<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(3)
(TO PROSPECTUS DATED JULY 17, 1998) Registration No. 333-58251
2,000,000 SHARES
[LOGO OF STILLWATER MINING COMPANY]
COMMON STOCK
$30 3/4 PER SHARE
---------
Stillwater Mining Company is offering shares of its Common Stock. The
underwriters named in this Prospectus Supplement may purchase up to 300,000
additional shares of Common Stock from Stillwater Mining Company under certain
circumstances.
The Common Stock is listed on the American Stock Exchange under the symbol
"SWC." The last reported sale price of the Common Stock on the American Stock
Exchange on October 19, 1998 was $31 5/16 per share.
---------
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------- -----------
<S> <C> <C>
Public Offering Price..................................... $30.7500 $61,500,000
Underwriting Discounts.................................... $ 1.5375 $ 3,075,000
Proceeds to Stillwater Mining Company (before expenses)... $29.2125 $58,425,000
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about October 23,
1998.
---------
SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
TD SECURITIES
October 19, 1998
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS. WE HAVE
AUTHORIZED NO ONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING
AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT OR THE
RELATED PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT
OF THESE DOCUMENTS.
------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................ S-3
Risk Factors............................................................. S-9
Use of Proceeds.......................................................... S-13
Price Range of Common Stock and Dividend Policy.......................... S-13
Capitalization........................................................... S-14
Selected Financial Information........................................... S-15
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-17
Business and Properties.................................................. S-25
Underwriting............................................................. S-32
Legal Matters............................................................ S-33
Experts.................................................................. S-33
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
The Company.............................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Ratio of Earnings to Fixed Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends............................. 12
Business and Properties.................................................. 13
Description of Debt Securities........................................... 19
Description of Preferred Stock........................................... 28
Description of Depositary Shares......................................... 29
Description of Warrants.................................................. 32
Description of Capital Stock............................................. 33
Plan of Distribution..................................................... 34
Legal Matters............................................................ 35
Experts.................................................................. 35
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary provides an overview of selected information and does not
contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this Prospectus Supplement and
the related Prospectus, the financial statements of the company and the other
information that is incorporated by reference into this Prospectus Supplement
and the related Prospectus.
THE COMPANY
OVERVIEW
Stillwater Mining Company mines, processes and refines palladium, platinum
and associated metals from a geological formation in southern Montana known as
the J-M Reef. The J-M Reef is the only significant source of platinum group
metals, or PGMs, outside South Africa and Russia. Associated by-product metals
of PGMs include rhodium, gold, silver, nickel and copper. All of our current
mining operations are conducted at the Stillwater Mine in Nye, Montana.
Expansion is underway at the Stillwater Mine and at the East Boulder site
approximately 13 miles away toward the western end of the J-M Reef. The
"Business and Properties" section of this Prospectus Supplement and the related
Prospectus contain more detailed information regarding the topics highlighted
under the heading "The Company" in this Summary.
PGMs are rare precious metals with unique physical qualities that are used in
diverse industrial applications and in the jewelry industry. The largest and
fastest growing use for PGMs is by the automotive industry in the production of
catalysts that reduce harmful automobile emissions. Palladium is also used
extensively in the production of electronic components for personal computers,
cellular telephones, facsimile machines and other devices, as well as dental
applications. Platinum is primarily used for jewelry. Industrial uses for
platinum include the production of data storage disks, glass, paints, nitric
acid, anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high
octane gasolines and fuel cells.
At December 31, 1997, the company had the following proven and probable PGM
ore reserves:
<TABLE>
<CAPTION>
AVERAGE PGM GRADE CONTAINED OUNCES CONTAINED OUNCES
TONS (OUNCE PER TON) OF PALLADIUM OF PLATINUM
------------ ----------------- ---------------- ----------------
<S> <C> <C> <C>
29.5 million 0.79 ounce 17.9 million 5.4 million
</TABLE>
"Reserves" refers to the portion of a mineral deposit that can be economically
and legally extracted, and the figures shown above do not take into account the
loss of approximately 10% of these reserves during processing of the metals.
The company's reserves are located in a 28-mile long mineralized zone of the J-
M Reef that extends downward over one mile to an unknown depth. We hold the
rights to claims covering substantially all of the presently identified PGM
mineralized zone of the J-M Reef. At 1997 production levels, the proven and
probable reserves contained in the J-M Reef could be mined for over 40 years.
The reserves and geology of the J-M Reef are discussed under the heading
"Business and Properties--Geology and Ore Reserves." Because of this
substantial remaining mine life, we implemented an expansion program in 1994
with the goal of increasing production and decreasing costs per ounce.
The key elements of the 1994 Expansion Plan were to:
.develop a new 1,950-foot shaft for ore and waste transport and an
underground crusher and conveyer system;
.increase the number of active stopes;
.increase mechanized mining; and
.recruit additional skilled manpower.
S-3
<PAGE>
In the fourth quarter of 1997, we achieved the 1994 Expansion Plan's ore
production goal of approximately 2,000 tons per day. We also substantially
reduced the total cost per ounce of producing PGMs from $240 per ounce in 1995
to $177 per ounce during the nine months ending September 30, 1998. In
addition, our production of PGMs has increased substantially from 255,000
ounces in 1996 to 355,000 ounces in 1997. We anticipate that our 1998
production of PGMs will be approximately 450,000 to 470,000 ounces.
1998 EXPANSION PLAN
During 1998, we developed a new expansion plan with a long-term goal of
reaching an annualized rate of PGM production of approximately 1.2 million
ounces before year end 2001. The key components of the 1998 Expansion Plan
include increasing mine production at the Stillwater Mine from 2,000 to 3,000
tons of ore per day and developing a new mine at East Boulder with a permitted
capacity of 2,000 tons of ore per day.
The company has completed a preliminary study setting forth the expected
costs and timetable for the 1998 Expansion Plan. Based upon studies by
independent mining engineers and our internal analyses, we currently estimate
that the 1998 Expansion Plan will require a capital investment of approximately
$385 million, as set forth below.
ESTIMATED CAPITAL INVESTMENT FOR 1998 EXPANSION PLAN
<TABLE>
<S> <C>
Expansion of Stillwater Mine from 2,000 to 3,000 tons of
ore per day and construction of a new tailings facility... $ 75 million
Development and construction of East Boulder mine and
ancillary facilities...................................... 270 million
Expansion of existing smelter and base metals refinery..... 40 million
------------
Total estimated capital investment..................... $385 million
</TABLE>
We discuss the key risks associated with the 1998 Expansion Plan under the
headings "Risk Factors--Expansion Plan Risks" and "--Government Regulations and
Permitting."
Expansion at the Stillwater Mine. In the second quarter of 1998, H.A. Simons
Ltd., independent mining engineers, completed an engineering study on the
expansion of the Stillwater Mine. Based on this study and our internal
analyses, we have begun work to expand the current mill throughput at the
Stillwater Mine from 2,000 to 3,000 tons of ore per day. The expansion is
estimated to cost approximately $75 million and will consist of modifications
to the existing concentrator, additional underground development and completion
of a new tailings disposal facility. When this expansion is complete, we expect
that the Stillwater Mine will produce approximately 725,000 ounces of PGMs
annually.
Development of East Boulder. The East Boulder site will provide western
access to the J-M Reef. The company has received all major permits necessary to
construct and operate a mining facility at East Boulder at a capacity of 2,000
tons of ore per day. Development at East Boulder will consist of construction
of mine and support facilities, including an underground crusher, a surface
concentrator and ancillary surface facilities with a permitted capacity of
2,000 tons per day. These facilities have been designed, however, to allow
expansion beyond 2,000 tons of ore per day.
In 1996, we began work on the initial development phase of East Boulder and
invested $7.8 million, primarily for construction of a tunnel boring machine
and for electrical power supply to the mine portal site. The project was
suspended in October 1996, primarily due to a downturn in palladium and
platinum prices. However, we continued to conduct permitting and environmental
activities at East Boulder, spending $1.1 million during 1997. In November
1997, with the completion of the 1994 Expansion Plan and higher prices for
palladium and platinum, the company restarted the East Boulder project.
In the second quarter of 1998, the company completed the tunnel boring
machine and began development work. Independent contractors have commenced work
with the company to drive a 18,500-foot long, 15-foot diameter tunnel to reach
the J-M Reef. We expect the tunnel boring to take between 10 and 18 months and
as
S-4
<PAGE>
of September 30, 1998, the Company had drilled approximately 3,200 feet. Based
upon an independent engineering study by Kilborn International Inc. (which
covered primarily the underground mine and mine-related infrastructure) and our
internal analyses, we estimate the development of East Boulder should cost
approximately $270 million. The company believes that the operating costs at
East Boulder should be substantially similar to the costs at our existing
operations at the Stillwater Mine. When completed, annual PGM production from
East Boulder is expected to be approximately 450,000 ounces. East Boulder
development depends on the company obtaining the necessary financing and the
project remaining economically feasible. We discuss the key risks associated
with the development of the East Boulder mine under the heading "Risk Factors--
Expansion Plan Risks" and "--Government Regulations and Permitting."
Expansion of the Smelter and Base Metals Refinery. The company processes
concentrate produced from the Stillwater Mine at a smelter and a base metals
refinery located in Columbus, Montana. We need to expand these facilities in
order to accommodate the increased production expected from the expansion of
the Stillwater Mine and development of East Boulder. Based upon independent
engineering estimates and our internal analyses, we estimate the capital cost
of expanding the smelter and the base metals refinery to be approximately $40
million.
RECENT DEVELOPMENTS
Expansion Financing. In order to finance the 1998 Expansion Plan, the company
expects to use its cash flow from operations, the proceeds of this offering and
new bank financing. We recently obtained a commitment letter from The Bank of
Nova Scotia for a $175 million senior secured credit facility. This credit
facility, which is referred to as the Scotiabank Credit Facility, provides for
a $125 million term loan facility and a $50 million revolving credit facility.
The Company is negotiating the final loan documents for the Scotiabank Credit
Facility. Proceeds of the term loan facility will be used to finance a portion
of the 1998 Expansion Plan. Proceeds of the revolving credit facility will be
used for general corporate and working capital needs. The facility is expected
to mature on December 31, 2005, and will be secured by substantially all the
property and assets of the company. The Scotiabank Credit Facility will contain
typical covenants and conditions to initial and subsequent borrowings. The
terms of the Scotiabank Credit Facility are discussed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
S-5
<PAGE>
Marketing Contracts. In order to minimize the risk of lower prices in the
palladium and platinum markets while retaining most of the potential to obtain
higher prices, we entered into new long-term marketing contracts with General
Motors Corporation, Ford Motor Company, Mitsubishi Corporation and KEMET Corp.
Certain features of these new contracts are outlined below.
PALLADIUM CONTRACTS
. Cover the sale of between 90% to 100% of our production over the
next five years, priced at a slight discount to market.
. Provide a floor price averaging approximately $225 per ounce.
. Provide an average maximum price of approximately $400 per ounce on
approximately 30% of our production.
. Have no price cap on the remaining 70% of our production.
PLATINUM CONTRACTS
. Cover the sale of approximately 20% of our planned annual production
over the next five years, priced at a slight discount to market.
. Provide an average minimum price of $350 per ounce and an average
maximum price of $425 per ounce.
. The remaining 80% of our planned annual production is not committed
under these contracts and remains available for sale at prevailing
market prices or under future contracts.
We discuss the risks regarding these contracts under the heading "Risk
Factors--Dependence on Agreements with Significant Customers."
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE "RISK FACTORS" SET OUT IMMEDIATELY FOLLOWING
THIS SUMMARY.
THE OFFERING
Common Stock offered................ 2,000,000 shares
Common Stock outstanding after the 22,651,448 shares
offering(/1/)......................
Use of proceeds..................... The net proceeds from the offering will
be used to fund a portion of the
development and capital costs of the 1998
Expansion Plan. See "Use of Proceeds."
AMEX symbol......................... SWC
- --------
(1) Excludes (a) 1,919,739 shares of Common Stock reserved for issuance upon
conversion of our 7% Convertible Subordinated Notes Due 2003, (b) 2,500,000
shares reserved for issuance under the Stillwater Mining Company 1998
Equity Incentive Plan, or the Equity Plan, and 200,000 shares under the
Stillwater Mining Company General Employee Stock Plan, or the Employee
Plan, of which options covering a total of 1,340,759 shares were
outstanding at September 30, 1998, and (c) up to 300,000 shares that may be
issued pursuant to the underwriters' over-allotment option.
------------
The Company's principal executive offices are located at 1200 Seventeenth
Street, Suite 900, Denver, Colorado, 80202, and its telephone number at this
address is (303) 352-2060.
S-6
<PAGE>
SUMMARY OPERATING AND FINANCIAL INFORMATION
The following summary operating and financial information for the years 1995
through 1997 includes balance sheet and statement of operations data from the
company's audited financial statements, which are incorporated by reference
from the company's Annual Report on Form 10-K for the year ended December 31,
1997. The summary operating and financial information for the nine months ended
September 30, 1997 and 1998 includes balance sheet and statement of operations
data from the company's unaudited financial statements, which are incorporated
by reference from the company's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1998. In the opinion of management, the company's
unaudited financial statements for the nine months ended September 30, 1997 and
1998 include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the unaudited interim
periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ------------------------
1995 1996 1997 1997 1998
--------- --------- --------- ------------------------
(DOLLARS AND UNITS IN THOUSANDS, EXCEPT PER SHARE,
PER OUNCE AND PER TON AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Tons milled(/1/)........ 398 446 577 402 537
Mill head grade(/2/).... 0.67 0.67 0.70 0.71 0.69
Ounces of palladium pro-
duced.................. 169 196 271 191 255
Ounces of platinum pro-
duced.................. 51 59 84 59 78
--------- --------- --------- ---------- ----------
Total ounces pro-
duced(/3/)........... 220 255 355 250 333
========= ========= ========= ========== ==========
Ounces of palladium
sold................... 180 214 288 203 253
Ounces of platinum
sold................... 54 62 91 64 77
--------- --------- --------- ---------- ----------
Total ounces
sold(/3/)............ 234 276 379 267 330
========= ========= ========= ========== ==========
PRICE AND COST DA-
TA:(/4/)
Average realized price
per palladium ounce.... $ 157 $ 144 $ 144 $ 149 $ 184
Average realized price
per platinum ounce..... 425 410 388 391 383
Combined average real-
ized price per ounce... 219 204 203 207 231
Cash costs per ounce
produced............... $ 215 $ 184 $ 174 $ 180 $ 150
Total costs per ounce
produced............... 240 219 207 215 177
INCOME STATEMENT DATA:
Revenues(/5/)........... $ 51,335 $ 56,214 $ 76,877 $ 55,293 $76,234
Costs of metals
sold(/5/).............. 45,864 50,947 68,540 50,549 49,698
Operating income
(loss)................. (2,252) (5,192) (6,208) (4,953) 14,626
Net income (loss)(/6/).. $ 68 $ 11,082 $ (5,377) $ (4,532) $ 7,834
========= ========= ========= ========== ==========
Basic and diluted earn-
ings per share(/7/).... $ -- $ 0.55 $ (0.27) $ (0.22) $ 0.38
========= ========= ========= ========== ==========
Weighted average common
shares outstanding:
(/7/) Basic............ 20,068 20,093 20,290 20,230 20,506
Diluted................ 20,068 20,093 20,290 20,230 20,884
CASH FLOW DATA:
Net cash provided by
(used in) operations... $ 6,009 $ 14,464 $ (1,297) $ (3,072) $ 18,737
Capital expendi-
tures(/8/)............. 46,133 58,413 15,820 12,596 40,809
Depreciation and amorti-
zation................. 5,749 8,699 11,658 8,606 8,814
</TABLE>
(footnotes on next page)
S-7
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------- -------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets................. $ 44,974 $ 49,061 $ 35,303 $ 36,340 $ 35,479
Total assets................... 162,175 239,910 229,219 230,260 251,737
Long-term debt and capital
lease obligations............. 8,713 62,563 61,513 62,093 60,491
Shareholders' equity........... 132,305 143,666 141,392 140,645 152,533
Working capital................ 34,604 33,228 23,054 24,621 16,988
</TABLE>
- --------
(1) Tons milled represents the number of grade-bearing tons of ore fed to the
concentrator.
(2) Mill head grade is presented as ounces per ton of palladium and platinum
combined.
(3) Ounces produced is defined as the number of ounces produced from the
concentrator during the period reduced by losses expected to be incurred in
subsequent smelting and refining processes.
(4) A combined realized price of palladium and platinum is reported at the same
ratio as ounces are produced from the company's base metals refinery. Cash
costs include cash costs of mine operations, processing and administrative
expenses at the mine site (including overhead, taxes other than income
taxes, royalties and credits for metals produced other than palladium and
platinum). Total costs of production include cash costs plus depreciation
and amortization. Income taxes, corporate general and administrative
expenses and interest income and expense are not included in either total
or cash costs.
(5) Revenues consist of the sales revenue for palladium and platinum, including
any hedging gain or loss; by-product metals revenues and secondary
materials revenues are included as a reduction of cost of metals sold.
(6) Net income for 1996 reflects a change in accounting policy, which became
effective January 1, 1996. Pursuant to this policy, the company changed its
method of accounting for mine development expenditures by capitalizing
certain direct and indirect costs related to development activities, which
were previously expensed. The effect of the accounting change on 1996
results was to increase net income by approximately $5.2 million ($0.25 per
share). Assuming the accounting change had been applied retroactively, the
unaudited pro forma effect would have been an increase in net income of
$3.0 million ($0.15 per share) in 1995.
(7) In 1997, the company adopted SFAS No. 128, "Earnings Per Share," which
requires the presentation of basic and diluted earnings per share. All
prior period per share data presented have been restated to conform with
the provisions of this statement.
(8) Aggregate capital expenditures related to the 1994 and 1998 Expansion Plans
were $39.5 million, $35.9 million, $2.9 million, $2.7 million and $12.6
million in 1995, 1996, 1997 and for the nine month periods ended September
30, 1997 and 1998.
S-8
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors before you decide to
buy the Common Stock. You should also consider the other information contained
in this Prospectus Supplement, and the other risk factors and information set
forth in the related Prospectus, in the company's Reports on Forms 10-K, 10-Q
and 8-K and in other documents incorporated by reference.
METALS PRICE VOLATILITY, BACKWARDATION AND HEDGING
Since the company's sole source of revenue is the sale of PGMs, our
profitability is significantly affected by changes in the market prices of
PGMs. Market prices of PGMs are influenced by numerous factors beyond our
control. These factors include global supply and demand, speculative
activities, international political and economic conditions and production
levels and costs in other PGM producing countries, particularly South Africa
and Russia.
Current economic and political events in Russia could adversely affect PGM
market prices. If Russia disposes of substantial PGMs from stockpiles or
otherwise, the increased supply could adversely affect the market prices of
palladium and platinum. Recent political instability in Russia and mounting
economic problems make Russian PGM sales levels difficult to predict and the
risk of dispositions of stockpiles more significant. Volatility was evident
during 1997 and 1998, when apparent tightness in PGM markets led to multi-year
highs for current delivery contracts and "backwardation," a condition in which
delivery prices for metals in the near term are higher than delivery prices for
metals to be delivered in the future. A substantial and sustained decrease in
the market prices of PGMs would adversely affect our results of operations.
The company enters into hedging contracts from time to time to manage the
effect of price changes in palladium and platinum on the company's cash flow.
Historically, hedging activities typically consisted of "spot deferred
contracts" that require future deliveries of specific quantities of PGMs at
specific prices, the sale of call options and the purchase of put options.
During the first quarter of 1997, the company entered into significant hedging
positions, particularly in palladium, for both 1997 and 1998 sales. Following a
sharp rise in palladium spot prices, the company's deliveries against these
hedge contracts throughout 1997 and 1998 resulted in substantial hedging
losses. These losses totaled approximately $10.2 million in 1997 and
$24.4 million during the first nine months of 1998. Thus, while hedging
transactions are intended to reduce the negative effects of volatility of
prices, hedging can limit potential gains from increases in prices and could
again expose the company to hedging losses in certain circumstances. The
company's below market hedge contracts will mature and we will deliver metal to
close out these contracts during the remainder of 1998. The objective of our
hedging policy in the future will be to benefit from upward price movements
while providing floor prices to reduce our exposure to downside price
movements. To achieve this objective, we have entered into marketing contracts
with third parties that establish floor prices for sales of a portion of our
production. We discuss the company's new PGM marketing contracts under the
headings "Risk Factors--Dependence on Agreements with Significant Customers"
and "Business and Properties--1998 Expansion Plan--Marketing Contracts."
EXPANSION PLAN RISKS
The company's achievement of its long-term expansion goals depends upon its
ability to increase production at the Stillwater Mine and related facilities
and its ability to develop the East Boulder mine. Each of these tasks will
require the company to construct mine and processing facilities and to commence
and maintain production within budgeted levels. Although we believe that our
goals and our estimates are based upon reasonable assumptions, we may need to
revisit our decision to develop East Boulder and revise our plans and estimates
for the Stillwater Mine and East Boulder project as the projects progress.
Among the major risks to successful completion of the 1998 Expansion Plan
are:
. potential cost overruns during development of new mine operations and
construction of new facilities;
. possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits; and
. the inability to recruit sufficient numbers of skilled underground
miners.
S-9
<PAGE>
In addition, our ability to successfully implement the 1998 Expansion Plan and
obtain financing could be adversely affected by decreases in PGM prices.
Based on the complexity and uncertainty involved in development projects at
this early stage, it is extremely difficult to provide reliable time and cost
estimates. We cannot assure you that either the Stillwater expansion or the
development of East Boulder will be completed on time or at all, that the
expanded operations will achieve the anticipated production capacity, that the
construction costs will not be higher than estimated, that the expected
operating cost levels will be achieved or that funding will be available from
internal and external sources in necessary amounts or on acceptable terms.
The company is not planning to obtain a complete feasibility study or a final
engineering study for the East Boulder project. When the 18,500-foot access
tunnel has been completed, we will reevaluate our geologic and process analyses
and our estimates of capital expenditures, cash operating costs and recovery
rates to confirm the feasibility of proceeding with the East Boulder
development. The project's capital costs, operating costs and economic returns
may differ materially from our current analyses, which are based largely on
preliminary engineering and cost estimates. The company will proceed with
further development of East Boulder as the engineering studies are completed
and the grade and continuity of the reserves are confirmed.
East Boulder is a development project and has no operating history. Thus,
estimates of future cash operating costs at East Boulder are based largely on
our years of operating experience at the Stillwater Mine portion of the J-M
Reef. It is possible that actual cash operating costs and economic returns may
differ significantly from those currently estimated or those established in
future studies and estimates. Although the company anticipates that the
operating characteristics at East Boulder will be similar to the Stillwater
Mine, it is not unusual in new mining operations to experience unexpected
problems during the development and start-up phases, which can result in
substantial delays in reaching commercial production.
LIMITED AVAILABILITY OF ADDITIONAL MINING PERSONNEL
As the company's operations expand, we will need to hire substantially more
employees who are skilled in the development and operation of underground
precious metals mines. The availability of mining personnel in the area
surrounding our operations is limited. As a result, the company will be
required to recruit a large number of miners from outside of Montana. To meet
the mining personnel needs of our expansion plans, we may be required to
provide moving or commuting allowances and construct temporary housing
facilities. We cannot be certain that we will be able to hire and maintain an
adequate supply of miners and other personnel at either our existing operations
or our expanded operations, or that our labor expenses will not increase as a
result of a shortage in supply of mining personnel. Failure to maintain an
adequate supply of miners could adversely affect our expansion plans and our
results of operations. In addition, the 1998 Expansion Plan could be adversely
affected in the event of a strike or other work stoppage.
DEPENDENCE ON AGREEMENTS WITH SIGNIFICANT CUSTOMERS
In the third quarter 1998, the company entered into marketing contracts
covering the sale of palladium and platinum over the five-year period from
January 1999 through December 2003. Under these contracts, the company has
committed between 90% to 100% of its palladium production and approximately 20%
of its planned annual platinum production. The marketing contracts contain
termination provisions that allow the purchasers to terminate in the event the
company breaches and the breach is not cured within periods ranging from ten to
thirty days of notice by the purchaser. In addition, the contracts contain
force majeure provisions that allow for the suspension and, in one instance,
the termination of the contract upon the occurrence of certain events that are
generally beyond the control of a contracting party and that limit the party's
ability to perform the contract.
The company, therefore, is subject to the customers' compliance with the
terms of the marketing contracts, their ability to terminate or suspend the
contracts and the customers' willingness and ability to pay. If the
S-10
<PAGE>
company becomes involved in a disagreement with one or more of its customers,
their compliance with these contracts may be at risk. For example, the company
has negotiated floor prices that are well above historical low prices for
palladium. In the event of a substantial decline in the market price of
palladium, one or more of these customers could seek to renegotiate the prices
or fail to honor the contracts. In such an event, our expansion plans could be
threatened. In addition, a default or modification of any of the marketing
contracts could be a default under the Scotiabank Credit Facility and could
prohibit the Company from borrowing additional amounts or require the repayment
of outstanding loans. A default under the Scotiabank Credit Facility will be a
default under the company's 7% Convertible Subordinated Notes due 2003, which
may require the company to prepay all outstanding principal of and interest on
the Convertible Notes. Although the company believes it has adequate legal
remedies if a customer fails to perform, termination or breach could have a
material adverse effect on the company's expansion plans and results of
operations. See "Business and Properties--1998 Expansion Plan--Marketing."
GOVERNMENTAL REGULATIONS AND PERMITTING
Compliance with existing and future environmental laws and regulations may
require additional control measures and expenditures that we cannot reasonably
predict. Expansion above current production levels at the Stillwater Mine and
planned levels at East Boulder will require new environmental permitting. The
company has applied for the new or amended permits necessary to allow
production increases from 2,000 to 3,000 tons of ore per day at the Stillwater
Mine. If and when granted, these permits will be subject to administrative and
judicial appeal rights. In addition, a local zoning ordinance has been proposed
that would prohibit the company's intended use of the planned site of the
tailings facility at the Stillwater Mine. At East Boulder, permits currently
allow production of 2,000 tons of ore per day. Any increases in the capacity
there would require the preparation of a new environmental impact statement and
related permitting, all of which involve the opportunity for public notice and
comment. The company cannot be certain that it will be able to get the new or
amended permits required for such expansion or that organized opposition will
not result in significant project delays or failure to obtain necessary
permits.
IMPACT OF POSSIBLE NEW MINING LEGISLATION AND TITLE TO MINING CLAIMS
New laws and regulations, as well as amendments to existing laws and
regulations, could have a material adverse impact on the company's results of
operations and financial condition. In the worst case, such regulations could
render the company's mining operations uneconomic. During the 1998 legislative
session, legislation was being considered in the United States Congress that
would modify the General Mining Law of 1872. That law has traditionally
governed the location and maintenance of unpatented mining claims and related
activities on federal lands.
Among those proposals were Senate Bill 326 (The Abandoned Hardrock Mines
Reclamation Act of 1997), Senate Bill 327 (The Hardrock Mining Royalty Act of
1997) and Senate Bill 1102 (The Mining Law Reform Act of 1997). The first
proposal would have imposed a fee on production from patented mining claims.
The second and third proposals would have imposed a royalty on production from
unpatented mining claims. Other legislative proposals that have recently been
considered by Congress would have increased the cost of holding unpatented
mining claims and imposed more specific federal reclamation requirements on
operations on unpatented mining claims. None of those proposed modifications
was enacted into law. The Subcommittee on Forests and Public Land Management of
the Senate Committee on Energy and Natural Resources held hearings on the three
proposals on April 28, 1998. In addition, proponents of legislative proposals
similar to those outlined above may introduce mining law reform legislation
before the current session of Congress expires or during future sessions of
Congress. This proposed legislation would be attached as a rider to the annual
appropriations bill for the Department of the Interior and could include many
provisions similar to those outlined above.
The impact on us of possible congressional action is difficult to predict.
Legislation amending the General Mining Law could adversely affect our ongoing
operations at the Stillwater Mine and future operations at East Boulder.
Legislation that imposes a production royalty on unpatented mining claims or
imposes a fee on the extraction of minerals from patented mining claims could
materially adversely affect our operations.
S-11
<PAGE>
Both the Stillwater Mine and East Boulder include patented and unpatented
mining claims. Currently, the company has applications pending for patents for
some of the unpatented mining claims. The validity of unpatented mining claims
on public lands, which constitute the majority of the property holdings of the
company, is often uncertain and may be contested and subject to title defects.
The validity of an unpatented mining claim, in terms of location and
maintenance, depends on strict compliance with a complex body of federal and
state statutory and decisional law, and the existence of a discovery of
valuable minerals. The company cannot be certain that all of its unpatented
mining claims are valid or that the titles to all of the company's mining
claims are free from defects.
The company owns 34 patented mining claims and has filed patent applications
and received first half Mineral Entry Final Certificates for an additional 138
unpatented mining claims along the J-M Reef (at or near both the Stillwater
Mine and East Boulder). The United States Forest Service has informed us that
it expects to prepare final mineral reports covering the 138 unpatented claims
and forward those reports to the Bureau of Land Management by December of 1999,
although the timing of the completion of those reports is subject to change.
Before the BLM will grant a patent for any of the 138 unpatented mining claims
with first half Mineral Entry Final Certificates, it must determine that the
claim contains a discovery of valuable minerals as required by the General
Mining Law. Then the patent applications will be forwarded to the Secretary of
the Interior to grant the patents; however, the company cannot be certain that
any patent will be granted on a timely basis or at all. The processing of all
patent applications, including those made by the company, has been slowed in
recent years due to concerns on the part of the Department of the Interior
about granting patents when mining law reform legislation is pending.
Approximately 34% of the company's reserves are located on patented claims and
66% are located on unpatented claims.
S-12
<PAGE>
USE OF PROCEEDS
The company estimates that the net proceeds to the company from the sale of
the Common Stock offered by this prospectus supplement (after deducting our
estimated expenses) will be approximately $58.0 million (or $66.7 million
assuming full exercise of the underwriters' over-allotment option). We plan to
use the net proceeds of the offering to fund a portion of the development and
capital costs of the 1998 Expansion Plan. We expect to fund the remaining costs
of the 1998 Expansion Plan with internal cash flow and the $175 million
Scotiabank Credit Facility. The commitment letter with the Bank of Nova Scotia
provides for a $125 million term loan facility and a $50 million revolving
credit facility. Proceeds of the term loan facility will be used to finance a
portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility
will be used for our general corporate and working capital needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Pending the use of the net proceeds of the offering as discussed above, the
company plans to invest such proceeds in short-term investment grade marketable
securities or money market obligations.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Effective June 5, 1997, the Common Stock began trading on the AMEX under the
symbol "SWC." Prior to that time, the Common Stock was traded on the NASDAQ
National Market under the symbol "PGMS" from December 16, 1994 to June 4, 1997.
The following table sets forth, for the periods indicated, the high and low bid
or sales prices per share for the Common Stock, reported by NASDAQ or AMEX, as
applicable.
<TABLE>
<CAPTION>
PRICE RANGE
----------------
HIGH LOW
------- -------
<S> <C> <C>
1996
First Quarter............................................ $24 1/2 $18 1/4
Second Quarter........................................... 29 5/8 19 3/4
Third Quarter............................................ 25 3/4 18
Fourth Quarter........................................... 19 1/2 14 7/8
1997
First Quarter............................................ 24 7/8 16 1/2
Second Quarter........................................... 25 9/16 19 1/2
Third Quarter............................................ 22 1/2 19
Fourth Quarter........................................... 23 15 1/4
1998
First Quarter............................................ 25 5/16 15 7/8
Second Quarter........................................... 29 22 3/8
Third Quarter............................................ 31 15/16 17 3/8
Fourth Quarter (through October 19, 1998)................ 32 3/8 29 1/8
</TABLE>
The company has never paid any dividends on its Common Stock and expects for
the foreseeable future to retain all of its earnings from operations, if any,
for use in expanding and developing its business. Any future decision as to the
payment of dividends will be at the discretion of the company's Board of
Directors and will depend upon the company's earnings, financial position,
capital requirements, plans for expansion, loan covenants and such other
factors as the Board of Directors deems relevant. Covenants in the Scotiabank
Credit Facility are expected to significantly restrict the payment of dividends
on the Common Stock.
S-13
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the company as of September 30, 1998, and as adjusted to give
effect to the receipt of the estimated net proceeds from the offering,
estimated to be $58.0 million, assuming the underwriters' over-allotment option
is not exercised. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................. $ 6,658 $ 64,633
======== ========
TOTAL LONG-TERM DEBT:
Current portion of long-term debt and capital lease obli-
gations................................................. $ 1,562 $ 1,562
Long-term debt and capital lease obligations(/1/)........ 60,491 60,491
-------- --------
Total long-term debt, including current portion......... 62,053 62,053
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares autho-
rized, none issued...................................... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,651,448 shares issued and outstanding,
22,651,448 shares issued and outstanding as
adjusted(/2/)........................................... 207 227
Paid in capital.......................................... 144,497 202,452
Accumulated earnings .................................... 7,829 7,829
-------- --------
Total shareholders' equity.............................. 152,533 210,508
-------- --------
Total capitalization.................................... $214,586 $272,561
======== ========
</TABLE>
- --------
(1) In 1996, the company sold $51.5 million of 7% Convertible Subordinated
Notes Due 2003, maturing on May 1, 2003. The Convertible Notes are
unsecured, subordinated obligations and will be redeemable, in whole or in
part, at the option of the company beginning on May 1, 1999. The
Convertible Notes are convertible, subject to prior redemption or
repurchase, at the option of holders prior to maturity, into shares of
Common Stock at a conversion price of $26.80 per share.
(2) Excludes (a) 1,919,739 shares of Common Stock reserved for issuance upon
conversion of $51.5 million of Convertible Notes, (b) 2,500,000 shares and
200,000 shares of Common Stock reserved for issuance under the Equity Plan
and the Employee Plan, respectively, of which options covering 1,340,759
shares were outstanding at September 30, 1998, and (c) 300,000 shares of
Common Stock that may be issued pursuant to the underwriters' over-
allotment option.
S-14
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for the years 1995 though 1997,
is from the company's audited financial statements, which are incorporated by
reference from the company's Annual Report on Form 10-K for the year ended
December 31, 1997. The selected financial information for the nine months ended
September 30, 1997 and 1998 is from the company's unaudited financial
statements, which are incorporated by reference from the company's Quarterly
Report on Form 10-Q for the nine months ended September 30, 1998. In the
opinion of management, the company's unaudited financial statements for the
nine months ended September 30, 1997 and 1998 include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the unaudited interim periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues(/1/)............... $ 51,335 $ 56,214 $ 76,877 $ 55,293 $ 76,234
Costs and expenses:
Cost of metals sold(/1/).. 45,864 50,947 68,540 50,549 49,698
Depreciation and
amortization............. 5,749 8,699 11,658 8,606 8,814
-------- -------- -------- --------- --------
Total cost of sales .... 51,613 59,646 80,198 59,155 58,512
General and administrative
expenses................. 1,974 1,760 2,887 1,091 3,096
-------- -------- -------- --------- --------
Total costs and
expenses............... 53,587 61,406 83,085 60,246 61,608
-------- -------- -------- --------- --------
Operating income (loss)..... (2,252) (5,192) (6,208) (4,953) 14,626
Interest income............. 2,795 2,138 1,073 775 662
Interest expense, net of
capitalized interest(/2/).. (431) (1,461) (3,608) (3,192) (2,550)
-------- -------- -------- --------- --------
Income (loss) before income
taxes and cumulative effect
of accounting change....... 112 (4,515) (8,743) (7,370) 12,738
Income tax benefit
(provision)................ (44) 1,736 3,366 2,838 (4,904)
-------- -------- -------- --------- --------
Income (loss) before
cumulative effect of
accounting change.......... 68 (2,779) (5,377) (4,532) 7,834
Cumulative effect of
accounting change, net of
income tax provision of
$8,677(/3/)................ -- 13,861 -- -- --
-------- -------- -------- --------- --------
Net Income (loss)........... $ 68 $ 11,082 $ (5,377) $ (4,532) $ 7,834
======== ======== ======== ========= ========
Basic and diluted earnings
per share:(/4/)
Income (loss) before
cumulative effect of
accounting change........ $ -- $ (0.14) $ (0.27) $ (0.22) $ 0.38
Cumulative effect of
accounting change(/3/)... -- 0.69 -- -- --
-------- -------- -------- --------- --------
Basic and diluted earnings
(loss) per share......... $ -- $ 0.55 $ (0.27) $ (0.22) $ 0.38
======== ======== ======== ========= ========
Weighted average common
shares outstanding:(/4/)
Basic..................... 20,068 20,093 20,290 20,230 20,506
Diluted................... 20,068 20,093 20,290 20,230 20,884
CASH FLOW DATA:
Net cash provided by (used
in) operations............. $ 6,009 $ 14,464 $ (1,297) $ (3,072) $18,737
Capital expenditures(/5/)... 46,133 58,413 15,820 12,596 40,809
Depreciation and
amortization............... 5,749 8,699 11,658 8,606 8,814
BALANCE SHEET DATA:
Current assets.............. $ 44,974 $ 49,061 $ 35,303 $ 36,340 $ 35,479
Total assets................ 162,175 239,910 229,219 230,260 251,737
Long-term debt and capital
lease obligations.......... 8,713 62,563 61,513 62,093 60,491
Shareholders' equity........ 132,305 143,666 141,392 140,645 152,533
Working capital............. 34,604 33,228 23,054 24,621 16,988
</TABLE>
(footnotes on next page)
S-15
<PAGE>
- --------
(1) Revenues consist of the sales revenue for palladium and platinum, including
any hedging gain or loss. By-product metals revenue and secondary materials
processing revenue are included as a reduction of cost of metals sold.
(2) Capitalized interest for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1997 and 1998 totaled $0.0
million, $2.2 million, $1.5 million, $0.8 million and $1.1 million,
respectively.
(3) Net income for 1996 reflects a change in accounting policy which became
effective January 1, 1996. Pursuant to this policy, the company changed its
method of accounting for mine development expenditures by capitalizing
certain direct and indirect costs related to development activities, which
were previously expensed. The effect of the accounting change on 1996
results was to increase net income by approximately $5.2 million ($0.25 per
share). Assuming the accounting change had been applied retroactively, the
unaudited pro forma effect would have been an increase in net income of
$3.0 million ($0.15 per share) in 1995.
(4) In 1997, the company adopted SFAS No. 128, "Earnings Per Share," which
requires the presentation of basic and diluted earnings per share. All
prior period per share data presented have been restated to conform with
the provisions of this statement.
(5) Aggregate capital expenditures related to the 1994 and 1998 Expansion Plans
were $39.5 million, $35.9 million, $2.9 million, $2.7 million and $12.6
million in 1995, 1996, 1997 and for the nine month periods ended September
30, 1997 and 1998, respectively.
S-16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The company mines, processes and refines palladium, platinum, and associated
metals from the J-M Reef in Montana. The company conducts its mining operations
at the Stillwater Mine, and recently announced its 1998 Expansion Plan intended
to reach an annualized rate of PGM production of 1.2 million ounces before year
end 2001. The company plans to expand existing operations at the Stillwater
Mine and develop the East Boulder site. See "Business and Properties--1998
Expansion Plan."
The recently adopted 1998 Expansion Plan follows the successful completion of
the 1994 Expansion Plan, which doubled production from 1,000 to 2,000 tons of
ore per day at the Stillwater Mine while reducing the cash costs of production.
The 1994 Expansion Plan was completed during 1997, with fourth quarter
production reaching ore production rate goals. Cash costs of production were
reduced from $215 per ounce in 1995 to $184 per ounce in 1996, $174 per ounce
in 1997 and $150 per ounce for the first nine months of 1998. The key elements
of the 1994 Expansion Plan were a new 1,950-foot shaft for ore and waste
transport, an underground crusher and conveyer system, an increased number of
active stopes, increased mechanized mining and additional manpower. The key
goals of the 1998 Expansion Plan are to increase mine production at the
Stillwater Mine from 2,000 to 3,000 tons of ore per day and commence production
at East Boulder, with a long-term goal of reaching an annualized rate of PGM
production of approximately 1.2 million ounces before year end 2001. See "Risk
Factors--Expansion Plan Risks."
The ore grade of the company's reserves is generally consistent but, as is
common in an underground mine, the grade mined and recovery rate achieved will
vary from period to period. In particular, mill head grade can be expected to
vary by up to 10% from quarter to quarter. During the nine months ended
September 30, 1998, the average mill head grade of ore processed was 0.69
ounces of PGMs per ton of ore compared to 0. 71 ounces during the comparable
1997 period. During 1997, the average mill head grade of ore processed was 0.70
ounce of PGMs per ton of ore, compared to the 1996 average mill head grade of
0.67 ounce of PGM per ton. Recovery rates improved to 92% for the first nine
months of 1998, from 89% and 88% in 1997 and 1996, respectively. There can be
no assurance that the recovery rate improvements achieved in 1998 will be
sustained in future periods.
Historically, the company has used basic hedging techniques involving spot
deferred forward contract commitments and put and call options to attempt to
lock in prices for its production, benefit from price increases and protect
against price decreases. During the first quarter of 1997 the company entered
into significant hedge positions, particularly for palladium, for 1997 and
1998. These hedging contracts, which expire in 1998, precluded the company from
obtaining the benefit of increased spot market palladium prices in 1997 and
1998. As a result, the company's revenues were unfavorably impacted, with
hedging losses of $10.2 million in 1997 and $24.4 million for the first nine
months of 1998. These below market hedge contracts will mature and most of the
metal required to close out the contracts will be delivered during the
remainder of 1998. The objective of the company's hedging policy in the future
will be to benefit from upward price movements while providing floor prices to
reduce the company's exposure to downside price movements. Pursuant to this
policy, the company has entered into marketing contracts to sell between 90% to
100% of its palladium production and approximately 20% of its planned annual
platinum production from 1999 through 2003. Palladium sales under these
contracts will be at a slight discount to market prices. These contracts
provide for an average floor price of approximately $225 per ounce on
substantially all of the company's annual production and an average maximum
price of $400 per ounce on approximately 30% of production. The 20% of the
company's planned annual platinum production covered by these contracts will be
sold at a slight discount to market prices, subject to a floor of $350 per
ounce and a cap of $425 per ounce. See "Risk Factors--Dependence on Agreements
with Significant Customers."
S-17
<PAGE>
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Revenues. Revenues for the first nine months of 1998 increased $20.9 million,
or 38%, to $76.2 million compared to $55.3 million in the same period of 1997.
The increase in revenue was primarily due to a 24% increase in the quantity of
metal sold combined with a 23% increase in the average realized price per ounce
of palladium sold.
During the first nine months of 1998, the company sold 253,000 ounces of
palladium and 77,000 ounces of platinum at average realized prices of $184 and
$383, respectively, compared with sales of 203,000 ounces of palladium and
64,000 ounces of platinum at average realized prices of $149 and $391,
respectively, in the prior year's comparable period. During the first nine
months of 1998, the average market prices of palladium and platinum were $285
and $381, respectively. As a result of hedge contracts that were entered into
in 1997, the company lost $24.4 million in revenue in the first nine months of
1998 than would have been realized if metal had been delivered at prevailing
average market prices. In the comparable period of 1997, a hedging loss of $4.3
million resulted.
As of September 30, 1998, the company had 38,350 ounces of palladium sold
forward at an average price of $150 per ounce, all to be delivered in the
fourth quarter of 1998. The company has 250 ounces of palladium sold forward
for delivery in 1999 at an average price of $277 per ounce. The company had
12,400 ounces of platinum sold forward in the fourth quarter of 1998 at an
average price of $379 per ounce. In 1999, the company has 8,500 ounces of
platinum sold forward at an average price of $392 per ounce.
During the first nine months of 1998, the company increased production 33% to
255,000 ounces of palladium and 78,000 ounces of platinum compared with
production of 191,000 ounces of palladium and 59,000 ounces of platinum in the
first nine months of 1997.
Costs and Expenses. Total cost of sales decreased by $0.7 million, from $59.2
million in the first nine months of 1997 to $58.5 million in the first nine
months of 1998. The cash costs per ounce produced decreased 17% from $180 in
the first nine months of 1997 to $150 in the first nine months of 1998. The
decrease in costs resulted from increased throughput and processing
efficiencies achieved as a result of the completion of the 1994 Expansion Plan.
During 1997, the facility increased production capacity from 1,200 tons per day
in the first quarter of 1997 to 2,000 tons per day in the fourth quarter of
1997. Materials handling and processing efficiencies were also realized upon
commissioning of the production shaft in June 1997. In addition, the mill
recovery increased from 88% in the first nine months of 1997 to 92% in the
first nine months of 1998.
Operating Income (Loss). As a result of the increase in revenues and the
decrease in operating costs discussed above, operating income in the first nine
months of 1998 increased by $19.6 million to $14.6 million compared with an
operating loss of $5.0 million in the comparable period of 1997.
Net Income (Loss). The company's income before income taxes amounted to $12.7
million in the first nine months of 1998 compared to a loss before income taxes
of $7.4 million in the first nine months of 1997. In the first nine months of
1998, the company provided for $4.9 million of income taxes compared to a
recorded benefit of $2.8 million in the same period of 1997. The company has
provided for deferred income taxes at the statutory rate of 38.5%; however, as
a result of approximately $46.6 million of operating loss carryforwards
existing at December 31, 1997, the company does not expect to incur any
material income tax liability until future years. As a result, the company
reported net income of $7.8 million, or $0.38 per basic and diluted share in
the first nine months of 1998, compared to a net loss of $4.5 million, or $0.22
per basic and diluted share in the same period of 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
PGM Production. Total ore tons mined in the year ended December 31, 1997
increased 37% to 580,000 tons, from 424,000 tons for the year ended December
31, 1996. Tons milled in 1997 averaged about 1,600 tons
S-18
<PAGE>
per day compared with an average of 1,200 tons per day milled in 1996.
Increases in ore tonnage were achieved as a result of the mine expansion,
primarily through operating efficiencies gained by commencing underground ore
crushing, adding mine manpower, and improving stoping productivity. Enhanced
stoping productivity was driven by an increase in mechanized mining to almost
80% of 1997 tons mined, up from 60% in 1996.
The average head grade of ore delivered to the mill was 0.70 ounce per ton in
1997, an increase over the 0.67 ounce per ton achieved in 1996. The mill head
grade increased primarily due to successful implementation of controls to
minimize mining dilution. Additionally, commissioning of the production shaft
in June 1997 produced greater efficiencies in material handling and subsequent
material processing through the mill.
Palladium and platinum production increased 39% to 355,000 ounces for the
year ended December 31, 1997 from 255,000 ounces in 1996. Once again, this
substantial improvement in production was primarily the result of the mine
expansion and, more specifically, was driven by the increase in tons milled
during 1997 and a higher average mill head grade, coupled with an improvement
in the recovery rate resulting from the installation of three additional
flotation cells earlier in the year.
Revenues. Revenues were $76.9 million for the year ended December 31, 1997
compared with $56.2 million in 1996, an increase of 37%.
Palladium sales increased to 288,000 ounces in 1997 from 214,000 ounces in
1996. Platinum sales increased to 91,000 ounces in 1997 from 62,000 ounces in
1996. Total sales of metal increased 37% to 379,000 ounces in 1997 from 276,000
ounces in 1996, primarily due to significantly higher production levels
achieved in 1997 as a result of the mine expansion. Effective January 1, 1997,
the company changed its method of revenue recognition whereby revenue is
recognized when product is shipped from the company's base metals refinery to
an external refiner. This change made the company's revenue recognition policy
more comparable with other precious metals producers. The cumulative effect of
this change as of January 1, 1997 was to increase revenue by approximately $2.7
million in the first quarter of 1997; the effect on net income was not
material.
The combined average realized price per ounce of palladium and platinum sold
in 1997 was $203, roughly the same as 1996, while the combined average spot
price rose about 20% to $230 in 1997, compared with $191 in 1996. The average
realized price per ounce of palladium remained constant at $144 for both 1997
and 1996, while the average spot price increased 39% to $178 in 1997 from $128
in 1996. The company was unable to realize the average spot price for palladium
in 1997 because of its inability to defer delivery upon favorable terms on its
spot deferred palladium forward contracts due to continued severe backwardation
in the palladium markets during 1997. The average realized price per ounce of
platinum sold was $388 in 1997, a decline of 5% compared with $410 in 1996. The
platinum spot price remained about the same in both years at $395.
Costs and Expenses. Cash costs per ounce of metal produced in the year ended
December 31, 1997 decreased $10 to $174 per ounce from $184 per ounce in the
year ended December 31, 1996, primarily the result of a 39% increase in metal
production. Total costs per ounce of metal produced in the year ended December
31, 1997 decreased $12 to $207 per ounce from $219 per ounce in the year ended
December 31, 1996. This decrease is also primarily due to increased metal
production.
Operating Income (Loss). The company incurred an operating loss of $6.2
million for the year ended December 31, 1997, compared with an operating loss
of $5.2 million for 1996. The higher operating loss was mainly the result of a
$1.1 million increase in general and administrative costs. For 1997, general
and administrative costs were $2.9 million compared with $1.8 million in 1996.
The $2.9 million of expenses for 1997 included approximately $1.6 million of
non-recurring severance costs and professional fees related to changes in the
company's business processes and management structure and the reorganization of
the company's Board of Directors. The decrease in costs per ounce for the
current year was driven by significantly higher production in 1997, about 39%
more than in 1996. Operating efficiencies also contributed to the lower cost
per ounce.
S-19
<PAGE>
Net Income (Loss). The company realized a net loss of $5.4 million for the
year compared with net income of $11.1 million in 1996, when results included
the cumulative effect of an accounting change. Absent this accounting change,
the net loss for 1996 was $2.8 million. The larger net loss in 1997 was driven
by lower realized platinum prices, reduced interest income on lower cash
balances and increased net interest expense.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
PGM Production. Palladium and platinum production increased to 196,000 ounces
and 59,000 ounces, respectively, for the year ended December 31, 1996 from
169,000 ounces and 51,000 ounces, respectively, in 1995. PGM production for
1996 resulted from milling 446,000 tons with an average mill head grade of
0.67 ounce per ton. In comparison, PGM production for 1995 resulted from
milling 398,000 tons with an average mill head grade comparable to 1996.
The average mill head grade in 1996 was lower than the average historical
mill head grade for the Stillwater Mine because of dilution which resulted from
the increased use of mechanized mining techniques. Also, material handling
constraints led to the mixing of waste into the ore stockpiles in 1996. A new
mining width control system reduced mining dilution significantly in the fourth
quarter of 1996 and a new waste tracking system significantly reduced ore/waste
mixing. The average mill head grade for 1995 was lower than the average
historical mill head grade due to milling large volumes of low grade material
throughout 1995 and the lack of sufficient quantities of high grade ore in the
second and third quarters of that year.
Revenues. Revenues were $56.2 million for the year ended December 31, 1996,
compared with $51.3 million in 1995, an increase of 10%.
Palladium sales increased to 214,000 ounces in 1996 from 180,000 ounces in
1995. Platinum sales increased to 62,000 ounces in 1996 from 54,000 ounces in
1995. Combined sales of these metals increased 18% to 276,000 ounces in 1996
from 234,000 ounces in 1995, primarily due to increased production in 1996 and
the commissioning of the base metals refinery, which reduced the time period
from mine production to third-party refinery release of metals by nearly two
months. This resulted in nearly two months' additional production being made
available for sale during 1996.
Average realized prices per ounce sold for both palladium and platinum
decreased in 1996, reflecting a decrease in the market price for both metals.
The average spot price of palladium decreased to $128 in 1996 from $151 in
1995; the average realized price per ounce decreased to $144 in 1996 from $157
in 1995. The average spot price of platinum decreased to $397 in 1996 from $424
in 1995; the average realized price per ounce declined to $410 in 1996 from
$425 in 1995. The company entered into hedging contracts in 1996 for a portion
of its annual production. These contracts resulted in average realized prices
that were higher than spot prices. The average realized price per ounce of
palladium sold exceeded the average spot price by 13%, while the average
realized price per ounce of platinum sold exceeded the average spot price by
3%.
Operating Income (Loss). The company incurred an operating loss of $5.2
million for the year ended December 31, 1996, compared with an operating loss
of $2.3 million for 1995. The higher loss in 1996 was the result of lower
prices, partially offset by lower costs per ounce. The decrease in costs per
ounce for 1996 was primarily driven by a 16% increase in ounces produced in
1996. The lower cost per ounce was also impacted by a change in accounting for
capitalized underground development expense, which more than offset the effect
of increased depreciation and amortization and a $0.8 million write-off of
assets.
Net Income (Loss). The company realized net income in 1996 of $11.1 million
after the cumulative effect of the accounting change for capitalized
underground development expenses, compared with $0.1 million of net income for
1995. Excluding the cumulative effect of the accounting change, the net loss
for 1996 was $2.8 million. The higher net loss in 1996 was primarily the result
of lower metal prices and lower net interest income.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital at September 30, 1998 was $17.0 million
compared to $23.1 million at December 31, 1997. The ratio of current assets to
current liabilities was 1.9 at September 30, 1998, compared to 2.9 at December
31, 1997.
Net cash provided by operating activities for the first nine months of 1998
was $18.7 million compared to net cash used of $3.1 million in the first nine
months of 1997. The $21.8 million increase in operating cash flow in 1998 is
primarily attributable to an increase in the company's net income of $12.4
million and an increase in the provision for deferred income taxes of $7.7
million.
A total of $18.1 million of net cash was used in investing activities in the
first nine months of 1998 compared to $8.8 million in the first nine months of
1997. The increased usage was due to an increase in capital expenditures as a
result of the development at the East Boulder project and the Stillwater Mine
expansion. The company's financing activities provided $1.9 million in net cash
in the first nine months of 1998 compared to $1.3 million in the first nine
months of 1997. As a result of the above, cash and cash equivalents increased
by $2.5 million in the first nine months of 1998 compared with a decrease of
$10.6 million in the comparable period of 1997.
In September, 1998 the company completed the sale leaseback of a tunnel
boring machine and miscellaneous other mining equipment. The leases are
classified as operating leases for financial reporting purposes and are non-
cancelable with terms of seven years. Rental expense during the third quarter
1998 approximated $0.1 million. The annual rental payments during the term of
the leases are approximately $1.5 million.
The company recently announced plans to expand the Stillwater Mine and to
develop East Boulder. Total capital to fund the expansion is expected to
approximate $385 million. Of this, the Stillwater Mine expansion is expected to
cost about $75 million, East Boulder is expected to cost approximately $270
million, and approximately $40 million is designated for the expansion of the
company's smelter and base metals refinery located in Columbus, Montana. During
the remainder of 1998, the company expects to invest approximately $39.2
million in connection with the expansion plans. The company intends to finance
the expansion with operating cash flow and external financing.
During the third quarter of 1998, the company entered into marketing
contracts with General Motors Corporation, Ford Motor Company, Mitsubishi
Corporation and KEMET Corp. These contracts cover the company's PGM production
over the five-year period from January 1999 through December 2003. During this
period, the company has committed between 90% to 100% of its palladium
production and approximately 20% of its planned annual platinum production.
Palladium and platinum sales are priced at a slight discount to market, with
floor prices on substantially all of the Company's production committed under
these contracts averaging $225 per ounce of palladium and $350 per ounce of
platinum. The Company has also agreed to an average maximum price of
approximately $400 per ounce on approximately 30% of its palladium production
and $425 per ounce on approximately 20% of its planned annual platinum
production.
In addition, the company has an unsecured working capital line of credit with
NM Rothschild and Sons, Ltd., with a maximum borrowing capacity of $15 million,
which expires on April 30, 1999. As of September 30, 1998, there were no
borrowings against this credit line and the company could borrow up to $13.5
million based upon quarterly borrowing calculations under the terms of the
agreement. This facility will be cancelled concurrent with completion of the
Scotiabank Credit Facility.
The company has obtained a commitment letter from The Bank of Nova Scotia for
a $175 million credit facility. The commitment letter for the Scotiabank Credit
Facility provides for a $125 million term loan facility and a $50 million
revolving credit facility. We expect to be able to borrow under the term loan
facility until December 31, 2000 and that amortization of the term loan
facility will commence on March 31, 2001. We expect that the final maturity of
the term loan facility and revolving credit facility will be December 31, 2005.
S-21
<PAGE>
The loans will be required to be prepaid from excess cash flow, proceeds from
asset sales and the issuance of debt or equity securities, subject to specified
exceptions. Proceeds of the term loan facility will be used to finance a
portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility
will be used for our general corporate and working capital needs. At the
company's option, the Scotiabank Credit Facility will bear interest at either
LIBOR or an alternate base rate, in each case plus a margin. The interest rate
may be adjusted depending upon the company's ratio of debt to operating cash
flow. Substantially all the property and assets of the company and its
subsidiaries and the stock of the company's subsidiaries will be pledged as
security for the Scotiabank Credit Facility, and the company's subsidiaries
will guaranty the borrowings.
The bank's commitment is subject to numerous conditions, including the
completion of due diligence, the company obtaining $50 million of additional
equity capital and the negotiation of definitive loan documentation. In
addition, conditions precedent to both initial and subsequent borrowings under
the term loan facility and revolving credit facility may include: (1) continued
performance of the marketing contracts described in "Business and Properties--
1998 Expansion Plan--Marketing Contracts"; (2) receipt of satisfactory
milestone reports regarding the 1998 Expansion Plan; and (3) receipt of all
government and third party approvals necessary or advisable for the 1998
Expansion Plan.
Covenants in the Scotiabank Credit Facility will restrict: (1) additional
indebtedness; (2) payment of dividends or redemption of capital stock; (3)
liens; (4) investments, acquisitions, dispositions or mergers; (5) transactions
with affiliates; (6) capital expenditures (other than those set forth in the
1998 Expansion Plan); (7) refinancing or prepayment of subordinated debt
(excluding an underwritten call or conversion of the Convertible Notes); (8)
changes in the nature of business conducted or ceasing operations at the
principal operating properties; and (9) commodities hedging to no more than 90%
of annual palladium production and 75% of annual platinum production (excluding
the sales covered by the Company's marketing contracts and similar agreements).
The company also will be subject to financial covenants including a debt to
operating cash flow ratio, a debt service coverage ratio and a debt to equity
ratio.
Events of default will include: (1) a cross-default to other indebtedness of
the company or its subsidiaries; (2) any material modification to the life-of-
mine plan for the Stillwater Mine; (3) a change of control of the company; (4)
the failure to maintain annual palladium production of at least 315,000 ounces
in the year 2000 and at least 490,000 ounces each year thereafter or (5) any
breach or modification of any of the marketing contracts. Default under the
Scotiabank Credit Facility may constitute a default under the indenture
associated with the Convertible Notes. The indenture for the Convertible Notes
also contains standard covenants and provisions for events of default.
ENVIRONMENTAL OBLIGATIONS
The company currently has one significant environmental project in process.
This project involves securing an amendment to the existing operating permit
for the Stillwater Mine from the Montana Department of Environmental Quality,
which would provide for a substantial increase in throughput and construction
of a tailings facility on a tract of land owned by the company in Stillwater
County, Montana. The costs associated with this permitting effort were $0.3
million in 1997 and $0.2 million in 1996. The company expects to incur
additional permitting costs of about $0.4 million in 1998 to complete the
project. In 1997, the company's environmental expenses were $0.5 million and
capital expenditures for environmental equipment were $0.4 million. The company
incurred $1.0 million in environmental-related costs during 1996, of which half
were expenses and half were purchases of environmental equipment. The company's
ongoing operating expenditures for environmental compliance are expected to be
approximately $0.5 million per year.
The company is presently required to post surety bonds with the State of
Montana for approximately $4.3 million, which represents the company's best
estimate of mine closure and reclamation costs for current operations. The
company does not believe that mine closure and reclamation costs for current
operations will materially exceed this estimate. The company is accruing for
reclamation costs over the life of the Stillwater Mine based on current
production levels and estimated proven and probable reserves. On December 31,
1997
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<PAGE>
and 1996, the accrued liability was $0.7 million and $0.6 million,
respectively. The company periodically reviews the adequacy of its reclamation
and mine closure obligations in light of current laws and regulations and will
adjust its estimate as necessary. With the expansion of the Stillwater Mine and
development of East Boulder, the company expects the State of Montana to
increase the amount of the bond the company is required to post by $4 to $8
million.
YEAR 2000 ISSUES
The Year 2000 will impact computer programs written using two digits rather
than four to define the applicable year. Any programs with time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions, send invoices or engage in other ordinary activities. This
problem largely affects software programs written years ago, before the issue
came to prominence. The company primarily uses third-party software programs
written and updated by outside firms, and the company is in the process of
determining whether this software is Year 2000 compliant. In May 1996, the
company began the implementation of a new information technology infrastructure
that the company believes will be fully Year 2000 compliant. This
infrastructure is expected to be in place by the fourth quarter of 1998. To
assure that all software programs can successfully work in conjunction with
each other using this new infrastructure, the company plans on testing all of
its software and hardware during the first quarter of 1999 using a combination
of past and future dates. The company does not believe that the costs
associated with additional Year 2000 compliance will be material.
The company has set in motion an effort to obtain written assurances from its
material suppliers regarding their Year 2000 compliance. As a result of this
effort, the company expects to generate by the second quarter of 1999 a
validated list of suppliers that are Year 2000 compliant, and expects to use
the entities on this list to obtain its supplies.
The company has also begun the process of obtaining written assurances from
the company's material customers regarding their Year 2000 compliance. The
company's goal is to obtain by the second quarter of 1999 written assurances
from its customers that they are Year 2000 compliant or that they are expecting
to become Year 2000 compliant before December 31, 1999.
Although the company has taken significant steps to address the Year 2000
problem, there can be no assurance that the failure of the company and/or its
material customers or suppliers to timely attain Year 2000 compliance will not
materially reduce the company's revenues or income, or that these failures
and/or the impacts of broader compliance failures by telephone, mail, data
transfer or other utility or general service providers or government or private
entities will not have a material adverse effect on the company.
S-23
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Some statements contained in this Prospectus Supplement are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
and, therefore, involve uncertainties or risks that could cause actual results
to differ materially. Such statements include comments regarding expansion
plans, costs, grade, production and recovery rates, permitting, financing
needs, the terms of future credit facilities, capital expenditures, increases
in processing capacity, cost reduction measures, safety, timing for engineering
studies and environmental permitting, and the palladium and platinum market.
Factors that could cause actual results to differ materially from those
anticipated include:
. worldwide economic and political events affecting the supply and demand
of palladium and platinum;
. price volatility of PGMs;
. potential cost overruns, difficulty in making reliable estimates in the
early stages of expansion, uncertainties involved in developing a new
mine and other factors associated with a major expansion;
. fluctuations in ore grade, tons mined, crushed or milled;
. variations in concentrator, smelter or refinery operations;
. geological, technical, permitting, mining or processing problems;
. availability of experienced employees;
. financial market conditions;
. compliance of the company and significant customers with marketing
contracts; and
. the other factors discussed under "Risk Factors."
Investors are cautioned not to put undue reliance on forward-looking
statements. We disclaim any obligation to update the forward-looking statements
made or incorporated by reference in this Prospectus Supplement or the related
Prospectus.
S-24
<PAGE>
BUSINESS AND PROPERTIES
OVERVIEW
Stillwater mines, processes and refines palladium, platinum, and associated
metals from the J-M Reef, a geological formation located in Southern Montana.
The J-M Reef is the only significant source of PGMs outside South Africa and
Russia. Associated by-product metals include rhodium, gold, silver, nickel and
copper. All of our current mining operations are conducted at the Stillwater
Mine in Nye, Montana. Future expansion is planned at the Stillwater Mine and at
the East Boulder site, located approximately 13 miles away at the western end
of the J-M Reef.
Palladium and platinum were discovered in the J-M Reef by Manville
Corporation geologists in the early 1970s. In 1979, a Manville subsidiary
entered into a joint venture agreement with Chevron U.S.A. Inc. to develop PGMs
discovered in the J-M Reef. Manville and Chevron explored and developed the
Stillwater property and commenced underground mining in 1986. In 1992, the
company was incorporated in Delaware, and in 1993, Chevron and Manville
transferred substantially all the assets, liabilities and operations at the
Stillwater Mine to the company. In September 1994, the company redeemed
Chevron's entire 50% ownership, and Manville also sold a portion of its
ownership in Stillwater in December 1994 as part of the company's initial
public offering, reducing Manville's ownership to approximately 27%. In August
1995, Manville sold its remaining ownership interest in the company to a group
of institutional investors.
USES OF PGMS
PGMs are rare precious metals with unique physical qualities that are used in
diverse industrial applications and in the jewelry industry. PGMs' unique
physical qualities include (1) a high melting point; (2) superior conductivity
and ductility; (3) a high level of resistance to corrosion; (4) strength and
durability; and (5) strong catalytic properties. The largest and fastest
growing use for PGMs is by the automotive industry in the production of
catalysts that reduce harmful automobile emissions. Palladium is also used
extensively in the production of electronic components for personal computers,
cellular telephones, facsimile machines and other devices as well as dental
applications. Platinum is primarily used for jewelry. Industrial uses for
platinum include the production of data storage disks, glass, paints, nitric
acid, anti-cancer drugs, fiber optic cables, fertilizers, unleaded and high
octane gasolines and fuel cells.
GEOLOGY AND RESERVES
The PGM mineralization is contained within the J-M Reef, which is located in
the Beartooth Mountains in southern Montana. It is situated along the northern
edge of the Beartooth Plateau, which rises to elevations of over 10,000 feet in
places. This plateau is deeply dissected by several rivers and their
tributaries, including the Stillwater River, towards the eastern end and the
Boulder River, near the western end of the known reef horizon. Both of these
rivers have eroded their valley floors resulting in deep valleys cut into the
gently undulating elevated plateau.
Geologically, the J-M Reef is composed of an assemblage of basic and ultra
basic rocks derived from a single, large, buried magma body emplaced an
estimated 2.7 billion years ago. Over time, the original horizontal orientation
of the reef was changed as the reef was tilted at an angle of 50 to 90 degrees
to the north. The upper portion of the reef was eroded away to produce the
essentially lenticular-shaped exposure of the reef evident today, which has
been identified for 28 miles in an east-southeasterly direction.
The PGMs, consisting of palladium, platinum and rhodium, and a small amount
of nickel, copper, silver and gold, are concentrated in one principal layer of
mineralization within the J-M Reef. The mineralization is a few feet thick,
with large variations in thickness over the course of the 28-mile reef. The J-M
Reef appears to form a continuous layer which is exposed from the highest
ridges over 9,500 feet above sea level to the deepest valleys almost a mile
below the surface of the plateau. Geological and geophysical evidence suggests
that the J-M Reef extends downward beyond the limits of currently available
mining practice. Geological mapping and gravity surveys also suggest that the
dip of the J-M Reef flattens gently and may extend 30 miles or more to the
north.
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<PAGE>
The following table sets forth the company's proven and probable palladium
and platinum ore reserves as of December 31, 1997. The reserves reflected below
are based on a cut-off grade of 0.40 ounce of palladium plus platinum per ton,
and assume $155 and $375 per ounce for palladium and platinum, respectively,
for economic production. Proven and probable reserves are after averaging
mining dilution of 10% at zero grade based on actual mining experience.
The ore reserves were affirmed and verified by Behre Dolbear & Company, Inc.,
independent consultants who are experts in mining, geology and ore reserve
determination. The company primarily has utilized Behre Dolbear to carry out
independent reviews and inventories of the company's ore reserves since 1990.
The ore reserves have been affirmed and verified by Behre Dolbear in
alternating years.
<TABLE>
<CAPTION>
PROVEN AND PROBABLE RESERVES (/1/)
DECEMBER 31, 1997
---------------------------------------
CONTAINED CONTAINED
TONS AVERAGE OUNCES OUNCES
(/2/) GRADE (/3/) PALLADIUM PLATINUM
(000'S) (OUNCE/TON) (000'S) (000'S)
------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Proven Reserves........................ 1,379 0.86 909 275
Probable Reserves...................... 28,130 0.79 17,023 5,160
------ ---- ------ -----
Total Proven and Probable Reserves..... 29,509 0.79 17,932 5,435
====== ==== ====== =====
</TABLE>
- --------
(1) Reserves are defined as that part of a mineral deposit that can be
economically and legally extracted or produced at the time of determination
and is customarily stated in terms of "ore" when dealing with metals. The
probable reserves are computed from information similar to that used for
proved reserves, but the sites for inspection, sampling and measurement are
between 50 and 1,000 feet apart. The degree of assurance, although lower
than that for proven reserves, is sufficient to predict the geological
regularity of the reef between points of observation.
(2) Total proven and probable reserves include 11,510,000 tons in the area of
East Boulder. Significant capital investments will be required to access
the East Boulder reserves. See "Recent Developments--1998 Expansion Plan."
(3) Expressed as palladium plus platinum ounces per ton at a ratio of 3.3 parts
palladium to one part platinum in situ, before processing losses of
approximately 10%.
Reserves are consumed during mining operations, and the company generally
replaces reserves by drilling mineralized material on a close-spaced pattern.
Because of the expense of the close-spaced drilling necessary to generate
proven reserves estimates, the company generally attempts to establish
sufficient proven reserves to support its mine development objective of
approximately 18 months of production.
MINING
The Stillwater Mine accesses only a five-mile segment of the J-M Reef between
the elevations of 6,700 and 3,100 feet above sea level. Deep exploration drill
holes have confirmed the structure and mineralization of the J-M Reef down to
the 2,000-foot elevation, and the deposit appears to be open at depth to be
further verified by additional drilling. Access to the ore at the Stillwater
Mine is by means of horizontal adits and drifts driven parallel to the strike
of the J-M Reef. Prior to 1994, almost all of the company's mining activities
utilized "cut-and-fill" stoping methods. This method extracts the ore in ten-
foot high horizontal cuts. The open space created by the extraction of each cut
is filled with waste rock and coarse concentrator tailings and becomes the
floor for the next level of mining as the process moves upward.
Since 1994, the company has introduced two mechanized mining methods: "ramp-
and-fill" and "sub-level stoping." Ramp-and-fill is a mining method in which a
succession of horizontal cuts are extracted from the ore body using mobile
equipment. Access to the ore body is from ramps driven in or adjacent to the
ore body allowing the use of hydraulic drills and load haul dump equipment.
Sub-level stoping is a mining method in which blocks of the reef approximately
50 feet high and up to 75 feet along strike are extracted in 30-foot
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vertical intervals utilizing mobile electric hydraulic long-hole drills and
remote control rubber tired load haul dump equipment. The reef is mined in a
retreat sequence along strike and up dip and mined out areas are filled with
development waste. The company believes that mechanized mining methods are
safer, less expensive and more productive than traditional "cut-and-fill"
stoping. Mechanized mining increased from approximately 60% of tons mined in
1996 to approximately 80% in 1997. Currently, direct costs per ton mined for
ramp-and-fill stoping are approximately 40% less than cut-and-fill stoping and
is more productive by one ton per man-hour. However, not all areas of the reef
are amenable to ramp-and-fill mining, and the company will continue to select
the appropriate mining method on a stope-by-stope basis.
The 1,950-foot vertical shaft, which was commenced in 1994 and commissioned
in 1997 as part of the company's 1994 Expansion Plan to double output from
1,000 tons per day to 2,000 tons per day, was sunk adjacent to the concentrator
to increase efficiency of the operation. Development is continuing on two
levels at 3,200 and 3,800 feet above sea level, both of which are only
accessible from the shaft. The underground crushing station was commissioned
during 1997 and is located on the 3,100-foot level. All ore hoisted up the
shaft is crushed. The commissioning of the production shaft and underground
crushing station has reduced haulage time and costs, improved the material
handling of ore and waste and improved the grinding capabilities of the
concentrator. During the fourth quarter of 1997, approximately 56% of ore
production was crushed and hoisted up the shaft. The company expects this
percentage to increase as more stopes are developed off the shaft. The portion
of waste that cannot be used for backfill in underground excavations is hauled
to the surface or hoisted up the shaft, depending on its location, and used in
the rock embankment of the tailings dam or is placed in the permitted waste
disposal site.
PRODUCTION
During 1997, the company produced 355,000 ounces of palladium and platinum,
up from 255,000 ounces in 1996. In the fourth quarter of 1997, the company
attained its 1994 Expansion Plan production goal by increasing production by
46% from approximately 1,370 tons per day in the fourth quarter of 1996 to
approximately 2,000 tons per day in the fourth quarter of 1997. During the nine
months ended September 30, 1997 and 1998, the company produced an average of
approximately 1,500 and 2,000 tons per day, respectively. Variations in
production above and below 2,000 tons per day can be expected in future
periods. In conjunction with the 1994 Expansion Plan, the company invested in
new mobile mining equipment, reduced the number of sizes and types of equipment
used in the mine, formed an additional maintenance crew to permit maintenance
activities to be carried out on a 24-hour, seven day per week basis and
constructed additional surface facilities. The company has announced plans to
increase production to reach an annualized rate of 1.2 million ounces before
year end 2001. See "Recent Developments--1998 Expansion Plan" and "Risk
Factors--Expansion Plan Risks."
The 1994 Expansion Plan began to impact positively the company's cash costs
of production in 1996. Cash costs of production were $215 per ounce in 1995,
$184 per ounce in 1996, $174 per ounce in 1997 and $150 per ounce for the first
nine months of 1998. During 1994 through 1997, the company's total capital
expenditures for the expansion of the Stillwater Mine and related facilities
were approximately $70 million, excluding capital costs for sustaining and
rehabilitating the existing mine.
CONCENTRATION
The company maintains a concentrator plant adjacent to the Stillwater Mine.
Ore is defined as material with a PGM content above a 0.40 ounce per ton cut-
off grade. Ore is fed into the concentrator, mixed with water and ground to a
slurry in a mill circuit to liberate the PGM-bearing sulfide minerals from the
rock matrix. Various reagents are added to the slurry to separate the valuable
sulfides from the waste rock in a flotation circuit. In the flotation circuit,
the sulfide minerals are floated, recycled, reground and refloated to produce a
concentrate suitable for further processing. The flotation concentrate, which
represents approximately 1% of the original ore weight, is filtered, dried and
transported in trailers approximately 46 miles to the company's metallurgical
complex in Columbus, Montana. Approximately 60% of the material discarded from
this process is used for backfill in the mine, with the balance stored in an
onsite tailings containment area.
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<PAGE>
As part of the 1994 Expansion Plan, the capacity of the concentrator was
expanded with the addition of a large ball mill grinding unit, additional
flotation capacity and ancillary equipment. Currently, the concentrator has a
capacity of 2,000 tons of ore per day. In the first half of 1998, the company
modified the concentrator by installing metal lifters and grates in the semi-
autogenous grinding mill, or SAG mill, and installing a particle size monitor
to control the particle size in the grinding circuit. The particle size monitor
provides a more uniform sized product for the flotation circuit and reduces
labor requirements. The company expects that the modification of the SAG mill
and the installation of the particle size monitor should provide the
concentrator with increased capacity.
During 1997, the company continued to improve the recovery rate from the new
flotation circuit. Recovery improved to 90% during 1997 from 86% during 1996.
During the first half of 1998, the company installed twenty additional 300
cubic foot flotation cells, which helped to increase concentrator recovery to
approximately 92%. These cells also increased the concentrate grade, which
should result in potential cost reductions in downstream processing.
In 1996, the company submitted an application to the Montana Department of
Environmental Quality requesting an amendment to its operating permit for the
Stillwater Mine to increase permitted capacity from 2,000 to 3,000 tons of ore
per day. The company's proposal contemplates the construction of a second lined
tailings impoundment that would serve the Stillwater Mine for the next 30
years. The final environmental impact statement has been completed and was
noticed in the Federal Register on October 9, 1998. The company expects a
record of decision before the end of 1998. However, there can be no assurance
that the company will receive an amendment to its operating permit. See "Risk
Factors--Governmental Regulations."
SMELTING
The company's metallurgical complex is located in Columbus, Montana, and
consists of the precious metals smelter and the base metals refinery.
Concentrate from the mine site is fed to a 1.5 megawatt electric furnace, where
it is melted and separated into a silica oxide-rich slag and a PGM-rich furnace
matte. The slag is drained through the side of the furnace, cooled and provided
to outside parties for use as road base. The furnace matte is tapped from the
furnace and granulated. The granulated furnace matte is remelted in one of two
top blow rotary converts, which separate iron from the converter matte. The
converter matte is poured from the top blow rotary converts, granulated and
transferred to the base metals refinery in two ton bags. The granulated
converter matte, approximately 10% of the original smelter feed weight, is
primarily copper and nickel sulfides containing about 2% PGMs. The gasses
released from the smelting operations are routed through a gas/liquid scrubbing
system, which removes approximately 99.8% of the sulfur dioxide. Spent
scrubbing solution is treated in a process that converts the sulfur dioxide to
gypsum, or calcium sulfate, and regenerates clean scrubbing solution. The
gypsum is used by local farmers as a soil amendment.
The expansion of the smelter was completed in 1997, increasing the daily
smelting capacity from 22 tons of concentrate per day to 32 tons of concentrate
per day. Feed and power control systems for the existing furnace were modified,
a second top blow rotary convert was added and the gas handling and solution
regeneration systems were upgraded. Additionally during 1997, the furnace was
rebricked, a 30-day process that occurs every two to three years. The furnace
modifications resulted in significant power savings due to increased
efficiency. At 2,000 tons per day of mine production, the smelter processes
approximately 25-30 tons per day of concentrate.
REFINING
In 1996, the company constructed and commissioned the base metals refinery,
which utilizes the patented Sherritt Process, whereby sulfuric acid is used to
dissolve the nickel, copper, cobalt and iron from the converter matte. This
process upgrades the converter matte product over 25-30 times (from 2% PGMs to
55-60% PGMs). The base metals refinery has a capacity equivalent to more than
4,000 tons per day of mine production. The present plant now operates two
shifts per day, five days per week.
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<PAGE>
The iron is precipitated out of the solution and returned to the smelter to
be processed and removed in the slag. The dissolved nickel, copper and cobalt
is shipped via truck, as a sulfate solution, to an outside refiner located in
Canada. The company is paid for a portion of the nickel and cobalt content of
the solution. During 1998, the company began construction of a copper/nickel
refinery at a cost of $8.5 million to process the sulfate solution.
The resulting PGM-rich filter cake is shipped to Johnson Matthey in New
Jersey, and is returned to the account of the company after 35 days, as 99.95%
PGM sponge. Historically, the company has shipped approximately 70% of its
filter cake to Union Miniere and approximately 30% to Johnson Matthey. During
the third quarter of 1998, the company terminated its contract with Union
Miniere asserting breach of contract. The company is negotiating with several
refiners to refine its future production. The company currently ships all of
its filter cake to Johnson Matthey. The contract with Union Miniere provided
for a termination fee of $2.0 million; however, the company believes that Union
Miniere's breach relieves the company from any obligation to pay such fee.
SECONDARY MATERIALS PROCESSING
A sampling facility for secondary materials was completed in late 1997. The
facility was designed to accept spent automobile catalysts that can be crushed
and added to the electric furnace. Several test lots were processed during
1997, and it was determined that spent auto catalysts are suitable for
processing at the company's facilities. Processing of secondary materials was
suspended in mid-1997 to assess the results of the test lots and to improve the
performance of the system. The company resumed processing small shipments of
spent auto catalysts during the second quarter of 1998. There can be no
assurance that the processing of secondary materials will be profitable.
EXPLORATION ACTIVITIES
Major portions of the J-M Reef have yet to be exposed to drilling and
development sufficient to allow for the delineation of additional reserves.
However, given the magnitude of its current proven and probable reserves, the
company's exploration activities are limited. The company's current plans are
to continue to focus on its current PGM reserves and the mineralization of the
J-M Reef rather than exploring for or attempting to acquire additional
developed or undeveloped ore reserves. Consequently, exploration does not
represent a significant expenditure for the company.
1998 EXPANSION PLAN
During 1998, the company developed a new expansion plan with a long-term goal
of reaching an annualized rate of PGM production of approximately 1.2 million
ounces before year end 2001. The key components of the 1998 Expansion Plan
include increasing mine production at the Stillwater Mine from 2,000 to 3,000
tons of ore per day and developing a new mine site at East Boulder with a
permitted capacity of 2,000 tons of ore per day. The company has completed a
preliminary study setting forth the expected costs and timetable of the 1998
Expansion Plan. Based upon studies by independent mining engineers and our
internal analyses, we currently estimate that the 1998 Expansion Plan will
require a capital investment of approximately $385 million, as set forth below.
ESTIMATED CAPITAL INVESTMENT FOR 1998 EXPANSION PLAN
<TABLE>
<S> <C>
Expansion of Stillwater Mine from 2,000 to 3,000 tons of
ore per day and construction of a new tailings facility... $ 75 million
Development and construction of East Boulder mine and an-
cillary
facilities................................................ 270 million
Expansion of existing smelter and base metals refinery..... 40 million
------------
Total estimated capital investment:.................... $385 million
</TABLE>
S-29
<PAGE>
We discuss the key risks associated with the 1998 Expansion Plan under the
headings "Risk Factors--Expansion Plan Risks" and "--Government Regulations and
Permitting."
Expansion at the Stillwater Mine. In the second quarter of 1998, H.A. Simons
Ltd., independent mining engineers, completed an engineering study on the
expansion of the Stillwater Mine. Based on this study and our internal
analyses, we have begun work to expand the current mill throughput at the
Stillwater Mine from 2,000 to 3,000 tons of ore per day. The expansion is
estimated to cost approximately $75 million and will consist of modifications
to the existing concentrator, additional underground development and completion
of a new tailings disposal facility. When this expansion is complete, we expect
that the Stillwater Mine will produce approximately 725,000 ounces of PGMs
annually.
Development of East Boulder. The East Boulder site will provide western
access to the J-M Reef. The company has received all major permits necessary to
construct and operate a mining facility at East Boulder at a capacity of 2,000
tons of ore per day. Development at East Boulder will consist of construction
of mine and support facilities, including an underground crusher, a surface
concentrator and ancillary surface facilities. These facilities have been
designed, however, to allow expansion beyond 2,000 tons of ore per day.
In 1996, we began work on the initial development phase of East Boulder and
invested $7.8 million, primarily for construction of a tunnel boring machine
and for electrical power supply to the mine portal site. The project was
suspended in October 1996, primarily due to a downturn in palladium and
platinum prices. However, we continued to conduct permitting and environmental
activities at East Boulder, spending $1.1 million during 1997. In November
1997, with the completion of the 1994 Expansion Plan and higher prices for
palladium and platinum, the company restarted the East Boulder project.
In the second quarter of 1998, the company completed the tunnel boring
machine and began development work. Independent contractors have commenced work
with the company to drive a 18,500-foot long, 15-foot diameter tunnel to reach
the J-M Reef. We expect the tunnel boring to take between 10 and 18 months and
as of September 30, 1998, the Company had drilled approximately 3,200 feet.
Based upon an independent engineering study by Kilborn (which covered primarily
the underground mine and mine-related infrastructure) and our internal
analyses, we estimate the development of East Boulder should cost approximately
$270 million. The company believes that the operating costs at East Boulder
should be substantially similar to the costs at our existing operations at the
Stillwater Mine. When completed, annual PGM production from East Boulder is
expected to be approximately 450,000 ounces. East Boulder development depends
on the company obtaining the necessary financing and the project remaining
economically feasible. We discuss the key risks associated with the development
of the East Boulder mine under the heading "Risk Factors--Expansion Plan Risks"
and "--Government Regulations and Permitting."
Expansion of the Smelter and Base Metals Refinery. The company processes
concentrate produced from the Stillwater Mine at a smelter and a base metals
refinery located in Columbus, Montana. We need to expand these facilities in
order to accommodate the increased production expected from the expansion of
the Stillwater Mine and development of East Boulder. We do not anticipate any
difficulties in obtaining the supplies necessary for this expansion, except for
a potential deficiency in power supply equipment that we are currently
attempting to remedy. Based upon independent engineering estimates and our
internal analyses, we estimate the capital cost of expanding the smelter and
the base metals refinery to be approximately $40 million.
Expansion Financing. In order to finance the 1998 Expansion Plan, the
company expects to use its cash flow from operations, the proceeds of this
offering and new bank financing. We recently obtained a commitment letter from
The Bank of Nova Scotia for a $175 million senior secured credit facility. This
credit facility provides for a $125 million term loan facility and a $50
million revolving credit facility. The Company is negotiating the final loan
documents for the Scotiabank Credit Facility. Proceeds of the term loan
facility will be used to finance a portion of the 1998 Expansion Plan. Proceeds
of the revolving credit facility will be used for general corporate and working
capital needs. The facility is expected to mature on December 31, 2005, and
will be secured by substantially all the property and assets of the company.
The Scotiabank Credit Facility will
S-30
<PAGE>
contain typical covenants and conditions to initial and subsequent borrowings.
The terms of the Scotiabank Credit Facility are discussed under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Marketing Contracts. In order to minimize the downside price risk inherent
in the palladium and platinum markets while retaining most of the potential to
obtain higher prices, the company has entered into new long-term marketing
contracts with General Motors Corporation, Ford Motor Company, Mitsubishi
Corporation and KEMET Corp. The contracts cover the company's production over
the five-year period from January 1999 through December 2003. Under the
contracts, the company has committed between 90% to 100% of its palladium
production. Palladium sales are priced at a slight discount to market, with a
floor price averaging approximately $225 per ounce. The company has agreed to
an average maximum palladium price of approximately $400 per ounce on
approximately 30% of its production. The remaining 70% of the company's
palladium production is not subject to any price cap. In addition, the company
has committed approximately 20% of its planned annual platinum production over
the next five years. Platinum sales are priced at a slight discount to market,
subject to an average minimum price of $350 per ounce with an average maximum
price of $425 per ounce. The remaining 80% of the company's planned annual
platinum production is not committed under these contracts. Such platinum
production remains available for sale at prevailing market prices or under
future contracts. The marketing contracts contain termination provisions that
allow the purchasers to terminate in the event the company breaches and the
breach is not cured within periods ranging from ten to thirty days of notice by
the purchaser. In addition, the contracts contain force majeure provisions that
allow for the suspension and, in one instance, the termination of the contract
upon the occurrence of an event of force majeure. See "Risk Factors--Dependence
on Agreements with Significant Customers."
S-31
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and the company has agreed to sell to such underwriter, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ---------
<S> <C>
Salomon Smith Barney Inc. .................................. 560,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................... 560,000
TD Securities (USA) Inc. ................................... 280,000
Nesbitt Burns Securities Inc................................ 150,000
Sanders Morris Mundy Inc.................................... 150,000
Scotia Capital Markets (USA) Inc............................ 150,000
Warburg Dillon Reed LLC..................................... 150,000
---------
Total............................................. 2,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and TD Securities (USA) Inc. are acting as
representatives, propose to offer some of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus
Supplement and some of the shares to certain dealers at the public offering
price less a concession not in excess of $0.93 per share. The underwriters may
allow, and such dealers may reallow, a concession not in excess of $0.10 per
share on sales to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the representatives.
The company has granted to the underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discount. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this offering.
To the extent such option is exercised, each underwriter will be obligated,
subject to certain conditions, to purchase a number of additional shares
approximately proportionate to such underwriter's initial purchase commitment.
The company and its officers and directors have agreed that, for a period of
90 days from the date of this Prospectus Supplement, they will not, without the
prior written consent of Salomon Smith Barney Inc., offer, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock of the company or any
securities convertible into, or exercisable or exchangeable for, Common Stock,
provided however, that the company may (i) grant options to purchase shares of
Common Stock pursuant to the company's existing stock option plans and may
issue shares of Common Stock pursuant to the exercise of options granted under
the company's existing stock option plans and (ii) issue shares of Common Stock
upon conversion of the 7% Convertible Subordinated Notes due 2003. Salomon
Smith Barney Inc. in its sole discretion may release any of the securities
subject to these lock-up agreements at any time without notice.
The Common Stock is listed on the American Stock Exchange under the symbol
"SWC."
S-32
<PAGE>
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by the company in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of Common Stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share............................. $ 1.5375 $ 1.5375
Total................................. $3,075,000 $3,536,250
</TABLE>
In connection with this offering, Salomon Smith Barney Inc., on behalf of the
underwriters, may over-allot, or engage in syndicate covering transactions,
stabilizing transactions and penalty bids. Over-allotment involves syndicate
sales of Common Stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the Common Stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of Common Stock made for the purpose of preventing or retarding a
decline in the market price of the Common Stock while the offering is in
progress. Penalty bids permit the underwriters to reclaim a selling concession
from a syndicate member when Salomon Smith Barney Inc., in covering syndicate
short positions or making stabilizing purchases, repurchases shares originally
sold by that syndicate member. These activities may cause the price of the
Common Stock to be higher than the price that otherwise would exist in the open
market in absence of such transactions. These transactions may be effected on
the American Stock Exchange or in the over-the-counter market, or otherwise
and, if commenced, may be discontinued at any time.
The representatives have performed certain investment banking and advisory
services for the company from time to time for which they have received
customary fees and expenses. The representatives may, from time to time, engage
in transactions with and perform services for the company in the ordinary
course of their business.
The company has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the underwriters may be required to make in respect of
any of those liabilities.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will be
passed upon for the company by Davis, Graham & Stubbs LLP, Denver, Colorado.
Certain legal matters will be passed upon for the Underwriters by Winston &
Strawn.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1997, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The company's ore reserves set forth in the table under the heading "Geology
and Reserves" have been verified by Behre Dolbear & Company, Inc., and such
information has been included herein in reliance upon the authority of such
firm as experts in mining, geology and ore reserve determination.
S-33
<PAGE>
PROSPECTUS
$200,000,000
STILLWATER MINING COMPANY
DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
COMMON STOCK
WARRANTS
Stillwater Mining Company (the "Company" or "Stillwater") may offer from time
to time (i) debt securities ("Debt Securities"), consisting of debentures,
notes, bonds and/or other unsecured evidences of indebtedness in one or more
series, (ii) shares of preferred stock, par value $.01 per share ("Preferred
Stock"), in one or more series, (iii) depositary shares, (iv) shares of common
stock, par value $.01 per share ("Common Stock"), and (v) warrants ("Warrants")
to purchase Debt Securities, Preferred Stock or Common Stock. The Debt
Securities, Preferred Stock, Depositary Shares, Common Stock and Warrants
(collectively, the "Securities") may be offered either together or separately
in amounts, at prices and on terms to be determined at the time of offering.
Certain selling shareholders (the "Selling Shareholders") may offer from time
to time shares of Common Stock. The Securities offered pursuant to this
Prospectus will be limited to an aggregate initial offering price not to exceed
U.S.$200,000,000 (or the equivalent in foreign currency or currency units).
The accompanying Prospectus Supplement sets forth with regard to the particular
Securities in respect of which this Prospectus is being delivered (i) in the
case of Debt Securities, the title, aggregate principal amount, denominations
(which may be in United States dollars, in any other currency, currencies or
currency unit, including the European Currency Unit), maturity, rate, if any
(which may be fixed or variable) or method of calculation thereof, and time of
payment of any interest, any terms for redemption at the option of the Company
or the holder, any terms for sinking fund payments, any conversion or exchange
rights, any modification of the covenants, any listing of such Debt Securities
on a securities exchange and the initial public offering price and any other
terms in connection with the offering and sale of such Debt Securities, (ii) in
the case of Preferred Stock, the designation, aggregate principal amount, and
stated value and liquidation preference per share, initial public offering
price, dividend rate (or method of calculation), dates on which dividends shall
be payable, any redemption or sinking fund provisions, any conversion or
exchange rights, whether the Company has elected to offer the Preferred Stock
in the form of depositary shares, any listing of such Preferred Stock on a
securities exchange, and any other terms in connection with the offering and
sale of such Preferred Stock; (iii) in the case of Common Stock, the number of
shares of Common Stock and the terms of the offering and sale thereof; and (iv)
in the case of Warrants, the number and terms thereof, the number of shares of
Common Stock or Preferred Stock, or amount of Debt Securities, issuable upon
their exercise, the exercise price, the periods during which the Warrants are
exercisable, the terms of the Preferred Stock or Debt Securities issuable upon
exercise, any listing of such Warrants on a securities exchange and any other
terms in connection with the offering, sale and exercise of such Warrants. If
so specified in the applicable Prospectus Supplement, Securities may be issued
in whole or in part in the form of one or more temporary or permanent global
securities. The Prospectus Supplement will also contain information, as
applicable, about certain United States federal income tax considerations
relating to the Securities in respect of which this Prospectus is being
delivered.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE SECURITIES.
The Company's outstanding Common Stock is listed on the American Stock Exchange
(the "AMEX") under the symbol "SWC." Each Prospectus Supplement will indicate
if the Securities offered thereby will be listed on any securities exchange.
The Company and the Selling Shareholders may sell Securities to or through one
or more underwriters, and also may sell Securities directly to other purchasers
or through agents. The Company will not receive any net proceeds from the sale
of any shares of Common Stock offered by the Selling Shareholders. The
accompanying Prospectus Supplement sets forth the names of any underwriters,
dealers or agents involved in the sale of the Securities in respect of which
this Prospectus is being delivered, the principal amounts, if any, to be
purchased by such underwriters and the compensation, if any, of such
underwriters or agents. See "Plan of Distribution" and "Selling Shareholders"
herein.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
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.
THE DATE OF THIS PROSPECTUS IS JULY 17, 1998.
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN THE
PROSPECTUS SUPPLEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY UNDERWRITER, AGENT, DEALER OR OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES IN RESPECT OF WHICH THIS PROSPECTUS AND
THE ACCOMPANYING PROSPECTUS SUPPLEMENT ARE DELIVERED OR AN OFFER OF ANY
SECURITIES IN ANY JURISDICTION TO ANY PERSON WHERE SUCH AN OFFER WOULD BE
UNLAWFUL.
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 maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at its Regional
Offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission, 450 Fifth Street, N.W. Plaza, Washington,
D.C. 20549. The Common Stock is listed on the AMEX. Such reports, proxy
statements and other information can also be inspected and copied at the office
of this exchange at the American Stock Exchange, 86 Trinity Place, New York,
New York 10006. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
web site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement and
the exhibits thereto for further information with respect to the Company and
the Securities. The Registration Statement and the exhibits thereto can be
obtained from or inspected and copied at the public reference facilities
maintained by the Commission as described in the prior paragraph.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1997, filed
with the Commission on March 31, 1998.
2. Quarterly Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on April 29, 1998.
3. Current Report on Form 8-K dated April 8, 1998, filed with the
Commission on April 22, 1998.
4. The description of the Common Stock and Preferred Stock contained in the
Registration Statements on Form 8-A, filed with the Commission on
November 3, 1994 and October 30, 1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Securities shall
be deemed to be incorporated herein by reference and to be a part hereof from
the date of filing of such documents. Any statement contained herein, or in a
document all or a portion of which is incorporated
2
<PAGE>
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 or is deemed to be incorporated by reference herein or in the
Prospectus Supplement 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 furnish without charge to each person, including any
beneficial owner of Securities, to whom this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
incorporated by reference herein, except for the exhibits to such documents
(unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to Investor Relations, 717 Seventeenth
Street, Suite 1480, Denver, Colorado 80202. Telephone requests may be directed
to Investor Relations at (303) 978-2525.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Some statements contained in this Prospectus are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, and,
therefore, involve uncertainties or risks that could cause actual results to
differ materially. Such statements include comments regarding expansion plans,
costs, reserves, grade, dilution, production and recovery rates, processing of
secondary materials, permitting, anticipated cash flows, hedging, financing
needs and capital expenditures, increases in processing capacity, cost
reduction measures, safety, timing for feasibility studies, environmental
permitting and exploration work, compliance with laws and regulations, and the
palladium and platinum market. Factors that could cause actual results to
differ materially include (i) economic and political events affecting supply
and demand of palladium and platinum, (ii) price volatility of platinum group
metals ("PGMs"), (iii) amounts and prices of the Company's forward metals
sales, (iv) fluctuations in ore grade, tons mined, crushed or milled, (v)
variations in concentrator, smelter or refinery operations, (vi) geological,
technical, permitting, mining or processing problems, (vii) availability of
experienced employees, (viii) financial market conditions and (ix) the other
factors discussed under "Risk Factors", in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 and the Company's filings with the
Commission. Many of such factors are beyond the Company's ability to control or
predict. Readers are cautioned not to put undue reliance on forward-looking
statements. The Company disclaims any intent or obligation to update publicly
these forward-looking statements, whether as a result of new information,
future events or otherwise.
3
<PAGE>
Investors are encouraged to refer to the accompanying Prospectus Supplement for
more current information concerning certain information set forth in this
Prospectus.
THE COMPANY
Stillwater Mining Company is engaged in the development, extraction, processing
and refining of palladium, platinum, and associated metals from the J-M Reef, a
geological formation located in Stillwater and Sweet Grass Counties, Montana.
Associated by-product metals include rhodium, gold, silver, nickel and copper.
The Company conducts its current mining operations at the Stillwater Mine, in
Nye, Montana. Future expansion is planned at the Stillwater Mine and at the
East Boulder site, located at the western end of the J-M Reef (the "East
Boulder Project").
The J-M Reef is the only significant primary source of PGMs outside the
Republic of South Africa and Russia. The J-M Reef is an extensive mineralized
zone containing PGMs, which has been traced over a strike length of
approximately 28 miles and which extends downward over one mile to an unknown
depth. The Company holds the rights to claims covering substantially all of the
presently identified PGM mineralized zone of the J-M Reef.
Palladium and platinum were discovered in the J-M Reef by Manville Corporation
("Manville") geologists in the early 1970s. In 1979, a Manville subsidiary
entered into a joint venture agreement with Chevron U.S.A. Inc. ("Chevron") to
develop PGMs discovered in the J-M Reef. Manville and Chevron explored and
developed the Stillwater property and commenced underground mining in 1986. In
1992, the Company was incorporated in Delaware, and in 1993, Chevron and
Manville transferred substantially all assets, liabilities and operations at
Stillwater to the Company. In September 1994, the Company redeemed Chevron's
entire 50% ownership, and Manville also sold shares reducing its ownership of
record to approximately 27%. In August 1995, Manville sold its remaining
ownership interest in the Company to institutional investors.
At December 31, 1997, Stillwater had proven and probable reserves of
approximately 29.5 million tons of ore, with an average grade of 0.79 ounces
per ton containing approximately 23.4 million ounces of PGMs (approximately
19.4 million gold equivalent ounces). Based upon existing ore reserves and
current production levels, the J-M Reef has an estimated mine life in excess of
fifty years. Because of this long mine life, the Company has been implementing
a series of expansion programs since 1994 to increase its annual production. In
1997, PGM production increased to 355,000 ounces from 255,000 in 1996 and is
expected to increase further to between approximately 450,000 and 500,000
ounces in 1998. The Company recently announced a long term goal to triple PGM
production over the next five years. The Company is proceeding with the
additional investment designed to increase production at the Stillwater Mine
from 2,000 tons per day to 3,000 tons per day and to develop the East Boulder
Project over the next five years (the "1998 Expansion Plan").
4
<PAGE>
The following table sets forth the Company's PGM production, cash operating
costs, total cash costs and total production costs per ounce of metal produced,
ounces of palladium and platinum sold and average realized prices for the
period indicated.
PGM PRODUCTION COST(1) AND SALES DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Production (thousand ounces)
Palladium.......................................... 271 196 169
Platinum........................................... 84 59 51
------- ------- -------
Total production................................. 355 255 220
Cash production costs per ounce(1)................... $174 $184 $215
Depreciation and amortization........................ 33 35 25
------- ------- -------
Total production costs per ounce(1).............. $207 $219 $240
Sales (thousand ounces)
Palladium.......................................... 288 214 180
Platinum........................................... 91 62 54
------- ------- -------
Combined......................................... 379 276 234
Average Realized Price Per Ounce
Palladium.......................................... $144 $144 $157
Platinum........................................... $388 $410 $425
Combined(2)...................................... $203 $204 $219
Average Market Price Per Ounce
Palladium.......................................... $178 $128 $151
Platinum........................................... $395 $397 $424
Combined......................................... $230 $191 $216
</TABLE>
- --------
(1) Cash costs of production include cash costs of mining, processing and
general and administrative expenses at the mine site (including overhead,
taxes other than on income, royalties and credits for metals produced other
than palladium and platinum). Total costs of production include cash costs
plus depreciation and amortization. Corporate expenses, income taxes and
interest income and expense are not included in either total or cash costs
per ounce produced. Cash costs per ounce are based upon combined production
of palladium and platinum at the same ratio as ounces are produced from the
Base Metals Refinery, i.e., 3.2:1.
(2) Stillwater Mining reports a combined realized price of palladium and
platinum at the same ratio as ounces are produced from the Base Metals
Refinery, i.e., 3.2:1. The same ratio is applicable to the market price.
5
<PAGE>
RISK FACTORS
Prospective purchasers of Securities should carefully read this Prospectus, any
Prospectus Supplement delivered herewith, and the documents incorporated by
reference herein and therein. Ownership of Securities involves certain risks.
In determining whether to purchase Securities, prospective investors should
consider carefully the following risk factors and the other information
contained in this Prospectus, in addition to the other risk factors and
information set forth in any Prospectus Supplement delivered herewith.
METAL PRICE VOLATILITY, BACKWARDATION AND HEDGING
Since the Company's sole source of revenue is the sale of PGMs, the
profitability of the Company's operations can be significantly affected by
changes in the market prices of PGMs. PGM prices fluctuate widely and are
influenced by numerous factors beyond the Company's control, including such
factors as expectations for inflation, global demand, consumption patterns,
speculative activities, international political and economic conditions and
production amounts and costs in the other PGM producing countries, including
the Republic of South Africa and Russia. This volatility was evident during
1997, when apparent tightness in PGM markets led to multi-year highs for
current delivery contracts and "backwardation," a condition in which delivery
prices for metals in the near term are higher than delivery prices for metals
to be delivered in the future. Since some of the world supply of palladium and
platinum is a by-product of the mining of nickel and copper, a portion of the
worldwide production of palladium and platinum is unrelated to the demand for
such metals. As a result, ordinary market balancing mechanisms may be less
effective. The market prices of PGMs could fall below the Company's production
costs and remain at such levels for a sustained period, causing the Company to
experience operating losses and to curtail or suspend some or all of its mining
activities.
The following table shows the annual high, low and average per ounce prices of
palladium and platinum for the periods indicated:
<TABLE>
<CAPTION>
PLATINUM PALLADIUM
----------------- -----------------
YEAR HIGH LOW AVERAGE HIGH LOW AVERAGE
---- ---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
1993..................................... $414 $345 $376 $142 $100 $123
1994..................................... 431 380 406 163 124 144
1995..................................... 459 403 424 178 128 151
1996..................................... 433 368 398 146 116 130
1997..................................... 525 340 395 245 115 178
</TABLE>
Source: Johnson Matthey (1993-1996 closing prices) and Rothschild Denver
Inc. (1997 bid prices).
The Company enters into hedging contracts from time to time to manage the
effect of price changes in palladium and platinum on the Company's cash flow.
Hedging activities typically have consisted of spot deferred contracts for
future deliveries of specific quantities of PGMs at specific prices, the sale
of call options and the purchase of put options. During the first quarter of
1997, the Company entered into significant hedging positions, particularly in
palladium, for both 1997 and 1998 sales. The Company delivered against these
hedge contracts throughout 1997, incurring substantial palladium hedging losses
of approximately $10.1 million in 1997 and $5.1 million in the first quarter of
1998, due to the sharp rise in palladium spot prices and backwardation of
future delivery prices that started in mid-1997. Thus, while hedging
transactions are intended to reduce the negative effects of volatility of
prices, hedging can limit potential gains from increases in prices and could
again expose the Company to material losses in certain events. These below
market hedge contracts will mature and be closed out during the remainder of
1998. The Company's hedging policy in the future will have the objective of
capturing upward price movements while providing floor prices to reduce the
Company's exposure to downside price movements.
EXPANSION PLAN RISKS
The Company's achievement of its long term expansion goal depends upon its
ability to increase production substantially at the Stillwater Mine and related
facilities and to complete exploration and development
6
<PAGE>
successfully and to meet its production targets at the East Boulder Project.
Although the Company believes its goals and its preliminary estimates are based
upon reasonable assumptions, at this time there can be no assurance that these
goals can be realized. See "Business--1998 Expansion Plans."
Based upon engineering studies, the Company intends to increase production at
the Stillwater Mine from 2,000 tons per day to 3,000 tons per day. Actual
results may differ materially from preliminary production and cost analyses
conducted by the Company. To increase production at the Stillwater Mine, the
Company must receive permit approval to increase tons processed, which is
subject to the completion of environmental impact analyses and public review
processes. Although the environmental impact analyses and public comment period
have been completed and a record of decision is expected in the fourth quarter
of 1998, there can be no assurance that such decision will not be appealed.
Other facilities, including the concentrator, smelter and base metals refinery
("BMR"), will also have to be expanded or modified. In addition, design,
construction and operation at full capacity of new and expanded facilities must
be achieved, each of which can be expected to be time-consuming and complex and
to involve important elements that are beyond the Company's control.
The Company has also not yet completed a final engineering study or cost
estimate for the East Boulder Project. When an 18,500 foot tunnel has been
completed, geologic and process analyses, capital expenditures, cash operating
costs and recovery rates will be used to confirm the feasibility of proceeding
with the East Boulder Project. The project's capital costs, operating costs and
economic returns may differ materially from the Company's current analysis. The
Company will proceed with further development of the East Boulder Project as
the engineering studies are completed and the grade and continuity of the reef
are confirmed.
Based on the complexity and uncertainty involved in these projects, estimates
of time and funding required at this early stage are extremely difficult to
provide with certainty. No assurance can be given that either project will be
completed on time or at all, that the expanded operations will achieve the
anticipated production capacity, that the construction costs associated with
the 1998 Expansion Plan will not be higher than anticipated, that the expected
operating cost reductions will be achieved or that funding will be available
from internal and external sources in necessary amounts or on acceptable terms.
The anticipated timing and production results of the 1998 Expansion Plan
assume, among other things, (i) the identification and development of
sufficient proven reserves and (ii) the recruitment of sufficient numbers of
individuals skilled in underground mining. Finally, the Company's pursuit of
its expansion goals and its ability to finance them could be adversely affected
by changes in PGM prices.
The construction of expanded mining operations involves a number of
uncertainties, including factors beyond the Company's control. Failure to
complete the 1998 Expansion Plan on a timely basis or unexpected cost increases
could have a material adverse effect on the Company's future results of
operations and financial condition. If the capital expenditures required to
complete the 1998 Expansion Plan or to achieve the anticipated production
capacity are significantly higher than expected, there is no assurance that the
Company's capital resources would be sufficient to cover such costs or that the
Company would be able to obtain alternative sources of financing to cover such
costs.
COMPETITION; SUPPLY AND DEMAND
The Company competes with other suppliers of PGMs, some of which are
significantly larger than the Company and have access to greater mineral
reserves and financial and commercial resources. These suppliers include Anglo
American Platinum Corporation, Ltd., Western Platinum, Ltd. and Impala Platinum
Holdings, Ltd., which mine the Bushveld Complex in the Republic of South
Africa, the world's principal source of PGMs. The vast majority of the world's
1997 supply of PGMs came from the Republic of South Africa and Russia.
Palladium and platinum are also produced in Canada principally as a by-product
of nickel and copper mining.
In the past, Russia, the primary producer of palladium, has been estimated to
have supplied over 60% of what is now a seven and one-half million ounce world
market. Russia is believed to produce roughly 2.0 million
7
<PAGE>
ounces a year as a by-product of a nickel mine, and the remaining supply has
come from stockpiles accumulated over the years. The general consensus in the
western markets is that the Russian stockpiles of both palladium and platinum
have declined significantly and will be exhausted within the next few years.
However, if Russian stockpiles of palladium and platinum were more extensive
than believed and if Russian producers dispose of their stockpiles in the
market, the supply scenario would improve drastically, with the likely effect
of lowering prices substantially. Additional mines may open in the Republic of
South Africa or elsewhere over the next several years, including the Hartley
Platinum and Mimosa projects on the Great Dyke in Zimbabwe, resulting in
increased global production.
Furthermore, in certain industrialized countries, an industry has developed for
the recovery of PGMs from scrap sources, mostly from spent automotive and
industrial catalysts. There can be no assurance that the Company will be
successful in competing with these existing and emerging PGM producers.
Moreover, there can be no assurance that a less expensive alternative alloy or
synthetic material which has the same characteristics as PGMs will not be
developed to replace PGMs in a number of key technological or industrial
applications. Development of alternative alloys or materials could have an
adverse effect on the Company.
DEVELOPMENT RISKS
The Company's operations will be affected by the costs and results of its
continued exploration and development programs. The Company is seeking to
expand its reserves only through exploration and development within its
controlled claims which are located along the 28-mile J-M Reef. There can be no
assurance that the Company's mineral exploration efforts will be successful.
Even where mineralization has been discovered, it usually takes a number of
years from the initial phases of exploration 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 confirm metallurgical processes to extract the metal from the ore
and, in the case of new mines, 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 replacement of existing
reserves, some of which are being depleted by current production.
The Company has restarted its development of the East Boulder Project. New
development projects have no operating history upon which to base estimates of
future cash operating costs. Particularly for development projects, estimates
of reserves and cash operating costs are, to a large extent, based upon the
interpretation of geologic data obtained from drill holes and other sampling
techniques, and engineering studies which derive estimates of cash operating
costs based upon anticipated tonnage and grades of ore to be mined and
processed, the configuration of the ore body, expected recovery rates of the
PGMs from the ore, facility and equipment operating costs and other factors. As
a result, it is possible that actual cash operating costs and economic returns
may differ significantly from those currently estimated or those established in
future studies and estimates. It is not unusual in new mining operations to
experience unexpected problems during the development and start-up phases,
which can result in substantial delay in reaching commercial production.
There are a number of uncertainties inherent to any PGM development program,
including the location of the PGM vein in the reef, receipt of necessary
governmental permits and the construction of mining and processing facilities.
In addition, substantial expenditures may be required to pursue such
development activities.
MINING RISKS AND LIMITS OF INSURANCE COVERAGE
Underground mining and the Company's milling, smelting and refining operations
involve a number of risks and hazards, including environmental hazards,
industrial accidents, labor disputes, unusual and unexpected rock formations,
ground or slope failures, cave-ins, flooding and periodic interruptions due to
inclement or hazardous weather conditions or other acts of God. Such risks
could result in damage to, or destruction of, mineral properties or production
facilities, personal injury or death, environmental damage, delays in mining,
monetary losses and possible legal liability. Fatalities have occurred at the
Company's mine since operations began in 1986. There can be no assurance that
industrial accidents will not have a material adverse effect on
8
<PAGE>
the Company's business and operations. Although the Company believes that it
maintains insurance within ranges of coverage consistent with industry
practice, there can be no assurance that this insurance will cover the risks
associated with mining or that the Company will be able to maintain insurance
to cover these risks at economically feasible premiums. The Company might also
become subject to liability for pollution or other hazards which it cannot
insure against or which it may elect not to insure against because of premium
costs or other reasons. Losses from such events could have a material adverse
effect on the Company.
GOVERNMENTAL REGULATIONS
The Company's business is subject to extensive Federal, state and local
environmental controls and regulations, including the regulation of discharge
of materials into the environment, disturbance of lands, threatened or
endangered species and other environmental matters. These laws are continually
changing and, as a general matter, are becoming more restrictive. Generally,
compliance with these regulations requires the Company to obtain permits issued
by Federal, state and local regulatory agencies. Certain permits require
periodic renewal or review of their conditions. The Company cannot predict
whether it will be able to renew such permits or whether material changes in
permit conditions will be imposed. Nonrenewal of permits or the imposition of
additional conditions could have a material adverse effect on the Company's
financial condition or results of operations.
Compliance with existing and future environmental laws and regulations may
require additional control measures and expenditures which cannot be estimated
at this time. Environmental compliance requirements for new mines may require
substantial additional control measures that could materially affect permitting
and proposed construction schedules for such facilities. Under certain
circumstances, facility construction may be delayed pending regulatory
approval. Expansion will require new environmental permitting at the Stillwater
Mine and mining and processing facilities at the East Boulder Project. See "--
Expansion Plan Risks."
The Company's activities are also subject to extensive Federal, state and local
laws and regulations governing matters relating to mine safety, occupational
health, labor standards, prospecting, exploration, production, exports and
taxes. The Company has not experienced any material difficulty emanating from
these extensive laws and regulations in the past, nor does it have any basis to
expect any material difficulty relating to existing laws and regulations in the
future. The Company believes that it has successfully complied in all material
respects with all Federal, state and local requirements for the current
operations and planned expansion of its mining activities at the Stillwater
Mine. Compliance with these and other laws and regulations could require
significant capital outlays.
New laws and regulations, amendments to existing laws and regulations, or more
stringent enforcement of existing laws and regulations could have a material
adverse impact on the Company's results of operations and financial condition
and, in the worst case, could render the Company's mining operations
uneconomic. During the 1997 legislative session, legislation was introduced
into the United States Congress which proposed a number of modifications to the
General Mining Law, which governs the location and maintenance of unpatented
mining claims and related activities on federal lands. Among those
modifications were proposals which would have (i) imposed a royalty on
production from unpatented mining claims, (ii) increased the cost of holding
such claims, and (iii) imposed more specific federal reclamation requirements
on operations on such claims. None of those proposed modifications were enacted
into law. The same or similar proposals may be considered by Congress in 1998
as well. The potential impact on the Company as a result of congressional
action is difficult to predict, but legislation amending the General Mining Law
could adversely affect the Company's ability to economically develop the J-M
Reef, virtually all of which is comprised of unpatented mining claims on
federal lands.
DEPENDENCE ON A SINGLE MINE
All of the Company's revenues are currently derived from its mining and
operations at the Stillwater Mine. Although the Company has not experienced any
serious production interruption since production began in
9
<PAGE>
1987, if the operations at the Stillwater Mine or at any of the Company's
processing facilities were to be reduced, interrupted or curtailed, the
Company's ability to generate revenues and profits in the future would be
materially adversely affected.
TITLE TO PROPERTIES
The validity of unpatented mining claims on public lands, which constitute most
of the property holdings of the Company, is often uncertain and may be
contested and subject to title defects. Unpatented mining claims may be located
on U.S. federal public lands open to appropriation, and are generally
considered to be subject to greater title risk than other real property
interests because the validity of unpatented mining claims is often uncertain
and is always subject to challenges of third parties or contests by the federal
government. The validity of an unpatented mining claim, in terms of its
location and its maintenance, is dependent on strict compliance with a complex
body of federal and state statutory and decisional law. In addition, there are
few public records that definitively control the issues of validity and
ownership of unpatented mining claims. While the Company has obtained various
reports, opinions and certificates of title with respect to certain of the
claims it owns or to which it has the rights in accordance with what the
Company believes is industry practice, there can be no assurance that the title
to any of its claims may not be defective.
RESERVE ESTIMATES
While the Company's 1997 ore reserves have been affirmed and verified by
independent consultants, the ore reserve estimates incorporated by reference in
this Prospectus are necessarily imprecise and depend to some extent on
statistical inferences drawn from limited drilling, which may, on occasion,
prove unreliable. Reserve estimates are expressions of judgment based on
knowledge, experience and industry practice. Although the Company believes its
estimated ore reserves are well established, there can be no assurance that its
estimated ore reserves are accurate, and future production experience could
differ materially from such estimates. Should the Company encounter
mineralization or formations at any of its mines or projects different from
those predicted by drilling, sampling and similar examinations, reserve
estimates may have to be adjusted and mining plans may have to be altered in a
way that might adversely affect the Company's operations. Declines in the
market prices of PGMs may render the mining of some or all of the Company's ore
reserves uneconomic. No assurance can be given that any particular level of
PGMs may be recovered from the ore reserves and the grade of ore may vary
significantly from time to time. Moreover, short-term factors relating to the
ore reserves, such as the need for additional development of the ore body or
the processing of new or different grades, may impair the profitability of the
Company in any particular accounting period.
LABOR AVAILABILITY AND RELATIONS
The operations of the Company are significantly dependent on the availability
of qualified miners. Historically, the Company has experienced high turnover
with respect to its miners. In addition, the Company must compete for
individuals skilled in the operation and development of PGM mining properties.
The number of such persons is limited, and significant competition exists to
obtain their skills. There can be no assurance that the Company will be able to
maintain an adequate supply of miners and other personnel or the that the
Company's labor expenses will not increase as a result of a shortage in supply
of such workers. Failure to maintain an adequate supply of miners could
adversely effect the Company's expansion plans and results of operations. The
Company currently has approximately 735 employees, approximately 600 of whom
are covered by a collective bargaining agreement with the Oil, Chemical and
Atomic Workers Union (the "OCAW"), expiring June 30, 1999. The Company's
inability to negotiate an acceptable contract with the OCAW or with a new union
could result in work stoppages by the affected employees and increased
operating costs as a result of higher wages or benefits paid. In the event the
Company's employees were to engage in a strike or other work stoppage, the
Company could experience a significant disruption of its operations and higher
ongoing labor costs, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
10
<PAGE>
COMPLEXITY OF PROCESSING
Compared to gold and silver producers, as a PGM producer Stillwater is required
to conduct additional processing procedures and construct and operate
additional facilities. In addition to concentration facilities at the mine
site, the Company also operates its own smelting and base metals refining
facilities in Columbus, Montana to produce a PGM filter cake shipped for final
refining by a third party refiner. The operations of a smelter and refinery by
the Company require environmental steps and operational expertise not required
of most other precious metals producers. Though no material adverse effects
have been experienced to date, this additional complexity of operations poses
additional operational and environmental risks.
LIMITED NUMBER OF REFINERS
The Company has generally shipped its filter cake to two third party refiners.
The Company has no control over the refining operations of these third party
refiners. If the refining capacity available to the Company was significantly
reduced, due to the unavailability of third party refiners, changes in
environmental requirements or otherwise, the Company's operations would be
adversely affected.
CERTAIN ANTI-TAKEOVER EFFECTS
In October 1995, the Board of Directors adopted a stockholder rights plan and,
pursuant thereto, issued preferred stock purchase rights to holders of its
common stock. The Rights have certain anti-takeover effects. If triggered, the
Rights would cause substantial dilution to a person or group of persons who
acquires more than 15% of the Common Stock on terms not approved by the Board
of Directors. See "Description of Capital Stock--Rights Agreement."
11
<PAGE>
USE OF PROCEEDS
Unless a Prospectus Supplement indicates otherwise, the Company intends to use
the net proceeds to be received from the sale of the Securities to finance the
Company's operations, for continued expansion and development activities and
for other general corporate purposes. The Company will not receive any net
proceeds from the sale of any shares of Common Stock offered by the Selling
Shareholders.
RATIO OF EARNINGS TO FIXED CHARGES
AND RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges and the ratio of earnings to combined
fixed charges and preferred stock dividends for the Company were as follows for
the years ended December 31, 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................ (a) (b) 1.2 4.7 11.8
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends........................ (a) (b) 1.2 4.7 11.8
</TABLE>
- --------
(a) Earnings for the year ended December 31, 1997 were inadequate to cover
fixed charges by $10,196.
(b) Earnings for the year ended December 31, 1996 were inadequate to cover
fixed charges by $6,796.
For purposes of calculating the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends,
earnings consist of income before income taxes and fixed charges (exclusive of
preferred stock dividends). For the purpose of calculating both ratios, fixed
charges include interest expense and capitalized interest. Because the Company
did not pay any preferred stock dividends during the years indicated, the
ratios are identical.
SELLING SHAREHOLDERS
Some or all of the shares of Common Stock being offered pursuant to this
Prospectus may be offered by certain Selling Shareholders. Identification of
any such Selling Shareholders will be made in the applicable Prospectus
Supplement.
12
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
Stillwater Mining Company ("Stillwater" or the "Company") is engaged in the
exploration, development, extraction, processing and refining of palladium,
platinum and associated metals from the J-M Reef located in Stillwater and
Sweet Grass Counties, Montana. Associated by-product metals include rhodium,
gold, silver, nickel and copper. The Company conducts its current operations at
the Stillwater Mine in Nye, Montana. Future expansion is planned at the
Stillwater Mine and at the East Boulder site located at the western end of the
J-M Reef.
The J-M Reef is the only significant primary source of platinum group metals
("PGMs") outside the Republic of South Africa and Russia. The J-M Reef is an
extensive mineralized zone containing PGMs, which has been traced over a strike
length of approximately 28 miles and which extends downward over one mile to
unknown depths. The Company holds the rights to claims covering substantially
all of the property identified as PGM mineralized zone or the J-M Reef.
GEOLOGY AND RESERVES
The J-M Reef is located in the Beartooth Mountains in southern Montana. It is
situated along the northern edge of the Beartooth Plateau, which rises to
elevations of over 10,000 feet in places. This plateau is deeply dissected by
several rivers and their tributaries including the Stillwater River, towards
the eastern end and the Boulder River, near the western end of the known reef
horizon. Both of these rivers have eroded their valley floors resulting in deep
valleys cut into the gently undulating elevated plateau.
Geologically, the J-M Reef is composed of an assemblage of basic and ultrabasic
rocks derived from a single, large, buried magma body emplaced an estimated 2.7
billion years ago. The molten rock was sufficiently fluid at the time of
emplacement to allow individual minerals to crystallize sequentially, the
heavier, more basic, darker minerals crystallizing first, sinking towards the
bottom, and leaving the lighter, more siliceous light-colored minerals to
crystallize out later to produce bands of norite, gabbro and anorthosite which
can be traced across most of the strike length of the complex. Over time the
original horizontal orientation of the reef was changed as the reef was tilted
at an angle of 50 to 90 degrees to the north. The upper portion of the reef was
eroded away to produce the essentially lenticular-shaped exposure of the reef
evident today, which has been identified for 28 miles in an east-southeasterly
direction and has a maximum width of nearly 4.5 miles near the East Boulder
valley.
The PGMs, consisting of palladium, platinum and rhodium, and a small amount of
nickel, copper, silver and gold, are concentrated in one principal layer. The
J-M Reef appears to form a continuous layer which is exposed from the highest
ridges over 9,500 feet above sea level to the deepest valleys almost a mile
below the surface of the plateau. Geological and geophysical evidence suggests
that the J-M Reef extends downward beyond the limits of currently available
mining practice. Geological mapping and gravity surveys also suggest that the
dip of the J-M Reef flattens gently and may extend 30 miles or more to the
north.
The following table sets forth the Company's proven and probable palladium and
platinum ore reserves and platinum and gold equivalent reserves as of December
31, 1997. The reserves reflected below are based on a cut-off grade of 0.40
ounces of palladium plus platinum per ton, and assume the following prices for
economic production: $155 and $375 per ounce for palladium and platinum,
respectively. Proven and probable reserves are after average mining dilution of
10% at zero grade based on actual mining experience.
The ore reserves were affirmed and verified by Behre Dolbear & Company, Inc.
("Behre Dolbear"), independent consultants, who are experts in mining, geology
and ore reserve determination. The Company primarily has utilized Behre Dolbear
to carry out independent reviews and inventories of the Company's ore reserves
since 1990. The ore reserves have been affirmed and verified by Behre Dolbear
in alternating years.
13
<PAGE>
PROVEN AND PROBABLE RESERVES*
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------
AVERAGE CONTAINED
TONS(1) GRADE(2) OUNCES(2)
(000'S) (OUNCES/TON) (000'S)
------- ------------ ---------
<S> <C> <C> <C>
Proven Reserves............................. 1,379 0.86 1,184
Probable Reserves........................... 28,130 0.79 22,183
------ ---- ------
Total Proven and Probable Reserves.......... 29,509 0.79 23,367
------ ---- ------
Total Platinum Equivalent Proven and
Probable Reserves(2)....................... 15,462
------
Total Gold Equivalent Proven and
Reserves(3)................................ 19,354
------
</TABLE>
- --------
* Reserves are defined as that part of a mineral deposit that can be
economically and legally extracted or produced at the time of determination
and is customarily stated in terms of "ore" when dealing with metals. The
probable reserves are computed from information similar to that used for
proven reserves, but the sites for inspection, sampling and measurement are
between 50 and 1,000 feet apart. The degree of assurance, although lower
than that for proven reserves, is sufficient to predict the geological
regularity of the reef between points of observation. See "Risk Factors."
(1) Total proven and probable reserves include 11,510,000 tons in the area of
East Boulder. Significant capital investments will be required to access
the East Boulder reserves. See "--1998 Expansion Plan."
(2) Expressed as palladium plus platinum ounces per ton at a ratio of 3.3 parts
palladium to one part platinum, before processing losses of approximately
ten percent (10%).
(3) Platinum and gold equivalent ounces of proven and probable reserves at
December 31, 1997 are presented solely for purposes of illustration and are
calculated using the London P.M. Fix of $363 per ounce of platinum, $290
per ounce of gold and $203 per ounce of palladium on December 30, 1997.
Reserves are consumed during mining operations and the Company generally
replaces reserves by drilling mineralized material on a close-spaced pattern.
Prior to establishment as reserves, this mineralized material has been
confirmed to contain PGMs but has not yet been established as proven and
probable reserves. Because of the expense of the close-spaced drilling
necessary to generate proven reserves estimates, the Company generally attempts
to establish sufficient reserves to support its mine development objective of
approximately 18 months of production.
MINING
The Stillwater Mine accesses only a small segment of the J-M Reef,
approximately five miles long, between the elevations of 6,700 and 3,100 feet
above sea level. Deep exploration drill holes have confirmed the structure and
mineralization of the J-M Reef down to the 2,000-foot elevation, but currently
is open at depth to be further verified by additional drilling. Access to the
ore at the Stillwater Mine is by means of horizontal adits and drifts driven
parallel to the strike of the J-M Reef. Prior to 1994, almost all of the
Company's mining activities utilized "cut-and-fill" stoping methods. This
method extracts the ore in ten-foot high horizontal cuts. The open space
created by the extraction of each cut is filled with waste rock and coarse
concentrator tailings and becomes the floor for the next level of mining as the
process moves upward.
Since 1994, the Company has introduced two mechanized mining methods: "ramp-
and-fill" and "sub-level" stoping. Ramp-and-fill is a mining method in which a
succession of horizontal cuts are extracted from the ore body using mobile
equipment. Access to the ore body is from ramps driven in or adjacent to the
ore body allowing the use of hydraulic drills and load haul dump (LHD)
equipment. Sublevel stoping is a mining method in which horizontal slices of
the reef are extracted in 30-foot vertical intervals utilizing mobile electric
hydraulic long-hole drills and remote control rubber tired LHD's. The reef is
mined in a retreat sequence along strike and up dip and mined out areas are
filled with development waste. The Company believes that mechanized mining
methods are safer, less expensive and more productive than traditional "cut and
fill"
14
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stoping. Mechanized mining increased from 60% in 1996 to 80% in 1997.
Currently, direct costs per ton mined for ramp-and-fill stoping is 40% less
than cut-and-fill stoping and is more productive by one ton per man-hour.
However, not all areas of the reef are amenable to ramp-and-fill mining, and
the Company will continue to select the appropriate mining method on a stope-
by-stope basis.
The 1,950-foot vertical shaft, which was commissioned in 1997 as part of the
Company's prior expansion program, commenced in 1994, to double output from
1,000 TPD to 2,000 TPD (the "1994 Expansion Plan"), was sunk adjacent to the
concentrator. Development is continuing on two levels at 3,200 and 3,800 feet
above sea level, both of which are only accessible for the shaft. The crushing
station was commissioned during 1997 and is located on the 3,100-foot level.
All ore hoisted up the shaft is crushed. The commissioning of the production
shaft and underground crushing station has reduced haulage time and costs,
improved the material handling of ore and waste and improved the grinding
capabilities of the concentrator. During the fourth quarter of 1997,
approximately 56% of ore production was crushed and hoisted up the shaft. The
Company expects this percentage to increase as more stopes are developed off
the shaft. The portion of waste that cannot be used for backfill in underground
excavations is hauled to the surface or hoisted up the shaft, depending on its
location, and used in the rock embankment of the tailings dam or is placed in
the permitted waste disposal site.
PRODUCTION
During 1997, the Company produced 355,000 ounces of palladium and platinum, up
from 255,000 ounces in 1996. In the fourth quarter of 1997, the Company
attained its 1994 Expansion Plan production goals: by increasing production by
46% from approximately 1,370 TPD in the fourth quarter of 1996 to approximately
2,000 TPD in the fourth quarter of 1997. Variations in production above and
below 2,000 TPD can be expected in future periods. In conjunction with the 1994
Expansion Plan, the Company invested in new mobile mining equipment, reduced
the number of sizes and types of equipment used in the mine, formed an
additional maintenance crew to permit maintenance activities to be carried out
on a 24-hour, seven day per week basis and constructed additional surface
facilities.
The 1994 Expansion Plan began to impact positively the Company's cash costs of
production in 1996. Cash costs of production were $215 per ounce in 1995, $184
per ounce in 1996 and $174 per ounce in 1997. During 1994 through 1997, the
Company's total capital expenditures for the expansion of the Stillwater Mine
and facilities were approximately $70 million, excluding capital costs for
sustaining and rehabilitating the existing mine.
The Company has announced plans to triple production over five years. See "--
1998 Expansion Plan."
CONCENTRATION
The Company maintains a concentrator plant adjacent to the Stillwater Mine. Ore
is defined as material with a PGM content above a 0.40 cut-off grade. Ore is
fed into the concentrator, mixed with water and ground to a slurry in a mill
circuit to liberate the PGM-bearing sulfide minerals from the rock matrix.
Various reagents are added to the slurry to separate the valuable sulfides from
the waste rock in a flotation circuit. In the flotation circuit, the sulfide
minerals are floated, recycled, reground and refloated to produce a concentrate
suitable for further processing. The flotation concentrate, which represents
approximately 1% of the original ore weight, is filtered, dried and transported
in trailers approximately 46 miles to the Company's metallurgical complex in
Columbus, Montana. Approximately 60% of the material discarded from this
process is used for backfill in the mine, with the balance stored in an onsite
tailings containment area.
As part of the 1994 Expansion Plan, the capacity of the concentrator was
expanded with the addition of a large ball mill grinding unit, additional
flotation capacity and ancillary equipment.
During 1997, the Company continued to improve the recovery performance from the
new flotation circuit. Recovery improved to 90% at December 31, 1997 from 86%
at December 31, 1996. During the first half of
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1998, the Company installed twenty additional 300 cubic foot flotation cells,
which helped to increase the concentrator's recovery to approximately 92%.
These cells also increased the concentrate grade, which should result in
potential cost reductions in downstream processing.
Currently, the concentrator has a capacity of 2,000 TPD. In the first half of
1998, the Company modified the concentrator by installing metal lifters and
grates in the semi-autogenous (SAG) grinding mill and installing a particle
size monitor (PSM), to control the particle size in the grinding circuit. The
PSM provides a more uniform sized product for the flotation circuit and reduces
labor requirements. The Company expects that the modification of the SAG mill
and the installation of the PSM should provide the concentrator with increased
capacity.
In 1996, the Company submitted an application to the Montana Department of
Environmental Quality requesting an amendment to its Operating Permit. The
Company's proposal contemplates the construction of a lined tailings
impoundment that would serve the Stillwater Mine for the next thirty years.
SMELTING
The Company's metallurgical complex is located in Columbus, Montana, and
consists of the precious metals smelter and base metals refinery (BMR).
Concentrate from the mine site is fed to a 1.5 megawatt electric furnace, where
it is melted and separated into a silica oxide rich slag and a PGM rich furnace
matte. The slag is drained through the side of the furnace, cooled and provided
to outside parties for use as road base. PGM matte is tapped from the furnace
and granulated.
The furnace matte is remelted in one of two top blown rotary converters (TBRC),
which separate iron from the matte. The converter matte is poured from the
TBRC, granulated and transferred to the BMR in two ton bags. The matte,
approximately 10% of the original smelter feed weight, is primarily copper and
nickel sulfides containing about 2% PGMs.
The gases released from the smelting operations are routed through a gas/liquid
scrubbing system, which removes approximately 99.8% of the sulfur dioxide.
Spent scrubbing solution is treated in a process that converts the sulfur
dioxide to gypsum, or calcium sulfate, and regenerates clean scrubbing
solution. The gypsum is used by local farmers as a soil amendment.
The smelter's expansion was completed in 1997, increasing the daily smelting
capacity from 22 TPD to 32 TPD. Feed and power control systems for the existing
furnace were modified, a second TBRC was added and the gas handling and
solution regeneration systems were upgraded. Additionally during 1997, the
furnace was rebricked, a process that occurs every two to three years. The
furnace modifications resulted in significant power savings due to increased
efficiency. At 2,000 TPD of mine production, the smelter processes
approximately 25-30 TPD of concentrate.
REFINING
In 1996, the Company constructed and commissioned the BMR, which utilizes the
patented Sherritt Process, whereby sulfuric acid is used to dissolve the
nickel, copper, cobalt and iron from the smelter matte. This process upgrades
the smelter product over 25-30 times (from 2% Pd+Pt to 55-60% Pd+Pt). The BMR
has a capacity equivalent to more than 4,000 tons per day of mine production.
The present plant now operates two shifts per day, five days per week.
The iron is precipitated out of the solution and returned to the smelter to be
processed and removed in the slag. The dissolved nickel, copper and cobalt is
shipped via truck, as a sulfate solution, to an outside refiner located in
Canada. The Company is paid for a portion of the nickel and cobalt content of
the solution. During the first half of 1998, the Company began construction of
a copper/nickel refinery to process the sulfate solution.
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The resulting PGM rich filter cake is shipped to third party refiners and is
returned to the account of the Company after approximately 30 days as 99.95%
PGM sponge. The Company pays the third party refiners a refining charge in
United States dollars per ounce for the toll processing of the BMR filter cake.
SECONDARY MATERIALS PROCESSING
A sampling facility for secondary materials was completed in late 1997. The
facility was designed to accept spent catalysts that can be crushed and added
to the electric furnace. Several test lots were processed during 1997, and it
was determined that spent auto catalysts are suitable for processing at the
Company's facilities. Processing of secondary materials was suspended in mid-
1997 to assess the results of the test lots and to improve the performance of
the system. The Company expects to process shipments of spent auto catalysts
during 1998.
EXPLORATION ACTIVITIES
Major portions of the J-M Reef have yet to be exposed to drilling and
development sufficient to allow for the delineation of additional reserves.
However, given the magnitude of its current proven and probable reserves, the
Company's exploration activities are limited. The Company's current plans are
to continue to focus on its current PGM reserves at the Stillwater Mine and
East Boulder Project rather than exploring for or attempting to acquire
additional developed or undeveloped ore reserves. Consequently, exploration
does not represent a significant expenditure for the Company.
1998 EXPANSION PLAN
Investors are encouraged to refer to the accompanying Prospectus Supplement for
more current information concerning the 1998 Expansion Plan.
The Company has adopted a long-term goal to triple production in five years and
is currently establishing the steps necessary to achieve this goal. The two key
components include increasing output at the Stillwater Mine from 2,000 to 3,000
TPD and moving the East Boulder Project through development and into
production. Detailed engineering is underway and a comprehensive plan for the
expansion, including a timetable for construction and a cost estimate, is
expected in the second half of 1998. The Company continues to refine its
preliminary cost estimate of $325 million for the 1998 Expansion Plan,
including $75 million for expansion of the Stillwater Mine and $250 million for
development of the East Boulder Project.
EXPANSION AT STILLWATER MINE. An engineering study on the expansion of the
Stillwater Mine was completed by MRDI Canada in the second quarter of 1998. The
MRDI study, in addition to the Company's internal analysis, indicates the most
economically attractive alternative is to expand the current mill throughput at
the Stillwater Mine from 2,000 to 3,000 tons per day and to develop
simultaneously the East Boulder project. Detailed engineering is underway, and
a comprehensive plan for the expansion including a timetable for construction
and a cost estimate is expected in the second half of 1998. When completed,
incremental production from the Stillwater expansion is expected to be in the
range of 250,000 ounces of palladium and platinum.
DEVELOPMENT OF THE EAST BOULDER PROJECT. The East Boulder Project provides
western access to the J-M Reef, from Sweet Grass County, Montana, and is the
second fully permitted access to the J-M Reef. In 1996, the Company began work
on the initial exploration phase of the East Boulder Project, including site
preparation, construction of a power line and procurement of a tunnel boring
machine ("TBM"). During 1996, the Company invested $7.8 million in the East
Boulder Project. These capital investments were primarily for construction of
the TBM and providing electrical power supply to the mine portal site. In
October 1996, the project was deferred, primarily due to a downturn in
palladium and platinum prices. However, permitting and environmental activities
continued at the East Boulder Project with approximately $1.1 million expended
during 1997. In November 1997, with the achievement of the 1994 Expansion
Plan's production goals and higher prices for palladium and platinum, the
Company restarted the East Boulder Project. The TBM, which will provide access
to the western section of the J-M Reef, was completed in the second quarter of
1998 and development work began in the second quarter of 1998. Independent
contractors have been engaged to work
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with the Company to drive the 18,500-foot long, 15-foot diameter tunnel. This
is expected to take approximately 18 months and cost approximately $20 million.
During this period, the Company will complete its engineering and cost estimate
for the East Boulder Project. The Company will proceed with further development
of the East Boulder Project as engineering is completed and the grade and
continuity of the reef have been confirmed. A preliminary feasibility study,
completed in 1992, estimated the total cost of the project to be $250 million,
including $50 million for contingencies.
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DESCRIPTION OF DEBT SECURITIES
The Convertible Debt Securities may be issued from time to time in one or more
series under an indenture between the Company, as issuer, and the trustee
specified in the applicable Prospectus Supplement. The following statements
with respect to the Convertible Debt Securities are subject to the detailed
provisions of the indenture, the form of which is filed as an exhibit to the
Registration Statement. Parenthetical references below are to the indenture (or
the form of security contained therein if so specified) and, whenever any
particular provision of the indenture or any term used therein is referred to,
such provision or term is incorporated by reference as a part of the statement
in connection with which such reference is made, and the statement in
connection with which such reference is made is qualified in its entirety by
such reference.
The Convertible Debt Securities will constitute either indebtedness designated
as Senior Indebtedness ("Senior Debt Securities"), indebtedness designated as
Senior Subordinated Indebtedness ("Senior Subordinated Debt Securities") or
indebtedness designated as Subordinated Indebtedness ("Subordinated Debt
Securities"). Senior Debt Securities, Senior Subordinated Debt Securities and
Subordinated Debt Securities will each be issued under a separate indenture
(individually an "Indenture" and collectively the "Indentures") to be entered
into prior to the issuance of such Convertible Debt Securities. The Indentures
will be substantially identical, except for provisions relating to
subordination. See "Subordination of Senior Subordinated Debt Securities and
Subordinated Debt Securities." There will be a separate trustee (individually a
"Trustee" and collectively the "Trustees") under each Indenture. Information
regarding the Trustee under an Indenture will be included in any Prospectus
Supplement relating to the Convertible Debt Securities issued thereunder.
The particular terms of each series of Convertible Debt Securities, as well as
any modification or addition to the general terms of the Convertible Debt
Securities as herein described, which may be applicable to a particular series
of Convertible Debt Securities, will be described in the Prospectus Supplement
relating to such series of Convertible Debt Securities and set forth in a
filing with the Commission. Accordingly, for a description of the terms of a
particular series of Convertible Debt Securities, reference must be made to
both the Prospectus Supplement relating to such series and to the description
of Convertible Debt Securities set forth in this Prospectus.
GENERAL
The Convertible Debt Securities offered pursuant to this Prospectus will be
limited to $200,000,000 aggregate principal amount (or (i) its equivalent
(based on the applicable exchange rate at the time of sale), if Convertible
Debt Securities are issued with principal amounts denominated in one or more
foreign currencies, composite currencies or currency units as shall be
designated by the Company, or (ii) such greater amount, if Convertible Debt
Securities are issued at an original issue discount, as shall result in
aggregate proceeds of $200,000,000 to the Company). The Indenture provides that
additional convertible debt securities may be issued thereunder up to the
aggregate principal amount, which is not limited by the Indenture, authorized
from time to time by the Company's Board of Directors or any duly authorized
committee thereof. So long as a single Trustee is acting for the benefit of the
holders of all the Convertible Debt Securities offered hereby and any such
additional convertible debt securities issued under the Indenture, the
Convertible Debt Securities and any such additional convertible debt securities
are herein collectively referred to as the "Indenture Securities." The
Indenture also provides that there may be more than one Trustee under the
Indenture, each with respect to one or more different series of Indenture
Securities. At any time when two or more Trustees are acting, each with respect
to only certain series, the term "Indenture Securities" as used herein shall
mean the one or more series with respect to which each respective Trustee is
acting and the powers and the trust obligations of each such Trustee as
described herein shall extend only to the one or more series of Indenture
Securities for which it is acting as trustee. If there is more than one Trustee
acting for different series of Indenture Securities, then those Indenture
Securities (whether of one or more than one series) for which each Trustee is
acting would be treated as if issued under a separate Indenture.
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The applicable Prospectus Supplement will set forth a description of the
particular series of Convertible Debt Securities being offered thereby,
including but not limited to: (1) the designation or title of such Convertible
Debt Securities; (2) the aggregate principal amount of such Convertible Debt
Securities; (3) the percentage of their principal amount at which such
Convertible Debt Securities will be offered; (4) the date or dates on which the
principal of such Convertible Debt Securities will be payable and on which such
Convertible Debt Securities will mature; (5) the rate or rates (which may be
fixed or variable) at which such Convertible Debt Securities shall bear
interest, or the method of determination of such rate or rates at which such
Convertible Debt Securities shall bear interest, if any; (6) the date or dates
from which interest will accrue or the method of determination of such date or
dates, and the date or dates on which any such interest shall be payable; (7)
the currencies or currency units in which such Convertible Debt Securities are
issued or payable; (8) the terms for redemption, extension or early repayment
of such Convertible Debt Securities, if any; (9) if other than denominations of
$1,000 and any integral multiple thereof, the denominations in which such
Convertible Debt Securities are authorized to be issued; (10) the terms and
conditions upon which conversion will be effected, including the conversion
price, the conversion period and other conversion provisions; (11) the
provisions for a sinking fund, if any; (12) whether such Convertible Debt
Securities are issuable as a Global Security or Securities; (13) any index or
formula to be used to determine the amount of payments of principal, premium,
if any, and interest on such Convertible Debt Securities, and any commodities,
currencies, currency units or indices, or value, rate or price, relevant to
such determination; (14) if the principal of, premium, if any, or interest on
such Convertible Debt Securities is to be payable, at the election of the
Company or a Holder thereof, in one or more currencies or currency units other
than that or those in which such Convertible Debt Securities are stated to be
payable, the currencies or currency units in which payment of the principal of,
premium, if any, and interest on such Convertible Debt Securities as to which
election is made shall be payable, and the periods within which and the terms
and conditions upon which such election is to be made; (15) if other than the
principal amount thereof, the portion of the principal amount of such
Convertible Debt Securities of the series which will be payable upon
acceleration of the Maturity thereof; (16) whether such Convertible Debt
Securities are subordinate in right of payment to any Senior Indebtedness of
the Company and, if so, the terms and conditions of such subordination and the
aggregate principal amount of such Senior Indebtedness outstanding as of a
recent date; (17) any covenants to which the Company may be subject with
respect to such Convertible Debt Securities; (18) the applicability of the
provisions described under "Defeasance" below; (19) United States income tax
consequences, if any; (20) the provisions for the payment of additional amounts
with respect to any withholding taxes in certain cases; (21) any term or
provision relating to such Convertible Debt Securities which is not
inconsistent with the provisions of the Indenture; (22) the Trustee; and (23)
any other special terms pertaining to such Convertible Debt Securities. Unless
otherwise specified in the applicable Prospectus Supplement, the Convertible
Debt Securities will not be listed on any securities exchange.
One or more series of Convertible Debt Securities may be sold at a substantial
discount below their stated principal amount, bearing no interest or interest
at a rate which at the time of issuance is below market rates. Any material
federal income tax consequences and other special considerations with respect
to any series of Convertible Debt Securities will be described in the
Prospectus Supplement relating to any such series of Convertible Debt
Securities.
If the purchase price of any series of Convertible Debt Securities is
denominated in a foreign currency or currencies or a foreign currency unit or
units or if the principal of, premium, if any, and interest on any series of
Convertible Debt Securities are payable in a foreign currency or currencies or
a foreign currency unit or units, the restrictions, elections, general tax
considerations, specific terms and other information with respect to such
series of Convertible Debt Securities will be set forth in the applicable
Prospectus Supplement.
Convertible Debt Securities may be issued from time to time with payment terms
which are calculated by reference to the value, rate or price of one or more
commodities, currencies, currency units or indices. Holders of such Convertible
Debt Securities may receive a principal amount (including premium, if any) on
any principal payment date, or a payment of interest on any interest payment
date, that is greater than or less than
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the amount of principal (including premium, if any) or interest otherwise
payable on such dates, depending upon the value, rate or price on the
applicable dates of the applicable currency, currency unit, commodity or index.
Information as to the methods for determining the amount of principal, premium,
if any, or interest payable on any date, the currencies, currency units,
commodities or indices to which the amount payable on such date is linked and
any additional tax considerations will be set forth in the applicable
Prospectus Supplement.
Except as may be set forth in the applicable Prospectus Supplement, Holders of
Convertible Debt Securities will not have the benefit of any specific covenants
or provisions in the applicable Indenture or such Convertible Debt Securities
in the event that the Company engages in or becomes the subject of a highly
leveraged transaction, other than the limitations on mergers, consolidations
and transfers of substantially all of the Company's properties and assets as an
entirety to any person as described below under "Consolidation, Merger and Sale
of Assets."
The Convertible Debt Securities will be general unsecured obligations of the
Company.
Except as otherwise provided in the applicable Prospectus Supplement,
principal, premium, if any, and interest, if any, will be payable at an office
or agency to be maintained by the Company in New York, New York, except that at
the option of the Company interest may be paid by check mailed to the person
entitled thereto.
The Convertible Debt Securities will be issued only in fully registered form
without coupons and may be presented for the registration of transfer or
exchange at the corporate trust office of the Trustee. Not all Convertible Debt
Securities of any one series need be issued at the same time, and, unless
otherwise provided, a series may be reopened for issuances of additional
Convertible Debt Securities of such series.
SENIOR DEBT SECURITIES
The Senior Debt Securities will rank pari passu with all other unsecured and
unsubordinated debt of the Company and senior to the Senior Subordinated Debt
Securities and Subordinated Debt Securities.
SUBORDINATION OF SENIOR SUBORDINATED DEBT SECURITIES AND SUBORDINATED DEBT
SECURITIES
The payment of the principal of, premium, if any, and interest on the Senior
Subordinated Debt Securities and the Subordinated Debt Securities will, to the
extent set forth in the respective Indentures and Indenture Supplements
governing such Senior Subordinated Debt Securities and Subordinated Debt
Securities, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshalling of assets or any
bankruptcy, insolvency or similar proceedings of the Company, the holders of
all Senior Indebtedness will be entitled to receive payment in full of all
amounts due or to become due thereon before the Holders of the Senior
Subordinated Debt Securities or the Subordinated Debt Securities will be
entitled to receive any payment in respect of the principal of, premium, if
any, or interest on such Senior Subordinated Debt Securities or Subordinated
Debt Securities, as the case may be. In the event of the acceleration of the
maturity of any Senior Subordinated Debt Securities or Subordinated Debt
Securities, the holders of all Senior Indebtedness will be entitled to receive
payment in full of all amounts due or to become due thereon before the Holders
of the Senior Subordinated Debt Securities or Subordinated Debt Securities, as
the case may be, will be entitled to receive any payment upon the principal of,
premium, if any, or interest on such Senior Subordinated Debt Securities or
Subordinated Debt Securities, as the case may be. No payments on account of
principal, premium, if any, or interest in respect of the Senior Subordinated
Debt Securities or Subordinated Debt Securities may be made if there shall have
occurred and be continuing in a default in the payment of principal of (or
premium, if any) or interest on any Senior Indebtedness beyond any applicable
grace period, or a default with respect to any Senior Indebtedness permitting
the holders thereof to accelerate the maturity thereof, or if any judicial
proceedings shall be pending with respect to any such default. For purposes of
the subordination provisions, the payment, issuance or delivery of cash,
property or securities
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(other than stock, and certain subordinated securities, of the Company) upon
conversion or exchange or a Senior Subordinated Debt Security or Subordinated
Debt Security will be deemed to constitute payment on account of the principal
of such Senior Subordinated Debt Security or Subordinated Debt Security, as the
case may be.
By reason of such provisions, in the event of insolvency, holders of Senior
Subordinated Debt Securities and Subordinated Debt Securities may recover less,
ratably, than holders of Senior Indebtedness with respect thereto.
The term "Senior Indebtedness," when used with respect to any series of Senior
Subordinated Debt Securities or Subordinated Debt Securities, is defined to
include all amounts due on and obligations in connection with any of the
following, whether outstanding at the date of execution of the Indenture or
thereafter incurred, assumed, guaranteed or otherwise created (including,
without limitation, interest accruing on or after a bankruptcy or other similar
event, whether or not an allowed claim therein):
(a) indebtedness, obligations and other liabilities (contingent or
otherwise) of the Company for money borrowed or evidenced by bonds,
debentures, notes or similar instruments;
(b) reimbursement obligations and other liabilities (contingent or
otherwise) of the Company with respect to letters of credit or bankers'
acceptances issued for the account of the Company and interest rate
protection agreements and currency exchange or purchase agreements;
(c) obligations and liabilities (contingent or otherwise) of the Company
related to capitalized lease obligations;
(d) indebtedness, obligations and other liabilities (contingent or
otherwise) of the Company related to agreements or arrangements
designed to protect the Company against fluctuations in commodity
prices, including without limitation, commodity futures contracts or
similar hedging instruments;
(e) indebtedness of others of the kinds described in the preceding clauses
(a) through (d) that the Company has assumed, guaranteed or otherwise
assured the payment of, directly or indirectly;
(f) indebtedness of another Person of the type described in the preceding
clauses (a) through (e) secured by any mortgage, pledge, lien or other
encumbrance on property owned or held by the Company; and
(g) deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or
liability described in the preceding clauses (a) through (f) whether or
not there is any notice to or consent of the Holders of such series of
Senior Subordinated Debt Securities or Subordinated Debt Securities, as
the case may be; except that, with respect to the Senior Subordinated
Debt Securities, any particular indebtedness, obligation, liability,
guaranty, assumption, deferral, renewal, extension or refunding shall
not constitute "Senior Indebtedness" if it is expressly stated in the
governing terms, or in the assumption or guarantee, thereof that the
indebtedness involved is not senior in right of payment to the Senior
Subordinated Debt Securities or that such indebtedness is pari passu
with or junior to the Senior Subordinated Debt Securities and, with
respect to Subordinated Debt Securities, any particular indebtedness,
obligation, liability, guaranty, assumption, deferral, renewal,
extension or refunding shall not constitute "Senior Indebtedness" if it
is expressly stated in the governing terms, or in the assumption or
guarantee, thereof that the indebtedness involved is not senior in
right of payment to the Subordinated Debt Securities or that such
indebtedness is pari passu with or junior to the Subordinated Debt
Securities.
In certain circumstances, such as the bankruptcy or insolvency of the Company,
bankruptcy or insolvency legislation may be applicable and the application of
such legislation may lead to different results with respect to, for example,
payments to be made to Holders of Convertible Debt Securities, or priorities
between Holders of the Convertible Debt Securities and holders of Senior
Indebtedness, than those provided for in the applicable Indenture.
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If this Prospectus is being delivered in connection with a series of Senior
Subordinated Debt Securities or Subordinated Debt Securities, the accompanying
Prospectus Supplement or the information incorporated herein by reference will
set forth the approximate amount of Senior Indebtedness outstanding as of the
end of the Company's most recent fiscal quarter.
FORM, EXCHANGE, REGISTRATION, CONVERSION, TRANSFER AND PAYMENT
Unless otherwise indicated in the applicable Prospectus Supplement, the
Convertible Debt Securities will be issued only in fully registered form in
denominations of U.S.$1,000 or integral multiples thereof. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of principal,
premium, if any, and interest on the Convertible Debt Securities will be
payable, and the exchange, conversion and transfer of Convertible Debt
Securities will be registerable, at the office or agency of the Company
maintained for such purposes. No service charge will be made for any
registration of a transfer or exchange of the Convertible Debt Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
All monies paid by the Company to a Paying Agent for the payment of principal
of, premium, if any, or interest on any Convertible Debt Security which remain
unclaimed for two years after such principal, premium or interest has become
due and payable may be repaid to the Company and thereafter the holder of such
Convertible Debt Security may look only to the Company for payment thereof.
EVENTS OF DEFAULT
The following will be Events of Default under the Indenture with respect to
Convertible Debt Securities of any series: (a) failure to pay principal (or
premium, if any) on any Convertible Debt Security of that series at its
maturity, whether or not such failure is a result of the subordination
provisions of the Indenture with respect to such series; (b) failure to pay any
interest on any Convertible Debt Security of that series when due, continued
for 30 days, whether or not such failure is a result of the subordination
provisions of the Indenture with respect to such series; (c) failure to make
any sinking fund payment, when due, in respect of any Convertible Debt Security
of that series; (d) failure to perform any other covenant of the Company in the
applicable Indenture or any other covenant to which the Company may be subject
with respect to Convertible Debt Securities of that series (other than a
covenant solely for the benefit of a series of Convertible Debt Securities
other than that series), continued for 90 days after written notice as provided
in the applicable Indenture; (e) failure to pay when due on final maturity
(after the expiration of any applicable grace period), or upon acceleration,
any indebtedness for money borrowed by the Company in excess of U.S. $10
million; (f) certain events of bankruptcy, insolvency or reorganization; and
(g) any other Event of Default provided with respect to Convertible Debt
Securities of that series.
If an Event of Default with respect to outstanding Convertible Debt Securities
of any series shall occur and be continuing, either the Trustee or the Holders
of at least 25% in principal amount of the outstanding Convertible Debt
Securities of that series, by notice as provided in the applicable Indenture,
may declare the principal amount (or, if the Convertible Debt Securities of
that series are original issue discount securities, such portion of the
principal amount as may be specified in the terms of that series) of all
Convertible Debt Securities of that series to be due and payable immediately,
except that upon the occurrence of an Event of Default specified in (f) above,
the principal amount (or in the case of original issue discount securities,
such portion) of all Convertible Debt Securities shall be immediately due and
payable without notice. However, at any time after a declaration of
acceleration with respect to Convertible Debt Securities of any series has been
made, but before judgment or decree based on such acceleration has been
obtained, the Holders of a majority in principal amount of the outstanding
Convertible Debt Securities of that series may, under certain circumstances,
rescind and annul such acceleration. For information as to waiver of defaults,
see "Modification and Waiver" below.
The Indentures will provide that, subject to the duty of the respective
Trustees thereunder during an Event of Default to act with the required
standard of care, each such Trustee will be under no obligation to exercise any
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of its rights or powers under the respective Indentures at the request or
direction of any of the Holders, unless such Holders shall have offered to such
Trustee reasonable security or indemnity. Subject to certain provisions,
including those requiring security or indemnification of the applicable
Trustee, the Holders of a majority in principal amount of the outstanding
Convertible Debt Securities of any series will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
such Trustee, or to exercise any trust or power conferred on such Trustee, with
respect to the Convertible Debt Securities of that series.
No Holder of a Convertible Debt Security of any series will have any right to
institute any proceeding with respect to the applicable Indenture or for any
remedy thereunder, unless such Holder shall have previously given to the
applicable Trustee written notice of a continuing Event of Default and unless
also the Holders of at least 25% in aggregate principal amount of the
outstanding Convertible Debt Securities of the same series shall have made
written requests, and offered reasonable indemnity, to such Trustee to
institute such proceeding as trustee, and the Trustee shall not have received
from the Holders of a majority in aggregate principal amount of the outstanding
Convertible Debt Securities of the same series a direction inconsistent with
such request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a Holder of a
Convertible Debt Security for enforcement of payment of the principal of and
interest on such Convertible Debt Security on or after the respective due dates
expressed in such Convertible Debt Security.
The Company will be required to furnish to the Trustees annually a statement as
to the performance by the Company of its obligations under the respective
Indentures and as to any default in such performance.
MODIFICATION AND WAIVER
Without the consent of any Holder of outstanding Convertible Debt Securities,
the Company and the Trustees may amend or supplement the Indentures or the
Convertible Debt Securities to cure any ambiguity, defect or inconsistency, or
to make any change that does not adversely affect the rights of any Holder of
Convertible Debt Securities. Other modifications and amendments of the
respective Indentures may be made by the Company and the applicable Trustee
with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Convertible Debt Securities of each series
affected thereby; provided, however, that no such modification or amendment
may, without the consent of the Holder of each outstanding Convertible Debt
Security affected thereby: (a) change the stated maturity of the principal of,
or any installment of principal of, or premium, if any, or interest on any
Convertible Debt Security; (b) reduce the principal amount of, the rate of
interest on, or the premium, if any, payable upon the redemption of, any
Convertible Debt Security; (c) reduce the amount of principal of an original
issue discount security payable upon acceleration of the maturity thereof; (d)
change the place or currency of payment of principal of, premium, if any, or
interest on any Convertible Debt Security; (e) impair the right to institute
suit for the enforcement of any payment on or with respect to any Convertible
Debt Security on or after the stated maturity or redemption date thereof; (f)
modify the conversion provisions in a manner adverse to the Holders thereof;
(g) modify the subordination provisions applicable to Senior Subordinated Debt
Securities or Subordinated Debt Securities in a manner adverse to the Holders
thereof; (h) reduce the percentage in principal amount of outstanding
Convertible Debt Securities of any series, the consent of the Holders of which
is required for modification or amendment of the applicable Indenture or for
waiver of compliance with certain provisions of the applicable Indenture or for
waiver of certain defaults or (i) modify any of the provisions of certain
sections as specified in the Indenture including the provisions summarized in
this paragraph, except to increase any such percentage or to designate
additional provisions of the Indenture, which, with respect to such series,
cannot be modified or waived without the consent of the Holder of each
outstanding Convertible Debt Security affected thereby.
The Holders of at least a majority in principal amount of the outstanding
Convertible Debt Securities of any series may, on behalf of the Holders of all
Convertible Debt Securities of that series, waive, insofar as that series is
concerned, compliance by the Company with certain covenants of the applicable
Indenture. The Holders of not less than a majority in principal amount of the
outstanding Convertible Debt Securities of any series may, on behalf of the
Holders of all Convertible Debt Securities of that series, waive any past
default
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under the applicable Indenture with respect to that series, except a default in
the payment of the principal of, premium, if any, or interest on, any
Convertible Debt Security of that series or in respect of a provision which
under the applicable Indenture cannot be modified or amended without the
consent of the Holder of each outstanding Convertible Debt Security of that
series affected.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company, without the consent of any Holders of any series of outstanding
Convertible Debt Securities, may consolidate with or merge into, or transfer or
lease its assets substantially as an entirety (treating the Company and each of
its Subsidiaries as a single consolidated entity) to, any corporation, and any
other corporation may consolidate with or merge into, or transfer or lease its
assets substantially as an entirety to, the Company, provided that (a) the
corporation (if other than the Company) formed by such consolidation or into
which the Company is merged or which acquires or leases the assets of the
Company substantially as an entirety is organized and existing under the laws
of the United States of America, a state thereof or the District of Columbia,
and assumes the Company's obligations under each series of outstanding
Convertible Debt Securities and the Indentures applicable thereto; (b) the
Trustee is satisfied that the transaction will not result in the successor
being required to make any deduction or withholding on account of certain taxes
from any payments in respect of the Securities; (c) after giving effect to such
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing; and (d) the Trustee shall have received an officer's certificate
and an opinion of counsel with respect to compliance with the foregoing
requirements.
DEFEASANCE
If so indicated in the applicable Prospectus Supplement with respect to the
Convertible Debt Securities of a series, the Company at its option will be
released from its obligations to comply with certain covenants specified in the
applicable Prospectus Supplement with respect to the Convertible Debt
Securities of such series, and the occurrence of an event described in clause
(d) under "Events of Default" above with respect to any defeased covenants, and
clauses (e) and (g) under "Events of Default" above shall no longer be an Event
of Default, if the Company irrevocably deposits with the applicable Trustee, in
trust, money, government obligations of the government issuing the currency in
which the Convertible Debt Securities of the relevant series are denominated,
or a combination thereof that through the payment of interest thereon and
principal thereof in accordance with the terms will provide money in an amount
sufficient to pay all the principal of and premium, if any, and interest on the
Securities of such series on the dates such payments are due (up to the stated
maturity date, or the redemption date, as the case may be) in accordance with
the terms of such Convertible Debt Securities. Such a trust may only be
established if, among other things, (a) no Event of Default described under
"Events of Default" above or event that, after notice or lapse of time, or
both, would become an Event of Default under the applicable Indenture, shall
have occurred and be continuing on the date of such deposit, or, with regard to
an Event of Default described under clause (f) under "Events of Default" above
or an event that, after notice or lapse of time, or both, would become an Event
of Default described under such clause (f), shall have occurred and be
continuing at any time during the period ending on the 123rd day following such
date of deposit, (b) the Company shall have delivered an opinion of counsel to
the effect that the Holders of the Convertible Debt Securities will not
recognize gain or loss for United States Federal income tax purposes as a
result of such deposit or defeasance and will be subject to United States
Federal income tax in the same manner as if such defeasance had not occurred,
and (c) such covenant defeasance will not result in the trust being in
violation of the Investment Company Act of 1940. In the event the Company omits
to comply with its remaining obligations under the applicable Indenture after a
defeasance of such Indenture with respect to the Convertible Debt Securities of
any series as described above and the Convertible Debt Securities of such
series are declared due and payable because of the occurrence of any undefeased
Event of Default, the amount of money and government obligations on deposit
with the applicable Trustee may be insufficient to pay amounts due on the
Convertible Debt Securities of such series at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
in respect to such payments.
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Notwithstanding the description set forth under "Subordination of Senior
Subordinated Debt Securities and Subordinated Debt Securities" above, in the
event that the Company deposits money or government obligations in compliance
with the Indenture that governs any Senior Subordinated Debt Securities or
Subordinated Debt Securities, as the case may be, in order to defease all or
certain of its obligations with respect to the applicable series of Convertible
Debt Securities, the money or government obligations so deposited will not be
subject to the subordination provisions of the applicable Indenture and the
indebtedness evidenced by such series of Convertible Debt Securities will not
be subordinated in right of payment to the holders of applicable Senior
Indebtedness to the extent of the money or government obligations so deposited.
GOVERNING LAW
The Indentures and the Convertible Debt Securities will be governed by, and
construed in accordance with, the laws of the State of New York.
REGARDING THE TRUSTEES
The Indenture contains certain limitations on the right of each Trustee, should
it become a creditor of the Company, to obtain payment of claims in certain
cases, or to realize for its own account on certain property received in
respect of any such claim as security or otherwise. Each Trustee will be
permitted to engage in certain other transactions with the Company; however, if
the Trustee acquires any conflicting interest and there is a default under the
Convertible Debt Securities issued under the applicable Indenture, the Trustee
must eliminate such conflict or resign.
BOOK-ENTRY SYSTEM
The Convertible Debt Securities of a Series may be issued in the form of one or
more global certificates representing the Convertible Debt Securities (the
"Global Securities") that will be deposited with a depository (the
"Depository") or with a nominee for the Depository identified in the applicable
Prospectus Supplement and will be registered in the name of the Depository or a
nominee thereof. In such a case one or more Global Securities will be issued in
a denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Convertible Debt Securities of the series to be
represented by such Global Security or Securities. Unless and until it is
exchanged in whole or in part for Convertible Debt Securities in definitive
certificated form, a Global Security may be transferred, in whole but not in
part, only to another nominee of the Depository for such series, or to a
successor Depository for such series selected or approved by the Company, or to
a nominee of such successor Depository.
The specific depository arrangement with respect to any series of Convertible
Debt Securities to be represented by a Global Security will be described in the
applicable Prospectus Supplement. The Company expects that the following
provisions will apply to depository arrangements.
Upon the issuance of any Global Security, and the deposit of such Global
Security with or on behalf of the Depository for such Global Security, the
Depository will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Convertible Debt Securities represented by
such Global Security to the accounts of institutions ("participants") that have
accounts with the Depository or its nominee. The accounts to be credited will
be designated by the underwriters or agents engaging in the distribution of
such Convertible Debt Securities or by the Company, if such Convertible Debt
Securities are offered and sold directly by the Company. Ownership of
beneficial interests in a Global Security will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests by participants in such Global Security will be shown on, and the
transfer of such beneficial interests will be effected only through, records
maintained by the Depository for such Global Security or by its nominee.
Ownership of beneficial interests in such Global Security by persons that hold
through participants will be shown on, and the transfer of such beneficial
interests within such participants will be effected only through, records
maintained by such participants. The laws of some jurisdictions may require
that certain purchasers of securities take physical
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delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to own, pledge or transfer beneficial
interests in such Global Securities.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Convertible
Debt Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement
and except as specified below, owners of beneficial interests in such Global
Security will not be entitled to have Convertible Debt Securities of the series
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Convertible Debt Securities of
such series in certificated form and will not be considered the holders thereof
for any purposes under the Indenture. Accordingly, each person owning a
beneficial interest in such Global Security must rely on the procedures of the
Depository and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the Indenture. The Company understands that, under existing
industry practices, if the Company requests any action of Holders or an owner
of a beneficial interest in such Global Security desires to give any notice or
take any action a Holder is entitled to give or take under the Indenture, the
Depository would authorize the participants to give such notice or take such
action, and participants would authorize beneficial owners owning through such
participants to give such notice or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on
Convertible Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to such Depository or its
nominee, as the case may be, as the registered owner of such Global Security.
The Company expects that the Depository for any Convertible Debt Securities
represented by a Global Security, upon receipt of any payment of principal,
premium or interest in respect of such Global Security, will immediately credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Security
as shown on the records of such Depository. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street names," and will be the
responsibility of such participants. None of the Company, the Trustee or any
agent of the Company or the Trustee shall have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a Global Security, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. If the Depository for any Convertible Debt Securities represented by
a Global Security is at any time unwilling or unable to continue as Depository
or ceases to be registered or in good standing under the Securities Exchange
Act of 1934, as amended, and a successor Depository is not appointed by the
Company within 90 days after the Company receives notice or becomes aware of
such condition, the Company will issue such Convertible Debt Securities in
definitive certificated form in exchange for such Global Security. In addition,
the Company may at any time and in its sole discretion determine not to have
any of the Convertible Debt Securities of a series represented by one or more
Global Securities and, in such event, will issue Convertible Debt Securities of
such series in definitive certificated form in exchange for all of the Global
Security or Securities representing such Convertible Debt Securities.
7% CONVERTIBLE SUBORDINATED NOTES DUE 2003
In 1996, the Company sold $51.5 million of 7% Convertible Subordinated Notes
Due 2003 (the "Notes"), maturing on May 1, 2003. The Notes are unsecured,
subordinated obligations and will be redeemable, in whole or in part, at the
option of the Company beginning on May 1, 1999. The Notes are convertible,
subject to prior redemption or repurchase, at the option of holders prior to
maturity, into shares of the Company's common stock at a conversion price of
$26.80 per share.
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DESCRIPTION OF PREFERRED STOCK
The following is a description of certain general terms and provisions of the
Preferred Stock. The particular terms of any series of Preferred Stock will be
described in the applicable Prospectus Supplement. If so indicated in a
Prospectus Supplement, the terms of any such series may differ from the terms
set forth below.
The summary of the terms of the Company's Preferred Stock contained in this
Prospectus does not purport to be complete and is subject to, and qualified in
its entirety by, the provisions of the Company's articles of Incorporation
relating to each series of Preferred Stock, which will be filed as an exhibit
to or incorporated by reference in this Prospectus at or prior to the time of
issuance of any such series of Preferred Stock.
The board of Directors of the company is authorized to approve the issuance of
one or more series of Preferred Stock without further authorization of the
stockholders of the company and to fix the number of shares, the designations,
rights, privileges, restrictions and conditions of any such series.
The applicable Prospectus Supplement will set forth the number of shares,
particular designation, relative rights and preferences and the limitations of
any series of Preferred Stock in respect of which this Prospectus is deliverer.
The particular terms of any such series will include the following:
(i) the maximum number of shares to constitute the series and the
designation thereof;
(ii) the annual dividend rate, if any, on shares of the series, whether such
rate is fixed or variable or both, the date or dates from which
dividends will begin to accrue or accumulate, whether dividends will be
cumulative and whether such dividends shall be paid in cash, Common
Stock or otherwise;
(iii) whether the shares of the series will be redeemable and, if so, the
price at and the terms and conditions on which the shares of the
series may be redeemed, including the time during which shares of the
series may be redeemed and any accumulated dividends thereon that the
holders of shares of the series shall be entitled to receive upon the
redemption thereof;
(iv) the liquidation preference, if any, applicable to shares of the
series;
(v) whether the shares of the series will be subject to operation of a
retirement or sinking fund and, if so, the extent and manner in which
any such fund shall be applied to the purchase or redemption of the
shares of the series for retirement or for other corporate purposes,
and the terms and provisions relating to the operation of such fund;
(vi) the terms and conditions, if any, on which the shares of the series
shall be convertible into, or exchangeable for, shares of any other
class or classes of capital stock of the Company or any series of any
other class or classes, or of any other series of the same class,
including the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same;
(vii) the voting rights, if any, of the shares of the series;
(viii) the currency or units based on or relating to currencies in which
such series is denominated and/or in which payments will or may be
payable;
(ix) the methods by which amounts payable in respect of such series may be
calculated and any commodities, currencies or indices, or price, rate
or value, relevant to such calculation;
(x) any other preferences and relative, participating, optional or other
rights or qualifications, limitations or restrictions thereof.
Any material United States or Canadian federal income tax consequences and
other special considerations with respect to any offered shares of Preferred
Stock will be described in the Prospectus Supplement relating to the offering
and sale of such shares of Preferred Stock.
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DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts does not purport to be complete and is subject
to and qualified in its entirety by reference to the forms of Deposit Agreement
and Depositary Receipts relating to each series of the Preferred Stock which
have been or will be filed with the Commission at or prior to the time of the
offering of such series of the Preferred Stock.
GENERAL
The Company may, at its option, elect to offer fractional interests in shares
of Preferred Stock, rather than shares of Preferred Stock. In the event such
option is exercised, the Company will provide for the issuance by a Depositary
to the public of receipts for Depositary Shares, each of which will represent a
fractional interest (to be set forth in the Prospectus Supplement relating to a
particular series of the Preferred Stock which will be filed with the
Commission at or prior to the time of the offering of such series of the
Preferred Stock as described below).
The shares of any series of the Preferred Stock underlying the Depositary
Shares will be deposited under a separate Deposit Agreement (the "Deposit
Agreement") between the Company and a bank or trust Company selected by the
Company having its principal office in the United States and having a combined
capital and surplus of at least $50,000 (the "Depositary"). The Prospectus
Supplement relating to a series of Depositary Shares will set forth the name
and address of the Depositary. Subject to the terms of the Deposit Agreement,
each owner of a Depositary Share will be entitled, in proportion to the
applicable fractional interest in a share of Preferred Stock underlying such
Depositary Shares, to all the rights and preferences of the Preferred Stock
underlying such Depositary Share (including dividend, voting, redemption,
conversion and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued pursuant
to the Deposit Agreement.
Pending the preparation of definitive engraved Depositary Receipts, the
Depositary may, upon the written order of the Company, issue temporary
Depositary Receipts substantially identical to (and entitling the holders
thereof to all the rights pertaining to) the definitive Depositary Receipts but
not in definitive form. Definitive Depositary Receipts will be prepared
thereafter without unreasonable delay, and temporary Depositary Receipts will
be exchangeable for definitive Depositary Receipts at the Company's expense.
Upon surrender of Depositary Receipts at the office of the Depositary and upon
payment of the charges provided in the Deposit Agreement and subject to the
terms thereof, a holder of Depositary Shares is entitled to have the Depositary
deliver to such holder the whole shares of Preferred Stock underlying the
Depositary Shares evidenced by the surrendered Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Depositary will distribute all cash dividends or other cash distributions
received in respect of the Preferred Stock to the record holders of Depositary
Shares relating to such Preferred Stock in proportion to the numbers of such
Depositary Shares owned by such holders on the relevant record date. The
Depositary shall distribute only such amount, however, as can be distributed
without attributing to any holder of Depositary Shares a fraction of one cent,
and any balance not so distributed shall be added to and treated as part of the
next sum received by the Depositary for distribution to record holders of
Depositary Shares.
In the event of a distribution other than in cash, the Depositary will
distribute property received by it to the record holders of Depositary Shares
entitled thereto, unless the Depositary determines that it is not feasible to
make such distribution, in which case the Depositary may, with the approval of
the Company, sell such property and distribute the net proceeds from such sale
to such holders.
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The Deposit Agreement will also contain provisions relating to the manner in
which any subscription or similar rights offered by the Company to holders of
the Preferred Stock shall be made available to holders of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
If a series of the Preferred Stock underlying the Depositary Shares is subject
to redemption, the Depositary Shares will be redeemed from the proceeds
received by the Depositary resulting from the redemption, in whole or in part,
of such series of the Preferred Stock held by the Depositary. The Depositary
shall mail notice of redemption not less than 30 and not more than 60 days
prior to the date fixed for redemption to the record holders of the Depositary
Shares to be so redeemed at their respective addresses appearing in the
Depositary's books. The redemption price per Depositary Share will be equal to
the applicable fraction of the redemption price per share payable with respect
to such series of the Preferred Stock. Whenever the Company redeems shares of
Preferred Stock held by the Depositary, the Depositary will redeem as of the
same redemption date the number of Depositary Shares relating to shares of
Preferred Stock so redeemed. If less than all of the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by lot or
pro rata as may be determined by the Depositary.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
moneys payable upon such redemption and any money or other property to which
the holders of such Depositary Shares were entitled upon such redemption upon
surrender to the Depositary of the Depositary Receipts evidencing such
Depositary Shares.
VOTING THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Depositary will mail the information contained
in such notice of meeting to the record holders of the Depositary Shares
relating to such Preferred Stock. Each record holder of such Depositary Shares
on the record date (which will be the same date as the record date for the
Preferred Stock) will be entitled to instruct the Depositary as to the exercise
of the voting rights pertaining to the number of shares of Preferred Stock
underlying such holder's Depositary Shares. The Depositary will endeavor,
insofar as practicable, to vote the number of shares of Preferred Stock
underlying such Depositary Shares in accordance with such instructions, and the
Company will agree to take all action which may be deemed necessary by the
Depositary in order to enable the Depositary to do so. The Depositary will
abstain from voting shares of Preferred Stock to the extent it does not receive
specific instructions from the holders of Depositary Shares relating to such
Preferred Stock.
AMENDMENT AND TERMINATION OF THE DEPOSITARY AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares and the
provision of the Deposit Agreement may at any time be amended by agreement
between the Company and the Depositary. However, any amendment which materially
and aversely alters the rights of the existing holders of Depositary Shares
will not be effective unless such amendment has been approved by the record
holders of at least a majority of the Depositary Shares then outstanding. A
Deposit Agreement may be terminated by the Company or the Depositary only if
(i) all outstanding Depositary Shares relating thereto have been redeemed or
(ii) there has been a final distribution in respect of the Preferred Stock of
the relevant series in connection with any liquidation, dissolution or winding
up of the Company and such distribution has been distributed to the holders of
the related Depositary Shares.
CHARGES OF DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the depositary arrangements. The Company
will pay charges of the Depositary in connection with the initial
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deposit of the Preferred Stock and any redemption of the Preferred Stock.
Holders of Depositary Shares will pay other transfer and other taxes and
governmental charges and such other charges as are expressly provided in the
Deposit Agreement to be for their accounts.
MISCELLANEOUS
The Depositary will forward to the holders of Depositary Shares all reports and
communications from the Company which are delivered to the Depositary and which
the Company is required to furnish to the holders of the Preferred Stock.
Neither the Depositary nor the Company will be liable if it is prevented or
delayed by law or any circumstance beyond its control in performing its
obligations under the Deposit Agreement. The obligations of the Company and the
Depositary under the Deposit Agreement will be limited to performance in good
faith of their duties thereunder and they will not be obligated to prosecute or
defend any legal proceeding in respect of any Depositary Shares or Preferred
Stock unless satisfactory indemnity is furnished. They may rely upon written
advice of counsel or accountants, or information provided by persons presenting
Preferred Stock for deposit, holders of Depositary Shares or other persons
believed to be competent and on documents believed to be genuine.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Depositary may resign at any time by delivering to the Company notice of
its election to do so, and the Company may at any time remove the Depositary,
any such resignation or removal to take effect upon the appointment of a
successor Depositary and its acceptance of such appointment. Such successor
Depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
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DESCRIPTION OF WARRANTS
The Company may issue Warrants to purchase shares of Common Stock, shares of
Preferred Stock or Debt Securities. Warrants may be issued, subject to
regulatory approvals, independently or together with any Common Stock,
Preferred Stock or Debt Securities, as the case may be, and may be attached to
or separate from such Common Stock, Preferred Stock or Debt Securities. Each
series of Warrants will be issued under a separate warrant Agreement (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants
and the applicable Warrant Agreement will be set forth in the applicable
Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms of any
Warrants in respect of which this Prospectus is delivered: (i) the title of
such Warrants; (ii) a description of the securities (which may include shares
of Common Stock, shares of Preferred Stock or Debt Securities) for which such
Warrants are exercisable; (iii) the price or prices at which such Warrants will
be issued; (iv) the periods during which the Warrants are exercisable; (v) the
number of shares of Common Stock or Preferred Stock or the amount of Debt
Securities for which each Warrant is exercisable; (vi) the exercise price for
such Warrants, including any changes to or adjustments in the exercise price;
(vii) the currency or currencies, including composite currencies, in which the
exercise price of such Warrants may be payable; (viii) if applicable, the
designation and terms of the shares of Preferred Stock with which such Warrants
are issued; (ix) if applicable, the terms of the Debt Securities with which
such Warrants are issued; (x) if applicable, the number of Warrants issued with
each share of Common Stock or Preferred Stock or Debt Security; (xi) if
applicable, the date on and after which such Warrants and the related shares of
Common Stock or Preferred Stock or Debt Securities will be separately
transferable; (xii) if applicable, a discussion of certain United States
federal income tax considerations; (xiii) any listing of the Warrants on a
securities exchange; and (xiv) any other terms of such Warrants, including
terms, procedures and limitations relating to the exchange and exercise of such
Warrants.
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DESCRIPTION OF CAPITAL STOCK
The Company is authorized by its Certificate of Incorporation to issue 50.0
million shares of Common Stock and 1.0 million shares of Preferred Stock. As of
April 21, 1998 there were 20,485,050 shares of Common Stock issued and
outstanding and no shares of the Preferred Stock issued and outstanding.
COMMON STOCK
A summary of the terms and provisions of the Common Stock is set forth below.
Dividends. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board out of funds legally available therefor,
provided that if any shares of Preferred Stock, issued under this Prospectus
and any accompanying Prospectus Supplement, or any other shares of preferred
stock are at the time outstanding, the payment of dividends on Common Stock or
other distributions (including Company repurchases of Common Stock) will be
subject to the declaration and payment of all cumulative dividends on
outstanding shares of the Preferred Stock, and any Preferred Stock issued under
this Prospectus and any accompanying Prospectus Supplement and any other shares
of preferred stock which are then outstanding.
Liquidation. In the event of the dissolution, liquidation or winding up of the
Company, holders of Common Stock are entitled to share ratably in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of the Company's indebtedness, and the payment of the
aggregate liquidation preference of the Preferred Stock, and any Preferred
Stock issued under this Prospectus and any accompanying Prospectus Supplement
and any other shares of preferred stock then outstanding.
Voting. The Company's stockholders are entitled to one vote for each share on
all matters voted on by stockholders, including election of directors. Shares
of Common Stock held by the Company or any entity controlled by the Company do
not have voting rights and are not counted in determining the presence of a
quorum. Directors are elected annually. Holders of Common Stock have no
cumulative voting rights.
No Other Rights. The holders of Common Stock do not have any conversion,
redemption or preemptive rights.
Transfer Agent. The transfer agents for the Common Stock are Harris Trust and
Savings Bank, 1601 Elm Street, Thanksgiving Tower, Suite 2320, Dallas, Texas
75201.
Listing. Shares of the Company's outstanding Common Stock are listed on the
AMEX.
PREFERRED STOCK
The Company's Certificate of Incorporation currently authorizes the issuance of
1,000,000 shares of Preferred Stock, par value $.01 per share, issuable in
series, the designations, the relative rights and preferences and the
limitations of any such series. No shares of Preferred Stock have been issued
prior to the filing of this Prospectus.
RIGHTS AGREEMENT
In October 1995, the Board of Directors of the Company adopted a Rights
Agreement under which Stillwater shareholders of record as of November 15, 1995
received a dividend in the form of Preferred Stock Purchase Rights (the
"Rights"). The Rights permit the holder to purchase one one-thousandth of a
share (a unit) of Series A Preferred Stock at an initial exercise price of $80
per share under certain circumstances. The purchase price, the number of units
of Preferred Stock and the type of securities issuable upon exercise of the
Rights are subject to adjustment. The Rights expire on October 26, 2005 unless
earlier redeemed or exchanged. Until a Right is exercised, the holder thereof
has no rights as a shareholder of the Company, including the right to vote or
receive dividends. Subject to certain conditions, the Rights become exercisable
ten business days after a person or group acquires or commences a tender or
exchange offer to acquire a beneficial ownership of 15% or more of the
Company's outstanding common stock.
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PLAN OF DISTRIBUTION
The Company and the Selling Shareholders may offer Securities to or through
underwriters, through agents or directly to other purchasers.
The distribution of the Securities may be effected from time to time in one or
more transactions at a fixed price or prices (which may be changed from time to
time), at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Each Prospectus
Supplement will describe the method of distribution of the Securities offered
therein.
The Company and the Selling Shareholders may sell Securities directly, through
agents designated from time to time, through underwriting syndicates led by one
or more managing underwriters or through one or more underwriters acting alone.
Each Prospectus Supplement will set forth the terms of the Securities to which
such Prospectus Supplement relates, including the name or names of any
underwriters or agents with whom the Company or the Selling Shareholders have
entered into arrangements with respect to the sale of such Securities, the
public offering or purchase price of such Securities and the net proceeds to
the Company or the Selling Shareholders from such sale, any underwriting
discounts and other items constituting underwriters' compensation, any
discounts and commissions allowed or paid to dealers, if any, any commissions
allowed or paid to agents, and the securities exchange or exchanges, if any, on
which such Securities will be listed. Dealer trading may take place in certain
of the Securities, including Securities not listed on any securities exchange.
Securities may be purchased to be reoffered to the public through underwriting
syndicates led by one or more managing underwriters, or through one or more
underwriters acting alone. The underwriter or underwriters with respect to each
underwritten offering of Securities will be named in the Prospectus Supplement
relating to such offering and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover page of
such Prospectus Supplement. Unless otherwise set forth in the applicable
Prospectus Supplement, the obligations of the underwriters to purchase the
Securities will be subject to certain conditions precedent and each of the
underwriters with respect to a sale of Securities will be obligated to purchase
all of its Securities if any are purchased. Any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
Securities may be offered and sold by the Company and the Selling Shareholders
through agents designated by the Company or the Selling Shareholders, as
applicable, from time to time. Any agent involved in the offer and sale of any
Securities will be named, and any commissions payable by the Company or the
Selling Shareholders, as applicable, to such agent will be set forth, in the
Prospectus Supplement relating to such offering. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
Offers to purchase Securities may be solicited directly by the Company or the
Selling Shareholders and sales thereof may be made by the Company or the
Selling Shareholders, as applicable, directly to institutional investors or
others who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale thereof. The terms of any such sales
will be described in the Prospectus Supplement relating thereto.
The Company and the Selling Shareholders may also issue contracts under which
the counterparty may be required to purchase Securities. Such contracts would
be issued for Securities in amounts, at prices and on terms to be set forth in
a Prospectus Supplement.
The anticipated place and time of delivery of Securities will be set forth in
the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Company or the
Selling Shareholders will authorize underwriters or agents to solicit offers by
certain institutions to purchase Securities from the
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Company or the Selling Shareholders, as applicable, pursuant to delayed
delivery contracts providing for payment and delivery at a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company or the Selling Shareholders, as
applicable. Unless otherwise set forth in the applicable Prospectus Supplement,
the obligations of any purchaser under any such contract will not be subject to
any conditions except that (i) the purchase of the Securities shall not at the
time of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject, and (ii) if the Securities are also being sold to
underwriters acting as principals for their own account, the underwriters shall
have purchased such Securities not sold for delayed delivery. The underwriters
and such other persons will not have any responsibility in respect of the
validity or performance of such contracts.
Any underwriter or agent participating in the distribution of the Securities
may be deemed to be an underwriter, as that term is defined in the Securities
Act, of the Securities so offered and sold and any discounts or commissions
received by them from the Company or the Selling Shareholders and any profit
realized by them on the sale or resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act.
Underwriters and agents may be entitled, under agreements entered into with the
Company or the Selling Shareholders, to indemnification by the Company or the
Selling Shareholders, as applicable, against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such underwriters or agents may be required to make in
respect thereof. Certain of such underwriters and agents, including their
associates, may be customers of, engage in transactions with and perform
services for, the Company and its subsidiaries or the Selling Shareholders in
the ordinary course of business.
LEGAL MATTERS
The validity of the Securities offered will be passed upon for the Company by
Davis, Graham & Stubbs LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been so incorporated in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The Company's ore reserves set forth in the table under the heading "Ore
Reserves" have been verified by Behre Dolbart & Company, Inc., and such
information has been included herein in reliance upon the authority of such
firm as experts in mining, geology and ore reserve determination.
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2,000,000 SHARES
COMMON STOCK
[LOGO OF STILLWATER MINING COMPANY]
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PROSPECTUS SUPPLEMENT
OCTOBER 19 , 1998
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SALOMON SMITH BARNEY
MERRILL LYNCH & CO.
TD SECURITIES
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