<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-58251
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 17, 1998)
2,877,616 SHARES
[LOGO OF STILLWATER MINING COMPANY APPEARS HERE]
COMMON STOCK
This prospectus supplement relates to the sale from time to time of shares
of common stock that may be acquired by Salomon Smith Barney, the standby
purchaser, either upon conversion of Stillwater's 7% Convertible Subordinated
Notes Due 2003 or under standby arrangements Salomon Smith Barney has made
with Stillwater.
THE REDEMPTION. On April 1, Holders who convert on or before
1999, Stillwater called its notes April 15, 1999 will not be enti-
for redemption on May 1, 1999. Any tled to the interest payment.
notes which are not converted into
common stock on or before April 28,
1999 will be redeemed by the com-
pany for cash.
. REDEMPTION DATE--May 1, 1999.
Any notes not converted on or
before April 28, 1999 will be
redeemed for the redemption
. REDEMPTION PRICE--104% of the price.
principal amount of the notes
plus accrued interest.
THE STANDBY ARRANGEMENTS. To ad-
dress the possibility that not all
the notes will be converted, the
company has entered into a standby
agreement with Salomon Smith Bar-
ney. Under the agreement, the
standby purchaser:
. CONVERSION PRICE--$17.87 per
share. Each $1,000 in principal
amount of notes is convertible
into 55.96 shares of common
stock. Cash will be paid in lieu
of fractional shares.
. will purchase from the company
. BREAK EVEN PRICE--$18.59 per the number of shares of common
share. If the market price of stock that would have been is-
the common stock is higher than sued on conversion of any notes
$18.59, note holders who convert that were not surrendered for
after April 15, 1999 will re- conversion;
ceive value greater than the
amount that would have been re-
ceived upon redemption.
. will convert any notes it holds
or acquires prior to April 28,
1999;
. MARKET PRICE OF THE COMMON
STOCK--$26.375 was the closing . may purchase notes in the open
sale price of the common stock market and will convert any
on March 31, 1999, as reported notes it purchases into common
on the American Stock Exchange stock; and
(symbol: "SWC").
. will sell the common stock so
acquired.
. EXPIRATION DATE OF CONVERSION
RIGHT. Any notes not converted
by 5:00 p.m. (New York City
time) on April 28, 1999 will be
redeemed for cash.
The standby purchaser will pay
Stillwater $18.59 per share and
split with Stillwater any net
profit on sales of common stock
made under this prospectus supple-
ment. The standby purchaser also
will receive a fee of $0.65 to
$0.84 per share based on the number
of shares it purchases from the
company.
. INTEREST PAYMENT RECORD DATE--
April 15, 1999. Holders of the
notes on the record date are en-
titled to the $35.00 semi-annual
interest payment payable per
$1,000 of notes on May 1, 1999.
A holder on the record date may
convert the notes into common
stock on or before April 28,
1999 and still receive the in-
terest payment.
In addition, Stillwater will pay
the standby purchaser a commitment
fee totaling 0.60% of the aggregate
redemption price of the notes out-
standing on the date of this pro-
spectus supplement.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE RELATED PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
SALOMON SMITH BARNEY
April 1, 1999
<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.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................ S-1
Risk Factors............................................................. S-3
The Company.............................................................. S-8
Use of Proceeds.......................................................... S-10
Price Range of Common Stock and Dividend Policy.......................... S-10
Capitalization........................................................... S-11
Selected Financial Information........................................... S-12
Description of Capital Stock............................................. S-14
Standby Arrangements..................................................... S-15
Legal Matters............................................................ S-16
Experts.................................................................. S-16
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 Ration 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
</TABLE>
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary provides an overview of selected information and does not
contain all of 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. All share and per share amounts included in this
prospectus supplement reflect the company's three-for-two stock split effective
December 31, 1998.
The Company
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 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. 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. At December 31, 1998, the company had
37.1 million tons of proven and probable reserves, at an average platinum group
metal grade of 0.71 ounce per ton, containing 20.2 million ounces of palladium
and 6.1 million ounces of platinum.
During 1998, the company implemented a new expansion plan with a long-term
goal of reaching an annualized rate of production of platinum group metals 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, developing a new mine at East
Boulder with a permitted capacity of 2,000 tons of ore per day and expanding
the existing smelter and base metals refinery located in Columbus, Montana. 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.
We discuss the key risks associated with the 1998 Expansion Plan under the
headings "Risk Factors--Expansion Plan Risks" and "--Adverse Effects of
Governmental Regulations."
In order to finance the 1998 Expansion Plan, the company recently obtained a
$175 million senior secured credit facility from a syndicate of banks led by
The Bank of Nova Scotia. 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.
Risk Factors
You should consider carefully the "Risk Factors" set forth immediately
following this summary.
The Redemption, Conversion Rights and Standby Arrangements
This prospectus supplement relates to the issuance of common stock upon
conversion of Stillwater's notes and the sale from time to time of up to
2,877,616 shares of common stock that may be acquired by Salomon Smith Barney,
the standby purchaser, either upon conversion of notes or under the standby
arrangements discussed on page S-15.
The Redemption. On April 1, 1999, Stillwater called its notes for redemption
on May 1, 1999. Any notes which are not converted into common stock prior to
5:00 p.m. New York City time on April 28, 1999 will be redeemed by the company
for cash.
Redemption Price............ 104% of the principal amount of the notes plus
accrued interest.
<PAGE>
$17.87 per share. Each $1,000 in principal amount
Conversion Price............ of notes is convertible into 55.96 shares of
common stock. Cash will be paid in lieu of
fractional shares.
Break Even Price............ $18.59 per share. If the market price of the
common stock is higher than $18.59, note holders
who convert after April 15, 1999 will receive
value greater than the amount that would have
been received upon redemption.
Market Price of the Common
Stock....................... $26.375 was the closing sale price of the common
stock on March 31, 1999, as reported on the
American Stock Exchange (symbol: "SWC").
Expiration of Conversion Any notes not converted by 5:00 p.m. (New York
Right....................... City time) on April 28, 1999 will be redeemed for
cash.
Interest Payment Record Holders of the notes on the record date, April
Date........................ 15, 1999, are entitled to the $35.00 semi-annual
interest payment payable per $1,000 of notes. A
holder on the record date may convert the notes
into common stock before April 28, 1999 and still
receive the interest payment on May 3, 1999.
Holders who convert on or before April 15, 1999
will not be entitled to the interest payment.
Redemption Date............. May 1, 1999. Any notes not converted on or before
April 28, 1999 will be redeemed for the
redemption price.
Standby Arrangements. To address the possibility that not all the notes will
be converted, the company has entered into a standby agreement with Salomon
Smith Barney. Under the agreement the standby purchaser:
. will purchase from the company the number of shares of common stock that
would have been issued on conversion of any notes that were not
surrendered for conversion;
. will convert any notes it holds or acquires prior to April 28, 1999;
. may purchase notes in the open market and will convert any notes it
purchases into common stock; and
. will sell the common stock so acquired.
The standby purchaser will purchase common stock from Stillwater at $18.59
per share and will split with Stillwater any net profit on the sales of common
stock made under this prospectus supplement. The standby purchaser also will
receive a fee of $0.65 to $0.84 per share based on the number of shares it
purchases from the company. In addition, Stillwater will pay the standby
purchaser a commitment fee totaling 0.60% of the aggregate redemption price of
the notes outstanding on the date of this prospectus supplement.
------------
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-2
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RISK FACTORS
You should consider carefully the following risk factors before you decide
to acquire the common stock. You should also consider the other information
contained in this prospectus supplement and information set forth in the
related prospectus, in the company's reports on Forms 10-K, 10-Q and 8-K and
other documents incorporated by reference.
Vulnerability to Metals Price Volatility--Changes in supply and demand could
reduce revenues.
Since the company's sole source of revenue is the sale of platinum group
metals, changes in the market price of platinum group metals significantly
impact profitability. Many factors beyond the company's control influence the
market prices of these metals. These factors include global supply and demand,
speculative activities, international political and economic conditions and
production levels and costs in other platinum group metal producing countries,
particularly Russia and South Africa.
Current economic and political events in Russia could result in declining
market prices. If Russia disposes of substantial amounts of platinum group
metals from stockpiles or otherwise, the increased supply could reduce the
market prices of palladium and platinum. Recent political instability in Russia
and mounting economic problems make Russian stockpiles difficult to predict and
the risk of sales from stockpiles more significant. Volatility was evident
during 1997 and 1998, when apparent tightness in the market for platinum group
metals led to high prices for current delivery contracts and "backwardation," a
condition in which delivery prices for metals in the near term are higher than
delivery prices for metals to be delivered in the future.
The company enters into hedging contracts from time to time to reduce the
negative effect of price changes on the company's cash flow. In the past, these
hedging activities typically consisted of contracts that required the company
to deliver specific quantities of metal in the future 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 sales in 1997 and 1998. Following that time, market prices
for palladium to be delivered currently rose sharply. Because the company's
contracts were entered into before the price increase, deliveries under the
hedging contracts during 1997 and 1998 were made at below market prices and the
company experienced substantial hedging losses. In 1998, the company realized
$202 per ounce of palladium sold while average current delivery prices were
$286 per ounce. Thus, while hedging transactions are intended to reduce the
negative effects of price decreases, they can also prevent the company from
benefitting from price increases. The company's below market hedge contracts
were closed out during 1998 and the company has entered into long-term sales
contracts that provide a floor price for sales of a portion of the company's
production.
Expansion Plan Risks--Achievement of the company's long-term goals is subject
to significant uncertainties.
The company's achievement of its long-term expansion goals depends upon its
ability to increase production substantially 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 the
company believes its goals and preliminary estimates are based upon reasonable
assumptions, the company may need to revise its plans and estimates for the
Stillwater Mine and East Boulder project as the projects progress. See "The
Company--1998 Expansion Plan" for further discussion of the company's expansion
plans. 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; and
. possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits.
In addition, a decrease in the market price for platinum group metals would
limit the company's ability to successfully implement and finance the 1998
Expansion Plan.
S-3
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Based on the complexity and uncertainty involved in development projects at
this early stage, it is extremely difficult to provide reliable time and cost
estimates. The company cannot be certain that either the Stillwater 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 an 18,500-foot
access tunnel has been completed, the company will reevaluate its geologic and
process analyses, 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 the company's 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
the company's years of operating experience at the Stillwater Mine portion of
the J-M Reef. Actual cash operating costs and economic returns may differ
significantly from those currently estimated or those established in future
studies and estimates. Although the company anticipates that the operating
characteristics at East Boulder will be similar to the Stillwater Mine, new
mining operations often experience unexpected problems during the development
and start-up phases, which can result in substantial delays in reaching
commercial production.
Dependence on Agreements with Significant Customers--The company's protection
from price decreases depends upon performance of its marketing contracts.
In the third quarter of 1998, the company entered into sales 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 approximately 90% to 100% of its annual palladium production and 20%
of its 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, such as
"acts of God," that are 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 contracts, their ability to terminate or suspend the contracts and
the customers' willingness and ability to pay. In the event the company becomes
involved in a disagreement with one or more of its customers, their compliance
with these contracts may be at risk. For example, the company has negotiated
floor prices that are well above historical low prices for palladium. 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, the company's expansion plans could be threatened.
In addition, under the Scotiabank Credit Facility, a default or modification of
the marketing contracts could prohibit additional loans or require the
repayment of outstanding loans. Although the company believes it has adequate
legal remedies if a customer fails to perform, termination or breach could have
a material adverse effect on the company's expansion plans and results of
operations.
Limited Availability of Additional Mining Personnel and Uncertainty of Labor
Relations
The operations of the company depend significantly on the availability of
qualified miners. Historically, the company has experienced high turnover with
respect to its miners. In addition, the company must compete for individuals
skilled in the operation and development of mining properties. The number of
such persons is limited, and significant competition exists to obtain their
skills. The company cannot be certain that it will be
S-4
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able to maintain an adequate supply of miners and other personnel or that the
company's labor expenses will not increase as a result of a shortage in supply
of such workers. Failure to maintain an adequate supply of miners could
adversely affect the company's expansion plans and results of operations. The
company currently has approximately 916 employees, about 669 of whom are
covered by a collective bargaining agreement with the Oil, Chemical and Atomic
Workers Union, expiring June 30, 1999. The company's inability to negotiate an
acceptable contract with this union 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.
Mining Risks and Potential Inadequacy 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, metallurgical and other
processing, smelting or refining problems, 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, mechanical equipment and facility performance problems and the
availability of materials and equipment. Such risks could result in damage to,
or destruction of, mineral properties or production facilities, personal injury
or death, environmental damage, delays in mining, monetary losses and possible
legal liability. Fatalities have occurred at the company's mine since
operations began in 1986. Industrial accidents could have a material adverse
effect on the company's business and operations. Although the company believes
that it maintains insurance within ranges of coverage consistent with industry
practice, it cannot be certain that this insurance will cover the risks
associated with mining or that the company will be able to maintain insurance
to cover these risks at economically feasible premiums. The company might also
become subject to liability for pollution or other hazards which it cannot
insure against or which it may elect not to insure against because of premium
costs or other reasons. Losses from such events could have a material adverse
effect on the company.
Adverse Effect of Governmental Regulations--Changes to regulations and
compliance with existing regulations could increase costs and cause delays.
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 the company cannot
predict. 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.
For example, in April 1996, the company submitted a permit amendment
application for the expansion of the Stillwater Mine. This expansion proposal
includes selection and construction of a new tailings impoundment and removal
of the 2,000 tons of ore per day production cap. During 1997, as a result of
this application, the Montana Department of Environmental Quality began
preparation of an Environmental Impact Statement in order to assess the
environmental impacts of the amendment. The Montana Department of
S-5
<PAGE>
Environmental Quality issued the final Environmental Impact Statement in 1998,
subsequent to review of draft issuances and a public hearing. In November 1998,
the Record of Decision was issued by the Montana Department of Environmental
Quality and the United States Forest Service. There were no material changes
from the original application. An environmental group filed a complaint to
challenge the adequacy of the Environmental Impact Statement and reclamation
provisions developed in connection with the amendment to the permit. The
complaint has not been served and it is difficult to predict whether or how it
may by pursued.
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. Compliance with these and other laws and regulations could
require significant capital outlays. 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 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.
Potential Negative Impact of New Mining Legislation
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. In the worst case, such amendments could render the company's mining
operations uneconomic. During the 1998 legislative session, legislation was
introduced into the United States Congress that 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:
. imposed a royalty on production from unpatented mining claims;
. imposed a fee on production from patented mining claims;
. increased the cost of holding mining claims; and
. imposed more specific federal reclamation requirements on operations on
mining claims.
None of those proposed modifications were enacted into law; however, similar
legislative proposals have been introduced in 1999. 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--The Stillwater Mine is the company's sole source
of revenues.
All of the company's revenues are currently derived from its mining
operations at the Stillwater Mine. Although the company has not experienced any
serious production interruption since production began in 1987, an interruption
in operations at the Stillwater Mine or at any of the company's processing
facilities would have a material adverse effect on the company's ability to
generate revenues and profits in the future.
Uncertainty of 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 or millsite, in terms of
its location and its maintenance, depends on strict compliance with a complex
body of federal and state statutory and decisional law and, for unpatented
mining claims, the existence of a discovery of valuable minerals. In addition,
few public records exist to definitively control the issues of validity and
ownership of unpatented mining claims or millsites. While the company has
obtained various reports, opinions and certificates of title for some of the
unpatented mining claims or millsites it owns or to which it has the rights in
accordance with what the company believes is industry practice, the company
cannot be certain that the title to any of its claims may not be defective.
S-6
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Difficulty of Estimating Reserves Accurately
While the company's 1998 ore reserves have been reviewed by independent
consultants, the ore reserve estimates are necessarily imprecise and depend to
some extent on statistical inferences drawn from limited drilling, which may
prove unreliable. Reserve estimates are expressions of judgment based on
knowledge, experience and industry practice. Although the company believes its
estimated ore reserves are well established, it cannot be certain that its
estimated ore reserves are accurate, and future production experience could
differ materially from such estimates. Should the company encounter
mineralization or formations at any of its mines or projects different from
those predicted by drilling, sampling and similar examinations, reserve
estimates may have to be adjusted and mining plans may have to be altered in a
way that might adversely affect the company's operations. Declines in the
market prices of platinum group metals may render the mining of some or all of
the company's ore reserves uneconomic. The grade of ore may vary significantly
from time to time and the company cannot give any assurances that any
particular level of metal may be recovered from the ore reserves. Moreover,
short-term factors relating to the ore reserves, such as the need for
additional development of the ore body or the processing of new or different
grades, may impair the profitability of the company in any particular
accounting period.
Complexity of Processing Platinum Group Metals
Producers of platinum group metals are required to conduct additional
processing procedures and construct and operate additional facilities compared
to gold and silver producers. In addition to concentration facilities at the
mine site, the company operates its own smelting and base metals refining
facilities in Columbus, Montana to produce a filter cake that is 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 the company has
not experienced any material adverse effects to date, this additional
complexity of operations poses additional operational and environmental risks.
S-7
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THE COMPANY
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 outside South Africa and Russia. Associated by-product metals of
platinum group metals 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.
Platinum group metals 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 platinum group metals 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 for 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, 1998, the company had the following proven and probable ore
reserves:
<TABLE>
<CAPTION>
AVERAGE GRADE CONTAINED OUNCES CONTAINED OUNCES
TONS (OUNCE PER TON) OF PALLADIUM OF PLATINUM
------------ --------------- ---------------- ----------------
<S> <C> <C> <C>
37.1 million 0.71 ounce 20.2 million 6.1 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.
The company holds the rights to claims covering substantially all of the
presently identified platinum group metal mineralized zone of the J-M Reef. At
1998 production levels, the proven and probable reserves contained in the J-M
Reef could be mined for over 40 years. Because of this substantial remaining
mine life, the company 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.
In the fourth quarter of 1997, the company achieved the 1994 Expansion
Plan's ore production goal of approximately 2,000 tons per day. The company
also substantially reduced the total cost per ounce of producing platinum group
metals from $240 per ounce in 1995 to $178 per ounce in 1998. In addition,
production of platinum group metals has increased substantially from 355,000
ounces in 1997 to 444,000 ounces in 1998. The company anticipates that it's
1999 production of platinum group metals will be approximately 525,000 to
575,000 ounces.
1998 EXPANSION PLAN
During 1998, the company implemented a new expansion plan with a long-term
goal of reaching an annualized rate of production of platinum group metals 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, developing a new mine at East
Boulder with a permitted capacity of 2,000 tons of ore per day and expanding
the existing smelter and base metals refinery.
S-8
<PAGE>
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.
<TABLE>
<CAPTION>
ESTIMATED CAPITAL INVESTMENT FOR THE 1998 EXPANSION PLAN
--------------------------------------------------------
<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 "--Adverse Effect of
Governmental Regulations."
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 internal analyses, the company 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 platinum group metals 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, the company 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, the company 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 12 and 18 months and
as of February 28, 1999, the company had drilled approximately 8,200 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, the company estimates 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
production of platinum group metals from East Boulder is expected to be
approximately 450,000 to 500,000 ounces. East Boulder development depends on
the project remaining economically feasible. The company discusses the key
risks associated with the development of the East Boulder mine under the
heading "Risk Factors--Expansion Plan Risks" and "--Adverse Effect of
Governmental Regulations."
S-9
<PAGE>
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
In March 1999 we obtained a $175 million senior secured credit facility from
a syndicate of banks led by The Bank of Nova Scotia. This credit facility
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 general corporate and working capital needs. The facility
matures on December 31, 2005, and is secured by substantially all of the
property and assets of the company. The Scotiabank Credit Facility contains
typical covenants and conditions to initial and subsequent borrowings.
USE OF PROCEEDS
The net proceeds from the sale of any common stock to the standby purchaser
under the standby arrangements discussed on page 16 will be used to fund the
redemption of any notes not tendered for conversion. Any excess net proceeds
will be used for general corporate purposes.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Effective June 5, 1997, Stillwater's common stock began trading on the
American Stock Exchange under the symbol "SWC." Prior to that time, the common
stock was traded on the NASDAQ Stock 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 closing sales prices per share for the
common stock, reported by NASDAQ or the American Stock Exchange, as applicable.
<TABLE>
<CAPTION>
Price Range
-------------
High Low
------ ------
<S> <C> <C>
1997
First Quarter................................................ $15.83 $11.17
Second Quarter............................................... 16.67 13.17
Third Quarter................................................ 15.00 12.67
Fourth Quarter............................................... 15.33 10.17
1998
First Quarter................................................ 16.88 10.58
Second Quarter............................................... 19.30 14.92
Third Quarter................................................ 21.30 11.58
Fourth Quarter............................................... 27.33 19.42
1999
First Quarter................................................ 29.13 22.25
</TABLE>
The prices for the company's common stock have been retroactively adjusted
to reflect a three-for-two stock split effective December 31, 1998.
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
S-10
<PAGE>
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
significantly restrict the payment of dividends on the common stock.
CAPITALIZATION
The following table sets forth the cash and cash equivalents and
capitalization of the company as of December 31, 1998, and as adjusted to
reflect the usual conversion of all the notes into common stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................. $ 49,811 $ 49,327
TOTAL LONG-TERM DEBT:
Current portion of long-term debt and capital lease ob-
ligations.............................................. $ 2,425 $ 2,425
Long-term debt and capital lease obligations(/1/)....... 58,992 7,560
-------- --------
Total long-term debt, including current portion....... 61,417 9,985
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares autho-
rized, none issued..................................... -- --
Common stock, $.01 par value, 50,000,000 shares autho-
rized, 34,548,559 shares issued and outstanding,
37,426,679 shares issued and outstanding as adjust-
ed(/2/)................................................ 345 374
Paid in capital......................................... 214,281 263,988
Accumulated earnings.................................... 13,381 13,381
-------- --------
Total shareholders' equity............................ 228,007 277,743
-------- --------
Total capitalization.................................. $289,424 $287,728
======== ========
</TABLE>
- --------
(1) The notes are convertible into common stock at $17.87 per share, subject to
adjustment and, on April 1, 1999, were called for redemption which will
occur on May 1, 1999. The total principal amount of notes outstanding on
March 31, 1999 was $51,423,000.
(2) Issued and outstanding shares exclude 4,050,000 shares of common stock
reserved for issuance under the company's stock option plans of which
options covering 2,202,718 shares were outstanding at December 31, 1998.
S-11
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for the years 1996 to 1998 is
from the company's audited financial statements, which are incorporated in this
prospectus supplement by reference to the company's Annual Report on Form 10-K
for the year ended December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA
Revenues(/1/)................................... $ 56,214 $ 76,877 $106,723
Costs and expenses
Cost of metals sold(/1/)...................... 50,175 67,948 66,793
Depreciation and amortization................. 8,699 11,658 11,642
-------- -------- --------
Total cost of sales......................... 58,874 79,606 78,435
General and administrative expenses........... 2,532 3,479 5,102
-------- -------- --------
Total costs and expenses.................... 61,406 83,085 83,537
-------- -------- --------
Operating income (loss)......................... (5,192) (6,208) 23,186
Interest income................................. 2,138 1,073 1,354
Interest expense, net of capitalized inter-
est(/2/)....................................... (1,461) (3,608) (2,774)
-------- -------- --------
Income (loss) before income taxes and cumulative
effect of accounting change.................... (4,515) (8,743) 21,776
Income tax (provision) benefit.................. 1,736 3,366 (8,380)
-------- -------- --------
Income (loss) before cumulative effect of ac-
counting change................................ (2,779) (5,377) 13,386
Cumulative effect of accounting change, net of
income tax provision of $8,677(/3/)............ 13,861 -- --
-------- -------- --------
Net income (loss)............................... $ 11,082 $ (5,377) $ 13,386
======== ======== ========
Basic earnings per share(/4/)
Income (loss) before cumulative effect of ac-
counting change.............................. $ (0.09) $ (0.18) $ 0.43
Cumulative effect of accounting change(/3/)... 0.46 -- --
-------- -------- --------
Net income (loss)........................... $ 0.37 $ (0.18) $ 0.43
======== ======== ========
Diluted earnings per share(/4/)
Income (loss) before cumulative effect of ac-
counting change.............................. $ (0.09) $ (0.18) $ 0.38
Cumulative effect of accounting change(/3/)... 0.46 -- --
-------- -------- --------
Net income (loss)........................... $ 0.37 $ (0.18) $ 0.38
======== ======== ========
Weighted average common shares outstanding(/4/)
Basic......................................... 30,140 30,435 31,472
======== ======== ========
Diluted....................................... 30,140 30,435 35,019
======== ======== ========
CASH FLOW DATA
Net cash provided by (used in) operating activi-
ties........................................... $ 14,464 $ (1,297) $ 31,399
Capital expenditures(/5/)....................... 58,295 15,702 78,272
Depreciation and amortization................... 8,699 11,658 11,642
BALANCE SHEET DATA
Current assets.................................. $ 49,061 $ 35,303 $ 85,378
Total assets.................................... 239,910 229,219 335,937
Current liabilities............................. 15,833 12,249 26,617
Long-term debt and capital lease obligations.... 62,563 61,513 58,992
Shareholders' equity............................ 143,666 141,392 228,007
Working capital................................. 33,228 23,054 58,761
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997 1998
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
OPERATING DATA
Tons milled(/6/)....................................... 446 577 719
Mill head grade(/7/)................................... 0.67 0.70 0.69
Ounces of palladium produced........................... 196 271 340
Ounces of platinum produced............................ 59 84 104
------- ------- -------
Total ounces produced(/8/)......................... 255 355 444
======= ======= =======
Ounces of palladium sold............................... 214 288 337
Ounces of platinum sold................................ 62 91 103
------- ------- -------
Total ounces sold(/8/)............................. 276 379 440
======= ======= =======
PRICE AND COST DATA(/9/)
Average realized price per palladium ounce............. $ 144 $ 144 $ 202
Average realized price per platinum ounce.............. 410 388 377
Combined average realized price per ounce.............. 204 203 243
Cash costs per ton milled.............................. 105 107 93
Cash costs per ounce produced.......................... 184 174 151
Total costs per ounce produced......................... 219 207 178
</TABLE>
- --------
(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, 1996, 1997 and 1998
totaled $2.2 million, $1.5 million and $2.1 million.
(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 ($0.17 per
share).
(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 $35.9 million, $2.9 million, and $49.9 million in 1996, 1997 and 1998.
(6) Tons milled represent the number of grade-bearing tons of ore fed to the
concentrator.
(7) Mill head grade is presented as ounces per ton of palladium and platinum
combined.
(8) 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. Differences in ounces produced
and ounces sold are caused by the length of time required by the smelting
and refining processes.
(9) A combined average realized price of palladium and platinum is reported at
the same ratio as ounces are produced from the 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.
S-13
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized by its Certificate of Incorporation to issue
50,000,000 shares of common stock and 1,000,000 shares of preferred stock. As
of March 30, 1999 there were 34,615,179 shares of common stock issued and
outstanding and no shares of the preferred stock issued and outstanding. The
following is a summary of the attributes of the common stock and preferred
stock and the provisions of the rights agreement.
COMMON STOCK
Dividends. The holders of common stock are, at the discretion of the Board
of Directors, entitled to receive dividends out of funds legally available for
the payment of dividends. If any 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.
Liquidation. In the event of 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.
Voting. The company's stockholders are entitled to one vote for each share
on all matters voted on by stockholders, except for the election of directors.
Holders of common stock have cumulative voting rights for the 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.
No Other Rights. The holders of common stock do not have any conversion,
redemption or preemptive rights.
Transfer Agent. The transfer agent for the common stock is Harris Trust and
Savings Bank, 311 West Monroe, 14th Floor, Chicago, Illinois 60690-3504.
Listing. Shares of the company's outstanding common stock are listed on the
American Stock Exchange under the symbol "SWC."
PREFERRED STOCK
Shares of preferred stock are issuable in series. The Board of Directors is
authorized to fix the designations, relative rights and preferences and
limitations of each 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
purchase rights permit the holder under certain circumstances to purchase a
unit, which is one one-thousandth of a share of Series A preferred stock, at an
initial exercise price of $80 per unit. The purchase price, the number of units
of preferred stock and the type of securities issuable upon exercise of the
purchase rights are subject to adjustment. The purchase rights expire on
October 26, 2005 unless earlier redeemed of exchanged. Until a purchase right
is exercised, the holder has no rights as a shareholder of the company,
including the right to vote or receive dividends. Subject to certain
conditions, the purchase 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.
S-14
<PAGE>
STANDBY ARRANGEMENTS
The company has entered into an agreement with Salomon Smith Barney to
address the possibility that some of the notes will not be converted into
common stock. Subject to the terms and conditions stated in the agreement,
Salomon Smith Barney has agreed to act as a "standby purchaser" and purchase
from the company the number of shares of common stock that would have been
issuable upon conversion of any notes that were redeemed. The standby purchaser
will purchase the shares from the company at $18.58 per share.
The standby purchaser may purchase notes in the market or otherwise before
April 28, 1999, and has agreed to convert into common stock all of the notes
which it holds or acquires. The standby purchaser intends to offer any common
stock purchased from the company or acquired upon conversion of notes by the
standby purchaser. The standby purchaser may make sales to dealers at prices
which reflect concessions from the prices at which shares are being offered to
the public. The amount of those concessions will be determined from time to
time.
The standby purchaser has agreed to pay the company 50% of its net profits
on the sale under this prospectus supplement of the common stock purchased from
the company. The standby purchaser also will receive a fee based on the number
of shares it purchases from the company. The fee will be 3.5% of the redemption
price ($0.65) per share if the standby purchaser buys 143,881 to 719,404 shares
and 4.5% ($0.85) if the standby purchaser buys more than 719,404 shares. In
return for the standby purchaser's commitment to purchase the shares, the
company will pay the standby purchaser 0.60% of the aggregate redemption price
of the notes outstanding on the date of this prospectus supplement.
The company has agreed that it will not, without the prior written consent
of the standby purchaser, 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 for a period of time.
That period shall commence on the date of this prospectus supplement and end 90
days after the redemption date, provided that if the standby purchaser does not
purchase more than 431,642 shares from the company the period shall end on the
redemption date. This agreement does not affect the company's ability to grant
options to purchase shares of common stock under existing stock option plans,
to allow the exercise of options granted under the company's existing stock
option plans or to issue shares of common stock upon conversion of notes.
In connection with this offering, the standby purchaser may over-allot or
engage in covering transactions and stabilizing transactions. Over-allotment
involves sales of common stock in excess of the number of shares to be
purchased by the standby purchaser in the offering, which creates a short
position. Covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover 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. 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 the 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 standby purchaser has performed certain investment banking and advisory
services for the company from time to time for which it has received customary
fees and expenses. In April 1996, the standby purchaser served as initial
purchaser of $57,000,000 principal amount of the notes and in October of 1998
served as lead underwriter in connection with the company's issuance of
2,300,000 shares of its common stock. The standby purchaser or its affiliates
may in the future provide investment banking and other financial services to
the company or its affiliates for which it will receive compensation. The
standby purchaser may assist in the solicitation of conversions by holders of
notes but will not receive a commission for its assistance.
The company has agreed to indemnify the standby purchaser against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments the standby purchaser may be required to make in respect
of any of those liabilities.
S-15
<PAGE>
LEGAL MATTERS
The validity of the common stock offered will be passed upon for the
Company by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal matters
will be passed on for the standby purchaser by Winston & Strawn, Chicago,
Illinois.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the company's Annual Report on Form 10-K for the year ended
December 31, 1998, 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 "The
Company" have been reviewed by Behre Dolbear & Company, Inc., and such
information has been included in this prospectus supplement in reliance upon
the authority of the firm as experts in mining, geology and ore reserve
determination.
S-16
<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
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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.
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<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").
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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.
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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
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<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.
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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
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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.
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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
<PAGE>
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
15
<PAGE>
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.
16
<PAGE>
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
17
<PAGE>
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.
18
<PAGE>
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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<PAGE>
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
20
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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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2,877,616 Shares
Common Stock
STILLWATER
MINING COMPANY
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PROSPECTUS SUPPLEMENT
April 1, 1999
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Salomon Smith Barney
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