances are required. Borrowings under the
agreement are collateralized by the Company's accounts receivable, inventories,
and specified marketable securities. The agreement contains restrictive
covenants, among others, concerning the maintenance of a minimum net worth,
current ratio, leverage ratio, and fixed charge coverage ratio.
NOTE 8: CONTINGENCIES
The Company has received notices from the United States Environmental
Protection Agency ("EPA") that it and numerous other parties are potentially
responsible to remediate alleged hazardous substance releases at several sites
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 ("CERCLA" or "Superfund"). In addition, in January of 1985, the Company was
named, along with a number of other parties, as a third-party defendant in a
suit initially brought by the State of Colorado against ASARCO Inc. in December
1983 in Colorado Federal District Court under CERCLA to recover natural resource
damages allegedly caused by releases of hazardous substances into the
environment from the Yak Tunnel, located near Leadville, Colorado ("Leadville
Site"). The third-party complaint seeks contribution from the third-party
defendants for damages which ASARCO may be held liable for in the primary
action. In August 1986, the Company was named a defendant in a lawsuit brought
in Colorado Federal District Court by the United States of America against the
Company and a number of other parties seeking to recover the United States'
response costs under CERCLA incurred or to be incurred at the Leadville Site
covered by the State of Colorado lawsuit filed previously. The state and federal
government CERCLA litigation related to the Leadville Site was consolidated into
a single lawsuit on February 2, 1987. In September 1991, the Company entered
into an Order on Consent with the EPA and the Department of Justice pursuant to
which the Company and the federal government agreed to a three-step process for
settling the Company's liability to the federal government at the Leadville
Site. As a step in the three-step settlement process, on January 6, 1993, the
Colorado Federal District Court entered a Partial Consent Decree between the
United States and the Company which resolves all issues concerning the Company's
alleged liability to the United States for response costs at the site, except
for response costs related to certain mill tailings impoundments located at the
F-17
<PAGE> 86
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Leadville Site. The Company paid the United States $450,000 under the decree.
The other two steps in the settlement process at the site relate to the Company
finalizing a study of any environmental impacts associated with the tailings
impoundments and implementing the appropriate response activity to address these
impacts. In July 1993, the Company completed and delivered to EPA the study
report analyzing the environmental impacts associated with the tailings
impoundments. Based on that study report, EPA has selected a response action for
the tailings impoundments which requires capping and providing of vegetation
cover for the tailings impoundments. The Company has recently finalized the
terms of a consent decree with the federal government providing for the payment
by the Company of $516,000 to cover a portion of EPA's past costs at the site
and a portion of the costs of the selected response action for the tailings
impoundments. The consent decree is in the process of being signed by all
parties and must also be approved by the Colorado Federal District Court. Upon
final approval of the consent decree, the Company will be released from
liability for response costs for the entire Leadville Site. In November 1991,
the Company finalized a settlement with two primary liability insurers
concerning insurance coverage for the Company's environmental liability at the
Leadville Site. The monies received in the insurance settlement in November 1991
are sufficient to cover the Company's CERCLA liability at the site.
In October 1989, and again in February 1990, the Company was notified by
the EPA that the EPA considered the Company a Potentially Responsible Party
(PRP) at the Bunker Hill Superfund Site located at Kellogg, Idaho (Bunker Hill
Site). The EPA has also notified a number of other companies involved in mining
or smelting activities in the site area that the EPA has determined they are
also PRPs at the site. The EPA has asserted that all PRPs, including the
Company, are responsible for the EPA's response costs and for remediating the
Bunker Hill Site as a result of the parties' release of hazardous substances at
or into the site. In August 1991, the EPA issued a Record of Decision regarding
the remedial action plan for the populated areas of the site. During the summers
of 1990, 1991, 1992, and 1993, the Company participated, along with a number of
other PRPs at the site, in a number of Orders on Consent pursuant to which the
participating PRPs agreed to undertake certain limited remedial activities
related to the populated areas of the site. The Company has also participated
with Gulf USA Corporation, one of the PRPs at the site, in an Order on Consent
with the EPA pursuant to which the Company and Gulf USA agreed to undertake
certain remedial activity with regard to the hillsides located within the site.
The EPA's Record of Decision covering the nonpopulated areas of the site was
issued on September 22, 1992. On November 4, 1992, the EPA issued special notice
letters under CERCLA to the Company and a number of other PRPs at the site
demanding reimbursement of the federal government's past response costs and
implementation of the remedial activity covered by the two previous Records of
Decision issued for the site. In November 1992, the major PRPs at the site,
including the Company, agreed to an allocation of most of the future remedial
activity at the site under the Records of Decision. The allocation is between
two PRP groups. One PRP group is principally made up of mining companies who
operated upstream from the site, and the second PRP group is made up of Gulf USA
and other companies who had mining, smelting, or related operations within the
site. The allocation for remedial activity among the two PRP groups is based
upon a number of factors, including each PRP's level of activity affecting the
site and an estimate of the costs to implement the various portions of the site
remediation. On January 11, 1993, the Company and certain other PRPs who had
received the special notice letters submitted to the EPA an offer which the PRPs
deemed should satisfy the government's requirements under CERCLA for a
good-faith offer. Under the terms of the offer, the Company and a subset of the
participating PRPs would assume responsibility for most residential and
commercial soils remediation and other incidental and related activities. A
different PRP sub-group, of which the Company is not a member but which includes
Gulf USA, would be responsible for implementing most of the remaining site's
remedial activities. The responsibility of each PRP group would be several from
the responsibilities of the other group, but would be joint and several among
the PRPs within each group. The Company estimates most of the proposed remedial
activity at the site will be undertaken over a period of five to seven years.
The PRPs' goodfaith offer did not include payment of any of the government's
past response costs. In October 1993, Gulf USA filed voluntary bankruptcy under
Chapter 11 of the United States Bankruptcy Code. Notwithstanding Gulf's
bankruptcy filing, the PRP group
F-18
<PAGE> 87
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
including the Company has recently finalized the terms of a consent decree with
the federal government and the State of Idaho generally along the allocation of
liability set forth in the PRPs' goodfaith offer. The Company and the other PRPs
participating in the consent decree have also agreed to an allocation of costs
to implement the work at the Bunker Hill Site under the terms of the consent
decree. The consent decree at the Bunker Hill Site is in the process of being
executed by all parties and will also be subject to Idaho Federal District Court
approval.
In July 1991, the Coeur d'Alene Indian Tribe (the "Tribe") brought a
lawsuit, under CERCLA, in Idaho Federal District Court against the Company and a
number of other mining companies asserting claims for damages to natural
resources located downstream from the Bunker Hill Site over which the Tribe
alleges some ownership or control. The Company has answered the Tribe's
complaint denying liability for natural resource damages and asserted a number
of defenses to the Tribe's claims, including a defense that the Tribe has no
ownership or control over the natural resources they assert have been damaged.
In July 1992, the Idaho Federal District Court, in a separate action, determined
that the Tribe does not own the beds, banks and waters of Lake Coeur d'Alene and
the lower portion of its tributaries, the ownership of which is the primary
basis for the natural resource damage claims asserted by the Tribe against the
Company. Based upon the Tribe's appeal of the July 1992 district court ownership
decision to the 9th Circuit U.S. Court of Appeals, the court in the natural
resource damage litigation issued an order on October 30, 1992, staying the
court proceedings in the natural resource damage litigation until a final
decision is handed down on the question of the Tribe's title.
In 1991, the Company initiated litigation in the Idaho State District Court
in Kootenai County, Idaho, against a number of insurance carriers which provided
comprehensive general liability insurance coverage to the Company and its
predecessors. The Company believes that the insurance companies have a duty to
defend and indemnify the Company under their policies of insurance relating to
claims asserted against the Company by the EPA and by the Tribe. In two separate
decisions issued in August 1992 and in March 1993, the court ruled that the
named primary insurance companies had a duty to defend the Company in the
Tribe's lawsuit, but that no carrier had a duty to defend the Company in the EPA
proceeding. The Company has not reduced its environmental accrual to reflect any
anticipated insurance proceeds.
The Records of Decision with respect to both the populated and nonpopulated
areas for the Bunker Hill Site indicate that future remediation costs total
approximately $93.0 million. Additionally, the federal government has asserted
that they have incurred approximately $17.0 million in past costs at the site.
Because CERCLA assigns joint and several liability among the PRPs, any one of
the PRPs, including the Company, could be assessed the entire cost of
remediation. However, based upon the terms of the consent decrees and related
agreements for the Bunker Hill and Leadville Sites, as described above, the
Company has accrued an amount for the Company's share of such remediation and
other costs that management presently believes is the most likely amount that
the Company will be required to fund. Based upon this analysis, in the fourth
quarter of 1993, the Company increased its allowance for CERCLA Superfund Site
remedial action costs at the Bunker Hill and Leadville Sites by approximately
$0.2 million and $0.3 million, respectively. The total allowance for liability
for remedial activity costs at the Bunker Hill and Leadville Sites is $10.2
million and $0.5 million, respectively, as of December 31, 1993. Other than
consulting work necessary for the implementation of the Company's allocated
portion of the remedial activity at these sites, the Company's accruals do not
include any future legal or consulting costs. The Company does not believe that
these costs will be material. In addition, the Company has not included any
amounts for unasserted claims at these or any other sites because the Company's
potential liability has not been asserted or established and amounts, if any, of
potential liability are impossible to determine. During 1993, 1992 and 1991, the
Company expensed approximately $0.8 million, $8.6 million and $2.8 million,
respectively, in connection with the Superfund Sites.
F-19
<PAGE> 88
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1993, Industrial Constructors Corp. ("ICC") served the Company
with a complaint in Federal District Court for the District of Idaho alleging
that the Company failed to comply with the terms of the contract between the
Company and ICC relating to the earth moving work contracted to ICC at the
Company's Grouse Creek gold project. ICC has alleged that the Company owes ICC
in excess of $5.0 million not previously paid, including an approximate $1.0
million retention currently held by the Company under the terms of the contract.
The Company terminated ICC's work at the Grouse Creek gold project effective
November 26, 1993, pursuant to its rights in the contract and is proceeding to
rebid the second season of work originally contracted to ICC. The Company has
answered the complaint denying the allegations of ICC and has filed a
counterclaim against ICC in excess of $2.0 million for damages incurred by the
Company as a result of ICC's failure to comply with the terms of the contract.
The litigation is in the early stages of discovery; however, the Company hopes
to be able to mediate the dispute with ICC prior to proceeding to trial.
A jury trial is scheduled to commence in March 1994 in Idaho State District
Court with respect to a lawsuit previously filed against the Company by Star
Phoenix Mining Company ("Star Phoenix"), a former lessee of the Star Morning
Mine, over a dispute between the Company and Star Phoenix with respect to the
Company's November 1990 termination of Star Phoenix's lease of the Star Morning
Mine property. Star Phoenix, which is in bankruptcy, alleges the Company
wrongfully terminated the lease agreement and interfered with Star Phoenix's
contractual relationship with a major vendor and the purchaser of concentrates
from the Star Phoenix operations. In addition, certain principals of Star
Phoenix who guaranteed a portion of the Star Phoenix obligations have made
similar claims against the Company. In each case the plaintiffs have asserted
that they have incurred damages amounting to millions of dollars as a result of
the Company's actions. It is the Company's position that the plaintiff's claims
are without merit and that the Company terminated the lease agreement in
accordance with the terms of the agreement. The Company believes it has
sufficient defenses to all the plaintiffs' claims, and that the Company will
ultimately prevail in this litigation.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded and determined, and any
remaining unaccrued potential liability at the Superfund sites addressed above
will not, in the opinion of management, have a material effect on results of
operations or the financial condition of the Company and its consolidated
subsidiaries.
NOTE 9: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries have pension plans covering
substantially all employees. One plan covering eligible salaried and hourly
employees provides retirement benefits and is based on the employee's
compensation during the highest 36 months of the last 120 months before
retirement. Three other pension plans covering eligible hourly employees provide
benefits of stated amounts for each year of service. It is the Company's policy
to make contributions to these plans sufficient to meet the minimum funding
requirements of applicable laws and regulations, plus such additional amounts,
if any, as the Company and its actuarial consultants consider appropriate.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for those expected to be earned in the future. Plan
assets for these plans consist principally of equity securities, insurance
contracts and corporate and U.S. government obligations.
F-20
<PAGE> 89
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost (income) for the plans consisted of the following
in 1993, 1992 and 1991 (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 961 $ 872 $ 665
Interest cost......................................... 1,899 1,732 1,735
Return on plan assets................................. (2,924) (2,849) (2,265)
Amortization of transition asset...................... (434) (434) (443)
Amortization of unrecognized prior service cost....... 45 45 45
Amortization of unrecognized net (gain) loss from
earlier periods..................................... 6 (305) --
------- ------- -------
Net pension income.................................. $ (447) $ (939) $ (263)
------- ------- -------
------- ------- -------
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets at December 31, 1993 and
1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................................. $ 27,771 $ 26,171
Nonvested benefits........................................... 764 395
-------- --------
Accumulated benefit obligations................................ 28,535 26,566
Effect of projected future salary and wage increases........... 2,205 1,701
-------- --------
Projected benefit obligations.................................. $ 30,740 $ 28,267
-------- --------
-------- --------
Plan assets.................................................... $ 35,135 $ 35,299
Projected benefit obligations.................................. (30,740) (28,267)
-------- --------
Plan assets in excess of projected benefit obligations......... 4,395 7,032
Unrecognized net gain.......................................... (253) (2,643)
Unrecognized prior service cost................................ 778 519
Unrecognized net asset at January 1............................ (3,515) (3,950)
-------- --------
Pension asset recognized in consolidated balance sheets........ $ 1,405 $ 958
-------- --------
-------- --------
</TABLE>
The projected benefit obligation was calculated applying the following
average rates:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate.......................................................... 6.50% 7.00%
Long-term compensation increase........................................ 5.00% 6.00%
Long-term rate of return on plan assets................................ 8.50% 8.50%
</TABLE>
In 1988, 1991 and again in 1992, the Company offered a special early
retirement option to participants in the Hecla retirement plan with no actuarial
reduction in their accrued benefit for early retirement. The costs associated
with the 1988 special early retirement program were accrued in 1988 and are
being funded out of general corporate funds until the participant reaches normal
retirement age or age 60 with 30 years of service, at which time payments will
be made by the related pension trust. The 1991 and 1992 special early retirement
programs are being funded out of the related pension trust.
The Company provides certain postretirement benefits, principally health
care and life insurance benefits for qualifying retired employees. The costs of
these benefits are being funded out of general corporate funds. Prior to 1992,
the cost of some of these benefits was expensed when payments were made. Other
health care and life insurance benefits had been previously accrued. Effective
January 1, 1992, the Company adopted
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<PAGE> 90
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS No. 106), which requires that
these postretirement benefits be accrued over the period in which active
employees provide services to the Company. At January 1, 1992, the cumulative
effect of recording these postretirement benefits was to increase the 1992 net
loss by $1.6 million or $0.051 per share.
Net periodic postretirement benefit cost for 1993 and 1992 included the
following components (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Service cost.......................................................... $ 28 $ 22
Interest cost......................................................... 164 179
---- ----
Net postretirement benefit cost....................................... $192 $201
---- ----
---- ----
</TABLE>
Postretirement benefit costs under the previous method were $40,000 in
1991.
The following table sets forth the status of the postretirement benefits
programs (other than pensions) and amounts recognized in the Company's
consolidated balance sheet at December 31, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $(1,569) $(2,011)
Fully eligible, active plan participants....................... (355) (113)
Other active plan participants................................. (242) (220)
------- -------
(2,166) (2,344)
Unrecognized net (gain) loss................................... (191) 50
------- -------
Accumulated postretirement benefit obligation recognized in
consolidated balance sheet..................................... $(2,357) $(2,294)
------- -------
------- -------
</TABLE>
The actuarial assumptions used in determining the Company's accumulated
postretirement benefit obligation are provided in the table below. Due to the
short period which the Company provides medical benefits to its retirees, the
increases in medical costs are assumed to be 6% in each year. A 1% change in the
assumed health care cost trend rate would not have a significant impact on the
accumulated postretirement benefit obligation or the aggregate of service and
interest cost for 1993 or 1992.
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate.......................................................... 6.50% 7.00%
Trend rate for medical benefits........................................ 6.00% 6.00%
</TABLE>
The Company has a Deferred Compensation Plan which permits eligible
officers and directors to defer a portion of their compensation. The deferred
compensation, which together with Company matching amounts and accumulated
interest is accrued but unfunded, is distributable in cash after retirement or
termination of employment, and at December 31, 1993 and 1992, amounted to
approximately $1.2 million. The Company has insured the lives of certain
officers, who participate in the deferred compensation program, to assist in the
funding of the deferred compensation liability. The Company is the owner and
beneficiary of the insurance policies. At December 31, 1993, the cash surrender
value of these policies was $2.4 million, which is net of $2.2 million of policy
loans.
The Company has an employees' Capital Accumulation Plan ("Plan") which is
available to all salaried and certain hourly employees after completion of one
year of service. Employees may contribute from 2% to 10% of their compensation
to the Plan. Effective January 1, 1993, nonhighly compensated employees may
F-22
<PAGE> 91
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contribute up to 15%. The Company makes a matching contribution of 25% of an
employee's contribution up to, but not exceeding, 5% of the employee's earnings.
The Company's contributions for both 1993 and 1992 were approximately $158,000
and $149,000 for 1991.
NOTE 10: SHAREHOLDERS' EQUITY
Preferred Stock
In June 1993, the Company completed a public offering of 2.3 million shares
of Series B Cumulative Convertible Preferred Stock, par value $0.25 per share
(the "Preferred Shares"). The shares were sold for $50 each and the Company
received net proceeds of $110,346,000 from the offering. Holders of the
Preferred Shares are entitled to receive cumulative cash dividends at the annual
rate of $3.50 per share payable quarterly, when and if declared by the Board of
Directors.
The Preferred Shares are convertible in whole or in part at the option of
the holders thereof, into shares of common stock at an initial conversion price
of $15.55 per share of common stock. The Preferred Shares are not redeemable by
the Company prior to July 1, 1996. After such date, the shares will be
redeemable at the option of the Company at any time, in whole or in part,
initially at $52.45 per share and thereafter at prices declining ratably on each
July 1 to $50 per share on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if the Company
fails to pay the equivalent of six quarterly dividends. If these dividends are
not paid, the holders of Preferred Shares, voting as a class, shall be entitled
to elect two additional directors. The holders of Preferred Shares also have
voting rights related to certain amendments to the Company's Articles of
Incorporation.
The Preferred Shares rank senior to the common stock and any outstanding
shares of Series A Preferred Shares. The Preferred Shares have a liquidation
preference of $50 per share plus all accrued and unpaid dividends.
Shareholder Rights Plan
In 1986, the Company adopted a Shareholder Rights Plan. Pursuant to this
plan, holders of common stock received one preferred share purchase right for
each common share held. The plan was amended effective November 9, 1990. The
rights will be triggered once an Acquiring Person, as defined, acquires 15% or
more of the Company's outstanding common shares. The 15% triggering threshold
may be reduced by the Board of Directors to not less than 10%. When exercisable,
the right would, subject to certain adjustments and alternatives, entitle
rightholders, other than the Acquiring Person or group, to purchase common stock
of the Company or the acquiring company having a market value of twice the
$47.50 exercise price of the right. The rights are nonvoting, may be redeemed at
any time at a price of 5c per right prior to the tenth day after an Acquiring
Person acquires 15% of the Company's common stock, and expire in 1996.
Additional details are set forth in the Rights Agreement filed with the
Securities and Exchange Commission on May 19, 1986, and in the amendments dated
November 29, 1990 and September 30, 1991.
Stock Option Plans
In connection with the Company's 1991 acquisition of CoCa, the Company
assumed three preexisting CoCa employee stock option plans ("CoCa Plans"), and
converted all options then outstanding under the CoCa Plans into options to
acquire shares of the Company's common stock. No further options will be granted
under these CoCa Plans.
The Company adopted a nonstatutory stock option plan in 1987. The plan
provides that options may be granted to certain officers and key employees to
purchase common stock at a price of not less than 50% of the fair market value
at the date of grant. The plan also provides that options may be granted with a
corresponding
F-23
<PAGE> 92
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
number of stock appreciation rights and/or tax offset bonuses to assist the
optionee in paying the income tax liability that may exist upon exercise of the
options. All of the outstanding stock options under the 1987 plan were granted
at an exercise price equal to the fair market value at the date of grant and
with an associated tax offset bonus. Outstanding options under the 1987 plan are
immediately exercisable for periods up to ten years. At December 31, 1993 and
1992, there were 129,148 and 101,748 shares, respectively, available for grant
in the future under the plan. The plan expires in 1997.
The Company had an incentive stock option plan under which options were
granted to purchase common stock at a price not less than the fair market value
at date of grant. This plan expired in 1992.
The aggregate amounts charged (credited) to operations in connection with
the plans were $309,000, $(165,000) and $170,000 in 1993, 1992 and 1991,
respectively.
Transactions concerning stock options are summarized as follows:
<TABLE>
<CAPTION>
INCENTIVE
STOCK OPTION PLAN NONSTATUTORY STOCK
TOTAL OPTION PLAN
---------------------- ----------------------- TOTAL
SHARES PRICE SHARES PRICE SHARES
-------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Outstanding, December 31, 1990......... 151,606 $8.54-10.87 424,281 $ 7.12-18.26 575,887
Year ended December 31, 1991:
Exercised............................ (104,980) 8.54-10.87 (38,653) 7.12-8.54 (143,633)
-------- -------- --------
Outstanding, December 31, 1991......... 46,626 8.54-10.87 385,628 7.12-18.26 432,254
Year ended December 31, 1992:
Granted.............................. -- -- 66,000 10.50 66,000
Exercised............................ -- -- (37,525) 7.12-8.54 (37,525)
Expired.............................. (46,626) 8.54-10.87 (7,500) 10.37 (54,126)
-------- -------- --------
Outstanding, December 31, 1992......... -- -- 406,603 7.12-18.26 406,603
Year ended December 31, 1993:
Granted.............................. -- -- --
Exercised............................ -- (86,443) 7.12-12.25 (86,443)
Expired.............................. -- (18,500) 10.38-12.25 (18,500)
-------- -------- --------
Outstanding, December 31, 1993......... -- 301,660 $ 7.12-18.26 301,660
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1993, the Company has outstanding 459,433 warrants to
acquire the Company's common stock at an exercise price of $17.81 and 12,859
warrants to acquire the Company's common stock at an exercise price of $12.42.
The warrants outstanding are exercisable until May 5, 1994. However, such
warrants will expire if, at any time after May 15, 1990, upon 60 calendar days'
prior notice, the Company's common stock has had an average per share closing
public market price of not less than $22.24 for at least 60 consecutive trading
days prior to such expiration notice.
F-24
<PAGE> 93
HECLA MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11: BUSINESS SEGMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales to unaffiliated customers:
Metal................................................. $ 34,851 $ 57,420 $ 77,044
Industrial minerals................................... 44,953 43,231 40,524
Specialty metals...................................... 2,043 -- --
-------- -------- --------
$ 81,847 $100,651 $117,568
-------- -------- --------
-------- -------- --------
Gross profit (loss):
Metals................................................ $ (4,088) $ (1,142) $ 5,339
Industrial minerals................................... 5,038 5,012 6,215
Specialty metals...................................... (504) -- --
-------- -------- --------
$ 446 $ 3,870 $ 11,554
-------- -------- --------
-------- -------- --------
Capital expenditures:
Metals (including $12,826 in Mexico in 1993).......... $ 44,821 $ 19,815 $ 14,527
Industrial minerals (including $5,800 in Mexico in
1993)............................................... 11,938 3,203 3,401
Specialty metals...................................... -- -- --
General corporate assets.............................. 548 158 957
-------- -------- --------
$ 57,307 $ 23,176 $ 18,885
-------- -------- --------
-------- -------- --------
Depreciation, depletion and amortization:
Metals................................................ $ 6,818 $ 9,305 $ 16,847
Industrial minerals................................... 3,718 4,188 4,314
Specialty metals...................................... 33 -- --
General corporate assets.............................. 392 819 692
-------- -------- --------
$ 10,961 $ 14,312 $ 21,853
-------- -------- --------
-------- -------- --------
Identifiable assets:
Metals (including $21,028 in Mexico in 1993).......... $126,912 $127,833 $167,794
Industrial minerals (including $7,054 in Mexico in
1993)............................................... 68,068 46,488 47,452
Specialty metals...................................... 4,197 -- --
General corporate assets.............................. 78,431 42,850 32,996
Idle facilities....................................... 55,270 5,272 9,879
-------- -------- --------
$332,878 $222,443 $258,121
-------- -------- --------
-------- -------- --------
</TABLE>
Net sales, costs and identifiable assets of each segment are those that are
directly identified with those operations. General corporate assets consist
primarily of cash, receivables, investments and corporate property, plant and
equipment. As a result of depressed metals prices, operations were suspended at
the Greens Creek mine in April 1993 and the property was placed on a
care-and-maintenance basis pending resumptions of operations. At December 31,
1993, the Company's recorded net book value of identifiable assets of the Greens
Creek mine was approximately $50.3 million. This amount has been classified in
the Idle Facilities category at December 31, 1993.
F-25
<PAGE> 94
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Information Incorporated by
Reference........................... 2
Prospectus Summary.................... 4
Investment Considerations............. 13
Metals Prices......................... 17
The Company........................... 18
Recent Developments................... 18
Use of Proceeds....................... 19
Price Range of Common Stock and
Dividend Policy..................... 20
Capitalization........................ 21
Selected Consolidated Financial
Data................................ 22
Condensed Pro Forma Combined Financial
Information......................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 38
Description of LYONs.................. 54
Description of Capital Stock.......... 57
Description of Credit Facility........ 60
Certain United States Tax Consequences
for Non-U.S. Shareholders........... 61
Underwriting.......................... 64
Legal Matters......................... 65
Experts............................... 65
Glossary of Certain Mining Terms...... 66
Index to Financial Statements......... F-1
</TABLE>
------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,500,000 SHARES
[HECLA]
HECLA MINING COMPANY
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1994
------------------------------------------------------
------------------------------------------------------
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The registrant estimates that expenses in connection with the offering
described in this Registration Statement (other than underwriting discount) will
be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 30,931
National Association of Securities Dealers Fee............................ $ 9,125
Listing Fees.............................................................. $ 22,125
Legal Fees and Expenses................................................... $125,000
Printing and Engraving.................................................... $160,000
Accountant's Fees and Expenses............................................ $ 60,000
Blue Sky Fees and Expenses................................................ $ 22,500
Registrar and Transfer Agent Fees......................................... $ 10,000
Miscellaneous............................................................. $ 60,319
--------
Total........................................................... $500,000
--------
--------
</TABLE>
The registrant will pay all of these expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the registrant's Certificate of Incorporation provides:
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION I. Limitation of Liability. A director of the Corporation shall
not be personally liable to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the shareholders of this article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. This paragraph shall not eliminate or
limit the liability of a director for any act or omission which occurred prior
to the effective date of its adoption. Any repeal or modification of this
paragraph by the shareholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
SECTION II. Indemnification and Insurance. A. Right to Indemnification of
Directors, Officers and Employees. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director, officer or employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys'
II-1
<PAGE> 96
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer or employee and shall inure to the benefit of
the indemnitee's heirs, executors and administrators; provided, however, that,
except as provided in paragraph (b) hereof with respect to proceedings to
enforce rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the board
of directors of the Corporation. The right to indemnification conferred in this
Section shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition (hereinafter an "advancement of expenses"); provided,
however, that, if the Delaware General Corporation Law requires, an advancement
of expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section or otherwise.
B. Right of Indemnitee to Bring Suit. If a claim under paragraph (a) of
this Section is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty days, the indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the indemnitee
shall be entitled to be paid also the expense of prosecuting or defending such
suit. In (i) any suit brought by the indemnitee to enforce a right to
indemnification hereunder (but not in a suit brought by the indemnitee to
enforce a right to an advancement of expenses) it shall be a defense that, and
(ii) in any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
the applicable standard of conduct set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its board of directors,
independent legal counsel, or its shareholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.
C. Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Section shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
this Certificate of Incorporation, By-Law, agreement, vote of shareholders or
disinterested directors or otherwise. The Corporation is authorized to enter
into contracts of indemnification.
D. Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
E. Indemnification of Agents of the Corporation. The Corporation may, to
the extent authorized from time to time by the board of directors, grant rights
to indemnification, and to the advancement of expenses, to
II-2
<PAGE> 97
any agent of the Corporation to the fullest extent of the provisions of this
Section with respect to the indemnification and advancement of expenses of
directors, officers and employees of the Corporation.
Article VII of the registrant's Bylaws provides identically.
The registrant also maintains a directors' and officers' liability
insurance policy for directors and officers of the Company and its subsidiaries.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
Number and Description of Exhibits
1. Form of Purchase Agreement
3.1(a) Certificate of Incorporation of the Registrant as amended to date.*
3.1(b) Certificate of Amendment of Certificate of Incorporation of the Registrant, dated
as of May 16, 1991.*
3.1(c) Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock.*
3.1(d) Certificate of Designations, Rights and Preferences for Series B Cumulative
Convertible Preferred Stock.*
3.2 By-Laws of the Registrant as amended to date.*
4.1(a) Rights Agreement dated as of May 9, 1986 between Hecla Mining Company and
Manufacturers Hanover Trust Company, which includes the form of Certificate of
Designation setting forth the terms of the Series A Junior Participating Preferred
Stock of Hecla Mining Company as Exhibit A, the form of Right Certificate as
Exhibit B and the summary of Rights to Purchase Preferred Shares as Exhibit C.*
4.1(b) Amendment, dated as of November 9, 1990 to the Rights Agreement dated as of May 9,
1986 between Hecla Mining Company and Manufacturers Hanover Trust Company.*
4.1(c) Second Amendment to Rights Agreement dated September 30, 1991, between Hecla Mining
Company and Manufacturers Hanover Trust Company.*
4.1(d) Hecla Mining Company Notice Letter to Shareholders, being holders of Rights
Certificates, appointing American Stock Transfer & Trust Company as Rights Agent,
successor to Manufacturers Hanover Trust Company, effective September 30, 1991,
pursuant to Section 21 of the Rights Agreement.*
4.2 Form of Certificate for Liquid Yield Option Note.*
4.3 Form of Indenture dated as of June 1, 1989, between Hecla Mining Company and
Manufacturers Hanover Trust Company, as Trustee, related to Liquid Yield Option(TM)
Notes due 2004 (Zero Coupon -- Subordinated).*
4.4 Form of Extension Indenture between Hecla Mining Company and Manufacturers Hanover
Trust Company, as Trustee, related to Subordinated Extension Notes due 2004.*
5. Legal opinion of Wachtell, Lipton, Rosen & Katz.
10.1(a) Credit Agreement dated as of January 25, 1993, among the Registrant and certain of
Registrant's subsidiaries, and Mase Westpac Limited, New York Branch, Nations Bank
of Texas, Bank of America National Trust and Savings Association, West One Bank,
Idaho, N.A., and Seattle-First National Bank.*
10.1(b) First Amendment to Credit Agreement dated as of April 12, 1993, among the
Registrant and certain of Registrant's subsidiaries, and Mase Westpac Limited, as
Agent for the Banks participating therein.*
10.1(c) Second Amendment to Credit Agreement dated as of August 11, 1993, among the
Registrant and certain of Registrant's subsidiaries, and Mase Westpac Limited, as
Agent for the Banks participating therein.*
10.1(d) Third Amendment to Credit Agreement dated as of November 9, 1993, among the
Registrant and certain of Registrant's subsidiaries, and Mase Westpac Limited, as
Agent for the Banks participating therein.*
</TABLE>
II-3
<PAGE> 98
<TABLE>
<S> <C>
23.1 Consent of Coopers & Lybrand to incorporation by reference of their report dated
February 3, 1994 on the Consolidated Financial Statements of the Registrant.
23.2 Consent of Wachtell, Lipton, Rosen & Katz (included in Exhibit 5).
23.3 Consent of Deloitte & Touche to incorporation of their report dated February 28,
1994 on the Consolidated Financial Statements of Equinox Resources Ltd.
24. Powers of Attorney.
</TABLE>
- ---------------
* These exhibits were filed as indicated on the following table and are
incorporated herein by this reference thereto:
<TABLE>
<CAPTION>
CORRESPONDING EXHIBIT IN ANNUAL REPORT ON FORM 10-K, QUARTERLY REPORT ON
FORM 10-Q,
EXHIBIT IN CURRENT REPORT ON FORM 8-K, PROXY STATEMENT OR REGISTRATION STATEMENT, AS
THIS REPORT INDICATED
- ------------ ---------------------------------------------------------------------------
<S> <C>
3.1(a) 3.1 (10-K for 1987 -- File No. 1-8491)
3.1(b) 3.1(b) (10-K for 1991 -- File No. 1-8491)
3.1(c) 4.1(d)(e) (Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 -- File No. 1-8491)
3.1(d) 4.5 (Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 -- File No. 1-8491)
3.2 2 (Current Report on Form 8-K Dated November 9, 1990 -- File No. 1-8491)
4.1(a) 1 (Current Report on Form 8-K Dated May 23, 1986 -- File No. 1-8491)
4.1(b) 1 (Current Report on Form 8-K dated November 9, 1990 -- File No. 1-8491)
4.1(c) 4.1(c) (10-K for 1991 -- File No. 1-8491)
4.1(d) 4.1(d) (10-K for 1991 -- File No. 1-8491)
4.2 4.1 (Registration Statement No. 33-28648)
4.3 4.2 (Registration Statement No. 33-28648)
4.4 4.4 (Registration Statement No. 33-28648)
10.1(a) 10.1 (10-K for 1992 -- File No. 1-8491)
10.1(b) 10.1(b) (Quarterly Report on Form 10-Q for the quarter ended June 30,
1993 -- File No. 1-8491)
10.1(c) 10.1(c) (10-K for 1993 -- File No. 1-8491)
10.1(d) 10.1(d) (10-K for 1993 -- File No. 1-8491)
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes as follows:
(i) that for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective;
(ii) that for the purpose of determining any liability under the
Securities Act, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof;
(iii) that, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered
II-4
<PAGE> 99
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of
requirements for filing on Form S-3, and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Coeur d'Alene, State of Idaho, on the 15th day of
March, 1994.
HECLA MINING COMPANY
By /s/ ARTHUR BROWN
------------------------------------
Arthur Brown
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME CAPACITY DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
/s/ ARTHUR BROWN Chairman, President and Chief March 15, 1994
- --------------------------------------------- Executive Officer (principal
Arthur Brown executive officer)
/s/ JOHN P. STILWELL Treasurer (principal financial March 15, 1994
- --------------------------------------------- officer)
John P. Stilwell
/s/ JOSEPH T. HEATHERLY Vice President -- Controller March 15, 1994
- --------------------------------------------- (chief accounting officer)
Joseph T. Heatherly
* Director March 15, 1994
- ---------------------------------------------
John E. Clute
Director March , 1994
- ---------------------------------------------
Joseph Coors, Jr.
* Director March 15, 1994
- ---------------------------------------------
Leland O. Erdahl
* Director March 15, 1994
- ---------------------------------------------
William A. Griffith
Director March , 1994
- ---------------------------------------------
Charles L. McAlpine
* Director March 15, 1994
- ---------------------------------------------
Paul A. Redmond
* Director March 15, 1994
- ---------------------------------------------
Richard J. Stoehr
/s/ MICHAEL B. WHITE Attorney-in-fact for the
- --------------------------------------------- persons marked above with an *
Michael B. White
</TABLE>
II-6
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- ----------
<S> <C>
1. Form of Purchase Agreement.................................................
5. Legal Opinion of Wachtell, Lipton, Rosen & Katz............................
23.1 Consent of Coopers & Lybrand...............................................
23.3 Consent of Deloitte & Touche...............................................
24. Powers of Attorney.........................................................
</TABLE>
<PAGE> 1
HECLA MINING COMPANY
(a Delaware corporation)
6,500,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated:_________, 1994
<PAGE> 2
S&S/DRAFT
3/13/94
HECLA MINING COMPANY
(a Delaware corporation)
6,500,000 Shares of Common Stock
PURCHASE AGREEMENT
_________ __, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
SALOMON BROTHERS INC
As Representatives of the several Underwriters
c/o Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Hecla Mining Company, a Delaware corporation (the "Company"), proposes
to issue and sell to the underwriters named in Schedule A (the "Underwriters"),
for whom you are acting as representatives (the "Representatives"), 6,500,000
authorized but unissued shares of the Company's Common Stock, par value $0.25
per share (shares of which class of stock of the Company are hereinafter
referred to as "Common Stock"). Such shares of Common Stock, aggregating
6,500,000 shares, are to be sold to each Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule A opposite the name of
such Underwriter. The Company also grants to the Underwriters, severally and
not jointly, the option described in Section 2 to purchase all or any part of
975,000 additional shares of Common Stock to cover over-allotments. The
aforesaid 6,500,000 shares of Common Stock (the "Initial Shares"), together
with all or any part of the 975,000 additional shares of Common Stock subject
to the option described in Section 2 (the "Option Shares"), are collectively
herein called the "Shares." The Shares are more fully described in the
Prospectus referred to below.
-2-
<PAGE> 3
You have advised us that you and the other Underwriters, acting
severally and not jointly, desire to purchase the Shares and that you have been
authorized by the other Underwriters to execute this Agreement and the Price
Determination Agreement referred to below on their behalf.
The initial public offering price per share for the Shares and the
purchase price per share for the Shares shall be agreed upon by the Company and
the Representatives, acting on behalf of the several Underwriters, and such
agreement shall be set forth in a separate written instrument substantially in
the form of Exhibit A hereto (the "Price Determination Agreement"). The Price
Determination Agreement may take the form of an exchange of any standard form
of written telecommunication between the Company and the Representatives and
shall specify such applicable information as is indicated in Exhibit A hereto.
The offering of the Shares will be governed by this Agreement, as supplemented
by the Price Determination Agreement. From and after the date of the execution
and delivery of the Price Determination Agreement, this Agreement shall be
deemed to incorporate, and all references herein to "this Agreement" shall be
deemed to include, the Price Determination Agreement.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3
(Registration No. 33-[ ]) covering the registration of the Shares under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus, or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such registration statement,
an amendment to such registration statement, including a final prospectus or
(B) if the Company has elected to rely upon Rule 430A ("Rule 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file a prospectus, in accordance with the
provisions of Rule 430A and Rule 424(b) ("Rule 424(b)") of the 1933 Act
Regulations, promptly after execution and delivery of the Price Determination
Agreement. The information, if any, included in such prospectus that was
omitted from the prospectus included in such registration statement at the time
it becomes effective but that is deemed, pursuant to paragraph (b) of Rule
430A, to be part of such registration statement at the time it becomes
effective is referred to herein as the "Rule 430A Information." Each
prospectus used before the time such registration statement becomes effective,
and any prospectus that omits the Rule 430A Information that is used after such
effectiveness and prior to the execution and delivery of the Price
Determination Agreement, is herein called a
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<PAGE> 4
"preliminary prospectus." Such registration statement, including the exhibits
thereto and the documents incorporated by reference therein pursuant to Item 12
of Form S-3 under the 1933 Act, as amended at the time it becomes effective and
including, if applicable, the Rule 430A Information, is herein called the
"Registration Statement," and the prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the
1933 Act, included in the Registration Statement at the time it becomes
effective is herein called the "Prospectus," except that, if the final
prospectus first furnished to the Underwriters after the execution of the Price
Determination Agreement for use in connection with the offering of the Shares
differs from the prospectus included in the Registration Statement at the time
it becomes effective (whether or not such prospectus is required to be filed
pursuant to Rule 424(b)), the term "Prospectus" shall refer to the final
prospectus first furnished to the Underwriters for such use.
The Company understands that the Underwriters propose to make a public
offering of the Shares as soon as you deem advisable after the Registration
Statement becomes effective and the Price Determination Agreement has been
executed and delivered.
Section 1. Representations and Warranties. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Company meets the requirements for use of Form S-3 under the
1933 Act and when the Registration Statement on such form shall become
effective and at all times subsequent thereto up to the Closing Time
referred to below (and, if any Option Shares are purchased, up to the Date
of Delivery referred to below), (i) the Registration Statement and any
amendments and supplements thereto will comply in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations; (ii)
neither the Registration Statement nor any amendment or supplement thereto
will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and (iii) the Prospectus will not
include an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, misleading, except that this
representation and warranty does not apply to statements or omissions made
in reliance upon and in conformity with information furnished in writing to
the Company by or on behalf
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<PAGE> 5
of any Underwriter expressly for use in the Registration Statement or the
Prospectus.
(b) The documents incorporated by reference in the Registration
Statement and the Prospectus pursuant to Item 12 of Form S-3 under the 1933
Act, except to the extent that a statement contained in the Prospectus or
in any other subsequently filed document which is incorporated or deemed to
be incorporated by reference modifies or supersedes statements contained
therein, at the time they were filed with the Commission, complied in all
material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read together
and with the other information in the Prospectus, at the time the
Registration Statement becomes effective and at all times subsequent
thereto up to the Closing Time (and, if any Option Shares are purchased, up
to the Date of Delivery), will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not
misleading.
(c) The accountants who are reporting upon the audited consolidated
financial statements and schedules included or incorporated by reference in
the Registration Statement, are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
(e) The consolidated financial statements and schedules included or
incorporated by reference in the Registration Statement present fairly the
financial position of the Company and its consolidated subsidiaries as at
the dates indicated and the results of their operations for the periods
specified and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis and the schedules
included in the Registration Statement present fairly the information
required to be stated therein. The selected financial information included
in the Prospectus under the captions "Summary Consolidated Financial Data,"
"Summary Condensed Pro Forma Combined Financial Information," "Selected
Consolidated Financial Data," and "Condensed Pro Forma Combined Financial
Information" and the respective related notes thereto, is fairly stated in
all material respects in relation to the consolidated financial statements
of the Company
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<PAGE> 6
from which it was derived, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma basis described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(f) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as described or otherwise
incorporated by reference therein, (i) there has been no material adverse
change in the condition, financial or otherwise, of the Company and its
subsidiaries, considered as one enterprise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, whether or not arising in the ordinary course
of business (excluding such change, if any, caused by a decrease in the
market price of gold, silver, lead or zinc), (ii) there have been no
transactions material to the Company and its subsidiaries, considered as
one enterprise, entered into by the Company or its subsidiaries, other than
those in the ordinary course of business and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company
on any class of its capital stock.
(g) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described or incorporated by reference in the
Registration Statement and the Prospectus and the Company is duly qualified
as a foreign corporation to transact business and is in good standing in
each jurisdiction in which its ownership or leasing of properties or the
conduct of its business requires such qualification and in which the
failure to so qualify could have a material adverse effect on the
condition, financial or otherwise, of the Company and its subsidiaries,
considered as one enterprise or on its earnings, affairs or business
prospects.
(h) Each of the following subsidiaries of the Company constitute a
"significant subsidiary" as defined in Rule 405 of Regulation C of the 1933
Act Regulations: the Kentucky-Tennessee Clay Company, CoCa Mines Inc. and
Mountain West Bark Products, Inc. (the "Significant Subsidiaries"). Each
Significant Subsidiary is a corporation duly
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<PAGE> 7
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with corporate power and authority under
such laws to own, lease and operate its properties and conduct its
business; and each Significant Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
considered as one enterprise. All of the outstanding shares of capital
stock of each Significant Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company
directly or through one or more subsidiaries, free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any kind
except as otherwise provided in the Security Agreement dated January 25,
1993 (the "Security Agreement") entered into in connection with the Credit
Agreement dated as of January 25, 1993, as amended on April 12, 1993,
August 11, 1993 and November 9, 1993, among the Company and certain of its
subsidiaries, and Mase Westpac Limited, for itself and as agent to the
other banks thereto.
(i) The Company had at the date indicated a duly authorized, issued
and outstanding capitalization as set forth in the Prospectus under the
caption "Capitalization" and "Description of Capital Stock" (except for
subsequent issuances, if any, pursuant to reservations, agreements or
commitments referred to in the Registration Statement and the Prospectus),
the Shares conform to the description thereof contained or incorporated by
reference in the Registration Statement and the Prospectus and such
description conforms to the rights set forth in the instruments defining
the same; the Shares to be sold by the Company have been duly authorized
and, when issued and paid for in accordance with this Agreement, will be
validly issued, fully paid and non-assessable; no holder thereof will be
subject to personal liability by reason of being such a holder; such Shares
are not subject to the preemptive rights of any stockholder of the Company;
the Shares (and Rights attached thereto (the "Rights")) conform to all
statements relating thereto contained or incorporated by reference or
incorporated by reference in the Registration Statement and the Prospectus
prior to the Closing Time the Shares will have been duly authorized for
listing, subject to official notice of issuance, on the New York Stock
Exchange; and all corporate action required to be taken
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<PAGE> 8
for the authorization, issue and sale of such Shares has been validly and
sufficiently taken.
(j) Neither the Company nor any of its subsidiaries is in violation of
its charter or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to
which it is a party or by which it may be bound or to which any of its
properties may be subject, except for such defaults that would not have a
material adverse effect on the condition (financial or otherwise),
earnings, affairs or business prospects of the Company and its
subsidiaries, considered as one enterprise; and the execution and delivery
by the Company of this Agreement and the Price Determination Agreement and
the consummation of the transactions herein contemplated will not conflict
with or constitute a breach of, or default under, the charter or by-laws of
the Company or any Significant Subsidiary or any bond, debenture, note or
other evidence of indebtedness or any material contract, indenture,
mortgage, loan agreement, lease or other instrument to which the Company or
a Significant Subsidiary is a party or by which it may be bound or, to the
best of the Company's knowledge, any existing applicable law,
administrative regulation, or court decree.
(k) To the best of the Company's knowledge, except as described in the
Prospectus, no labor disturbance by the employees of the Company exists or
is imminent, and the Company is not aware of any existing or imminent labor
disturbance by the employees of any mining operation in which the Company
has a material participation interest or principal smelter which the
Company uses which might be expected to materially adversely affect the
conduct of the business, operations, consolidated financial condition or
consolidated income of the Company and its subsidiaries, considered as one
enterprise.
(l) No authorization, approval, consent or license of any government,
governmental instrumentality or court, domestic or foreign (other than
under the 1933 Act, the 1933 Act Regulations and the securities or blue sky
laws of the various states), is required for the valid authorization,
issuance, sale and delivery of the Shares and the consummation by the
Company of the transactions contemplated by this Agreement.
(m) Except as disclosed or incorporated by reference in the
Registration Statement or the Prospectus, there is
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<PAGE> 9
no action, suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against or affecting the Company or
any Significant Subsidiary that is required to be disclosed in the
Registration Statement or the Prospectus or which might reasonably be
expected to result in any material adverse change in the condition
(financial or otherwise), earnings, business affairs or business prospects
of the Company and its subsidiaries, considered as one enterprise, or might
reasonably be expected to materially and adversely affect the properties or
assets of the Company and its subsidiaries, considered as one enterprise,
or might reasonably be expected to materially and adversely affect the
consummation of this Agreement and the transactions contemplated in this
Agreement; the only pending legal or governmental proceedings to which the
Company or any Significant Subsidiary is a party or of which any of its
property is the subject which are not described in the Registration
Statement or the Prospectus, or incorporated by reference therein,
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material to the Company and its
subsidiaries considered as one enterprise, and there are no contracts or
other documents of the Company which would be required to be filed as
exhibits to the Registration Statement by the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations which have not been
filed as exhibits thereto.
(n) Except as described or incorporated by reference in the
Registration Statement or the Prospectus, the Company and each Significant
Subsidiary possesses those certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or bodies
necessary to own, lease and operate its properties, as the Company
currently operates such properties, and conduct the business now operated
by it, the absence of which might result in a material adverse change in
the earnings, affairs, condition (financial or otherwise), business or
prospects of the Company and its subsidiaries, considered as the
enterprise, and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorizations or permit which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would materially adversely
affect the conduct of the business, operations, financial condition or
income of the Company and its subsidiaries considered as one enterprise.
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<PAGE> 10
(o) Except as disclosed or incorporated by reference in the
Registration Statement and the Prospectus, and except as otherwise provided
in the Security Agreement, the Company or a Significant Subsidiary has good
and marketable title to, or valid and enforceable leasehold estates in or
enforceable contractual rights in respect of the Major Properties (as
defined below) in each case free and clear of all liens, encumbrances and
defects other than those which do not affect the value of such properties,
leasehold or contractual rights and do not interfere with the use made, or
proposed to be made pursuant to duly authorized corporate action already
taken by the Company, of such properties, leaseholds or contractual rights
except as does not have a material adverse effect on the condition
(financial or otherwise), earnings, affairs or business prospects of the
Company and its subsidiaries, considered as one enterprise. As used herein
the term "Major Properties" means all real and personal property and all
contractual rights (including, but not limited to, rights to participate in
profits) described or referred to in the Registration Statement and the
Prospectus or used by or useful to the Company in connection with the
Republic gold mine, the Lucky Friday mine, the American Girl gold mine, the
Oro Cruz gold project, the Greens Creek mine, the Grouse Creek gold
project, the Rosebud gold project, the La Choya gold project, the
Kentucky-Tennessee Clay Company, the K-T Feldspar Corporation, the Colorado
Aggregate Company of New Mexico or Mountain West Bark Products, Inc.
(p) The Company and its subsidiaries each owns or possesses, or can
acquire on reasonable terms, adequate patents, patent licenses, trademarks,
service marks and trade names necessary to carry on its business as
presently conducted, and neither the Company nor any subsidiary has
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent licenses, trademarks, service
marks or trade names that in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could materially adversely affect
the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered as one
enterprise.
(q) Except as disclosed or incorporated by reference in the
Registration Statement and the Prospectus and except as would not
individually or in the aggregate have a material adverse effect on the
condition (financial or
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<PAGE> 11
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries, considered as one enterprise, (i) the Company and its
subsidiaries are each in compliance with all applicable Environmental Laws,
(ii) the Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each in
material compliance with their requirements, (iii) there are no pending or
threatened Environmental Claims against the Company or any of its
subsidiaries and (iv) there are no circumstances with respect to any
property or operations of the Company or its subsidiaries that could
reasonably be anticipated to form the basis of an Environmental Claim
against the Company or any of its subsidiaries.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any United States (or other
applicable jurisdiction's) federal, state, local or municipal statute, law,
rule, regulation, ordinance, code, policy or rule of common law and any
judicial or administrative interpretation thereof including any judicial or
administrative order, consent decree or judgment, relating to the
environment, health, safety or any chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental
authority. "Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(r) There are no holders of securities of the Company with currently
exercisable registration rights to have any securities held thereby
included in the offering contemplated by this Agreement, the Price
Determination Agreement, the Registration Statement and the Prospectus.
(s) The Company has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably expected
to, cause or result in stabilization or manipulation of the price of the
Common Stock or the Shares.
Any certificate signed by any officer of the Company and delivered to
you or to your counsel shall be deemed a representation and warranty by the
Company to you as to the matters covered thereby.
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<PAGE> 12
Section 2. Sale and Delivery to the Underwriters; Closing. (a) On
the basis of the representations and warranties contained herein, and subject
to the terms and conditions set forth herein, the Company agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share for the Initial
Shares to be agreed upon by the Representatives and the Company in accordance
with Section 2(b) or 2(c), and set forth in the Price Determination Agreement,
the number of Initial Shares set forth opposite the name of such Underwriter.
(b) If the Company has elected not to rely upon Rule 430A, the initial
public offering price per share for the Initial Shares and the purchase price
per share for the Initial Shares to be paid by the Underwriters shall be agreed
upon and set forth in the Price Determination Agreement, dated the date hereof,
and an amendment to the Registration Statement containing such per share price
information will be filed before the Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the initial
public offering price per share for the Initial Shares and the purchase price
per share for the Initial Shares to be paid by the Underwriters shall be agreed
upon and set forth in the Price Determination Agreement. In the event that the
Price Determination Agreement has not been executed by the close of business on
the fourth business day following the date on which the Registration Statement
becomes effective, this Agreement shall terminate forthwith, without liability
of any party to any other party except that Sections 7, 8 and 9 shall remain in
effect.
(d) In addition, on the basis of the representations and warranties
herein contained, and subject to the terms and conditions herein set forth and
the delivery and payment for the Initial Shares pursuant to this Agreement, the
Company hereby grants an option to the Underwriters, severally and not jointly,
to purchase up to an additional 975,000 Option Shares at the same purchase
price per share as shall be applicable to the Initial Shares. The option
hereby granted will expire 30 days after the date upon which the Registration
Statement becomes effective or, if the Company has elected to rely upon Rule
430A, the date of the Price Determination Agreement, and may be exercised, in
whole or from time to time in part, only for the purpose of covering
over-allotments that may be made in connection with the offering and
distribution of the Initial Shares upon notice by you to the Company setting
forth the number of Option Shares as to which the Underwriters are exercising
the option, and the time and date of payment and delivery
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<PAGE> 13
thereof. Such time and date of delivery (the "Date of Delivery") shall be
determined by you but shall not be later than seven full business days after
the exercise of such option, nor in any event prior to the Closing Time, unless
otherwise agreed upon by you and the Company. If the option is exercised as to
all or any portion of the Option Shares, the Option Shares as to which the
option is exercised shall be purchased by the Underwriters, severally and not
jointly, in their respective underwriting obligation proportions.
(e) Payment of the purchase price for, and delivery of certificates
for, the Initial Shares shall be made at the offices of Wachtell, Lipton, Rosen
& Katz, 51 W. 52nd Street, New York, New York 10019, or at such other place as
shall be agreed upon by the Company and you, at 10:00 A.M. either (i) on the
fifth full business day after the effective date of the Registration Statement,
or (ii) if the Company has elected to rely upon Rule 430A, the fifth full
business day after execution of the Price Determination Agreement (unless, in
either case, postponed pursuant to Section 11), or at such other time not more
than ten full business days thereafter as you and the Company shall determine
(such date and time of payment and delivery being herein called the "Closing
Time"). In addition, in the event that any or all of the Option Shares are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Shares shall be made at the offices of
Wachtell, Lipton, Rosen & Katz set forth above, or at such other place as the
Company and you shall determine, on the Date of Delivery as specified in the
notice from you to the Company. Payment shall be made to the Company by
certified or official bank check or checks in New York Clearing House funds
payable to the order of the Company, against delivery to you for the respective
accounts of the Underwriters of certificates for the Shares to be purchased by
them.
(f) Certificates for the Initial Shares and Option Shares to be
purchased by the Underwriters shall be in such denominations and registered in
such names as you may request in writing at least two full business days before
the Closing Time or the Date of Delivery, as the case may be. The certificates
for the Initial Shares and Option Shares will be made available in New York
City for examination and packaging by you not later than 10:00 A.M. on the
business day prior to the Closing Time or the Date of Delivery, as the case may
be.
(g) It is understood that each Underwriter has authorized you, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Shares that it has agreed to purchase. You, individually and
not as a
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<PAGE> 14
Representative, may (but shall not be obligated to) make payment of the
purchase price for the Initial Shares, or Option Shares, to be purchased by any
Underwriter whose check or checks shall not have been received by the Closing
Time or the Date of Delivery, as the case may be.
Section 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, if the Company elects to rely upon Rule
430A and subject to Section 3(b) hereof, will comply with the requirements
of Rule 430A and will notify you immediately, and confirm the notice in
writing, (i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall have become effective, or
any supplement to the Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission
to amend the Registration Statement or supplement the Prospectus or for
additional information and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus,
or of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes. The Company will use its best
efforts to prevent the issuance of any such stop order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible
moment.
(b) The Company will give you notice of its intention to file any
amendment to the Registration Statement (including any post-effective
amendment) or any supplement to the Prospectus (including any prospectus to
be filed pursuant to Rule 424(b) which differs from the prospectus on file
at the Commission at the time the Registration Statement becomes effective
and including documents deemed to be incorporated by reference in the
Prospectus) whether pursuant to the 1933 Act or the 1934 Act, and will
furnish you with copies of any such amendment or supplement a reasonable
amount of time in advance of such proposed filing or use, as the case may
be, and will not file any such amendment or supplement or use any such
prospectus to which you or your counsel shall reasonably object.
(c) The Company has furnished or will furnish to you as many signed
copies of the Registration Statement as originally filed and of all
amendments thereto, whether
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<PAGE> 15
filed before or after the Registration Statement becomes effective, copies
of all exhibits and documents filed therewith (including documents
incorporated by reference into the Prospectus pursuant to Item 12 of Form
S-3 under the 1933 Act) and signed copies of all consents and certificates
of experts, as you may reasonably request.
(d) The Company will deliver to each Underwriter, without charge, from
time to time until the effective date of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A, until the date of the Price
Determination Agreement), as many copies of each preliminary prospectus as
such Underwriter may reasonably request, and the Company hereby consents to
the use of such copies for purposes permitted by the 1933 Act. The Company
will deliver to each Underwriter, without charge, as soon as the
Registration Statement shall have become effective (or, if the Company has
elected to rely upon Rule 430A, as soon as practicable on or after the date
of the Price Determination Agreement) and thereafter from time to time as
requested during the period when the Prospectus is required to be delivered
under the 1933 Act, such number of copies of the Prospectus (as
supplemented) as such Underwriter may reasonably request.
(e) The Company will comply in all material respects with the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations so
as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and in the Prospectus. If at any time when
a prospectus is required by the 1933 Act to be delivered in connection with
sales of the Shares any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for the Underwriters or
counsel for the Company, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of either such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b) hereof, such amendment or
supplement as may be necessary to correct such untrue statement or omission
or to make the Registration Statement or the Prospectus comply with such
requirements.
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<PAGE> 16
(f) The Company will use its best efforts, in cooperation with the
Underwriters, to qualify the Shares for offering and sale under the
applicable securities laws of such states and other jurisdictions as you
may designate and to maintain such qualifications in effect for as long as
may be required for; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
in which it is not so qualified or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise so
subject. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Shares have been
qualified as above provided.
(g) The Company will make generally available to its security holders
as soon as practicable, but not later than 90 days after the close of the
period covered thereby, an earnings statement of the Company (in form
complying with the provisions of Rule 158 of the 1933 Act Regulations,
which need not be certified by independent public accountants unless
required by the 1933 Act or the 1933 Act Regulations), covering a period of
12 months beginning after the effective date of the Registration Statement
and covering a period of 12 months beginning after the effective date of
any post-effective amendment to the Registration Statement but not later
than the first day of the Company's fiscal quarter next following such
respective effective dates.
(h) The Company will use the net proceeds received by it from the sale
of the Shares in the manner specified in the Prospectus under the caption
"Use of Proceeds."
(i) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file promptly all documents required
to be filed with the Commission pursuant to Section 13 or 14 of the 1934
Act subsequent to the time the Registration Statement becomes effective.
(j) For a period of two years after the Closing Time, the Company will
furnish to each Underwriter, copies of all annual reports, quarterly
reports and current reports filed with the Commission on Forms 10-K, 10-Q
and 8-K, or such other similar forms as may be designated by the
Commission, and such other documents, reports and
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<PAGE> 17
information as shall be furnished by the Company to its stockholders or
security holders generally.
(k) If the Company has elected to rely upon Rule 430A, it will take
such steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will promptly file
such prospectus.
(l) For a period of 180 days from the date hereof, the Company will
not, without your prior written consent, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or otherwise dispose of,
any Shares, Common Stock or securities convertible into Common Stock, other
than to the Underwriters pursuant to this Agreement and other than
conversions of existing convertible securities, exchanges of Common Stock
for existing convertible securities, exercises of any outstanding options
or warrants, grants of Common Stock or options pursuant to plans described
or incorporated by reference in the Prospectus, and pursuant to the Rights.
(m) If applicable, the Company will comply with all the provisions of
Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes, and
all regulations promulgated thereunder relating to issuers doing business
in Cuba.
(n) The Company will use its best efforts to effect the listing of the
Shares on the New York Stock Exchange.
Section 4. Payment of Expenses. The Company will pay and bear all
costs and expenses incident to the performance of their obligations under this
Agreement and the Price Determination Agreement, including (a) the preparation,
printing and filing of the Registration Statement (including financial
statements and exhibits), as originally filed and as amended, the preliminary
prospectuses and the Prospectus and any amendments or supplements thereto, and
the cost of furnishing copies thereof to the Underwriters, (b) the printing and
distribution of this Agreement (including the Price Determination Agreement),
the Shares and the Blue Sky Survey, (c) the delivery of the Shares to the
Underwriters, including any stock transfer taxes payable upon the sale of the
Shares to the Underwriters, (d) the fees and disbursements of the Company's
counsel and accountants and (e) the qualification of the Shares under the
applicable securities laws in accordance with Section 3(f) and any filing for
review of the offering with the National Association of Securities Dealers,
Inc., including filing fees and
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fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the Blue Sky Survey; (f) the printing and delivery to
the Underwriters of copies of the preliminary prospectuses, and of the
Prospectus and any amendments or supplements thereto; and (g) the fees and
expenses incurred in connection with the listing on the New York Stock Exchange
of the Shares.
If this Agreement is terminated by you in accordance with the
provisions of Section 5 or 10(a)(i), the Company shall reimburse the
Underwriters for all their out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. In addition to
the execution and delivery of the Price Determination Agreement, the
obligations of the general Underwriters to purchase and pay for the Shares that
they have respectively agreed to purchase pursuant to this Agreement (including
any Option Shares as to which the option granted in Section 2 has been
exercised and the Date of Delivery determined by you is the same as the Closing
Time) are subject to the accuracy of the representations and warranties of the
Company contained herein (including those contained in the Price Determination
Agreement) or in certificates of any officer of the Company or any of its
subsidiaries, to the performance by the Company of its obligations hereunder,
and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date of this Agreement or, with your consent, at a
later time and date not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later time or on such
later date as you may agree to in writing; and at the Closing Time or any
Delivery Date no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereof shall have
been issued under the 1933 Act and no proceedings for that purpose shall
have been instituted or shall be pending or, to your knowledge or the
knowledge of the Company, shall be contemplated by the Commission or any
"Blue Sky" or securities authority of any jurisdiction, and any request on
the part of the Commission or any "Blue Sky" or securities authority of any
jurisdiction for additional information shall have been complied with to
the satisfaction of counsel for the Underwriters. If the Company has
elected to rely upon Rule 430A, a prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with
Rule 424(b) (or a post-effective amendment
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providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a signed opinion of
Michael B. White, General Counsel of the Company, dated as of the Closing
Time, in form and substance satisfactory to counsel for the Underwriters,
to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware
with corporate power and authority under such laws to own, lease and
operate its properties and conduct its business as described or
incorporated by reference in the Registration Statement and the
Prospectus;
(ii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in
which it owns or leases property of a nature, or transacts business of
a type, that would make such qualification necessary, except to the
extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
considered as one enterprise;
(iii) Each Significant Subsidiary is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation with corporate power and
authority under such laws to own, lease and operate its properties and
conduct its business;
(iv) Each Significant Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases property of a nature, or
transacts business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or be
in good standing would not have a material adverse effect on the
Company and its subsidiaries, considered as one enterprise;
(v) Such counsel does not know of any statutes or regulations,
or any pending or threatened legal or governmental proceedings,
required to be described or incorporated by reference in the
Registration Statement and the Prospectus that are not described or
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incorporated as required, nor of any contracts or documents of a
character required to be described or referred to or incorporated in
the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described,
referred to or incorporated or filed as required;
(vi) To the knowledge of such counsel, except as described in
the Prospectus, no default exists in the performance or observance of
any material obligation, agreement, covenant or condition contained in
any contract, indenture, loan agreement, note, lease or other
agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed as an exhibit to the
Registration Statement;
(vii) The execution and delivery of this Agreement, the Price
Determination Agreement, the issuance and delivery of the Shares, the
consummation by the Company of the transactions contemplated in this
Agreement and compliance by the Company with the terms of this
Agreement and the Price Determination Agreement do not and will not
result in any violation of the charter or by-laws of the Company or
any of its subsidiaries, and do not and will not conflict with, or
result in a breach of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries under (A) any contract, indenture, mortgage,
loan agreement, note, lease or any other agreement or instrument known
to such counsel, to which the Company or any of its subsidiaries is a
party or by which it may be bound or to which any of its properties
may be subject (except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a material adverse
effect on the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise), (B) any existing applicable law, rule
or regulation (other than the securities or blue sky laws of the
various states, as to which such counsel need express no opinion)
which could have a material adverse effect on the Company and its
subsidiaries considered as one enterprise, or (C) any judgment, order
or decree of any government, governmental instrumentality or court,
domestic or
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foreign, having jurisdiction over the Company or any subsidiary or any
of their respective properties which could have a material adverse
effect on the Company and its subsidiaries considered as one
enterprise;
(viii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Registration Statement and the
Prospectus under the headings "Capitalization" and "Description of
Capital Stock" (except for subsequent issuances, if any, pursuant to
reservations, employee benefit plans, agreements, commitments or the
exercise of convertible securities referred to in the Registration
Statement and the Prospectus);
(ix) The Shares sold by the Company pursuant to the provisions
of this Agreement have been duly authorized and validly issued and are
fully paid and non-assessable; no holder thereof is or will be subject
to personal liability by reason of being such a holder; such Shares
are not subject to the preemptive rights of any stockholder of the
Company, and all corporate action required to be taken for the
authorization, issue and sale of such Shares has been validly and
sufficiently taken;
(x) All of the other outstanding shares of capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable;
(xi) All of the outstanding shares of capital stock of each
Significant Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; free and clear of any pledge,
lien, security interest, charge, claim, equity or encumbrance of any
kind except as provided in the Security Agreement; no holder thereof
is subject to personal liability by reason of being such a holder and
none of such shares was issued in violation of the preemptive rights
of any stockholder of the subsidiaries;
(xii) Without such counsel having made a search of the title
records with respect thereto, the Company has good and marketable
title to, or valid and enforceable leasehold estates in, or
enforceable contractual rights in respect of, the Major Properties, in
each case free and clear of all liens, encumbrances and defects other
than those set forth in the
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<PAGE> 22
Security Agreement or referred to or incorporated by reference in the
Registration Statement and the Prospectus and those which do not
materially affect the value of such property, leaseholds or
contractual rights and do not materially interfere with the use made,
or proposed to be made pursuant to duly authorized corporate action
already taken by the Company, of such property, leaseholds or
contractual rights.
In giving such opinion, such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the State of Idaho,
the federal law of the United States and the corporate law of the State of
Delaware, upon opinions of other counsel who shall be counsel reasonably
satisfactory to counsel for the Underwriters, in which case the opinion shall
state that they believe the Underwriters and they are entitled to so rely.
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries and certificates of public
officials.
(c) At the Closing Time you shall have received a signed opinion of
Wachtell, Lipton, Rosen & Katz, special counsel for the Company, dated as
of the Closing Time, in form and substance satisfactory to counsel for the
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware;
(ii) To such counsel's knowledge, there are no material
contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement, other than those described or referred to
therein or filed or incorporated by reference as exhibits thereto, and
the descriptions thereof or references thereto are correct in all
material respects;
(iii) Such counsel is not aware of any authorization, approval,
consent or order of any agency, governmental authority or court,
(other than under the 1933 Act, the 1933 Act Regulations, the 1934 Act
and the 1934 Act Regulations and the securities or blue sky laws of
the various states), that is required for
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<PAGE> 23
the valid authorization, issuance, sale and delivery of the Shares;
(iv) This Agreement (including the Price Determination
Agreement) has been duly authorized, executed and delivered by the
Company;
(v) The certificates for each outstanding share of Common
Stock also represent one Right per share; and the outstanding Rights
have been duly authorized and validly issued under the Rights
Agreement dated May 19, 1986, as amended (the "Rights Agreement");
(vi) The sale and issuance of the Shares pursuant to this
Agreement and the Price Determination Agreement have been duly
authorized and all necessary corporate action relating to the issuance
of the Shares has been taken;
(vii) The Shares conform in all material respects as to legal
matters to the description thereof in the Registration Statement and
the Prospectus;
(viii) The statements made in the Prospectus under the caption
"Certain United States Tax Consequences For Non-U.S. Shareholders,"
to the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and fairly present the
information disclosed therein in all material respects;
(ix) Upon issuance and delivery of the Shares as described in
the Registration Statement and the Prospectus, the Shares will be
validly issued, fully paid and non-assessable and the holders thereof
will not be subject to personal liability by reason of being such
holders;
(x) The Registration Statement (including the Rule 430A
Information, if applicable) and the Prospectus, excluding the
documents incorporated by reference therein, and each amendment or
supplement thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), as of their
respective effective or issue dates, appear on their face to have been
appropriately responsive in all material respects to the requirements
of the 1933 Act and the 1933 Act Regulations;
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<PAGE> 24
(xi) The documents incorporated by reference in the Prospectus
(except for the financial statements and other financial or
statistical data included therein or omitted therefrom, as to which
such counsel need express no opinion), as of the dates they were filed
with the Commission, appear on their face to comply as to form in all
material respects to the requirements of the 1934 Act and the 1934 Act
Regulations;
(xii) Such counsel have participated in the preparation of the
Registration Statement and the Prospectus and are familiar with the
documents incorporated by reference in the Registration Statement and
the Prospectus, and have also participated in conferences with
officers and other representatives of the Company, representatives of
the independent public accountants for the Company, and with your
representatives and your counsel at which the contents of the
Registration Statement, the Prospectus and related matters were
discussed and, although such counsel need not pass upon or assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus,
and based on the foregoing, no facts have come to the attention of
such counsel to lead them to believe (A) that the Registration
Statement (including the Rule 430A Information, if applicable) or any
amendment thereto (except for the financial statements and other
financial or statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or (B) that the Prospectus or any
amendment or supplement thereto (except for the financial statements
and other financial or statistical data included therein or omitted
therefrom, as to which such counsel need express no opinion), at the
time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
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<PAGE> 25
Such opinion shall be to such further effect with respect to other legal
matters relating to this Agreement and the sale of the Shares pursuant to
this Agreement as counsel for the Underwriters may reasonably request. In
giving such opinion, such counsel may rely, as to all matters governed by
the laws of jurisdictions other than the law of the State of New York, the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon opinions of other counsel, who shall be counsel
satisfactory to counsel for the Underwriters, in which case the opinion
shall state that they believe you and they are entitled to so rely. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and of public officials.
(d) At the Closing Time, you shall have received the favorable opinion
of Shearman & Sterling, counsel for the Underwriters, dated as of the
Closing Time, to the effect that the opinions delivered pursuant to
Sections 5(b) and 5(c) appear on their face to be appropriately responsive
to the requirements of this Agreement except, specifying the same, to the
extent waived by you, and with respect to the incorporation and legal
existence of the Company, the Shares sold by the Company, this Agreement,
the Registration Statement, the Prospectus, the documents incorporated by
reference and such other related matters as you may require. In giving
such opinion such counsel may rely, as to all matters governed by the laws
of jurisdictions other than the law of the State of New York, the federal
law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to you. Such counsel
may also state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of officers
of the Company and certificates of public officials.
(e) At the Closing Time, (i) the Registration Statement and the
Prospectus, as they may then be amended or supplemented, shall contain all
statements that are required to be stated therein under the 1933 Act and
the 1933 Act Regulations and in all material respects shall conform to the
requirements of the 1933 Act and the 1933 Act Regulations, the Company
shall have complied in all material respects with Rule 430A (if it shall
have elected to rely thereon) and neither the Registration Statement
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<PAGE> 26
nor the Prospectus, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) there shall not have been, since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company
and its subsidiaries, considered as one enterprise (excluding such change,
if any, caused by a decrease in the market price of silver, gold, lead or
zinc), whether or not arising in the ordinary course of business, (iii) no
action, suit or proceeding shall be pending or, to the knowledge of the
Company, threatened against the Company or any subsidiary that would be
required to be set forth in the Registration Statement or the Prospectus
other than as set forth therein and no proceedings shall be pending or, to
the knowledge of the Company, threatened against the Company or any
subsidiary before or by any government, governmental instrumentality or
court, domestic or foreign, that could result in any material adverse
change in the condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its subsidiaries,
considered as one enterprise, other than as set forth in the Registration
Statement or the Prospectus, (iv) the Company shall have complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time and (v) the other representations
and warranties of the Company set forth in Section 1 shall be accurate as
though expressly made at and as of the Closing Time. At the Closing Time,
you shall have received a certificate of the President or a Vice President
and the Secretary of the Company, dated as of the Closing Time, to such
effect.
(f) At the time that this Agreement is executed by the Company, you
shall have received from Coopers & Lybrand a letter, dated such date, in
form and substance satisfactory to you, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the 1933 Act and applicable published 1933 Act Regulations,
and stating in effect that:
(i) in their opinion, the audited consolidated financial
statements and the related consolidated financial statement schedules
included or incorporated by reference in the Registration Statement
and the Prospectus comply as to form in all material respects with the
applicable accounting requirements
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<PAGE> 27
of the 1933 Act and the related published 1933 Act Regulations;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the latest available unaudited interim consolidated
financial statements of the Company, a reading of the minutes of all
meetings of the stockholders and directors of the Company and its
subsidiaries and the Audit Committee of the Company's Board of
Directors since January 1, 1994, inquiries of certain officials of the
Company and its subsidiaries responsible for financial and accounting
matters and such other inquiries and procedures as may be specified in
such letter, nothing came to their attention that caused them to
believe that:
(A) at April 30, 1993 and at a specified date not more
than five days prior to the date of this Agreement, there was
any change in the Stockholders' equity of the Company or any
decrease in the working capital or the consolidated assets of
the Company or any increase in the long-term debt of the
Company and its subsidiaries, in each case as compared
with amounts shown in the latest audited balance sheet included in the
Registration Statement, except in each case for changes, decreases or
increases that the Registration Statement discloses have occurred or
may occur; or
(B) for the period from January 1, 1994 to April 30, 1993
and for the period from May 1, 1993 to a specified date not
more than five days prior to the date of this Agreement,
there was any decrease in revenues or increase in the total
per share amounts of consolidated net loss, in each case as
compared with the comparable period in the preceding year,
except in each case for any decreases that the Registration
Statement discloses have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the Selected Consolidated Financial Data included in
the Registration Statement and the Prospectus, nothing has come to
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their attention that gives them reason to believe that the Selected
Consolidated Financial Data included in the Registration Statement and
the Prospectus do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act and the 1933
Act Regulations or that the information set forth therein is not
fairly stated in relation to the financial statements from which it
was derived or that the financial statements not included in the
Registration Statement and the Prospectus from which certain of such
data were derived are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration
Statement and the Prospectus;
(iv) they are unable to and do not express any opinion on the
Condensed Pro Forma Combined Financial Information (the "Pro Forma
Statements") included in the Registration Statement or on the pro
forma adjustments applied to the historical amounts included in the
Pro Forma Statements; however, for purposes of such letter they have:
(A) read the Pro Forma Statements;
(B) made inquiries of certain officials of the Company
who have responsibility for financial and accounting
matters about the basis for their determination of the pro
forma adjustments and whether the Pro Forma Statements
above comply in form in all material respects with the
applicable accounting requirements of Rule 11-02 of
Regulation S-X; and
(C) proved the arithmetic accuracy of the application
of the pro forma adjustments to the historical amounts in
the Pro Forma Statements; and
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that the Pro Forma Statements
included in the Registration Statement do not comply in form in all
material respects with the applicable requirements of Rule 11-02 of
Regulation S-X and that the pro forma adjustments have not been
properly
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applied to the historical amounts in the compilation of that
statement; and
(v) in addition to the procedures referred to in clause (ii)
above, they have performed other specified procedures, not
constituting an audit, with respect to certain amounts, percentages,
numerical data and financial information appearing in the Registration
Statement and the Prospectus, which have previously been specified by
you and which shall be specified in such letter, and have compared
certain of such items with, and have found such items to be in
agreement with, the accounting and financial records of the
Company.
(g) At the Closing Time, you shall have received from Coopers &
Lybrand a letter, in form and substance satisfactory to you and dated as of
the Closing Time, to the effect that they reaffirm the statements made in
the letter furnished pursuant to Section 5(f), except that the specified
date referred to shall be a date not more than five days prior to the
Closing Time.
(h) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the
issuance and sale of the Shares as contemplated in this Agreement and the
matters referred to in Section 5(d) and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of
the Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings
taken by the Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in this
Agreement shall be satisfactory in form and substance to you and to counsel
for the Underwriters.
(i) The Shares shall have been duly authorized for listing by the New
York Stock Exchange, subject to official notice of issuance, on the date of
the Price Determination Agreement.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement, this Agreement may be
terminated by you on notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party, except as provided in Section 4. Notwithstanding
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any such termination, the provisions of Sections 7 and 8 shall remain in
effect.
Section 6. Conditions to Purchase of Option Shares. In the event
that the Underwriters exercise their option granted in Section 2 hereof to
purchase all or any of the Option Shares and the Date of Delivery determined by
you pursuant to Section 2 hereof is later than the Closing Time, the
obligations of the Underwriters to purchase and pay for the Option Shares that
they shall have respectively agreed to purchase pursuant to this Agreement are
subject to the accuracy of the representations and warranties of the Company
herein contained, to the performance by the Company of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at the Date of
Delivery, and, at the Date of Delivery, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act and no proceedings for that purpose shall have been instituted
or shall be pending or, to your knowledge or the knowledge of the Company,
shall be contemplated by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriters.
(b) At the Date of Delivery, the provisions of Sections 5(e)(i)
through 5(e)(v) shall have been complied with at and as of the Date of
Delivery and, at the Date of Delivery, you shall have received a
certificate of the President or a Vice President and the Secretary, of the
Company, dated as of the Date of Delivery, to such effect.
(c) At the Date of Delivery, you shall have received the favorable
opinions of Michael B. White, General Counsel of the Company and Wachtell,
Lipton, Rosen & Katz, special counsel for the Company, in each case in form
and substance satisfactory to counsel for the Underwriters, dated as of the
Date of Delivery, relating to the Option Shares and otherwise to the same
effect as the opinions required by Section 5(b) or 5(c), respectively.
(d) At the Date of Delivery, you shall have received the favorable
opinion of Shearman & Sterling, counsel for the Underwriters, dated as of
the Date of Delivery, relating to the Option Shares and otherwise to the
same effect as the opinion required by Section 5(d).
(e) At the Date of Delivery, you shall have received a letter from
Coopers & Lybrand, in form and substance
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satisfactory to you and dated as of the Date of Delivery, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
Section 5(f), except that the specified date referred to shall be a date
not more than five days prior to the Date of Delivery.
(f) At the Date of Delivery, counsel for the Underwriters shall have
been furnished with all such documents, certificates and opinions as they
may reasonably request for the purpose of enabling them to pass upon the
issuance and sale of the Option Shares as contemplated in this Agreement
and the matters referred to in Section 6(d) and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements of the Company, the performance of any of the covenants of the
Company, or the fulfillment of any of the conditions herein contained; and
all proceedings taken by the Company at or prior to the Date of Delivery in
connection with the authorization, issuance and sale of the Option Shares
as contemplated in this Agreement shall be satisfactory in form and
substance to you and to counsel for the Underwriters.
Section 7. Indemnification. (a) The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of an untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if
applicable, and all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading
or arising out of an untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
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whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
fees and disbursements of counsel chosen by you), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue statement
or omission, or any such alleged untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii)
above;
provided, however, that this indemnity agreement does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by you
expressly for use in the Registration Statement (or any amendment thereto) or
any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act, against any and all loss, liability, claim,
damage and expense described in the indemnity agreement in Section 7(a), as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or such preliminary prospectus or the Prospectus
(or any amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have otherwise than
on account of this indemnity agreement. An indemnifying party may participate
at its own expense in the defense of such action. In no
-32-
<PAGE> 33
event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in connection
with any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
Section 8. Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity provided for in Section
7 is for any reason held to be unenforceable by the indemnified parties
although applicable in accordance with its terms, the Company and the
Underwriters shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity incurred by
the Company and one or more of the Underwriters, as incurred, in such
proportions that (a) the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the initial public offering price
appearing thereon and (b) the Company is responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as the Company.
Section 9. Representations, Warranties and Agreements to Survive
Delivery. The representations, warranties, indemnities, agreements and other
statements of the Company or its officers set forth in or made pursuant to this
Agreement and the Price Determination Agreement will remain operative and in
full force and effect regardless of any investigation made by or on behalf of
the Company, any Underwriter or any person who controls the Company or any
Underwriter within the meaning of Section 15 of the 1933 Act and will survive
delivery of and payment for the Shares.
Section 10. Termination of Agreement. (a) You may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing
Time (i) if there has been, since the date of this Agreement or since the
respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the
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<PAGE> 34
Company and its subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business (excluding such change, if any,
caused by a decrease in the market price of silver, gold, lead or zinc), or
(ii) if there has occurred any material adverse change in the financial markets
or any outbreak of hostilities or escalation thereof or other calamity or
crisis the effect of which is such as to make it, in your judgment,
impracticable to market the Shares or enforce contracts for the sale of the
Shares or (iii) if trading in any securities of the Company has been suspended
by the Commission, or if trading generally on either the American Stock
Exchange or the New York Stock Exchange or in the over-the-counter market has
been suspended, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices for securities have been required, by such exchange
or by order of the Commission or any other governmental authority or (iv) if a
banking moratorium has been declared by either federal, New York or Idaho
authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 4. Notwithstanding any such termination, the
provisions of Sections 7, 8 and 9 shall remain in effect.
(c) This Agreement may also terminate pursuant to the provisions of
Section 2(c), with the effect stated in such Section.
Section 11. Default by One of the Underwriters. If one or more of
the Underwriters shall fail at the Closing Time to purchase the Initial Shares
that it is obligated to purchase pursuant to this Agreement (the "Defaulted
Shares"), you shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted Shares
in such amounts as may be agreed upon and upon the terms set forth in this
Agreement; if, however, the non-defaulting Underwriter has not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Shares does not exceed 10% of the total
number of Initial Shares, the non-defaulting Underwriters shall be
obligated to purchase the full amount thereof in the proportions that their
respective Initial Share underwriting obligation proportions bear to the
underwriting obligations of all non-defaulting Underwriters; or
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<PAGE> 35
(b) if the number of Defaulted Shares exceeds 10% of the total number
of Initial Shares, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default that does not result in a termination
of this Agreement, either you or the Company shall have the right to postpone
the Closing Time for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 11.
Section 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunications. Notice to the
Underwriters shall be directed to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, World Financial Center, North Tower, New York, New York
10281-1201, Attention: Christopher Lynch, Director, and Salomon Brothers Inc,
8700 Sears Tower, Chicago, Illinois, 60606, Attention: R. Stribling Koster,
Vice President, with a copy to Shearman & Sterling, 725 South Figueroa Street,
21st Floor, Los Angeles, California 90017, Attention: Brice T. Voran, Esq.;
notices to the Company shall be directed to it at Hecla Mining Company, 6500
Mineral Drive, Coeur d'Alene, Idaho 83814-8788, Attention: Michael B. White,
Vice President - General Counsel and Secretary, with a copy to Wachtell,
Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New York 10019, Attention:
David A. Katz, Esq.
Section 13. Parties. This Agreement is made solely for the benefit
of the Underwriters and the Company and, to the extent expressed, any person
who controls the Company or any of the Underwriters within the meaning of
Section 15 of the 1933 Act, and the directors of the Company, its officers who
have signed the Registration Statement, and their respective executors,
administrators, successors and assigns and, subject to the provisions of
Section 11, no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such purchaser, from any of the Underwriters of the Shares. All
of the obligations of the Underwriters hereunder are several and not joint.
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<PAGE> 36
Section 14. Governing Law and Time. This Agreement and the Price
Determination Agreement shall be governed by the laws of the State of New York.
Specified times of the day refer to New York City time.
Section 15. Counterparts. This Agreement may be executed in one or
more counterparts and when a counterpart has been executed by each party, all
such counterparts taken together shall constitute one and the same agreement.
If the foregoing is in accordance with your understanding, please sign
and return to us a counterpart hereof, whereupon this instrument will become a
binding agreement among the Company and the several Underwriters in accordance
with its terms.
Very truly yours,
HECLA MINING COMPANY
By
----------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
For itself and as Representatives of
the other Underwriters named in Schedule A
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By
----------------------------
Name:
Title:
Investment Banking Group
SALOMON BROTHERS INC
By
----------------------------
Name:
Title:
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<PAGE> 37
HECLA MINING COMPANY
(a Delaware corporation)
6,500,000 Shares of Common Stock
PRICE DETERMINATION AGREEMENT
________ __, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
SALOMON BROTHERS INC
As Representatives of the several Underwriters
c/o Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Reference is made to the Purchase Agreement dated _______, 1994 (the
"Purchase Agreement") among Hecla Mining Company (the "Company") and the
several Underwriters (the "Underwriters") for whom Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers Inc are acting
as representatives (the "Representatives"). The Purchase Agreement provides
for the purchase by the Underwriters from the Company, subject to the terms and
conditions set forth therein, of an aggregate of 6,500,000 shares (the "Initial
Shares") of the Company's Common Stock, par value $0.25 per share, (the "Common
Stock"). This Agreement is the Price Determination Agreement referred to in
the Purchase Agreement.
Pursuant to Section 2 of the Purchase Agreement, the undersigned
agrees with the Representatives as follows:
1. The initial public offering price per share for the Initial Shares
shall be $ .
2. The purchase price per share for the Initial Shares to be paid by
the several Underwriters shall be $ , representing an amount equal to the
initial public offering price set forth above, less $ per share.
<PAGE> 38
The Company represents and warrants to each of the Underwriters that
the representations and warranties of the Company set forth in Section 1 of the
Purchase Agreement are accurate as though expressly made at and as of the date
hereof.
As contemplated by Section 2 of the Purchase Agreement, attached as
Schedule A to such agreement is a complete list of the Underwriters, which
shall be a part of this Agreement and the Purchase Agreement.
This Agreement shall be governed by the laws of the State of New York.
If the foregoing is in accordance with your understanding, please sign
and return to the Company a counterpart hereof, whereupon this instrument along
with all counterparts and together with the Purchase Agreement shall be a
binding agreement between the Underwriters and the Company in accordance with
its terms and the terms of the Purchase Agreement.
Very truly yours,
HECLA MINING COMPANY
By
-----------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
For itself and as Representatives of the other Underwriters
named in Schedule A attached to the Purchase Agreement
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
By
---------------------------
Name:
Title:
Investment Banking Group
SALOMON BROTHERS INC
By
----------------------------
Name:
Title:
-2-
<PAGE> 39
SCHEDULE A
Number of
Initial Shares
Underwriter to Be Purchased
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................
Salomon Brothers Inc....................
Total................ 6,500,000
-3-
<PAGE> 1
[Letterhead of Wachtell, Lipton, Rosen & Katz]
March 15, 1994
Hecla Mining Company
6500 Mineral Drive
Coeur d'Alene, ID 83814-8788
Ladies and Gentlemen:
We have acted as special counsel to Hecla Mining Company, a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-3 of the Company, to be filed with the
Securities and Exchange Commission (the "Commission") on March 15, 1994 (the
"Registration Statement"), relating to the registration under the Securities
Act of 1933, as amended, of 7,475,000 shares of the Company's Common Stock, par
value $.25 per share (the "Shares"), and associated Preferred Share Purchase
Rights (the "Rights"), to be sold pursuant to such Registration Statement by
the Company.
In this connection, in acting as special counsel, we have reviewed:
(i) the Restated Certificate of Incorporation and By-Laws of the Company as
currently in effect; (ii) the Registration Statement; (iii) the Rights
Agreement dated May 9, 1986, as amended (the "Rights Agreement"), between the
Company and Manufacturers Hanover Trust Company, a national banking
association, as Rights Agent; (iv) certain resolutions adopted by the Board of
Directors of the Company; (v) the draft form of Purchase Agreement included as
Exhibit 1 to the Registration Statement (the "Purchase Agreement"); and (vi)
such other documents, records and papers as we have deemed necessary or
appropriate in order to give the opinions set forth herein. We are familiar
with the proceedings heretofore taken by the Company
<PAGE> 2
Hecla Mining Company
March 15, 1994
Page Two
in connection with the authorization, registration, issuance and sale of the
Shares. We have, with your consent, relied as to factual matters on
certificates or other documents furnished by the Company or its officers and by
governmental authorities and upon such other documents and data that we have
deemed appropriate. We have assumed the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as copies. In addition, we have assumed the due and
valid authorization of the Purchase Agreement and related matters.
We are not members of the Bar of any jurisdiction other than the State
of New York and, with your consent, we express no opinion as to the law of any
jurisdiction other than the laws of the State of New York and the General
Corporation Law of the State of Delaware.
Based on such examination and review and subject to the foregoing, we
are of the following opinions:
1. The Shares, when sold in accordance with the terms of the Purchase
Agreement, will be legally issued, fully paid and nonassessable.
2. The Rights issued together with the shares, assuming issuance of
the Rights in accordance with the terms of the Rights Agreement, will be
validly issued and binding obligations of the Company and entitled to the
benefits of the Rights Agreement.
We consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus that is a part of the Registration Statement.
In giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended.
Very truly yours,
/s/ Wachtell, Lipton, Rosen
& Katz
DAK
<PAGE> 1
EXHIBIT 23.1
[Letterhead of Coopers & Lybrand]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, and the incorporation by reference from Hecla
Mining Company's 1993 Form 10-K, in this registration statement on Form S-3
(File No. 33-XXXX) of our report dated February 3, 1994, except for Note 5, as
to which date is February 8, 1994, on our audits of the consolidated financial
statements and financial statement schedules of Hecla Mining Company. We also
consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand
Spokane, Washington
March 14, 1994
<PAGE> 1
EXHIBIT 23.3
[Letterhead of Deloitte & Touche]
INDEPENDENT CHARTERED ACCOUNTANTS' CONSENT
We consent to the incorporation by reference in the registration statement of
Hecla Mining Company on Form 53 (File 33-______) of our report dated February
28, 1994, on our audits of the consolidated financial statements of Equinox
Resources Ltd. as at December 31, 1993 and 1992, and for the year ended
December 31, 1993, the two months ended December 31, 1992 and the years ended
October 31, 1992 and 1991.
We also consent to the reference to our firm under the caption "Experts".
/s/ Deloitte & Touche
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 15, 1994
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The undersigned directors of Hecla Mining Company (the "Corporation")
hereby appoint Arthur Brown, John P. Stilwell and Michael B. White, and each of
them, as their true and lawful attorneys-in-fact, with full power for and on
their behalf to execute, in their names and capacities as directors of the
Corporation, and to file with the Securities and Exchange Commission on behalf
of the Corporation under the Securities Act of 1933, as amended, a Registration
Statement (including any and all amendments or post-effective amendments
thereto) pursuant to which shares of common stock of the Corporation are to be
registered for sale to the public by the Corporation.
This Power of Attorney automatically ends as to each appointee upon the
termination of his service with the Corporation.
In witness thereof, the undersigned have executed this Power of Attorney
on this 15th day of March, 1994.
/s/ John E. Clute
- ----------------------------- -----------------------------
John E. Clute Joe Coors, Jr.
/s/ Leland O. Erdahl /s/ William A. Griffith
- ----------------------------- -----------------------------
Leland O. Erdahl William A. Griffith
/s/ Paul A. Redmond
- ----------------------------- -----------------------------
Charles L. McAlpine Paul A. Redmond
/s/ R.J. Stoehr
- -----------------------------
Richard J. Stoehr
