<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998
REGISTRATION NO. 333-52285
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE DOE RUN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 1031, 3339, 3341 13-1255630
(State or other jurisdiction of (Primary Standard Industrial (I.R.S.Employer
incorporation or organization) Classification Code Number) Identification No.)
FABRICATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1799, 2819, 3356, 3442 43-1755268
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DOE RUN CAYMAN LTD.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 3331, 3339 98-0177422
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DOE RUN MINING S.R. LTDA.
(Exact name of registrant as specified in its charter)
PERU 3331, 3339 98-0180347
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DOE RUN PERU S.R. LTDA.
(Exact name of registrant as specified in its charter)
PERU 3331, 3339 98-0180348
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------
<TABLE>
<S> <C>
MARVIN K. KAISER
1801 PARK 270 DRIVE 1801 PARK 270 DRIVE
ST. LOUIS, MISSOURI 63146 ST. LOUIS, MISSOURI 63146
(314) 453-7100 (314) 453-7100
(Address, including zip code, and telephone number, including (Name, address, including zip code, and telephone number,
area code, of registrant's principal executive offices) including area code, of agent for service)
</TABLE>
COPIES TO:
MICHAEL C. RYAN, ESQ.
CADWALADER, WICKERSHAM & TAFT
100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 504-6177
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE+ REGISTRATION FEE
<S> <C> <C> <C> <C>
11 1/4% Senior Notes due 2005, Series B........... $200,000,000 100% $200,000,000 $59,000
Guarantees of 11 1/4% Senior Notes due 2005,
Series B........................................ $200,000,000 100% $200,000,000 ++
Floating Interest Rate Senior Notes due 2003,
Series B........................................ $ 55,000,000 100% $ 55,000,000 $16,225
Guarantees of Floating Interest Rate Senior
Notes due 2003, Series B........................ $ 55,000,000 100% $ 55,000,000 ++
</TABLE>
+ Estimated solely for purposes of computing the registration fee pursuant to
Rule 457(f).
++ Pursuant to Rule 457(n), no additional filing fee is required, as no
separate consideration will be paid for each of the Guarantees by the
Guarantors.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 31, 1998
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE ITS 11 1/4% SENIOR NOTES DUE 2005, SERIES B AND FLOATING
INTEREST RATE SENIOR NOTES DUE 2003, SERIES B, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL OF ITS
OUTSTANDING 11 1/4% SENIOR NOTES DUE 2005, SERIES A AND
FLOATING INTEREST RATE SENIOR NOTES DUE 2003,
SERIES A, RESPECTIVELY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED
The Doe Run Resources Corporation, a New York corporation ("Doe Run" and
together with its subsidiaries, the "Company"), hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal" and together with this
Prospectus, the "Exchange Offer"), to exchange its 11 1/4% Senior Notes due
2005, Series B (the "Fixed Rate Exchange Notes") and Floating Interest Rate
Senior Notes due 2003, Series B (the "Floating Rate Exchange Notes" and together
with the Fixed Rate Exchange Notes, the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus is a
part, for an equal principal amount of its outstanding 11 1/4% Senior Notes due
2005, Series A (the "Fixed Rate Old Notes" and together with the Fixed Rate
Exchange Notes, the "Fixed Rate Notes") and Floating Interest Rate Senior Notes
due 2003, Series A (the "Floating Rate Old Notes" and together with the Fixed
Rate Old Notes, the "Old Notes," and together with the Floating Rate Exchange
Notes, the "Floating Rate Notes"), respectively, of which $200.0 million and
$55.0 million principal amount, respectively, is outstanding. The Exchange Notes
and the Old Notes are collectively referred to herein as the "Notes."
Doe Run will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Notes will be issued
and delivered promptly after the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer." Old Notes may be tendered only in integral
multiples of $1,000. The Company has agreed to pay the expenses of the Exchange
Offer.
The Exchange Notes will be obligations of Doe Run evidencing the same debt
as the Old Notes and will be entitled to the benefits of the same indenture,
dated as of March 12, 1998 (the "Indenture"), by and among Doe Run, as issuer,
and certain of Doe Run's existing subsidiaries, Fabricated Products, Inc., a
Delaware corporation ("FPI"), Doe Run Cayman Ltd., a Cayman Islands company
("Doe Run Cayman"), Doe Run Mining S.R. Ltda., a Peruvian company ("Doe Run
Mining"), and Doe Run Peru S.R. Ltda., a Peruvian company (together with its
predecessors, "Doe Run Peru"), as guarantors (the "Guarantors"), and State
Street Bank and Trust Company, as trustee (the "Trustee"). The form and terms of
the Exchange Notes are substantially the same as the form and terms of the Old
Notes except that the Exchange Notes have been registered under the Securities
Act. See "The Exchange Offer."
The Exchange Notes will bear interest from March 12, 1998. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
up until the date of the issuance of the Exchange Notes. Such waiver will not
result in the loss of interest income to such holders because the Exchange Notes
will bear interest from the issue date of the Old Notes.
The Fixed Rate Exchange Notes will mature on March 15, 2005. The Floating
Rate Exchange Notes will mature on March 15, 2003. Interest on the Exchange
Notes will be payable semi-annually in arrears on March 15 and September 15 of
each year, commencing on September 15, 1998, at the rate of 11 1/4% per annum in
the case of the Fixed Rate Exchange
(COVER CONTINUES ON FOLLOWING PAGE)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES.
---------------------
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 , 1998.
<PAGE>
(CONTINUATION OF COVER)
Notes, and at a rate per annum equal to LIBOR (as defined) plus 6.29%
(currently, 12.00875%) in the case of the Floating Rate Exchange Notes. Interest
on the Floating Rate Exchange Notes will be reset semi-annually. The Fixed Rate
Exchange Notes will be redeemable, in whole or in part, at the option of Doe
Run, on or after March 15, 2002, and the Floating Rate Exchange Notes will be
redeemable, in whole or in part, at the option of Doe Run, at any time, in each
case at the redemption prices set forth herein, plus accrued interest to the
date of redemption. In addition, at any time on or prior to March 15, 2001, Doe
Run may redeem up to 35% of the aggregate principal amount of the Fixed Rate
Exchange Notes with the net cash proceeds of one or more offerings of capital
stock of Doe Run (other than to any subsidiary of Doe Run), at the redemption
price set forth herein, plus accrued interest to the date of redemption,
PROVIDED that at least 65% of the aggregate principal amount of the Fixed Rate
Exchange Notes remains outstanding immediately following such redemption. Upon a
change of control of Doe Run, its direct parent corporation or its ultimate
parent corporation, each holder of Exchange Notes will have the right to require
Doe Run to repurchase such holder's Exchange Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest to the repurchase
date. In addition, Doe Run will be obligated to offer to repurchase the Exchange
Notes at 100% of the principal amount thereof plus accrued and unpaid interest
to the date of repurchase in the event of certain asset sales outside the
ordinary course. See "Description of the Notes."
The Exchange Notes will be fully and unconditionally guaranteed (the
"Guarantees") by the Guarantors. The Exchange Notes and the Guarantees will be
general unsecured obligations of Doe Run and the Guarantors, respectively, and
will rank senior in right of payment to all existing and future subordinated
indebtedness of Doe Run and the Guarantors, respectively, and equally in right
of payment with other senior indebtedness of Doe Run and the Guarantors,
respectively, subject, in the case of the Guarantees of Doe Run Mining and Doe
Run Peru, to statutorily preferred exceptions and statutorily mandated
priorities based on the date of issuance with respect to payment of obligations
under applicable Peruvian law. However, Doe Run's indebtedness under its new
$100 million revolving credit facility (the "New Doe Run Revolving Credit
Facility") is secured by substantially all of the current assets of Doe Run. In
addition, Doe Run Peru has entered into a new $40.0 million revolving credit
facility (the "New Doe Run Peru Revolving Credit Facility"), which is secured by
substantially all of the current assets of Doe Run Peru. Holders of such secured
indebtedness, and any other secured indebtedness of Doe Run and the Guarantors,
will have claims that effectively rank prior to those of holders of Exchange
Notes with respect to the assets securing such indebtedness. In addition, the
Guarantee of Doe Run Peru will be contractually subordinated to the indebtedness
of Doe Run Peru under the New Doe Run Peru Revolving Credit Facility. As of June
30, 1998, the Company had approximately $396.8 million of indebtedness
outstanding (exclusive of aggregate unused commitments of $129.7 million under
the New Doe Run Revolving Credit Facility and the New Doe Run Peru Revolving
Credit Facility (collectively, the "New Revolving Credit Facilities"), and none
of the Company's indebtedness was subordinated to the Old Notes.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a Prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that, by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities. Doe Run has agreed that for
a period of 180 days after consummation of the Exchange Offer, it will make this
Prospectus, which Doe Run will update, amend or supplement from time to time as
required by applicable law or regulations, available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
There has been no public market for the Old Notes. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount from
their principal amount. Doe Run does not intend to list the Exchange Notes on a
national securities exchange or quotation system. There can be no assurance that
an active public market for the Exchange Notes will develop.
2
<PAGE>
AVAILABLE INFORMATION
Doe Run and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the Exchange
Notes offered hereby. This Prospectus, which forms 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. For further information with respect to Doe
Run, and the Exchange Notes offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of certain documents filed as exhibits to the Registration Statement
are not necessarily complete and, in each case, are qualified by reference to
the copy of the document so filed. The Registration Statement 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 the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such material also can be reviewed through the Commission's Electronic
Data Gathering, Analysis, and Retrieval System, which is publicly available
through the Commission's web site (http://www.sec.gov).
Doe Run intends to furnish to each holder of the Exchange Notes annual
reports containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. Doe Run also will furnish to each holder of the Exchange Notes such other
reports as may be required by applicable law.
The principal executive offices of Doe Run and the Guarantors are located at
1801 Park 270 Drive, Suite 300, St. Louis, Missouri 63146, telephone number:
(314) 453-7100.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements." All statements other
than statements of historical facts included in this Prospectus, including
without limitation, certain statements under the captions "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results Of
Operations," "Industry" and "Business" and located elsewhere herein regarding
the financial position and business strategy of the Company, may constitute
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or
the negatives thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from Doe Run's expectations ("Cautionary Statements") are
disclosed in this Prospectus, including, without limitation, in conjunction with
the forward-looking statements included in this Prospectus and under "Risk
Factors." All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements. These forward-looking
statements speak only as of the date of this Prospectus. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in their
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ENFORCEABILITY OF CIVIL LIABILITIES
Each of Doe Run Peru and Doe Run Mining is organized under the laws of the
Peru. Doe Run Cayman is incorporated under the laws of the Cayman Islands.
Certain experts named herein with respect
3
<PAGE>
to Doe Run Peru and Doe Run Mining reside outside of the United States, and
substantially all of the assets of such persons and of Doe Run Peru and Doe Run
Mining are located outside of the United States. As a result, it may not be
possible for investors to effect service of process upon such persons or Doe Run
Peru, Doe Run Cayman and Doe Run Mining or to enforce against them in the United
States, or to realize judgments of courts located outside of the Cayman Islands
or Peru predicated upon civil liability provisions of the federal or state
securities laws of the United States. The Company believes that there are
potential defenses to the enforceability, in original actions in Cayman Islands
or Peruvian courts, of liabilities predicated solely on the U.S. federal and
state securities laws and as to the enforceability in Cayman Islands or Peruvian
courts of judgments of U.S. courts obtained in actions predicated upon the civil
liability provisions of the U.S. federal and state securities laws.
PRESENTATION OF CERTAIN FINANCIAL INFORMATION
Unless otherwise specified or the context otherwise requires, references to
"$," "US$," "U.S.$," "dollars," and "U.S. dollars" are to United States dollars
and references to "S/.," "nuevo sol" or "nuevos soles" are to Peruvian nuevos
soles. Each nuevo sol is divisible into 100 centimos. See "Exchange Rates."
The financial statements of Empresa Minera del Centro Peru S.A.--Centromin
Peru S.A., La Oroya Division included herein are prepared in U.S. dollars and in
accordance with generally accepted accounting principles in the United States
("U.S. GAAP").
Doe Run Peru and Doe Run Mining maintain their financial records in nuevos
soles, prepare financial information in accordance with generally accepted
accounting principles in Peru ("Peruvian GAAP") and report such information to
the Peruvian government on this basis for purposes of calculating their Peruvian
tax liability. These amounts are calculated on the basis of Peruvian GAAP and,
therefore, cannot be directly derived from the consolidated financial statements
appearing in this Prospectus, which are prepared in accordance with U.S. GAAP.
Peruvian GAAP requires the inclusion in the financial statements of Doe Run Peru
and Doe Run Mining the Resultado de Exposicion a la Inflacion which seeks to
account for the effects of inflation by adjusting the value of non-monetary
assets and liabilities and equity by a factor corresponding to Peruvian
wholesale price inflation rates during the period covered by the financial
statements. Monetary assets and liabilities are not adjusted.
EXCHANGE RATES
During the last two decades, the Peruvian government has imposed various
exchange controls ranging from strict control over exchange rates to market
determination of rates. Prior to early 1991, the Peruvian foreign exchange
market consisted of multiple exchange rates. Since early 1991, there have been
no exchange controls in Peru and all foreign exchange transactions are based on
free market exchange rates. Current Peruvian regulations on foreign investment
allow foreign investors to receive and repatriate all earnings and investments
in Peru. Investors are allowed to purchase foreign currency at free market
exchange rates through any member of the Peruvian banking system and transfer
such foreign currency outside Peru without restriction.
Approximately 30.0% of Doe Run Peru's pro forma operating costs, or $115.4
million, for the twelve months ended October 31, 1997, are denominated in nuevos
soles. Because substantially all the revenues of Doe Run Peru are denominated in
U.S. dollars, when inflation in Peru is not offset by a corresponding
devaluation of the nuevo sol versus the U.S. dollar, the financial position,
results of operations and cash flows of Doe Run Peru will be adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Inflation and Seasonality." Doe Run
Peru has not in the past entered into any foreign exchange hedging arrangements.
4
<PAGE>
The following table sets forth the high and low month-end, average month-end
and end of period noon buying rates in New York City for customs purposes as set
forth in INTERNATIONAL FINANCIAL STATISTICS published by the International
Monetary Fund of nuevo soles for U.S. dollars for the periods indicated:
<TABLE>
<CAPTION>
MONTH-END
--------------------------------- END OF
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE PERIOD
- ------------------------------------------------ --------- --------- ----------- ---------
(PER $)
<S> <C> <C> <C> <C>
1992............................................ S/.1.468 S/.0.960 S/.1.211 S/.1.468
1993............................................ 2.196 1.710 2.008 2.196
1994............................................ 2.250 2.160 2.193 2.180
1995............................................ 2.320 2.190 2.252 2.310
1996............................................ 2.600 2.360 2.460 2.600
1997............................................ 2.730 2.640 2.673 2.730
</TABLE>
The noon buying rate in New York City for customs purposes as set forth in
INTERNATIONAL FINANCIAL STATISTICS published by the International Monetary Fund
as of October 31, 1997 and April 30, 1998 was S/.2.720 and S/.2.830,
respectively, per $1.00.
The Company currently does not, and does not intend to, engage in any
hedging or other transactions which are intended to manage risks relating to
foreign currency and interest rate fluctuations.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, AND OTHER DATA
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES,
AS USED HEREIN: "OUNCE" MEANS A TROY OUNCE (1.09 OUNCES); "TON" MEANS A SHORT
TON (2,000 POUNDS); AND "WESTERN WORLD" MEANS THE ENTIRE WORLD EXCLUDING EASTERN
EUROPE, THE FORMER SOVIET UNION AND CHINA. THE COMPANY'S FISCAL YEAR ENDS
OCTOBER 31, AND THUS, FOR EXAMPLE, "FISCAL 1997" REFERS TO THE FISCAL YEAR ENDED
OCTOBER 31, 1997. PRIOR TO THE ACQUISITION (AS DEFINED), DOE RUN PERU'S FISCAL
YEAR ENDED DECEMBER 31. SEE "UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA"
FOR A DESCRIPTION OF THE TRANSACTIONS GIVEN EFFECT BY, AND THE ASSUMPTIONS
REFLECTED IN, THE FINANCIAL INFORMATION DESIGNATED AS "PRO FORMA" OR "PRO FORMA
AS ADJUSTED." THE COMPANY MAINTAINS ITS PRINCIPAL EXECUTIVE OFFICES AT 1801 PARK
270 DRIVE, ST. LOUIS, MISSOURI 63146, AND ITS TELEPHONE NUMBER IS (314)
453-7100.
THE COMPANY
Doe Run is the largest fully-integrated lead producer in North America and
the second largest primary lead producer in the western world. Through its
subsidiary Doe Run Peru, Doe Run operates one of the largest polymetallic
processing facilities in the western world offering an extensive product mix of
non-ferrous and precious metals, including copper, silver, zinc, lead and gold.
The combined capabilities of Doe Run and Doe Run Peru represent the largest
primary lead producer in the western world.
On October 23, 1997, Doe Run Peru acquired (the "Acquisition") Empresa
Metalurgica La Oroya S.A. ("Metaloroya") from Empresa Minera del Centro del Peru
S.A., a Peruvian government-owned conglomerate ("Centromin"), as part of the
ongoing privatization program sponsored by the government of the Republic of
Peru ("Peru"). On December 30, 1997, Metaloroya was merged into Doe Run Peru
(the "Merger").
The Company had pro forma net sales, net income and net income (loss) before
extraordinary item plus the sum of net interest expense, income taxes and
depletion, depreciation and amortization ("EBITDA") of $709.8 million, $.7
million and $74.5 million, respectively, for the twelve months ended October 31,
1997 and pro forma net sales, net loss and EBITDA of $343.4 million, $1.0
million and $40.4 million, respectively, for the six months ended April 30,
1998.
DOE RUN
Doe Run's integrated operations permit Doe Run to participate in and manage
the entire lead life cycle, including the mining of lead ore, the production of
refined lead metal, the fabrication of value-added lead products and the
secondary recycling of spent lead-acid batteries and other lead-bearing
materials. Doe Run believes its reputation for excellent service, product
quality and timely delivery permits it to consistently realize premiums for its
products, resulting in sales prices above the market price for lead quoted on
the London Metal Exchange (the "LME").
In fiscal 1997, Doe Run shipped approximately 350,000 tons of refined lead
metal and lead alloy products, including recycled lead, representing
approximately 18% of North American consumption and 6% of western world
consumption. Doe Run had net sales, net loss and EBITDA of $277.9 million, $1.1
million and $31.9 million, respectively, for fiscal 1997, excluding the results
of operations of Doe Run Peru for the eight-day period from October 23, 1997
(the date of consummation of the Acquisition) through October 31, 1997 and net
sales, net loss and EBITDA (excluding intercompany transactions) of $118.5
million, $14.2 million and $4.2 million, respectively, for the six months ended
April 30, 1998.
Refined lead product sales accounted for approximately 67% and 68% of Doe
Run's total net sales, or $185.1 million and $80.6 million, respectively, in
fiscal 1997 and for the six months ended April 30, 1998, respectively. The
balance of Doe Run's net sales resulted from (i) tolling services provided to
major U.S. lead-acid battery manufacturers, (ii) lead production by-products,
including zinc and copper concentrates, and (iii) value-added fabricated lead
products, such as lead sheet and bricks. These net sales from tolling services,
by-products and fabricated products provide sources of revenue largely
independent of lead prices.
6
<PAGE>
Western world lead consumption in 1997 was estimated at 5.8 million tons
which represents a total market of approximately $3.2 billion. Approximately 4.2
million tons, or 72%, of this lead was used in the production of lead-acid
batteries, approximately 75% of which was for starting-lighting-ignition ("SLI")
batteries. Approximately 77% of SLI battery sales are in the automotive
replacement market, a market with stable demand characteristics, which is
dependent upon the number of automobiles in service and battery life.
The lead-acid battery remains the most cost competitive battery technology
for SLI batteries, which management believes will not change in the foreseeable
future. Other uses for refined lead include computer and television screens,
ammunition, stationary batteries used as backup power sources and rolled and
extruded lead products used in radiation shielding and roofing materials.
The market for refined lead continues to grow primarily as a result of
increasing demand for lead-acid batteries used for automobiles and other
vehicles as a result of worldwide economic growth. As a result, western world
lead consumption grew at a compound annual growth rate ("CAGR") of 2.0% between
1987 and 1997. Doe Run believes that this growth rate will accelerate in the
future as batteries become an even larger portion of the lead market,
particularly in light of expected economic growth leading to increased vehicle
population in developing economies.
Approximately 45% of annual western world lead consumption is supplied from
newly mined or "primary" ore, and the balance is supplied from secondary
sources, principally the recycling of spent lead-acid batteries and other
lead-bearing materials. Since 1990, primarily due to heightened environmental
awareness, secondary lead capacity has increased, whereas primary lead capacity
has remained relatively constant. Management believes that secondary sources of
lead will continue to account for an increasing share of the total worldwide
lead market.
The average LME price for refined lead was $.29 per pound in fiscal 1997. As
of June 30, 1998, the LME price for lead was $.25 per pound, which was below the
ten-year average price of $.28 per pound. Management believes that lead prices
will remain relatively stable or will modestly increase for the remainder of
fiscal 1998 and over the long term will reflect the historical industry average.
As a result of the recent lead price decreases, the Company expects that it will
incur an operating loss in its U.S. operations that will adversely affect its
EBITDA in fiscal 1998.
Doe Run conducts its mining operations along approximately 40 miles of the
Viburnum Trend in Southeastern Missouri, one of the world's most productive lead
deposits. Doe Run operates six production shafts, four processing mills one
primary smelter and one secondary smelter. During fiscal 1997, Doe Run mined in
excess of 5.0 million tons of ore containing average grades of 5.17% lead, 1.02%
zinc and 0.27% copper. At the end of fiscal 1997, Doe Run's proven and probable
reserves consisted of approximately 70 million tons, containing approximately
3.8 million tons of recoverable lead or approximately fourteen years of
production at current mining rates.
Doe Run's primary smelter in Herculaneum, Missouri is the largest in North
America and the second largest in the world, with an annual production capacity
of approximately 250,000 tons of refined lead. Since entering the recycling
business in 1992, Doe Run has become a leading producer of secondary lead at its
Buick recycling facility and secondary smelter located in Boss, Missouri. At
this facility, Doe Run is reclaiming at a rate of approximately 105,000 tons of
refined lead per year, approximately 60% of which is derived from tolling
arrangements with major U.S. battery manufacturers.
DOE RUN PERU
Doe Run Peru's unique combination of base metal smelters, refineries and
by-product circuits enable Doe Run Peru to process complex polymetallic
concentrates and to recover base metals and by-products at international quality
standards. Doe Run Peru's location in central Peru, approximately 110 miles from
Lima, allows Doe Run Peru to source concentrates advantageously from mines
located throughout the central Andes mountains, particularly in Peru. Moreover,
Doe Run Peru's proximity to Lima's Callao port provides it ready access to major
world markets for its products.
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For the twelve months ended October 31, 1997 and the six months ended April
30, 1998, Doe Run Peru shipped approximately 70,000 tons and 35,000 tons,
respectively, of refined copper, 107,000 tons and 55,000 tons, respectively, of
refined lead, 71,000 tons and 40,000 tons, respectively, of refined zinc, 20.5
million ounces and 13.0 million ounces, respectively, of refined silver and
42,000 ounces and 26,000 ounces, respectively, of gold bullion. In addition, Doe
Run Peru shipped various by-products including bismuth, indium, tellurium,
antimony, cadmium and copper blister. Doe Run Peru had net sales, net income and
EBITDA adjusted for certain non-recurring charges ("Adjusted EBITDA") of $431.9
million, $26.4 million and $50.7 million, respectively, for the twelve months
ended October 31, 1997, including the period from October 23, 1997 through
October 31, 1997, and net sales, net income and EBITDA (excluding intercompany
transactions) of $224.9 million, $18.9 million and $36.2 million, respectively,
for the six months ended April 30, 1998.
Of Doe Run Peru's net sales, refined copper, silver, zinc, lead and gold
accounted for 35%, 23%, 19%, 15% and 3%, respectively, for the twelve months
ended October 31, 1997, and 25%, 34%, 17%, 13% and 4%, respectively, for the six
months ended April 30, 1998, with the balance of net sales derived from sales of
various by-products. For the twelve months ended December 31, 1997, Doe Run Peru
was one of Peru's largest exporters, exporting approximately 80% of its total
shipments to North America, Europe and Asia, as well as other Latin American
countries. Doe Run Peru's customers include end-users of base metals and metal
by-products, as well as international metal trading companies.
Doe Run Peru's operations consist of smelting and refining complex
concentrates that it purchases from unaffiliated mining operations. Doe Run Peru
typically purchases concentrate feedstock pursuant to annual contracts at a
price based on a percentage of the payable base metal and precious metal content
of the concentrates. The price is reduced by processing fees or treatment
charges to refine the concentrates, as well as by penalties charged to remove
impurities within the concentrates, such as arsenic, antimony and bismuth. Base
metal prices, treatment charges and penalties are generally established based
upon prevailing market conditions by reference to prices in the world market,
including on the LME. Currently, Doe Run Peru has entered into supply contracts,
primarily with one-year terms, that meet approximately 95% of its concentrate
requirements for fiscal 1998.
Doe Run Peru pays concentrate suppliers for the majority of the metal
content of the concentrates purchased and, thus, derives its operating profit
primarily from treatment charges and penalties. In addition, Doe Run Peru
generates operating profit from the sale of by-products, as well as from metals
sold at a premium to the price paid for such metal. Moreover, since Doe Run
Peru's metallurgical recoveries are typically in excess of the paid metal
percentages, Doe Run Peru further increases its operating profit from the sale
of the metal produced from such recoveries.
The markets for Doe Run Peru's products are global and continue to grow as a
result of worldwide economic growth. Given the diversity of its products and
by-products, Doe Run Peru's financial performance is not solely dependent upon
the prospects for any one of its products or by-products. Moreover, since Doe
Run Peru is a processor of complex concentrates and does not presently own any
mines from which it sources concentrates, Doe Run Peru's financial performance
is less sensitive to the volatility of base metal prices.
CONTROL OF THE COMPANY
All of Doe Run's issued and outstanding capital stock is owned indirectly by
Renco. In excess of 99% of the interests in Doe Run Peru is indirectly owned by
Doe Run through Doe Run Cayman and Doe Run Mining (with a DE MINIMIS number of
shares owned by employees of Doe Run Peru and Centromin pursuant to Peruvian
law).
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The following chart sets forth the corporate structure of Doe Run and the
Guarantors.
[GRAPHIC REPRESENTATION OF CORPORATE STRUCTURE]
Renco is 97.9% owned by Mr. Ira Leon Rennert, the Chairman of Doe Run and
Chairman and Chief Executive Officer of Renco, and by trusts established for
himself and members of his family (but of which he is not a trustee). As a
result of such ownership, Mr. Rennert controls the Company.
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THE EXCHANGE OFFER
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The Exchange Offer.................. $1,000 principal amount of Fixed Rate Exchange Notes
and Floating Rate Exchange Notes will be issued in
exchange for each $1,000 principal amount of Fixed
Rate Old Notes and Floating Rate Old Notes,
respectively, validly tendered pursuant to the
Exchange Offer. As of the date hereof, $200.0 million
and $55.0 million in aggregate principal amount of
Fixed Rate Old Notes and Floating Rate Old Notes,
respectively, are outstanding. Doe Run will issue the
Exchange Notes to tendering holders of Old Notes
promptly after the Expiration Date.
Resales............................. Based on an interpretation by the staff of the
Commission set forth in Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5,
1991) (the "Morgan Stanley Letter"), Exxon Capital
Holdings Corporation, SEC No-Action Letter (available
May 13, 1988) (the "Exxon Capital Letter") and
similar letters, Doe Run believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such
Exchange Notes, whether or not such person is the
holder (other than any such holder or other person
which is (i) a broker-dealer that receives Exchange
Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such
broker-dealer as a result of market-making or other
trading activities, or (ii) an "affiliate" of Doe Run
within the meaning of Rule 405 under the Securities
Act (collectively, "Restricted Holders")) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that (a) such Exchange Notes are acquired in the
ordinary course of business of such holder or other
person (b) neither such holder nor such other person
is engaged in or intends to engage in a distribution
of such Exchange Notes and (c) neither such holder
nor other person has any arrangement or understanding
with any person to participate in the distribution of
such Exchange Notes. If any person were to be
participating in the Exchange Offer for the purposes
of participating in a distribution of the Exchange
Notes in a manner not permitted by the Commission's
interpretation, such person (a) could not rely upon
the Morgan Stanley Letter, the Exxon Capital Letter
or similar letters and (b) must comply with the
registration and prospectus delivery requirements of
the Securities Act in connection with a secondary
resale transaction. Each broker or dealer that
receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were
acquired by such broker or dealer as a result of
market-making or other activities, must acknowledge
that it will deliver a Prospectus in connection with
any sale of such Exchange Notes. See "Plan of
Distribution."
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Expiration Date..................... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in which case
the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Accrued Interest on the Exchange
Notes and Old Notes............... The Exchange Notes will bear interest from March 12,
1998. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived
the right to receive any payment in respect of
interest on such Old Notes accrued to the date of
issuance of the Exchange Notes.
Conditions to the Exchange Offer.... The Exchange Offer is subject to certain customary
conditions. The conditions are limited and relate in
general to proceedings which have been instituted or
laws which have been adopted that might impair the
ability of Doe Run to proceed with the Exchange
Offer. As of the date of this Prospectus, none of
these events had occurred, and Doe Run believes their
occurrence to be unlikely. If any such conditions
exist prior to the Expiration Date, Doe Run may (a)
refuse to accept any Old Notes and return all
previously tendered Old Notes, (b) extend the
Exchange Offer or (c) waive such conditions. See "The
Exchange Offer-- Conditions."
Procedures for Tendering Old
Notes............................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the Old
Notes to be exchanged and any other required
documentation to State Street Bank and Trust Company,
as exchange agent ("the Exchange Agent"), at the
address set forth herein and therein. Tendered Old
Notes, the Letter of Transmittal and accompanying
documents must be received by the Exchange Agent by
5:00 p.m. New York City time, on the Expiration Date.
See "The Exchange Offer--Procedures for Tendering."
By executing the Letter of Transmittal, each holder
will represent to Doe Run that, among other things,
the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of
business of the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person is
engaged in or intends to engage in a distribution of
the Exchange Notes or has an arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes, and that neither
the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of Doe Run.
Special Procedures for Beneficial
Holders........................... Any beneficial holder whose Old Notes are registered
in the name of his broker, dealer, commercial bank,
trust company
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or other nominee and who wishes to tender in the
Exchange Offer should contact such registered holder
promptly and instruct such registered holder to
tender on his behalf. If such beneficial holder
wishes to tender on his own behalf, such beneficial
holder must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such holder's name or
obtain a properly completed bond power from the
registered holder. The transfer of record ownership
may take considerable time. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery Procedures...... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and a
properly completed Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date may
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights................... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and Delivery
of Exchange Notes................. Subject to certain conditions, Doe Run will accept
for exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer
will be delivered promptly after the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain U.S. Federal Income Tax
Considerations.................... The exchange of Old Notes for Exchange Notes pursuant
to the Exchange Offer will not be a taxable event for
federal income tax purposes. A holder's holding
period for Exchange Notes will include the holding
period for Old Notes. For a discussion summarizing
certain U.S. federal income tax consequences to
holders of the Exchange Notes, see "Certain U.S.
Federal Income Tax Considerations."
Exchange Agent...................... State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange Offer.
The mailing address of the Exchange Agent is State
Street Bank and Trust Company, Two International
Place, 4th Floor, Boston, Massachusetts 02110,
Attention: Claire Young--Corporate Trust Department.
Deliveries by hand or overnight courier should be
addressed to State Street Bank and Trust Company, 61
Broadway, 15th Floor, New York, New York 10016,
Attention: Corporate Trust Department. For
information with respect to the Exchange Offer, call
the Exchange Agent at telephone number: (860)
244-1846 or facsimile number: (860) 244-1881.
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SUMMARY OF TERMS OF EXCHANGE NOTES
The Exchange Offer constitutes an offer to exchange up to $200.0 million and
$55.0 million aggregate principal amount of the Fixed Rate Exchange Notes and
Floating Rate Exchange Notes, respectively, for up to an equal aggregate
principal amount of Fixed Rate Old Notes and Floating Rate Old Notes,
respectively. The Exchange Notes will be obligations of Doe Run evidencing the
same indebtedness as the Old Notes, and will be entitled to the benefit of the
same Indenture. The form and terms of the Fixed Rate Exchange Notes and Floating
Rate Exchange Notes are substantially the same as the form and terms of the
Fixed Rate Old Notes and Floating Rate Old Notes, respectively, except that the
Exchange Notes have been registered under the Securities Act. See "Description
of the Notes."
COMPARISON WITH OLD NOTES
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Freely Transferable................. The Exchange Notes will be freely transferable under
the Securities Act by holders who are not Restricted
Holders. Restricted Holders are restricted from
transferring the Exchange Notes without compliance
with the registration and prospectus delivery
requirements of the Securities Act. The Fixed Rate
Exchange Notes and Floating Rate Exchange Notes will
be identical in all material respects (including
interest rate, maturity and restrictive covenants) to
the Fixed Rate Old Notes and Floating Rate Old Notes,
respectively, with the exception that the Exchange
Notes will be registered under the Securities Act.
See "The Exchange Offer--Terms of the Exchange
Offer."
Registration Rights................. The holders of Old Notes currently are entitled to
certain registration rights pursuant to the
Registration Rights Agreement, dated as of March 12,
1998 (the "Registration Rights Agreement"), by and
among Doe Run, the Guarantors and BT Alex. Brown
Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation and UBS Securities LLC, the initial
purchasers of the Old Notes (the "Initial
Purchasers"), including the right to cause Doe Run
and the Guarantors to register the Old Notes under
the Securities Act if the Exchange Offer is not
consummated prior to the date on which the earliest
of the following events occurs: (a) any change in law
or in currently prevailing interpretations of the
staff of the Commission do not permit Doe Run and the
Guarantors to effect the Exchange Offer, (b) the
Exchange Offer is not consummated within 180 days of
March 12, 1988, the date the Old Notes were issued
(the "Issue Date"), or (c) any holder of Old Notes
that participates in the Exchange Offer does not
receive freely transferable Exchange Notes and so
notifies Doe Run and the Guarantors within 30 days
after such holder first becomes aware of such
condition (the "Exchange Offer Termination Date").
See "The Exchange Offer--Conditions." However,
pursuant to the Registration Rights Agreement, such
registration rights will expire upon consummation of
the Exchange Offer. Accordingly, holders of Old Notes
who do not exchange their Old Notes for Exchange
Notes in the Exchange Offer will not be able to
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reoffer, resell or otherwise dispose of their Old
Notes unless such Old Notes are subsequently
registered under the Securities Act or unless an
exemption from the registration requirements of the
Securities Act is available.
TERMS OF THE EXCHANGE NOTES
Securities Offered.................. $200.0 million aggregate principal amount of 11 1/4%
Senior Notes due 2005, Series B.
$55.0 million aggregate principal amount of Floating
Interest Rate Senior Notes due 2003, Series B.
Issuer.............................. The Doe Run Resources Corporation
Guarantors.......................... Fabricated Products, Inc., Doe Run Cayman Ltd., Doe
Run Mining S.R. Ltda. and Doe Run Peru S.R. Ltda.
Maturity Date....................... The Floating Rate Exchange Notes will mature on March
15, 2003, and the Fixed Rate Exchange Notes will
mature on March 15, 2005.
Interest Payment Dates.............. Interest on the Exchange Notes will be payable
semi-annually on each March 15 and September 15,
commencing September 15, 1998. The Fixed Rate
Exchange Notes will bear interest at a rate of
11 1/4% per annum. The Floating Rate Exchange Notes
will bear interest at a rate per annum equal to LIBOR
plus 6.29% (currently, 12.00875%). Interest on the
Floating Rate Exchange Notes will be reset semi-
annually.
Ranking............................. The Exchange Notes and the Guarantees will be general
unsecured obligations of Doe Run and of the
Guarantors, respectively, and will rank senior in
right of payment to all existing and future
subordinated indebtedness of Doe Run and the
Guarantors, respectively, and equally in right of
payment with other senior indebtedness of Doe Run and
the Guarantors, respectively, subject, in the case of
the Guarantees of Doe Run Mining and Doe Run Peru, to
statutorily preferred exceptions and statutorily
mandated priorities based on the date of issuance
with respect to payment of obligations under
applicable Peruvian law. However, Doe Run's
indebtedness under the New Doe Run Revolving Credit
Facility is secured by substantially all of the
current assets of Doe Run. In addition, Doe Run Peru
has entered into the New Doe Run Peru Revolving
Credit Facility, which is secured by substantially
all of the current assets of Doe Run Peru. Holders of
such secured indebtedness, and any other secured
indebtedness of Doe Run and the Guarantors, will have
claims that effectively rank prior to those of
holders of Exchange Notes with respect to the assets
securing such indebtedness. In addition, the
Guarantee of Doe Run Peru will be contractually
subordinated to the indebtedness of Doe Run Peru
under the New Doe Run Peru Revolving Credit Facility.
As of June 30, 1998, the Company had approximately
$396.8 million of
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indebtedness outstanding (including the Back-to-Back
Loan of $125.0 million but exclusive of aggregate
unused commitments of $129.7 million under the New
Revolving Credit Facilities), and none of the
Company's indebtedness was subordinated to the Old
Notes.
Optional Redemption................. The Fixed Rate Exchange Notes will be redeemable, in
whole or in part, at the option of Doe Run, on or
after March 15, 2002, and the Floating Rate Exchange
Notes will be redeemable, in whole or in part, at the
option of Doe Run, at any time, in each case at the
redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. In
addition, at any time on or prior to March 15, 2001,
Doe Run may redeem up to 35% of the aggregate
principal amount of the Fixed Rate Exchange Notes
with the net cash proceeds of one or more offerings
of capital stock of Doe Run (other than to any
subsidiary of Doe Run), at a redemption price equal
to 111.25% of the principal amount thereof, plus
accrued interest to the date of redemption; PROVIDED
that at least 65% of the aggregate principal amount
of Fixed Rate Notes remains outstanding immediately
after any redemption. See "Description of the Notes--
Redemption."
Change of Control................... Upon a change of control of Doe Run, its direct
parent corporation or its ultimate parent
corporation, each holder of Exchange Notes will have
the right to require Doe Run to repurchase such
holder's Exchange Notes at a price equal to 101% of
the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. See "Description
of the Notes--Certain Covenants--Change of Control."
Certain Covenants................... The Indenture contains certain covenants that limit
the ability of Doe Run and its Restricted
Subsidiaries (as defined) to, among other things,
incur additional indebtedness, pay dividends or make
certain other restricted payments, consummate certain
asset sales, enter into certain transactions with
affiliates, incur liens, impose restrictions on the
ability of a subsidiary to pay dividends or make
certain payments to Doe Run and its Restricted
Subsidiaries, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of the
assets of Doe Run and its Restricted Subsidiaries.
These restrictions and qualifications are subject to
a number of important qualifications and exceptions.
See "Description of the Notes--Certain Covenants."
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For additional information regarding the Exchange Notes, see "Description of
the Notes."
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USE OF PROCEEDS
Doe Run will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
See "--Recent Transactions and Events--Old Notes Offering" for a description
of the use of proceeds from the Old Notes Offering.
RECENT TRANSACTIONS AND EVENTS
THE ACQUISITION
Doe Run Peru consummated the Acquisition on October 23, 1997 pursuant to the
terms of the Contract of Stock Transfer, Capital Increase and Stock Subscription
(the "Subscription Agreement") whereby Doe Run Peru acquired in excess of 99.97%
of Metaloroya's shares for approximately $247.0 million, which consisted of a
capital contribution to Metaloroya of $126.5 million and a purchase price
payment of $120.5 million. The Acquisition was structured as a direct
subscription and payment for newly issued shares of Metaloroya representing a
51% ownership interest in Metaloroya and a contemporaneous purchase from
Centromin of substantially all the previously outstanding shares, except for a
DE MINIMIS number of shares purchased from Centromin pursuant to Peruvian law by
employees of Centromin.
In order to finance the Acquisition, Doe Run Mining borrowed $225.0 million
in term loans under the Credit Agreement, dated as of October 23, 1997 (the
"Existing Doe Run Mining Credit Facility," which was repaid in full with the
proceeds of the Old Notes Offering (as defined) and thereupon terminated), among
Doe Run Mining, as borrower, Doe Run, Doe Run Cayman, Doe Run Peru and
Metaloroya, each as guarantors, and various financial institutions. In addition,
Doe Run Mining received a $2.0 million capital contribution from Doe Run Cayman
and a $23.0 million subordinated loan from Doe Run (the "Subordinated Loan").
Doe Run Mining used the foregoing funds to make a capital contribution to Doe
Run Peru of approximately $248.0 million which was used to complete the
Acquisition and for general corporate purposes. On December 30, 1997, the Merger
of Metaloroya into Doe Run Peru was consummated with the surviving company being
named Doe Run Peru S.R. Ltda.
As part of the Subscription Agreement, Doe Run Peru is obligated to invest
$120.0 million through October 23, 2002 (the "Investment Commitment") to expand
and modernize Doe Run Peru's operations, including certain expenditures to
comply with environmental regulations within Peru as set forth in the Programa
de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program)
(the "PAMA"), an environmental adjustment and management program. In the event
that Doe Run Peru does not fulfill its obligations under the Investment
Commitment, Doe Run Peru will be obligated to pay in 2002 a penalty payment to
Centromin equal to 30% of any shortfall (a maximum of $36.0 million if none of
the Investment Commitment is made during the five year period) (the "Penalty
Payment"). As of March 31, 1998, Doe Run Peru had expended $1.2 million toward
fulfillment of the Investment Commitment.
In addition to term loans, the Existing Doe Run Mining Credit Facility
provided for a working capital facility of $50.0 million, of which $3.0 million
was drawn on the closing date of the Acquisition. As of October 31, 1997, Doe
Run Mining had outstanding borrowings of $103.0 million under the Existing Doe
Run Mining Credit Facility, $100.0 million in term loans and $3.0 million under
the working capital facility. In addition, Doe Run Mining has an intercompany
payable due to Doe Run Peru reflecting an interest free loan of $125.0 million
made by Metaloroya to Doe Run Mining on the closing date of the Acquisition. The
proceeds of the intercompany payable were used to reduce the outstanding term
loans obtained by Doe Run Mining under the Existing Doe Run Mining Credit
Facility to consummate the Acquisition.
DOE RUN FINANCING
As part of Renco's acquisition of Doe Run from Fluor Corporation ("Fluor")
in April 1994, Doe Run undertook certain obligations to Fluor. These obligations
included annual payments by Doe Run in exchange for an eight-year covenant not
to compete, a profit participation arrangement and promissory notes
(collectively, the "Fluor Indebtedness").
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Doe Run borrowed $130.0 million under a term loan (the "Doe Run Term Loan")
pursuant to the Credit Agreement, dated as of October 23, 1997, among Doe Run,
as borrower, DR Acquisition Corp. ("DRA"), as parent guarantor, Fabricated
Products, Inc., as subsidiary guarantor, and various financial institutions. Doe
Run used the net proceeds of the Doe Run Term Loan to pay $60.0 million to Fluor
in full settlement of the Fluor Indebtedness, to make the Subordinated Loan and
to make a $2.0 million capital contribution to Doe Run Cayman. In addition, Doe
Run used a portion of the net proceeds of the Doe Run Term Loan to repay all
amounts outstanding under Doe Run's then existing revolving credit facility and
entered into a $100.0 million revolving credit facility (the "Existing Doe Run
Revolving Credit Facility").
OLD NOTES OFFERING
On March 12, 1998, Doe Run sold and issued the Old Notes (the "Old Notes
Offering"). The net proceeds from the Old Notes Offering were approximately
$248.6 million. Doe Run used $125.0 million of such net proceeds to make a
deposit (the "Special Term Deposit") in a bank, which in turn loaned such amount
(the "Back-to-Back Loan") to Doe Run Mining. The Special Term Deposit and the
Back-to-Back Loan have payment terms that match the timing and amount of the
payments on $125.0 million of the Fixed Rate Notes, except that additional
interest of 0.50% for the first six months and 0.25% thereafter through
September 2004 is payable on the Back-to-Back Loan. The Back-to-Back Loan is
secured by the Special Term Deposit. Doe Run Mining used the proceeds of the
Back-to-Back Loan to (i) repay amounts outstanding under the Existing Doe Run
Mining Credit Facility and (ii) repay the Subordinated Loan from Doe Run of
$23.0 million. Doe Run used the remaining approximately $123.6 million of the
net proceeds from the Old Notes Offering, together with the proceeds from the
repayment of the Subordinated Loan, to (i) repay amounts outstanding under the
Doe Run Term Loan, (ii) repay amounts under the Existing Doe Run Revolving
Credit Facility, (iii) redeem all of Doe Run's preferred stock held by Renco and
pay accrued dividends thereon and (iv) pay related fees and expenses, including
a transaction fee to Renco. The Old Notes Offering and the application of the
proceeds therefrom are collectively referred to herein as the "Transactions."
POTENTIAL ACQUISITIONS
On July 28, 1998, Doe Run and ASARCO Incorporated ("ASARCO") entered into an
Asset Purchase and Sale Agreement (the "Asset Purchase Agreement") pursuant to
which Doe Run will purchase (the "Potential ASARCO MLD Acquisition") certain
assets relating to ASARCO's Missouri Lead Division (the "ASARCO MLD"), including
a smelter and refinery and two mines. The purchase price for these assets is
approximately $54.5 million payable at closing, plus contingent deferred
payments, if any. Such deferred payments are contingent upon prevailing LME lead
prices during the five-year period subsequent to the Potential ASARCO MLD
Acquisition. Specifically, Doe Run's obligations under the deferred purchase
price arrangement are determined annually and are only due if the annual LME
spot lead price exceeds $.28 per pound, with such payments not to exceed $12.5
million in the aggregate. See "Business--Potential Acquisition of ASARCO's
Missouri Lead Division."
On July 10, 1998, the Company was informed that it was the winning bidder to
acquire the Cobriza mine and related assets located approximately 500 kilometers
southeast of Lima, Peru and owned by Centromin. Doe Run Peru's La Oroya complex
is located approximately 330 kilometers from the Cobriza mine between it and
Lima. The Cobriza mine produces copper concentrates, all of which currently are
purchased by Doe Run Peru. The Cobriza mine supplies approximately 40% of Doe
Run Peru's copper concentrate requirements. The anticipated purchase price for
these assets is approximately $7.5 million, $3.0 million of which is payable at
closing, with the balance payable in equal annual installments over three years.
This transaction is subject to satisfactory completion of the Company's due
diligence review and negotiation of a definitive agreement to provide for, among
other things, ownership structure, environmental and other liability
allocations, capital contribution requirements and operational management. In
17
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addition, certain regulatory and tax matters must be negotiated with the
Peruvian government, and the Company must arrange satisfactory financing for the
transaction. Accordingly, there can be no assurance that a definitive agreement
related to this transaction will be entered into, that negotiations with the
Peruvian government will result in a feasible transaction or that satisfactory
financing can be obtained.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth historical financial data of (i) the Company
for each of the three fiscal years ended October 31, 1997, which have been
derived from the Company's audited consolidated financial statements, and for
the six months ended April 30, 1997 and 1998 and as of April 30, 1998, which are
unaudited, (ii) Doe Run Peru's predecessors ("Doe Run Peru's Predecessor") for
each of the two fiscal years ended December 31, 1996, which have been derived
from Doe Run Peru's Predecessor's audited consolidated financial statements, and
for the period November 1, 1996 to October 23, 1997 (the date of consummation of
the Acquisition) and the six months ended April 30, 1997, which are unaudited,
(iii) Doe Run Cayman for the six months ended April 30, 1998, which are
unaudited, and (iv) pro forma financial data of the Company for the fiscal year
ended October 31, 1997. The pro forma statement of operations data and other
data for the fiscal year ended October 31, 1997 give effect to the Acquisition
as if it had occurred on November 1, 1996. The information contained in this
table should be read in conjunction with "Unaudited Pro Forma Consolidated
Financial Data," "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of Doe Run and Doe Run Peru's
Predecessor, and the notes thereto, included elsewhere herein.
THE COMPANY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
-------------------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ACTUAL PRO FORMA
--------- -----------
<CAPTION>
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 225,143 $ 274,930 $ 280,467 $ 709,780 $ 135,905 $ 343,405
Cost of sales............................................. 180,398 215,489 234,351 608,812 108,478 283,105
Depletion, depreciation and amortization.................. 12,486 13,654 14,718 21,460 7,323 11,461
Selling, general and administrative expenses.............. 8,405 10,079 10,959 26,169 5,804 17,700
Exploration expense....................................... 1,926 2,912 2,705 2,705 1,365 1,599
--------- --------- --------- ----------- --------- ---------
Operating income.......................................... 21,928 32,796 17,734 50,634 12,935 29,540
OTHER DATA:
EBITDA(a)................................................. $ 34,282 $ 46,805 $ 32,415 $ 74,479 $ 20,264 $ 40,366
Capital expenditures...................................... 5,377 10,534 13,476 13,476 4,145 10,908
OTHER OPERATING DATA:
Average LME lead price per pound(b)....................... $ .28 $ .35 $ .29 $ .31 $ .25
Tons of primary lead metal sold........................... 218.0 228.9 245.1 117.5 170.1
Tons of secondary lead metal sold......................... 27.9 39.7 44.1 13.5 22.8
Tons of secondary lead metal tolled....................... 52.4 51.7 60.9 29.4 25.4
Tons of zinc concentrates sold............................ 55.5 68.3 69.7 36.0 33.1
Tons of copper concentrates sold.......................... 23.9 31.3 26.6 12.8 9.5
Tons of copper metal sold................................. -- -- 0.8 -- 35.2
Ounces of silver metal sold (in millions)................. -- -- 0.1 -- 13.0
Tons of zinc metal sold................................... -- -- -- -- 39.7
Primary smelter lead tons per manshift(c)................. 2.1 2.2 2.4 2.5 2.6
</TABLE>
19
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<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
--------------------
<S> <C>
(DOLLARS IN
THOUSANDS)
BALANCE SHEET DATA:
Cash........................................................................................................ $ 12,142
Working capital............................................................................................. 100,609
Property, plant and equipment, net.......................................................................... 205,867
Total assets................................................................................................ 566,878
Total debt (including current portion)...................................................................... 390,576
Shareholders' equity........................................................................................ 15,876
</TABLE>
DOE RUN PERU'S PREDECESSOR AND DOE RUN CAYMAN
<TABLE>
<CAPTION>
DOE RUN PERU'S PREDECESSOR(D)
---------------------------------------------- DOE RUN
PERIOD CAYMAN(E)
YEAR ENDED NOVEMBER 1, SIX MONTHS -----------
DECEMBER 31, 1996 TO ENDED APRIL SIX MONTHS
-------------------- OCTOBER 23, 30, ENDED APRIL
1995 1996 1997(F) 1997 30, 1998(G)
--------- --------- ----------- ----------- -----------
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 450,929 $ 456,797 $ 429,313 $ 217,731 $ 227,359
Cost of sales........................................ 397,524 397,158 364,901 177,535 181,631
Depreciation and amortization........................ 4,729 5,353 5,623 2,753 3,396
Selling, general and administrative expenses......... 15,950 17,420 18,524 10,435 16,870
--------- --------- ----------- ----------- -----------
Operating income..................................... 32,726 36,866 40,265 27,008 25,462
OTHER DATA:
EBITDA(a)............................................ $ 35,657 $ 18,702 $ 45,025 $ 28,323 $ 28,496
Adjusted EBITDA(h)................................... 38,161 47,716 50,190 31,614
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Tons of lead metal sold.............................. 98.7 104.1 106.7 52.4 55.4
Tons of copper metal sold............................ 70.0 71.3 68.9 35.7 35.2
Ounces of silver metal sold (in millions)............ 19.6 21.2 20.4 10.0 13.0
Tons of zinc metal sold.............................. 74.3 77.6 71.0 35.4 39.7
Average LME copper price per pound................... $ 1.33 $ 1.04 $ 1.07 $ 1.07 $ .80
Average LBMA silver price per ounce(i)............... 5.20 5.10 4.79 4.90 5.96
Average LME zinc price per pound..................... .47 .47 .59 .52 .50
</TABLE>
- ------------------------------
(a) EBITDA is defined as net income (loss) before extraordinary item plus the
sum of net interest expense, income taxes and depletion, depreciation and
amortization. The trends of EBITDA generally follow the trends of operating
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the recent trends of operating
income. Information regarding EBITDA is presented because management
believes that certain investors use EBITDA as one measure of an issuer's
ability to service its debt. EBITDA should not be considered an alternative
to, or more meaningful than, operating income or cash flow as an indicator
of an issuer's operating performance. EBITDA is not necessarily a measure of
the funds available for debt service because such funds could be used to
fund operating requirements or other expenditures required by the Company's
business instead of debt service. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary.
(b) The average lead price per pound realized by Doe Run generally is at a
premium over the average LME price.
(c) Primary smelter lead tons per manshift is computed by dividing metal
produced at Doe Run by the shifts required to produce the related tons.
Shifts are computed by dividing the sum of actual hours worked during the
period for hourly employees and 52 hours per week for salaried employees by
eight hours.
(d) Metaloroya was acquired by Doe Run Peru effective October 23, 1997.
(e) Doe Run Cayman, a wholly-owned subsidiary of Doe Run, is the parent company
of Doe Run Mining and currently has no independent operations.
(f) Doe Run Cayman's net sales, operating income and EBITDA for the eight-day
period October 23, 1997 to October 31, 1997 were $2.6 million, $.4 million
and $.5 million, respectively.
(g) These results include intercompany transactions. Net sales, cost of sales
and selling, general and administrative expense excluding the effects of
intercompany transactions were $224.9 million, $179.3 million and $9.1
million, respectively.
(h) Adjusted EBITDA is defined as EBITDA adjusted for the following
non-recurring charges: (i) for 1995, $2.5 million relating to personnel
reduction costs, (ii) for 1996, $3.9 million relating to personnel reduction
costs, $21.6 million relating to one-time environmental expenses and $3.6
million relating to privatization costs, (iii) for the period November 1,
1996 to October 23, 1997, $3.2 million relating to privatization costs and
$2.0 million relating to personnel reduction costs and (iv) for the six
months ended April 30, 1997, $2.8 million relating to privatization costs
and $.5 million relating to personnel reduction costs.
(i) "LBMA" means the London Bullion Market Association.
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<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER CAREFULLY THE
RISK FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION APPEARING IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT IN THE EXCHANGE NOTES.
SUBSTANTIAL INDEBTEDNESS
The Company has substantial indebtedness and debt service requirements. As
of June 30, 1998, the Company had $396.8 million of indebtedness outstanding
(including the Back-to-Back Loan of $125.0 million but exclusive of aggregate
unused commitments of $129.7 million under the New Revolving Credit Facilities),
and none of the Company's indebtedness was subordinated to the Old Notes. Pro
forma long-term debt as of April 30, 1998, would have been $445.1 million,
reflecting the financing of the Potential ASARCO MLD Acquisition of $54.5
million. In addition, the Indenture permits the Company to incur certain other
indebtedness. See "Description of the Notes--Certain Covenants--Limitation on
Indebtedness."
The Company's level of indebtedness will have several important effects on
its future operations, including the following: (a) a significant portion of the
Company's cash flow from operations will be dedicated to the payment of interest
on its indebtedness and will not be available for other purposes, (b) the
financial covenants and other restrictions contained in the New Revolving Credit
Facilities require Doe Run and Doe Run Peru, as applicable, to meet certain
financial tests and limit their ability to borrow additional funds or to dispose
of assets and (c) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired. In addition, the ability
of the Company to meet its debt service obligations and to reduce its total debt
will be dependent upon its future performance, which will be subject to general
economic conditions and to financial, business and other factors affecting its
operations, many of which are beyond their control. Moreover, an inability of
Doe Run or Doe Run Peru to meet the financial covenants contained in the New
Revolving Credit Facilities or other indebtedness could result in an
acceleration of amounts due thereunder. Doe Run was not in compliance with the
minimum net worth and maximum leverage ratio covenants under the Doe Run Term
Loan and the Existing Doe Run Revolving Credit Facility for the fiscal quarter
ended January 31, 1998, for which Doe Run received waivers.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the New Revolving Credit Facilities and the
Indenture impose restrictions that affect, among other things, the ability of
the Company to incur debt, pay dividends, make acquisitions, create liens, make
capital expenditures and make certain investments.
The ability of the Company to comply with the foregoing provisions can be
affected by events beyond the Company's control. The breach of any of these
covenants could result in a default under the Company's indebtedness, including
the New Revolving Credit Facilities and the Indenture. In the event of any such
default, depending on the actions taken by the lenders under the New Revolving
Credit Facilities, Doe Run may be unable to make any payments of principal or
interest on the Exchange Notes for a period of time. In addition, the lenders
under the New Revolving Credit Facilities could elect to declare all amounts
borrowed, together with accrued and unpaid interest, to be due and payable. If
Doe Run or Doe Run Peru, as the case may be, were unable to repay such amounts,
the lenders under the New Revolving Credit Facilities could proceed against
certain collateral. If such indebtedness under the New Revolving Credit
Facilities were to be accelerated, there can be no assurance that the assets of
the Company would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company, including the Exchange Notes. See "Description of
New Revolving Credit Facilities" and "Description of the Notes."
21
<PAGE>
DEPENDENCE ON CASH FLOW FROM PERUVIAN SUBSIDIARIES
The Company is dependent upon payments from Doe Run Mining and Doe Run Peru,
including loans, advances, distributions and dividends from Doe Run Peru, to
meet a portion of its debt service requirements. Doe Run, Doe Run Mining and Doe
Run Peru have entered into various intercompany agreements which provide for
certain payments to Doe Run. See "Certain Transactions--Intercompany
Transactions." The Company believes that these intercompany agreements and the
availability of dividends, distributions, loans or advances from Doe Run Mining
or Doe Run Peru will provide Doe Run sufficient funds, combined with Doe Run's
available resources, to adequately service Doe Run's debt service requirements.
However, no assurance can be given that such amounts will be sufficient or that
changes in the laws of Peru will not adversely affect such payments, loans,
advances, distributions or dividends. See "--Governmental Regulation."
VOLATILITY OF BASE METAL PRICES; TREATMENT CHARGES AND PENALTIES
Base metal prices fluctuate and are affected by numerous factors beyond the
Company's control, including expectations for inflation, speculative activities,
global and regional demand and production, political and economic conditions and
production costs in major producing regions. The aggregate effect of these
factors is impossible for the Company to predict; however, these factors could
have a material adverse effect on the results of operations, financial condition
and liquidity of the Company.
If the market price for lead falls below Doe Run's production costs and
remains at such level for a sustained period, Doe Run will experience losses and
may curtail or discontinue the development of a project or mining at one or more
of its properties. In fiscal 1992 and 1993, Doe Run experienced operating losses
due in part to unfavorable lead prices. As of June 30, 1998, the LME price for
lead was $.25 per pound, which was below the ten-year average price of $.28 per
pound. As a result of the recent lead price decreases, the Company expects that
it will incur an operating loss in its U.S. operations that will adversely
affect its EBITDA in fiscal 1998. There can be no assurance that lead prices
will not decrease further in the future to levels resulting in operating losses
for Doe Run.
If Doe Run Peru acquires the Cobriza mine, it would become an integrated
copper producer and, as such, Doe Run Peru's results of operations and financial
condition would be sensitive to copper price fluctuations.
If base metal prices, treatment charges or penalties fall to such levels
that Doe Run Peru cannot cover its production costs and remain at such levels
for a sustained period, or result in the closure of the mines providing
concentrate feedstock, Doe Run Peru will experience losses. There can be no
assurance that base metal prices, treatment charges or penalties will not
decrease in the future to levels resulting in operating losses for Doe Run Peru.
While the Company may periodically use hedging techniques to reduce a
portion of its exposure to the volatility of base metal prices, there can be no
assurance that it will be able to do so effectively. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources--Hedging Activities."
GOVERNMENTAL REGULATION
The mining operations of Doe Run are subject to inspection and regulation by
the Mine Safety and Health Administration of the Department of Labor ("MSHA")
under provisions of the Federal Mine Safety and Health Act of 1977. All other
operations of Doe Run are subject to inspection and regulation by the
Occupational Safety and Health Administration of the Department of Labor
("OSHA") under the provisions of the Occupational Safety and Health Act of 1970.
It is Doe Run's policy to comply with the directives and regulations of MSHA and
OSHA. In addition, Doe Run takes such necessary actions as, in its judgment, are
required to provide for the safety and health of its employees. MSHA and OSHA
22
<PAGE>
directives have had no material adverse impact on Doe Run's results of
operations or financial condition, and Doe Run believes that it is substantially
in compliance with the regulations promulgated by MSHA and OSHA; however,
compliance with new, more stringent MSHA and/or OSHA directives could have a
material adverse effect on results of operations, financial condition and
liquidity of Doe Run.
In connection with the Acquisition, Doe Run Peru, Doe Run Mining and Doe Run
Cayman entered into a series of agreements (the "Stabilization Agreements") with
two Peruvian government agencies, the Ministry for Energy and Mines (the "MEM")
and the National Commission for Foreign Investments. Pursuant to terms of the
Stabilization Agreements, the Peruvian government has guaranteed that, for a
period of ten years from the date of the Acquisition, Doe Run Peru, Doe Run
Mining and Doe Run Cayman will not be adversely affected by changes in Peruvian
legal regimes relating to, among other things, income tax, employment, free
access to foreign exchange, right to remit investments and profits outside Peru
and non-discrimination based on non-Peruvian ownership. No assurance can be
given that the Peruvian government will not impose other conditions that may
adversely affect Doe Run Peru's business, financial condition or results of
operations or that there will not be changes in Peruvian legal regimes that will
adversely affect Doe Run Peru, Doe Run Mining or Doe Run Cayman after the
expiration of the Stabilization Agreements.
ENVIRONMENTAL MATTERS AND CLAIMS
Doe Run is subject to numerous federal, state and local environmental laws
and regulations governing, among other things, air emissions, waste water
discharge, solid and hazardous waste storage, treatment and disposal, and
remediation of releases of hazardous materials. Doe Run also is a defendant in
four lawsuits filed in 1995 claiming property damage and personal injury from
alleged releases of lead from the Herculaneum smelter. Punitive damages are also
being sought in these cases. Environmental laws and regulations have changed
rapidly in recent years and may become more stringent in the future. Insurance
against environmental risks (including potential for pollution or other hazards
as a result of disposal of waste products occurring from mining, milling and
smelting) is not generally available to Doe Run or to other companies within the
industry. Should Doe Run be unable to fund fully the cost of compliance or of
remediating an environmental problem, Doe Run might be required to suspend
operations or enter into interim compliance measures requiring additional
expenditures pending completion of the required remedy. Compliance with
environmental laws and regulations, as well as personal injury and property and
other damage claims, could have a material adverse effect on Doe Run's results
of operations, financial condition and liquidity. See "Business--Doe
Run--Environmental Matters."
Doe Run Peru is subject to numerous environmental laws and regulations
enacted in the last ten years in Peru governing, among other things, air
emissions, waste water discharge, solid and hazardous waste storage, treatment
and disposal, and remediation of releases of hazardous materials. The current
and future application of these laws and regulations to Doe Run Peru is modified
by certain agreements with the MEM, a Peruvian governmental agency. Given the
developing nature of environmental law and enforcement policies in Peru,
however, there can be no assurance that the Peruvian government will not in the
future require compliance with additional environmental requirements that could
adversely affect Doe Run Peru's business, financial condition or results of
operations. Further, there can be no assurance that the Peruvian government or
other interested persons will not seek changes in the future to the terms and
conditions of any of the agreements made by Doe Run Peru with the MEM that may
adversely affect Doe Run Peru's business, financial conditions or results of
operations. Doe Run Peru also is subject to claims for alleged personal injury
and property and other damages resulting from release of certain substances into
the environment, including lead, to the extent such liabilities were not
retained and are not satisfied by Centromin. Compliance with environmental laws
and regulations, as well as personal injury and property and other damage
claims, could have a material adverse effect on Doe Run Peru's business,
financial condition or results of operations. Insurance against environmental
risks (including potential for pollution or other hazards as a result of
disposal of waste products occurring from exploration and production) is not
23
<PAGE>
generally available to Doe Run Peru or to other companies within the industry.
To the extent Doe Run Peru is subject to environmental liabilities, the payment
of such liabilities would reduce its available funds. Should Doe Run Peru be
unable to fund fully the cost of remediating an environmental problem, it could
be required to suspend operations or take interim compliance measures pending
completion of the required remedy. See "Business--Doe Run Peru--Environmental
Matters."
OPERATING RISKS
The business of mining is generally subject to a number of risks and
hazards, including environmental hazards, industrial accidents, labor disputes,
encountering unusual or unexpected geologic formations, cave-ins, rockbursts,
flooding and periodic interruptions due to inclement or hazardous weather
conditions. Such risks could result in damage to, or destruction of, mineral
properties or producing facilities, personal injury, environmental damage,
delays in mining, monetary losses and possible legal liability. Although Doe Run
maintains insurance within ranges of coverage consistent with industry practice,
no assurance can be given that such insurance will be available at economically
feasible premiums. In July 1992, Doe Run experienced a strike by the workers at
the Herculaneum smelter resulting in metal output significantly lower than
planned levels and higher operating expenses due to increased security costs and
outside services. Although Doe Run's work force is no longer significantly
unionized, there can be no assurance that Doe Run will not experience labor
disputes in the future. In July and August 1993, production at the Herculaneum
smelter was curtailed significantly due to flooding of the Mississippi River.
There can be no assurance that Doe Run's operations will not be adversely
affected in the future by flooding or other adverse conditions beyond Doe Run's
control. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
The business of smelting and refining complex concentrates generally is
subject to a number of risks and hazards, including environmental hazards,
industrial accidents and labor disputes. Such risks could result in personal
injury, environmental damage, delays in operation, monetary losses and possible
legal liability. Although Doe Run Peru maintains insurance within ranges of
coverage consistent with industry practice, no assurance can be given that such
insurance will be available at economically feasible premiums. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FACTORS RELATING TO DOE RUN
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
Doe Run relies heavily on a small number of customers which purchase a
significant portion of its lead to produce lead-acid batteries. Johnson
Controls, Inc. ("JCI") purchased lead and tolling services representing
approximately 12% of Doe Run's fiscal 1997 net sales. In addition, Big River
Zinc Corporation ("Big River") purchased zinc concentrates representing
approximately 10% of Doe Run's fiscal 1997 net sales. The loss of any of Doe
Run's largest customers or curtailment of purchases by such customers could have
a material adverse effect on the results of operations, financial condition and
liquidity of Doe Run.
DEPENDENCE ON LEAD-ACID BATTERY USE
Doe Run sells a significant portion of its lead production for use in
lead-acid batteries. Lead-acid battery producers or their suppliers accounted
for approximately 63% of Doe Run's fiscal 1997 net sales. The obsolescence of,
or any curtailment in the use of, lead-acid batteries could have a material
adverse effect on the results of operations, financial condition and liquidity
of Doe Run.
RESERVES
The ore reserve figures presented in this Prospectus are, in large part,
estimates made by Doe Run's technical personnel, and no assurance can be given
that the indicated level of recovery of these metals will
24
<PAGE>
be realized. Market price fluctuations of lead, as well as increased production
costs or reduced recovery rates, may render ore reserves containing relatively
lower grades of mineralization uneconomic and may ultimately result in a
restatement of reserves. Moreover, short-term operating factors relating to the
ore reserves, such as the need for sequential development of ore bodies and the
processing of new or different ore grades, may adversely affect Doe Run's
results of operations in any particular accounting period. Doe Run assumes
certain metal prices for its mineral reserve calculations, which approximate
current market prices, but these lead prices may vary from current market prices
based on a number of factors likely to influence lead prices over the near term.
See "Business--Doe Run--Reserves."
EXPLORATION AND DEVELOPMENT
Doe Run competes to acquire properties producing or capable of producing
lead and other minerals, conducts exploration activities and engages in
development projects. As a result of the competition for property, some of which
is with companies with greater financial resources than Doe Run, Doe Run may be
unable to acquire attractive mining properties on terms it considers acceptable.
Mineral exploration is highly speculative in nature, involves many risks and
frequently is nonproductive, and there can be no assurance that Doe Run's
mineral exploration efforts will be successful. Once mineralization is
discovered, it may take a number of years from the initial phases of drilling
until production is possible, during which time the economic feasibility of
production may change. Doe Run's ability to increase its production longevity is
dependent on the successful development of new ore bodies and/or expansion of
existing mining operations. It is possible that actual cash operating costs and
economic returns of any and all development projects may materially differ from
the estimated costs and returns. Accordingly, there can be no assurance that Doe
Run's programs will yield new reserves to expand and replace existing reserves
that are being depleted by current production.
FACTORS RELATING TO DOE RUN PERU
EXPANSION AND MODERNIZATION PROGRAM
Doe Run Peru is undertaking an expansion and modernization program to
enhance its competitive position and financial performance and to comply with
certain environmental regulatory requirements (see "Business--Doe Run
Peru--Environmental Matters") and the Subscription Agreement related to the
Acquisition. Doe Run Peru believes that it will invest approximately $195.0
million over ten years in order to comply with such environmental requirements.
Under the Subscription Agreement, Doe Run Peru has five years to fulfill its
$120.0 million Investment Commitment. The maximum penalty that may be assessed
for failure to comply with the Investment Commitment of the Subscription
Agreement is 30% of the unfulfilled Investment Commitment. Doe Run Peru has
developed a ten-year Capital Investment Program of approximately $300.0 million
designed to improve its operations, as well as to address these environmental
requirements and fulfill the Investment Commitment.
Although management expects that cash from existing and future operations
and available borrowings under the New Doe Run Peru Revolving Credit Facility
and from anticipated borrowings in the future will be sufficient to cover the
costs of Doe Run Peru's Capital Investment Program, there can be no assurance
that Doe Run Peru will not be required to seek additional funds in order to
complete its expansion and modernization program. Upon the incurrence of any
borrowings under the New Doe Run Peru Revolving Credit Facility, there can be no
assurance that Doe Run Peru's increased leverage will not have an adverse impact
on Doe Run Peru's liquidity. If additional funds are necessary, there can be no
assurance that Doe Run Peru will be able to obtain the required funds on terms
and conditions acceptable to it. If such additional financing is unavailable,
Doe Run Peru may have to delay completion of the expansion and modernization
program until additional financing or sufficient internally generated funds
become available, and any such delay could have a material adverse effect on the
business, financial condition or results of operations of Doe Run Peru.
25
<PAGE>
AVAILABILITY OF CONCENTRATES
Doe Run Peru, as presently constituted, does not own any of the mines from
which it sources concentrates. Accordingly, Doe Run Peru purchases all of its
concentrates feedstock requirements from unaffiliated mining operations. Doe Run
Peru obtains approximately 84% of its copper concentrates from the Peruvian
domestic market, approximately 48% of which are sourced from the Cobriza mine.
All of Doe Run Peru's lead and zinc concentrates are sourced from the Peruvian
domestic market. Doe Run Peru's current concentrate contracts are predominately
for one-year terms expiring December 31, 1998. There can be no assurance that
these contracts will be renewed or that, if renewed, they will not be on terms
less favorable to Doe Run Peru. The closure of mines supplying concentrates due
to exhaustion of reserves, low metals prices or otherwise or the inability of
Doe Run Peru to obtain concentrates, or to obtain them on favorable terms, could
have a material adverse effect on the business, financial condition or results
of operations of Doe Run Peru.
SUPPLY AND COST OF RAW MATERIALS
In addition to concentrates feedstock, Doe Run Peru's operations are heavily
dependent on the supply of various raw materials, including water, hydroelectric
power, oxygen, coal and fluxes. Doe Run Peru produces its oxygen requirements
from its oxygen plant and extracts limestone and silica fluxes from deposits
close to its facility. Doe Run Peru purchases its coal requirements through
annual contracts based on market prices. Doe Run Peru has entered into a
long-term contract with Empresa de Electricidad de Los Andes, S.A.
("Electroandes") to supply its electricity needs on satisfactory terms, though
at costs higher than those paid by Doe Run Peru's Predecessor. The availability
of raw materials could be affected by natural disasters or other factors beyond
Doe Run Peru's control. Any protracted interruption in the availability of any
raw materials could have a material adverse effect on the business, financial
condition or results of operations of Doe Run Peru.
LABOR MATTERS
Approximately 89% of Doe Run Peru's workforce is represented by labor
unions. Doe Run Peru recently entered into new five-year collective bargaining
agreements with its labor unions. Although management believes its present labor
relations are generally good, in the past, work stoppages and strikes have
occurred. There can be no assurance that a work stoppage or strike will not
occur prior to the expiration of the current labor agreements or during
negotiations for new labor agreements (including extensions of the existing
labor agreements) or as to the effect of any such work stoppage or strike on Doe
Run Peru's production levels. Work stoppages or other labor-related developments
affecting Doe Run Peru could have a material adverse effect on the business,
financial condition or results of operations of Doe Run Peru. See "Business--Doe
Run Peru--Employees" and "--Benefit Plans."
ENFORCEABILITY OF JUDGMENTS UNDER PERUVIAN LAW
Substantially all of the assets of Doe Run Peru are located in Peru. In the
event that the holders of Exchange Notes were to obtain a judgment in the United
States against Doe Run Mining or Doe Run Peru and seek to enforce such judgment
in Peru, the holders' ability to enforce the judgment in Peru would be subject
to Peruvian laws regarding recognition and enforcement of foreign judgments.
According to the rules of recognition and enforcement of foreign judgments
provided by the Peruvian Civil Code, a judgment issued by a competent court
outside Peru would be recognized and enforced by Peruvian courts provided that
there is in effect a treaty between the country where said foreign court sits
and Peru, regarding the recognition and enforcement of foreign judgments. In the
absence of such treaty, as is the case between the United States and Peru,
Peruvian courts will give to the foreign judgment the same force and treatment
that is given by the country where such foreign court sits to the judgments
enacted by Peruvian courts, PROVIDED that the foreign judgment complies with the
following statutory limitations set forth in Article 2104 of the Peruvian Civil
Code: (i) the judgment must not resolve matters for which
26
<PAGE>
exclusive jurisdiction of Peruvian courts applies (I.E., disputes relating to
real estate located in Peru); (ii) the competence of the foreign court which
issued the judgment must be recognized by Peruvian conflicts of law rules; (iii)
the party against whom the judgment was obtained must have been properly served
in connection with the foreign proceedings; (iv) the judgment of the foreign
court must be a final judgment, not subject to any further appeal; (v) no
pending proceedings may exist in Peru among the same parties and on the same
subject; (vi) the judgment by the foreign court cannot be in violation of public
policy; and (vii) the foreign court must grant reciprocal treatment to judgments
issued by Peruvian courts.
FACTORS RELATING TO PERU
POLITICAL AND ECONOMIC SITUATION IN PERU
During the past 30 years, Peru has experienced political instability under
both civilian and military governments. These governments have pursued various
policies, including frequent intervention in the economic and social structure.
Past governments have imposed controls on prices, exchange rates, local and
foreign investment and international trade, restricted the ability of companies
to dismiss employees, expropriated private sector assets, and prohibited the
remittance of profits to foreign investors and payments to foreign creditors. In
1974, the government of Peru expropriated the assets of Doe Run Peru's
Predecessor and transferred them to Centromin, a government-owned conglomerate.
Since the current administration took office in July 1990, the Peruvian
government has implemented a broad-based reform of Peru's political system,
economy and social conditions, aimed at stabilizing the economy, restructuring
the national government by reducing bureaucracy, privatizing state-owned
companies, promoting private investment, developing and strengthening free
markets, institutionalizing democratic representations, and enacting programs
for the strengthening of basic services related to education, health, housing
and infrastructure. Its then existing congressional body was dissolved in April
1992, and a new democratically elected congressional body was established in
November 1992. A new Constitution was enacted and ratified in the fourth quarter
of 1993. Under the current administration, inflation, as measured by the
Peruvian Banco Central de Reserva (the "Central Bank"), has decreased from
7,649.7% in 1990 to 11.8% for 1996 and 6.5% for 1997. In addition, Peru's gross
domestic product ("GDP"), as measured by the Central Bank, in real terms
increased by 6.4% in 1993, 13.1% in 1994, 7.2% in 1995, 2.6% in 1996 and 7.4% in
1997.
Notwithstanding the progress achieved in restructuring Peru's political
institutions and revitalizing the economy during the administration's first
term, there can be no assurance that the current administration or future
administrations can sustain such progress. While the Peruvian economy has
experienced strong growth in recent years, there can be no assurance that such
growth will continue at similar rates in the future or at all. Doe Run Peru's
financial condition and results of operations could be adversely affected by
changes in economic or other policies of the Peruvian government, including the
trend toward privatization, or other political or economic developments in Peru.
EXCHANGE CONTROLS
During the 1970s and 1980s, government policies restricted the ability of
companies in Peru to, among other things, repatriate funds and import products,
including oil, from abroad. In addition, currency exchange rates were strictly
controlled and all export sales revenues were required to be deposited in the
Central Bank where they were exchanged from U.S. dollars to the then local
currency at less-than-market rates of exchange. The current Peruvian legal
framework imposes no restrictions on the ability of a company operating in Peru
to transfer foreign currency from Peru to other countries or to convert Peruvian
currency into foreign currency or foreign currency into Peruvian currency. Prior
to 1991, Peru had restrictive exchange controls and exchange rates. In the 1970s
and 1980s, all foreign exchange proceeds were required to be deposited with the
Central Bank. There can be no assurance that the Peruvian government will
continue its current policy of permitting currency transfers and conversions
without
27
<PAGE>
restriction or that Doe Run Peru would be able to service its debt obligations
in a timely manner were the Peruvian government to reinstitute exchange
controls. Notwithstanding the foregoing, certain of the Stabilization Agreements
relate to free access to foreign exchange. However, no assurance can be given
that there will not be changes in the Peruvian legal regimes that could
adversely effect Doe Run Peru, Doe Run Mining or Doe Cayman upon expiration of
the Stabilization Agreements.
TERRORIST ACTIVITY
Peru experienced significant terrorist activity in the 1980s and early
1990s, during which period terrorist groups escalated their acts of violence
against the government, the private sector and Peruvian residents. According to
Peruvian government estimates, terrorist activity in Peru during the last
sixteen years has resulted in an estimated 25,000 deaths and damage to property
and the economy estimated at $25 billion.
There has been substantial progress in suppressing terrorist activity since
1990, in part as a result of the arrest of the leaders and approximately 2,000
members of the two principal terrorist groups. Approximately 6,000 additional
persons have agreed to cooperate with the government under an amnesty law.
Notwithstanding the success achieved, some incidents of terrorist activity
continue to occur, including the recently resolved hostage incident at the
residence of the ambassador of Japan to Peru. Although Doe Run Peru has
implemented certain anti-terrorist practices, there can be no assurance that
future terrorist activity will not have a material adverse effect on the
business, financial condition or results of operations of Doe Run Peru.
INFLATION AND CURRENCY DEVALUATION
Peru has in the past experienced high levels of inflation. However, the
inflation rate in Peru, as measured by the Central Bank consumer price index,
has fallen from 7,649.7% in 1990 to 139.2% in 1991, 56.7% in 1992, 39.5% in
1993, 15.4% in 1994, 10.2% in 1995, 11.8% in 1996 and 6.5% in 1997. Although the
Peruvian government's stabilization plan has reduced inflation significantly,
there can be no assurance that domestic inflation will not increase from its
current level. In addition, the Peruvian currency has been devalued numerous
times during the last twenty years. The devaluation rate, as measured by the
Central Bank, was 4,012.9% in 1990, 77.0% in 1991, 69.8% in 1992, 31.9% in 1993,
1.4% in 1994, 6.0% in 1995, 12.6% in 1996 and 5.9% in 1997. A portion of the
operating costs of Doe Run Peru are denominated in nuevos soles and therefore
could be significantly affected by the rate of inflation in Peru. If inflation
in Peru were to increase significantly without a corresponding devaluation of
the nuevo sol, the financial condition and results of operations of Doe Run Peru
could be materially and adversely affected.
CONTROL BY RENCO
Doe Run and the Guarantors are indirect subsidiaries of Renco, of which Mr.
Ira Leon Rennert is the controlling shareholder. As a result of his indirect
ownership of Doe Run and the Guarantors, Mr. Rennert is, and will continue to
be, able to direct and control the policies of Doe Run and the Guarantors,
including mergers, sales of assets and similar transactions.
ABSENCE OF A PUBLIC MARKET
The Exchange Notes will be new securities for which there is currently no
public market. Doe Run does not intend to list the Exchange Notes on any
national securities exchange or quotation system. The Initial Purchasers have
advised Doe Run that they currently intend to make a market in the Exchange
Notes, but they are not obligated to do so and, if commenced, may discontinue
such market making at any time. Accordingly, there can be no assurance as to the
development of any market or liquidity of any market that may develop for the
Exchange Notes. To the extent that Old Notes are tendered and accepted
28
<PAGE>
in the Exchange Offer, the aggregate principal amount of Old Notes outstanding
will decrease, with a resulting decrease in the liquidity of the market
therefor.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to an exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act. In general,
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. Doe Run currently does
not anticipate that it will register the Old Notes under the Securities Act.
USE OF PROCEEDS
Doe Run will not receive any proceeds from the Exchange Offer. In
consideration for issuing the Fixed Rate Exchange Notes and Floating Rate
Exchange Notes as contemplated in this Prospectus, Doe Run will receive in
exchange Fixed Rate Old Notes and Floating Rate Old Notes, respectively, of like
principal amount, the terms of which are identical in all material respects to
the Fixed Rate Exchange Notes and Floating Rate Exchange Notes, respectively.
The Old Notes surrendered in exchange for Exchange Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes
will not result in any increase in the indebtedness of Doe Run. Doe Run has
agreed to bear the expenses of the Exchange Offer pursuant to the Registration
Rights Agreement. No underwriter is being used in connection with the Exchange
Offer.
See "Prospectus Summary--Recent Transactions--Old Notes Offering" for a
description of the use of proceeds from the Old Notes Offering.
29
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of April 30, 1998 on an actual basis and as adjusted for the
Potential ASARCO MLD Acquisition. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
AS OF APRIL 30, 1998
-----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Long-term debt (including current portion):
New Doe Run Revolving Credit Facility(a)............................................ $ 4,681 $ 4,681
New Doe Run Peru Revolving Credit Facility(b)....................................... -- --
Fixed Rate Old Notes................................................................ 200,000 200,000
Floating Rate Old Notes............................................................. 55,000 55,000
Back-to-Back Loan(c)................................................................ 125,000 125,000
Financing for Potential ASARCO MLD Acquisition(d)................................... -- 54,500
Industrial revenue bonds............................................................ 895 895
---------- -----------
Total long-term debt.................................................................. $ 385,576 $ 440,076
Doe Run Peru short-term borrowings.................................................... 5,000 5,000
---------- -----------
Total debt............................................................................ $ 390,576 $ 445,076
Shareholders' equity:
Common stock, par value $.10 per share, 1,000 shares authorized, issued and
outstanding....................................................................... 0 0
Additional paid-in capital.......................................................... 5,000 5,000
Retained earnings................................................................... 10,876 10,876
---------- -----------
Total shareholders' equity............................................................ 15,876 15,876
---------- -----------
Total capitalization.................................................................. $ 406,452 $ 460,952
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(a) Represents the $100.0 million New Doe Run Revolving Credit Facility which
will expire in March 2001. See "Description of New Revolving Credit
Facilities--New Doe Run Revolving Credit Facility."
(b) Represents the $40.0 million New Doe Run Peru Revolving Credit Facility. See
"Description of Revolving Credit Facilities--New Doe Run Peru Revolving
Credit Facility."
(c) Represents a $125.0 million loan to Doe Run Mining from proceeds of the Old
Notes Offering deposited in a bank by Doe Run. See "Prospectus
Summary--Recent Transactions--Old Notes Offering."
(d) Represents the financing of the purchase price for the assets of the ASARCO
MLD.
30
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma balance sheet data has been prepared to
give effect to the Potential ASARCO MLD Acquisition as if it had occurred on
April 30, 1998. The following unaudited pro forma consolidated statement of
operations and other data has been prepared to give effect to the Acquisition by
Doe Run Peru of Metaloroya from Centromin, a Peruvian government-owned
conglomerate, as part of the ongoing privatization program sponsored by the
government of Peru and the Transactions, consisting of the Old Notes Offering,
repayment of amounts outstanding under the Existing Doe Run Mining Credit
Facility, repayment of the Subordinated Loan of $23.0 million from Doe Run to
Doe Run Mining, repayment of amounts under the Doe Run Term Loan, repayment of
amounts under the Existing Doe Run Revolving Credit Facility, redemption of all
of Doe Run's preferred stock held by Renco and payment of accrued dividends
thereon and payment of related fees and expenses. The unaudited pro forma as
adjusted consolidated statement of operations and other data give further effect
to the Potential ASARCO MLD Acquisition. The unaudited pro forma consolidated
statement of operations and other data for the year ended October 31, 1997 give
effect to the Acquisition and the Transactions and for the six months ended
April 30, 1998 give effect to the Transactions as if they had occurred on
November 1, 1996. The unaudited pro forma as adjusted consolidated statement of
operations and other data for the year ended October 31, 1997 and for the six
months ended April 30, 1998 give further effect to the Potential ASARCO MLD
Acquisition as if it had occurred on November 1, 1996.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable under the circumstances.
Pro forma adjustments are applied to account for the Acquisition and the
Potential ASARCO MLD Acquisition under the purchase method of accounting. Under
the purchase method of accounting, the total purchase price was allocated to Doe
Run Peru's or ASARCO MLD's, as the case may be, assets and liabilities based on
their relative fair values.
The pro forma consolidated financial information has been prepared in
accordance with U.S. GAAP and should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
audited financial statements of Doe Run, Doe Run Peru's Predecessor and the
ASARCO MLD, and the notes thereto, and the other financial information included
elsewhere herein. The unaudited pro forma consolidated financial data do not
purport to be indicative of the results which would have actually been obtained
had the Acquisition, the Transactions and the Potential ASARCO MLD Acquisition
been consummated on the dates indicated or which may be expected to occur in the
future.
31
<PAGE>
THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
POTENTIAL
ASARCO MLD
HISTORICAL ACQUISITION(A) PRO FORMA
---------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 12,142 $ -- $ 12,142
Trade accounts receivable, net of allowance for doubtful
accounts........................................................ 66,927 -- 66,927
Inventories....................................................... 100,867 9,500 110,367
Prepaid expenses and other current assets......................... 29,543 -- 29,543
---------- ------- -------------
Total current assets............................................ 209,479 9,500 218,979
Property, plant and equipment, net.................................. 205,867 46,233 252,100
Special term deposit................................................ 125,000 -- 125,000
Net deferred tax assets............................................. 9,145 -- 9,145
Other noncurrent assets, net........................................ 17,387 -- 17,387
---------- ------- -------------
Total assets.................................................... $ 566,878 $ 55,733 $ 622,611
---------- ------- -------------
---------- ------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt...... $ 5,895 $ -- $ 5,895
Accounts payable.................................................... 50,725 -- 50,725
Accrued liabilities................................................. 42,783 727 43,510
Net deferred tax liabilities........................................ 9,467 -- 9,467
---------- ------- -------------
Total current liabilities......................................... 108,870 727 109,597
Long-term debt, less current maturities............................... 384,681 54,500 439,181
Postretirement benefits............................................... 12,608 -- 12,608
Reclamation and environmental costs................................... 31,085 506 31,591
Other noncurrent liabilities.......................................... 13,758 -- 13,758
---------- ------- -------------
Total liabilities................................................. 551,002 55,733 606,735
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized, issued, and
outstanding....................................................... -- -- --
Additional paid in capital.......................................... 5,000 -- 5,000
Retained earnings................................................... 10,876 -- 10,876
---------- ------- -------------
Total shareholders' equity........................................ 15,876 -- 15,876
---------- ------- -------------
Total liabilities and shareholders' equity........................ $ 566,878 $ 55,733 $ 622,611
---------- ------- -------------
---------- ------- -------------
</TABLE>
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
(a) Represents the estimated purchase price allocation related to the Potential
ASARCO MLD Acquisition and the related financing. This allocation is
management's best estimate at this time and is subject to refinement at the
closing date of the Potential ASARCO MLD Acquisition.
33
<PAGE>
THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
ADJUSTMENTS POTENTIAL
FOR THE ASARCO ASARCO MLD PRO FORMA
HISTORICAL TRANSACTIONS PRO FORMA MLD(A) ACQUISITION AS ADJUSTED
---------- ------------ ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................... $ 343,405 $ -- $ 343,405 $ 34,543 $ -- $ 377,948
Costs and expenses:
Cost of sales.............................. 283,105 -- 283,105 29,801 (639)(b) 312,267
Depletion, depreciation and amortization... 11,461 -- 11,461 4,300 (1,052)(c) 14,709
Selling, general and administrative
expenses................................. 17,700 -- 17,700 2,349 (1,929)(d) 18,120
Exploration expense........................ 1,599 -- 1,599 -- -- 1,599
---------- ------------ ----------- --------- ----------- -----------
Total costs and expenses................. 313,865 -- 313,865 36,450 (3,620) 346,695
---------- ------------ ----------- --------- ----------- -----------
Income from operations................... 29,540 -- 29,540 (1,907) 3,620 31,253
Other income (expense):
Interest expense........................... (14,505) (8,278)(e) (22,783) -- (3,066)(f) (25,849)
Interest income............................ 2,359 -- 2,359 -- -- 2,359
Other, net................................. (635) -- (635) -- -- (635)
---------- ------------ ----------- --------- ----------- -----------
(12,781) (8,278) (21,059) -- (3,066) (24,125)
Income before income taxes and
extraordinary item..................... 16,759 (8,278) 8,481 (1,907) 554 7,128
Income tax expense (benefit)................. 5,761 (2,897)(g) 2,864 (100) (374)(g) 2,390
---------- ------------ ----------- --------- ----------- -----------
Income (loss) before extraordinary
item................................... $ 10,998 $ (5,381) $ 5,617 $ (1,807) $ 928 $ 4,738
---------- ------------ ----------- --------- ----------- -----------
---------- ------------ ----------- --------- ----------- -----------
Other data:
EBITDA(h)................................ $ 40,366 $ 45,327
</TABLE>
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998
(a) Represents the historical results of operations of the ASARCO MLD for the
period November 1, 1997 to April 30, 1998.
(b) Represents the difference between the salaries, wages and benefits reflected
in the historical results of operations of the ASARCO MLD and those that
would have been expensed under Doe Run's programs, into which substantially
all of the employees of the ASARCO MLD will be enrolled pursuant to the
Asset Purchase Agreement.
(c) Reflects the decrease in depreciation based upon allocating the effective
purchase price to the fair value of the assets to be purchased in the
Potential ASARCO MLD Acquisition.
(d) Represents primarily the elimination of selling, general and administrative
expenses allocated to the ASARCO MLD by ASARCO in the historical results of
operations. Doe Run does not intend to incur additional corporate overhead
costs as a result of the Potential ASARCO MLD Acquisition.
(e) Pro forma interest expense reflects the elimination of historical interest
expense due to the retirement of substantially all of the existing debt
obligations. Interest expense, as adjusted, includes interest of $14.6
million on the Old Notes, interest on the Back-to-Back Loan of $7.2 million
and amortization of debt issuance costs totaling $1.0 million. The pro forma
consolidated statement of operations does not reflect interest income on the
Special Term Deposit of $7.0 million.
(f) Reflects incremental interest at 11.25% on debt obligations of $54.5 million
to finance the Potential ASARCO MLD Acquisition.
(g) Reflects the income tax effect of pro forma adjustments at, and adjusts the
ASARCO MLD tax provision to, an assumed statutory tax rate of 35%.
(h) EBITDA is defined as net income (loss) before extraordinary item plus the
sum of net interest expense, income taxes and depletion, depreciation and
amortization. The trends of EBITDA generally follow the trends of operating
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of recent trends of operating
income. Information regarding EBITDA is presented because management
believes that certain investors use EBITDA as one measure of an issuer's
ability to service its debt. EBITDA should not be considered an alternative
to, or more meaningful than, operating income or cash flow as an indicator
of an issuer's operating performance. EBITDA is not necessarily a measure of
the funds available for debt service because such funds could be used to
fund operating requirements or other expenditures required by the Company's
business instead of debt service. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary.
35
<PAGE>
THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DOE RUN ADJUSTMENTS ADJUSTMENTS
PERU'S FOR THE FOR THE ASARCO
HISTORICAL PREDECESSOR(A) ACQUISITION TRANSACTIONS PRO FORMA MLD(I)
----------- --------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales........................... $ 280,467 $ 429,313 $ -- $ -- $ 709,780 $ 85,308
Costs and expenses:
Cost of sales..................... 234,351 364,901 9,560(b) -- 608,812 68,429
Depletion, depreciation and
amortization.................... 14,718 5,623 1,119(c) -- 21,460 8,209
Selling, general and
administrative expenses......... 10,959 18,524 (3,314)(d) -- 26,169 4,954
Exploration expense............... 2,705 -- -- -- 2,705 --
----------- --------------- ------------- ------------ ----------- -----------
Total costs and expenses........ 262,733 389,048 7,365 -- 659,146 81,592
----------- --------------- ------------- ------------ ----------- -----------
Income from operations.......... 17,734 40,265 (7,365) -- 50,634 3,716
Other income (expense):
Interest expense.................. (13,740) (1,211) -- (30,798)(e) (45,749) --
Interest income................... 21 -- -- -- 21 --
Other, net........................ (37) (863) 3,285(f) -- 2,385 --
----------- --------------- ------------- ------------ ----------- -----------
(13,756) (2,074) 3,285 (30,798) (43,343) --
Income before income taxes and
extraordinary item............ 3,978 38,191 (4,080) (30,798) 7,291 3,716
Income tax expense (benefit)........ 4,331 11,513 482(g) (10,779)(h) 5,547 (168)
----------- --------------- ------------- ------------ ----------- -----------
Income (loss) before
extraordinary item............ $ (353) $ 26,678 $ (4,562) $ (20,019) $ 1,744 $ 3,884
----------- --------------- ------------- ------------ ----------- -----------
----------- --------------- ------------- ------------ ----------- -----------
EBITDA(o)......................... $ 74,479
<CAPTION>
ADJUSTMENTS
FOR THE
POTENTIAL
ASARCO
MLD PRO FORMA
ACQUISITION AS ADJUSTED
----------- -----------
<S> <C> <C>
Net sales........................... $ -- $ 795,088
Costs and expenses:
Cost of sales..................... (1,562)(i) 675,679
Depletion, depreciation and
amortization.................... (1,712)(k) 27,957
Selling, general and
administrative expenses......... (4,134)(l) 26,989
Exploration expense............... -- 2,705
----------- -----------
Total costs and expenses........ (7,408) 733,330
----------- -----------
Income from operations.......... 7,408 61,758
Other income (expense):
Interest expense.................. (6,131)(m) (51,880)
Interest income................... -- 21
Other, net........................ -- 2,385
----------- -----------
(6,131) (49,474)
Income before income taxes and
extraordinary item............ 1,277 12,284
Income tax expense (benefit)........ 1,916(n) 7,295
----------- -----------
Income (loss) before
extraordinary item............ $ (639) $ 4,989
----------- -----------
----------- -----------
EBITDA(o)......................... $ 92,100
</TABLE>
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(a) Represents the historical results of operations for Doe Run Peru's
Predecessor for the period from November 1, 1996 through October 23, 1997.
(b) Represents a $9.6 million increase in power costs associated with a
market-price contract negotiated in conjunction with the Acquisition.
(c) Reflects the increase in depreciation and amortization, based upon
allocating the effective purchase price to the fair values of the assets
purchased in the Acquisition.
(d) Represents the elimination of $2.0 million of unusual personnel reduction
costs related to the privatization program and a decrease of $1.3 million in
workers' profit sharing expense as a result of the adjustments.
(e) Pro forma interest expense reflects the elimination of historical interest
expense due to the retirement of substantially all of the existing debt
obligations. Interest expense, as adjusted, includes interest of $29.1
million on the Old Notes, interest on the Back-to-Back Loan of $14.5
million, amortization of debt issuance costs totaling $2.0 million and $.1
million on other obligations. The pro forma consolidated statement of
operations does not reflect interest income on the Special Term Deposit of
$14.1 million.
(f) Represents the elimination of $3.2 million of costs related to the
privatization program and $.1 million of tax fines and penalties that would
not have been incurred had the Acquisition occurred on November 1, 1996.
(g) Represents the income tax effects of the above adjustments at the U.S.
statutory rate, which reduced income tax expense by $1.4 million. The
adjustment also reflects the incremental U.S. tax at a rate of 5% on the
income before taxes of Doe Run Peru's Predecessor for the period from
November 1, 1996 to October 23, 1997, which increased income tax expense by
$1.9 million.
(h) Reflects the income tax effect of the pro forma adjustments at an assumed
statutory tax rate of 35%.
(i) Represents the historical results of operations of the ASARCO MLD for the
period from January 1, 1997 to December 31, 1997.
(j) Represents the difference between the salaries, wages and benefits reflected
in the historical results of operations of the ASARCO MLD and those that
would have been expensed under Doe Run's programs, into which substantially
all of the employees of the ASARCO MLD will be enrolled pursuant to the
Asset Purchase Agreement.
(k) Represents the decrease in depreciation based upon allocating the effective
purchase price to the fair value of the assets to be purchased in the
Potential ASARCO MLD Acquisition.
(l) Represents primarily the elimination of selling, general and administrative
expenses allocated to the ASARCO MLD by ASARCO in the historical results of
operations. Doe Run does not intend to incur additional corporate overhead
costs as a result of the Potential ASARCO MLD Acquisition.
(m) Reflects incremental interest at 11.25% on debt obligations of $54.5 million
to finance the Potential ASARCO MLD Acquisition.
(n) Reflects the income tax effect of pro forma adjustments at, and adjusts the
ASARCO MLD tax provision to, an assumed statutory rate of 35%.
(o) EBITDA is defined as net income (loss) before extraordinary item plus the
sum of net interest expense, income taxes and depletion, depreciation and
amortization. The trends of EBITDA generally follow the trends of operating
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the recent trends of operating
income. Information regarding EBITDA is presented because management
believes that certain investors use EBITDA as one measure of an issuer's
ability to service its debt. EBITDA should not be considered an alternative
to, or more meaningful than, operating income or cash flow as an indicator
of an issuer's operating performance. EBITDA is not necessarily a measure of
the funds available for debt service because such funds could be used to
fund operating requirements or other expenditures required by the Company's
business instead of debt service. Furthermore, caution should be used in
comparing EBITDA to similarly titled measures of other companies as the
definitions of these measures may vary.
37
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth historical financial data of (i) Doe Run's
predecessor ("Doe Run's Predecessor") as of and for the year ended October 31,
1993 and for the five months ended March 31, 1994, which have been derived from
Doe Run's Predecessor's unaudited consolidated financial statements, (ii) the
Company as of and for the seven months ended October 31, 1994 and as of and for
each of the three fiscal years ended October 31, 1997, which have been derived
from the Company's audited consolidated financial statements, and for the six
months ended April 30, 1997 and as of and for the three months ended April 30,
1998, which are unaudited, (iii) Doe Run Peru's Predecessor as of and for each
of the three fiscal years ended December 31, 1996 and for the period January 1,
1997 to October 23, 1997 (the date of consummation of the Acquisition), which
have been derived from Doe Run Peru's Predecessor's audited consolidated
financial statements, and for the period November 1, 1996 to October 23, 1997
and the six months ended April 30, 1997, which are unaudited, and (iv) Doe Run
Cayman as of and for the six months ended April 30, 1998, which are unaudited.
The information contained in this table should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of Doe Run and Doe Run Peru's Predecessor, and the notes
thereto, included elsewhere herein.
DOE RUN'S PREDECESSOR AND THE COMPANY
<TABLE>
<CAPTION>
DOE RUN'S
PREDECESSOR(A) THE COMPANY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
<CAPTION>
FIVE SEVEN
YEAR MONTHS MONTHS SIX MONTHS ENDED
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, APRIL 30,
OCTOBER 31, MARCH 31, OCTOBER 31, ------------------------------- --------------------
1993(B) 1994 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- --------- --------- --------- --------- ---------
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 121,101 $ 70,668 $ 123,335 $ 225,143 $ 274,930 $ 280,467 $ 135,905 $ 343,405
Cost of sales....................... 140,107 65,511 102,582 180,398 215,489 234,351 108,478 283,105
Depletion, depreciation and
amortization...................... 22,515 8,808 6,251 12,486 13,654 14,718 7,323 11,461
Selling, general and administrative
expenses.......................... 8,243 3,295 4,360 8,405 10,079 10,959 5,804 17,700
Exploration expense................. 1,525 271 912 1,926 2,912 2,705 1,365 1,599
----------- ----------- ----------- --------- --------- --------- --------- ---------
Operating income (loss)............. (51,289) (7,217) 9,230 21,928 32,796 17,734 12,935 29,540
Interest expense.................... 206 65 8,375 14,361 14,348 13,740 7,568 14,505
Interest income..................... 404 31 12 140 113 21 2 2,359
Other income (expense).............. 1,684 (652) 151 (132) 355 (37) 6 (635)
----------- ----------- ----------- --------- --------- --------- --------- ---------
Income (loss) before income tax
expense and extraordinary item.... (49,407) (7,903) 1,018 7,575 18,916 3,978 5,375 16,759
Income tax expense.................. -- -- 2,523 3,252 6,451 4,331 1,826 5,761
----------- ----------- ----------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.............................. (49,407) (7,903) (1,505) 4,323 12,465 (353) 3,549 10,998
Extraordinary item net of income tax
benefit........................... -- -- -- -- -- (1,062) (314) (6,607)
----------- ----------- ----------- --------- --------- --------- --------- ---------
Net income (loss)................... $ (49,407) $ (7,903) $ (1,505) $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391
----------- ----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- ----------- --------- --------- --------- --------- ---------
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(c)........................... $ (27,090) $ 939 $ 15,632 $ 34,282 $ 46,805 $ 32,415 $ 20,264 $ 40,366
Capital expenditures................ 9,487 2,146 1,599 5,377 10,534 13,476 4,145 10,908
Ratio of earnings to fixed
charges(d)........................ -- -- 1.12x 1.51x 2.19x 1.22x 1.59x 2.06x
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
DOE RUN'S
PREDECESSOR(A) THE COMPANY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
<CAPTION>
FIVE SEVEN SIX MONTHS ENDED
YEAR MONTHS MONTHS
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, APRIL 30,
OCTOBER 31, MARCH 31, OCTOBER 31, ------------------------------- --------------------
1993(B) 1994 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- --------- --------- --------- --------- ---------
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Average LME lead price per
pound(e)........................... $ .19 $ .21 $ .25 $ .28 $ .35 $ .29 $ .31 $ .25
Tons of primary lead metal sold...... 169.2 92.4 134.5 218.0 228.9 245.1 117.5 170.1
Tons of secondary lead metal sold.... 39.1 18.9 22.1 27.9 39.7 44.1 13.5 22.8
Tons of secondary lead metal
tolled............................. 26.4 15.1 23.3 52.4 51.7 60.9 29.4 25.4
Tons of zinc concentrates sold....... 35.9 20.1 23.3 55.5 68.3 69.7 36.0 33.1
Tons of copper concentrates sold..... 17.5 11.9 15.5 23.9 31.3 26.6 12.8 9.5
Tons of copper metal sold............ -- -- -- -- -- 0.8 -- 35.2
Ounces of silver metal sold (in
millions).......................... -- -- -- -- -- 0.1 -- 13.0
Tons of zinc metal sold.............. -- -- -- -- -- -- -- 39.7
Primary smelter lead tons per
manshift(f)........................ 2.0 2.0 2.0 2.1 2.2 2.4 2.5 2.6
</TABLE>
<TABLE>
<CAPTION>
DOE RUN'S
PREDECESSOR(A) THE COMPANY
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
<CAPTION>
AS OF AS OF OCTOBER 31,
OCTOBER 31, ------------------------------------------ AS OF APRIL
1993 1994 1995 1996 1997 30, 1998
------------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ -- -- -- -- $ 8,943 $ 12,142
Working capital..................................... $ 51,057 $ 35,373 $ 32,571 $ 33,989 76,951 100,609
Property, plant and equipment, net.................. 131,926 109,700 102,606 104,162 206,348 205,867
Total assets........................................ 212,993 197,563 195,246 203,914 380,841 566,878
Total debt (including current portion).............. 4,952 98,834 90,645 82,791 234,740 390,576
Shareholders' equity................................ 122,536 5,995 10,318 20,830 14,174 15,876
</TABLE>
39
<PAGE>
DOE RUN PERU'S PREDECESSOR AND DOE RUN CAYMAN
<TABLE>
<CAPTION>
DOE RUN
DOE RUN PERU'S PREDECESSOR(G) CAYMAN(H)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
PERIOD PERIOD
JANUARY 1, NOVEMBER 1,
YEAR ENDED DECEMBER 31, 1997 TO 1996 TO SIX MONTHS SIX MONTHS
------------------------------- OCTOBER 23, OCTOBER 23, ENDED APRIL ENDED APRIL
1994 1995 1996 1997 1997(I) 30, 1997 30, 1998(J)
--------- --------- --------- ----------- ----------- ----------- -----------
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $ 367,057 $ 450,929 $ 456,797 $ 352,805 $ 429,313 $ 217,731 $ 227,359
Cost of sales............ 339,302 397,524 397,158 305,959 364,901 177,535 181,631
Depreciation and
amortization........... 4,448 4,729 5,353 4,730 5,623 2,753 3,396
Selling, general and
administrative
expenses............... 11,097 15,950 17,420 13,805 18,524 10,435 16,870
--------- --------- --------- ----------- ----------- ----------- -----------
Operating income......... 12,210 32,726 36,866 28,311 40,265 27,008 25,462
Interest expense......... 6,784 2,100 3,332 832 1,211 770 5,667
Interest income.......... -- -- -- -- -- -- 456
Other income (expense)... (402) (1,798) (23,517) (1,217) (863) (1,438) (362)
--------- --------- --------- ----------- ----------- ----------- -----------
Income before income tax
expense and
extraordinary item..... 5,024 28,828 10,017 26,262 38,191 24,800 19,889
Income tax expense....... 2,803 10,332 4,128 7,879 11,513 7,495 6,668
Income before
extraordinary item..... -- -- -- -- -- 17,305 13,221
Extraordinary item net of
income tax benefit..... -- -- -- -- -- -- (2,369)
--------- --------- --------- ----------- ----------- ----------- -----------
Net income............... $ 2,221 $ 18,496 $ 5,889 $ 18,383 $ 26,678 $ 17,305 $ 10,852
--------- --------- --------- ----------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- ----------- -----------
OTHER DATA:
EBITDA(c)................ $ 16,256 $ 35,657 $ 18,702 $ 31,824 $ 45,025 $ 28,323 $ 28,496
Adjusted EBITDA(k)....... 16,256 38,161 47,716 36,514 50,190 31,614
OTHER OPERATING DATA:
Tons of lead metal
sold................... 95.1 98.7 104.1 87.1 106.7 52.4 55.4
Tons of copper metal
sold................... 65.6 70.0 71.3 56.7 68.9 35.7 35.2
Ounces of silver metal
sold (in millions)..... 18.5 19.6 21.2 17.3 20.4 10.0 13.0
Tons of zinc metal
sold................... 72.6 74.3 77.6 58.4 71.0 35.4 39.7
Average LME copper price
per pound.............. $ 1.05 $ 1.33 $ 1.04 $ 1.07 $ 1.07 $ 1.07 $ .80
Average LBMA silver price
per ounce.............. 5.28 5.20 5.10 4.77 4.79 4.90 5.96
Average LME zinc price
per pound.............. 0.45 0.47 0.47 0.61 0.59 .52 .50
</TABLE>
<TABLE>
<CAPTION>
DOE RUN PERU'S PREDECESSOR(G) DOE RUN CAYMAN(H)
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------
<CAPTION>
AS OF DECEMBER 31, AS OF AS OF
------------------------------- OCTOBER 31, APRIL 30,
1994 1995 1996 1997 1998
--------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 61 $ 62 $ 582 $ 7,364 $ 12,142
Working capital.......................................... 6,081 54,208 44,319 7,713 50,415
Property, plant and equipment, net....................... 46,092 55,557 50,814 97,739 95,921
Total assets............................................. 146,482 188,474 148,314 170,969 223,219
Total debt (including current portion)................... 23,160 19,626 15,068 103,000 130,000
Net assets............................................... 51,481 107,667 78,575 1,729 12,581
</TABLE>
(FOOTNOTES COMMENCE ON FOLLOWING PAGE)
40
<PAGE>
(a) Doe Run was acquired by Renco effective as of April 1, 1994.
(b) Results for fiscal 1993 were affected by a strike at the Herculaneum smelter
and curtailment of production at the Herculaneum smelter due to flooding of
the Mississippi River. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition."
(c) EBITDA is defined as net income (loss) before extraordinary item plus the
sum of net interest expense, income taxes and depletion, depreciation and
amortization. The trends of EBITDA generally follow the trends of operating
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the recent trends of operating
income. Information regarding EBITDA is presented because management
believes that certain investors use EBITDA as one measure of an issuer's
historical ability to service its debt. EBITDA should not be considered an
alternative to, or more meaningful than, operating income or cash flow as an
indicator of an issuer's operating performance. EBITDA is not necessarily a
measure of the funds available for debt service because such funds could be
used to fund operating requirements or other expenditures required by the
Company's business instead of debt service. Furthermore, caution should be
used in comparing EBITDA to similarly titled measures of other companies as
the definitions of these measures may vary.
(d) Fixed charges consist of cash interest expense net of interest income,
capitalized interest, amortization of deferred financing costs and the
portion of rental expense that is representative of interest expense.
Earnings consist of income before income tax expense and extraordinary item
plus fixed charges less capitalized interest.
(e) The average lead price per pound realized by Doe Run generally is at a
premium over the average LME price.
(f) Primary smelter lead tons per manshift is computed by dividing metal
produced at Doe Run by the shifts required to produce the related tons.
Shifts are computed by dividing the sum of actual hours worked during the
period for hourly employees and 12 hours per week for salaried employees by
eight hours.
(g) Metaloroya was acquired by Doe Run Peru effective October 23, 1997.
(h) Doe Run Cayman, a wholly-owned subsidiary of Doe Run, is the parent company
of Doe Run Mining and currently has no independent operations.
(i) Doe Run Cayman's net sales, operating income and EBITDA for the eight-day
period October 23, 1997 to October 31, 1997 were $2.6 million, $.4 million
and $.5 million, respectively.
(j) These results include intercompany transactions. Net sales, cost of sales
and selling, general and administrative expenses excluding the effects of
intercompany transactions were $224.9 million, $179.3 million and $9.1
million, respectively.
(k) Adjusted EBITDA is defined as EBITDA adjusted for the following
non-recurring charges: (i) for 1995, $2.5 million relating to personnel
reduction costs, (ii) for 1996, $3.9 million relating to personnel reduction
costs, $21.6 million relating to one-time environmental expenses and $3.6
million relating to privatization costs, (iii) for the period January 1,
1997 to October 23, 1997, $3.2 million relating to privatization costs and
$1.5 million relating to personnel reduction costs, (iv) for the period
November 1, 1996 to October 23, 1997, $3.2 million relating to privatization
costs and $2.0 million relating to personnel reduction costs and (v) for the
six months ended April 30, 1997, $2.0 million relating to privatization
costs and $.5 million relating to personnel reduction costs.
41
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of Old Notes to the Initial Purchasers pursuant
to the Purchase Agreement, dated March 6, 1998, among Doe Run, the Guarantors
and the Initial Purchasers, the holders of the Old Notes became entitled to the
benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, Doe Run became obligated to (a)
file a registration statement in connection with a registered exchange offer
within 60 days after the Issue Date, and (b) cause the registration statement
relating to such registered exchange offer to become effective within 150 days
after the Issue Date. The Exchange Offer being made hereby, if consummated
within the required time periods, will satisfy Doe Run's obligations under the
Registration Rights Agreement. Doe Run understands that there are approximately
beneficial owners of such Old Notes. This Prospectus, together with the
Letter of Transmittal, is being sent to all such beneficial holders known to Doe
Run.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, Doe Run will accept all Old Notes
properly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Doe Run will issue $1,000 principal amount of Fixed Rate
Exchange Notes and Floating Rate Exchange Notes in exchange for each $1,000
principal amount of outstanding Fixed Rate Old Notes and Floating Rate Old
Notes, respectively, accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in the
Morgan Stanley Letter, the Exxon Capital Letter and similar letters, Doe Run
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by any
person who received such Exchange Notes, whether or not such person is the
holder (other than Restricted Holders) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's or other
person's business, neither such holder nor such other person is engaged in or
intends to engage in any distribution of the Exchange Notes and such holders or
other persons have no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
If any person were to be participating in the Exchange Offer for the
purposes of participating in a distribution of the Exchange Notes in a manner
not permitted by the Commission's interpretation, such person (a) could not rely
upon the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. Doe Run has agreed
that, for a period of 180 days after consummation of the Exchange Offer, it will
make this Prospectus, which Doe Run will update, amend or supplement from time
to time as required by applicable law or regulations, available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
42
<PAGE>
Doe Run will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
Doe Run shall be deemed to have accepted validly tendered Old Notes when, as
and if Doe Run has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old Notes for
the purposes of receiving the Exchange Notes from Doe Run and delivering
Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain conditions set forth herein under
"--Conditions" without waiver by Doe Run, certificates for any such unaccepted
Old Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. Doe Run will pay all charges and expenses, other
than certain applicable taxes in connection with the Exchange Offer. See "--Fees
and Expenses."
In the event the Exchange Offer is consummated, Doe Run will not be required
to register the Old Notes. In such event, holders of Old Notes seeking liquidity
in their investment would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act. See "Risk
Factors--Consequences of Failure to Exchange."
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless Doe Run, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, Doe Run will notify the Exchange
Agent of any extension by oral or written notice and will issue a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that Doe Run is extending the Exchange Offer for a specified period of
time.
Doe Run reserves the right (a) to delay accepting any Old Notes, to extend
the Exchange Offer or to terminate the Exchange Offer and not accept Old Notes
not previously accepted if any of the conditions set forth herein under
"--Conditions" shall have occurred and shall not have been waived by Doe Run (if
permitted to be waived by Doe Run), by giving oral or written notice of such
delay, extension or termination to the Exchange Agent, or (b) to amend the terms
of the Exchange Offer in any manner deemed by it to be advantageous to the
holders of the Old Notes. Any such delay in acceptance, extension, termination
or amendment will be followed as promptly as practicable by oral or written
notice thereof. If the Exchange Offer is amended in a manner determined by Doe
Run to constitute a material change, Doe Run will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment, and Doe Run may extend the Exchange Offer for a period
of up to ten business days, depending upon the significance of the amendment and
the manner of disclosure to holders of the Old Notes, if the Exchange Offer
would otherwise expire during such extension period.
Without limiting the manner in which Doe Run may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
Doe Run shall have no obligation to publish, advertise, or otherwise communicate
any such public announcement, other than by making a timely release to the Dow
Jones News Service.
43
<PAGE>
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from March 12, 1998, payable
semiannually on March 15 and September 15 of each year, commencing September 15,
1998, at the rate of 11 1/4% per annum in the case of the Fixed Rate Exchange
Notes and at a rate per annum equal to LIBOR plus 6.29% in the case of the
Floating Rate Exchange Notes. Interest on the Floating Rate Exchange Notes will
be reset semi-annually. Holders of Old Notes whose Old Notes are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued up until the date of the issuance
of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 3 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents. To be validly tendered, such
documents must reach the Exchange Agent on or before 5:00 p.m., New York City
time, on the Expiration Date.
The tender by a holder of Old Notes will constitute an agreement between
such holder and Doe Run in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or other nominees to effect such tender for
such holders.
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery to the Exchange Agent on or before 5:00 p.m.
New York City time, on the Expiration Date. No Letter of Transmittal or Old
Notes should be sent to Doe Run or the Guarantors.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of Doe Run or any other person who
has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial holder wishes to
tender on his own behalf, such registered holder must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such holder's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the United
States (an "Eligible Institution") unless the Old Notes tendered pursuant
thereto are tendered (a) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (b) for the account of an Eligible Institution. In
the event that signatures on a Letter of Transmittal or a notice of withdrawal,
as the case may be, are required to be guaranteed, such guarantee must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by appropriate bond powers and a proxy
44
<PAGE>
which authorizes such person to tender the Old Notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Doe Run, evidence
satisfactory to Doe Run of their authority so to act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Old Notes will be determined by Doe Run
in its sole discretion, which determination will be final and binding. Doe Run
reserves the absolute right to reject any and all Old Notes not properly
tendered or any Old Notes Doe Run's acceptance of which would, in the opinion of
counsel for Doe Run, be unlawful. Doe Run also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. Doe Run's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as Doe Run shall determine. None of
Doe Run, the Guarantors, the Exchange Agent or any other person shall be under
any duty to give notification of defects or irregularities with respect to
tenders of Old Notes, nor shall any of them incur any liability for failure to
give such notification. Tenders of Old Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Old Notes, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, Doe Run reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date or, as set forth under "-- Conditions," to terminate the
Exchange Offer in accordance with the terms of the Registration Rights Agreement
and (b) to the extent permitted by applicable law, purchase Old Notes in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers will differ from the terms of the Exchange Offer.
By tendering, each holder will represent to Doe Run that, among other
things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such holder or other person, (b)
neither such holder nor such other person is engaged in or intends to engage in
a distribution of the Exchange Notes (c) neither such holder or other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and (d) such holder or other person is not
an "affiliate," as defined under Rule 405 of the Securities Act, of Doe Run or,
if such holder or other person is such an affiliate, will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as result
of market-making activities or other trading activities. Doe Run has agreed
that, for a period of 180 days after consummation of the Exchange Offer, it will
make this Prospectus, which Doe Run will update, amend or supplement from time
to time as required
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by applicable law or regulations, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
Doe Run will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds." Doe Run has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Old Notes were issued on March 12, 1998 and there is no public market
for them at present. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the principal amount of outstanding Old Notes will decrease with
a resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (a) whose Old Notes are not
immediately available or (b) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if: (i) the tender is made through an
Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s) representing
the Old Notes to be tendered in proper form for transfer and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and (iii) such properly completed and
executed Letter of Transmittal (or facsimile thereof) together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (a) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"), (b)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (c) be signed by the Depositor
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the Depositor withdrawing the tender and (d) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Doe Run, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or
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termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Doe Run will not be
required to accept for exchange, or exchange Exchange Notes for, any Old Notes
not theretofore accepted for exchange, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Old Notes, if Doe Run or
the holders of at least a majority in principal amount of Old Notes reasonably
determine in good faith that any of the following conditions exist: (a) the
Exchange Notes to be received by such holders of Old Notes in the Exchange
Offer, upon receipt, will not be tradable by each such holder (other than a
holder which is an affiliate of Doe Run at any time on or prior to the
consummation of the Exchange Offer) without restriction under the Securities Act
and the Exchange Act and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States, (b) the
interests of the holders of the Old Notes, taken as a whole, would be materially
adversely affected by the consummation of the Exchange Offer or (c) after
conferring with counsel, the Commission is unlikely to permit the making of the
Exchange Offer prior to August 7, 1998.
Pursuant to the Registration Rights Agreement, if an Exchange Offer shall
not be consummated prior to the Exchange Offer Termination Date, Doe Run will be
obligated to cause to be filed with the Commission a shelf registration
statement with respect to the Old Notes (the "Shelf Registration Statement") as
promptly as practicable after the Exchange Offer Termination Date and thereafter
use its best efforts to have the Shelf Registration Statement declared
effective.
If any of the conditions described above exist, Doe Run will refuse to
accept any Old Notes and will return all tendered Old Notes to exchanging
holders of the Old Notes.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Old Notes should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
BY MAIL BY HAND/OVERNIGHT DELIVERY
State Street Bank and Trust Company State Street Bank and Trust Company
Two International Place, 4th Floor 61 Broadway, 15th Floor
Boston, Massachusetts 02110 New York, New York 10006
Attention: Claire Young--Corporate Trust Attention: Corporate Trust Department
Department
</TABLE>
Doe Run will indemnify the Exchange Agent and its agents for any loss,
liability or expense incurred by them, including reasonable costs and expenses
of their defense, except for any such loss, liability or expense caused by
negligence or bad faith.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Doe Run. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of Doe Run and its affiliates in person, by
telephone or facsimile.
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Doe Run will not make any payments to brokers, dealers, or other persons
soliciting acceptances of the Exchange Offer. Doe Run, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. Doe Run may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes, and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and expenses, will be paid by Doe Run, and are estimated in the aggregate
to be approximately $500,000.
Doe Run will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer. If, however, certificates representing
Exchange Notes (or Old Notes for principal amounts not tendered or accepted for
exchange) are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
Doe Run will not recognize any gain or loss for accounting purposes upon the
consummation of the Exchange Offer. The expense of the Exchange Offer will be
amortized by Doe Run over the term of the Exchange Notes under U.S. GAAP.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Doe Run is the largest fully-integrated lead producer in North America and
the second largest primary lead producer in the western world. Renco acquired
Doe Run on April 1, 1994. Through its subsidiary Doe Run Peru, Doe Run operates
one of the largest polymetallic processing companies in the world offering an
extensive product mix of non-ferrous and precious metals, including copper,
silver, lead, zinc and gold. Doe Run acquired Doe Run Peru on October 23, 1997.
The combined capabilities of Doe Run and Doe Run Peru represent the largest
primary lead producer in the western world.
The following discussion and analysis of Doe Run and Doe Run Peru should be
read in conjunction with the historical and pro forma financial statements of
Doe Run and Doe Run Peru, and the notes thereto, and other financial information
included elsewhere herein.
DOE RUN
Doe Run is engaged in exploration, development, mining and processing of
base metals, primarily lead, and recycling of spent lead-acid batteries and
other lead-bearing materials. Doe Run also fabricates and repairs lead-lined
process equipment and lead products used in radiation shieldings, pollution
control devices and medical equipment, and produces lead oxide for use in
automotive batteries.
Doe Run's principal product, refined lead, is actively quoted and traded on
the LME. The LME provides an efficient and orderly market on which to trade lead
and other non-ferrous metals. The market provides reference prices for worldwide
pricing of activities relating to non-ferrous metals and provides for storage
facilities to enable market participants to make or take physical delivery of
approved brands of metals, such as Doe Run lead. Lead options and futures are
also traded on the LME which enable participants to hedge against risks arising
from price fluctuations.
During fiscal 1993, Doe Run experienced certain non-recurring events, which
contributed to Doe Run's operating losses during this period. Beginning in July
1992, Doe Run experienced a 29-month labor strike at its primary smelter.
Although Doe Run was able to keep the smelter operational and satisfy most of
its obligations during the strike by utilizing salaried employees from
throughout Doe Run, as well as outside contractors, metal output fell
significantly short of planned levels. Despite lower production levels,
operating expenses increased due to substantially increased security costs and
outside services. These factors combined to increase the conversion cost per ton
of metal by approximately 25%. In July and August 1993, flooding of the
Mississippi River caused Doe Run to shut down the Herculaneum smelter, thereby
reducing fiscal 1993 production by approximately 10%. During the shut down, Doe
Run continued to incur full production level costs.
In addition to the non-recurring events at Doe Run, Doe Run's results of
operations were adversely affected by lower lead prices for a portion of the
period from 1993 to 1994. These lower lead prices were primarily a result of an
increased supply of lead due to increased net exports of lead from Eastern
Europe, the former Soviet Union and China. See "Industry--Lead."
Subsequent to these events and its acquisition by Renco in April 1994, Doe
Run undertook various changes to improve profitability under all market
conditions and diversify its revenue sources. Specifically, as part of its
program to improve profitability, Doe Run has increased production at both its
Herculaneum and Buick smelting facilities. Primary lead production at
Herculaneum grew from approximately 162,000 tons per year in fiscal 1993 to
approximately 241,000 tons in fiscal 1997, while secondary production at Buick
grew from approximately 66,000 tons per year in fiscal 1993 to approximately
102,000 tons in fiscal 1997. Recent blast furnace productivity improvements have
increased the annual production capacity at Herculaneum from the original
capacity of approximately 225,000 tons to approximately 250,000 tons presently.
Increased production capacity enables Doe Run to lower unit costs by better
leveraging its fixed cost base.
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In recent years, Doe Run has made two strategic acquisitions of lead
fabrication operations. Margins on these products are relatively insensitive to
lead price fluctuations as Doe Run is generally able to reflect such
fluctuations in the price of the end product. In addition, Doe Run has a growing
tolling business with major U.S. lead-acid battery manufacturers pursuant to
contractual agreements under which recycled lead is returned to the supplier in
exchange for a processing fee which is largely independent of lead prices.
The average LME price for refined lead was $.29 per pound in fiscal 1997. As
of March 31, 1998, the LME price for lead was $.26 per pound, which was below
the ten-year average price of $.28 per pound. Management believes that lead
prices will remain relatively stable or will modestly increase for the remainder
of fiscal 1998 and over the long term will reach historical industry averages.
As a result of the recent lead price decreases, the Company expects that it will
incur an operating loss in its U.S. operations that will adversely affect its
EBITDA in fiscal 1998.
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
NET SALES for the six months ended April 30, 1998 (the "1998 period") were
$343.4 million compared to $135.9 million for the six months ended April 30,
1997 period (the "1997 period"). Of this increase, $224.9 million is
attributable to the addition of Doe Run Peru resulting from the Acquisition on
October 23, 1997. See "Doe Run Peru--Results of Operations." Lead metal net
sales decreased 9.1% from $88.7 million in the 1997 period to $80.6 million in
the 1998 period. An increase in sales volume of 6,473 tons, or 4.9%, added $4.4
million to net sales. The volume increase was offset by a $12.5 million decrease
due to lower realized prices for lead metal. The average LME price for lead
metal for the 1998 period decreased $.0622 per pound, or 20.1%, from the 1997
period. As a result, Doe Run's net realized price was 13.4% lower in the 1998
period compared to the 1997 period (realized prices are net of hedge
transactions; see "--Liquidity and Capital Resources--Hedging Activities").
Copper concentrate net sales were lower by $2.4 million, or 53.3%, in the 1998
period compared to the 1997 period due to a 3,312 ton, or a 25.9%, decrease in
volume and a 37.0% decrease in net realized price. The volume decrease is
primarily due to lower production resulting from a focus on lead, rather than
copper, production. The net realized price decrease is the result of a $.2701
per pound, or 25.2%, decrease in the LME average price of copper. Net sales of
the smelter by-product, kettle dross, were lower by $2.2 million in the 1998
period compared to the 1997 period. Lower volumes of kettle dross accounted for
$1.3 million of the decrease, as improved refined metal recovery and increased
recycling of dross material resulted in less kettle dross available for sale.
Decreased realized prices due to lower lead and copper prices accounted for the
remaining $.9 million of the decrease in kettle dross sales. Sales by Seafab
were $3.7 million lower in the 1998 period compared to the 1997 period,
primarily as a result of the planned relocation of the fabrication plant from
Seattle, Washington to Casa Grande, Arizona and the related startup. A slowdown
in oxide sales due to lower battery demand also contributed to the reduction in
sales by Seafab.
COST OF SALES for the 1998 period was $283.1 million compared to $108.5
million for the 1997 period. Of this increase, $179.3 million is attributable to
the addition of Doe Run Peru. See "--Doe Run Peru-- Results of Operations."
Increased volume of lead metal offset by lower zinc, copper and lead concentrate
and toll volumes accounted for $.7 million of the cost increase. The cost of
purchased lead concentrates and higher costs for salaries and fringes and
purchased feed were offset by reduced spending on purchased services, purchased
lead metal and materials and supplies, and the impact of an 8.9% increase in
lead metal production volume. As a result, the average cost per ton produced was
approximately 0.8% lower in the 1998 period, compared to the 1997 period,
reducing cost of sales by $3.3 million from the 1997 period. Lower volume at
Seafab, primarily related to the relocation of the fabrication plant reduced
cost of sales by $2.8 million. The sales of imported zinc metal increased cost
of sales by $1.8 million.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 1998 period increased by
$4.1 million compared to the 1997 period. The addition of Doe Run Peru accounted
for $3.4 million of the increase. See "--Doe Run
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Peru--Results of Operations." The remainder of the increase is primarily due to
depreciation of plant and equipment on recent capital additions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by $11.9 million for
the 1998 period compared to the 1997 period. The addition of Doe Run Peru
accounted for an increase of $9.1 million. See "--Doe Run Peru--Results of
Operations." The remainder of the increase in the 1998 period is primarily the
result of increases in general and administrative, expenses associated with the
Acquisition of Doe Run Peru and associated financing discussed above.
EXPLORATION EXPENSE for the 1998 period increased $.2 million, or 14.3%,
compared to the 1997 period, due to increased drilling and pre-development
activities on potential mineral properties.
OPERATING INCOME for the 1998 period was $29.5 million compared to $12.9
million for the 1997 period. Doe Run Peru added $33.2 million, which increase
was offset by a $3.7 million decrease at Doe Run attributable to the factors
discussed above. See "--Doe Run Peru--Results of Operations." The reminder of
the increase is due to the factors discussed above.
INTEREST EXPENSE for the 1998 period was $14.5 million compared to $7.6
million for the 1997 period. The increase was primarily due to the increase in
indebtedness associated with the Acquisition and the Transactions.
INTEREST INCOME for the 1998 period increased $2.4 million from the 1997
period, primarily due to interest income on the $125.0 million Special Term
Deposit.
INCOME TAX EXPENSE Doe Run Peru's income tax expense is provided for on the
"separate return method," which assumes that Doe Run Peru, on a stand-alone
basis, would not file a return in the United States. Doe Run Peru's provision,
therefore, reflects the Peruvian statutory rate of 30%. Differences between the
effective rate and the statutory rate are due primarily to book losses of Doe
Run Peru subsidiaries that are not deductible for Peruvian income taxes. Due to
the fact that the Company files a consolidated return and has elected to include
Doe Run Peru's earnings in its return as a branch, the residual U.S. income tax
effect of Doe Run Peru's earnings is reflected on the financial statements of
Doe Run.
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES in fiscal 1997 (including the results for Doe Run Peru for the
eight-day period October 23, 1997 (the date of the Acquisition) to October 31,
1997 (the "Acquisition Stub Period")) were $280.5 million compared to $274.9
million in fiscal 1996, an increase of 2.0%. Lead metal net sales decreased from
$195.7 million to $185.1 million, a decrease of 5.4%. This change is
attributable to an increase in lead metal sales volume of 17,046 tons or 6.4%
offset by a $23.1 million reduction due to lower realized prices. The average
LME price for lead metal decreased by $.0577 per pound or 16.4% from fiscal 1996
to fiscal 1997. As a result, the Company's net realized price was 11.1% less
than fiscal 1996 (realized prices are net of hedge transactions; see
"--Liquidity and Capital Resources--Hedging Activities"). Net sales of lead
concentrates to third parties were reduced by $8.3 million in fiscal 1997 from
fiscal 1996, as these lead concentrates were used in Doe Run's production.
Tolling net sales for fiscal 1997 increased $7.3 million from fiscal 1996 due to
a 17.9% increase in volume, as well as 25.5% increase in tolling processing
charges per ton. Zinc concentrate net sales in fiscal 1997 increased $2.4
million or 10.8% from fiscal 1996 due primarily to higher realized prices.
Copper concentrate net sales in fiscal 1997 decreased $3.6 million or 29.0% from
fiscal 1996, and $1.8 million of this decrease is attributable to lower realized
prices and $1.8 million is due to lower volume resulting from an emphasis on
production of lead/zinc ore. The addition of Seafab, resulting from the
acquisition of the assets of Seafab Metal Corporation in August 1996 added $15.9
million to net sales and the inclusion of Doe Run Peru from October 23, 1997,
the acquisition date,
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through October 31, 1997 added $2.6 million. Other net sales were lower by $.1
million accounting for the remainder of the change.
COST OF SALES for fiscal 1997 (including the results for Doe Run Peru for
the Acquisition Stub Period) was $234.4 million, an increase of $18.9 million or
8.8% compared to fiscal 1996. Increased volumes of lead metal, tolling and zinc
concentrates offset by lower copper and lead concentrate volumes accounted for
$6.8 million of the increase. Higher costs of salaries and wages, materials and
supplies, and purchased feed, primarily related to increased production, were
more than offset by reduced costs of purchased lead and the impact of greater
production volume. As a result, the average cost per ton produced was
approximately 1.1% lower than the prior year reducing cost of sales by $3.1
million. The addition of Seafab contributed $13.0 million to the cost of sales
increase while the inclusion of Doe Run Peru added $2.0 million to cost of
sales. Other costs of sales were higher by $.2 million accounting for the
remainder of the change.
DEPLETION, DEPRECIATION AND AMORTIZATION for fiscal 1997 (including the
results for Doe Run Peru for the Acquisition Stub Period) increased by 7.8%
primarily due to depreciation of property, plant and equipment on recent capital
additions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for fiscal 1997 (including the
results for Doe Run Peru for the Acquisition Stub Period) increased by $.9
million or 8.7% compared to fiscal 1996, primarily due to the addition of
Seafab.
EXPLORATION EXPENSE for fiscal 1997 (including the results for Doe Run Peru
for the Acquisition Stub Period) was $2.7 million, a decrease of 7.1% from
fiscal 1996. This change is attributable to less drilling on potential mineral
properties.
OPERATING INCOME for fiscal 1997 (including the results for Doe Run Peru for
the Acquisition Stub Period) was $17.7 million compared to $32.8 million for
fiscal 1996. This decrease is attributable to the factors discussed above.
INTEREST EXPENSE for fiscal 1997 (including the results for Doe Run Peru for
the Acquisition Stub Period) was $13.7 million or 4.2% less than fiscal 1996.
Lower interest on subordinated notes of $.9 million was offset by the interest
under the Existing Doe Run Mining Credit Facility entered into in connection
with the acquisition of Doe Run Peru which added $.3 million to interest
expense.
INCOME TAX EXPENSE reflected an effective tax rate of 109% in fiscal 1997
and 34% in fiscal 1996. In both years, the income tax expense was provided on
the basis of alternative minimum taxes paid, which exceeded the income tax
provision based on pre-tax book income. Higher pre-tax book income in fiscal
1996 reduced the impact of the alternative minimum taxes paid on the effective
tax rate for that year. Because of the uncertainty of the future benefit of net
deferred tax assets, Doe Run has recorded a valuation allowance against its net
deferred tax assets.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES in fiscal 1996 were $274.9 million compared to $225.1 million in
fiscal 1995, an increase of 22.1%. Lead metal net sales increased from $167.2
million to $195.7 million, an improvement of 17.0%. The average LME price for
lead metal was $.3524 per pound during fiscal 1996, $.0716 per pound greater
than the average during fiscal 1995. The higher LME price and more favorable
market conditions improved Doe Run's net realized price for both lead metal and
lead concentrates generating increases in net sales of $13.7 million and $2.9
million, respectively. An increase in mine output along with production
improvements at Doe Run's smelters generated a $14.8 million and $5.1 million
increase in net sales from lead metal and lead concentrate volume, respectively.
Zinc and copper concentrate net sales increased by $4.1 million and $3.6
million, respectively, primarily as a result of increased sales volume. The
addition of Lone Star, resulting from the acquisition of the assets of Lone Star
Lead Construction Corp. in August 1995, and the addition of Seafab in August
1996 contributed $7.7 million to the increase in net
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sales. Such increases were offset by a $2.1 million decrease in net sales due to
lower realized prices on copper concentrates and changes in other by-products.
COST OF SALES for fiscal 1996 was $215.5 million, an increase of $35.1
million or 19.5% over fiscal 1995. The greater production volume, primarily of
lead metal and lead, copper and zinc concentrates, accounts for $20.3 million of
this increase. Higher costs for certain raw materials, supplies, purchased
services, and increased incentive compensation of $1.9 million resulting from
significantly improved profitability were partially offset by the impact of
greater production volume. As a result, the average cost per ton produced in
fiscal 1996 was approximately 2.6% higher than the prior year, adding $6.1
million to cost of sales. The inclusion of Lone Star and Seafab contributed $6.4
million to the increase, while changes in other costs, primarily smelter
by-products, account for the remaining $.4 million increase.
DEPLETION, DEPRECIATION AND AMORTIZATION for fiscal 1996 increased by $1.2
million or 9.4% from fiscal 1995 primarily due to depreciation of property,
plant and equipment related to recent capital expenditures.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased by $1.7 million or
19.9% from fiscal 1995 to fiscal 1996. Higher incentive compensation as a result
of higher profitability accounts for $1.1 million of this increase. Increased
legal costs associated with various defenses of lawsuits (see
"Business-Environmental Matters") and consulting costs for operational
efficiency studies initiated during fiscal 1996 account for the remainder of
this increase.
EXPLORATION EXPENSE increased by $1.0 million or 51.2% in fiscal 1996
compared to fiscal 1995 due primarily to increased drilling on potential mineral
properties.
OPERATING INCOME for fiscal 1996 was $32.8 million compared to $21.9 million
for fiscal 1995. This increase is attributable to the factors discussed above.
INCOME TAX EXPENSE reflected an effective tax rate of 34% in fiscal 1996 and
43% in fiscal 1995. In both years, income tax expense was provided on the basis
of alternative minimum taxes paid, which exceeded the income tax provision based
on pre-tax book income. Higher pre-tax book income in fiscal 1996 reduced the
impact of the alternative minimum taxes paid on the effective tax rate for that
year. Because of the uncertainty of the future benefit of net deferred tax
assets, Doe Run has recorded a valuation allowance against its net deferred tax
assets.
DOE RUN PERU
Doe Run Peru is engaged in the smelting and refining of concentrates of
polymetallic ores, including copper, silver, zinc, lead and gold, which are sold
primarily to customers outside of Peru. These activities are the same as those
that were carried out by Metaloroya and Centromin. Metaloroya was established on
September 20, 1997, and commenced operations on October 23, 1997, as the
successor company to the operations of the former La Oroya Metallurgical Complex
of Centromin, pursuant to the Subscription Agreement.
Given the diversity of its products and by-products, Doe Run Peru's
financial performance is not solely dependent upon the prospects for one of its
products or by-products. Moreover, since Doe Run Peru is a processor of complex
concentrates and does not presently own any mines from which it sources
concentrates, Doe Run Peru's financial performance is less sensitive to the
volatility of base metal prices. The primary factors affecting Doe Run Peru's
results of operations are (i) commercial terms under which Doe Run Peru
purchases concentrates and (ii) Doe Run Peru's operating costs and other
expenses.
RESULTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997
NET SALES increased 4.5% from $217.7 million in the 1997 period to $227.4
million in the 1998 period. Net sales of copper decreased 28.1% from $77.1
million in the 1997 period to $55.4 million in the 1998
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period, due to a decrease in the average price per pound of 26.9% from $1.08 in
the 1997 period to $.79 in the 1998 period, and a decrease in volume of 1.5%
from 35,695 tons in the 1997 period to 35,155 tons in the 1998 period. Net sales
of silver increased 54.8% from $49.6 million in the 1997 period to $76.8 million
in the 1998 period, due to a volume increase of 30.0% from 10.0 million ounces
in the 1997 period to 13.0 million ounces in the 1998 period, as well as an
increase in the average price per ounce of 19.2% from $4.95 in the 1997 period
to $5.90 in the 1998 period. Net sales of gold increased 9.6% from $7.3 million
in the 1997 period to $8.0 million in the 1998 period, due to a volume increase
of 32.3% from 20,030 ounces in the 1997 period to 26,492 ounces in the 1998
period, offset by a decrease in the average price per ounce of 17.3% from
$363.76 in the 1997 period to $300.92 in the 1998 period. Refined lead net sales
decreased 15.0% from $34.0 million in the 1997 period to $28.9 million in the
1998 period, due to a decrease in the average price per pound of 18.8% from $.32
in the 1997 period to $.26 in the 1998 period, offset by a volume increase of
5.8% from 52,406 tons in the 1997 period to 55,437 tons in the 1998 period.
Refined zinc net sales increased 13.4% from $35.8 million in the 1997 period to
$40.6 million in the 1998 period, due primarily to a volume increase of 12.3%
from 35,351 tons in the 1997 period to 39,692 tons in the 1998 period. By
products net sales increased by 25.7% from $14.0 million in the 1997 period to
$17.6 million in the 1998 period primarily due to the sale of 5,434 tons of
bullion lead for $6.0 million in the 1998 period. No bullion lead was sold in
the 1997 period. This increase was offset by a decrease in net sales of blister
copper of 21.2% from $6.6 million in the 1997 period to $5.2 million in the 1998
period, due to a decrease in the average price per pound of 12.6% from $1.35 in
the 1997 period to $1.18 in the 1998 period and a volume decrease of 10.5% from
2,461 tons in the 1997 period to 2,203 tons in the 1998 period.
COST OF SALES increased 2.3% from $177.5 million in the 1997 period to
$181.6 million in the 1998 period due to higher power costs resulting from a new
electricity contract as of October 23, 1997, and an increase in sales volume of
approximately 9.5% and the inclusion of $1.7 million of workers' profit sharing
expense which was classified as cost of sales in the 1998 period. These
increases were partially offset by the impact of improved metallurgical
recoveries.
DEPRECIATION AND AMORTIZATION EXPENSES increased 21.4% from $2.8 million in
the 1997 period to $3.4 million in the 1998 period, primarily due to the change
in asset basis resulting from the Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased 13.3% from $10.5
million in the 1997 period to $9.1 million in the 1998 period. Selling expenses
decreased 12.9% from $3.1 million in the 1997 period to $2.7 million in the 1998
period, due to a decrease in freight expenses and sales commissions based on new
terms agreed with third parties. General and administrative expenses were $1.0
million lower in the 1998 period. Of this decrease, $.5 million was due to the
personnel reduction program undertaken by Centromin, which was completed during
the 1997, and $2.2 million was due to the reclassification of workers' profit
sharing to cost of sales. These decreases were offset by increases in audit and
legal fees and other expenses related to the Old Notes Offering and by higher
salaries and fringes and other administrative costs.
OPERATING INCOME decreased 5.6% from $27.0 million in the 1997 period to
$25.5 million in the 1998 period as a result of the factors discussed above.
OTHER EXPENSE decreased 71.4% from $1.4 million in the 1997 period to $.4
million in the 1998 period primarily due to the completion of the privatization
program which was in effect during the 1997 period, partially offset by
translation gains.
INTEREST EXPENSE increased from $.8 million in the 1997 period to $5.7
million in the 1998 period, due primarily to the loans obtained to finance the
Acquisition.
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<PAGE>
PERIOD FROM JANUARY 1, 1997 TO OCTOBER 23, 1997 COMPARED TO YEAR ENDED
DECEMBER 31, 1996
The results of operations for the period January 1, 1997 to October 23, 1997
are not necessarily comparable with the results of operations for the year ended
December 31, 1996 due to the shorter period included in the 1997 results.
NET SALES decreased 22.8% from $456.8 million in 1996 to $352.8 million in
the 1997 period, due principally to the shorter period in 1997, changes in the
mix of existing products and a significant blister copper sale made in 1996. Net
sales of copper decreased 17.8% from $148.4 million in 1996 to $122.0 million in
the 1997 period, due to a volume decrease of 20.4% from 71,287 tons in 1996 to
56,725 tons. This decrease included a volume decrease of 96.6% from 5,537 tons
in 1996 to 186 tons in the 1997 period, when two years' of accumulated stock of
copper blister was sold. The volume changes were offset partially by an increase
in the average price per pound of 3.8% from $1.04 in 1996 to $1.08 in the 1997
period. Net sales of silver decreased 25.9% from $111.0 million in 1996 to $82.2
million in the 1997 period, due to a volume decrease of 18.4% from 21.2 million
ounces in 1996 to 17.3 million ounces in the 1997 period as well as a decrease
in the average price per ounce of 10.2% from $5.23 in 1996 to $4.70 in the 1997
period. Net sales of gold decreased 42.2% from $20.4 million in 1996 to $11.8
million in the 1997 period, due to a volume decrease of 34.4% from 52,277 ounces
in 1996 to 34,305 ounces in the 1997 period and a decrease in the average price
per ounce of 11.9% from $389.5 in 1996 to $342.9 in the 1997 period. Refined
lead net sales decreased 31.6% from $76.3 million in 1996 to $52.2 million in
the 1997 period, due to a volume decrease of 16.3% from 104,063 tons in 1996 to
87,135 tons in the 1997 period and a decrease in the average price per pound of
18.9% from $.37 in 1996 to $.30 in the 1997 period. Refined bismuth net sales
increased 37.5% from $4.8 million in 1996 to $6.6 million in the 1997 period,
due primarily to a volume increase of 53.0% from 660 tons in 1996 to 1,010 tons
in the 1997 period and a decrease in the average refined bismuth price per pound
of 10.3% from $3.30 to $2.96.
COST OF SALES decreased 23.0% from $397.2 million in 1996 to $305.9 million
in the 1997 period, due principally to the shorter period, 18.1%, as well as
lower labor expenses resulting from the personnel reduction costs carried out in
1996.
DEPRECIATION AND AMORTIZATION EXPENSES decreased 13.0% from $5.4 million in
1996 to $4.7 million in the 1997 period, due primarily to the shorter period in
1997 as well as the adjustment to the depreciation of initial balances of fixed
assets made in 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING MARKETING EXPENSE)
decreased 20.7% from $17.4 million in 1996 to $13.8 million in 1997. Personnel
reduction costs decreased 61.5% from $3.9 million in 1996 to $1.5 million in the
1997 period, as Doe Run Peru had substantially completed its personnel reduction
program in 1996. Selling, marketing and administrative expenses were lower by
$2.3 million, or 18.6%, in the 1997 period, primarily due to the shorter period
in 1997. Worker's profit sharing was greater by $1.1 million, or 91%, in the
1997 period due primarily to improved profitability.
OPERATING INCOME declined from $36.9 million in 1996 to $28.3 million in the
1997 period due to the factors discussed above.
INTEREST AND BANK CHARGES decreased 75.8% from $3.3 million in 1996 to $0.8
million in the 1997 period, due primarily to a decrease of debt levels through
1997, which was offset by the effects of a slight increase in the weighted
average interest rate in the 1997 period.
OTHER, NET decreased 94.9% from $23.5 million in 1996 to $1.2 million in the
1997 period. In 1996, the Company incurred special charges related primarily to
(i) costs related to relocating residents away from the metallurgical complex of
La Oroya, such as demolition, and construction of apartments, schools and parks
at a new location and (ii) an accrual to provide for estimated future
expenditures under the PAMA of $21.5 million.
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<PAGE>
INCOME TAX increased 92.7% from $4.1 million in 1996 to $7.9 million in the
1997 period as a result of the increase in pretax income due to reasons
discussed above.
NET INCOME increased 212.2% from $5.9 million in 1996 to $18.4 million in
the 1997 period, due to reasons discussed above.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES increased 1.3% from $450.9 million in 1995 to $456.8 million in
1996, due principally to sale of a new product and changes in the mix of
existing products. In 1996, Doe Run Peru commenced sale of a new product,
blister copper, amounting to $14.0 million. Refined lead net sales increased
29.4% from $58.9 million in 1995 to $76.3 million in 1996, due to a volume
increase of 5.4% from 98,746 tons in 1995 to 104,063 tons in 1996 and an
increase in the average price per pound of 23.3% from $.30 in 1995 to $.37 in
1996. Refined bismuth net sales also increased 17.1% from $4.1 million in 1995
to $4.8 million in 1996, due primarily to a volume increase of 26.7% from 574
tons in 1995 to 728 tons in 1996 and a decrease in the average price per pound
of 6.8% from $3.54 in 1995 to $3.30 in 1996. Although the volume of refined
copper sold in 1996 increased 1.8% from 70,006 tons in 1995 to 71,287 tons in
1996, the decrease in the price per pound of refined copper of 21.8% from $1.33
in 1995 to $1.04 in 1996 resulted in a decrease in net sales of refined copper
of 20.6% from $186.9 million in 1995 to $148.4 million.
COSTS OF SALES decreased 0.1% from $397.5 million in 1995 to $397.2 million
in 1996, due to the effects of the 1996 personnel reduction program, which was
offset by the additional cost related to the use of independent contractors in
place of terminated employees. This reduction in cost was achieved despite a
moderate increase in the volume of concentrates processed in 1996.
DEPRECIATION AND AMORTIZATION EXPENSES increased 14.9% from $4.7 million in
1995 to $5.4 million in 1996 due primarily to adjustment of the depreciation of
the initial balances of the fixed assets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (INCLUDING MARKETING EXPENSE)
increased by 8.8% from $16.0 million in 1995 to $17.4 million in 1996. Personnel
reduction costs increased 56.0% from $2.5 million in 1995 to $3.9 million in
1996 due to the implementation of a second personnel reduction program of 600
workers in 1996. Administrative expenses increased 26.7% from $4.5 million in
1995 to $5.7 million in 1996 primarily due to the shift to use of independent
contractors in place of employees. Selling and marketing expenses increased
11.7% from $6.0 million in 1995 to $6.7 million in 1996 due to the increased
volume of metal sold in 1996 as discussed above.
OPERATING INCOME increased from $32.7 million in 1995 to $36.9 million in
1996 due to the factors discussed above.
INTEREST AND BANK CHARGES increased 57.1% from $2.1 million in 1995 to $3.3
million in 1996, due primarily to higher average borrowings, which was offset by
the effects of a slight decrease in the weighted average interest rate in 1996.
OTHER, NET increased from $1.8 million in 1995 to $23.5 million in 1996. In
1996, Doe Run Peru incurred special charges related primarily to (i) costs
related to relocating residents away from the metallurgical complex of La Oroya,
such as demolition, and construction of apartments, schools and parks at a new
location and (ii) an accrual to provide for estimated future expenditures under
the PAMA of $21.5 million.
INCOME TAX decreased 60.2% from $10.3 million in 1995 to $4.1 million in
1996 as a result of the decrease in pretax income due primarily to the special
charges discussed above.
NET INCOME decreased 68.1% from $18.5 million in 1995 to $5.9 million in
1996, due to reasons discussed above. As a percentage of net sales, net income
was 4.1% in 1995 compared to 1.3% in 1996.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from working capital
requirements, capital investments and interest payment obligations. Doe Run's
primary available sources of liquidity are cash provided by operating activities
and existing cash balances in the United States, as well as cash receipts from
certain management services and sales agency agreements, loans, advances,
distributions or dividends between Doe Run and Doe Run Peru. See "Certain
Transactions--Intercompany Transactions." Doe Run also has available the New Doe
Run Revolving Credit Facility that provides for advances by the lender to a
maximum of $100.0 million less outstanding letters of credit, based on specific
percentages of eligible receivables and inventories. As of June 30, 1998, $4.8
million was outstanding, exclusive of $4.9 million of letters of credit, under
the New Doe Run Revolving Credit Facility. See "Description of New Revolving
Credit Facilities--New Doe Run Revolving Credit Facility." Doe Run was not in
compliance with the minimum net worth and maximum leverage ratio covenants under
the Doe Run Term Loan and the Existing Doe Run Revolving Credit Facility for the
fiscal quarter ended January 31, 1998, for which Doe Run received waivers. Doe
Run repaid all amounts outstanding under the Existing Doe Run Credit Facility
with the net proceeds of the Old Notes Offering.
Doe Run Peru's primary available source of liquidity is cash provided by
operating activities. Doe Run Peru also has available the New Doe Run Peru
Revolving Credit Facility that provides for advances by the lender to a maximum
of $40.0 million less outstanding letters of credit, based upon specific
percentages of eligible receivables and inventories. As of June 30, 1998, no
amounts were outstanding under the New Doe Run Peru Revolving Credit Facility,
other than existing letters of credit. See "Description of New Revolving Credit
Facilities--New Doe Run Peru Revolving Credit Facility."
With respect to the Company, for the six months ended April 30, 1998, of the
$3.2 million net increase in cash, $1.7 million was used in operating
activities, $135.9 million was used in investing activities and $140.8 million
was provided by financing activities, and in fiscal 1997, $18.0 million was
provided by operating activities, $141.7 million was used in investing
activities and $132.6 million was provided by financing activities. As part of
its financing activities, Doe Run borrowed $130.0 million under the Doe Run Term
Loan to finance, in part, the Acquisition. The net proceeds of the Doe Run Term
Loan were used to pay $60.0 million to Fluor in full settlement of the Fluor
Indebtedness, to make the $23.0 million Subordinated Loan, to make a $2.0
million capital contribution to Doe Run Cayman and to repay all amounts
outstanding under Doe Run's then existing revolving credit facility.
Doe Run has budgeted approximately $13.3 million for capital expenditures
for fiscal 1998, primarily for replacement and maintenance of operations, and
environmental improvements. In addition to ongoing capital investments, Doe Run
has expended an average of approximately $59.5 million per year on maintenance
from fiscal 1995 through fiscal 1997. As a result of these expenditures and
ongoing efforts, Doe Run believes that it operates and will continue to maintain
modern and efficient facilities.
With respect to Doe Run Peru, for the six months ended April 30, 1998, of
the $4.8 million net increase in cash, $7.0 million was used in operating
activities, $1.5 million was used in investing activities and $13.3 million was
provided by financing activities, and for the period January 1, 1997 to October
23, 1997, $28.1 million was provided by operating activities and $28.6 million
was used in financing activities. Historical cash flows from Doe Run Peru's
operating and investing activities for the period January 1, 1997 to October 23,
1997 are not necessarily comparable with the historical cash flows for the year
ended December 31, 1996 due to the shorter period included in the 1997 period.
As a division of Centromin, Doe Run Peru's Predecessor was historically
dependent on Centromin for its working capital management and liquidity
requirements.
As part of the Acquisition, Doe Run Peru will undertake over a ten-year
period the Capital Investment Program of approximately $300.0 million, in part
to satisfy its Investment Commitment of $120.0 million as set forth in the
Subscription Agreement. Doe Run Peru has budgeted approximately
57
<PAGE>
$16.0 million for capital expenditures for fiscal 1998, primarily for
replacement and maintenance of operations, and environmental improvements.
The Company has significant indebtedness outstanding. See "Risk
Factors--Substantial Indebtedness." In addition, the Company will borrow
approximately $54.5 million to finance the Potential ASARCO MLD Acquisition.
Management believes that cash flow from operations at Doe Run and Doe Run Peru,
in addition to availability under the New Revolving Credit Facilities, will be
sufficient to provide for the Company's liquidity needs for the foreseeable
future.
The New Revolving Credit Facilities, as well as the Indenture, contain
numerous covenants and prohibitions that impose limitations on the liquidity of
the Company, including requirements that Doe Run and Doe Run Peru satisfy
certain financial ratios and limitations on the incurrence of additional
indebtedness. See "Risk Factors--Restrictions Imposed by Terms of the Company's
Indebtedness," "Description of New Revolving Credit Facilities" and "Description
of the Notes--Certain Covenants." The ability of the Company to meet its debt
service requirements and to comply with such covenants will be dependent upon
future operating performance and financial results which will be subject to
financial, economic, political, competitive and other factors affecting the
Company, many of which are beyond the Company's control.
INFLATION AND SEASONALITY
In general, the Company's cost of sales and selling, general and
administrative expenses are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes,
however, that such effects have not been material to Doe Run during the past
three years. With respect to Doe Run Peru, its labor costs and selling, general
and administrative expenses, are denominated in local currency, whereas
substantially all of its net sales are denominated in U.S. dollars. Doe Run's
business is somewhat seasonal; typically in excess of 60% of annual lead metal
shipments are made in the months of July through December as a result of
seasonal demand from battery manufacturers. Doe Run Peru's business is generally
not affected by seasonal factors.
ENVIRONMENTAL MATTERS
The Company has incurred and will continue to incur capital and operating
expenditures for matters relating to environmental control and monitoring.
Capital expenditures by Doe Run for environmental control and monitoring were
$1.8 million, $6.8 million and $7.3 million for the fiscal years 1995, 1996 and
1997, respectively. Due to the pending sale and associated uncertainties,
Metaloroya environmental expenditures in 1995, 1996 and 1997 were modest. Doe
Run and Doe Run Peru estimate their environmental capital expenditures will be
approximately $4.8 million and $2.7 million, respectively, in fiscal 1998, and
$3.3 and $3.7, respectively, in fiscal 1999. See "Business--Doe
Run--Environmental Matters" and "--Doe Run Peru--Environmental Matters."
Doe Run expended on all environmental matters, which includes amounts
capitalized, amounts charged to operating expense and amounts charged to
reserves, approximately $17.5 million in fiscal 1997, and the Company estimates
such expenditures will be $18.0 million and $18.2 million in fiscal 1998 and
1999, respectively.
Environmental laws and regulations have changed rapidly in recent years, and
the Company may become subject to more stringent environmental laws and
regulations in the future. Compliance with more stringent environmental laws and
regulations could have a material adverse effect on the Company's consolidated
financial position, results of operations and liquidity. The Environmental
Protection Agency (the "EPA") has asserted certain alleged environmental
violations against Doe Run, which are described in "Business--Doe
Run--Environmental Matters."
58
<PAGE>
HEDGING ACTIVITIES
In the normal course of its business, Doe Run has used in the past and may
use in the future forward sales commitments and commodity put and call option
contracts to manage its exposure to fluctuations in the prices of lead, copper,
zinc and silver. Contract positions are designed to ensure that the Company will
receive a defined minimum price for certain quantities of its production. Gains
and losses, and the related costs paid or premiums received, for option
contracts which hedge the sales prices of commodities are recognized in net
sales when the related production is sold. None of the aforementioned activities
have been entered into for speculative purposes.
Metaloroya, as a government-owned enterprise, did not undertake hedging
activities. Doe Run has implemented hedging activities on behalf of Doe Run Peru
consistent with the practices at Doe Run.
YEAR 2000 BUSINESS MATTERS
Many information and process control systems used in the current business
environment were designed to use only two digits in the date field, and thus may
not function properly in the year 2000. The Company has conducted a
comprehensive review of its computer systems to identify the systems that could
be affected by the "year 2000 problem" and has implemented a plan to resolve the
issues identified. Any of the Company's programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in a major system failure or in miscalculation.
Currently, most of the major systems of the Company have been modified to be
year 2000 compliant. The Company anticipates that the appropriate modifications
to all information and process control systems will be completed by the end of
1998. The cost of achieving year 2000 compliance is included in the Company's
operating and administrative expenses. The Company does not currently expect
year 2000 issues to have any material effect the Company's costs or to cause any
significant disruption in operations.
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<PAGE>
INDUSTRY
Doe Run's principal product is refined lead, and Doe Run Peru's principal
products include base metals, copper, lead and zinc, and precious metals, silver
and gold. Market prices for these metals tend to be cyclical and reflect a
combination of factors, including prevailing economic conditions, market demand,
prevailing trends of inventory levels and, to a lesser extent, inventory
carrying costs (primarily interest rates), international exchange rates and the
actions of participants in the commodity markets. These factors have been of
varying importance in influencing the prevailing metal prices and often have had
divergent impacts on such price. Lead, copper, silver, zinc and gold are all
publicly traded on one or more commodity exchanges, including the LME. The LME
provides an efficient and orderly market on which to trade non-ferrous metals.
The market provides reference prices for worldwide pricing of activities
relating to non-ferrous metals, and it provides storage facilities to enable
market participants to make or take physical delivery of approved brands of
metals. Summarized below is a general overview of the lead, copper, zinc and
silver markets.
LEAD
Lead is a versatile metal used in both its pure form and in alloys, due to
its electrochemical characteristics, density, malleability and corrosion
resistance. Primary uses for refined lead include lead-acid batteries, lead
pigments and compounds, rolled and extruded products, cable sheathing and
ammunition.
Similar to other base metals, lead prices fluctuate generally based on world
supply and demand. Western world consumption of lead for 1997 was estimated at
5.8 million tons, which represents a total market of approximately $3.2 billion.
The following table sets forth western world lead consumption by end use for the
period 1960 through 1997:
WESTERN WORLD LEAD CONSUMPTION BY END USE
<TABLE>
<CAPTION>
1960 1970 1980 1990 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(TONS IN THOUSANDS)
Batteries.............................................................. 767 1,305 2,046 3,124 4,120
Pigments and Compounds................................................. 251 440 740 645 598
Rolled and Extruded Products........................................... 285 280 392 496 464
Cable Sheathing........................................................ 474 430 350 248 141
Gasoline............................................................... 206 422 348 50 50
Other.................................................................. 459 962 478 396 439
--------- --------- --------- --------- ---------
Total.............................................................. 2,442 3,839 4,354 4,959 5,812
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
CAGR
1960 TO
1997
-----------
<S> <C>
Batteries.............................................................. 4.6%
Pigments and Compounds................................................. 2.4
Rolled and Extruded Products........................................... 1.3
Cable Sheathing........................................................ (3.2)
Gasoline............................................................... (3.8)
Other.................................................................. (0.1)
Total.............................................................. 2.4%
</TABLE>
Lead demand has increased consistently at a CAGR of approximately 2.4% for
the period 1960 to 1997 and approximately 2.0% for the period 1987 to 1997,
driven primarily by demand for lead-acid batteries. Approximately 4.2 million
tons, or 72%, of the lead consumed in 1997 was used in the production of
lead-acid batteries, 75% of which was for SLI batteries. Approximately 77% of
SLI battery sales are in the automotive replacement market, a market with stable
demand characteristics, which is dependent upon the number of automobiles in
service and battery life.
Lead pigments and compounds are the second largest use of lead and include
such end uses as computer and television screens, leaded glass and crystal and
printed circuit boards. Uses of rolled and extruded lead products include lead
anode plates used in the production of refined copper, radiation shielding for
health care applications and roof flashings construction applications.
Historically, lead has also been used as an additive in gasoline to reduce
engine knock and for insulation of underground cables.
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<PAGE>
Environmental concerns arising in the early 1980s, however, caused a significant
reduction in the amount of lead utilized for gasoline, and technical
considerations have reduced usage of lead in cable sheathings.
The western world supply of refined lead is dependent upon the availability
of lead ore, the principal raw material for primary smelters, secondary sources
and net exports of lead from non-western world countries, such as the former
Soviet Union and China. The following table summarizes western world refined
lead supply for the period 1988 to 1997:
WESTERN WORLD REFINED LEAD SUPPLY
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(TONS IN THOUSANDS)
Western World:
Primary Production....................... 2,628 2,583 2,431 2,503 2,563 2,550 2,540 2,531
Secondary Production..................... 2,308 2,489 2,495 2,385 2,369 2,316 2,528 2,722
Non-Western World Net Exports.............. (44) (31) 88 75 205 165 255 241
--------- --------- --------- --------- --------- --------- --------- ---------
Total supply........................... 4,892 5,041 5,014 4,963 5,137 5,031 5,323 5,494
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Western World:
Primary Production....................... 2,477 2,562
Secondary Production..................... 2,858 2,981
Non-Western World Net Exports.............. 328 243
--------- ---------
Total supply........................... 5,663 5,786
--------- ---------
--------- ---------
</TABLE>
Since 1991, primary lead production has remained relatively constant.
Management believes that due to capital costs and environmental concerns, no new
primary smelting capacity will be added in the world in the foreseeable future.
As a result, primary production is expected to remain relatively constant, with
any increase resulting from operational improvements at existing facilities.
Refined lead supply is also affected by the availability of lead ore which
is the principal raw material for primary production facilities throughout the
world. The following table summarizes western world lead mine production for the
period 1988 to 1997:
WESTERN WORLD LEAD MINE PRODUCTION
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(TONS IN THOUSANDS)
North America.............................. 820 745 779 804 769 548 558 624
Australia.................................. 482 517 592 588 582 548 528 485
Latin America.............................. 425 462 459 442 427 428 472 455
Western Europe............................. 411 381 374 335 306 276 301 270
Africa..................................... 216 192 181 187 185 213 203 200
Asia....................................... 131 123 119 121 115 91 86 98
--------- --------- --------- --------- --------- --------- --------- ---------
Total.................................. 2,485 2,420 2,504 2,477 2,384 2,104 2,148 2,132
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
North America.............................. 707 665
Australia.................................. 540 535
Latin America.............................. 477 486
Western Europe............................. 267 289
Africa..................................... 202 194
Asia....................................... 109 91
--------- ---------
Total.................................. 2,302 2,260
--------- ---------
--------- ---------
</TABLE>
Although primary production has remained relatively constant, lead
production from secondary sources has increased, driven primarily by the greater
availability of spent lead-acid batteries and other lead-bearing materials. Due
to heightened environmental awareness, stockpiling of lead-bearing materials
such as batteries became economically unviable during the early 1990s. As a
result, battery manufacturers established outlets for spent batteries returned
in connection with replacement battery sales, which has resulted in the
development of secondary facilities throughout the world. By 1997, approximately
3.0 million tons of lead were being converted from secondary materials.
Secondary processing of lead results in approximately 98% recovery of lead from
the lead-bearing materials. Battery manufacturers have increasingly integrated
their operations into the secondary market in addition to purchasing primary and
secondary lead from third parties such as Doe Run. Management estimates that the
secondary supply of lead will continue to increase in the foreseeable future, as
the availability of spent lead-acid batteries and
61
<PAGE>
other lead bearing materials requiring recycling increases. This trend is
expected to result in a more predictable pattern of lead supply.
Lead supply in the western world is also impacted by net exports of lead
from Eastern Europe, the former Soviet Union and China. Prior to 1990, these
regions were net importers of refined lead. In the early 1990s, these regions
experienced adverse economic conditions and consequently began exporting lead
and other metals to build hard currency reserves. Since 1994, exports from
Eastern Europe and the former Soviet Union have declined, which management
believes reflects both a reduction in inventories and production capabilities
resulting from the closure of inefficient facilities. Increased exports from
China have more than offset this reduction, resulting in an increase of net
exports to the western world in 1996. Industry data for 1997 indicates that net
exports from China declined 30.0% from 1996, and consumption in China increased
4.0%.
The price of refined lead in the western world reflects a combination of
factors including prevailing economic conditions, lead demand and the
availability of refined lead in the market. Lead prices are also affected by
international trade with non-western world producers that export lead into the
western world. The following table sets forth the average LME prices for lead
during each of the years 1988 to 1997.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LME Prices (per pound)..................... $ .30 $ .31 $ .37 $ .25 $ .24 $ .18 $ .25 $ .29
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
LME Prices (per pound)..................... $ .35 $ .28
</TABLE>
The LME price for lead as of June 30, 1998 was $.25 per pound. Management
attributes the decline from 1997 levels to a general slowdown in replacement
battery sales resulting from more moderate weather conditions in late 1996 and
early 1997 in North America and Europe.
COPPER
Copper ranks second to aluminum as the most widely used non-ferrous metal in
the world. Recognized for its metallurgical and physical properties, including
high electrical and thermal conductivity, corrosion resistance, ductility,
malleability and strength, copper is a versatile metal, used in its pure form
and in alloys in a variety of industrial markets. These markets include
construction, electrical and electronic parts, industrial machinery and
equipment, transportation and consumer products.
From 1987 to 1997, western world copper demand grew at a CAGR of
approximately 3.3%, during which time copper prices averaged $1.08 per pound. In
1997, western world copper consumption was estimated at 12.3 million tons, a
record level for the twelfth consecutive year, which represents a total market
of $25.3 billion. The following table sets forth the average LME prices for
copper during each of the years 1988 to 1997.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LME Prices (per pound)..................... $ 1.18 $ 1.29 $ 1.21 $ 1.06 $ 1.04 $ .87 $ 1.05 $ 1.33
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
LME Prices (per pound)..................... $ 1.04 $ 1.03
</TABLE>
The LME price for copper as of June 30, 1998 was $.73 per pound. Management
attributes the decline from 1997 levels to a general increase in metal
inventories following higher production levels against softening demand in Asia.
ZINC
Zinc is the third most widely used non-ferrous metals in the world, with
annual consumption exceeded only by aluminum and copper. Zinc is principally
used as an anti-corrosive coating to produce galvanized steel, which ultimately
is consumed in the automotive and construction industries. The galvanizing of
steel sheet and strip accounts for approximately 50% of annual zinc consumption
and is the largest growth sector for zinc. Other uses for zinc include alloys,
such as brass, used in a variety of consumer products and zinc-aluminum used in
the production of pressure die cast parts. From 1987 to 1997, western world zinc
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<PAGE>
demand grew at a CAGR of approximately 2.5%, during which time zinc prices
averaged $.53 per pound. In 1997, western world zinc consumption was estimated
at 7.1 million tons, which represents a total market of $8.5 billion. The
following table sets forth the average LME prices for zinc during each of the
years 1988 to 1997.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LME Prices (per pound)..................... $ .56 $ .78 $ .69 $ .51 $ .56 $ .44 $ .45 $ .47
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
LME Prices (per pound)..................... $ .47 $ .60
</TABLE>
The LME price for zinc as of June 30, 1998 was $.45 per pound. Management
attributes the decline from 1997 levels to an increase in the availability of
zinc concentrates in the market.
SILVER
Silver historically has been used principally in coinage, reflecting its
monetary value as a precious metal. Presently, however, demand for silver is
predominately commercial, with uses in photography, electrical and electronic
products, tableware, jewelry, medicine and dentistry. Industrial demand, which
accounts for approximately 98% of total silver demand, increased 5.5% in 1997 to
799 million ounces, which represents a total market of $3.9 billion. From 1987
to 1997, western world silver demand grew at a CAGR of approximately 5.8%,
during which time silver prices averaged $4.97 per ounce. The following table
sets forth the average LBMA prices for silver during each of the years 1988 to
1997.
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LBMA Prices (per ounce).................... $ 6.53 $ 5.50 $ 4.83 $ 4.05 $ 3.95 $ 4.30 $ 5.28 $ 5.20
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
LBMA Prices (per ounce).................... $ 5.20 $ 4.90
</TABLE>
The LBMA silver price as of June 30, 1998 was $5.32 per ounce. Management
believes that increases in 1998 reflect an imbalance between supply and demand
for silver, with the demand for silver for commercial applications exceeding the
available supply from producers.
63
<PAGE>
BUSINESS
GENERAL
Doe Run is the largest fully-integrated lead producer in North America and
the second largest primary lead producer in the western world. Through its
subsidiary Doe Run Peru, Doe Run operates one of the largest polymetallic
processing facilities in the western world offering an extensive product mix of
non-ferrous and precious metals, including copper, silver, zinc, lead and gold.
The combined capabilities of Doe Run and Doe Run Peru represent the largest
primary lead producer in the western world.
On October 23, 1997, Doe Run Peru acquired Metaloroya from Centromin, a
Peruvian government-owned conglomerate, as part of the ongoing privatization
program sponsored by the government of Peru. On December 30, 1997, Metaloroya
was merged into Doe Run Peru.
The Company had pro forma net sales, net income and EBITDA of $709.8
million, $.7 million and $74.5 million, respectively, for the twelve months
ended October 31, 1997 and pro forma net sales, net loss and EBITDA of $343.4
million, $1.0 million and $40.4 million, respectively, for the six months ended
April 30, 1998.
DOE RUN
Doe Run's integrated operations permit Doe Run to participate in and manage
the entire lead life cycle, including the mining of lead ore, the production of
refined lead metal, the fabrication of value-added lead products and the
secondary recycling of spent lead-acid batteries and other lead-bearing
materials. Doe Run believes its reputation for excellent service, product
quality and timely delivery permits it to consistently realize premiums for its
products, resulting in sales prices above the market price for lead quoted on
the LME.
In fiscal 1997, Doe Run shipped approximately 350,000 tons of refined lead
metal and lead alloy products, including recycled lead, representing
approximately 18% of North American consumption and 6% of western world
consumption. Doe Run had net sales, net loss and EBITDA of $277.9 million, $1.1
million and $31.9 million, respectively, for fiscal 1997, excluding the results
of operations of Doe Run Peru for the eight-day period from October 23, 1997
(the date of consummation of the Acquisition) through October 31, 1997 and net
sales, net loss and EBITDA (excluding intercompany transactions) of $118.5
million, $14.2 million and $4.2 million, respectively, for the six months ended
April 30, 1998.
Refined lead product sales accounted for approximately 67% and 68% of Doe
Run's total net sales, or $185.1 million and $80.6 million, respectively, in
fiscal 1997 and for the six months ended April 30, 1998, respectively. The
balance of Doe Run's net sales resulted from (i) tolling services provided to
major U.S. lead-acid battery manufacturers, (ii) lead production by-products,
including zinc and copper concentrates, and (iii) value-added fabricated lead
products, such as lead sheet and bricks. These net sales from tolling services,
by-products and fabricated products provide sources of revenue largely
independent of lead prices.
Western world lead consumption in 1997 was estimated at 5.8 million tons
which represents a total market of approximately $3.2 billion. Approximately 4.2
million tons, or 72%, of this lead was used in the production of lead-acid
batteries, approximately 75% of which was for SLI batteries. Approximately 77%
of SLI battery sales are in the automotive replacement market, a market with
stable demand characteristics, which is dependent upon the number of automobiles
in service and battery life.
The lead-acid battery remains the most cost competitive battery technology
for SLI batteries, which management believes will not change in the foreseeable
future. Other uses for refined lead include computer and television screens,
ammunition, stationary batteries used as backup power sources and rolled and
extruded lead products used in radiation shielding and roofing materials.
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<PAGE>
The market for refined lead continues to grow primarily as a result of
increasing demand for lead-acid batteries used for automobiles and other
vehicles as a result of worldwide economic growth. As a result, western world
lead consumption grew at a CAGR of 2.0% between 1987 and 1997. Doe Run believes
that this growth rate will accelerate in the future as batteries become an even
larger portion of the lead market, particularly in light of expected economic
growth leading to increased vehicle population in developing economies.
Approximately 45% of annual western world lead consumption is supplied from
newly mined or "primary" ore, and the balance is supplied from secondary
sources, principally the recycling of spent lead-acid batteries and other
lead-bearing materials. Since 1990, primarily due to heightened environmental
awareness, secondary lead capacity has increased, whereas primary lead capacity
has remained relatively constant. Management believes that secondary sources of
lead will continue to account for an increasing share of the total worldwide
lead market.
The average LME price for refined lead was $.29 per pound in fiscal 1997. As
of June 30, 1998, the LME price for lead was $.25 per pound, which was below the
ten-year average price of $.28 per pound. Management believes that lead prices
will remain relatively stable or will modestly increase for the remainder of
fiscal 1998 and over the long term will reflect the historical industry average.
As a result of the recent lead price decreases, the Company expects that it will
incur an operating loss in its U.S. operations that will adversely affect its
EBITDA in fiscal 1998.
Doe Run conducts its mining operations along approximately 40 miles of the
Viburnum Trend in Southeastern Missouri, one of the world's most productive lead
deposits. Doe Run operates six production shafts, four processing mills, one
primary smelter and one secondary smelter. During fiscal 1997, Doe Run mined in
excess of 5.0 million tons of ore containing average grades of 5.17% lead, 1.02%
zinc and 0.27% copper. At the end of fiscal 1997, Doe Run's proven and probable
reserves consisted of approximately 70 million tons, containing approximately
3.8 million tons of recoverable lead or approximately fourteen years of
production at current mining rates.
Doe Run's primary smelter in Herculaneum, Missouri is the largest in North
America and the second largest in the world, with an annual production capacity
of approximately 250,000 tons of refined lead. Since entering the recycling
business in 1992, Doe Run has become a leading producer of secondary lead at its
Buick recycling facility and secondary smelter located in Boss, Missouri. At
this facility, Doe Run is reclaiming at a rate of approximately 105,000 tons of
refined lead per year, approximately 60% of which is derived from tolling
arrangements with major U.S. battery manufacturers.
DOE RUN PERU
Doe Run Peru's unique combination of base metal smelters, refineries and
by-product circuits enable Doe Run Peru to process complex polymetallic
concentrates and to recover base metals and by-products at international quality
standards. Doe Run Peru's location in central Peru, approximately 110 miles from
Lima, allows Doe Run Peru to source concentrates advantageously from mines
located throughout the central Andes mountains, particularly in Peru. Moreover,
Doe Run Peru's proximity to Lima's Callao port provides it ready access to major
world markets for its products.
For the twelve months ended October 31, 1997 and the six months end April
30, 1998, Doe Run Peru shipped approximately 70,000 tons and 35,000 tons,
respectively, of refined copper, 107,000 tons and 55,000 tons, respectively, of
refined lead, 71,000 tons and 40,000 tons, respectively, of refined zinc, 20.5
million ounces and 13.0 million ounces, respectively, of refined silver and
42,000 ounces and 26,000 ounces, respectively, of gold bullion. In addition, Doe
Run Peru shipped various by-products including bismuth, indium, tellurium,
antimony, cadmium and copper blister. Doe Run Peru had net sales, net income and
Adjusted EBITDA of $431.9 million, $26.4 million and $50.7 million,
respectively, for the twelve months ended October 31, 1997, including the period
from October 23, 1997 through October 31,
65
<PAGE>
1997, and net sales, net income and EBITDA (excluding intercompany transactions)
of $224.9 million $18.9 million and $36.2 million, respectively, for the six
months ended April 30, 1998.
Of Doe Run Peru's net sales, refined copper, silver, zinc, lead and gold
accounted for 35%, 23%, 19%, 15% and 3%, respectively, for the twelve months
ended October 31, 1997, and 25%, 34%, 17%, 13% and 4%, respectively, for the six
months ended April 30, 1998, with the balance of net sales derived from sales of
various by-products. For the twelve months ended December 31, 1996, Doe Run Peru
was one of Peru's largest exporters, exporting approximately 80% of its total
shipments to North America, Europe and Asia, as well as other Latin American
countries. Doe Run Peru's customers include end-users of base metals and metal
by-products, as well as international metal trading companies.
Doe Run Peru's operations consist of smelting and refining complex
concentrates that it purchases from unaffiliated mining operations. Doe Run Peru
typically purchases concentrate feedstock pursuant to annual contracts at a
price based on a percentage of the payable base metal and precious metal content
of the concentrates. The price is reduced by processing fees or treatment
charges to refine the concentrates, as well as by penalties charged to remove
impurities within the concentrates, such as arsenic, antimony and bismuth. Base
metal prices, treatment charges and penalties are generally established based
upon prevailing market conditions by reference to prices in the world market,
including on the LME. Currently, Doe Run Peru has entered into supply contracts,
primarily with one-year terms, that meet approximately 95% of its concentrate
requirements for fiscal 1998.
Doe Run Peru pays concentrate suppliers for the majority of the metal
content of the concentrates purchased and, thus, derives its operating profit
primarily from treatment charges and penalties. In addition, Doe Run Peru
generates operating profit from the sale of by-products, as well as from metals
sold at a premium to the price paid for such metal. Moreover, since Doe Run
Peru's metallurgical recoveries are typically in excess of the paid metal
percentages, Doe Run Peru further increases its operating profit from the sale
of the metal produced from such recoveries.
The markets for Doe Run Peru's products are global and continue to grow as a
result of worldwide economic growth. Given the diversity of its products and
by-products, Doe Run Peru's financial performance is not solely dependent upon
the prospects for any one of its products or by-products. Moreover, since Doe
Run Peru is a processor of complex concentrates and does not presently own any
mines from which it sources concentrates, Doe Run Peru's financial performance
is less sensitive to the volatility of base metal prices.
COMPETITIVE STRENGTHS
The Company believes that its competitive strengths include the following:
FOCUSED BUSINESS STRATEGY
The production of lead and related products is Doe Run's primary business,
whereas lead generally represents a small percentage of its competitors' overall
operations. As a result, Doe Run believes that its ability to quickly recognize
and respond to various trends that affect the lead industry and its customers
provide Doe Run with a preferred status with its customers. This responsiveness,
along with its reputation for excellent service, product quality and timely
delivery, permits Doe Run to consistently realize premiums for its products,
resulting in sales prices above the market price for lead quoted on the LME.
With the assistance and direction provided by Doe Run, Doe Run Peru, as a
private enterprise, is well positioned to recognize and respond to various
trends that affect the smelting and refining industry, as well as its customers.
Doe Run Peru will implement its business strategy with the operating flexibility
to (i) make discretionary capital expenditures and (ii) purchase an optimum mix
of concentrate feedstock from a wider range of suppliers than it could under the
constraints that existed as a government-owned enterprise.
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<PAGE>
DIVERSE PROCESSING CAPABILITIES
The combination of Doe Run's and Doe Run Peru's processing capabilities
provides the Company greater diversity in its net sales and EBITDA.
Specifically, with the Acquisition, approximately 74% and 77% of the Company's
net sales for the twelve months ended October 31, 1997 and the six months ended
April 30, 1998, respectively, were derived from (i) the treatment and processing
of base metal concentrates, including copper, silver, zinc, lead and gold, (ii)
the fabrication of lead and lead related products, (iii) the tolling and
recycling of spent lead-acid batteries for major U.S. lead-acid battery
manufacturers and (iv) the sale of zinc and copper concentrates. Such
value-added tolling and other products and services are less sensitive to base
metal price fluctuations.
FAVORABLE ACCESS TO RAW MATERIALS
Peru and its neighboring Latin American countries, primarily Bolivia, are
significant producers of complex concentrates that contain multiple metals and
high levels of impurities. Doe Run Peru obtains substantially all of its lead
and zinc concentrates and approximately 80% of its copper concentrates from
Peruvian sources. Since Doe Run Peru operates one of the few complex concentrate
processing facilities in the world, Doe Run Peru obtains favorable pricing terms
from its concentrate suppliers due to the complex nature of the concentrates and
its proximity to the producing mines. As a result, Doe Run Peru believes that it
operates at a geographic competitive advantage to comparable facilities located
farther from their sources of complex concentrates. Currently, Doe Run Peru has
entered into supply contracts, primarily with one-year terms, that meet
approximately 95% of its concentrate requirements for fiscal 1998.
FLEXIBLE MINING OPERATIONS
Due to its extensive polymetallic ore resources, Doe Run has flexibility in
developing its mining and milling plans to take advantage of prevailing market
conditions for lead, zinc and copper. Depending on lead, zinc and copper prices,
Doe Run has the ability, to a certain extent, to optimize its mine production by
targeting certain ore grades in order to enhance operating margins. By
maintaining such flexibility, Doe Run is able to reduce its exposure to metal
price volatility.
U.S. DOLLAR-BASED REVENUES
The mining industry in which Doe Run Peru is a major participant is Peru's
largest export industry, representing approximately 45% of Peru's total export
sales in 1997. For the twelve months ended October 31, 1997 and the six months
ended April 30, 1998, exports accounted for 78% and 77%, respectively, of Doe
Run Peru's shipments and more than 79% and 72%, respectively, of its net sales.
In addition, substantially all of Doe Run Peru's net sales are denominated in
U.S. dollars. As a result, Doe Run Peru's net sales is less sensitive to foreign
currency fluctuations.
EXPERIENCED MANAGEMENT AND LABOR FORCE
Doe Run's management team has extensive experience in the mining and metals
production industry with an average of 23 years in the industry. The extensive
experience of the Doe Run management team complements the skills of Doe Run
Peru's executive personnel to provide Doe Run Peru with the strong management
team necessary to compete as a private enterprise in the world markets. In
addition, the Company employs a highly skilled workforce whose average tenure
with the Company is more than 20 years.
HIGH BARRIERS TO ENTRY
Management believes that the capital costs and environmental requirements
associated with constructing facilities comparable to those of the Company
result in high barriers to entry for prospective entrants. Management estimates
that it would cost approximately $700 million to establish mining, milling
67
<PAGE>
and smelting operations with the production capacity and efficiency of Doe Run.
Moreover, management is not aware of any significant mineral deposit in North
America with lead grades and reserves similar to that of the Viburnum Trend.
With respect to Doe Run Peru, management estimates that it would cost
approximately $950 million to establish smelting and refining operations with
the production capacity and efficiency of Doe Run Peru. Management believes that
the cost and time commitment required to achieve commercial production for any
new mining, milling, smelting or processing operation, including regulatory
approvals, heightens the barriers to entry.
BUSINESS STRATEGY
The Company's business strategy is to improve its operations and financial
performance by focusing on the following principal elements:
INCREASE CAPACITY AND IMPROVE OPERATING EFFICIENCIES
Doe Run is committed to improving its operating efficiencies through focused
capital investments that increase capacity utilization, enhance productivity and
lower costs. Since the acquisition of Doe Run by Renco in April 1994, Doe Run
has completed approximately $40.4 million of capital investments through April
30, 1998 designed in part to reduce production costs and improve product
quality. Additionally, Doe Run seeks to identify non-capital cost reduction
opportunities throughout its operations. Doe Run has increased its primary lead
production capacity from the original annual capacity of 225,000 tons to
approximately 250,000 tons presently with minimal capital investment. In
addition, Doe Run has increased its secondary lead production capacity from the
original annual capacity of 60,000 tons to approximately 105,000 tons presently
with minimal capital investment.
The Company has identified a number of strategic initiatives designed to
improve Doe Run Peru's operating efficiencies and its competitive position
within the industry through focused capital investment. In furtherance of this
strategy, Doe Run Peru has adopted a ten-year Capital Investment Program of
approximately $300.0 million in an effort to enhance various elements of Doe Run
Peru's operations. The Capital Investment Program will target specific areas of
Doe Run Peru's facilities, such as the copper and lead circuits, to improve
product quality, increase capacity, improve productivity and reduce costs in the
targeted area, thereby enhancing Doe Run Peru's net sales and EBITDA. In
addition, the Capital Investment Program is designed to help achieve compliance
with applicable environmental standards in Peru.
MAINTAIN AND BUILD STRONG RELATIONSHIPS WITH STRATEGIC CUSTOMERS
Through its ongoing research and development efforts and customer service
initiatives, Doe Run strives to build and maintain strong relationships with its
customers. Since lead is Doe Run's principal business, Doe Run sales and
technical professionals are dedicated to working closely with Doe Run's
customers to be responsive to their needs, such as small order quantities,
specialized shapes, sizes and alloys, technical assistance and flexible
deliveries.
As a private enterprise, Doe Run Peru is implementing many of the successful
customer service initiatives utilized by Doe Run to build and maintain strong
relationships with its customers. Such initiatives will include ongoing research
and development efforts, technical assistance and other customer service
practices that will encourage a close working relationship with Doe Run Peru's
customers. In addition, Doe Run Peru is shifting the focus of its marketing
efforts to end users of its products from international trading companies.
OPTIMIZE CONCENTRATE SUPPLY AT DOE RUN PERU
As a private enterprise, Doe Run Peru is endeavoring to optimize the mix of
complex concentrates from a wider range of suppliers than it purchased as a
government-owned enterprise. Historically, Doe
68
<PAGE>
Run Peru obtained the vast majority of its concentrate requirements from
Centromin mines, typically pursuant to annual contracts. Given Doe Run Peru's
unique position as one of the few processing facilities in the world for complex
concentrates, Doe Run Peru will source its raw materials on a competitive basis
within Peru from both Centromin mines and private mines, as well as from other
Latin American suppliers. Currently, Doe Run Peru has entered into supply
contracts, primarily with one-year terms, that meet approximately 95% of its
concentrate requirements for fiscal 1998.
GROW DOE RUN'S CORE LEAD BUSINESS
Doe Run seeks to increase sales and operating cash flow through the growth
of its core lead operations. Such efforts include increased sales of refined
lead resulting from the expansion of its primary lead production capacity. In
addition, Doe Run strives to expand its product offerings of value-added
fabricated products including various shapes, sizes and alloys. Margins on
fabricated products are relatively insensitive to lead price fluctuations
because such fluctuations are generally reflected in the price of the end
product. Doe Run is also growing its recycling and related tolling business with
U.S. lead-acid battery manufacturers pursuant to contractual agreements under
which recycled lead is returned to the supplier in exchange for a processing
fee. Such processing fee is generally independent of lead prices.
BROADEN REVENUE SOURCES THROUGH STRATEGIC ACQUISITIONS
The Company seeks to broaden its revenue sources through the acquisition of
related resource assets or businesses that capitalize on the combined experience
of Doe Run and Doe Run Peru in mining, milling, smelting and refining base and
precious metals. With respect to Doe Run, such opportunities, domestic or
international, could be operations in primary or secondary lead production, lead
fabrication or non-lead resource businesses. With respect to Doe Run Peru, such
opportunities could include the acquisition of mining assets in Peru or other
Latin American countries, including, without limitation, those presently
undergoing privatization in Peru.
The Acquisition reflects the Company's business strategy of broadening its
revenue sources through a strategic acquisition, focusing on treatment and
processing of base metal concentrates, as well as other metal related services.
In particular, Doe Run Peru represented a unique opportunity for Doe Run to
capitalize on Doe Run's extensive experience in efficiently managing mature
smelter operations. Through the focused investment of capital and the
implementation of Doe Run's operating practices, Doe Run Peru believes that it
will increase its refined metals capacities and improve product quality, thereby
enhancing financial performance through increased revenues and EBITDA.
The Company from time to time engages in discussions with potential
acquisition targets; except as set forth herein, the Company has not entered
into any letter of intent or definitive agreement with respect to any possible
acquisition. There can be no assurance that any potential acquisition pursued by
the Company will be consummated. See "--Potential Acquisition of the ASARCO MLD"
and "Prospectus Summary-- Potential Acquisitions."
DOE RUN
PRODUCTS AND SERVICES
Doe Run's principal products include refined lead from primary and secondary
sources, fabricated products, zinc and copper concentrates and other
by-products. In addition, Doe Run provides tolling
69
<PAGE>
services where it receives a processing fee for recycling spent lead-acid
batteries and other lead-bearing materials. The following table sets forth net
sales for each of Doe Run's products and services:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Primary Lead................................................................. $ 148,067 $ 165,932 $ 156,077
Secondary Lead: Tolling...................................................... 14,435 15,119 22,369
Metal Sales................................................... 19,156 29,782 29,039
Other......................................................... 3,175 3,910 6,063
Fabricated Products.......................................................... 1,643 9,294 24,121
Zinc Concentrates............................................................ 17,694 22,363 24,772
Copper Concentrates.......................................................... 11,619 12,431 8,822
Other........................................................................ 9,354 16,099 6,633
---------- ---------- ----------
Total.................................................................... $ 225,143 $ 274,930 $ 277,896
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
PRIMARY LEAD
Doe Run produces high quality refined lead products at its primary
Herculaneum smelter, including 99.99% pure lead, the purest commercial lead
available. Doe Run also provides a wide variety of product shapes and sizes, as
well as a complete series of lead alloys to meet the specialty demands of its
customers. Primary lead is used in automotive batteries, computer and television
screens, forklift, marine and golfcart batteries, stationary batteries used as
backup power sources, as well as rolled and extruded lead products in radiation
shielding and roofing materials. High purity lead is required for newer high
technology batteries, and is preferred by battery manufacturers for lead oxide,
the electrically active component of lead-acid batteries. Doe Run's lead alloy
products are used in the manufacture of numerous fabricated products, as well as
for ammunition.
SECONDARY LEAD
Doe Run produces secondary lead at its recycling facility located in Boss,
Missouri, where it recycles spent lead-acid batteries and other lead-bearing
materials. Of Doe Run's secondary lead production, approximately 60% is derived
from tolling arrangements with battery manufacturers. Under such multi-year
arrangements, manufacturers send spent batteries to Doe Run, which recovers the
lead and returns it to the battery manufacturer for a processing fee. As part of
such arrangements, Doe Run offers its tolling customers the opportunity to
purchase or receive primary lead or lead alloys in exchange for their spent
lead-acid batteries at specified economic terms. Due to the terms of these
arrangements, Doe Run's operating profits from this service are largely
unaffected by lead price fluctuations. In addition to revenues resulting from
tolling services, Doe Run directly sells secondary lead and recycles other
lead-bearing materials for which it receives processing fees.
FABRICATED LEAD PRODUCTS
Doe Run processes lead metal into custom products such as: lead oxide, the
key ingredient in lead-acid batteries; lead anode plates used in copper
refining; x-ray and radiation shields for the medical profession; roof flashings
for the construction industry; and lead for ammunition. Doe Run also installs
radiation shielding in hospitals and cancer treatment centers and installs and
maintains lead-lined storage tanks and pollution control devices for the
chemical, petroleum and smelting industries. Margins on Doe Run's sales of
value-added products are relatively insensitive to lead price fluctuations, as
Doe Run generally is able to reflect such fluctuations in the price of the end
product.
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<PAGE>
ZINC CONCENTRATES
Doe Run mines zinc as a by-product of its lead-mining operations. Zinc
concentrates are sold on the open market or to zinc smelters. In fiscal 1997,
Doe Run produced approximately 70,000 tons of zinc concentrates, with an average
metal content of 59.6% zinc.
COPPER CONCENTRATES
Doe Run mines copper as a by-product of its lead operations. Copper
concentrates are sold on the open market or to copper smelters. In fiscal 1997,
Doe Run produced approximately 27,000 tons of copper concentrates, with an
average metal content of 29.1% copper.
OTHER PRODUCTS AND SERVICES
Doe Run produces various other by-products resulting from the production of
lead. Such products include sulfuric acid which is sold to fertilizer
manufacturers, as well as primary and secondary furnace drosses, which are sold
to custom smelters for further recovery of various minerals. The secondary
facility also sells polypropylene and sodium sulfate and provides other
services, including stripping of lead-sheathed cable and recycling of various
hazardous materials.
MARKETING AND SALES
Doe Run's marketing and sales strategy is to maximize the net realized
selling prices for its products. In furtherance of this strategy, Doe Run
provides its customers small order quantities, specialized shapes, sizes and
alloys, technical assistance and flexible deliveries.
Doe Run generally sells lead on a delivered basis with freight charges
included. Doe Run's central U.S. location allows it to have transportation costs
significantly lower than its major competitors with operations outside of North
America. Moreover, due to its location, Doe Run is able to provide its customers
just-in-time delivery at a lower cost than most of its competitors.
Doe Run is actively involved with several customers in developing new uses
for lead. Such uses include lead foil for advanced lead-acid batteries, low
radiation lead solder for printed circuit boards and superior lead alloys for
optimizing battery performance.
Zinc and copper concentrates generally are sold to North American smelters
pursuant to multi-year (typically three year) contracts awarded under a bid
process. Due to Doe Run's geographic location, transportation costs for its zinc
and copper concentrates are low relative to its competitors' costs. Similar to
lead, transportation costs are a significant factor in selling concentrates.
Doe Run's sales of lead metal, concentrates and by-products are handled by
Doe Run's staff of direct sales people assisted by customer service
representatives. Technical assistance is provided by plant operating personnel.
CUSTOMERS
Doe Run had approximately 160 lead metal customers in fiscal 1997, of which
the five largest accounted for approximately 41% of Doe Run's lead metal net
sales. Approximately 70% of Doe Run's lead sales were pursuant to contractual
agreements, typically one year or less. Such contracts generally set forth
minimum volume and pricing terms. Exports represented approximately 7% of Doe
Run's net sales in fiscal 1997.
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Doe Run's customers include six of the seven largest lead-acid battery
manufacturers in the world which accounted for approximately 40% of Doe Run's
net sales in fiscal 1997, including JCI which purchased lead and tolling
services representing approximately 12% of Doe Run's fiscal 1997 net sales. In
addition, Big River, a producer of zinc metal and associated co-products,
purchased zinc concentrates, which represented approximately 10% of Doe Run's
net sales in fiscal 1997. No other single customer accounted for more than 10%
of Doe Run's net sales in fiscal 1997. The loss of any of Doe Run's largest
customers or curtailment of purchases by such customers could have a material
adverse effect on the results of operations, financial condition and liquidity
of Doe Run. As a result of the Acquisition, however, no single customer is
expected to account for more than 10% of the Company's net sales in fiscal 1998.
COMPETITION
Doe Run is the largest fully-integrated lead producer in North America and
the second largest primary lead producer in the western world. The leading
producer of lead in the world is Quexco Incorporated ("Quexco"), with operations
in Europe, as well as North America where Quexco operates secondary operations
under the name of RSR Corporation ("RSR"). Metaleurop S.A. is a significant
European producer of both primary and secondary lead. In North America, Doe
Run's principal competitors in primary lead include Cominco Ltd., Noranda Inc.
and Industrias Penoles S.A. In secondary recycling of lead, Doe Run competes
with Exide, which is also a customer of Doe Run, GNB Inc., RSR and several other
smaller industry participants.
PRODUCTION PROCESS
Doe Run produces refined lead metal from its primary processing facility, as
well as through its secondary recycling operations. Summarized below is a
description of the production process for primary and secondary lead production.
PRIMARY
The production of lead involves three major stages: mining, milling and
smelting.
MINING AND MILLING. Doe Run operates six production shafts and four
processing mills, including one mill presently maintained on a stand-by basis.
Doe Run's polymetallic ore bodies are mined using the "room and pillar" method.
With this method, ore is removed by blasting in a manner that leaves pillars to
support the rooms created by the removed ore. Mining involves drilling and
blasting limestone rock 500 to 1,000 feet below the earth's surface. The ore is
hauled by large, diesel-powered equipment before being hoisted above ground to
the mill. During fiscal 1997, Doe Run's mining operations produced in excess of
5.0 million tons of ore, containing average grades of 5.17% lead, 1.02% zinc and
0.27% copper.
The milling process includes further crushing and grinding, subsequent to
which the ore is treated in a flotation process to separate and concentrate the
minerals. The milling process recovers payable minerals from the ore. The
remaining materials, or tailings, are sent to settling ponds near the mill
sites, which are operated and maintained to ensure groundwater purity.
The final products are lead, zinc and copper concentrates that are shipped
off-site for smelting. The lead concentrates are shipped to the Herculaneum
smelter, while zinc and copper concentrates are marketed to other firms.
SMELTING. Located on the Mississippi River, south of St. Louis, the
Herculaneum smelter is the largest lead smelter in North America and the second
largest in the world. The smelter commenced operations in 1892 and has been in
continuous operation since that time, processing lead concentrates from Doe
Run's mining and milling operations. The smelter has a capacity of 250,000 tons
per year and utilizes a pyrometallurgical process to produce 99.99% refined
lead.
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The annual capacity of the smelter was recently upgraded to approximately
250,000 tons following the introduction of certain process control improvements
at the blast furnace and other plant modifications. Doe Run is in the process of
further increasing the capacity to approximately 270,000 tons per year. Doe Run
recently completed construction of a $7.2 million 550-foot tall emissions stack
that has allowed production capacity to increase at its primary smelter and
improved the facility's environmental performance.
Consistent with Doe Run's commitment to product quality and customer
service, in January 1998, Doe Run's Herculaneum facility obtained ISO 9002
certification, an internationally recognized quality system standard.
SECONDARY
Located in Boss, Missouri, Doe Run's recycling facility processes spent
lead-acid batteries and other lead-bearing materials. The facility is a Resource
Conservation Recovery Act approved site. The facility employs a sophisticated
monitoring system to prevent leaks from penetrating the surrounding environment.
In fiscal 1997, the facility reclaimed approximately 105,000 tons of refined
lead. Approximately 60% of this total results from tolling contracts, while 53%
of the total supply resulted from automobile batteries. Production capacity has
been increased to approximately 110,000 tons currently from the original
capacity of 60,000 tons with minimal capital investment.
At Doe Run's recycling facility, whole batteries are dismantled in a hammer
mill, and the components are recovered by a combination of screening and gravity
separation in water columns. Grids and posts are collected in a bin,
polypropylene is loaded into trucks and lead paste is separated for further
treatment. Grids and posts are melted in a rotary furnace to produce antimonial
lead alloys. The paste is processed in a reverberatory furnace to produce pure
lead and a high antimony slag which is further processed in a blast furnace to
recover additional lead, antimony and tin. The remaining slag is disposed of as
a non-hazardous material at a licensed facility. Management believes this
recycling facility generates two-thirds less waste than traditional battery
recycling facilities.
Consistent with Doe Run's commitment to product quality and customer
service, in April 1997, Doe Run's recycling facility obtained ISO 9002
certification.
MINING OPERATIONS
GEOLOGY
Doe Run's operations are centered around the ore-rich Viburnum Trend in
Southeastern Missouri. Approximately 500 million years ago, the Precambrian core
of the St. Francois Mountains formed a group of islands. The water around these
islands was shallow, and algae formed a reef around them. Over time, the islands
and the reef were covered by sea water and layers of sediment. These layers
eventually hardened into rock. Mineral-bearing fluids flowed through the rock,
depositing substantial amounts of lead, zinc and copper near and in the reef.
Portions of this reef and surrounding areas contain valuable mineral deposits
now known as the Viburnum Trend.
Doe Run's Viburnum Trend ore body is predominantly in the Bonne Terre
geologic formation, which is dolomitic limestone. The principal metallic
constituents are lead, zinc and copper, with trace amounts of silver. The ore
body being mined is an irregular mass of sulfide ores, principally lead, zinc
and copper sulfides, approximately 1,000 feet in depth and with varying widths
of up to 2,000 feet.
PRODUCTION SHAFTS
Doe Run's mining operations utilize six production shafts that form a
north-south line along approximately 40 miles of its Viburnum Trend ore body.
Three production shafts, Viburnum-28, Viburnum-29 and Viburnum-35, lie within a
five-mile radius east, north and south, respectively, of Viburnum,
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Missouri. The Buick, Brushy Creek and Fletcher production shafts are five miles,
sixteen miles and twenty miles, respectively, south of Viburnum, Missouri. All
of Doe Run's mining and milling facilities are accessible by state or county
roads or Company-owned haul roads. Products are shipped by truck over public
roads or by rail, with rail loading capabilities at two of Doe Run's mining
facilities.
Five of the production shafts, Viburnum-28, Viburnum-29, Viburnum-35, Brushy
Creek and Fletcher, were developed by predecessors of Doe Run. The sixth
production shaft, Buick, was developed and initially operated by a joint venture
of Homestake Mining Company and American Metal Climax (the "Homestake Joint
Venture") in the 1960s. In 1986, the Buick mining operations became part of Doe
Run's Predecessor.
Doe Run owns the property where the necessary surface structures for mining
and milling are located. The mineral rights are held either by fee title or
mineral leases with either private landowners or the federal government. There
are numerous mineral exploration leases, most of which are for exploration of
new mineral ore deposits. Four of the production leases are private leases, and
nine are government leases. The mineral leases with private landowners have no
expiration periods. The government leases are for a period of ten years and are
renewable. The related mining operations are conducted pursuant to four
development contracts, which also are for ten years subject to renewal. The
Viburnum, Fletcher, Buick and Brushy Creek development contracts consist of
four, two, one and two leases, respectively, which are due for renewal March 31,
2018, May 31, 2003, October 31, 2004 and May 31, 2003, respectively. Doe Run is
required to make royalty payments under the leases.
The production shafts are approximately 1,000 feet deep, with the exception
of Viburnum-28 and Viburnum-29 which are 800 feet and 500 feet deep,
respectively. All mining by Doe Run is performed underground on one level by the
room and pillar method. Blasting typically is accomplished by using an ammonium
nitrate fuel oil mix; however, dynamite is used under wet conditions. Front-end
loaders are used to load the blasted ore onto trucks that haul the ore from the
production face to the production shaft.
Doe Run maintains fleets of trucks, drilling equipment and loading
equipment, which generally are rubber-tired and diesel-powered, at each of its
production shafts. The equipment is of various ages, and much of the older
equipment has been upgraded or rebuilt. Doe Run employs a computerized
maintenance scheduling and tracking system that directs and monitors preventive
maintenance and repair activities of all equipment. In addition to maintaining
its existing equipment, Doe Run has recently acquired or leased new equipment
which enhances operating efficiencies, such as low-profile equipment capable of
operating in ten-foot openings rather than the standard twelve-foot openings and
drilling equipment for removal of pillars in excess of 40 feet in height.
EXPLORATION
Doe Run continues to explore actively within the Viburnum Trend and
historically has replaced a significant portion of annual production with new
reserves. A development project is on-going in the northern section of the
Viburnum-28 mining area with a view to opening additional ore reserves. In
addition, limited surface exploration drilling is being conducted in this area.
Doe Run is engaged in limited surface diamond drilling beyond the extreme north
and south ends of the Viburnum-29 mining area. At Viburnum-35, development
activity is focused on developing the eastern blanket ore body access, and in
the northern section of the mining area, following the main mineralization
trend. Doe Run has initiated a 4,500-foot drift from the northern end of the
Brushy Creek mining area to the southern extremity of the Buick mining area.
Surface exploration drilling continues in areas south of the present Brushy
Creek mining area. Exploration is being actively pursued south of the Fletcher
mining area, where mineralization is present but not yet delineated sufficiently
to constitute ore reserves. Doe Run also holds exploration tracts outside the
Viburnum Trend, which are being actively explored. In fiscal 1997, Doe Run spent
$6.2 million on exploration activities, including $2.6 million outside the
Viburnum Trend.
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FACILITIES
The following table sets forth the location of and certain other information
about Doe Run's facilities:
<TABLE>
<CAPTION>
SIZE
-------------------------
FACILITY LOCATION LAND FACILITY
- -------------------------------------------------------------- -------------------------- ----------- ------------
<S> <C> <C> <C>
(SQUARE
(ACRES) FEET)
MINING AND MILLING:
Viburnum (three production shafts)............................ Viburnum, Missouri 679 139,000
Buick......................................................... Boss, Missouri 82 144,000
Brushy Creek.................................................. Bunker, Missouri 400 92,000
Fletcher...................................................... Bunker, Missouri 162 88,000
SMELTING:
Herculaneum--Primary.......................................... Herculaneum, Missouri 235 365,000
Buick--Secondary.............................................. Boss, Missouri 193 200,000
FABRICATING:
Seafab(a)..................................................... Casa Grande, Arizona (b) 75,000
Seattle, Washington (b) 43,000
Vancouver, Washington (b) 15,000
Lone Star..................................................... Houston, Texas (b) 33,000
</TABLE>
- ------------------------
(a) FPI is currently relocating its remaining lead oxide manufacturing
operations from the Seattle facility to Vancouver, Washington. Upon
completion of the relocation, the Seattle facility will be closed.
(b) This facility is leased.
Doe Run operates four mills. The Viburnum mill is located on the eastern
edge of Viburnum, Missouri, and has the largest capacity of any mill in the area
with its 12,000 ton per day concentrator. Ores from Viburnum-28, Viburnum-29 and
Viburnum-35 are processed at the Viburnum mill. The Buick mill is located at the
site of the Buick production shaft, and its concentrator has a capacity of 7,200
tons per day. Ores from Buick and Brushy Creek are processed at the Buick mill.
The Fletcher mill is located at the site of the Fletcher production shaft, and
its concentrator has a capacity of 5,000 tons per day. The Fletcher mill
processes ores from the Fletcher production shaft. The Brushy Creek mill is
located at the site of the Brushy Creek production shaft, and its concentrator
has a capacity of 5,000 tons per day. At the Viburnum mill and Buick mill, lead
concentrates are placed in rail cars for transport to the Herculaneum smelter;
however, the Fletcher mill does not have rail access, and accordingly, lead
concentrates are first trucked to the Buick mill for transport by rail. Zinc and
copper concentrates are shipped from the mills to smelter customers by rail or
truck.
The Herculaneum primary lead smelter is located approximately 35 miles south
of St. Louis on the Mississippi River in Herculaneum, Missouri. The St. Joseph
Lead Company, a predecessor of Doe Run, built the first smelting operation on
the property in 1892. The last reconstruction of the smelter facility was in the
mid-1960's. Doe Run owns the smelter property.
The recycling facility, with its secondary smelter, located in Boss,
Missouri, was constructed in 1991, on the site of a former primary lead smelter.
The recycling facility utilizes some of the existing structures and equipment
from the primary lead smelter. The primary smelter was originally owned and
operated by the Homestake Joint Venture. This property was also acquired
initially by Doe Run's Predecessor.
In addition to ongoing capital investments, Doe Run has expended an average
of approximately $59.5 million per year on maintenance during fiscal 1995
through 1997. As a result of these expenditures and
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ongoing efforts, Doe Run believes that it operates and will continue to maintain
modern and efficient facilities.
ELECTRICAL POWER
The electric power source for all the facilities, except Viburnum-35, is
Union Electric Company, a public utility headquartered in St. Louis, Missouri.
Viburnum-35 obtains its electric power from Black River Co-op.
RESERVES
As of March 31, 1998, Doe Run's Viburnum Trend ore reserves consisted of
approximately 8.9 million proven tons and 55.2 million probable tons, containing
approximately 3.5 million tons of recoverable lead or approximately fourteen
years of production at current mining rates. The term "proven reserves" means
ore reserves for which (a) quantity is computed from dimensions revealed in
outcrops, trenches, workings or drill holes; grade and/or quality are computed
from the results of detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic character is so well
defined that size, shape, depth and mineral content of reserves are
well-established. The term "probable reserves" means ore reserves for which
quantity and grade and/or quality are computed from information similar to that
used for proven reserves, but the sites for inspection, sampling and measurement
are farther apart or otherwise less adequately spaced. The degree of assurance,
although lower than that for proven reserves, is high enough to assume
continuity between points of observation.
The following table sets forth the mineral inventory and mineable reserves
as of March 31, 1998 for Doe Run's Viburnum Trend ore body, which have been
audited by Pincock, Allen & Holt, Lakewood, Colorado, an international mineral
industry consulting firm. The term "mineral inventory" applies to the mineral
zone that has been defined by extensive sampling to define grade and tonnage and
can be classified as to various confidence categories, but excludes
consideration of recoverability or how the mineralization will be extracted. The
term "mineable reserves" refers to the portion of the mineralization that has
been defined as extractable for mining purposes, including provision for mining
dilution and losses that may occur during extraction, as containing ore of
sufficient grade, thickness and tonnage to be economically mineable under normal
circumstances, provided reserves are sufficient to justify development costs.
RESERVE AUDIT--MINEABLE RESERVES
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
GRADE
---------------------------------
TONS LEAD ZINC COPPER
------------- --------- --------- -----------
<S> <C> <C> <C> <C>
(IN
THOUSANDS)
Mineral Inventory........................................................ 121,960 4.76% 0.93% 0.23%
Mineable Reserves: Proven................................................ 8,916 8.50 1.72 0.40
Probable................................................ 55,150 4.97 1.05 0.24
------------- --------- --- ---
Total................................................ 64,066 5.46 1.20 0.28
------------- --------- --- ---
------------- --------- --- ---
</TABLE>
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MINING AND MILLING
The following table sets forth production information for Doe Run's mining
and milling operations for the three years ended October 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Wet tons (in thousands) of ore milled.................................................... 3,956 4,869 5,168
No. of operating days.................................................................... 252 253 252
Average tons (in thousands) per operating day............................................ 16 19 21
Average ore grade:
Lead................................................................................... 5.7% 5.2% 5.2%
Zinc................................................................................... 1.1% 1.1% 1.0%
Copper................................................................................. 0.3% 0.3% 0.3%
Lead concentrate:
Tons (in thousands).................................................................... 267 303 314
Average Lead grade..................................................................... 76% 77% 79%
Tons (in thousands) of lead metal contained in concentrate............................. 204 234 247
Zinc concentrate:
Tons (in thousands).................................................................... 54 69 70
Average Zinc grade..................................................................... 59% 59% 60%
Tons (in thousands) of zinc metal contained in concentrate............................. 32 40 42
Copper concentrate:
Tons (in thousands).................................................................... 25 31 27
Average Copper grade................................................................... 29% 28% 29%
Tons (in thousands) of copper metal contained in concentrate........................... 7 9 8
</TABLE>
RAW MATERIALS
Doe Run's operations utilize various raw materials, principally coke,
electricity, natural gas, propane and spent batteries. Doe Run believes that it
has adequate sources of these raw materials to meet its present production
needs.
ENVIRONMENTAL MATTERS
Doe Run is subject to numerous federal, state and local environmental laws
and regulations governing, among other things, air emissions, waste water
discharge, solid and hazardous waste treatment, and storage, disposal and
remediation of releases of hazardous materials. In common with much of the
mining industry, Doe Run's facilities are located on sites that have been used
for heavy industrial purposes for decades and may require remediation.
Environmental laws and regulations may become more stringent in the future which
could increase costs of compliance.
Doe Run is a defendant in several lawsuits alleging certain damages from
lead emission stemming from the operations at the Herculaneum smelter. The cases
brought in the Circuit Court, 23rd Judicial Circuit at Hillsboro, Jefferson
County, Missouri are: KARLA RICHARDSON, ET AL. V. THE DOE RUN RESOURCES CORP.,
ET AL., Case No. 195-5492-CC-J4, filed September 12, 1995; SARA DIXON, ET AL. V.
THE DOE RUN RESOURCES CORP., Case No. 195-5112 CC-J1, filed August 25, 1995;
RONALD HEATH, ET AL. V. THE DOE RUN RESOURCES CORP. ET AL., Case No.
195-6936-CC-J2, filed November 20, 1995; and ANDREA MASSA, ET AL. V. THE DOE RUN
RESOURCES, ET AL., Case No. 195-7290-CC-J3, filed December 8, 1995. The DIXON
and HEATH cases are class action lawsuits. In the DIXON case, the plaintiffs
have been certified as two separate classes. The first class consists of
property owners in a certain section of Herculaneum, alleging that property
values have been damaged due to the operations of the smelter. The second class
is children who lived in
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Herculaneum during a period of time when they were six months to six years old,
and the remedy sought is medical monitoring for the class. The HEATH case is
seeking certification of a class of property owners allegedly damaged by
operations from the smelter, but the potential size of the class is every home
in Herculaneum, Missouri. The RICHARDSON and MASSA cases are personal injury
actions by fourteen individuals collectively who allege damages from the effects
of lead poisoning due to operations at the smelter. Punitive damages also are
being sought in each of the RICHARDSON and MASSA cases. Doe Run is vigorously
defending all of these claims. Preliminary investigation and research by Doe Run
indicates property values in Herculaneum are consistent with those of
surrounding communities and have not been affected by the smelter. Finally,
based on rules for class certification, Doe Run believes class certification is
not appropriate. However, because the cases are in the early stages of
discovery, Doe Run is unable at this time to state with certainty the expected
outcome of and the final costs of any of these cases. Therefore, there can be no
assurance that these cases would not have a material adverse effect on the
results of operations, financial condition and liquidity of Doe Run.
Primary smelter slag produced by and stored at the Herculaneum smelter is
currently exempt from hazardous waste regulation under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"). However, the EPA recently
published a proposed rule which, if adopted, would require this slag to be
managed as a hazardous waste. Certain other waste materials, including baghouse
dust, generated at the smelter and now recycled in the smelter may also become
regulated as hazardous wastes. At this time, Doe Run cannot predict the final
outcome of the EPA's proposed rule. However, if the slag or other wastes at the
smelter are regulated as hazardous waste, Doe Run may be required to take
corrective action under RCRA at the smelter, as well as to adopt stricter
management practices for these wastes, which could have a material adverse
effect on the results of operations, financial condition and liquidity of Doe
Run. Disposal of the slag at the plant site as a hazardous waste could result in
potential capital and operating costs of approximately $1.0 million per year.
The area surrounding the Herculaneum smelter currently is out of compliance
with the ambient air quality standard for lead promulgated under the federal
Clean Air Act. Doe Run is working with regulators to develop a new three-year
compliance plan to begin after fiscal 1998 to implement identified control
measures. Under the Clean Air Act, there are no penalties for failure to meet
the ambient air quality standard. Nevertheless, penalties could be imposed
should Doe Run fail to meet the terms of the new three-year compliance plan. Doe
Run expects to make capital expenditures for additional control measures
totaling approximately $2.8 million for fiscal 1998 while the plan is developed
and anticipates a minimum total amount of $3.0 million for the three-year plan.
Doe Run has received notice that it is a potentially responsible party
("PRP") subject to liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), at the following
sites: four sites in St. Francois County, Missouri, including the Big River Mine
Tailings site, the Bonne Terre site, the Federal site and the National site; the
Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site in
Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; the
Block "P" site in Cascade County, Montana; and the Missouri Electric Works site
in Cape Girardeau, Missouri. There are four additional sites in St. Francois
County for which the EPA has indicated it will issue notice. These sites involve
historical operations of predecessors of Doe Run. CERCLA provides for strict
and, in certain circumstances, joint and several liability for response costs
and natural resource damages. Doe Run has a reserve as of October 31, 1997 of
$17.8 million for these sites, including the four additional sites in St.
Francois County, which Doe Run believes is adequate based on its investigations
to date. However, depending upon the types of remediation required and certain
other factors, costs at these sites, individually or collectively, could have a
material adverse effect on the results of operations, financial condition and
liquidity of Doe Run.
Doe Run signed a voluntary Administrative Order of Consent ("AOC") in 1994
with the EPA to remediate the Big River Mine Tailings Site. In February 1997,
Doe Run signed an AOC to perform an Engineering Evaluation/Cost Analysis on the
Bonne Terre Site. In addition to remediating the mine waste areas at these
sites, Doe Run has signed an AOC with the EPA to conduct a Remedial
Investigation/
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Feasibility Study ("RIFS") to assess potential off-site impacts of site
operations on and the need for remediation regarding groundwater, residential
soils, several creeks and a river. The RIFS is being conducted by a third party
and is approximately one-half complete, with completion expected within one
year. Doe Run believes the current reserves assigned to these sites are
adequate. However, should remediation goals or areas change, requiring
substantially increased measures, there can be no assurance that the reserves
would be adequate.
Doe Run has been advised by the EPA that it is considering taking certain
response actions at a mine site in Madison County, Missouri known as the LaMotte
Site. A predecessor of Doe Run was a former operator of the site. The EPA has
not decided whether any action will be taken, but held a meeting with Doe Run
and two other PRPs at the site on June 17, 1998 to discuss possible future
response actions. This site is substantially smaller than the sites in St.
Francois County where Doe Run has been named a PRP, and the potential issues are
less complex. At this time, based on this preliminary meeting and an inspection
of the site, management does not believe that any future action will result in a
material adverse impact to the results of operations, financial condition or
liquidity of Doe Run.
The Block "P" site in Montana was a polymetallic mine with a waste facility
located on U.S. Forest Service land. Studies of the tailings site, mine and
potential impacts on surface water have been requested by the State of Montana.
Doe Run has been sued for contribution for superfund remediation costs in
RSR CORPORATION AND QUEMETCO V. AVANTI, ET AL., filed on October 11, 1995 in the
United States District Court for the Southern District of Indiana. The site in
question, known as the Avanti Site located in Indianapolis, Indiana, was a
secondary smelter formerly owned by a subsidiary of Doe Run which was sold to
RSR in 1972. RSR has entered into an AOC with the EPA to remediate the Avanti
Site and claims that Doe Run should reimburse a portion of its costs. It is Doe
Run's position that RSR assumed the liabilities of Doe Run's former subsidiary
and, in any event, Doe Run has no liability for any acts of its former
subsidiary. In June 1996, the EPA issued an order under Section 106 of CERCLA to
Doe Run requesting it to make a good faith offer of participation to RSR.
Although Doe Run believes it has no liability to RSR, and there are other PRPs
named by the EPA and by RSR as defendants in the litigation, Doe Run made what
it considers to be a good faith participation offer to RSR of $112,500 which was
not accepted. The estimated cost of the selected remedy for the site is $7.0 to
10.0 million. Doe Run does not believe that resolution of this matter will have
a material adverse effect on the results of operations, financial condition and
liquidity of Doe Run.
Doe Run's recycling facility is subject to corrective action requirements
under RCRA, as a result of a storage permit for certain wastes issued in 1989.
This has required and may involve future remediation of solid waste management
units at the site. Although it is not possible to predict whether completed
actions will be approved or new actions required, Doe Run has reserves as of
October 31, 1997 of $1.9 million for future corrective actions and $2.6 million
for closure costs for the permitted storage area.
Under the Clean Air Act Amendments of 1990, Congress required the EPA to
study certain industry sectors to determine Maximum Achievable Control
Technology ("MACT") for each sector. A MACT rule has been adopted which could
require substantial capital and operating expenses for the recycling facility.
Doe Run challenged the rule by filing a petition for review with the United
States Court of Appeals, D.C. Circuit, on August 21, 1995. A settlement with the
EPA was reached and published in the Federal Register, which diminishes the need
for additional compliance costs. The EPA is also reviewing MACT for primary
smelters and in April 1998 proposed a rule to regulate air toxics from primary
lead smelters. In the event a MACT rule for primary smelters is adopted by the
EPA, the rule could increase compliance costs at the Herculaneum smelter by
increasing the costs of administrative reporting requirements. The proposed MACT
will also impose additional storage costs.
Doe Run's operating facilities have waste water discharge permits issued
under the federal Clean Water Act, as amended. It is expected that stricter
discharge limits than previously in effect will be included in permits now
subject to renewal. As a result, there will be additional treatment facilities
required with an
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anticipated total capital expenditure of $4.0 million over the next five years
to meet applicable permit requirements. There will be no appreciable increase in
operating costs.
Doe Run's mining and milling operations include five mine waste disposal
facilities that are subject to Missouri mine closure permit requirements. Doe
Run has begun certain closure requirements ahead of closure and is also accruing
for the cost of ultimate closure at a rate of approximately $.3 million per year
and has a reserve as of October 31, 1997 of $4.8 million.
Doe Run has a total reserve as of October 31, 1997 of $28.3 million for
CERCLA response costs, corrective action and closure costs as discussed above,
$17.8 million of which is for CERCLA response costs.
Doe Run expended on all environmental matters, which includes amounts
capitalized, amounts charged to operating expense and amounts charged to
reserves, approximately $17.5 million in fiscal 1997, and estimates such
expenditures will be $16.0 million and $14.5 million in fiscal 1998 and 1999,
respectively.
SAFETY
Throughout its operations, Doe Run strongly emphasizes providing employees a
safe working environment through extensive training of employees to ensure safe
work practices and worker knowledge of proper equipment operation. Doe Run's
mining and milling operations are regulated by MSHA and its smelting and
fabricating operations by OSHA.
Doe Run believes it has achieved safety results that are among the best in
its industry classifications. Each year since 1973, one of Doe Run's mining
units has been named either the safest or second safest underground metal mine
in the United States by MSHA. Doe Run has achieved the top award ten times in
the last 22 years. Doe Run's smelting operations have achieved a strong safety
record as well, with typical loss rates averaging approximately three to four
times better than industry averages in recent years.
EMPLOYEES
As of April 30, 1998, Doe Run had 343 active salaried employees and 985
active hourly employees. As of April 30, 1998, seven active hourly employees at
Seafab were represented by the Sheet Metal Workers' Union, Local No. 66 and
subject to a collective bargaining agreement providing for, among other things,
wages, work conditions and benefits. Management believes that its labor
relations are good.
BENEFIT PLANS
PENSION
Doe Run has defined benefit retirement plans for all salaried employees,
hourly employees in Viburnum and Boss and hourly employees in Herculaneum. An
investment committee establishes a funding policy for each plan and determines
the contributions to be made to each plan by Doe Run. An eligible salaried
employee who reaches age 65 receives a right to a nonforfeitable normal
retirement annuity equal to 1.5% of his final average salary multiplied by the
number of years of his service; eligible hourly employees in Southeast Missouri
and in Herculaneum receive a nonforfeitable pension equal to a monthly amount of
$25 for each year of service. Salaried employees and hourly employees at both
sites who work past the age of 70 1/2 will receive an in-service retirement
annuity (based on the same formula) and an in-service monthly pension,
respectively. The amount payable under each plan is reduced by the value of
benefits each employee received or is entitled to receive under another
retirement plan of Doe Run, under retirement plans of Doe Run's Predecessor and
certain companies acquired by Doe Run's Predecessor or under any other plan to
which Doe Run has contributed other than profit sharing or stock bonus plans.
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SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
Doe Run has a supplemental retirement plan for employees who participate in
Doe Run's pension plans but whose benefits are reduced by the Internal Revenue
Code (the "Code"). Under this plan, Doe Run pays eligible employees a benefit
equal to the difference between the retirement benefit the employee would have
received under the pension plan if the Code were disregarded and the retirement
benefit the employee actually is entitled to receive under the pension plan.
PROFIT SHARING PROGRAM
Eligible employees participate in a Profit Sharing Program under which Doe
Run pays 15% of pre-tax income, as defined in the Profit Sharing Program, into a
profit sharing pool at the conclusion of each fiscal year. If pre-tax income
does not exceed $10.0 million, the profit sharing pool will be distributed to
eligible employees in the form of a contribution to Doe Run's Savings Resource
Plan (the "401(k) Plan"). If pre-tax income exceeds $10.0 million, the first
$1.5 million of the pool will be distributed as a contribution to the 401(k)
Plan, and the remaining amount will be distributed in two phases to eligible
employees in the form of cash payments. The first phase is a partial
distribution based on a preliminary pool calculated from Doe Run's unaudited
fiscal year-end financial information, and the second phase is a distribution of
any remainder based on a final pool calculated from Doe Run's final audited
fiscal year-end financial information. Allocation of the cash payments shall be
on the basis of each eligible employee's total fiscal year base pay as a
percentage of all eligible employees' total fiscal year base pay. Every employee
on the payroll of Doe Run is eligible to participate in any cash distribution;
however, participation in a distribution to the 401(k) Plan shall be in
accordance with the 401(k) Plan.
GAINSHARING PLAN
Doe Run's employees participate in a gainsharing plan under which Doe Run
pays a bonus based on performance in key result areas. On a monthly and yearly
basis, Doe Run determines an improvement factor based on performance in areas
such as production (volumes, costs and efficiencies), profit margins, safety and
environmental, as well as other key operating areas. Each individual
participant's profit share is determined by multiplying this factor by a salary
component.
PENDING LITIGATION
Doe Run is involved in various claims and lawsuits incidental to the
ordinary course of its business that are not expected to have a material adverse
effect on the results of operations and financial condition of Doe Run.
For a description of pending litigation related to environmental matters,
see "--Environmental Matters."
DOE RUN PERU
PRODUCTS
Doe Run Peru's principal products include refined copper, silver, zinc, lead
and gold. In addition, Doe Run Peru produces a variety of by-products, including
bismuth, indium, tellurium, antimony, cadmium,
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selenium, sulfuric acid, zinc-silver concentrate, zinc sulfate, copper sulfate,
arsenic trioxide and others. The following table sets forth net sales for each
of Doe Run Peru's principal products.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
YEAR ENDED DECEMBER 31, OCTOBER 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Copper............................................... $ 129,007 $ 186,905 $ 148,426 $ 155,641 $ 148,898
Silver............................................... 97,311 100,853 110,967 114,544 98,006
Zinc................................................. 62,507 72,599 73,753 74,855 83,521
Lead................................................. 45,259 58,999 76,353 74,648 65,385
Gold Bullion......................................... 21,383 19,619 20,361 21,084 14,605
By-Products.......................................... 11,590 11,954 26,937 19,869 21,469
---------- ---------- ---------- ---------- ----------
Total.......................................... $ 367,057 $ 450,929 $ 456,797 $ 460,641 $ 431,884
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
COPPER
Doe Run Peru produces refined copper cathodes with a purity level of
99.975%. Copper sales accounted for $148.9 million of Doe Run Peru's net sales
for the twelve months ended October 31, 1997. Peru represented the largest
market for Doe Run Peru's copper shipments in 1997, which accounted for 30% of
total shipments, followed by the United States and Hong Kong which represented
27% and 16% of total shipments, respectively. In 1997, approximately 38% of the
copper cathode production was further processed at Doe Run Peru's adjacent
fabricating facility for the production of copper wirebars and wirerods. The
largest market for refined copper, accounting for over 50% of western world
copper consumption, is wirerod, which is used almost exclusively in the
production of insulated wire and cable. Other important markets for refined
copper include copper sheet and strip and tube used in the construction and
transportation industries.
As part of Doe Run Peru's Capital Investment Program, investments are
planned through fiscal 1999 which will improve the cathode quality from standard
grade to LME Grade A. In addition, such program will increase the capacity of
the copper refinery to match copper anode output from the smelter. Doe Run Peru
currently produces standard copper.
SILVER
Refined silver produced by Doe Run Peru is good delivery 99.996% pure as
registered by the LBMA and COMEX. Silver sales accounted for $98.0 million of
net sales for the twelve months ended October 31, 1997. Doe Run Peru also
produces small amounts of sterling silver directed to the domestic jewelry
market. The United States, accounting for 38% of total shipments, represented
the largest market for Doe Run Peru's silver, followed by Brazil and Great
Britain at 23% and 16% of total shipments, respectively. The photographic film
industry accounts for one-third of western world silver demand, and jewelry and
silverware also account for one-third. Other important uses for silver include
electronics and silver-minted coins.
ZINC
Doe Run Peru produces LME-registered refined zinc with a purity level of
99.996%. Zinc sales accounted for $83.5 million of Doe Run Peru's net sales for
the twelve months ended October 31, 1997. During 1997, Peru represented the
largest single market for Doe Run Peru's zinc output, accounting for 31% of
total shipments, as a result of strong local demand from export-oriented
industries with applications for steel coatings, specialized alloys and dry
battery plates. The United States represented 25% of total shipments that were
primarily exported to manufacturers of coatings, paints and protectants, casters
of auto parts and toy manufacturers.
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LEAD
Doe Run Peru produces LME-registered 99.997% pure refined lead ingots and
blocks. Lead sales accounted for $65.4 million of net sales for the twelve
months ended October 31, 1997. Doe Run Peru also provides antimonial lead alloys
to meet the specialty demands of certain customers. The three largest markets
for Doe Run Peru's lead production in 1997 were Taiwan, accounting for 14% of
total shipments, followed by Brazil and Korea which each represented 10% of
total shipments. The largest market for refined lead remains lead-acid batteries
used in automobiles, forklifts, golf carts, marine applications and stationary
applications for backup power sources. Other markets for refined lead include
lead compounds used in the manufacture of computer and television screens and
rolled and extruded lead products for radiation shielding and roofing materials.
With the additional lead production from the operations of Doe Run Peru, Doe
Run is the second largest primary lead producer in the western world. Doe Run
Peru and Doe Run intend to work together to take advantage of opportunities to
optimize lead marketing efforts.
GOLD BULLION
Doe Run Peru produces 99.8% pure gold bullion bars exported primarily to
Europe and the United States. Gold bullion sales accounted for $14.6 million of
net sales for the twelve months ended October 31, 1997. During 1997, the United
States represented 44% of total shipments, followed by Germany and Peru,
accounting for 40% and 16% of total shipments, respectively.
BY-PRODUCTS
Principal by-products produced by Doe Run Peru include bismuth, indium,
tellurium, antimony and cadmium. Sales of these by-products totaled $21.5
million for the twelve months ended October 31, 1997. Bismuth, the largest
by-product revenue generator, is exported primarily to Europe. Bismuth has a
wide variety of uses including pharmaceutical compounds, chemicals, low melting
alloys and pigments. Pharmaceutical uses include the treatment of stomach ulcers
and over-the-counter products.
Indium is consumed primarily in the flat-panel display industry, as well as
in aerospace products, architectural glass, solar energy and lighting
applications. Indium is a difficult metal to extract because of its considerable
chemical affinity to other elements. Japan is estimated to account for more than
50% of the world indium market for use in the thin-film industry.
Tellurium is used to improve the machining quality of copper and stainless
steel products and to color glass and ceramics. Other industrial uses include
thermoelectric devices, rubber compounds and blasting caps.
Antimony is used with lead in alloys for battery production in flame
retardants, fabrics, plastics and ammunition. Cadmium is used primarily for
battery production, as well as in pigments, coating and plating of iron, plastic
and synthetic products and alloys.
MARKETING AND SALES
Doe Run Peru's marketing and sales strategy is to maximize the net realized
selling prices for all its products. In addition, Doe Run Peru is shifting the
focus of its marketing efforts to end users of its products from international
trading companies. In furtherance of this strategy, Doe Run Peru plans to
provide customers flexible quantities and deliveries, additional metal alloy
choices and technical assistance.
Doe Run Peru generally exports metal on a delivered basis with freight
charges included. In many of the foreign markets, sales agents are utilized to
ensure smooth delivery and to help further develop the local market. Doe Run
Peru's location in the central Andes of Peru and its proximity to the Callao
port position it favorably for shipment to major world markets and to the
emerging Latin American market.
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Metal sales within Peru are sold both on a delivered and "free on board" basis
from facilities in Callao. Doe Run Peru plans to market additional metal into
the Latin American market in order to take advantage of lower freight costs and
strong metal premiums.
Doe Run currently is actively involved in several industry associations
promoting and developing lead consumption. Through Doe Run Peru, Doe Run plans
to gain membership and or to continue membership in other metal industry
associations.
CAPITAL INVESTMENT PROGRAM
Doe Run Peru will undertake over a ten-year period the Capital Investment
Program of approximately $300.0 million to enhance various elements of Doe Run
Peru's operations. The objective of the Capital Investment Program is to
increase net sales and EBITDA by improving product quality, increasing
production capacity and reducing unit costs. In addition, through the
environmental expenditures described below, Doe Run Peru will endeavor to
achieve compliance with environmental regulations in Peru. See "--Environmental
Matters."
Management believes that cash flow from operations in addition to
availability under the New Doe Run Peru Revolving Credit Facility will be
sufficient to fund the Capital Investment Program. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." The following
summarizes the Capital Investment Program including expenditures planned for
each metal circuit.
COPPER CIRCUIT
Doe Run Peru has identified the copper circuit as the most important of the
strategic initiatives to improve its operations, requiring total expenditures,
including sustaining capital requirements, of approximately $60.0 million
through fiscal 2007. Current projects are designed to increase capacity and
reduce energy costs through oxygen injection into the furnaces. These projects
will be supplemented in the near term with investments to replace production of
copper blister with higher quality fire-refined copper anodes prior to the
electrolytic refining process. With the introduction of anode casting, Doe Run
Peru anticipates that the refined copper produced will meet the LME-registered
quality standards (commonly known as Grade A) as opposed to the standard grade
presently produced. As of March 31, 1998, the price for Grade A copper was $.79
per pound, with the price for standard grade copper at a discount to the Grade A
price. Doe Run Peru also believes that, as a result of these projects, refined
copper production capacity will increase from approximately 73,000 tons to
88,000 tons per year by the year 2000, thereby more closely matching refinery
capacity with smelter output. The production of Grade A copper will allow Doe
Run Peru to sell to a wider range of customers. Moreover, since the prices
realized for Grade A copper are greater than those realized for standard grade
copper, Doe Run Peru will be able to realize greater net sales.
LEAD CIRCUIT
Utilizing Doe Run's extensive experience in lead operations, Doe Run Peru
has identified several opportunities to introduce Doe Run operating procedures
to increase production capacity and reduce costs. Specific projects include
improving oxygen availability to the sinter plant and blast furnaces, enlarging
one blast furnace and refurbishing the refinery cell blocks. The combination of
these capital projects are expected to increase lead production capacity from
approximately 110,000 tons to 127,000 tons per year by the year 2000. Doe Run
Peru anticipates that the cost of the lead circuit improvements, including
sustaining capital requirements, will be approximately $20.0 million through
fiscal 2007.
ZINC CIRCUIT
Doe Run Peru anticipates investing approximately $18.0 million, including
sustaining capital requirements, in the zinc circuit through fiscal 2007,
primarily to improve metallurgical recoveries and to retrofit
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an existing sulfuric acid plant. The installation of an additional purification
stage prior to electrowinning will improve the removal of copper, cadmium,
cobalt and other impurities, thereby increasing overall zinc recoveries,
allowing greater feed flexibility and reducing concentrate purchases and unit
operating costs. Presently, Doe Run Peru's zinc production capacity is
approximately 77,000 tons which will remain relatively stable in the forseeable
future.
ENVIRONMENTAL IMPROVEMENTS
As part of the Acquisition, Doe Run Peru entered certain agreements with the
MEM. Under these agreements, Doe Run Peru is required to make the Investment
Commitment that includes expenditures to comply with environmental regulations
in Peru, including those governing the treatment, handling and disposal of solid
wastes, liquid effluent discharges and gaseous emissions. Principal projects
related to environmental matters include building sulfuric acid plants for the
metal circuits, new converter and roaster technology for the copper circuit,
replacement of the roaster equipment for the zinc circuit, water and sewage
treatment facilities, and slag and slimes handling equipment and disposal
facilities. Doe Run Peru estimates that expenditures related to environmental
matters will be approximately $195.0 million through fiscal 2007. See
"--Environmental Matters."
OTHER
Doe Run Peru will invest approximately $7.0 million over the ten-year period
for various other projects, including phone and computer system upgrades,
expenditures related to employee health and safety, and other miscellaneous
capital expenditures.
CUSTOMERS
Doe Run Peru had approximately 421 customers in 1997, of which the five
largest accounted for approximately 28% of its net sales. Doe Run Peru's
customers include a wide variety of industrial and international trading
companies with the two largest, Engelhard Corporation and Tecnofil S.A.,
accounting for approximately 9.8% and 5.1%, respectively, of Doe Run Peru's 1997
net sales. Approximately 78% of total shipments and approximately 79% of net
sales were exported outside of Peru, with Latin American countries representing
the largest destination in 1997 with approximately 47% of net sales, followed by
North America, Asia and Europe with 26%, 18% and 9% of net sales, respectively.
Approximately 80% in 1997 of Doe Run Peru's metal sales were pursuant to
contractual agreements, typically one year or less. Such contracts generally set
forth minimum volumes and pricing mechanisms. Due Run Peru conducts
substantially all of its business with its customers in U.S. dollars.
COMPETITION
Doe Run Peru is among the largest metal processing companies in the world
with the unique combination of base metal smelters, refineries and by-product
circuits capable of processing complex concentrates into base and precious
metals and various by-products to international quality standards. Only three
other facilities in the western world, Union Miniere S.A.'s facility in Hoboken,
Belgium, Boliden Limited's facility in Ronnskar, Sweden and The Goldfield
Corporation's facility in Tsumeb, Namibia, have the capability to treat lead and
copper concentrates containing high antimony, arsenic, bismuth and precious
metal values in addition to a variety of residues. Unlike Doe Run Peru, none of
the facilities listed above have a dedicated zinc production circuit. Given Doe
Run Peru's access to complex concentrates in Peru and neighboring Latin American
countries, Doe Run Peru believes it operates at a geographic competitive
advantage to comparable facilities located farther from their sources of complex
concentrates.
Although there are other facilities throughout the world that process
complex concentrates, those operations do not have Doe Run Peru's capability to
process complex concentrates which contain high
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levels of impurities, such as bismuth, arsenic and cadmium. Such facilities
include Industrias Penoles S.A.'s facility in Torreon, Mexico and Dowa Mining
Co. Ltd.'s facility in Kosaka, Japan.
RAW MATERIALS
Doe Run Peru's primary raw material is concentrate feedstock. In addition to
concentrate feedstock, Doe Run Peru utilizes various raw materials, principally
water, electricity, oxygen, coal and fluxes.
CONCENTRATE FEEDSTOCK
Doe Run Peru is located in the central Andes of Peru, which is among the
most productive mining regions in the world. Peruvian concentrates typically
contain high levels of precious metals in addition to impurities such as
arsenic, antimony, bismuth and others, that increase the complexity of the
metallurgical processes required to separate impurities from base and precious
metals. Doe Run Peru's operations were designed and customized since its
construction in 1922 to handle the characteristics of raw materials available in
the region.
COPPER. During 1997, approximately 84% of the copper concentrates processed
at Doe Run Peru were supplied from the Peruvian domestic market, with
Centromin's mines accounting for a substantial portion of the total feedstock.
Contained copper production by Peruvian mines totaled approximately 529,000 tons
in 1996 and increased to approximately 579,000 tons in 1997. The complexity of
some concentrates from the domestic market result in favorable concentrate
pricing terms for Doe Run Peru and increased revenues from the recovery and
commercialization of by-products. In addition, due to its location close to the
mines of Peru, the smelter is able to save substantially on concentrate freight
charges. These savings typically are shared between Doe Run Peru and the
concentrate suppliers. Doe Run Peru obtains the balance of its copper
concentrate requirements from neighboring Latin American countries. Such
concentrates share similar metallurgical characteristics as Peruvian
concentrates. Imported concentrates reflect international market terms and are
purchased to produce the appropriate concentrate blend for the smelter.
ZINC. During 1997, all of the zinc concentrates processed at Doe Run Peru
were supplied from the Peruvian domestic market, with Centromin's mines
accounting for approximately 94% of the total feedstock. The disadvantage of
consuming concentrates from certain of the Centromin mines is the high level of
contained iron. Zinc ferrites form in the leaching phase in an amount
proportional to the iron content in the feedstock. These ferrites capture
approximately 10% to 13% of the zinc contained in the concentrate feedstock and
effectively reduce the metallurgical recovery of the circuit. As a private
enterprise, Doe Run Peru will not face any limitations with respect to sources
of concentrate and, thus, will have an opportunity to obtain concentrates with
reduced iron content.
Zinc metal contained in concentrates produced by Peruvian mines was
approximately 804,000 tons in 1996 and increased substantially to approximately
961,000 tons in 1997. Doe Run Peru requires approximately 70,000 tons of zinc
metal contained in concentrates per year to maximize production capacity. With
present mine production, Doe Run Peru believes that sufficient concentrates will
be available to meet its requirements for the foreseeable future.
LEAD. During 1997, approximately 99% of the lead concentrates processed at
Doe Run Peru were supplied from the Peruvian domestic market, with Centromin's
mines accounting for approximately half of the total feedstock. Contained lead
metal production by Peruvian mines totaled approximately 273,000 tons in 1996
and increased to approximately 287,000 tons in 1997. Since Doe Run Peru has no
local Peruvian competitor in lead smelting, all of the concentrates, the total
of which far exceeds Doe Run Peru's requirements, are available to Doe Run Peru.
A majority of the lead concentrates purchased by Doe Run Peru contain
certain impurity levels that result in lower concentrate prices due to penalties
imposed on such concentrates. In addition, such
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concentrates increase revenues for Doe Run Peru due to the recovery and
marketing of silver and by-products.
WATER
Water is utilized throughout Doe Run Peru's operations, particularly for:
(i) slag granulation in copper and lead processes; (ii) cooling systems of the
sulfuric acid plant, lead blast furnaces, compressors and rectifiers; (iii)
steam generation; and (iv) hydrometallurgical and electrometallurgical
processes. Water for the Doe Run Peru facility is obtained from three main
sources: the Mantaro River; the Tishgo River; and the Cuchimachay Spring. Doe
Run Peru believes these three sources, in addition to numerous adjacent springs
and wells, provide adequate water supply for the facility.
ELECTRICITY
The Doe Run Peru facility receives electric power from Centromin's
Electroandes hydroelectric division and consumes approximately 63 megawatts
ongoing load, which represents approximately one-third of the division's
capacity. Doe Run Peru recently signed a ten-year power supply contract with
Centromin and Electroandes. Doe Run Peru believes that the contract provides
sufficient power to Doe Run Peru over the life of the contract at satisfactory
long-term rates. Such rates, however, are above what Doe Run Peru's Predecessor
historically paid.
OTHER
Doe Run Peru installed an oxygen plant in 1994 that, with a capacity of 353
tons per day. The oxygen plant supplies oxygen for the oxy-fuel burners of the
reverberatory furnace of the copper smelter and for the blast furnaces of the
lead smelter. Coal is imported from Colombia to produce metallurgic coke for the
lead circuit blast furnaces. Fluxes consumed in the smelting process are
supplied from Doe Run Peru's limestone and silica deposits adjacent to the
facility. Both coal and fluxes are transported to the smelter by rail.
PRODUCTION PROCESS
Doe Run Peru utilizes conventional pyrometallurgical processes for smelting
or roasting concentrates followed by hydrometallurgical refining processes.
Summarized below is a description of the production process for copper, silver
and gold, zinc and lead.
COPPER CIRCUIT
The copper circuit consists of the smelter, responsible for processing
copper concentrates into a 98.6% pure copper blister, and the refinery,
responsible for upgrading copper blister into 99.975% pure refined copper metal.
Current estimated annual capacity at the refinery is 73,000 tons. Production of
refined copper reached approximately 71,000 tons for 1997. Doe Run Peru's
overall metallurgical recovery of copper is approximately 96.5%.
Copper concentrates are mixed with fluxes and inter-plant transfers in the
preparation plant prior to entering the roasting section. The roasters produce a
calcine from the copper concentrates that is transported to the oxygen-fuel
reverberatory furnace. The reverberatory furnace produces two products: a heavy
matte containing the recoverable metals and a slag waste-product that is
granulated in water and transported to a slag disposal area. The hot matte is
then ladled to the converter section where a two step process converts the matte
into 98.6% copper blister that is directly cast into 584 pound blister anodes.
The copper refinery is located three kilometers west of the smelter where
blister anodes are received from the smelter by rail. The refinery utilizes an
electrolytic process whereby the copper in the blister anode is transferred to a
cathode starting sheet. As the copper anode dissolves, gold, silver, and other
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impurities are deposited at the bottom of the cells as an insoluble slime that
is collected at the end of the anode cycle. Copper cathodes, which are 99.975%
refined copper metal, are collected from the tankhouse every seven days.
ZINC CIRCUIT
The zinc circuit employs conventional roasting, leaching and electrowinning
technologies. During 1997, the circuit produced approximately 75,000 tons of
refined zinc. Current estimated capacity of the zinc refinery is approximately
77,200 tons of refined zinc with an overall metallurgical recovery of 88%. The
roasting plant produces a calcine that is processed continuously in a
hydrometallurgical leaching and purification section that dissolves the zinc
oxides and sulfates contained in the calcine. The zinc sulfate solution is
separated from solid residues by thickening and filtering processes. After
purification, the solution is pumped to the electrowinning section. The zinc
refinery is adjacent to the roaster and utilizes an electrolytic process whereby
zinc from the sulfate solution is transferred to a cathode starting sheet. Solid
residues from the leaching process are processed in a flotation plant to produce
a zinc-silver concentrate sold to international markets. Certain remaining
unprocessed zinc ferrites are sent to a disposal pond. Zinc cathodes, which are
99.996% refined zinc metal, are collected from the tankhouse every sixteen
hours.
LEAD CIRCUIT
The lead circuit consists of the smelter, responsible for processing lead
concentrates into 96% pure lead bullion, and the refinery, responsible for
upgrading lead bullion into 99.997% pure refined lead metal. Current estimated
annual capacity of the lead refinery is approximately 110,000 tons of lead
metal. Production of refined lead metal reached approximately 108,000 tons for
1997. Doe Run Peru's overall metallurgical recovery of lead is approximately
95%.
Lead concentrates are mixed with inter-plant transfers and other lead
bearing materials in the preparation plant prior to entering the sinter plant.
The sinter plant utilizes an up-draft sinter machine that removes a majority of
the sulfur from the feedstock. Following sintering, the processed material is
blended with coke and fed to the blast furnace to produce two products: a heavy
bullion containing the recoverable metals and a slag waste-product that is
granulated in water and transported to a slag disposal area. The hot bullion is
then transferred to the dross plant for further processing prior to casting into
lead bullion anodes.
The lead refinery is located three kilometers west of the smelter where
bullion anodes are received from the smelter by rail. The refinery utilizes an
electrolytic process whereby the lead in the blister anode is transferred to a
cathode starting sheet. As the lead anode dissolves, gold, silver, and other
impurities are deposited at the bottom of the cells as an insoluble slime that
is collected at the end of the anode cycle. Lead cathodes, which are 99.995%
refined lead metal, are collected from the tankhouse every four days.
ANODE BY-PRODUCTS CIRCUIT AND SILVER REFINING
The anode residue plant treats insoluble slimes remaining from the copper
and lead refining processes. The plant processes these slimes to recover
bismuth, selenium, tellurium and a metal ore that is further upgraded in the
silver refinery. The estimated capacity of the silver refinery is approximately
32.2 million ounces per year of refined silver and approximately 76,000 ounces
of gold bullion. During 1997, the silver refinery produced approximately 22.4
million ounces of silver and approximately 44,000 ounces of gold bullion. In
fiscal 1999, the capacity of the silver refinery is expected to increase to
approximately 37.0 million ounces per year.
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FACILITIES
Doe Run Peru's operations are located in the town of La Oroya, located
approximately 110 miles from the Peruvian capital of Lima, approximately 75
miles from the Cerro de Pasco mine and approximately 78 miles from the city of
Huancayo, at an altitude of approximately 2.3 miles above sea level. The complex
is linked to these locations by highway and railroad service. The principal
operations reside in two areas within La Oroya. The copper smelter, lead smelter
and zinc refinery, in addition to the antimony plant, arsenic plant, coke plant,
cadmium plant and maintenance shops are located on the southern bank of the
Mantaro River directly behind the central offices (the "Smelter Location"). The
copper refinery, lead refinery, copper fabricating plant and several storage
yards are located three kilometers west of the smelter facilities at Huaymanta
(the "Refinery Location").
The following table sets forth the total land area and facility size of Doe
Run Peru's facilities:
<TABLE>
<CAPTION>
SIZE
-------------------------
<S> <C> <C>
FACILITY LAND FACILITY
- ---------------------------------------------------------------------- ----------- ------------
<CAPTION>
(SQUARE
(ACRES) FEET)
<S> <C> <C>
Copper Smelter........................................................ 3.5 302,000
Lead Smelter.......................................................... 3.1 262,000
Copper and Lead Refinery.............................................. 6.9 311,000
Zinc Refinery......................................................... 4.3 258,000
Solid Disposal Area................................................... 110.3 --
Other Areas........................................................... 11.4 554,000
</TABLE>
Operations at the Smelter Location began in 1922 under the Cerro de Pasco
Copper Corporation, and the Smelter Location continues to utilize many of the
original structures. Additions to the Smelter Location include a new lead sinter
plant installed in 1983 and the oxygen plant completed in 1994. Operations at
the Refinery Location also began in 1922, and many of the existing structures
remain in use. Other major additions to the Refinery Area include the wirerod
plant constructed in 1966 and additional refinery cell blocks added in the
mid-1970s.
SAFETY
Doe Run Peru's safety performance has improved significantly since 1990, and
with further assistance and direction provided by Doe Run, Doe Run Peru will
continue to maintain a high regard for safety and hygiene. Recently, Peru's
Ministerio de Trabajo y Promocion Social (the Industrial Safety Department) has
been enforcing measures to minimize any work-related illnesses or accidents
through continuous inspections to ensure compliance with numerous safety
standards.
EMPLOYEES
As of April 30, 1998, Doe Run Peru employed 861 active salaried employees
and 2,054 active hourly employees. In addition, Doe Run Peru employed 984 people
on a contract basis for production work-orders, maintenance and other tasks.
There are two unions for hourly employees and two unions for salaried
employees. The principal union representing 90.4% of the hourly employees is the
Sindicato de Trabajadores Metalurgicos La Oroya (La Oroya Metallurgic Workers
Union). The Sindicato de Trabajadores Ferroviarios La Oroya (La Oroya Railway
Workers Union) represents 3.8% of the hourly workers, and the remainder of the
hourly workers (5.8%) are not affiliated with either union. On July 26, 1998,
Doe Run Peru entered into five-year labor agreements, effective through July 25,
2003.
The salaried employees are represented by the Sindicato de Empleados
Yauli-La Oroya (Yauli-La Oroya Employees Union), representing 64.9% of the
salaried employees and by the Sindicato de Empleados Ferroviarios La Oroya (La
Oroya Railway Employees Union), representing 9.0% of salaried
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employees. The remainder of salaried employees, 26.1%, are not affiliated with
either union. The current salaried employees' labor agreement continues until
December 31, 2002. Management believes that Doe Run Peru's labor relations have
been good as evidenced by three consecutive years of labor harmony without
strikes and likewise three consecutive years of solution without conflict of the
labor agreements with workers and employees.
BENEFIT PLANS
The benefit plan for Doe Run Peru is centered around a severance payment, a
social benefit directed by the Compensacion por Tiempo de Servicios, a Peruvian
labor legislative decree. This benefit includes a money reserve established by
the employer and deposited in a banking entity for the benefit of the worker
when the employment relationship ends. Deposits are made twice a year and equal
one month's salary. Other benefits include a social security system operated by
the Peruvian government which provides benefits for both health and pensions. In
addition to social security, Doe Run Peru maintains a private system of private
pension, the cost of which is paid by the employee through paycheck deductions.
ENVIRONMENTAL MATTERS
LEGAL FRAMEWORK
Modern environmental legislation has been introduced only in the last decade
in Peru. For mining and metallurgical activities, the MEM is the principal
regulatory authority. The MEM has issued "maximum permissible limits" for liquid
effluent, air emissions and ambient air quality. In addition, the Consejo
Nacional del Ambiente (National Environmental Council) coordinates government
regulations and policies. The Direccion General de Salud Ambiental (Directorate
General of Environmental Health) (the "DIGESA"), a division of the Ministerio de
Salud (Ministry of Health), issues waste water discharge permits based on
standards governing receiving water quality. Peruvian law requires all new
mining or metallurgical operations, and existing operations that are undergoing
an expansion of over 50% of installed capacity, to submit to the MEM an Estudio
de Impacto Ambiental (Environmental Impact Study).
As to mining and metallurgical operations in existence prior to 1994,
concession holders (i.e. owner/ operators) were required to submit to the MEM an
Evaluacion Ambiental Preliminar (Preliminary Environmental Assessment) (the
"EVAP") that identified environmental impacts and twelve months of baseline
monitoring. Based on the results of the EVAP, the operator was to submit to the
MEM a PAMA that consisted of an environmental impact analysis, monitoring plan,
and data, mitigation measures and closure plan. The PAMA also sets forth the
actions and corresponding annual investments the concession holder agrees to
undertake in order to achieve compliance with the maximum applicable limits
prior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru's
operations, and five years for any other type of mining or metallurgical
operation). The required amount of annual investment must not be less than one
percent of annual sales. Once approved, the PAMA functions as the equivalent of
an operating permit with which the operator must comply. After expiration of the
PAMA, the operator must comply with all applicable standards and requirements.
Mining, metallurgical and processing operators must present annual sworn
statements to the MEM that describe their operations and resultant emissions. In
addition, Peruvian environmental law allows operators to enter into a Contrato
de Estabilidad Administrativa Ambiental (Contract for Administrative
Environmental Stabilization) ("Environmental Stabilization Agreement") in order
to provide some potential limit to the applicability of new laws during the life
of the PAMA.
PAMA AND ENVIRONMENTAL STABILIZATION AGREEMENT
The initial PAMA for Doe Run Peru's Predecessor was submitted by Centromin
and approved by the MEM on January 13, 1996. The PAMA was modified in connection
with the Acquisition to reflect a
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reallocation of environmental responsibilities between Centromin and Doe Run
Peru, and corresponding revisions were made to the investment schedule. The MEM
approved separate PAMAs for Centromin and Doe Run Peru and an Environmental
Stabilization Agreement for Doe Run Peru. Centromin has committed under its PAMA
to implement the following projects over the next nine years, estimated to cost
approximately $24 million: (i) remediation of areas impacted by emissions during
its period of operations; (ii) closure of the lead and copper slag deposits (at
Huanchan); (iii) improved management of the Huanchan deposit (E.G. storm water
diversion and slope stability); and (iv) closure of the arsenic trioxide
deposits (at Malpaso and Vado).
Doe Run Peru has committed under its PAMA to implement the following
projects over the next nine years, estimated in the PAMA to cost approximately
$107.5 million: (i) new sulfuric acid plants; (ii) elimination of fugitive gases
from the coke plant; (iii) use of oxygenated gases in the anodic residue plant;
(iv) water treatment plant for the copper refinery; (v) a recirculation system
for cooling waters at the smelter; (vi) management and disposal of acidic
solutions at the silver refinery; (vii) industrial waste water treatment plant
for the smelter and refinery; (viii) containment dam for the lead muds near the
zileret plant; (ix) granulation process water at the lead smelter; (x) anode
washing system at the zinc refinery; (xi) management and disposal of lead and
copper slag wastes; and (xii) domestic waste water treatment and domestic waste
disposal. The actual current estimate for the environmental projects and related
process changes for Doe Run Peru is $195.0 million.
Doe Run Peru's operations historically and currently exceed some of the
applicable MEM maximum permissible limits pertaining to air emissions, ambient
air quality and waste water effluent quality. The PAMA projects, which are more
fully discussed below, have been designed to achieve compliance with such
requirements prior to the expiration of the PAMA on January 13, 2007. No
assurance can be given that implementation of the PAMA projects is feasible or
that their implementation will achieve compliance with the applicable legal
requirements by the end of the PAMA period. Doe Run Peru has advised the MEM
that it intends to seek changes in certain PAMA projects that it believes will
more effectively achieve compliance. However, there can be no assurance that the
MEM will approve proposed changes to the PAMA or that implementation of the
changes will not increase the cost of compliance. Further, there can be no
assurance that the Peruvian government will not in the future require compliance
with additional environmental obligations that could adversely affect Doe Run
Peru's business, financial condition or results of operations. Under the
Subscription Agreement, Centromin agreed to indemnify Metaloroya against
environmental liability arising out of its prior operations, and performance of
the indemnity has been guaranteed by the Peruvian government through the
enactment of the Supreme Decree No. 042-97-PCM. However, there can be no
assurance that Centromin will satisfy its environmental obligations and
investment requirements, including those in its PAMA, or that the guarantee will
be honored. Any failure by Centromin to satisfy its environmental obligations
could adversely affect Doe Run Peru's business, financial condition or results
of operations.
ENVIRONMENTAL CONSIDERATIONS
GASEOUS EMISSIONS. Doe Run Peru is required to control gaseous emission to
meet ambient air quality standards and the applicable emissions rate by January
2007. In 1997, sulfur dioxide emissions from the smelter complex amounted to
approximately 990 tons per day. The MEM has established a maximum sulfur dioxide
rate for Doe Run Peru of 17% of incoming sulfur based on current production
levels.
Dust emissions currently total approximately 9.8 tons per day, consisting of
approximately 2.5 tons of lead, 2.0 tons of arsenic, 0.3 tons of zinc and
smaller quantities of other metals. Although the main stack is the largest
source of gaseous emissions, significant quantities of the same effluents are
issued from the numerous smaller stacks, as well as from many non-stack sources.
LIQUID EFFLUENTS. Doe Run Peru is required to control liquid effluents to
meet the MEM's discharge limits and DIGESA's water quality standards. Forty
individual discharge sources were identified by the
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monitoring program of the EVAP as releases from Doe Run Peru to the Yauli and
Mantaro Rivers. Liquid effluents contain metals in solution and solids in
suspension. Five liquid effluent discharges account for 90% of the total
discharge volume from the smelter and refinery facilities. The highest
volumetric discharge of the total includes a combination of effluents from the
copper-lead slag granulation process and cooling water from the powerhouse.
SOLID RESIDUES. The principal solid residues generated by Doe Run Peru's
facility are shown below:
<TABLE>
<CAPTION>
RESIDUE ESTIMATED VOLUME
- ---------------------------------------------------------------------------- -----------------
<S> <C>
(TONS PER MONTH)
Copper Slag................................................................. 22,000
Lead Slag................................................................... 14,000
Zinc Ferrites............................................................... 2,400
Arsenic Trioxide............................................................ 280
</TABLE>
Granulated copper and lead slag is transported across the Mantaro River by
aerial tram and stockpiled at Huanchan. Zinc leaching residue, consisting mainly
of zinc ferrites, is pumped into ponds in the same area. Arsenic trioxide is
transported by rail to the Vado site, where it is stored under water spray for
dust suppression.
<TABLE>
<CAPTION>
DISTANCE FROM
DEPOSIT DOE RUN PERU ESTIMATED SIZE
- --------------------------------------------------------------- ----------------- --------------
<S> <C> <C>
(MILES) (TONS)
Huanchan copper and lead slag.................................. 2.5 11,000,000
Zinc Ferrites.................................................. 1.2 1,400,000
Vado arsenic trioxide slag..................................... 5.6 180,000
Malpaso arsenic trioxide slag (historical)..................... 8.7 Unknown
</TABLE>
OVERVIEW OF THE ENVIRONMENTAL PROJECTS
In accordance with the PAMA, Doe Run Peru has included in its capital
expenditure plans specific capital projects to accomplish the goals of the PAMA.
Excluding the process-related projects which assist in meeting the environmental
requirements, Doe Run Peru's major environmental projects include slag handling,
industrial wastewater treatment, sulfur dioxide capture and recovery as sulfuric
acid, and sewage and garbage management. The total costs of these projects and
associated process changes and other environmental control projects are expected
to approach $195.0 million over the next nine years starting in 1998.
SLAG HANDLING AND DISPOSAL. A new mechanical slag handling system will be
installed for the 1,100 tons of copper and lead slag per day to either dewater
granulated slag and deliver it to the ultimate disposal site or to deliver the
hot slag to its ultimate disposal site. The objective of the project is to
replace the undersized tramway slag system, which currently loses 30% to 40% of
the slag into the Mantaro River, with a system capable of safely delivering all
slag to its final disposition site and to minimize any discharge of heavy metals
into the river.
A number of mechanical systems will be evaluated both for continuing
granulation and for delivering the material hot. A Trommel dewatering system was
outlined in the PAMA. Installation of the dewatering system, when selected, is
expected to occur in fiscal 1999. The capital cost for the project is estimated
to be $6.0 million. If a new slag site is developed, approximately $3.0 to $5.0
million is expected to be expended in preparing the site.
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ZINC FERRITE DISPOSAL
Doe Run Peru has the option to continue to use the existing disposal site
for three years and then either take ownership of it or develop a new site and
pay Centromin $7.2 million for closure costs. It is probable that Doe Run Peru
will retain ownership of the disposal site and develop a new disposal site on
property currently owned for that purpose. The cost of developing this site is
expected to be approximately $3.0 to 5.0 million.
INDUSTRIAL WASTEWATER TREATMENT. Recycling projects will be implemented to
recirculate and reuse wastewater after cooling or intermediate treatment. The
water recycling project for slag handling will reduce the 20,000 gallons per
minute rate to approximately 3,000 gallons per minute for discharge. An
industrial sewer network will be constructed to drain effluent from
approximately 35 outfalls to several pumping stations, which, after solids
removal, will be treated and discharged to the river. The purpose of this
project is to eliminate the untreated discharge of metal bearing wastes into the
Mantaro River. This system is different from and more costly than the project
set forth in the PAMA. The system will be designed to meet the MEM's discharge
limits and DIGESA's water quality standards. However, there can be no assurance
that the MEM will approve this project, or that DIGESA will not require
additional actions at increased cost.
The recycling and pre-treatment steps are expected to be installed in fiscal
1999. The collection systems and sedimentation tanks are expected to be
installed in fiscal 2000, and the first stage treatment plant is expected to be
installed in fiscal 2001. If a second stage treatment is required, it will be
deferred for three to four years. The estimated cost of the project is $25.0
million which reflects local labor rates and the deferral of the second stage
treatment, which may not prove to be necessary. Addition of the second stage
could cost approximately $2.0 million.
SULFUR DIOXIDE CAPTURE AND LEAD EMISSION REDUCTION. The PAMA provides for
process gas from the copper, zinc and lead process circuits to be treated in two
sulfuric acids plants for the conversion of sulfur dioxide to sulfur trioxide
and the recovery as sulfuric acid, a by-product that Doe Run Peru expects to
sell. The objective of this project is to increase the capture of sulfur dioxide
from approximately 11% to a minimum of 83%, which is the MEM standard. The
second objective is to reduce the sulfur dioxide and metal emissions in the
ambient air surrounding the plant to within MEM standards. The acid plants will
be installed in fiscal 2005 and 2006. The estimated costs of each of the two
plants is approximately $39.0 million.
The PAMA also provides for replacement of the existing lead circuit with a
new technology to assist in insuring at least 83% capture. However, Doe Run Peru
does not believe that this process has been adequately demonstrated and likely
will seek a change to the PAMA to avoid this process change. Other options are
available if needed to meet the sulfur dioxide emission limit, which are
estimated to cost in the range of $50.0 to $80.0 million.
Given the complex terrain and valley configuration of the Doe Run Peru
facility, there can be no assurance that the measures contemplated in the PAMA
will achieve compliance with the ambient air quality standard for sulfur dioxide
or for lead, particularly during inversion conditions. Other actions, such as
altering the present main stack configuration and increased efforts to reduce
fugitive emissions, may be necessary at significant increased costs to achieve
compliance commencing during the later years of or after the nine-year PAMA
compliance period.
SEWAGE/GARBAGE MANAGEMENT. Two conventional sewage treatment systems and
collection systems will be installed to service the 3,000 employees of Doe Run
Peru living in company housing in La Oroya. A garbage collection system and
disposal landfill also will be developed. This project is designed to comply
with the PAMA and will improve living conditions in La Oroya. The project is
intended to eliminate the discharge of raw sewage and garbage by Doe Run Peru to
the Yauli and Mantaro Rivers. Planning and
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design work will begin in fiscal 1998, and construction will follow in the next
two years at an estimated cost of $3.0 million.
PENDING LITIGATION
All existing litigation of Doe Run Peru at the time of the Acquisition was
retained by Centromin. Doe Run Peru is involved in various claims and lawsuits
incidental to the ordinary course of its business that are not expected to have
a material adverse effect on the business, financial condition and results of
operations of Doe Run Peru.
POTENTIAL ACQUISITION OF ASARCO'S MISSOURI LEAD DIVISION
On July 28, 1998, Doe Run and ASARCO entered into the Asset Purchase
Agreement pursuant to which Doe Run will purchase certain assets relating to the
ASARCO MLD. The assets to be acquired include a primary lead smelter located in
Glover, Missouri, the lead mining operations at the Westfork and Sweetwater
production shafts located on the Viburnum Trend and associated equipment,
licenses, permits and leases. The Westfork and Sweetwater production shafts are
located adjacent to Doe Run's mining operations. The purchase price for these
assets is approximately $54.5 million payable at closing, plus contingent
deferred payments, if any. Such deferred payments are contingent upon prevailing
LME lead prices during the five-year period subsequent to the Potential ASARCO
MLD Acquisition. Specifically, Doe Run's obligations under the deferred purchase
price arrangement are determined annually and are only due if the annual LME
spot lead price exceeds $.28 per pound, with such payments not to exceed $12.5
million in the aggregate.
PRODUCTS
The ASARCO MLD's principal product is primary lead, and the ASARCO MLD
shipped approximately 127,000 tons of refined lead in 1997, which accounted for
approximately 92% of its sales in that period. In addition, the ASARCO MLD sells
zinc contentrates produced at its mills.
MINING AND MILLING OPERATIONS
GEOLOGY AND RESERVES
Similar to Doe Run, the ASARCO MLD's operations are centered around the
ore-rich Viburnum Trend in Southeastern Missouri. See "--Doe Run--Mining
Operations--Geology." As of December 31, 1997, the ASARCO MLD's ore reserves
consisted of approximately 16.8 million proven and probable tons, containing
approximately 0.8 million tons of recoverable lead or approximately seven years
of production at current mining rates. These ore reserve estimates have been
provided by ASARCO'S technical personnel and have not been audited by a
consulting firm. There can be no assurance that these ore reserve estimates
would be the same if Doe Run were to apply its measurement methodology.
PRODUCTION SHAFTS
The ASARCO MLD operates two production shafts and two processing mills. The
Westfork production shaft and its mill are located in the central portion of the
Viburnum Trend and is bound to the north by Doe Run's Brushy Creek production
shaft and to the south by Doe Run's Fletcher production shaft. The Sweetwater
production shaft and its mill are located in the southern portion of the
Viburnum Trend. During 1997, the mining operations of the ASARCO MLD produced in
excess of 2.4 million tons of ore, containing average grades of 4.67% lead and
0.56% zinc. The geology, mining methods, equipment, production process and
product metal contents are substantially similar to Doe Run's mining and milling
operations. See "--Doe Run--Production Process" and "--Mining Operations." The
ASARCO MLD's mills produce lead and zinc concentrates. The lead concentrates are
shipped to the ASARCO MLD's Glover primary smelter for processing into refined
lead, and the zinc concentrates are sold to third party zinc smelters.
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SMELTING OPERATIONS
Located in Glover, Missouri, approximately twenty miles southeast of the
Sweetwater production shaft, the Glover primary smelter commenced operations in
1968 and has been in continuous operations since that time. This facility
processes lead concentrates for the ASARCO MLD's adjacent mining operations, as
well as lead concentrates purchased from third parties. The Glover smelter has a
capacity of 135,000 tons per year and utilizes a pyrometallurgical process
similar to that utilized at Doe Run's Herculaneum smelter to produce 99.99%
refined lead. The ASARCO MLD recently invested in excess of $13 million to
improve the environmental performance of this facility, including ventilation
improvements at the sinter plant and blast furnace areas.
EMPLOYEES
As of April 30, 1998, of the 487 active employees of the ASARCO MLD, 136
were members of Local 7450 of the United Steelworkers of America (the "USWA").
Effective as of the closing of the Potential ASARCO MLD Acquisition,
substantially all of the ASARCO MLD employees will be terminated from employment
with the ASARCO MLD and will be offered employment under Doe Run's terms and
conditions upon successful completion of Doe Run's application process. Doe Run
has agreed to recognize the USWA to the extent required by law. Subsequent to
recognition, if required, Doe Run will begin the process of negotiating a
collective bargaining agreement with the USWA. Although Doe Run anticipates
that, if required, it would be able to reach agreement with the USWA, there can
be no assurance that such agreement will be reached.
ENVIRONMENTAL MATTERS
Pursuant to the Asset Purchase Agreement, Doe Run will not assume, and will
be indemnified for, any environmental liability or obligation arising out of the
conduct, ownership, use or operation of the ASARCO MLD assets to be acquired,
except with respect to certain matters specified below. Doe Run will assume all
continuing obligations at the Glover smelter in connection with a Consent Decree
with the State of Missouri with respect to achieving compliance with the ambient
air quality standard for lead. This Consent Decree required the installation of
certain environmental controls and the imposition of certain operating
conditions. The ASARCO MLD has fulfilled its obligations under the Consent
Decree and currently is in compliance with the ambient air quality standard, and
thus, Doe Run's obligation would be to continue compliance with the operating
conditions. Doe Run will also assume all obligations with respect to the closure
or cessation of operations at the Sweetwater and Westfork mines and the Glover
smelter. Missouri closure permits for the Glover smelter and its slag pile and
the Sweetwater and Westfork mine facilities and their tailings areas set forth
the actions required to be performed when such facilities cease operations.
DESCRIPTION OF THE ASSET PURCHASE AGREEMENT
Doe Run entered into the Asset Purchase Agreement on July 28, 1998. The
Asset Purchase Agreement requires Doe Run to purchase, on a going concern basis,
the ASARCO MLD at a purchase price of approximately $54.5 million (including an
agreed valuation of inventory) and to transfer certain assets to ASARCO. The
purchase price is subject to adjustment following the closing date to reflect
the actual inventory at the closing date. Doe Run plans to close the
transactions contemplated by the Asset Purchase Agreement on or about September
1, 1998.
ASSETS AND LIABILITIES ASSUMED AND DISPOSED
Upon closing the Potential ASARCO MLD Acquisition, Doe Run will assume
certain assets, properties and rights of the ASARCO MLD, including the
Sweetwater and Westfork mines and the Glover smelter and machinery, equipment,
contracts and permits related thereto. Doe Run will not acquire certain
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excluded assets, such as accounts receivable, as specified in the Asset Purchase
Agreement. Doe Run will also expressly assume liabilities of the ASARCO MLD
arising out of the conduct of the ASARCO MLD assets acquired on or after the
closing date.
INDEMNIFICATION OF DOE RUN BY ASARCO
ASARCO will indemnify Doe Run from and against any and all losses and
expenses incurred in connection with or arising from (i) any breach by ASARCO of
any of its covenants or warranties contained in the Asset Purchase Agreement;
(ii) the inaccuracy of any of ASARCO's representations or warranties contained
in the Asset Purchase Agreement; and (iii) any liability specifically retained
by ASARCO. Further, Doe Run and ASARCO have agreed upon a mechanism for
allocating certain environmental liabilities which may arise in the future. The
indemnification obligations of ASARCO (except as such obligations relate to
certain specified provisions of the Asset Purchase Agreement) are subject to the
following limitations: (a) ASARCO will indemnify Doe Run only to the extent the
aggregate amount of loss suffered by Doe Run exceeds $100,000 and (b) the
indemnification liability of ASARCO to Doe Run shall not exceed the adjusted
purchase price. Except as such obligations relate to certain specified
provisions of the Asset Purchase Agreement, the indemnification obligations of
ASARCO terminate 24 months after the closing date.
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Asset Purchase Agreement contains customary representations and
warranties from ASARCO concerning, among other things, the accuracy of all
financial information provided to Doe Run in anticipation of the Potential
ASARCO MLD Acquisition, the availability of the transferred assets for use by
Doe Run, the legality of the use of the transferred assets, the status of
governmental permits, the transferred real property, the assigned leases, the
transferred personal property, the transferred intellectual property, the
condition of the transferred assets, condemnation, receivables and inventory,
employment issues, the status of contracts, environmental matters, the absence
of claims or actions pertaining to the ASARCO MLD, insurance, customers and
supplies, and the absence of undisclosed liabilities. In addition to the
foregoing representations and warranties, the Asset Purchase Agreement contains
customary covenants by ASARCO concerning, among other things, access to the
purchased assets, notification, securing of consents and approvals of regulatory
bodies, securing of consents to transfers of contracts from third parties,
actions prior to the closing date, and certain employment matters. Doe Run also
makes customary representations, warranties and covenants under the Asset
Purchase Agreement.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Ira Leon Rennert....................... 64 Chairman and Director of Doe Run, Doe Run Cayman and FPI.
Jeffrey L. Zelms....................... 54 President and Chief Executive Officer of Doe Run and President of
Doe Run Cayman
Marvin K. Kaiser....................... 56 Vice President and Chief Financial Officer of Doe Run and FPI,
Vice President of Doe Run Cayman and Finance Manager of Doe Run
Mining and Doe Run Peru
Richard L. Amistadi.................... 53 Vice President--Sales and Marketing of Doe Run
Gary E. Boyer.......................... 57 Vice President--Mining of Doe Run
Kenneth R. Buckley..................... 59 Vice President--Primary and Secondary Smelting of Doe Run and
General Manager of Doe Run Mining and Doe Run Peru
David A. Chaput........................ 40 Treasurer of Doe Run and President of FPI
Juan Carlos Huyhua, Ph.D. ............. 46 Operations Manager of Doe Run Peru
Anthony W. Worcester................... 56 Technical Manager of Doe Run Mining and Doe Run Peru
</TABLE>
IRA LEON RENNERT has been Chairman, Chief Executive Officer and principal
shareholder of Doe Run's and the Guarantors' parent company, Renco (including
predecessors), since Renco's first acquisition in 1975, Chairman and Director of
Doe Run since April 1994, Chairman and Director of Doe Run Cayman since October
1997 and Chairman and Director of FPI since August 1996. Renco holds controlling
interests in a number of manufacturing and distribution concerns operating in
businesses not competing with Doe Run including, WCI Steel, Inc., Renco Metals,
Inc., AM General Corporation and Lodestar Energy, Inc.
JEFFREY L. ZELMS has served as President and Chief Executive Officer of Doe
Run's Predecessor and Doe Run since August 1984 and President of Doe Run Cayman
since October 1997. Mr. Zelms has over 30 years of experience in the mining
industry. Mr. Zelms serves on the boards of directors of BW/IP International,
Inc. and Homestake Mining Company.
MARVIN K. KAISER has served as Vice President and Chief Financial Officer of
Doe Run's Predecessor and Doe Run since January 1994 and of FPI since April
1998, Vice President of Doe Run Cayman since October 1997 and Finance Manager of
Doe Run Mining and Doe Run Peru since October 1997. From June 1989 to December
1993, Mr. Kaiser was the Chief Financial Officer of AMAX Gold, Inc., a gold
producing company. Mr. Kaiser is a Certified Public Accountant.
RICHARD L. AMISTADI has served as Vice President--Sales and Marketing of Doe
Run's Predecessor and Doe Run since November 1986. Mr. Amistadi has over twenty
years of experience in sales, marketing and product development of lead metal,
lead alloys, zinc metal, lead, zinc and copper concentrates and associated
by-products.
GARY E. BOYER has been Vice President-Mining at Doe Run since January 1993.
He served as General Manager of mining and smelting operations of Doe Run's
Predecessor and Doe Run from January 1988 to
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April 1997. From January 1990 to January 1993, he served as Vice
President-Smelting of Doe Run's Predecessor.
KENNETH R. BUCKLEY has served as Vice President--Primary and Secondary
Smelting of Doe Run since September 1996 and General Manager of Doe Run Mining
and Doe Run Peru since October 1997. From January 1996 until September 1996, Mr.
Buckley was Vice President--Smelting of Doe Run. Mr. Buckley served as General
Manager--Resource Recycling Division of Doe Run's Predecessor and Doe Run from
September 1988 until January 1996. Mr. Buckley has over 34 years of experience
in managing metal milling and smelting operations in five countries.
DAVID A. CHAPUT has served as Treasurer of Doe Run's Predecessor and Doe Run
since February 1993 and as President of FPI since September 1996. Mr. Chaput has
been employed by Doe Run's Predecessor and Doe Run since 1987 in various
financial management positions.
JUAN CARLOS HUYHUA, PH.D., has been Operations Manager of Doe Run Peru since
October 1997. From January 1995 to June 1997, Dr. Huyhua was Chief Operating
Officer of Centromin. Dr. Huyhua has served in various capacities for Centromin
since 1978, including as Assistant General Manager--Metallurgical Operations,
General Superintendent--Smelting and Refining Department and
Manager--Metallurgical Operations. Dr. Huyhua received his doctorate in
Extractive Metallurgy from the New Mexico Institute of Mining and Technology in
1989.
ANTHONY W. WORCESTER has served as Technical Manager of Doe Run Mining and
Doe Run Peru since October 1997. From January 1991 to October 1997, Mr.
Worcester was Technical Service Manager at Doe Run's lead smelter for Doe Run
and its predecessor. Mr. Worcester has held various other positions with Doe
Run's Predecessor since 1960.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
of the named executive officers by Doe Run for services rendered to it in all
capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION(A) PAYOUTS
-------------
FISCAL ---------------------- LTIP ALL OTHER
NAME AND POSITION YEAR SALARY BONUS PAYOUTS(B) COMPENSATION(C)
- ------------------------------------------------ ----------- ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Ira Leon Rennert(d)............................. 1997 -- -- -- $ 1,200,000
Chairman of the Board
Jeffrey L. Zelms................................ 1997 $ 240,000 $ 100,000 $ 262,068 34,885
President and Chief Executive Officer
Marvin K. Kaiser................................ 1997 156,000 74,000 52,414 22,164
Chief Financial Officer
Richard L. Amistadi............................. 1997 163,248 60,000 78,620 23,197
Vice President--Sales and Marketing
Gary E. Boyer................................... 1997 135,216 60,000 52,414 5,492
Vice President--Mining
Kenneth R. Buckley.............................. 1997 142,132 60,000 26,207 21,657
Vice President--Primary and Secondary Smelting
</TABLE>
- ------------------------
(a) Value of perquisites and other personal benefits did not exceed the lesser
of $50,000 or 10% of total salary and bonus per named executive officer.
(b) The amounts shown as "LTIP Payouts" in the table for each named executive
officer represent contractual payments under such officer's net worth
appreciation agreements. See "--Net Worth Appreciation Agreements."
(c) The amounts shown as "All Other Compensation" in the table for each named
executive officer, except Mr. Rennert, represent payments to Messrs. Zelms,
Kaiser, Amistadi, Boyer and Buckley under the Profit Sharing Program of
$2,688, $1,747, $1,828, $2,028 and $1,592, respectively, and under the
gainsharing plan of $31,416, $20,420, $21,369, $3,464 and $20,065,
respectively, and $781 of life
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insurance premiums for Mr. Zelms. See "Business--Doe Run--Benefit
Plans--Profit Sharing Program" and "--Gainsharing Plan."
(d) Mr. Rennert receives no compensation directly from Doe Run. He is Chairman
of the Board and the principal stockholder of Renco which receives a
management fee from Doe Run pursuant to the Management Consultant Agreement
(as defined). The amount shown as all other compensation to Mr. Rennert are
the management fees paid by Doe Run to Renco for fiscal 1997. See "Certain
Transactions--Transactions with Renco and its Affiliates."
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NET WORTH APPRECIATION AGREEMENTS
The named executive officers (with the exception of Mr. Rennert) and six
other employees of Doe Run are each parties to net worth appreciation agreements
with Doe Run, pursuant to which, upon termination of each person's employment
with Doe Run, he is entitled to receive a fixed percentage of the increase in
the net worth of Doe Run, as defined, from a base date until the end of the
fiscal quarter preceding the date of his termination. Such amount is payable
without interest in 40 equal quarterly installments, commencing three months
after the termination of each person's employment, and at three month intervals
thereafter. It is anticipated that certain key employees of Doe Run Peru will
enter into net worth appreciation agreements with Doe Run Peru comparable to Doe
Run's net worth appreciation agreements.
The following table summarizes the net worth appreciation agreements now
held by the named executive officers and the amounts earned thereunder.
<TABLE>
<CAPTION>
ACCUMULATED
AS OF
NET WORTH OCTOBER 31,
PERCENTAGE(A) BASE DATE 1997(B)
----------------- ----------- -----------------
<S> <C> <C> <C>
Jeffrey L. Zelms................................. 5.0 % 4/7/94 $ 333,700
Marvin K. Kaiser................................. 1.0 4/7/94 66,740
Richard L. Amistadi.............................. 1.5 4/7/94 100,110
Gary E. Boyer.................................... 1.0 4/7/94 66,740
Kenneth R. Buckley............................... 0.5 4/7/94 33,370
</TABLE>
- ------------------------
(a) Vested for each participant as to 80% as of March 31, 1998 and vesting for
an additional 20% on March 31, 1999, provided that the respective
participant remains in the employ of Doe Run until such date.
(b) Represents the gross aggregate amount that each participant is entitled to
receive as of October 31, 1997, subject to the vesting terms of the
applicable agreement.
The net worth appreciation agreements also provide that, in the event of
payment of a dividend or a sale of Doe Run, the active participants will be
entitled to receive a percentage of the dividend or the net proceeds of the sale
equal to their maximum percentages under the agreements. Upon consummation of
the Transactions, approximately $264,000 was paid to Messrs. Zelms, Kaiser,
Amistadi, Buckley, Boyer and other employees of Doe Run, pursuant to the net
worth appreciation agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Doe Run, Doe Run Cayman, Doe Run Mining and Doe Run Peru have no
compensation committee. The compensation for the executive officers is fixed by
negotiations between such executive officers and Mr. Rennert on behalf of Renco.
EMPLOYMENT AGREEMENTS
The named executive officers are parties to employment agreements with Doe
Run. Set forth below is a brief description of each such agreement.
JEFFREY L. ZELMS entered into an Employment Agreement with Doe Run effective
as of April 7, 1994, with an initial term continuing until October 31, 1999 and
automatically renewable thereafter for additional one-year terms. Pursuant to
the terms of his agreement, Mr. Zelms's compensation is composed of (a) a base
annual salary, (b) a year-end bonus of not less than $50,000 nor more than
$100,000 as may be
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determined by Doe Run in its sole discretion and (c) such additional amounts, if
any, as the Board of Directors may determine from time to time in its
discretion.
MARVIN K. KAISER entered into an Employment Agreement with Doe Run effective
as of April 7, 1994, with an initial term continuing until October 31, 1999 and
automatically renewable thereafter for additional one-year terms. Pursuant to
the terms of his agreement, Mr. Kaiser's compensation is composed of (a) a base
annual salary, (b) a year-end bonus of not less than $30,000 nor more than
$60,000 as may be determined by Doe Run in its sole discretion and (c) such
additional amounts, if any, as the Board of Directors may determine from time to
time in its discretion.
RICHARD L. AMISTADI entered into an Employment Agreement with Doe Run
effective as of April 7, 1994, with an initial term continuing until October 31,
1999 and automatically renewable thereafter for additional one-year terms.
Pursuant to the terms of his agreement, Mr. Amistadi's compensation is composed
of (a) a base annual salary, (b) a year-end bonus of not less than $30,000 nor
more than $60,000 as may be determined by Doe Run in its sole discretion and (c)
such additional amounts, if any, as the Board of Directors may determine from
time to time in its discretion.
GARY E. BOYER entered into an Employment Agreement with Doe Run effective as
of April 7, 1994, with an initial term continuing until October 31, 1999 and
automatically renewable thereafter for additional one-year terms. Pursuant to
the terms of his agreement, Mr. Boyer's compensation is composed of (a) a base
annual salary, (b) a year-end bonus of not less than $30,000 nor more than
$60,000 as may be determined by Doe Run in its sole discretion and (c) such
additional amounts, if any, as the Board of Directors may determine from time to
time in its discretion.
KENNETH R. BUCKLEY entered into an Employment Agreement with Doe Run
effective as of January 1, 1996 (replacing a prior agreement), with an initial
term continuing until December 31, 2000, and automatically renewable thereafter
for additional one-year terms. Pursuant to the terms of his agreement, Mr.
Buckley's compensation is composed of (a) a base annual salary, (b) a year-end
bonus of not less than $30,000 nor more than $60,000 as may be determined by Doe
Run in its sole discretion and (c) such additional amounts, if any, as the Board
of Directors may determine from time to time in its discretion.
Each of the above described employment agreements require that, during the
term of their employment, each of the above executive officers not, directly or
indirectly, engage in any aspect of the business of lead mining, milling,
recycling or sale within the continental United States as an officer, director,
partner, proprietor, investor, associate, employee or consultant except with Doe
Run. In addition, each of the above executive officers have agreed to maintain
the confidentiality of information obtained during their employment with Doe
Run.
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SECURITY OWNERSHIP
The following table sets forth certain information as of the date hereof
with respect to beneficial ownership of Doe Run's common stock by each
beneficial owner of 5% or more of the common stock, each director and each named
executive officer of Doe Run during the last fiscal year, and by all directors
and executive officers of Doe Run as a group. Except as otherwise noted, the
persons named in the table below have sole voting and investment power with
respect to all shares or interests, as applicable, shown as beneficially owned
by them.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES PERCENT
- --------------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
The Renco Group, Inc.(a)(b).................................................................. 1,000 100.0%
DR Acquisition Corp.(a)...................................................................... 1,000 100.0
Ira Leon Rennert(a)(c)....................................................................... 1,000 100.0
Jeffrey L. Zelms............................................................................. -- --
Marvin K. Kaiser............................................................................. -- --
Richard L. Amistadi.......................................................................... -- --
Gary E. Boyer................................................................................ -- --
Kenneth R. Buckley........................................................................... -- --
All directors and executive officers of Doe Run as a group (7 persons)....................... 1,000 100.0
</TABLE>
- ------------------------
(a) The address of this beneficial owner is c/o The Renco Group, Inc., 30
Rockefeller Plaza, Suite 4225, New York, New York 10112.
(b) Renco is deemed to beneficially own the shares owned by DRA due to Renco's
ownership of all of the outstanding capital stock of DRA.
(c) Mr. Rennert is deemed to beneficially own the interests and shares owned by
Renco due to the ownership by himself and trusts established by him (but of
which he is not a trustee) for himself and members of his family of a total
of 97.9% of the outstanding common stock of Renco.
By virtue of Renco's indirect ownership of 100.0% of the outstanding common
stock of Doe Run, and Mr. Rennert's ownership of a majority of the stock of
Renco, Mr. Rennert is in position to control actions that require the consent of
a majority of the holders of equity interests in Doe Run and its subsidiaries.
The 2,500 shares of preferred stock of Doe Run, all of which were held by
Renco, were redeemed as part of the Transactions.
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CERTAIN TRANSACTIONS
TRANSACTIONS WITH RENCO AND ITS AFFILIATES
Under a management consultant agreement, dated as of April 7, 1994, as
amended (the "Management Consultant Agreement"), between Renco and Doe Run, Doe
Run pays an annual fee of $2.4 million to Renco. The Management Consultant
Agreement provides that Doe Run shall not make any payment thereunder which
would violate any of its agreements with respect to any of its outstanding
indebtedness. The Management Consultant Agreement extends to October 31, 2000
and thereafter shall continue for additional terms of three years each unless
sooner terminated by either party by giving six months prior written notice. In
the year ended October 31, 1997, Doe Run paid management fees to Renco in the
amount of $1.2 million. The Company believes that the cost of obtaining the type
and quality of services rendered by Renco under the Management Consultant
Agreement was, and continues to be, no less favorable than that at which the
Company could obtain such services from unaffiliated entities.
To obtain the advantages of volume, Renco purchases certain insurance
coverages for its subsidiaries, including Doe Run and Doe Run Peru, and the cost
of such insurance, without markup, is reimbursed by the covered subsidiaries.
Currently, the major areas of insurance coverage obtained under the Renco
programs for Doe Run are property, business interruption and fidelity and for
Doe Run Peru are foreign general liability and fidelity, and the premiums for
property, business interruption, fidelity and foreign general liability (as
applicable) are allocated by Renco to its covered subsidiaries, substantially as
indicated in the underlying policies. Renco also purchases and administers
certain insurance policies exclusively for Doe Run, including fiduciary, general
and product liability, workers' compensation, political risk, automobile
liability, and casualty umbrella, and for Doe Run Peru, including property,
business interruption, general and product liability, workers' compensation,
automobile liability and casualty umbrella. The cost of such insurance, without
markup, is reimbursed by Doe Run and Doe Run Peru (as applicable) as incurred.
The total insurance cost under the Renco insurance programs incurred in fiscal
1997 by Doe Run was approximately $2.5 million and by Doe Run Peru was DE
MINIMIS. Doe Run and Doe Run Peru believe that their insurance costs were less
than they would have incurred if they had obtained their respective insurance
directly.
Pursuant to a tax sharing agreement between Doe Run and Renco, Doe Run pays
to Renco an amount equal to the amount Doe Run would have been required to pay
for taxes on a stand-alone basis to the Internal Revenue Service and the
applicable state taxing authority, as the case may be, except that Doe Run will
not have the benefit of any of its tax loss carryforwards unless such tax losses
were a result of timing differences between Doe Run's accounting for tax and
financial reporting purposes. This agreement also provides that transactions
between Doe Run and Renco and its other subsidiaries are accounted for on a cash
basis and not on an accrual basis.
Beginning in fiscal 1998, Doe Run sold, and may from time to time in the
future sell, zinc and other alloys to WCI Steel, Inc., an indirect subsidiary of
Renco. Doe Run believes that such sales were on an arm's length basis at a price
no less favorable than that at which Doe Run could have sold to unaffiliated
entities.
Upon consummation of the Old Notes Offering, Doe Run paid a transaction fee
of $2.3 million to Renco.
INTERCOMPANY TRANSACTIONS
Doe Run Peru pays a sales agency commission to Doe Run Mining pursuant to a
sales agency contract, dated as of March 9, 1998, by and between Doe Run Peru
and Doe Run Mining. The initial term is for a period of two years, automatically
renewable for additional one-year terms. Under this agreement, Doe Run Mining
acts as the sales agent for Doe Run Peru with respect to all sales of Doe Run
Peru's products within Peru and receives a commission of 3% of such sales.
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Doe Run Peru pays a sales agency commission to Doe Run pursuant to an
international sales agency and hedging services contract, dated as of March 9,
1998, by and between Doe Run Peru and Doe Run. The initial term is for a period
of two years, automatically renewable for additional one-year terms. Under this
agreement, Doe Run acts as the sales agent for Doe Run Peru with respect to all
sales of Doe Run Peru's products outside of Peru and receives a commission of 3%
of such sales.
Doe Run Peru pays a fee to Doe Run Mining pursuant to a technical,
managerial and professional services agreement, dated as of March 9, 1998, by
and between Doe Run Peru and Doe Run Mining. The initial term is for a period of
two years, automatically renewable for additional one-year terms. Under this
agreement, Doe Run Mining provides technical, managerial and professional
services to Doe Run Peru with respect to its day-to-day operations and the
Capital Investment Program. As its technical, managerial and professional
services fee, Doe Run Mining receives 2% of Doe Run Peru's cash operating
expenses (excluding the sales agency commissions to Doe Run and Doe Run Mining)
and 10% of Doe Run Peru's capital expenditures.
Doe Run Mining pays a fee to Doe Run pursuant to a United States services
agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run.
The initial term is for a period of two years, automatically renewable for
additional one-year terms. Under this agreement, Doe Run provides professional
services with respect to U.S. related matters and receives an annual fee of
between $4.0 and $5.0 million.
Doe Run Mining pays a fee to Doe Run pursuant to a technical, managerial and
professional services agreement, dated as of March 9, 1998, by and between Doe
Run Mining and Doe Run. The initial term is for a period of two years,
automatically renewable for additional one-year terms. Under this agreement, Doe
Run provides technical, managerial and professional assistance with respect to
all aspects to Doe Run Peru's operations for an annual fee of $500,000.
Doe Run Mining pays a fee to Doe Run pursuant to a Peruvian professional
services agreement, dated as of March 9, 1998, by and between Doe Run Mining and
Doe Run. The initial term is for a period of two years, automatically renewable
for additional one-year terms. Under this agreement, Doe Run provides all
technical, managerial and professional services within and partially outside of
Peru that Doe Run Mining will provide to Doe Run Peru in their agreement, and
Doe Run receives an annual fee of $350,000.
Doe Run Mining pays a fee to Doe Run pursuant to a technology assistance
agreement, dated as of March 9, 1998, by and between Doe Run Mining and Doe Run.
The initial term is for a period of two years, automatically renewable for
additional one-year terms. Under this agreement, Doe Run provides technology
assistance for an annual fee of $250,000.
Doe Run and Doe Run Peru have negotiated a fee of approximately $5.5 million
payable to Doe Run for management services provided by Doe Run for the period
October 23, 1997 through March 8, 1998.
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DESCRIPTION OF NEW REVOLVING CREDIT FACILITIES
The following descriptions of the New Doe Run Revolving Credit Facility and
the New Doe Run Peru Revolving Credit Facility do not purport to be complete and
are subject to, and qualified in their entirety by reference to, all of the
provisions of the respective credit agreements relating to the New Doe Run
Revolving Credit Facility and the New Doe Run Peru Revolving Credit Facility,
which are filed as exhibits to the Registration Statement. Capitalized terms
used herein and not otherwise defined have the meaning ascribed to such terms in
the Revolving Credit Facilities.
NEW DOE RUN REVOLVING CREDIT FACILITY
GENERAL
The $100.0 million New Doe Run Revolving Credit Facility is provided
pursuant to a Loan and Security Agreement, dated March 12, 1998, by and among
Doe Run, FPI and Congress Financial Corporation ("Congress"). As of June 30,
1998, $4.8 million (exclusive of outstanding letters of credit) was outstanding
under the New Doe Run Revolving Credit Facility. Under the New Doe Run Revolving
Credit Facility, Congress will, in its discretion, lend on a revolving basis to
Doe Run and/or FPI up to the sum of (a) 85% of the Net Amount of Eligible
Accounts plus (b) 60% of the Value of Eligible Inventory (but not more than a
loan value of $50.0 million) and (c) 25% of the Value of Eligible Stores
Inventory of Doe Run (but not more than a loan value of $2.5 million).
Collections from accounts are applied to reduce the loan balance, which may be
reborrowed up to the aforesaid limits. Congress may extend up to $10.0 million
of letter of credit accommodations within the limits set forth above.
INTEREST
Interest on the loan balance is payable monthly at the prime rate plus 0.75%
per annum. The interest rate on June 30, 1998 was 9.25%. In the event of a
default under the New Doe Run Revolving Credit Facility, the interest rate will
be 2.75% per annum in excess of such prime rate.
SECURITY
As security for the indebtedness under the New Doe Run Revolving Credit
Facility, Doe Run and FPI have granted to Congress a first security interest in
(a) all accounts, (b) certain general intangibles, (c) inventory, (d) all
present and future books and records relating to the foregoing and (e) all
products and proceeds of the foregoing.
TERM
The New Doe Run Revolving Credit Facility has a three-year term and
beginning on March 2001, can be renewed from year to year thereafter, PROVIDED
that the agreement may be terminated by any party as of March 2001 or any
subsequent anniversary date on 60 days advance written notice.
CERTAIN COVENANTS
In addition to customary covenants, the New Doe Run Revolving Credit
Facility requires that Doe Run and FPI be subject to certain covenants,
including, but not limited to, a restriction on the incurrence of additional
indebtedness, a restriction on the creation of additional liens, compliance with
certain financial covenants, certain restrictions on dividends, loans and
investments, restrictions on mergers and sales of assets and certain
restrictions on capital expenditures. If Doe Run or FPI were to fail to comply
with the covenants contained in the New Doe Run Revolving Credit Facility and
such noncompliance were not cured within the applicable cure period, if any,
such noncompliance would constitute an event of default that could, among other
things, result in the termination of the New Doe Run Revolving Credit Facility
and/or the acceleration of all amounts due thereunder. See "--Events of
Default."
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EVENTS OF DEFAULT
The New Doe Run Revolving Credit Facility contains certain events of
default, including, without limitation, the following: (i) the failure of Doe
Run or FPI to pay any of its obligations under the New Doe Run Revolving Credit
Facility within three days after the due date; (ii) certain defaults by Doe Run
or FPI under various other indebtedness, in each case after any applicable grace
period; (iii) any default by Doe Run or FPI in the performance or observance of
the conditions and covenants of the New Doe Run Revolving Credit Facility or
related agreements, beyond any applicable cure period; (iv) any representation
or warranty made by Doe Run or FPI to Congress under the New Doe Run Revolving
Credit Facility proved to be false in any material respect; (v) certain
judgments against Doe Run or FPI; (vi) certain events of bankruptcy or
insolvency of Doe Run or FPI; or (vii) the occurrence of (a) any sale of all or
substantially all of the assets of Renco, Doe Run or FPI, (b) approval by
shareholders of any liquidation or dissolution of Renco, Doe Run or FPI, (c)
Renco or DRA ceasing to own 100% of the capital stock of Doe Run, (d) Renco
ceasing to own 100% of the capital stock of DRA, (e) Doe Run ceasing to own 100%
of the capital stock of FPI or (f) Ira Leon Rennert and his affiliates ceasing
to own at least 90% of Renco.
NEW DOE RUN PERU REVOLVING CREDIT FACILITY
GENERAL
Under the New Doe Run Peru Revolving Credit Facility, the revolving credit
lender will, in its discretion, lend and relend to Doe Run Peru up to not more
than $40,000,000. The loans shall not exceed the sum of (a) 85% of eligible
sales accounts plus (b) 70% of the eligible inventory accounts of purchased
concentrates plus (c) 30% of the eligible inventory accounts of raw materials
and products in process plus (d) 80% of the eligible inventory accounts of final
products. Doe Run Peru's collections from accounts are applied to reduce the
loan balance, which may be reborrowed up to the aforesaid limits. The revolving
credit lender may extend loans or letters of credit. The amount of individual
loans must be $1,000,000 or more.
INTEREST
Interest on Doe Run Peru's loan balance is payable at LIBOR (1-month,
3-month or 6-month, depending on the length of the loan) plus 1.5% per annum for
the first year of the term of the facility. The interest rate on June 30, 1998
was 7.25%. In the event of a nonpayment of any part of the principal or interest
owed under the New Doe Run Peru Revolving Credit Facility, Doe Run Peru would
pay additional interest of 3% per annum. After the first year of the term of the
loan and the end of each subsequent term, the revolving credit lender, in its
sole discretion, can review the interest rate with 30 days notice to Doe Run
Peru.
SECURITY
As security for the indebtedness of Doe Run Peru to the revolving credit
lender, Doe Run Peru has granted a security interest in certain sales collection
accounts and in certain concentrates, raw materials, products in process and end
products. Pursuant to a concentration collection agreement, Doe Run Peru has
agreed to maintain, irrevocably and unconditionally, two accounts, one in New
York, New York and one in Lima, Peru containing the proceeds of present and
future sales operations, as well as the collections generated from them.
Customers of Doe Run Peru are to directly deposit their payments into these
collection accounts. Pursuant to an ore collateral contract, Doe Run Peru has
granted a first priority interest to the revolving credit lender in Doe Run
Peru's concentrates, raw materials, products in process and end products, in
whatever state.
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TERM
The New Doe Run Peru Revolving Credit Facility has a maximum term of four
years. The revolving credit lender may, in its sole discretion, at the end of
the first year or any subsequent year, extend the maximum term of the facility.
Doe Run Peru is to pay the revolving credit lender an annual agency fee and an
annual commitment fee under the New Doe Run Peru Revolving Credit Facility.
CERTAIN COVENANTS
In addition, the Doe Run Peru Revolving Credit Facility requires that Doe
Run Peru be subject to certain covenants, including, without limitation,
compliance with financial reporting requirements, abstaining from selling,
leasing, transferring or assigning the use of fixed assets without written
approval from the revolving credit lender, abstaining from selling or
transferring all or substantially all of any part of Doe Run Peru's assets
without the written approval from the revolving credit lender, abstaining from
assuming, creating or incurring additional indebtedness without the written
approval of the revolving credit lender, restrictions on liens unless they are
required by the concentration account agreement or the ore collateral contract
or by a governmental body or authority, and abstaining from paying dividends if
Doe Run Peru is in default under the Doe Run Peru Revolving Credit Facility. If
Doe Run Peru were to fail to comply with the covenants in the New Doe Run Peru
Revolving Credit Facility and such noncompliance were not cured within the
applicable cure period, if any, such noncompliance would constitute an event of
default that could, among other things, result in the termination of the New Doe
Run Peru Revolving Credit Facility and/or the acceleration of all amounts due
thereunder. See "--Events of Default."
EVENTS OF DEFAULT
The New Doe Run Peru Revolving Credit Facility contains certain events of
default, including, without limitation, the following: (i) the failure of Doe
Run Peru to pay any of its obligations to the lender when due; (ii) the falsity
of any representation or warranty; (iii) any default by Doe Run in the
performance or observance of its obligations under New Doe Run Peru Revolving
Credit Facility; (iv) certain events of bankruptcy or insolvency of Doe Run; (v)
the invalidity of the concentration account agreement or the ore collateral
contract; (vi) the failure of Doe Run to own directly or indirectly 66.66% of
the shares of Doe Run Peru; (vii) the expropriation by the Peruvian government
of any rights of the revolving credit lender in Doe Run Peru or of the ownership
or control of Doe Run Peru; and (viii) the occurrence of acts of war,
revolution, insurrection or terrorism in Peru that has a material adverse effect
on Doe Run Peru's capacity to comply with its obligations under the New Doe Run
Peru Revolving Credit Facility.
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DESCRIPTION OF THE NOTES
The Old Notes are and the Exchange Notes will be issued under the Indenture
among Doe Run, the Guarantors and State Street Bank and Trust Company, as
trustee (the "Trustee"). The following summary of the material provisions of the
Indenture does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Indenture, including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"), as in effect on the date of the Indenture. A copy of the Indenture is
filed as an exhibit to the Registration Statement. The definitions of certain
capitalized terms used in the following summary are set forth below under
"--Certain Definitions."
GENERAL
The Notes are general unsecured obligations of Doe Run limited to $355.0
million in aggregate principal amount, of which $200.0 million are Fixed Rate
Notes and $55.0 million are Floating Rate Notes. Additional amounts of Notes in
an aggregate principal amount of up to $100.0 million may be issued under the
Indenture in one or more series from time to time, subject to the limitations
set forth under "--Certain Covenants--Limitation on Indebtedness." The Fixed
Rate Notes will mature on March 15, 2005. The Floating Rate Notes will mature on
March 15, 2003.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
Doe Run in New York City maintained for such purposes (which initially is the
Trustee or its agent); PROVIDED that payment of interest may be made at the
option of Doe Run by check mailed to the registered holders of the Notes
("Holders") at their registered addresses. The Notes will be issued only in
fully registered form without coupons, in denominations of $1,000 and any
integral multiple thereof. No service charge will be made for any registration
of transfer, exchange or redemption of Notes, except in certain circumstances
for any tax or other governmental charge that may be imposed in connection
therewith.
INTEREST
Interest on the Notes will be payable semi-annually in cash on each March 15
and September 15 (each an "Interest Payment Date") commencing on September 15,
1998, for the period commencing on and including the immediately preceding
Interest Payment Date and ending on and including the day next preceding the
Interest Payment Date (an "Interest Period"), with the exception that the first
Interest Period shall commence on and include March 12, 1998 and end on and
include September 14, 1998. Interest is payable to the persons who are
registered Holders at the close of business on the March 1 and September 1
immediately preceding the applicable Interest Payment Date.
FIXED RATE NOTES
Interest on the Fixed Rate Notes accrues at the rate of 11 1/4% per annum.
Interest on the Fixed Rate Notes will be computed on the basis of a 360 day year
composed of twelve 30 day months.
FLOATING RATE NOTES
The Floating Rate Notes accrues interest at a rate per annum, reset
semi-annually, equal to LIBOR plus 6.29%, as determined by the calculation agent
(the "Calculation Agent"), which is the Trustee.
"LIBOR," with respect to an Interest Period, shall be the rate (expressed as
a percentage per annum) for deposits in United States dollars for a six-month
period beginning on the second London Banking Day (as defined) after the
Determination Date (as defined) that appears on Telerate Page 3750 (as defined)
as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750
does not include such a rate or is unavailable on a Determination Date, LIBOR
for the Interest Period shall be the arithmetic mean of
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the rates (expressed as a percentage per annum) for deposits in a Representative
Amount (as defined) in U.S. dollars for a six-month period beginning on the
second London Banking Day after the Determination Date that appears on Reuters
Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the
Determination Date. If Reuters Screen LIBO Page does not include two or more
rates or is unavailable on a Determination Date, the Calculation Agent will
request the principal London office of each of four major banks in the London
interbank market, as selected by the Calculation Agent, to provide such bank's
offered quotation (expressed as a percentage per annum), as of approximately
11:00 a.m., London time, on such Determination Date, to prime banks in the
London interbank market for deposits in a Representative Amount in U.S dollars
for a six-month period beginning on the second London Banking Day after the
Determination Date. If at least two such offered quotations are so provided,
LIBOR for the Interest Period will be the arithmetic mean of such quotations. If
fewer than two such quotations are so provided, the Calculation Agent will
request each of three major banks in New York City, as selected by the
Calculation Agent, to provide such bank's rate (expressed as a percentage per
annum), as of approximately 11:00 a.m., New York City time, on such
Determination Date, for loans in a Representative Amount in U.S. dollars to
leading European banks for a six-month period beginning on the second London
Banking Day after the Determination Date. If at least two such rates are so
provided, LIBOR for the Interest Period will be the arithmetic mean of such
rates. If fewer than two such rates are so provided, then LIBOR for the Interest
Period will be LIBOR in effect with respect to the immediately preceding
Interest Period.
"Determination Date," with respect to an Interest Period, will be the second
London Banking Day preceding the first day of the Interest Period.
"London Banking Day" is any day in which dealings in U.S. dollars are
transacted or, with respect to any future date, are expected to be transacted in
the London interbank market.
"Representative Amount" means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
"Telerate Page 3750" means the display designated as "Page 3750" on the Dow
Jones Telerate Service (or such other page as may replace Page 3750 on that
service).
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
The Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service).
The amount of interest for each day that the Floating Rate Notes are
outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate (expressed as a percentage per annum) in effect for such day by
360 and multiplying the result by the principal amount of the Floating Rate
Notes. The amount of interest to be paid on the Floating Rate Notes for each
Interest Period will be calculated by adding the Daily Interest Amounts for each
day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (E.G.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar
amounts used in or resulting from such calculations will be rounded to the
nearest cent (with one-half cent being rounded upwards).
The interest rate on the Floating Rate Notes will in no event be higher than
the maximum rate permitted by New York law as the same may be modified by U.S.
law of general application. Under current New York law, the maximum rate of
interest is 25% per annum on a simple interest basis. This limit may not apply
to Floating Rate Notes in which $2,500,000 or more has been invested.
The Calculation Agent will, upon the request of the Holder of any Floating
Rate Note, provide the interest rate then in effect with respect to the Floating
Rate Notes. All calculations made by the Calculation Agent in the absence of
manifest error shall be conclusive for all purposes and binding on Doe Run and
the Holders of the Floating Rate Notes.
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OPTIONAL REDEMPTION
The Fixed Rate Notes will be subject to redemption, in whole or in part, at
the option of Doe Run, at any time on or after March 15, 2002, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued interest to the redemption date, if redeemed during the twelve month
period beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2002.............................................................................. 105.625%
2003.............................................................................. 102.813%
2004 and thereafter............................................................... 100.000%
</TABLE>
The Floating Rate Notes are subject to redemption, in whole at any time or
in part from time to time, at the option of Doe Run, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
interest to the redemption date, if redeemed during the twelve month period
beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
1998.............................................................................. 104.000%
1999.............................................................................. 103.000%
2000.............................................................................. 102.000%
2001.............................................................................. 101.000%
2002 and thereafter............................................................... 100.000%
</TABLE>
OPTIONAL REDEMPTION OF FIXED RATE NOTES UPON EQUITY OFFERINGS
In addition, at any time prior to March 15, 2001, Doe Run may redeem up to
35% of the sum of (x) the aggregate principal amount of the Fixed Rate Notes
issued in the Old Notes Offering plus (y) any additional Fixed Rate Notes issued
after the Issue Date pursuant to the Indenture, with the proceeds of one or more
Equity Offerings at a redemption price (expressed as a percentage of principal
amount) of 111.25% plus accrued interest to the redemption date; PROVIDED that
at least 65% of the sum of (x) the aggregate principal amount of Fixed Rate
Notes issued in the Old Notes Offering plus (y) any additional Fixed Rate Notes
issued after the Issue Date pursuant to the Indenture remains outstanding
immediately after any such redemption. In order to effect the foregoing
redemption with the proceeds of any Equity Offering, Doe Run shall make such
redemption not more than 120 days after the consummation of any such Equity
Offering. "Equity Offering" means an offering of Qualified Capital Stock of Doe
Run (other than to any Subsidiary of Doe Run).
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities exchange or quotation
system, if any, on which such Notes are listed or, if such Notes are not then
listed on a national securities exchange or quotation system, on a proportionate
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
PROVIDED, HOWEVER, that (i) no Notes of a principal amount of $1,000 or less
shall be redeemed in part and (ii) a redemption of Fixed Rate Notes with the net
cash proceeds of an Equity Offering shall be made on a proportionate basis
unless such method is otherwise prohibited. Notice of redemption shall be mailed
by first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered
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address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in a principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption.
GUARANTEES
Doe Run's obligations under the Notes are guaranteed in the manner described
below by the following Subsidiaries of Doe Run, FPI, Doe Run Cayman, Doe Run
Mining and Doe Run Peru, and, in the future, may be guaranteed by certain of Doe
Run's Restricted Subsidiaries. See "--Certain Covenants--Future Guarantees." The
only existing Subsidiary of Doe Run that is not a Guarantor is DR Exploration.
The laws of South Africa, DR Exploration's jurisdiction of organization, may not
permit DR Exploration to be a Guarantor.
Each Guarantor fully and unconditionally guarantees, on a senior basis
(except as described below under "--Ranking" with respect to the Guarantee of
Doe Run Peru), jointly and severally, to each Holder and the Trustee, the full
and prompt performance of Doe Run's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes. The
obligations of each Guarantor are limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, will result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law, in the case of domestic Guarantors, or any applicable foreign law, in
the case of foreign Guarantors. Each Guarantor that makes a payment or
distribution under a Guarantee shall be entitled to a contribution from each
other Guarantor in a proportionate amount, based on the net assets of each
Guarantor determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to Doe
Run or to another Guarantor that is a Wholly-Owned Restricted Subsidiary without
limitation, or with other persons upon the terms and conditions set forth in the
Indenture. See "--Certain Covenants--Merger, Consolidation and Sale of Assets."
In the event that either all of the Capital Stock of a Guarantor is sold by Doe
Run or one of the Restricted Subsidiaries (whether by merger, stock purchase or
otherwise) or all or substantially all of the assets of a Guarantor are sold by
such Guarantor and such sale complies with the provisions set forth in
"--Certain Covenants--Limitation on Sale of Assets" and "--Change of Control"
and any other applicable provisions in the Indenture, the Guarantor's Guarantee
will be released.
RANKING
Except as described below with respect to the Guarantee of Doe Run Peru, the
indebtedness of Doe Run and the Guarantors evidenced by the Notes and the
Guarantees rank senior in right of payment to all future unsecured senior
subordinated and subordinated indebtedness of Doe Run and the Guarantors,
respectively, and equally in right of payment with all other existing and future
unsubordinated indebtedness of Doe Run and the Guarantors. However, holders of
secured indebtedness of Doe Run and the Guarantors will have claims that
effectively rank prior to those of the Holders with respect to the assets
securing such indebtedness. As of June 30, 1998, the Company had approximately
$396.8 million of indebtedness outstanding (including the Back-to-Back Loan of
$125.0 million but exclusive of aggregate unused commitments of $129.7 million
under the New Revolving Credit Facilities), and none of the Company's
indebtedness was subordinated to the Old Notes.
Notwithstanding the foregoing, the indebtedness of Doe Run Peru evidenced by
its Guarantee will be contractually subordinated to the indebtedness under the
Peruvian Revolving Credit Facility. In addition, except as described in the
preceding sentence, the indebtedness of Doe Run Mining and Doe Run Peru
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evidenced by their Guarantee rank senior in right of payment to all future
unsecured indebtedness of Doe Run Mining and Doe Run Peru, respectively, subject
to statutorily preferred exceptions and statutorily mandated priorities based on
the date of issuance with respect to payment of obligations under applicable
Peruvian law.
CERTAIN COVENANTS
The Indenture contains, among others, the covenants discussed below. If Doe
Run or the Guarantors were to fail to comply with the covenants contained in the
Indenture and such noncompliance were not cured within the applicable cure
period, if any, such noncompliance would constitute an Event of Default that
could, among other things, result in the acceleration of all amounts due under
the Notes. See "-- Events of Default."
LIMITATION ON INDEBTEDNESS
(a) Doe Run will not, and will not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
become liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness; PROVIDED
that Doe Run and the Guarantors may incur Indebtedness (including Acquired
Indebtedness) if: (A) no Default or Event of Default shall have occurred and be
continuing at the time of the proposed incurrence thereof or shall occur as a
result of such proposed incurrence, and (B) after giving effect to such proposed
incurrence, the Consolidated Fixed Charge Coverage Ratio of Doe Run is at least
equal to 2.25 to 1.0. Notwithstanding the foregoing, a Restricted Subsidiary
that is not a Guarantor may incur Acquired Indebtedness to the extent such
Indebtedness could have been incurred by Doe Run and the Guarantors pursuant to
the proviso in the immediately preceding sentence.
(b) Doe Run and the Guarantors shall not, directly or indirectly, in any
event incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated to any other Indebtedness
of Doe Run or such Guarantor unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinated to the Notes or the Guarantee of such Guarantor, as the case may
be, to the same extent and in the same manner as such Indebtedness is
subordinated to such other Indebtedness of Doe Run or such Guarantor.
LIMITATION ON RESTRICTED PAYMENTS
Doe Run will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, after the Issue Date (a) declare or pay any dividend or
make any distribution on Doe Run's Capital Stock or make any payment to holders
of such Capital Stock (other than dividends or distributions payable in
Qualified Capital Stock of Doe Run), (b) purchase, redeem or otherwise acquire
or retire for value any Capital Stock of Doe Run or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock, (c)
purchase, redeem, prepay, defease or otherwise acquire or retire for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, Indebtedness of Doe Run or any of the Guarantors that is expressly
subordinate in right of payment to the Notes or the Guarantee of such Guarantor,
as the case may be, or (d) make any Investment (excluding any Permitted
Investment) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto, (i) a Default or
an Event of Default shall have occurred and be continuing or (ii) Restricted
Payments made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, shall be the Fair Market Value of such property
proposed to be transferred by Doe Run or such Restricted Subsidiary, as the case
may be, pursuant to such Restricted Payment) shall exceed the sum of:
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(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of Doe Run
earned subsequent to the Issue Date and prior to the date the Restricted
Payment occurs (treating such period as a single accounting period);
(x) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by Doe Run from any person (other than
a Subsidiary of Doe Run) from the issuance and sale subsequent to the Issue
Date of Qualified Capital Stock of Doe Run (excluding (A) Qualified Capital
Stock paid as a dividend on any Capital Stock or as interest on any
Indebtedness, (B) any net proceeds from issuances and sales financed
directly or indirectly using funds borrowed from Doe Run or any Subsidiary
of Doe Run, until and to the extent such borrowing is repaid and (C) any net
proceeds from any Equity Offering which are used to redeem Fixed Rate Notes
pursuant to, and in accordance with, the provisions described under the
caption "--Optional Redemption--Optional Redemption upon of Fixed Rate Notes
Equity Offerings" above);
(y) 100% of the aggregate net proceeds, including the Fair Market Value
of property other than cash, received by Doe Run from any person (other than
a Subsidiary of Doe Run) from the issuance and sale of Disqualified Capital
Stock and/or Indebtedness, in each case that has been converted into or
exchanged for Qualified Capital Stock of Doe Run after the Issue Date; and
(z) without duplication, the sum of (1) the aggregate amount returned in
cash on or with respect to Investments (other than Permitted Investments)
made subsequent to the Issue Date whether through interest payments,
principal payments, dividends or other distributions or payments, (2) the
net cash proceeds received by Doe Run or any Restricted Subsidiary from the
disposition of all or any portion of such Investments (other than to a
Subsidiary of Doe Run) and (3) upon redesignation of an Unrestricted
Subsidiary as a Restricted Subsidiary, the Fair Market Value of such
Subsidiary; PROVIDED, HOWEVER, that the sum of clauses (1),(2) and (3) above
shall not exceed the aggregate amount of all such Investments made
subsequent to the Issue Date.
The foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of its
declaration if the dividend would have been permitted on the date of
declaration;
(2) the acquisition of Capital Stock of Doe Run or Indebtedness of Doe
Run or any Guarantor either (i) solely in exchange for shares of Qualified
Capital Stock of Doe Run or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of Doe
Run) of shares of Qualified Capital Stock of Doe Run;
(3) the acquisition of Indebtedness of Doe Run or any Guarantor that is
expressly subordinate in right of payment to the Notes or such Guarantor's
Guarantee, as the case may be, either (i) solely in exchange for
Indebtedness of Doe Run or such Guarantor which is expressly subordinate in
right of payment to the Notes or such Guarantor's Guarantee, as the case may
be, at least to the extent that the Indebtedness being acquired is
subordinated to the Notes or such Guarantor's Guarantee, as the case may be,
and has no scheduled principal prepayment dates prior to the scheduled final
maturity date of the Indebtedness being exchanged or (ii) through the
application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of Doe Run) of Indebtedness of Doe Run or such
Guarantor which is expressly subordinate in right of payment to the Notes or
such Guarantor's Guarantee, as the case may be, at least to the extent that
the Indebtedness being acquired is subordinated to the Notes or such
Guarantor's Guarantee, as the case may be, and has no scheduled principal
prepayment dates prior to the scheduled final maturity date of the
Indebtedness being refinanced;
(4) the making of payments by Doe Run or any of the Restricted
Subsidiaries to DRA or Renco (A) no earlier than ten days prior to the date
on which Renco is required to make its payments to the Internal Revenue
Service or the applicable state taxing authority, as the case may be,
pursuant to a tax sharing agreement (which tax sharing agreement provides
that the payments thereunder shall not
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exceed the amount Doe Run and its subsidiaries would have been required to
pay for taxes on a stand-alone basis, except that Doe Run and its
Subsidiaries will not have the benefit of any of its tax loss carryforwards
unless such tax losses were a result of timing differences between Doe Run's
and its Subsidiaries' accounting for tax and financial reporting purposes,
and which tax sharing agreement also provides that transactions between Doe
Run, DRA and Renco and Renco's other Subsidiaries are accounted for on a
cash basis and not on an accrual basis) and (B) to reimburse DRA or Renco
for out of pocket insurance payments made by DRA or Renco on behalf of Doe
Run and its Subsidiaries;
(5) the payment by Doe Run or any of the Restricted Subsidiaries of a
management fee to Renco in an amount not to exceed $200,000 in any month;
(6) the repurchase from Renco on the Issue Date of Doe Run's outstanding
2,500 shares of preferred stock, par value $1,000 per share, including the
payment of accrued and unpaid dividends thereon, in an aggregate amount of
approximately $2.8 million; and
(7) the payment on the Issue Date of a transaction fee to Renco in an
amount of approximately $2.2 million;
PROVIDED that in the case of clauses (2), (3) and (5), no Default or Event of
Default shall have occurred and be continuing at the time of such payment or as
a result thereof.
In determining the aggregate amount of Restricted Payments permissible under
clause (ii) of the first paragraph of this section, amounts expended, incurred
or outstanding pursuant to clauses (1) and (2) (but not pursuant to clauses (3),
(4), (5), (6) or (7)) of the second paragraph of this section shall be included
as Restricted Payments; PROVIDED that any proceeds received from the issuance of
Qualified Capital Stock pursuant to clause (2) of the second paragraph of this
section shall be included in calculating the amount referred to in clause (x) or
clause (y), as the case may be, of the first paragraph of this section.
LIMITATION ON SALE OF ASSETS
Doe Run will not, and will not permit any of the Restricted Subsidiaries to,
consummate any Asset Sale unless (i) such Asset Sale is for at least Fair Market
Value, (ii) at least 80% of the consideration therefrom received by Doe Run or
such Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii)
Doe Run or such Restricted Subsidiary shall apply the Net Cash Proceeds of such
Asset Sale within 270 days of receipt thereof, as follows:
(a) first, to repay (and, in the case of any revolving credit facility,
effect a permanent reduction in the commitment thereunder) any Indebtedness
secured by the assets involved in such Asset Sale or otherwise required to
be repaid with the proceeds thereof; and
(b) second, with respect to any Net Cash Proceeds remaining after
application pursuant to the preceding paragraph (a) (the "Available
Amount"), Doe Run shall make an offer to purchase (the "Asset Sale Offer")
from all Holders of Notes, up to a maximum principal amount (expressed as a
multiple of $1,000) of Notes equal to the Available Amount at a purchase
price equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER, that
Doe Run will not be required to apply pursuant to this paragraph (b) Net
Cash Proceeds received from any Asset Sale if, and only to the extent that,
such Net Cash Proceeds are applied to a Related Business Investment within
270 days of such Asset Sale; PROVIDED, FURTHER, that if at any time any
non-cash consideration received by Doe Run or any Restricted Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or sold
or otherwise disposed of for cash, then such conversion or disposition shall
be deemed to constitute an Asset Sale under the Indenture and the Net Cash
Proceeds thereof shall be applied in accordance with this "Limitation on
Sale of Assets" covenant; and PROVIDED, FURTHER, that Doe Run may defer the
Asset Sale Offer until there is an aggregate unutilized Available Amount
equal to or in excess of $5 million resulting from one or more Asset Sales
(at which time, the entire unutilized Available Amount, and not just the
amount in excess of $5 million, shall be applied as required pursuant to
this paragraph). To the extent the Asset Sale Offer is not fully subscribed
to by Holders of the Notes, Doe Run and the Restricted Subsidiaries may
retain such unutilized portion of the Available Amount and use it for any
purpose not prohibited by the Indenture.
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In the event of the transfer of substantially all (but not all) of the
property and assets of Doe Run and the Restricted Subsidiaries as an entirety to
a person in a transaction permitted under "--Merger, Consolidation, Etc." below,
the successor corporation shall be deemed to have sold the properties and assets
of Doe Run and the Restricted Subsidiaries not so transferred for purposes of
this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the Fair
Market Value of such properties and assets of Doe Run or the Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notice of an Asset Sale Offer will be mailed to the record Holders as shown
on the register of Holders not less than 30 days nor more than 60 days before
the payment date for the Asset Sale Offer, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Asset Sale Offer, Holders may elect to tender their Notes in whole or in
part in integral multiples of $1,000 principal amount at maturity in exchange
for cash. To the extent Holders properly tender Notes in an amount exceeding the
Available Amount, Notes of tendering Holders will be repurchased on a
proportionate basis (based on amounts tendered). An Asset Sale Offer shall
remain open for a period of 20 business days or such longer period as may be
required by law.
If an offer is made to repurchase the Notes pursuant to an Asset Sale Offer,
Doe Run will comply with all tender offer rules under state and Federal
securities laws, including, but not limited to, Section 14(e) under the Exchange
Act and Rule 14e-1 thereunder, to the extent applicable to such offer.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, Doe Run shall be obligated to
make an offer to purchase (a "Change of Control Offer"), and shall, subject to
the provisions described below, purchase, on a business day (the "Change of
Control Purchase Date") not more than 60 nor less than 45 days following the
occurrence of the Change of Control, all of the then outstanding Notes at a
purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount of the Notes plus accrued and unpaid interest thereon to the
date of purchase. Doe Run shall, subject to the provisions described below, be
required to purchase all Notes validly tendered into the Change of Control Offer
and not withdrawn. The Change of Control Offer is required to remain open for at
least 20 business days and until the close of business on the Change of Control
Purchase Date. See the definition of "Change of Control" under the caption
"--Certain Definitions" for a description of the events that would constitute a
Change of Control.
In order to effect such Change of Control Offer, Doe Run shall, not later
than the 30th day after the Change of Control, mail to each Holder of Notes
notice of the Change of Control Offer, which notice shall govern the terms of
the Change of Control Offer and shall state, among other things, the procedures
that Holders of Notes must follow to accept the Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that Doe Run
will have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes that might be delivered by Holders of Notes seeking to
accept the Change of Control Offer. Doe Run shall not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance
with the requirements applicable to a Change of Control Offer made by Doe Run
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
In addition to the provisions of the Indenture relating to a Change of
Control described in this section, the Revolving Credit Facilities ($10.3
million outstanding as of June 30, 1998) contain provisions that would trigger
an event of default in the event of a change of control. See "Description of New
Revolving Credit Facilities--New Doe Run Revolving Credit Facility--Events of
Default" and "--New Doe Run Peru Revolving Credit Facility--Events of Default."
Doe Run and the Guarantors could enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that could affect their
respective capital structure or the value of the Notes, but that would not
constitute a Change of Control or a change of control under the Revolving Credit
Facilities. Doe Run's and the Guarantors' ability to repurchase Notes following
a Change of Control, or to repay indebtedness outstanding under the
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Revolving Credit Facilities following a change of control, may be limited by Doe
Run's and the Guarantors' then existing financial resources.
In the event that a Change of Control occurs and Doe Run is required to
purchase the Notes as described above, Doe Run will comply with all tender offer
rules under state and Federal securities laws, including, but not limited to,
Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to the extent
applicable to such offer.
LIMITATION ON LIENS
Doe Run will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Liens upon
any properties or assets of Doe Run (including, without limitation, any Capital
Stock of a Restricted Subsidiary) or any of the Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or on any income or
profits therefrom, or assign or otherwise convey any right to receive income or
profits thereon other than (i) Liens existing on the Issue Date to the extent
and in the manner such Liens are in effect on the Issue Date, (ii) Liens on the
non-fixed assets of Doe Run and the Restricted Subsidiaries securing
Indebtedness under the Revolving Credit Facilities and (iii) Permitted Liens.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Doe Run will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to: (a) pay dividends or make any other distributions on its Capital
Stock, or any other interest or participation in, or measured by, its profits,
owned by Doe Run or by any Restricted Subsidiary, or pay any Indebtedness owed
to Doe Run or any Restricted Subsidiary; (b) make loans or advances to Doe Run
or any Restricted Subsidiary; or (c) transfer any of its properties or assets to
Doe Run or to any Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of: (i) applicable law; (ii) the
Indenture; (iii) customary non-assignment provisions of any lease governing a
leasehold interest of Doe Run or any Restricted Subsidiary; (iv) any instrument
governing Indebtedness of a person acquired by Doe Run or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or restriction is
not applicable to any person, or the properties or assets of any person, other
than the person or its Subsidiaries so acquired; (v) any written agreement
existing on the Issue Date or amendments or modifications thereto, PROVIDED that
no such agreement shall be modified or amended in such a manner as to make the
encumbrance or restriction more restrictive than as in effect on the Issue Date;
(vi) Indebtedness existing and as in effect on the Issue Date, including,
without limitation, the U.S. Revolving Credit Facility or any refinancing,
refunding, replacement or extensions thereof, PROVIDED that any such encumbrance
or restriction contained in any refinancing, refunding, replacement or extension
of the U.S. Revolving Credit Facility shall be no more restrictive than such
encumbrance or restriction contained in the U.S. Revolving Credit Facility as in
effect on the Issue Date; (vii) Indebtedness under the Peruvian Revolving Credit
Facility or any refinancings, refundings, replacements or extensions thereof,
PROVIDED that such restrictions do not prohibit payments pursuant to the
intercompany agreements between Doe Run and the Restricted Subsidiaries as in
effect on the Issue Date or pursuant to any replacements thereof or pursuant to
any comparable agreements thereto, in each case providing for the same or
similar payments; and (viii) Indebtedness incurred in accordance with the
Indenture, PROVIDED that such encumbrance or restriction shall be no more
restrictive than any encumbrance or restriction contained in the Revolving
Credit Facilities.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS
Doe Run will not, and will not permit any of the Restricted Subsidiaries to,
enter into any Sale/ leaseback. Notwithstanding the foregoing, Doe Run and the
Restricted Subsidiaries may enter into a Sale/ leaseback if (i) after giving pro
forma effect to any such Sale/leaseback, Doe Run and the Restricted Subsidiaries
shall be in compliance with the "Limitation on Indebtedness" covenant described
above, (ii) the sale price in such Sale/leaseback is at least equal to the Fair
Market Value of such property and
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(iii) Doe Run or such Restricted Subsidiary shall apply the Net Cash Proceeds of
the sale as provided under "Limitation on Sale of Assets" above, to the extent
required by such covenant.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
(a) Doe Run will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with or for the benefit of an
Affiliate of Doe Run or any Restricted Subsidiary (other than transactions
between Doe Run and a Wholly-Owned Restricted Subsidiary or between Wholly-Owned
Restricted Subsidiaries) (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under (b) below and (y) Affiliate Transactions (including
lease transactions) on terms that are no less favorable to Doe Run or the
relevant Restricted Subsidiary in the aggregate than those that might reasonably
have been obtained in a comparable transaction by Doe Run or such Restricted
Subsidiary on an arm's-length basis (as determined in good faith by the Board of
Directors of Doe Run, as evidenced by a Board Resolution) from a person that is
not an Affiliate; PROVIDED that except as otherwise provided under (b) below,
neither Doe Run nor any of the Restricted Subsidiaries shall enter into an
Affiliate Transaction or series of related Affiliate Transactions involving or
having a value of more than $5.0 million unless Doe Run or such Restricted
Subsidiary, as the case may be, has received an opinion from an Independent
Financial Advisor, with a copy thereof to the Trustee, to the effect that the
financial terms of such Affiliate Transaction are fair and reasonable to Doe Run
or such Restricted Subsidiary, as the case may be, and such terms are no less
favorable to Doe Run or such Restricted Subsidiary, as the case may be, than
those that could be obtained in a comparable transaction on an arm's-length
basis with a person that is not an Affiliate.
(b) The foregoing provisions shall not apply to (i) any Restricted Payment
that is made in compliance with the covenant entitled "Limitation on Restricted
Payments," (ii) payments by Doe Run or any of the Restricted Subsidiaries to
Renco or DRA of the amounts set forth in clauses (4), (5), (6) and (7) of the
second paragraph of the covenant entitled "Limitation on Restricted Payments"
and (iii) reasonable and customary regular fees to directors of Doe Run and the
Restricted Subsidiaries who are not employees of Doe Run and the Restricted
Subsidiaries.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
Doe Run will not permit any Restricted Subsidiary to issue any Preferred
Stock (except to Doe Run or a Wholly-Owned Restricted Subsidiary), nor will Doe
Run permit any person (other than Doe Run or a Wholly-Owned Restricted
Subsidiary) to hold any Preferred Stock of a Restricted Subsidiary.
QUALIFYING INVESTMENT REQUIREMENTS
At least semi-annually commencing April 30, 1998 until $120 million has been
expended by Doe Run Peru in the manner required by Section 4.5 of the
Subscription Agreement, (i) Doe Run Peru shall make Investments in Doe Run
Mining, which Investments, including any interest payable thereon, shall be
represented by promissory notes (the "Qualifying Investments Promissory Notes"),
in an amount equal to Doe Run Peru's expected Qualifying Investments for the
following six months and (ii) Doe Run Mining shall use the proceeds of each such
Qualifying Investment to prepay in part the promissory note issued by Doe Run
Mining to Metaloroya on October 23, 1997, the date of consummation of the
Acquisition; PROVIDED, FURTHER, that pending utilization of such proceeds for
Qualifying Investments, Doe Run Peru may repay outstanding loans under the
Peruvian Revolving Credit Facility.
FUTURE GUARANTEES
If Doe Run or any of the Restricted Subsidiaries transfers or causes to be
transferred, in one transaction or a series of related transactions, any
property to any Restricted Subsidiary that is not a Guarantor, or if Doe Run or
any of the Restricted Subsidiaries shall organize, acquire or otherwise invest
in another Restricted Subsidiary, in each case having total assets with a book
value in excess of $1 million, then such transferee or acquired or other
Restricted Subsidiary shall (i) execute and deliver to the Trustee
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a supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Subsidiary shall unconditionally guarantee all of Doe
Run's obligations under the Notes and the Indenture on the terms set forth in
the Indenture and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and enforceable
obligation of such Restricted Subsidiary. Thereafter, such Restricted Subsidiary
shall be a Guarantor for all purposes of the Indenture. Notwithstanding the
foregoing, the following Restricted Subsidiaries shall not be required to become
Guarantors under the Indenture: (i) DR Exploration; (ii) any Restricted
Subsidiary formed or acquired in connection with Related Business Investments
made by Doe Run or any of the Restricted Subsidiaries pursuant to clause (iii)
of the definition of "Permitted Investment"; and (iii) any Restricted Subsidiary
which is not permitted by law to become a Guarantor under the Indenture.
CONDUCT OF BUSINESS
Doe Run and the Restricted Subsidiaries will not engage in any businesses
which are not the same, similar or reasonably related to the businesses in which
Doe Run and the Restricted Subsidiaries are engaged on the Issue Date.
REPORTS
So long as any Note is outstanding, Doe Run will file with the Commission
and, within 15 days after it files them with the Commission, file with the
Trustee and mail or cause the Trustee to mail to the Holders at their addresses
as set forth in the register of the Notes copies of the annual reports on Form
10-K and of the information, documents and other reports which Doe Run is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act or which Doe Run would be required to file with the Commission if
Doe Run then had a class of securities registered under the Exchange Act. Such
financial information shall include annual reports containing consolidated
financial statements and notes thereto, together with an opinion thereon
expressed by an independent public accounting firm, management's discussion and
analysis of financial condition and results of operations as well as quarterly
reports containing unaudited condensed consolidated financial statements for the
first three quarters of every fiscal year.
MERGER, CONSOLIDATION, ETC.
Doe Run will not, in a single transaction or series of related transactions,
consolidate or merge with or into, or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets to, any person or
adopt a Plan of Liquidation unless: (i) either (1) Doe Run shall be the
surviving or continuing corporation or (2) the person (if other than Doe Run)
formed by such consolidation or the person into which Doe Run is merged or the
person which acquires by sale, assignment, transfer, lease, conveyance or
otherwise all or substantially all of the assets of Doe Run or in the case of a
Plan of Liquidation, the person to which assets of Doe Run have been transferred
(x) shall be a corporation organized and validly existing under the laws of the
United States or any State thereof or the District of Columbia and (y) shall
expressly assume, by supplemental indenture (in form and substance satisfactory
to the Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on, all of the
Notes, and the performance of every covenant of the Indenture, the Notes and the
Registration Rights Agreement on the part of Doe Run to be performed or
observed; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), Doe Run (in the case of
clause (1) of the foregoing clause (i)) or such person (in the case of clause
(2) thereof) (a) shall have a Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments relating to such
transaction) equal to or greater than the Consolidated Net Worth of Doe Run
immediately prior to such transaction and (b) shall be able to incur (assuming a
market rate of interest with respect thereto) at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) as if it were Doe Run under
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paragraph (a) of "--Certain Covenants--Limitation on Indebtedness" above; (iii)
immediately before and after giving effect to such transaction and the
assumption contemplated by clause (y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; (iv) Doe Run or such person shall
have delivered to the Trustee (A) an Officers' Certificate and an Opinion of
Counsel (which counsel shall not be in-house counsel of Doe Run) each stating
that such consolidation, merger, conveyance, transfer or lease or Plan of
Liquidation and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this provision of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied and (B) a certificate from Doe Run's independent
certified public accountants stating that Doe Run has made the calculations
required by clause (ii) above in accordance with the terms of the Indenture; and
(v) neither Doe Run nor any Restricted Subsidiary nor such person, as the case
may be, would thereupon become obligated with respect to any Indebtedness
(including Acquired Indebtedness), nor any of its property or assets subject to
any Lien, unless Doe Run or such Restricted Subsidiary or such person, as the
case may be, could incur such Indebtedness (including Acquired Indebtedness) or
create such Lien under the Indenture (giving effect to such person being bound
by all the terms of the Indenture).
Notwithstanding the foregoing, (i) the merger of Doe Run with an Affiliate
incorporated solely for the purpose of incorporating Doe Run in another
jurisdiction shall be permitted and (ii) the merger of Doe Run and any
Restricted Subsidiary shall be permitted.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries, the Capital Stock of which constitutes all or substantially all of
the properties and assets of Doe Run, shall be deemed to be the transfer of all
or substantially all of the properties and assets of Doe Run.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Sale of
Assets") will not, and Doe Run will not cause or permit any Guarantor to,
consolidate with or merge with or into or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its assets to any person
(other than a merger of Doe Run with any Guarantor or a merger of Guarantors)
unless: (i) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or other
disposition shall have been made is a corporation organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia or an entity organized and validly existing under the laws of the
foreign jurisdiction in which such Guarantor is organized; (ii) such entity
assumes by supplemental indenture all of the obligations of such Guarantor under
such Guarantee; and (iii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing.
Upon any such consolidation, merger, conveyance, lease or transfer in
accordance with the foregoing, the successor person formed by such consolidation
or into which Doe Run or any other Guarantor, as the case may be, is merged or
to which such conveyance, lease or transfer is made will succeed to, and be
substituted for, and may exercise every right and power of, Doe Run or such
Guarantor, as the case may be, under the Indenture with the same effect as if
such successor had been named as Doe Run or such Guarantor, as the case may be,
therein, and thereafter (except in the case of a sale, assignment, transfer,
lease, conveyance or other disposition) the predecessor corporation will be
relieved of all further obligations and covenants under the Indenture and the
Notes, in the case of Doe Run, or its Guarantee, in the case of any Guarantor.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(a) Doe Run defaults in the payment of interest on the Notes when the
same becomes due and payable and the Default continues for a period of 30
days;
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(b) Doe Run defaults in the payment of the stated principal amount of
the Notes when the same becomes due and payable at maturity, upon
acceleration or redemption pursuant to an offer to purchase required under
the Indenture or otherwise;
(c) Doe Run or any of the Guarantors fails to comply in all material
respects with any of their other agreements contained in the Notes or the
Indenture (including, without limitation, under the provisions of "--Certain
Covenants--Change of Control," "--Certain Covenants--Limitation on Sale of
Assets" and "--Merger, Consolidation, Etc."), and the Default continues for
the period and after the notice specified below;
(d) there shall be any default or defaults in the payment of principal
or interest under one or more agreements, instruments, mortgages, bonds,
debentures or other evidences of Indebtedness under which Doe Run or any
Restricted Subsidiary then has outstanding Indebtedness in excess of $7.5
million, individually or in the aggregate;
(e) there shall be any default or defaults under one or more agreements,
instruments, mortgages, bonds, debentures or other evidences of Indebtedness
under which Doe Run or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $7.5 million, individually or in the aggregate,
and such default or defaults have resulted in the acceleration of the
maturity of such Indebtedness;
(f) Doe Run or any of the Restricted Subsidiaries fails to perform
(after giving effect to any applicable grace periods) any term, covenant,
condition or provision of one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of Indebtedness under which Doe Run or
any of the Restricted Subsidiaries then has outstanding Indebtedness in
excess of $7.5 million, individually or in the aggregate, and such failure
to perform results in the commencement of judicial proceedings to foreclose
upon any assets of Doe Run or any of the Restricted Subsidiaries securing
such Indebtedness or the holders of such Indebtedness shall have exercised
any right under applicable law or applicable security documents to take
ownership of any such assets in lieu of foreclosure;
(g) one or more judgments, orders or decrees for the payment of money
which either individually or in the aggregate at any one time exceed $7.5
million shall be rendered against Doe Run or any of the Restricted
Subsidiaries by a court of competent jurisdiction and shall remain
undischarged and unbonded for a period (during which execution shall not be
effectively stayed) of 60 consecutive days after such judgment becomes final
and nonappealable;
(h) Doe Run or any Significant Subsidiary (1) admits in writing its
inability to pay its debts generally as they become due, (2) commences a
voluntary case or proceeding under any Bankruptcy Law with respect to
itself, (3) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law,
(4) consents to the appointment of a Custodian of it or for substantially
all of its property, (5) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it, (6) makes a general
assignment for the benefit of its creditors or (7) takes any corporate
action to authorize or effect any of the foregoing;
(i) a court of competent jurisdiction enters a judgment, decree or order
for relief in respect of Doe Run or any Significant Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law which shall (1)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of Doe Run or any Significant
Subsidiary, (2) appoint a Custodian of Doe Run or any Significant Subsidiary
or for substantially all of its property or (3) order the winding-up or
liquidation of its affairs, and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(j) any of the Guarantees of any Significant Subsidiary ceases to be in
full force and effect or any of such Guarantees is declared to be null and
void and unenforceable or any of such Guarantees is found to be invalid or,
any such Guarantor denies its liability under its Guarantee (other than by
reason of release of a Guarantor in accordance with the terms of the
Indenture).
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A Default under clause (c) above (other than in the case of any Default
under the provisions of "--Certain Covenants--Limitation on Sale of Assets,"
"--Certain Covenants--Change of Control" or "--Merger, Consolidation, Etc.,"
which Defaults shall be Events of Default without the notice and without the
passage of time specified in this paragraph) is not an Event of Default until
the Trustee notifies Doe Run, or the Holders of at least 25% in principal amount
of the outstanding Notes notify Doe Run and the Trustee, of the Default and Doe
Run does not cure the Default within 30 days after receipt of the notice. The
notice must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default." Such notice shall be given by the Trustee if so
requested by the Holders of at least 25% in principal amount of the Notes then
outstanding.
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
then outstanding Notes may declare the unpaid principal of, premium, if any, and
accrued and unpaid interest on, all the Notes then outstanding to be due and
payable, by a notice in writing to Doe Run (and to the Trustee, if given by
Holders) and upon such declaration such principal amount, premium, if any, and
accrued and unpaid interest will become immediately due and payable,
notwithstanding anything contained in the Indenture or the Notes to the
contrary. If an Event of Default specified in clause (h) or (i) above occurs,
all unpaid principal of, and premium, if any, and accrued and unpaid interest
on, the Notes then outstanding will IPSO FACTO become immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee, the Trustee is under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable indemnity. Subject to all provisions of the Indenture and applicable
law, the Holders of a majority in aggregate principal amount of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. The Trustee may withhold from
Holders notice of any continuing Default or Event of Default (except a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the Notes or that resulted from the failure to comply with the
provisions of "--Certain Covenants--Change of Control" or "--Merger,
Consolidation, Etc.") if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may rescind an acceleration and its
consequences if all existing Events of Default (other than the nonpayment of
principal of and premium, if any, and interest on the Notes which has become due
solely by virtue of such acceleration) have been cured or waived and if the
rescission would not conflict with any judgment or decree. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding may, on behalf of the Holders of all the Notes, waive any past
Default or Event of Default under the Indenture and its consequences, except a
Default in the payment of principal of or premium, if any, or interest on the
Notes or in respect of a covenant or provision of the Indenture which cannot be
modified or amended without the consent of all Holders.
Under the Indenture, Doe Run is required to provide an Officers' Certificate
to the Trustee promptly upon any such officer obtaining knowledge of any Default
or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof. In addition, for each fiscal year, Doe Run's
independent certified public accountants are required to certify to the Trustee
that they have reviewed the terms of the Indenture and the Notes as they relate
to accounting matters and whether, during the course of their audit examination,
any Default or Event of Default has come to their attention, and specifying the
nature and period of existence of any such Default or Event of Default.
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AMENDMENT, SUPPLEMENT AND WAIVER
From time to time, Doe Run, the Guarantors and the Trustee may, without the
consent of the Holders, amend, waive or supplement the Indenture or the Notes
for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the TIA or making any change that does not adversely affect the
rights of any Holder. In addition, the Indenture contains provisions permitting
Doe Run, the Guarantors and the Trustee, with the consent of the Holders of not
less than a majority in aggregate principal amount of the then outstanding
Notes, to enter into any supplemental indenture for the purpose of adding,
changing or eliminating any of the provisions of the Indenture or of modifying
in any manner the rights of the Holders under the Indenture; PROVIDED that no
such supplemental indenture may without the consent of the Holder of each
outstanding Note affected thereby: (i) reduce the amount of Notes whose Holders
must consent to an amendment or waiver; (ii) reduce the rate of, or extend the
time for payment of, interest, including defaulted interest, on any Note; (iii)
reduce the principal of or premium on or change the fixed maturity of any Note;
(iv) make the principal of, or interest on, any Note payable in money other than
as provided for in the Indenture and the Notes; (v) make any change in
provisions relating to waivers of defaults, the ability of Holders to enforce
their right under the Indenture or in the matters discussed in these clauses (i)
through (x); (vi) waive a default in the payment of principal of or interest on,
or redemption or repurchase payment with respect to, any Notes, including,
without limitation, a failure to make payment when required upon a Change of
Control or after an Asset Sale Offer; (vii) adversely affect the ranking of the
Notes or the Guarantees in any material respect; (viii) change the Maturity Date
or alter the redemption provisions in a manner adverse to Holders; (ix) after
Doe Run's obligation to purchase the Notes arises thereunder, amend, modify or
change the obligation of Doe Run to make and consummate a Change of Control
Offer in the event of a Change of Control or an Asset Sale Offer in the event of
an Asset Sale or waive any default in the performance thereof or modify any of
the provisions or definitions with respect to any such offers; or (x) release
the Guarantee of any Significant Subsidiary.
DISCHARGE; DEFEASANCE
The Indenture provides that Doe Run and the Guarantors may terminate their
obligations under the Notes, the Guarantees and the Indenture if: (i) all Notes
previously authenticated and delivered have been delivered to the Trustee for
cancellation or Doe Run and the Guarantors have paid all sums payable by them
thereunder, or (ii) Doe Run has irrevocably deposited or caused to be deposited
with the Trustee or the Paying Agent and conveyed all right, title and interest
for the benefit of the Holders of such Notes, under the terms of an irrevocable
trust agreement in form and substance satisfactory to the Trustee, as trust
funds in trust solely for the benefit of the Holders for that purpose, money or
U.S. government obligations maturing as to principal and interest in such
amounts and at such times as are sufficient without consideration of any
reinvestment of such interest to pay principal of, premium, if any, and interest
on such outstanding Notes to maturity; PROVIDED that, among other things, Doe
Run shall have delivered to the Trustee (i) either (a) in the case of a legal
defeasance, a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders of such Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of Doe Run's exercise
of its option under the defeasance provision of the Indenture and will be
subject to Federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such option had not been exercised
or (b) an Opinion of Counsel to the same effect as the ruling described in
clause (a) above and, in the case of a legal defeasance, accompanied by a ruling
to that effect published by the Internal Revenue Service, unless there has been
a change in the applicable Federal income tax since the date of the Indenture
such that a ruling from the Internal Revenue Service is no longer required, and
(ii) an Opinion of Counsel to the effect that, assuming no intervening
bankruptcy of Doe Run between the date of deposit and the 91st day following the
date of deposit and that no Holder is an insider of Doe Run, after the passage
of 90 days following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally. Certain obligations of Doe Run and the
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Guarantors under the Indenture or the Notes, including the payment of interest
and principal, shall remain in full force and effect until such Notes have been
paid in full. Notwithstanding the foregoing, the ruling of the Internal Revenue
Service and the Opinion of Counsel required by clause (i) above with respect to
a legal defeasance need not be delivered if all Notes not theretofore delivered
to the Trustee for cancellation (x) have become due and payable, (y) will become
due and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of Doe Run.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
THE TRUSTEE
State Street Bank and Trust Company is serving as Trustee under the
Indenture.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of Doe Run or the
Guarantors, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or otherwise.
Subject to the TIA, the Trustee will be permitted to engage in other
transactions; PROVIDED that if the Trustee acquires any conflicting interest as
described in the TIA, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary (Restricted
Subsidiary, in the case of Doe Run) or assumed in connection with the
acquisition of assets from such person, including, without limitation,
Indebtedness incurred by such person in connection with, or in anticipation or
contemplation of, such person becoming a Subsidiary (Restricted Subsidiary, in
the case of Doe Run) or such acquisition.
"Acquisition" means the acquisition on October 23, 1997 by Doe Run Peru of
Metaloroya pursuant to the Subscription Agreement.
"Affiliate" of any specified person means any other person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative of the
foregoing. For purposes of "--Certain Covenants--Limitation on Transactions with
Affiliates," the term "Affiliate" shall include any person who, as a result of
any transaction described therein, would become an Affiliate.
"Asset Acquisition" means (i) an Investment by Doe Run or any Restricted
Subsidiary in any other person pursuant to which such person shall become a
Restricted Subsidiary or a Subsidiary of a Restricted Subsidiary or shall be
merged with Doe Run or any Restricted Subsidiary or (ii) the acquisition by Doe
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Run or any Restricted Subsidiary of the assets of any person which constitute
all or substantially all of the assets of such person or any division or line of
business of such person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment or other transfer for value by Doe Run or any of the
Restricted Subsidiaries (including, without limitation, any Sale/leaseback) to
any person, in one transaction or a series of related transactions, of (i) any
Capital Stock of any Restricted Subsidiary; (ii) all or substantially all of the
properties and assets of any division or line of business of Doe Run or any
Restricted Subsidiary; or (iii) any other properties or assets of Doe Run or any
Restricted Subsidiary other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not include (i) any
sale, issuance, conveyance, transfer, lease or other disposition of properties
or assets that is consummated in accordance with the provisions of "-- Merger,
Consolidation, Etc." above and (ii) the sale of inventory in the ordinary course
of business.
"Bankruptcy Law" means Title 11 of the U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Capital Expenditures" shall mean payments for any assets, or improvements,
replacements, substitutions or additions thereto, that have a useful life of
more than one year and which, in accordance with GAAP consistently applied, are
required to be capitalized (as opposed to expensed in the period in which the
payment occurred).
"Capital Lease," as applied to any person, means any lease of (or any
agreement conveying the right to use) any property (whether real, personal or
mixed) by such person as lessee which, in conformity with GAAP, is required to
be accounted for as a capital lease on the balance sheet of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's capital stock, whether outstanding at the Issue Date or issued after
the Issue Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock (but excluding any debt security that is
exchangeable for or convertible into such capital stock).
"Capitalized Lease Obligation" means, as to any person, the obligations of
such person under a Capital Lease and, for purposes of the Indenture, the amount
of such obligations at any date shall be the capitalized amount of such
obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within two years from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within two years from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than two years from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or
bankers' acceptances maturing within two years from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $500,000,000; (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above. Notwithstanding the foregoing,
for purposes of clause (i) of the definition of "Permitted Investment," 20% of
the Cash Equivalents may include securities having a rating of at least BBB by
S&P and Baa by Moody's.
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"Centromin" shall mean Empresa Minera del Centro del Peru S.A.
"Change of Control" means the occurrence of one or more of the following
events: (i) any direct or indirect sale, lease, exchange or other transfer (in
one transaction or a series of related transactions) of all or substantially all
of the assets of Doe Run, DRA or Renco to any person or group of related persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (other than a
Permitted Holder or a Group controlled by a Permitted Holder), together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of the Indenture); (ii) the approval by the holders of Capital Stock of Doe Run,
DRA or Renco, as the case may be, of any plan or proposal for the liquidation or
dissolution of Doe Run, DRA or Renco, as the case may be (whether or not
otherwise in compliance with the provisions of the Indenture); (iii) the
acquisition in one or more transactions of "beneficial ownership" (within the
meaning of Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time) by any person, entity or Group (other than a
Permitted Holder or a Group controlled by any Permitted Holder) of any Capital
Stock of Doe Run, DRA or Renco such that, as a result of such acquisition, such
person, entity or Group either (A) beneficially owns (within the meaning of
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, more than
50% of Doe Run's, DRA's or Renco's then outstanding voting securities entitled
to vote on a regular basis in an election for a majority of the Board of
Directors of Doe Run, DRA or Renco or (B) otherwise has the ability to elect,
directly or indirectly, a majority of the members of Doe Run's, DRA's or Renco's
Board of Directors; or (iv) the shareholders of Renco as of the Issue Date and
the Permitted Holders shall cease to own at least 50% of the equity of Renco
owned by such shareholders on the Issue Date. Notwithstanding anything to the
contrary contained in this definition or in the Indenture, a merger of DRA with
and into Doe Run or Renco shall not constitute a "Change of Control" under the
Indenture.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any person, for any period, the
sum (without duplication) of (i) Consolidated Net Income, (ii) to the extent
Consolidated Net Income has been reduced thereby, all income taxes of such
person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run)
paid or accrued in accordance with GAAP for such period (other than income taxes
attributable to extraordinary, unusual or non-recurring gains or losses),
Consolidated Interest Expense (net of any interest income), amortization expense
(including amortization of deferred financing costs) and depletion and
depreciation expense and (iii) other non-cash items (other than non-cash
interest) reducing Consolidated Net Income (including, without limitation, any
non-cash charges in respect of post-employment benefits for health care, life
insurance and long- term disability benefits required in accordance with GAAP)
less other non-cash items increasing Consolidated Net Income, all as determined
on a consolidated basis for such person and its Subsidiaries (Restricted
Subsidiaries, in the case of Doe Run) in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of Consolidated EBITDA of such person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such person for the Four Quarter Period. For purposes of this definition, if the
Transaction Date occurs prior to the date on which four full fiscal quarters
have elapsed subsequent to the Issue Date and financial statements with respect
thereto are available, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated, in the case of Doe Run, after giving effect on a pro forma
basis to the issuance of the Notes and the application of the net proceeds
therefrom including the redemption of Doe Run's outstanding preferred stock on
the Issue Date as if the Notes were issued on the first day of the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes of
this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence of any Indebtedness (and the application of
the net
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proceeds therefrom) of such person or any of its Subsidiaries (Restricted
Subsidiaries, in the case of Doe Run) giving rise to the need to make such
calculation and any incurrence of other Indebtedness at any time on or after the
first day of the Four Quarter Period and on or prior to the Transaction Date
(the "Reference Period"), as if such incurrence occurred on the first day of the
Reference Period and (ii) any Asset Sales or Asset Acquisitions (including,
without limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such person or one of its Subsidiaries (Restricted
Subsidiaries, in the case of Doe Run) (including any person who becomes a
Subsidiary (Restricted Subsidiary, in the case of Doe Run) as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness) occurring during the Reference Period, as if such Asset Sale or
Asset Acquisition (including the incurrence, assumption or liability for any
such Indebtedness or Acquired Indebtedness) occurred on the first day of the
Reference Period. If such person or any of its Subsidiaries (Restricted
Subsidiaries, in the case of Doe Run) directly or indirectly guarantees
Indebtedness of a third person, the preceding sentence shall give effect to the
incurrence of such guaranteed Indebtedness as if such person or any Subsidiary
(Restricted Subsidiary, in the case of Doe Run) of such person had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (1) interest on Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date, and (2) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to accrue at the rate per annum
resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (i) Consolidated Interest Expense of such person
(net of any interest income) less non-cash amortization of deferred financing
costs and (ii) the product of (x) the amount of all dividends declared, paid or
accrued on Preferred Stock of such person during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated Federal, state, local and foreign
tax rate (expressed as a decimal number between 1 and 0) of such person during
such period (as reflected in the audited consolidated financial statements of
such person for the most recently completed fiscal year).
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such person
and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run) for such
period as determined on a consolidated basis in accordance with GAAP
consistently applied, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation and (d) all accrued interest, and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such person and its Subsidiaries (Restricted Subsidiaries, in
the case of Doe Run) during such period as determined on a consolidated basis in
accordance with GAAP consistently applied.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Subsidiaries (Restricted
Subsidiaries, in the case of Doe Run), on a consolidated basis for such period
determined in accordance with GAAP; PROVIDED that (i) the net income of any
person in which such person or any Subsidiary (Restricted Subsidiary, in the
case of Doe Run) of such person has an ownership interest with a third party
(other than a person that meets the definition of a Wholly-Owned Subsidiary
(Wholly-Owned Restricted Subsidiary, in the case of Doe Run)) shall be included
only to the extent of the amount that has actually been received by such person
or its Wholly-Owned Subsidiaries (Wholly-Owned Restricted Subsidiaries, in the
case of Doe Run) in the form of dividends or other distributions during such
period (subject to, in the case of any dividend or distribution received by a
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Wholly-Owned Subsidiary (Wholly-Owned Restricted Subsidiary, in the case of Doe
Run) of such person, the restrictions set forth in clause (ii) below) and (ii)
the net income of any Subsidiary (Restricted Subsidiary, in the case of Doe Run)
of such person that is subject to any restriction or limitation on the payment
of dividends or the making of other distributions shall be excluded to the
extent of such restriction or limitation; PROVIDED, FURTHER that there shall be
excluded (a) the net income (or loss) of any person (acquired in a pooling of
interests transaction) accrued prior to the date it becomes a Subsidiary
(Restricted Subsidiary, in the case of Doe Run) of such person or is merged into
or consolidated with such person or any Subsidiary (Restricted Subsidiary, in
the case of Doe Run) of such person, (b) any gain (or loss) (and related tax
effects) resulting from an Asset Sale by such person or any of its Subsidiaries
(Restricted Subsidiaries, in the case of Doe Run), (c) any extraordinary,
unusual or nonrecurring gains or losses (and related tax effects) in accordance
with GAAP and (d) any compensation-related expenses arising as a result of the
application of the net proceeds from the issuance of the Notes. For purposes of
the "Limitation on Restricted Payments" covenant, the amortization of deferred
financing costs relating to the issuance of the Notes shall be excluded from
this definition of "Consolidated Net Income."
"Consolidated Net Worth" means, with respect to any person at any date, the
sum of (i) the consolidated shareholder's equity of such person less the amount
of such shareholder's equity attributable to Disqualified Capital Stock of such
person and its Subsidiaries (Restricted Subsidiaries, in the case of Doe Run),
as determined on a consolidated basis in accordance with GAAP consistently
applied and (ii) the amount of any Preferred Stock of such person not included
in the shareholder's equity of such person in accordance with GAAP, which
Preferred Stock does not constitute Disqualified Capital Stock.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Capital Stock" means any class of Capital Stock which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable), or upon the happening of any event (other than a Change of
Control), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Maturity Date.
"Doe Run" means The Doe Run Resources Corporation, a New York corporation.
"Doe Run Cayman" means Doe Run Cayman Ltd., a Cayman Islands company.
"Doe Run Mining" means Doe Run Mining S.R. Ltda., a Peruvian company.
"Doe Run Peru" means Doe Run Peru S.R. Ltda., a Peruvian company.
"DRA" means DR Acquisition Corp., a Missouri corporation.
"DR Exploration" means Doe Run Exploration SA (Proprietary) Limited, a South
African corporation.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under undue pressure or
compulsion to complete the transaction. Fair Market Value of any asset of Doe
Run or the Restricted Subsidiaries shall be determined by the Board of Directors
of Doe Run acting in good faith and shall be evidenced by a Board Resolution
thereof delivered to the Trustee; PROVIDED that with respect to any Asset Sale
which involves in excess of $5 million, the Fair Market Value of any such asset
or assets shall be determined by an Independent Financial Advisor.
"FPI" means Fabricated Products Inc., a Delaware corporation.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means each of FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru
and any Restricted Subsidiary that in the future executes a supplemental
indenture pursuant to the covenant entitled "Future Guarantees" or otherwise in
which any such Restricted Subsidiary agrees to be bound by the terms of the
Indenture; PROVIDED that any person constituting a Guarantor as described above
shall cease to constitute a Guarantor when its respective Guarantee is released
in accordance with the terms of the Indenture.
"Hedging Agreement" shall mean any agreement with respect to (i) the hedging
of price risk associated with the purchase or sale of lead, copper, zinc, gold
and silver under which Doe Run or any Restricted Subsidiary is a party or
beneficiary and (ii) the hedging of currency risks in connection with funding
payroll expenses, so long as any such agreement has been entered into in the
ordinary course of business consistent with past price risk or currency
management practices of Doe Run and the Restricted Subsidiaries and not for
purposes of speculation.
"Indebtedness" means with respect to any person, without duplication, (i)
all obligations of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations (but not obligations under Operating Leases)
of such person, (iv) all obligations of such person issued or assumed as the
deferred purchase price of property or services, all conditional sale
obligations and all obligations under any title retention agreement (but
excluding trade accounts payable, accrued expenses and deferred taxes arising in
the ordinary course of business), (v) all obligations of such person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction entered into in the ordinary course of business, (vi)
all obligations of any other person of the type referred to in clauses (i)
through (v) which are secured by any Lien on any property or asset of such first
person and the amount of such obligation shall be the lesser of the value of
such property or asset or the amount of the obligation so secured, (vii) all
guarantees of Indebtedness by such person, (viii) Disqualified Capital Stock
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends, (ix) all obligations under interest
rate agreements or hedging agreements of such person and (x) any amendment,
supplement, modification, deferral, renewal, extension or refunding of any
liability of the types referred to in clauses (i) through (ix) above. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
Board of Directors of the person issuing such Disqualified Capital Stock.
Notwithstanding anything to the contrary contained herein or in the Indenture,
any obligation of Doe Run or any Restricted Subsidiary in the form of an
earn-out arrangement undertaken in connection with any acquisition of property
or assets by Doe Run or such Restricted Subsidiary, which obligation shall be
based upon increases in metal prices above price levels existing on the date of
such acquisition, shall not constitute Indebtedness under the Indenture.
"Independent Financial Advisor" means an accounting, appraisal or investment
banking firm of nationally recognized standing that is, in the reasonable and
good faith judgment of the Board of Directors of Doe Run, qualified to perform
the task for which such firm has been engaged and disinterested and independent
with respect to Doe Run and its Affiliates.
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"Interest Rate Protection Obligations" means the obligations of any person
pursuant to any arrangement with any other person, whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any person, any direct or indirect
advance, loan, guarantee or other extension of credit or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others or otherwise), or any
purchase or acquisition by such person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
person. Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices. For the purposes of
the "Limitation on Restricted Payments" covenant, the amount of any Investment
(other than an Investment covered by clause (z) of the first paragraph thereof)
shall be the original cost of such Investment plus the cost of all additional
Investments by Doe Run or any of the Restricted Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of dividends
or distributions in connection with such Investment or any other amounts
received in respect of such Investment.
"Issue Date" means the date on which the Notes offered hereby are originally
issued under the Indenture.
"Lien" means (x) any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind including, without limitation, any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute and (y) any agreement to enter into any of the foregoing.
"Maturity Date" means (i) with respect to the Floating Rate Notes, March 15,
2003 and (ii) with respect to the Fixed Rate Notes, March 15, 2005.
"Metaloroya" means Empresa Metalurgica La Oroya S.A., a Peruvian company,
prior to the merger of such entity with and into Doe Run Peru.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to Doe Run or any Restricted Subsidiary) net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a direct result of such Asset Sale and (iii) appropriate
amounts to be provided by Doe Run or any Restricted Subsidiary, as the case may
be, as a reserve required in accordance with GAAP consistently applied against
any liabilities associated with such Asset Sale and retained by Doe Run or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as reflected in
an Officers' Certificate delivered to the Trustee.
"Operating Lease" means, as applied to any person, any lease (including,
without limitation, leases that may be terminated by the lessee at any time) of
any property (whether real, personal or mixed) that is not a Capital Lease other
than any such lease under which that person is the lessor.
"Permitted Holders" means Ira Leon Rennert and his Affiliates, estate, heirs
and legatees, and the legal representatives of any of the foregoing, including,
without limitation, the trustee of any trust of which one or more of the
foregoing are the sole beneficiaries.
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"Permitted Indebtedness" means (i) any Indebtedness of Doe Run and the
Restricted Subsidiaries under (A) the U.S. Revolving Credit Facility in an
aggregate amount not to exceed $100.0 million in aggregate principal amount at
any time outstanding and (B) the Peruvian Revolving Credit Facility in an
aggregate principal amount not to exceed $60.0 million in aggregate principal
amount at any time outstanding, in each case plus any interest, fees and
expenses from time to time owed thereunder, (ii) the Notes issued in the Old
Notes Offering in an aggregate principal amount not to exceed $255.0 million and
the related Guarantees, (iii) any other Indebtedness of Doe Run and the
Restricted Subsidiaries outstanding on the Issue Date, (iv) purchase money
Indebtedness and any Indebtedness incurred for Capitalized Lease Obligations (A)
of Doe Run and the Restricted Subsidiaries (other than Doe Run Cayman and its
Subsidiaries) not to exceed $5.0 million in the aggregate at any time
outstanding and (B) of Doe Run Cayman and its Subsidiaries not to exceed $20.0
million in the aggregate at any time outstanding, (v) Interest Rate Protection
Obligations to the extent the notional principal amount of such Interest Rate
Protection Obligations does not exceed the principal amount of the Indebtedness
to which such Interest Rate Protection Obligations relate, and Hedging
Agreements, in each case entered into in the ordinary course of business, (vi)
additional Indebtedness of Doe Run and the Restricted Subsidiaries not to exceed
$25.0 million in the aggregate at any time outstanding, (vii) Indebtedness owed
by Doe Run or any of the Wholly-Owned Restricted Subsidiaries to Doe Run or any
Wholly-Owned Restricted Subsidiary; PROVIDED that this clause (vii) shall also
include Indebtedness indirectly between or among Doe Run and/or one or more of
the Wholly-Owned Restricted Subsidiaries through one or more financial
intermediaries, (viii) any renewals, extensions, substitutions, refundings,
refinancings or replacements of any Indebtedness described in the preceding
clauses (i), (ii) and (iii) above and this clause (viii), so long as such
renewal, extension, substitution, refunding, refinancing or replacement does not
result in an increase in the aggregate principal amount of the outstanding
Indebtedness represented thereby (except if such Indebtedness refinances
Indebtedness under the Revolving Credit Facilities or any other agreement
providing for subsequent borrowings, does not result in an increase in the
commitment available under the Revolving Credit Facilities or such other
agreement), and (ix) any guarantees of the foregoing.
"Permitted Investment" means (i) cash and Cash Equivalents, (ii) any
Investment by Doe Run or any of the Restricted Subsidiaries in Doe Run or any
Wholly-Owned Restricted Subsidiary; PROVIDED that this clause (ii) shall also
include indirect Investments by Doe Run and the Wholly-Owned Restricted
Subsidiaries in Doe Run or one or more of the Wholly-Owned Restricted
Subsidiaries through one or more financial intermediaries, (iii) Related
Business Investments by Doe Run or any of the Restricted Subsidiaries in joint
ventures, partnerships or persons (including Unrestricted Subsidiaries) that are
not Wholly-Owned Restricted Subsidiaries in an amount not to exceed $25.0
million in the aggregate at any one time outstanding, (iv) Investments by Doe
Run or any Restricted Subsidiary in another person, if as a result of such
Investment (a) such other person becomes a Wholly-Owned Restricted Subsidiary or
(b) such other person is merged or consolidated with or into, or transfers or
conveys all or substantially all of its assets to, Doe Run or a Wholly-Owned
Restricted Subsidiary, (v) Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of
delinquent obligations of, and other disputes with, customers and suppliers, in
each case arising in the ordinary course of business, (vi) the non-cash proceeds
of any Asset Sale, (vii) Investments under or pursuant to Interest Rate
Protection Obligations or Hedging Agreements, in each case in the ordinary
course of business, (viii) loans and advances to employees of Doe Run and the
Restricted Subsidiaries made in the ordinary course of business and (ix)
Investments represented by the Qualifying Investments Promissory Notes.
"Permitted Liens" means (i) pledges or deposits by such person under
worker's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which such person is a party, or
deposits to secure public statutory obligations of such person or deposits to
secure surety or appeal bonds to which such person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, (ii)
Liens imposed by law, such as landlords', carriers', warehousemen's and
mechanics' Liens or bankers' Liens incurred in the ordinary course of business
for sums which are not yet due or are
130
<PAGE>
being contested in good faith and for which adequate provision has been made,
(iii) Liens for taxes not yet subject to penalties for non-payment or which are
being contested in good faith and by appropriate proceedings, if adequate
reserve, as may be required by GAAP, shall have been made therefor, (iv) Liens
in favor of issuers of surety bonds or appeal bonds issued pursuant to the
request of and for the account of such person in the ordinary course of its
business, (v) Liens to support trade letters of credit issued in the ordinary
course of business, (vi) survey exceptions, encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions on the use of real property, (vii) Liens securing Indebtedness
permitted under clause (iv) of the definition of Permitted Indebtedness;
PROVIDED that the Fair Market Value of the asset at the time of the incurrence
of the Indebtedness subject to the Lien shall not exceed the principal amount of
the Indebtedness secured, (viii) Liens with respect to Acquired Indebtedness
permitted to be incurred in accordance with the provisions of "--Certain
Covenants--Limitation on Indebtedness" above; PROVIDED that such Liens secured
such Acquired Indebtedness at the time of the incurrence of such Acquired
Indebtedness by Doe Run or any of the Restricted Subsidiaries and were not
incurred in connection with, or in anticipation of, the incurrence of such
Acquired Indebtedness by Doe Run or any of the Restricted Subsidiaries;
PROVIDED, FURTHER, that such Liens do not extend to or cover any property or
assets of Doe Run or any of the Restricted Subsidiaries other than the property
or assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of Doe Run or any of the Restricted
Subsidiaries and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by Doe Run or any of the Restricted Subsidiaries, (ix) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default, (x) Liens on assets or property (including any real property upon which
such assets or property are or will be located) securing Indebtedness incurred
to purchase or construct such assets or property, which Indebtedness is
permitted to be incurred under the Indenture, (xi) Liens securing Indebtedness
which is incurred to refinance or replace Indebtedness which has been secured by
a Lien permitted under the Indenture and is permitted to be refinanced or
replaced under the Indenture, PROVIDED that such Liens do not extend to or cover
any property or assets of Doe Run or any of the Restricted Subsidiaries not
securing the Indebtedness so refinanced or replaced, and (xii) Liens securing
reimbursement obligations under letters of credit but only in or upon the goods
the purchase of which was financed by such letters of credit.
"person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof or any similar entities.
"Peruvian Revolving Credit Facility" means one or more working capital
facilities or other working capital financings or programs entered into by Doe
Run Peru and its Subsidiaries from time to time as the same may be amended,
restated, supplemented or otherwise modified from time to time, and includes any
agreement renewing, refinancing or replacement of all or any portion of the
Indebtedness under such agreement.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the Issue Date or
issued thereafter, and including, without limitation, all classes and series of
preferred or preference stock of such person.
131
<PAGE>
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Exchange Act.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock or convertible into
or exchangeable or exercisable for Disqualified Capital Stock.
"Qualifying Auditors" shall mean the firm of independent auditors of
acknowledged international prestige elected annually by Centromin in accordance
with Section 4.2 of the Subscription Agreement.
"Qualifying Investment" shall mean investments that meet the qualifications
of Section 4.5 of the Subscription Agreement, as determined in good faith by the
Qualifying Auditors.
"Qualifying Investments Promissory Notes" shall have the meaning given to
such term under the caption "Certain Covenants--Qualifying Investment
Requirements."
"Related Business Investment" means any Investment, Capital Expenditure or
other expenditure by Doe Run or any Restricted Subsidiary which is related to
the business of Doe Run and the Restricted Subsidiaries as it is conducted on
the Issue Date or any business which is the same, similar or reasonably related
to such business.
"Renco" means The Renco Group, Inc., a New York corporation, which is the
ultimate parent of Doe Run, or any successor thereto.
"Restricted Subsidiary" means any Subsidiary of Doe Run which at the time of
determination is not an Unrestricted Subsidiary. The Board of Directors of Doe
Run may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only
if, immediately after giving effect to such designation, Doe Run and the
Guarantors could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Indebtedness" covenant,
on a pro forma basis taking into account such designation.
"Revolving Credit Facilities" means the U.S. Revolving Credit Facility and
the Peruvian Revolving Credit Facility.
"Sale/leaseback" means any lease, whether an Operating Lease or a Capital
Lease, whereby Doe Run or any of the Restricted Subsidiaries, directly or
indirectly, becomes or remains liable as lessee or as guarantor or other surety,
of any property (whether real or personal or mixed) whether now owned or
hereafter acquired, (i) that Doe Run or the Restricted Subsidiaries, as the case
may be, has sold or transferred or is to sell or transfer to any other person
(other than Doe Run or any Restricted Subsidiary), or (ii) that Doe Run or any
of the Restricted Subsidiaries, as the case may be, intends to use for
substantially the same purpose as any other property that has been or is to be
sold or transferred by Doe Run or any such Restricted Subsidiary to any person
(other than Doe Run or any Restricted Subsidiary) in connection with such lease.
"Significant Subsidiary" means any Restricted Subsidiary that satisfies the
criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation
S-X under the Exchange Act.
"Subsidiary" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time owned, directly or indirectly, by such person. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary.
"Unrestricted Subsidiary" means (i) any Subsidiary of Doe Run which at the
time of determination is an Unrestricted Subsidiary (as designated by the Board
of Directors of Doe Run, as provided below) and
132
<PAGE>
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of Doe
Run may designate any Subsidiary of Doe Run (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary, unless such
Subsidiary owns any Capital Stock of, or owns, or holds any Lien on, any
property of, any Restricted Subsidiary of Doe Run which is not a Subsidiary of
the Subsidiary to be so designated; PROVIDED that (a) Doe Run certifies that
such designation complies with the "Limitation on Restricted Payments" covenant
and (b) each Subsidiary to be so designated and each of its Subsidiaries has not
at the time of designation, and does not thereafter, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness pursuant to which the lender has recourse to any of the
assets of Doe Run or any of the Restricted Subsidiaries. The Board of Directors
of Doe Run may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if, immediately after giving effect to such designation, Doe Run
and the Guarantors could incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on Indebtedness"
covenant, on a pro forma basis taking into account such designation.
"U.S. Revolving Credit Facility" means the Loan and Security Agreement dated
as of the Issue Date, among Doe Run, FPI, and Congress Financial Corporation, as
Lender, as the same may be amended, restated, supplemented or otherwise modified
from time to time, and includes any agreement renewing, refinancing or
replacement of all or any portion of the Indebtedness under such agreement.
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary which
is a Wholly-Owned Subsidiary of Doe Run.
"Wholly-Owned Subsidiary" means any Subsidiary of such person to the extent
all of the Capital Stock or other ownership interests in such Subsidiary (other
than (x) directors' qualifying shares, (y) with respect to Doe Run Peru, any
shares purchased by employees of Doe Run Peru or Centromin in connection with
the Acquisition, which retained amount shall not exceed 1% of the total
interests in Doe Run Peru, and (z) an immaterial interest owned by other persons
solely to comply with applicable law) is owned directly or indirectly by such
person or a Wholly-Owned Subsidiary of such person.
133
<PAGE>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary is based on the tax laws of the United States in
effect on the date of this Prospectus, as well as judicial and administrative
interpretations thereof (in final or proposed form) available on or before such
date. The foregoing laws and interpretations thereof are subject to change,
which could apply retroactively.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be a taxable event for federal income tax purposes. A holder's holding
period for Exchange Notes will include the holding period for Old Notes. HOLDERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES.
PLAN OF DISTRIBUTION
A broker-dealer that is the holder of Old Notes that were acquired for the
account of such broker-dealer as a result of market-making or other trading
activities (other than Old Notes acquired directly from Doe Run or any affiliate
of Doe Run) may exchange such Old Notes for Exchange Notes pursuant to the
Exchange Offer; provided, that each broker-dealer that receives Exchange Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. Doe Run has agreed that for a period of 180 days after consummation
of the Exchange Offer, it will make this Prospectus, which Doe Run will update,
amend or supplement from time to time as required by applicable law or
regulations, available to any broker-dealer for use in connection with any such
resale. In addition, until , 1998, all dealers effecting transactions in
the Exchange Notes may be required to deliver a prospectus.
Doe Run will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other holder of Exchange Notes. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the Exchange Offer, Doe Run
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Doe Run has agreed to pay all expenses incident to
the Exchange Offer and to Doe Run's performance of, or compliance with, the
Registration Rights Agreement (other than commissions or concessions of any
brokers or dealers) and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
134
<PAGE>
LEGAL MATTERS
Certain legal matters related to the Exchange Notes being offered hereby are
being passed upon for Doe Run and the Guarantors by Cadwalader, Wickersham &
Taft, New York, New York.
EXPERTS
The audited consolidated financial statements of the Company as of October
31, 1996 and 1997 and for each of the years in the three year period ended
October 31, 1997 have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP and Medina, Zaldivar y
Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firms as experts in accounting and auditing. The audited consolidated
financial statements of Doe Run Peru's Predecessor as of December 31, 1994, 1995
and 1996 and October 23, 1997 and for each of the three year periods ended
December 31, 1996 and the period January 1, 1997 to October 23, 1997, and of Doe
Run Peru as of October 31, 1997, and included herein have been audited by
Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide
SC, independent certified public accountants, as stated in their reports with
respect thereto and upon the authority of said firm as experts in accounting and
auditing. The financial statements of the Missouri Lead Division as of December
31, 1996 and 1997 and for each of the years in the three year period ended
December 31, 1997 which have been included herein and in the Registration
Statement have been audited by PricewaterhouseCoopers LLP. With respect to the
unaudited interim financial information of the Missouri Lead Division for the
periods ended March 31, 1998 and 1997, included in this Registration Statement,
the independent accountants have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report included herein, states that they
did not audit and do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The independent accountants are not subject to the liability
provisions of Section 11 of the Securities Act of 1933, as amended (the "Act")
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the Act.
135
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
THE DOE RUN RESOURCES CORPORATION
Independent Auditors' Report............................................................................... F-2
Report of Independent Public Accountants................................................................... F-3
Consolidated Balance Sheets as of October 31, 1996 and 1997 and unaudited as of April 30, 1998............. F-4
Consolidated Statements of Operations and Shareholders' Equity for the years ended October 31, 1995, 1996,
1997 and unaudited for the six months ended April 30, 1997 and 1998...................................... F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1995, 1996, 1997 and unaudited for
the six months ended April 30, 1997 and 1998............................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A., LA OROYA DIVISION
Report of Independent Public Accountants................................................................... F-36
Statements of Assets and Liabilities as of December 31, 1995 and 1996 and October 23, 1997................. F-37
Statements of Revenues and Expenses for the years ended December 31, 1994, 1995, 1996 and the period
January 1 to October 23, 1997............................................................................ F-38
Statements of Changes in Net Assets for the years ended December 31, 1994, 1995, 1996 and the period
January 1 to October 23, 1997............................................................................ F-39
Statements of Cash Flows for the years ended December 31, 1994, 1995, 1996 and the period January 1 to
October 23, 1997......................................................................................... F-40
Notes to Financial Statements.............................................................................. F-41
ASARCO INCORPORATED--MISSOURI LEAD DIVISION
Report of Independent Accountants.......................................................................... F-54
Statements of Operations for the years ended December 31, 1995, 1996 and 1997.............................. F-55
Balance Sheets as of December 31, 1996 and 1997............................................................ F-56
Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997............................... F-57
Statement of Changes in Divisional Equity for years ended December 31, 1995, 1996 and 1997................. F-58
Notes to Financial Statements.............................................................................. F-59
Report of Independent Accountants.......................................................................... F-65
Condensed Statements of Operations for the three months ended March 31, 1997 and 1998...................... F-66
Condensed Balance Sheets as of March 31, 1997 and 1998..................................................... F-67
Condensed Statements of Cash Flows for the three months ended March 31, 1996 and 1997...................... F-68
Notes to Condensed Financial Statements.................................................................... F-69
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Doe Run Resources Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The Doe Run
Resources Corporation and subsidiaries as of October 31, 1996 and 1997, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended October 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the consolidated
financial statements of Doe Run Cayman Ltd., a wholly-owned subsidiary, which
statements reflect total assets constituting 45% and total revenues constituting
1% in 1997, of the related consolidated totals. Those consolidated statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Doe Run Cayman Ltd.
and its subsidiaries, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Doe Run Resources Corporation
and subsidiaries as of October 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
December 19, 1997, except for
note 15 as to which the date is
March 12, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Doe Run Cayman Ltd.:
We have audited the accompanying consolidated balance sheet of Doe Run
Cayman Ltd. (a company incorporated in Cayman Islands) as of October 31, 1997
and the related consolidated statements of operations, changes in shareholder's
equity and cash flows for the period from October 23, 1997 (inception date) to
October 31, 1997. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position of
Doe Run Cayman Ltd. as of October 31, 1997, and its consolidated results of
operations and cash flows for the period from October 23, 1997 (inception date)
to October 31, 1997, in conformity with accounting principles generally accepted
in the United States of America.
MEDINA, ZALDIVAR Y ASOCIADOS
a member firm of Andersen Worldwide SC
Countersigned by:
Marco Antonio Zaldivar
C.P.C. Register 12477
Lima, Peru
December 5, 1997
F-3
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
----------------------
1996 1997
---------- ---------- AS OF
APRIL 30,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................................... -- $ 8,943 $ 12,142
Trade accounts receivable, net of allowance for doubtful accounts of $947,
$729 and $741 at October 31, 1996 and 1997 and April 30, 1998,
respectively............................................................. $ 54,493 52,470 66,927
Inventories................................................................ 30,019 88,648 100,867
Prepaid expenses and other current assets.................................. 2,919 5,263 29,543
Net deferred tax assets.................................................... 3,792 69 --
---------- ---------- -----------
Total current assets..................................................... 91,223 155,393 209,479
Property, plant and equipment, net........................................... 104,162 206,348 205,867
Special term deposit......................................................... -- -- 125,000
Net deferred tax assets...................................................... -- 7,481 9,145
Other noncurrent assets, net................................................. 8,529 15,218 17,387
---------- ---------- -----------
Total assets............................................................. $ 203,914 $ 384,440 $ 566,878
---------- ---------- -----------
---------- ---------- -----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Current maturities of long-term debt....................................... $ 16,590 $ 12,345 $ 5,895
Accounts payable........................................................... 16,324 41,086 50,725
Accrued liabilities........................................................ 24,320 28,893 42,783
Net deferred tax liabilities............................................... -- 7,481 9,467
---------- ---------- -----------
Total current liabilities................................................ 57,234 89,805 108,870
Long-term debt, less current maturities...................................... 66,201 222,395 384,681
Net deferred tax liabilities................................................. 3,792 -- --
Postretirement benefits...................................................... 12,817 12,455 12,608
Reclamation and environmental costs.......................................... 26,773 31,685 31,085
Other noncurrent liabilities................................................. 16,267 13,926 13,758
---------- ---------- -----------
Total liabilities........................................................ 183,084 370,266 551,002
Shareholders' equity:
Preferred stock, $1,000 par value, 2,500 shares issued, authorized and
outstanding; liquidation and redemption value of $2,668 and $2,618 on
October 31, 1996 and 1997, respectively.................................. 2,500 2,500 --
Common stock, $.10 par value, 1,000 shares authorized, issued, and
outstanding.............................................................. -- -- --
Additional paid in capital................................................. 5,000 5,000 5,000
Retained earnings.......................................................... 13,330 6,674 10,876
---------- ---------- -----------
Total shareholders' equity............................................... 20,830 14,174 15,876
---------- ---------- -----------
Total liabilities and shareholders' equity............................... $ 203,914 $ 384,440 $ 566,878
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
---------------------------------- ----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Net sales............................................ $ 225,143 $ 274,930 $ 280,467 $ 135,905 $ 343,405
Costs and expenses:
Cost of sales...................................... 180,398 215,489 234,351 108,478 283,105
Depletion, depreciation and amortization........... 12,486 13,654 14,718 7,323 11,461
Selling, general and administrative expenses,
including related party management fees of $1,200
per year......................................... 8,405 10,079 10,959 5,804 17,700
Exploration expense................................ 1,926 2,912 2,705 1,365 1,599
---------- ---------- ---------- ---------- ----------
Total costs and expenses......................... 203,215 242,134 262,733 122,970 313,865
---------- ---------- ---------- ---------- ----------
Income from operations........................... 21,928 32,796 17,734 12,935 29,540
Other income (expense):
Interest expense................................... (14,361) (14,348) (13,740) (7,568) (14,505)
Interest income.................................... 140 113 21 2 2,359
Other, net......................................... (132) 355 (37) 6 (635)
---------- ---------- ---------- ---------- ----------
(14,353) (13,880) (13,756) (7,560) (12,781)
---------- ---------- ---------- ---------- ----------
Income before income tax expense and
extraordinary item............................. 7,575 18,916 3,978 5,375 16,759
Income tax expense................................... 3,252 6,451 4,331 1,826 5,761
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item...... 4,323 12,465 (353) 3,549 10,998
Extraordinary item related to early retirement of
debt, net of income tax benefit.................... -- -- (1,062) (314) (6,607)
---------- ---------- ---------- ---------- ----------
Net income (loss)................................ $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391
----------
----------
Shareholders' equity, beginning of year............ 5,995 10,318 20,830 14,174
Less dividends declared and paid:
Preferred stock--$140, $100 and $76 per share,
respectively................................... -- (350) (250) (189)
Redemption of preferred stock.................... (2,500)
Common stock--$1,603 and $4,991 per share,
respectively................................... -- (1,603) (4,991) --
---------- ---------- ---------- ----------
Shareholders' equity, end of year.................. $ 10,318 $ 20,830 $ 14,174 $ 15,876
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED OCTOBER 31, APRIL 30,
--------------------------------- ----------------------
1995 1996 1997 1997 1998
--------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income (loss)............................................... $ 4,323 $ 12,465 $ (1,415) $ 3,235 $ 4,391
Extraordinary item related to retirement of debt................ -- -- 1,327 392 6,750
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization...................... 12,486 13,654 14,718 7,323 11,461
Amortization of deferred financing fees....................... 1,140 898 257 132 844
Imputed interest.............................................. 7,132 6,617 5,635 3,025 15
Increase (decrease) resulting from changes in assets and
liabilities, net of effects of business acquisitions:
Trade accounts receivable................................... (5,641) (10,291) 2,023 3,276 (14,457)
Inventories................................................. 665 3,209 (3,062) (8,602) (12,219)
Prepaid expenses and other current assets................... (994) (339) (1,201) 287 (24,280)
Accounts payable............................................ 2,028 771 6,636 (1,275) 9,639
Accrued liabilities......................................... 3,955 1,492 (1,939) (3,524) 14,857
Other noncurrent assets and liabilities, net................ (5,028) (526) (4,959) (1,739) 1,256
--------- --------- ----------- --------- -----------
Net cash provided by (used in) operating activities....... 20,066 27,950 18,020 2,530 (1,743)
Cash flows from investing activities:
Special term deposit............................................ -- -- -- -- (125,000)
Purchases of property, plant and equipment...................... (5,377) (10,534) (13,476) (4,145) (10,908)
Payments for acquisitions....................................... -- (1,742) (128,242) -- --
--------- --------- ----------- --------- -----------
Net cash used in investing activities..................... (5,377) (12,276) (141,718) (4,145) (135,908)
Cash flows from financing activities:
Proceeds from (payments on) revolving loan, net................. (5,139) 1,044 (6,399) 18,511 1,681
Proceeds from short-term borrowings............................. -- -- -- -- 5,000
Proceeds from long-term debt.................................... -- -- 365,945 10,945 380,000
Payments on long-term debt...................................... (9,550) (14,765) (212,453) (24,436) (230,845)
Payment of deferred financing costs............................. -- -- (8,573) (164) (12,297)
Extraordinary item related to retirement of debt................ -- -- (638) -- --
Payment of dividends............................................ -- (1,953) (5,241) (3,241) (189)
Redemption of preferred stock................................... -- -- -- -- (2,500)
--------- --------- ----------- --------- -----------
Net cash provided by (used in) financing activities....... (14,689) (15,674) 132,641 1,615 140,850
--------- --------- ----------- --------- -----------
Net increase in cash...................................... -- -- 8,943 -- 3,199
Cash at beginning of period....................................... -- -- -- -- 8,943
--------- --------- ----------- --------- -----------
Cash at end of period............................................. $ -- $ -- $ 8,943 $ -- $ 12,142
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Supplemental disclosure of cash flow information--
Cash paid during the period for:
Interest, net of capitalized interest......................... $ 6,850 $ 6,575 $ 9,196 $ 6,038 $ 8,685
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Income taxes.................................................. $ -- $ 6,787 $ 3,480 $ 1,617 $ 7,028
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of The Doe Run
Resources Corporation and its wholly owned subsidiaries (the "Company"). All
material intercompany balances and transactions have been eliminated.
NATURE OF BUSINESS
The principal domestic business of the Company is the exploration,
development, mining and processing of base metals, primarily lead, and recycling
of lead-acid batteries and other lead-bearing materials. The Company's
fabrication businesses fabricate lead products used in radiation and X-ray
shielding, pollution control devices, and medical equipment, produce lead oxide
for use in automotive batteries, and fabricate and repair lead-lined process
equipment. In Peru, the Company is engaged in the smelting and refining of
polymetallic concentrates, mainly copper, lead and zinc, which are sold as
refined metals primarily to customers located outside of Peru.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the U.S.
Dollar. Accordingly, translation gains and losses are included in determining
net income.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from these estimates.
CASH
All of the Company's domestic accounts are zero balance accounts. Checks
cleared on domestic bank accounts are funded by advances drawn on revolving
loans. Cash received from domestic operations is transferred to the Company's
primary lender daily and applied to outstanding revolving loans, if any.
INVENTORIES
Finished metals and concentrates, metals and concentrates in process, and
raw materials are stated at the lower of cost or market. The last-in, first-out
("LIFO") method of determining cost is used for the majority of the Company's
U.S. inventories. Inventory costs of the Company's foreign subsidiaries are
determined using the first-in, first-out ("FIFO") method. Inventory costs
include labor, material and other production costs. Supplies and repair parts
are principally stated at average cost, net of reserves for obsolescence.
F-7
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Major additions and
improvements to property, plant and equipment are capitalized, at cost, when
they significantly increase the productive capacity or the life of the asset.
Routine or unanticipated repair and maintenance expenditures, which do not
extend the useful life or increase the productive capacity of the asset, are
charged to operations as incurred. Major expenditures required to maintain the
originally anticipated productive capacity and life of the asset (such as
furnace rebuilds), for which both the amount and timing can be reasonably
estimated, are accrued and charged to operations over the period through the
next anticipated maintenance date.
Mineral interests are amortized using the units of production method.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, as follows:
<TABLE>
<S> <C>
3 to 20
Buildings and improvements.................................... years
2 to 15
Machinery and equipment....................................... years
</TABLE>
Facilities at which operations have temporarily ceased may be placed on a
standby care and maintenance basis. The Company continues to depreciate the
related assets during the standby period, however, the expected useful lives are
adjusted. During the standby period all care and maintenance expenditures
incurred are expensed.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1997, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement requires that long-lived assets, certain identifiable intangibles
and goodwill related to those assets be reviewed for impairment when events or
circumstances indicate that the carrying amount of the assets may not be
recoverable. The impairment loss on such assets, as well as long-lived assets
and certain identifiable intangibles to be disposed of, is measured as the
amount by which the carrying value of the assets exceeds the fair value of the
assets. No impairment losses have been recognized.
DEFERRED FINANCING COSTS
Deferred financing costs represent fees paid in conjunction with the
acquisition of long-term debt and are amortized using the interest method over
the term of the respective debt.
EXPLORATION AND DEVELOPMENT COSTS
All exploration costs are charged to operations as incurred. Development
costs incurred to maintain production at operating mines are charged to
operations as incurred. Development expenditures for mining properties that are
considered to be commercially feasible, but are not yet producing, and major
development expenditures at operating mines that are expected to benefit future
production are capitalized and amortized using the units of production method
over the estimated proven ore reserves to be benefited.
F-8
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLAMATION COSTS
The Company's mines and related processing facilities are subject to
governance by various agencies that have established minimum standards for
reclamation. Company estimates of mine closure costs are accrued and charged to
expense using the units of production method during the estimated life of the
operations. A reserve for reclamation costs has been established for the
restoration of certain abandoned mining and processing sites based on current
estimates of the cost to comply with existing standards. Routine environmental
expenditures are expensed as incurred or capitalized and depreciated depending
on their future economic benefit.
COMMITMENTS AND CONTINGENCIES
The Company accrues for loss contingencies, including costs associated with
environmental remediation obligations, when such costs are probable and
reasonably estimable. Accruals are reviewed and adjusted as circumstances
change. Costs of future expenditures for environmental remediation obligations
are not discounted to their present value.
REVENUE RECOGNITION
Sales are recorded as products are shipped to customers. Concentrate and
certain smelter product sales are recorded based on estimated weights, metal
contents and prices using applicable customer agreements and hedge contracts.
All such sales are adjusted when final weights, metal contents and prices are
determined.
RISK MANAGEMENT
The Company's use of derivative financial instruments is limited to managing
well-defined commodity price risks related to inventories and future production.
Derivative financial instruments are not used for trading purposes. The Company
may, from time to time, enter into forward physical sales agreements with
customers or futures contracts, which fix prices for a portion of its
anticipated future production, generally for periods not exceeding twelve
months. The Company may also periodically buy futures contracts to offset the
effect of certain fixed-price forward physical sales commitments. In addition,
the Company may employ the use of commodity options to obtain the aforementioned
transactions. Since these transactions meet the requirements for hedge
accounting, gains and losses realized on such transactions, as well as any cost
or revenue associated therewith, are recognized in net sales when the related
production is sold. If an instrument does not meet the requirements for hedge
accounting, gains and losses are recognized immediately.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
discounted cash flow analyses, based on the estimates of incremental borrowing
rates for similar types of borrowing arrangements. At October 31, 1996 and 1997,
the fair values of the Company's financial instruments, except for the hedge
positions described in Note 13, were not materially different from their
carrying amounts.
F-9
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred and are included
in selling, general and administrative expenses on the consolidated statements
of operations. Research and development costs are not significant.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the interim consolidated financial statements
contain all adjustments, consisting of normal recurring accruals, necessary to
present fairly the consolidated financial position and results of operations for
the periods presented herein. Interim periods are not necessarily indicative of
results to be expected for the year
(2) BUSINESS ACQUISITION
Doe Run Cayman Ltd. ("Doe Run Cayman"), a Cayman Islands corporation and a
wholly owned subsidiary of the Company, was incorporated on September 10, 1997.
Doe Run Cayman had no business activity until October 23, 1997, when Doe Run
Cayman, through its subsidiary Doe Run Peru S.R. Ltda. ("Doe Run Peru"),
acquired substantially all of the outstanding shares of Empresa Metalurgica La
Oroya S.A. ("Metaloroya"). Metaloroya is a Peruvian corporation, which was
formed for purposes of consummating the sale of certain assets and liabilities
of La Oroya, a division of Empresa Minera del Centro del Peru S.A.
("Centromin"), an entity owned by the Peruvian government. Doe Run Cayman's
operating subsidiaries in Peru will herein be referred to as "Doe Run Peru."
The acquisition was made through a Contract of Stock Transfer, Capital
Increase and Stock Subscription (the "Contract"). Peruvian law required a
capital contribution to Metaloroya of $126,500 in exchange for 51% of the shares
and a payment of $120,515 for the transfer of the remaining 49%. Subsequent to
the acquisition, utilizing the proceeds from the capital contribution, Doe Run
Peru repaid $125,000 on the $225,000 term loan used to finance the transaction.
F-10
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) BUSINESS ACQUISITION (CONTINUED)
The acquisition has been accounted for as a purchase and the effective
purchase price of $123,015, including transaction costs of approximately $2,500,
was allocated to the fair value of the assets acquired and liabilities assumed
as follows:
<TABLE>
<S> <C>
Inventories....................................................... $ 55,567
Other current assets.............................................. 1,382
Property, plant and equipment..................................... 97,761
Accounts payable and other accrued liabilities.................... (24,495)
Environmental contingency......................................... (7,200)
---------
$ 123,015
---------
---------
</TABLE>
The excess of the fair value of the net assets acquired over the purchase
price, approximately $157,000, reduced the value of the fixed assets acquired.
The results of the operations of Doe Run Peru have been included with those of
the Company since the date of acquisition.
The following unaudited pro forma results of operations for the years ended
October 31, 1996 and 1997 assume that the acquisition of Doe Run Peru occurred
as of the beginning of the respective periods. The pro forma information does
not purport to be indicative of the results of operations that would have
occurred had the acquisition occurred at the beginning of the periods presented
or of the future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net sales............................................................. $ 731,727 $ 709,780
Net income before extraordinary item.................................. 22,649 15,195
Net income............................................................ 22,649 14,133
</TABLE>
(3) RELATED PARTY TRANSACTIONS
The Company has entered into a management consulting agreement with The
Renco Group, Inc. ("Renco"). Renco holds all of the preferred stock of the
Company, and Renco's subsidiary, DR Acquisition Corp. holds all of the Company's
common stock. Under the agreement, Renco will provide the Company with
management services for a fee of $1,200 annually. The agreement expires October
31, 2000. Fees expensed under this agreement were $1,200 for each of the years
ended October 31, 1995, 1996 and 1997.
To obtain the advantages of volume, Renco purchases certain categories of
property and casualty insurance for a number of its subsidiaries, including the
Company, and the actual cost of such insurance, without markup, is reimbursed by
the covered subsidiaries. For the years ended October 31, 1995, 1996 and 1997
the Company reimbursed Renco for costs of approximately $1,754, $1,821 and
$2,473 respectively, under the Renco insurance program.
F-11
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
--------- --------- APRIL 30,
1998
----------
(UNAUDITED)
<S> <C> <C> <C>
Finished metals and concentrates............................ $ 6,408 $ 11,460 $ 19,005
Metals and concentrates in process.......................... 9,520 51,129 54,346
Materials, supplies and repair parts........................ 14,091 26,059 27,516
--------- --------- ----------
$ 30,019 $ 88,648 $ 100,867
--------- --------- ----------
--------- --------- ----------
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of $4,866, $4,977 and $4,782 at October 31, 1996 and 1997 and April
30, 1998, respectively.
The FIFO cost of inventories valued under the LIFO cost method were $19,508
and $20,311 at October 31, 1996 and 1997, respectively. If the FIFO cost method
had been used to determine cost, inventories would have been $5,996 higher at
October 31, 1997 and at April 30, 1998.
As a result of reducing certain inventory quantities valued on the LIFO
basis, lower inventory costs prevailing in previous years were charged to cost
of sales in 1995, 1996 and 1997. In 1996, the Company adopted a policy of
calculating the effect of LIFO liquidations on net income based on the current
cost method. The effect was an increase in net income of $111, $542, and $899
for the years ended October 31, 1995, 1996 and 1997, respectively.
(5) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Land.................................................................. $ 3,347 $ 9,371
Buildings and improvements............................................ 27,054 45,286
Machinery and equipment............................................... 77,056 172,582
Mineral interests..................................................... 20,920 22,005
Construction in progress.............................................. 7,486 3,252
---------- ----------
135,863 252,496
Less accumulated depreciation and depletion 31,701 46,148
---------- ----------
$ 104,162 $ 206,348
---------- ----------
---------- ----------
</TABLE>
Rental expense applicable to minimum rentals under operating leases was
$1,460, $3,101 and $5,543 for the years ended October 31, 1995, 1996, and 1997,
respectively. Contingent rental payments, based primarily on equipment usage,
were $309, $554, and $674 for the same periods.
F-12
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)
The Company's operating leases relate primarily to operating equipment,
office facilities and office equipment. The minimum rental commitments under
noncancellable leases, with terms in excess of one year, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING OCTOBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 6,197
1999............................................................................... 4,486
2000............................................................................... 3,662
2001............................................................................... 2,924
2002............................................................................... 1,393
---------
$ 18,662
---------
---------
</TABLE>
F-13
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(6) ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Reclamation and environmental........................................... $ 4,393 $ 3,842
Property taxes.......................................................... 3,441 3,299
Compensated absences.................................................... 2,734 3,076
Salaries, wages, fringes................................................ 6,157 7,943
Other................................................................... 7,595 10,733
--------- ---------
$ 24,320 $ 28,893
--------- ---------
--------- ---------
</TABLE>
Reclamation and environmental costs represents the estimate of reclamation
and environmental spending for the following fiscal year. These costs relate
primarily to the historical operations of the Company. See Note 14.
F-14
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
---------------------
1996 1997
--------- ----------
<S> <C> <C>
$130,000 term loan--due quarterly in increasing amounts, with a balloon payment of $60,000
due October 31, 2003; effective rate of 8.64% at October 31, 1997........................ $ -- $ 130,000
$225,000 term loan--due quarterly in increasing amounts, with a balloon payment of $42,000
due October 23, 2002; effective rate of 9.14% at October 31, 1997........................ -- 100,000
Revolving loan dated October 23, 1997--expiring October 23, 2002, interest payable
quarterly at the Eurodollar rate, plus 2.5% (8.12% at October 31, 1997).................. -- 3,000
Pollution control financing--maturing December 15,1998, annual principal payments due on
December 15, interest at 5.75%, payable semi-annually.................................... 2,540 1,740
Revolving loan dated April 7, 1994--interest payable monthly at the prime rate (8.75% at
October 31, 1996) plus 1.75%, plus 0.5% on the unused portion of the loan................ 9,399 --
Term loan--payable in monthly installments of $256 plus interest at the prime rate plus
1.75%.................................................................................... 4,823 --
Senior note--maturing September 1, 1998, principal payments of $125 due quarterly, interest
payable monthly at a rate of 12%. Contingent interest is due quarterly, based on an
indexed market rate, 16.72% at October 31, 1996.......................................... 9,297 --
Promissory note--maturing February 28, 2002, principal payable as percentage of gross
margin over a specific base amount, plus interest due annually, bearing interest at 4%
through February 28, 1996 increasing 1% each year through February 28, 2001, face amount
of $50,000 discounted to effective interest rate of 15.5%................................ 36,772 --
Contract obligation--payable in annual principal payments of $5,100 and a balloon payment
of $15,100 due April 1, 1999 non-interest bearing, face amount of $35,500 discounted to
an effective interest rate of 14.5%...................................................... 19,960 --
--------- ----------
$ 82,791 $ 234,740
Less current maturities.................................................................... 16,590 12,345
--------- ----------
Long-term debt, less current maturities.................................................... $ 66,201 $ 222,395
--------- ----------
--------- ----------
</TABLE>
On October 23, 1997 the Company and Doe Run Peru borrowed $130,000 and
$225,000, respectively, under credit agreements with a group of financial
institutions. The proceeds were used to retire all of the Company's outstanding
debt, except for the Pollution Control Bonds, and to finance the acquisition and
capital contribution discussed in Note 2. The applicable interest rate on the
loans is the greater of the Eurodollar rate (adjusted for the maximum reserve
percentages as established by the Federal Reserve Board) or the ten-year U.S.
Treasury bond rate, plus an applicable margin: 2.5%, to increase 0.25% per
quarter on the $130,000 loan and 3%, to increase .25% annually, on the $225,000
loan.
The credit agreements also provided for borrowing under two credit
facilities. The first facility allows the Company to borrow up to $100,000 and
expires October 23, 2002. The availability of funds under the
F-15
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) LONG-TERM DEBT (CONTINUED)
facility is limited to a percentage of eligible accounts receivable and
inventories. Actual availability was $40,417 at October 31, 1997. The facility
bears interest at a base rate plus an applicable margin. The base rate is equal
to the greater of 1) the adjusted certificate of deposit rate plus .5%, 2) the
financial institutions' prime lending rate, or 3) the Federal funds rate plus
.5%; or the adjusted Eurodollar rate as specified by the Company. The applicable
margin is 2.5%, or .75% in the case of Eurodollar rate loans. The Company is
also obligated to pay an unused line fee equal to .375% on the amount by which
the maximum credit of $100,000 exceeds outstanding loans and letters of credit.
All cash received from the Company's domestic operations is wired daily to the
financial institutions to pay down the outstanding loan balance, if any.
Revolving loans and standby letters of credit outstanding under this facility
were $0 and $6,100, respectively, at October 31, 1997.
The second facility allows Doe Run Peru to borrow up to $50,000 and expires
October 23, 2002. The interest rate is due to increase .25% annually. An unused
line fee of .5% per annum on the average unused portion of the line is payable
quarterly, in arrears. Availability of funds under the facility is limited to a
percentage of eligible accounts receivable and inventories. Actual availability
was $29,332 at October 31, 1997. Revolving loans and standby letters of credit
outstanding under this facility were $3,000 and $3,300, respectively, at October
31, 1997.
Pollution control financing represents the outstanding balances of revenue
bonds issued to provide funding for pollution control facilities at the
Company's domestic primary lead smelter. The debt is guaranteed by the former
owner of the Company.
Effective January 31, 1997, the Company amended the terms of the revolving
and term loans dated April 7, 1994. The amendment reduced the interest rate
payable, increased the amount of the term loan, and extended the term of the
revolving and term loans, which were due to mature April 7, 1997 and April 7,
1998, respectively. Pursuant to the amendment, the Company borrowed an
additional $10,945 on the term loan, for a new principal balance of $15,000, due
in monthly installments, maturing January 2002. The proceeds were used to retire
the senior note balance of $9,172 on January 31, 1997 and pay contingent
interest of $1,426. These loans were retired with the proceeds of the $130,000
term loan as discussed above.
Virtually all of the Company's assets are pledged to secure long-term debt.
In conjunction with early extinguishments of long-term debt in 1997, the
Company recognized extraordinary charges of $1,062, net of income tax benefit of
$265.
The aggregate estimated amounts of long-term debt maturing after October 31,
1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 12,345
1999.............................................................. 21,395
2000.............................................................. 35,500
2001.............................................................. 33,500
2002.............................................................. 72,000
Thereafter........................................................ 60,000
---------
$ 234,740
---------
---------
</TABLE>
F-16
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) LONG-TERM DEBT (CONTINUED)
In addition to scheduled principal payments on the term loans, additional
payments may be required based on cash flow for the previous fiscal year,
beginning with the year ended October 31, 1998.
The Company's various debt agreements contain certain requirements with
respect to net worth, leverage ratios, and coverage of fixed charges, which
begin in fiscal 1998. These agreements also place limitations on dividend
payments and other outside borrowings and restrict annual capital expenditures.
The Company was in compliance with all debt covenants at October 31, 1997, and
accordingly, the related debt is classified as long-term. As of January 31,
1998, the Company had received waivers from its lenders with respect to the net
worth and leverage ratio requirements under the $130,000 term loan and revolving
loan under the $100,000 credit facility. The waivers are effective for the
quarter ended January 31, 1998 with respect to the leverage ratio requirements
and for the two quarters ending April 30, 1998 with respect to the net worth
requirements. The Company refinanced all of the loans outstanding under the
credit agreements during the quarter ending April 30, 1998.
(8) INCOME TAXES
The Company files a consolidated federal income tax return with Renco.
Pursuant to a tax sharing agreement with Renco, the Company provides for federal
income taxes as if the Company filed separate income tax returns except that,
generally, no carryforward of net operating losses is permitted, unless such
losses are generated by net tax temporary differences. Under the terms of the
agreement, the Company is required to remit annually to Renco the amount of
federal income taxes provided. Renco files the Company's state income tax
returns, and the Company remits the resulting tax to Renco. Doe Run Peru and its
subsidiaries pay taxes directly to their respective jurisdictions in which
income and other similar taxes arise.
Doe Run Cayman is subject to the regulations of the Cayman Islands, which
currently have no corporate income or capital gains tax. Doe Run Cayman's
subsidiaries located in Peru are subject to Peruvian taxation. The statutory
income tax rate in Peru is 30%. Doe Run Peru is subject to a ten-year tax
stabilization agreement with the Peruvian government, which provides for
Peruvian taxation based on tax statutes and regulations prevailing on October
21, 1997. Metaloroya is subject to a tax stabilization agreement with the
Peruvian government, which provides for Peruvian taxation based on tax statutes
and regulations prevailing on April 25, 1994. This agreement was modified, and
an election was made to adopt the tax statutes and regulations as of November 6,
1997, beginning with the Peruvian tax year ending on December 31, 1997, through
December 31, 2006.
F-17
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(8) INCOME TAXES (CONTINUED)
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................ $ 3,175 $ 6,383 $ 3,882
State.......................................................... 77 68 99
Foreign........................................................ -- -- 419
--------- --------- ---------
3,252 6,451 4,400
Deferred:
Foreign........................................................ -- -- (69)
--------- --------- ---------
$ 3,252 $ 6,451 $ 4,331
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense differed from the amount computed by applying the
statutory federal corporate income tax rate of 35% to income before income tax
expense as a result of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Income tax expense at statutory rate.......................... $ 2,651 $ 6,620 $ 1,392
Increase (reduction) in income tax expense resulting from:
Percentage depletion in excess of basis..................... (2,344) (4,583) (2,532)
Change in the balance of the valuation allowance for
deferred tax assets....................................... 2,808 4,095 4,487
Nondeductible expenses...................................... 66 385 477
State income taxes, net of federal benefit.................. 64 56 64
Foreign income taxes at effective rates in excess of the
statutory rate............................................ -- -- 324
Other, net.................................................. 7 (122) 119
--------- --------- ---------
$ 3,252 $ 6,451 $ 4,331
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(8) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Inventories and other current assets................................ $ 364 $ 514
Accrued liabilities................................................. 3,268 3,099
Postretirement benefits............................................. 4,920 4,781
Reclamation and environmental costs................................. 10,278 9,399
Other noncurrent assets and liabilities............................. 11,924 14,346
---------- ----------
30,754 32,139
Less valuation allowance............................................ (8,841) (13,328)
---------- ----------
Total deferred tax assets......................................... 21,913 18,811
---------- ----------
Deferred tax liabilities:
Inventories and other current assets................................ (78) --
Property, plant and equipment....................................... (10,883) (11,557)
Mineral Properties.................................................. (5,136) (4,856)
Pension asset....................................................... (2,630) (2,329)
Long-term debt...................................................... (3,186) --
---------- ----------
Total deferred tax liabilities.................................... (21,913) (18,742)
---------- ----------
Net deferred tax assets......................................... $ -- $ 69
---------- ----------
---------- ----------
</TABLE>
The deferred tax liabilities related to inventories, other current assets
and property, plant and equipment are principally due to differences in book and
tax allocations of the excess of the fair value of the sum of assets acquired,
less liabilities assumed over the purchase price paid. Accruals for financial
reporting purposes, which have no tax basis, gave rise to a significant portion
of the other temporary differences.
The Company recognized a deferred tax asset of $8,451 and $10,188 for an
alternative minimum tax carryforward at October 31, 1996 and 1997, respectively,
which is included above in other noncurrent assets and liabilities. The
alternative minimum tax carryforward is available to reduce future Federal
regular income taxes, if any, over an indefinite period.
Management has provided a valuation allowance against certain domestic
deferred tax assets, to the extent that it is unlikely, that the benefits of
those assets will be realized.
F-19
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(9) EMPLOYEE BENEFITS
DOMESTIC PLANS
DEFINED BENEFIT PLANS
The Company sponsors a non-contributory defined benefit plan.
Benefits provided to salaried employees under the defined benefit plan are
based on final average compensation and years of service. Benefits provided to
hourly employees are based on a flat rate and years of service. Net periodic
pension expense (income) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost.................................................. $ 865 $ 1,342 $ 1,439
Interest cost on projected benefit obligation................. 3,025 3,506 3,660
Actual return on assets....................................... (5,016) (4,168) (7,306)
Net amortization and deferral of unrecognized net losses...... 1,007 176 3,333
--------- --------- ---------
Net periodic pension expense (income)......................... $ (119) $ 856 $ 1,126
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following assumptions were used in the determination of net periodic
pension expense (income):
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
<S> <C> <C> <C>
1995 1996 1997
--------- --------- ---------
Discount rates................................................. 9.00% 7.50% 7.75%
Rate of increase in compensation levels........................ 3.00 3.00 3.00
Expected long-term rate of return on assets.................... 9.00 9.00 9.00
</TABLE>
The following table sets forth the funded status of the Company's defined
benefit plan:
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................................... $ (38,385) $ (43,417)
Non-vested obligation............................................... (2,261) (2,758)
---------- ----------
Accumulated benefit obligation.................................... $ (40,646) $ (46,175)
---------- ----------
---------- ----------
Projected benefit obligation.......................................... $ (46,758) (51,748)
Less plan assets at fair value, primarily investments in common stock
and corporate bonds................................................. 47,401 51,359
---------- ----------
Plan assets in excess of projected benefit obligation................. 643 (389)
Unrecognized net loss................................................. 6,207 6,457
---------- ----------
Pension asset, including in other noncurrent assets, net.......... $ 6,850 $ 6,068
---------- ----------
---------- ----------
</TABLE>
The weighted average discount rate used in determining the projected benefit
obligation was 7.75% and 7.5% as of October 31, 1996 and 1997, respectively. The
unrecognized net loss is amortized over the average remaining service period of
employees expected to receive benefits under the plan.
F-20
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(9) EMPLOYEE BENEFITS (CONTINUED)
The Company also adopted a supplemental defined benefit plan, The
Supplemental Employee Retirement Plan (SERP), effective November 1, 1996. The
SERP provides benefits to those participants of the defined benefit plan whose
benefits under the plan are limited by Sections 401(a)(17) or 415 of the
Internal Revenue Code. Benefits under the SERP represent the amount by which the
benefits under the defined benefit plan, if such benefits were not limited,
exceed those benefits the participants are entitled to receive. The SERP is
unfunded. The Company recorded pension expense of $259 for the year ended
October 31, 1997, an intangible pension asset of $624, and a pension liability
of $883 at October 31, 1997 with respect to the SERP plan.
POSTRETIREMENT BENEFIT PLANS
The Company sponsors three postretirement medical plans. The plans generally
cover medical expenses subject to deductibles, copayments and limits on
specified coverage. For persons retired on or before January 1, 1992, the
retiree's contribution to the cost of these plans varies primarily based upon
the date of retirement and the respective plan. Effective January 1, 1992, the
Company's contribution to the cost of coverage of employees retiring after that
date has decreased gradually, until, beginning in 1997, retirees pay 100% of the
cost of coverage. The Company maintains stop-loss insurance for claims exceeding
$200 per person in any calendar year.
The postretirement benefit plans are unfunded. The following illustrates the
Company's postretirement benefit obligation:
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................. $ 11,418 $ 10,169
Fully eligible active participants.................................... 171 135
Other actives......................................................... 257 248
--------- ---------
11,846 10,552
Unrecognized net gain................................................... 1,901 2,818
--------- ---------
Postretirement benefit obligation..................................... $ 13,747 $ 13,370
--------- ---------
--------- ---------
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost........................................................ $ 33 $ 23 $ 34
Interest cost....................................................... 1,076 886 789
Amortization of gains............................................... -- (23) (104)
--------- --------- ---------
Net periodic postretirement benefit cost.......................... $ 1,109 $ 886 $ 719
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (I.E., health care cost trend rate) for the medical plans is
8% for fiscal 1998, and is assumed to decrease gradually to 5% by the year 2001,
and remain at that level thereafter. A one-percentage point increase in
F-21
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(9) EMPLOYEE BENEFITS (CONTINUED)
each year would increase the accumulated postretirement benefit obligation and
the net periodic postretirement benefit cost by $612 and $48, respectively.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75% and 7.50% at October 31, 1996 and
1997, respectively.
DEFINED CONTRIBUTION AND PROFIT SHARING PLANS
The Company sponsors a 401(k) plan that covers substantially all salaried
and hourly employees. Participants can contribute up to 15% of compensation on a
before-tax basis. The Company matches 25% of the first 6% of a participant's
before-tax contribution. The Company's expense representing its matching
contribution was $307, $360 and $499 for the years ended October 31, 1995, 1996
and 1997, respectively. Plan assets consist primarily of investments in common
stock and debt securities.
On February 28, 1995, the Company adopted a profit sharing program, which
covers substantially all salaried and hourly employees. The program provides for
a distribution to employees equal to 15% of income before income tax expense. At
management's discretion, a portion of the distribution may be made in the form
of a contribution to the 401(k) plan. The remainder is paid in cash to
employees. The Company's expense for the years ended October 31, 1995, 1996 and
1997 was $1,388, $3,492 and $493, respectively.
FOREIGN PLANS
Doe Run Peru is required to make semi-annual deposits into a bank account
for severance indemnity benefits for Doe Run Peru employees under Peruvian
government regulations. The balance in the account represents the full benefit
due to such employees upon termination. The Company accrues for the additional
amount that would be contributed to the account since the last deposit date as
if all such employees were to terminate as of the balance sheet date.
In accordance with government regulations in Peru, employees are entitled to
receive 8% of the Doe Run Peru's taxable income, 50% of which is distributed to
employees based on number of days worked, and the remaining distributed in
proportion to their salaries.
(10) PREFERRED STOCK (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company had 2,500 shares of preferred stock with a $1,000 par value
authorized, issued and outstanding at October 31, 1996 and 1997. The shares are
owned by Renco. The shares are redeemable solely at the option of the Company at
$1,000 per share plus any unpaid dividends.
Cumulative annual dividends of $80 per share are payable quarterly on the
first day of January, April, July and October and must be paid before dividends
on common stock can be paid. The Company declared and paid dividends of $100 per
share on each of its 2,500 shares on December 30, 1996. Dividends in arrears at
October 31, 1996 and 1997 were $168 and $118, respectively. At October 31, 1996
and 1997, no dividends were accrued as none had been declared.
F-22
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(11) BUSINESS AND CREDIT CONCENTRATIONS
Lead prices fluctuate and are affected by numerous factors beyond the
Company's control, including expectations for inflation, speculative activities,
the relative exchange rate of the U.S. dollar, global and regional demand and
production, political and economic conditions and production costs in major
producing regions. The aggregate effect of these factors makes it impossible for
the Company to predict lead prices. Fluctuations in the lead price could have a
material adverse effect on the results of operations, financial condition, and
liquidity of the Company.
For the years ended October 31, 1995, 1996 and 1997 approximately 59%, 67%
and 63%, respectively, of the Company's revenues were from U.S. battery
manufacturers (primarily automotive) or their suppliers. At October 31, 1996 and
1997, the accounts receivable balances related to these U.S. battery
manufacturers were $39,246 and $35,162, respectively.
For the years ended October 31, 1995, 1996 and 1997 the Company relied on
one battery customer, Johnson Controls, Inc., for approximately 13%, 14% and 12%
of its revenue, respectively. Related accounts receivable balances were $9,394
and $6,501 at October 31, 1996 and 1997, respectively. An additional 10% of
revenues were attributed to East Penn Manufacturing Co., Inc., a battery
manufacturer, for the year ended October 31, 1996, and Big River Zinc
Corporation for the year ended October 31, 1997. No other customer accounted for
greater than 10% of revenues for the year ended October 31, 1995.
(12) SEGMENT INFORMATION
The Company operates in one industry segment for financial reporting
purposes.
Doe Run Peru's net sales and income from operations were $2,571 and $359,
respectively, for the period from October 23 to October 31, 1997. There were no
intraenterprise sales between geographic segments during this period. Doe Run
Peru's identifiable assets were $171,000 at October 31, 1997.
(13) COMMITMENTS AND CONTINGENCIES
INVESTMENT COMMITMENT
According to the Contract described in Note 2, Doe Run Peru is obligated to
invest $120,000 through October 23, 2002 to expand and modernize its operations,
including certain expenditures to comply with environmental regulations in Peru,
as discussed in Note 14. In the event Doe Run Peru has not fulfilled its
obligations under the Contract, it will be obligated to pay in 2002 a penalty to
Centromin Peru S.A. equal to 30% of any shortfall. Management plans to fund its
commitments through future operating cash flows.
TOLLING
The Company has entered into a tolling arrangement with a major battery
manufacturer whereby the manufacturer will deliver spent lead-acid batteries and
other lead-bearing material to the Company's recycling facility and, for a
processing fee, the Company will return finished lead metal. The agreement,
which expires in September 1999, covers approximately 14% of the Company's
anticipated domestic lead metal production.
F-23
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
SALES
The Company has commitments to sell approximately 70% of its anticipated
domestic lead production under agreements, with terms of generally less than one
year. Sales prices are generally based on the London Metal Exchange prices at
the time of shipment, plus a premium.
HEDGING
The fair market value of the Company's hedging positions at October 31, 1996
and 1997, is the difference between quoted prices at the respective period-end
and the contract settlement value. The fair market value represents the
estimated net cash the Company would receive (pay) if the contracts were
canceled on the respective dates. As management has designated these contracts
as hedges, the related gains and losses will be recognized in net sales when the
related production is sold.
The Company's open hedging positions at April 30, 1998 (unaudited) were
(numbers not in thousands):
FUTURE SALES (PURCHASE) CONTRACTS
<TABLE>
<CAPTION>
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD
- ------------------------- -------------------- ----------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Lead..................... (22,900) tons $ 0.2384/lb. to $0.2971/lb. $ (71,328) May 98 to May 99
Copper................... 1,378 tons $ 0.7675/lb. to $0.8097/lb. $ (138,779) May 98 to Sept. 98
Zinc..................... 276 tons $ 0.6001/lb. $ 59,128 May 98
Silver................... 637,624 oz. $ 6.18 /oz. to $6.30 /oz. $ 11,034 May 98
</TABLE>
The Company's open hedging positions at October 31, 1997 were (numbers not
in thousands):
FUTURES SALES CONTRACTS
<TABLE>
<CAPTION>
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD
- ------------------------- -------------- --------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Lead..................... 5,594 tons $ 0.2716/lb. to $0.3243/lb. $ 253,391 Nov. 97 to Dec. 98
Copper................... 1,213 tons $ 0.9525/lb. to $1.0097/lb. $ 142,174 Nov. 97 to Feb. 98
Zinc..................... 2,535 tons $ 0.6001/lb. to $0.6652/lb. $ 210,744 Nov. 97 to May 98
</TABLE>
The above commitments represent less than 20% of the Company's estimated
sales for the year ending October 31, 1998.
The Company's open hedging positions at October 31, 1996 were (numbers not
in thousands):
FUTURES SALES (PURCHASE) CONTRACTS
<TABLE>
<CAPTION>
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD
- ------------------------- --------------- --------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Lead..................... (19,869) tons $ 0.3384/lb. to $0.3765/lb. $ 54,692 Nov. 96 to Oct. 97
Copper................... 2,811 tons $ 0.8573/lb. to $1.1290/lb. $ 687,136 Nov. 96 to Mar. 97
Zinc..................... 6,063 tons $ 0.4990/lb. to $0.5026/lb. $ 259,087 Nov. 96 to Jan. 97
</TABLE>
SOLD CALL OPTION CONTRACTS
<TABLE>
<CAPTION>
METAL QUANTITY PRICE RANGE FAIR MARKET VALUE PERIOD
- ------------------------------------------- ----------- ------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Lead....................................... 2,576 tons $ 0.3600/lb. -- Nov. 96 to Dec. 96
</TABLE>
The Company is exposed to risk from market price fluctuations to the extent
it cannot meet anticipated sales.
The Company does not obtain collateral or other security to support hedge
instruments subject to credit risk, but assesses the reliability and reputation
of its counterparties before contracts are established.
F-24
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
LETTERS OF CREDIT
At October 31, 1996 and 1997, the Company's lender had issued irrevocable
standby letters of credit totaling $5,342 and $6,100, respectively, in
connection with the Company's insurance and bonding activities. At October 31,
1997, the Company's lender had issued a $3,300 standby letter of credit as a
guarantee for a potential purchase price adjustment related to the acquisition
of Metaloroya, as required by the Contract.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with a number of its senior executives
through October 31, 1999.
ADDITIONAL PAYMENTS RELATED TO ACQUISITIONS
The terms of an agreement with the previous owners of The Doe Run Company
(predecessor to the Company) provided that, beginning with the fiscal period
ending October 31, 1994, additional payments may be required based on a
percentage of gross margin for those periods in excess of a specified base
amount. Payments made under the agreement were $237 and $5,778 in the fiscal
years ended October 31, 1996 and 1997, respectively. In conjunction with the
retirement of the obligations due to the previous owners, the amount paid
exceeded recorded obligations by $5,108. This amount was recorded as additional
purchase price paid for the assets of the Company acquired from the previous
owners. The Company was released from further obligation under the agreement.
Pursuant to an Asset Purchase Agreement (the "Purchase Agreement")
additional consideration may be due to the former owners of Seafab if certain
earnings levels are met for the five-year period beginning November 1, 1996.
Payments made in fiscal 1997 totaled $181.
(14) ENVIRONMENTAL AND LITIGATION MATTERS
ENVIRONMENTAL
DOMESTIC OPERATIONS
Doe Run is subject to numerous federal, state and local environmental laws
and regulations governing, among other things, air emissions, waste water
discharge, solid and hazardous waste treatment, and storage, disposal and
remediation of releases of hazardous materials. In common with much of the
mining industry, Doe Run's facilities are located on sites that have been used
for heavy industrial purposes for decades and may require remediation. Doe Run
has made and intends to continue making the necessary expenditures for
environmental remediation and compliance with environmental laws and
regulations. Environmental laws and regulations may become more stringent in the
future which could increase costs of compliance.
The Company has recorded a liability of $35,527 as of October 31, 1997,
which represents management's best estimate of known obligations relating to
environmental and reclamation matters, which are discussed below.
Primary smelter slag produced by and stored at the primary smelter in
Herculaneum, Missouri is currently exempt from hazardous waste regulation under
the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). The
Company has accrued approximately $1,200 related to the Herculaneum
F-25
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
smelter's operations, primarily for closure obligations. However, the EPA
recently published a proposed rule, which, if adopted, would require this slag
to be managed as a hazardous waste. Certain other waste materials, including
baghouse dust, generated at the smelter and now recycled in the smelter may also
become regulated as hazardous wastes. At this time, the Company cannot predict
the final outcome of the EPA's proposed rule. However, the EPA has indicated,
notwithstanding the full RCRA requirements, the rule will not be imposed, in
particular, that the slag will not be regulated. If the slag or other wastes at
the smelter were to be regulated as hazardous waste, the Company may be required
to take corrective action under RCRA at the smelter, as well as to adopt
stricter management practices for these wastes.
The Company is working with regulators at the Herculaneum smelter to develop
a new three-year compliance plan to meet the ambient air quality standard for
lead promulgated under the federal Clean Air Act. The plan will take effect
after fiscal 1998 to implement control measures identified in the plan. The
Company expects to make capital expenditures for additional control measures
totaling approximately $2,800 for fiscal 1998 while the plan is developed and
anticipates future cash requirements of $3,000 for the three-year plan.
Doe Run has received notice that it is a potentially responsible party
("PRP") subject to liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), at four sites in
St. Francois County, Missouri: the Big River Mine Tailings Site, the Bonne Terre
Site, the Federal site, and the National site; the Oronogo-Durenweg site in
Jasper County, Missouri; the Cherokee County site in Cherokee County, Kansas;
the Tar Creek site in Ottawa County, Oklahoma; the Block "P" site in Cascade
County, Montana; and the Missouri Electric Works site in Cape Girardeau,
Missouri. In addition, there are four sites in St. Francois County for which the
EPA has indicated it will issue notice. These sites involve historical
operations of predecessors of the Company. CERCLA provides for strict and, in
certain circumstances, joint and several liability for response costs and
natural resource damages. Doe Run signed a voluntary Administrative Order of
Consent ("AOC") in 1994 with the EPA to remediate the Big River Mine Tailings
Site. In February 1997, Doe Run signed an AOC to perform an Engineering
Evaluation/Cost Analysis on the Bonne Terre Site. In addition to remediating the
mine waste areas at these sites, the Company has signed an AOC with the EPA to
conduct a Remedial Investigation/ Feasibility Study ("RIFS") to assess potential
off-site impacts of site operations on and the need for remediation regarding
groundwater, residential soils, several creeks and a river. The RIFS is being
conducted by a third party and is approximately one-third complete, with
completion expected within one year. The Block "P" site in Montana was a
polymetallic mine with a waste facility located on U.S. Forest Service land.
Studies of the tailings site, mine and the potential impacts on surface water
have been requested by the State of Montana. The Company has a reserve as of
October 31, 1997 of approximately $17,800 for these sites, including the four
additional sites in St. Francois County.
The Company has been advised by the EPA that it is considering taking
certain response actions at a mine site in Madison County, Missouri known as the
LaMotte Site. A predecessor of the Company was a former operator of the site.
The EPA has not decided whether any action will be taken, but held a meeting
with the Company and two other PRPs at the site on June 17, 1998 to discuss
possible future response actions. This site is substantially smaller than the
sites in St. Francois County where the Company has been named a PRP, and the
potential issues are less complex. At this time, based on this preliminary
meeting and an inspection of the site, management does not believe that any
future action will result in a material adverse impact to the results of
operations, financial condition and liquidity of the Company.
F-26
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
Doe Run's recycling facility is subject to corrective action requirements
under RCRA, as a result of a storage permit for certain wastes issued in 1989.
This has required and may involve future remediation of solid waste management
units at the site. Although it is not possible to predict whether completed
actions will be approved or new actions required, the Company has reserves as of
October 31, 1997 of approximately $1,900 for future corrective actions and
$2,600 for closure costs for the permitted storage area.
The Company's domestic operating facilities have wastewater discharge
permits issued under the federal Clean Water Act, as amended. It is expected
that stricter discharge limits than previously in effect will be included in
permits now subject to renewal. As a result, there will be additional treatment
facilities required, with anticipated total capital expenditures of $4,000 over
the next five years to meet applicable permit requirements. There will be no
appreciable increase in operating costs.
The Company's mining and milling operations include five mine waste disposal
facilities that are subject to Missouri mine closure permit requirements. The
total expected cost of closure is $11,000. The Company has begun certain closure
requirements ahead of closure and is also accruing for the cost of ultimate
closure at a rate of approximately $300 per year. The Company's mine closure
reserves were approximately $4,800 as of October 31, 1997.
FOREIGN OPERATIONS
Doe Run Peru has negotiated a capital spending plan with the Peruvian
government to invest $107,575 during the next nine years to meet its obligations
under the Programa de Adecuacion y Manejo Ambiental (Environmental Adjustment
and Management Program) (the "PAMA") as follows:
<TABLE>
<CAPTION>
ESTIMATED
YEAR COSTS
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 2,700
1999.............................................................................. 3,612
2000.............................................................................. 4,963
2001.............................................................................. 3,300
2002.............................................................................. 3,000
2003.............................................................................. 3,800
2004.............................................................................. 2,775
2005.............................................................................. 38,700
2006.............................................................................. 44,725
----------
$ 107,575
----------
----------
</TABLE>
According to the Contract, the Company has the option to continue the use of
Doe Run Peru's existing zinc ferrite disposal site for three years, after which
it can take ownership of the site or create a new site. If the Company chooses
to take ownership of the site, it will be responsible for its closure costs. The
Company has accrued for management's estimate of the closure costs, or $7,200.
If the Company abandons the ferrite site, it must pay this amount to Centromin
Peru S.A.
CONSOLIDATED
The Company believes its reserves for domestic and foreign environmental and
reclamation matters are adequate, based on the information available. Depending
upon the type and extent of remediation activities required, costs in excess of
established reserves are reasonably possible. Therefore, there can be
F-27
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
no assurance that additional costs, both individually and in the aggregate,
would not have a material adverse effect on the results of operations, financial
condition and liquidity of the Company.
LITIGATION
The Company is a defendant in several lawsuits alleging certain damages
stemming from the operations at the Herculaneum smelter. Two of these cases are
class action lawsuits. In one case, the plaintiffs seek to have certified two
separate classes. The first class would consist of property owners in a certain
section of Herculaneum, alleging that property values have been damaged due to
the operations of the smelter. The second class alleged is comprised of children
who lived in Herculaneum during a period of time when they were six months to
six years old, and the remedy sought is medical monitoring for the class. The
second class action similarly is seeking certification of a class of property
owners allegedly damaged by operations from the smelter, but the purported size
of the class is every home in Herculaneum, Missouri. The other two cases are
personal injury actions by fourteen individuals who allege damages from the
effects of lead poisoning due to operations at the smelter. Punitive damages
also are being sought in each case. The Company is vigorously defending all of
these claims. Preliminary investigation and research by the Company indicates
property values in Herculaneum are consistent with those of surrounding
communities and have not been affected by the smelter. Finally, based on rules
for class certification, the Company believes class certification is not
appropriate. However, because the cases are in the early stages of discovery,
the Company is unable at this time to state with certainty the expected outcome
of and the final costs of any of these cases. Therefore, there can be no
assurance that these cases would not have a material adverse effect, both
individually and in the aggregate, on the results of operations, financial
condition and liquidity of the Company.
(15) SUBSEQUENT EVENTS
On March 12, 1998, the Company completed the sale of $200,000 11.25% Senior
Notes due 2005 (the "Fixed Rate Notes") and $55,000 Floating Interest Rate
Senior Notes due 2003 (collectively, the "Notes"). The Notes are guaranteed by
certain subsidiaries of the Company (see Note 16). The Company used $125,000 of
the proceeds from the Notes to make a deposit (the "Special Term Deposit") in a
bank, which in turn loaned such amount (the "Back-to-Back Loan") to Doe Run
Mining. The Special Term Deposit and the Back-to-Back Loan have payment terms
that match the timing and amount of the payments on $125,000 of the Fixed Rate
Notes, except that additional interest of 0.50% for the first six months and
0.25% thereafter through September 11, 2004 is payable on the Back-to-Back Loan.
The Back-to-Back Loan is collateralized by the Special Term Deposit. Doe Run
Mining used the proceeds of the Back-to-Back Loan to repay the $100,000 balance
on the $225,000 term loan, plus accrued interest thereon of $1,004, repay the
$23,000 subordinated note to the Company and pay fees of $313.
The remaining $130,000 of the proceeds of the Notes, plus the $23,000
repayment of the subordinated note by Doe Run Mining, were used by the Company
to: (i) repay principal and interest on the $130,000 term loan of $128,125 and
$1,127, respectively, (ii) repay the revolving loan balance of $14,444, (iii)
pay Renco $5,000 to redeem the $2,500 preferred stock, plus accrued dividends
thereon of $189, and a transaction fee of $2,311 and (iv) pay related fees and
expenses of $6,553.
As a result of these transactions, the Company recognized an extraordinary
loss of approximately $6,607, net of income tax benefit of $143.
F-28
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(16) GUARANTOR SUBSIDIARIES
The Guarantor Subsidiaries (Fabricated Products, Inc. ("FPI") and Doe Run
Cayman and its subsidiaries, Doe Run Mining S.R. Ltda. ("Doe Run Mining") and
Doe Run Peru) have jointly and severally, fully and unconditionally guaranteed
the Notes. Each of the Guarantor Subsidiaries is a wholly owned direct or
indirect subsidiary of the Company, except Doe Run Peru which is over 99.97%
owned indirectly by the Company, with a de minimis number of shares owned by
employees of Centromin pursuant to Peruvian law. Financial information regarding
the Guarantor Subsidiaries as of October 31, 1997 and April 30, 1998, the year
ended October 31, 1997 and the six months ended April 30, 1998 is presented
below for purposes of complying with the reporting requirements of the Guarantor
Subsidiaries. FPI was incorporated in August 1996, and its operations were not
material to the results of operations of the Company for the year ended October
31, 1996. Separate financial statements and other disclosures concerning each
Guarantor Subsidiary and disclosures concerning non-Guarantor Subsidiaries have
not been presented because management has determined that such information is
not material to investors.
F-29
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING BALANCE SHEETS
OCTOBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
------------- --------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 1,579 $ -- $ 7,364 $ -- $ 8,943
Trade accounts receivable, net of
allowance for doubtful accounts..... 46,016 6,416 390 (352) 52,470
Inventories........................... 27,597 2,104 59,032 (85) 88,648
Prepaid expenses and other current
assets.............................. 2,272 239 2,752 -- 5,263
Due from subsidiaries................. 29,878 -- -- (29,878) --
Net deferred tax assets............... -- -- 69 -- 69
------------- --------- ---------------- ------------ -------------
Total current assets................ 107,342 8,759 69,607 (30,315) 155,393
Property, plant and equipment, net...... 104,822 3,787 97,739 -- 206,348
Net deferred tax assets................. 7,481 -- -- -- 7,481
Other noncurrent assets, net............ 11,260 335 3,623 -- 15,218
Investment in subsidiaries.............. 4,000 -- -- (4,000) --
------------- --------- ---------------- ------------ -------------
Total assets........................ $ 234,905 $ 12,881 $ 170,969 $ (34,315) $ 384,440
------------- --------- ---------------- ------------ -------------
------------- --------- ---------------- ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt................................ $ 8,345 $ -- $ 4,000 $ -- $ 12,345
Accounts payable...................... 15,583 2,704 23,151 (352) 41,086
Accrued liabilities................... 18,510 383 10,000 -- 28,893
Net deferred tax liabilities.......... 7,481 -- -- -- 7,481
Due to parent......................... -- -- 24,743 (24,743) --
------------- --------- ---------------- ------------ -------------
Total current liabilities........... 49,919 3,087 61,894 (25,095) 89,805
Long-term debt, less current
maturities............................ 123,395 -- 99,000 -- 222,395
Postretirement benefits................. 12,455 -- -- -- 12,455
Reclamation and environmental costs..... 24,485 -- 7,200 -- 31,685
Due to parent........................... -- 5,135 -- (5,135) --
Other noncurrent liabilities............ 10,392 2,388 1,146 -- 13,926
------------- --------- ---------------- ------------ -------------
Total liabilities................... 220,646 10,610 169,240 (30,230) 370,266
Shareholders' equity:
Preferred stock, $1,000 par value,
2,500 shares issued, authorized and
outstanding; liquidation and
redemption value of $2,618 on
October 31, 1997.................... 2,500 -- -- -- 2,500
Common stock, $.10 par value, 1,000
shares authorized, issued, and
outstanding......................... -- -- -- -- --
Common stock, $1 par value, 1,000
shares authorized, issued and
outstanding......................... -- 1 -- (1) --
Common stock, $1 par value, 2,005,000
shares authorized, issued and
outstanding......................... -- -- 2,005 (2,005) --
Additional paid in capital............ 5,000 935 -- (935) 5,000
Retained earnings..................... 6,759 1,335 (276) (1,144) 6,674
------------- --------- ---------------- ------------ -------------
Total shareholders' equity.......... 14,259 2,271 1,729 (4,085) 14,174
------------- --------- ---------------- ------------ -------------
Total liabilities and shareholders'
equity.............................. $ 234,905 $ 12,881 $ 170,969 $ (34,315) $ 384,440
------------- --------- ---------------- ------------ -------------
------------- --------- ---------------- ------------ -------------
</TABLE>
F-30
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
------------- ----------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 257,243 $ 23,338 $ 2,571 $ (2,685) $ 280,467
Costs and expenses:
Cost of sales........................ 214,742 20,194 2,027 (2,612) 234,351
Depletion, depreciation and
amortization....................... 14,091 476 151 -- 14,718
Selling, general and administrative
expenses, including related party
management fees of $1,200 per
year............................... 10,005 920 34 -- 10,959
Exploration expense.................. 2,705 -- -- -- 2,705
------------- ----------- ------- ------------ -------------
Total costs and expenses......... 241,543 21,590 2,212 (2,612) 262,733
------------- ----------- ------- ------------ -------------
Income from operations........... 15,700 1,748 359 (73) 17,734
Other income (expense):
Interest expense..................... (13,038) (445) (257) -- (13,740)
Interest income...................... 21 -- -- -- 21
Other, net........................... 127 (136) (28) -- (37)
Equity in earnings of subsidiaries... 887 -- -- (887) --
------------- ----------- ------- ------------ -------------
(12,003) (581) (285) (887) (13,756)
------------- ----------- ------- ------------ -------------
Income before income taxes....... 3,697 1,167 74 (960) 3,978
Income tax expense..................... 3,977 4 350 -- 4,331
------------- ----------- ------- ------------ -------------
Income before extraordinary
item........................... (280) 1,163 (276) (960) (353)
(1,062) -- -- -- (1,062)
------------- ----------- ------- ------------ -------------
Net income (loss)................ $ (1,342) $ 1,163 $ (276) $ (960) $ (1,415)
------------- ----------- ------- ------------ -------------
------------- ----------- ------- ------------ -------------
</TABLE>
F-31
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
------------- --------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities.............................. $ 12,040 $ 1,585 $ 4,395 $ -- $ 18,020
Cash flows from investing activities:
Purchases of property, plant and
equipment............................. (12,414) (933) (129) -- (13,476)
Payment for acquisitions................ (5,227) -- (123,015) -- (128,242)
Investment in subsidiary................ (2,005) -- -- 2,005 --
------------- --------- -------- ------ -------------
Net cash used in investing
activities.......................... (19,646) (933) (123,144) 2,005 (141,718)
Cash flows from financing activities:
Proceeds from (payments on) revolving
loan, net............................. (9,399) -- 3,000 -- (6,399)
Proceeds from long-term debt............ 140,945 -- 225,000 -- 365,945
Payments on long-term debt.............. (87,453) -- (125,000) -- (212,453)
Payment of deferred financing costs..... (4,938) -- (3,635) -- (8,573)
Loans from parent....................... (24,091) (652) 24,743 -- --
Extraordinary item related to retirement
of debt............................... (638) -- -- -- (638)
Cash received from issuance of stock.... -- -- 2,005 (2,005) --
Payment of dividends.................... (5,241) -- -- -- (5,241)
------------- --------- -------- ------ -------------
Net cash provided by (used in)
financing activities................ 9,185 (652) 126,113 (2,005) 132,641
------------- --------- -------- ------ -------------
Net increase in cash.................. 1,579 -- 7,364 -- 8,943
Cash at beginning of period............... -- -- -- -- --
------------- --------- -------- ------ -------------
Cash at end of period..................... $ 1,579 $ -- $ 7,364 $ -- $ 8,943
------------- --------- -------- ------ -------------
------------- --------- -------- ------ -------------
</TABLE>
F-32
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
--------------- --------- ----------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ -- $ -- $ 12,142 $ -- $ 12,142
Trade accounts receivable, net of
allowances for doubtful accounts........ 38,599 4,594 23,767 (33) 66,927
Inventories............................... 34,509 2,167 64,308 (117) 100,867
Prepaid expenses and other current
assets.................................. 7,097 188 27,387 (5,129) 29,543
Due from subsidiary....................... 19,989 -- -- (19,989) --
--------------- --------- -------- ------------ -------------
Total current assets.................... 100,194 6,949 127,604 (25,268) 209,479
Property, plant and equipment, net.......... 103,283 6,663 95,921 -- 205,867
Special term deposit........................ 125,000 -- -- -- 125,000
Net deferred tax assets..................... 9,761 -- (616) -- 9,145
Other noncurrent assets, net................ 16,637 440 310 -- 17,387
Investment in subsidiaries.................. 14,007 -- -- (14,007) --
--------------- --------- -------- ------------ -------------
Total assets............................ $ 368,882 $ 14,052 $ 223,219 $ (39,275) $ 566,878
--------------- --------- -------- ------------ -------------
--------------- --------- -------- ------------ -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current
maturities of long-term debt............ $ 895 $ -- $ 5,000 -- $ 5,895
Accounts payable.......................... 10,276 1,809 38,673 (33) 50,725
Accrued liabilities....................... 27,167 270 20,475 (5,129) 42,783
Net deferred tax liabilities................ 7,833 -- 1,634 -- 9,467
Due to parent............................. -- 8,582 11,407 (19,989) --
--------------- --------- -------- ------------ -------------
Total current liabilities............... 46,171 10,661 77,189 (25,151) 108,870
Long-term debt, less current maturities..... 259,681 -- 125,000 -- 384,681
Postretirement benefits..................... 12,608 -- -- -- 12,608
Reclamation and environmental costs......... 23,885 -- 7,200 -- 31,085
Other noncurrent liabilities................ 10,544 1,965 1,249 -- 13,758
--------------- --------- -------- ------------ -------------
Total liabilities....................... 352,889 12,626 210,638 (25,151) 551,002
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares
authorized, issued, and outstanding..... -- 0 -- -- --
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding...... -- 1 -- (1) --
Common stock, $1 par value, 2,005,000
shares authorized, issued and
outstanding............................. -- -- 2,005 (2,005) --
Additional paid in capital................ 5,000 935 -- (935) 5,000
Retained earnings......................... 10,993 490 10,576 (11,183) 10,876
--------------- --------- -------- ------------ -------------
Total shareholders' equity.............. 15,993 1,426 12,581 (14,124) 15,876
--------------- --------- -------- ------------ -------------
Total liabilities and shareholders'
equity................................ $ 368,882 $ 14,052 $ 223,219 $ (39,275) $ 566,878
--------------- --------- -------- ------------ -------------
--------------- --------- -------- ------------ -------------
</TABLE>
F-33
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
-------------- --------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 119,006 $ 7,827 $ 227,359 $ (10,787) $ 343,405
Costs and expenses:
Cost of sales....................... 97,090 7,322 181,631 (2,938) 283,105
Depletion, depreciation and
amortization...................... 7,786 279 3,396 -- 11,461
Selling, general and administrative
expenses.......................... 7,935 712 16,870 (7,817) 17,700
Exploration expenses................ 1,599 -- -- -- 1,599
-------------- --------- -------- ------------ -------------
Total costs and expenses.......... 114,410 8,313 201,897 (10,755) 313,865
-------------- --------- -------- ------------ -------------
Income from operations............ 4,596 (486) 25,462 (32) 29,540
Other income (expense):
Interest expense.................... (8,838) (311) (5,667) 311 (14,505)
Interest income..................... 2,214 -- 456 (311) 2,359
Other, net.......................... (241) (32) (362) -- (635)
Equity in earnings of
subsidiaries...................... 10,007 -- -- (10,007) --
-------------- --------- -------- ------------ -------------
3,142 (343) (5,573) (10,007) (12,781)
-------------- --------- -------- ------------ -------------
Income (loss) before income taxes
and extraordinary item.......... 7,738 (829) 19,889 (10,039) 16,759
Income tax expense (benefit)............ (923) 16 6,668 -- 5,761
-------------- --------- -------- ------------ -------------
Income (loss) before extraordinary
item.............................. 8,661 (845) 13,221 (10,039) 10,998
Extraordinary item.................. (4,238) -- (2,369) -- (6,607)
-------------- --------- -------- ------------ -------------
Net income (loss)................. $ 4,423 $ (845) $ 10,852 $ (10,039) $ 4,391
-------------- --------- -------- ------------ -------------
-------------- --------- -------- ------------ -------------
</TABLE>
F-34
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING
GUARANTOR DOE RUN CAYMAN
SUBSIDIARIES FPI AND SUBSIDIARIES ELIMINATIONS THE COMPANY
-------------- --------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.................. $ 15,626 $ (324) $ (7,038) $ (10,007) $ (1,743)
Cash flows from investing activities:
Special term deposit............... (125,000) -- -- -- (125,000)
Purchases of property, plant and
equipment........................ (6,248) (3,124) (1,536) -- (10,908)
Investment in subsidiary........... (10,007) -- -- 10,007 --
-------------- --------- -------- ------------ -------------
Net cash used in investing
activities....................... (141,255) (3,124) (1,536) 10,007 (135,908)
Cash flows from financing activities:
Proceeds from (payments on)
revolving loan, net.............. 4,681 -- (3,000) -- 1,681
Proceeds from short-term
borrowings....................... -- -- 5,000 -- 5,000
Proceeds from long-term debt....... 255,000 -- 125,000 -- 380,000
Payments on long-term debt......... (130,845) -- (100,000) -- (230,845)
Payment of deferred financing
costs............................ (11,985) -- (312) -- (12,297)
Loan from parent................... 9,888 3,448 (13,336) -- --
Payment of dividends............... (189) -- -- -- (189)
Redemption of preferred stock...... (2,500) -- -- -- (2,500)
-------------- --------- -------- ------------ -------------
Net cash provided by financing
activities....................... 124,050 3,448 13,352 -- 140,850
-------------- --------- -------- ------------ -------------
Net increase (decrease) in cash.... (1,579) -- 4,778 -- 3,199
Cash at beginning of period............ 1,579 -- 7,364 -- 8,943
-------------- --------- -------- ------------ -------------
Cash at end of period.................. $ -- $ -- $ 12,142 $ -- $ 12,142
-------------- --------- -------- ------------ -------------
-------------- --------- -------- ------------ -------------
</TABLE>
F-35
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A.:
We have audited the accompanying statements of assets and liabilities of La
Oroya Metallurgical Complex (La Oroya), a division of the Peruvian state-owned
corporation Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A.
(Centromin), as of December 31, 1995 and 1996 and October 23, 1997 and the
related statements of revenues and expenses, changes in net assets and cash
flows for each of the years in the three-year period ended December 31, 1996 and
the period from January 1 to October 23, 1997. These financial statements are
the responsibility of Centromin's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As explained in Note 2, the above financial statements which have been
prepared from Centromin's accounting records, remeasured into U.S. dollars and
prepared following generally accepted accounting principles in the United States
of America, are intended to reflect separately the assets, liabilities, revenues
and expenses of La Oroya, as if La Oroya had operated as a separate entity and
applying certain allocations by Centromin on the basis described in Note 4 and
therefore, they may not necessarily reflect the financial position and results
of operations of La Oroya as if it were effectively a separate legal entity for
the periods indicated above.
In our opinion, the financial statements referred to above, present fairly,
for the purpose described in the preceding paragraph, the assets and liabilities
of La Oroya as of December 31, 1995 and 1996 and October 23, 1997, and its
revenues and expenses and cash flows for each of the years in the three-year
period ended December 31, 1996 and the period from January 1 to October 23,
1997, in conformity with accounting principles generally accepted in the United
States of America.
MEDINA, ZALDIVAR Y ASOCIADOS,
a member firm of Andersen Worldwide SC
Countersigned by:
Marco Antonio Zaldivar
C.P.C. Register 12477
Lima, Peru
December 5, 1997
F-36
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------- OCTOBER 23,
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and deposits in banks................................................. $ 62 $ 582 $ 79
Trade accounts receivable.................................................. 15,335 30,277 10,423
Inventory:
Refined metals and concentrates for sale................................. 12,333 8,930 14,115
Metal and concentrates in process........................................ 74,175 43,555 43,007
Materials, supplies and spare parts...................................... 28,488 8,303 11,226
---------- ---------- -----------
114,996 60,788 68,348
---------- ---------- -----------
Prepaid expenses........................................................... 2,524 1,591 1,922
---------- ---------- -----------
Total current assets................................................... 132,917 93,238 80,772
---------- ---------- -----------
DEFERRED TAX AND WORKERS' PROFIT SHARING..................................... -- 4,262 2,853
PROPERTY, PLANT AND EQUIPMENT, net........................................... 55,557 50,814 46,145
---------- ---------- -----------
Total assets................................................................. $ 188,474 $ 148,314 $ 129,770
---------- ---------- -----------
---------- ---------- -----------
<CAPTION>
LIABILITIES AND NET ASSETS
<S> <C> <C> <C>
CURRENT LIABILITIES:
Bank loans................................................................. $ 19,626 $ 15,068 --
Accounts payable........................................................... 17,810 9,026 $ 16,732
Remuneration and taxes payable............................................. 5,275 4,709 4,535
Advances from customers.................................................... 7,925 10,750 --
Accrued liabilities........................................................ 3,266 4,477 2,369
Severance indemnities...................................................... 21,228 2,186 1,185
Deposits of personnel's severance indemnities.............................. 3,579 1,973 --
Current portion of environmental liabilities............................... -- 730 2,530
---------- ---------- -----------
Total current liabilities.............................................. 78,709 48,919 27,351
---------- ---------- -----------
DEFERRED TAX AND WORKERS' PROFIT SHARING..................................... 2,098 -- --
ENVIRONMENTAL LIABILITIES, net of current portion............................ -- 20,820 19,020
---------- ---------- -----------
Total liabilities...................................................... 80,807 69,739 46,371
---------- ---------- -----------
NET ASSETS................................................................... 107,667 78,575 83,399
---------- ---------- -----------
Total liabilities and net assets............................................. $ 188,474 $ 148,314 $ 129,770
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
STATEMENTS OF REVENUES AND EXPENSES
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO
---------------------------------- OCTOBER 23,
1994 1995 1996 1997
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
NET SALES...................................................... $ 367,057 $ 450,929 $ 456,797 $ 352,805
OPERATING COSTS AND EXPENSES:
Costs of sales............................................... 339,302 397,524 397,158 305,959
Depreciation and amortization................................ 4,448 4,729 5,353 4,730
Administrative and general................................... 4,569 4,479 5,660 5,223
Selling and marketing........................................ 5,715 5,972 6,669 4,808
Workers' profit sharing...................................... 813 2,995 1,197 2,284
Personnel reduction costs.................................... -- 2,504 3,894 1,490
---------- ---------- ---------- ------------
354,847 418,203 419,931 324,494
---------- ---------- ---------- ------------
Operating income......................................... 12,210 32,726 36,866 28,311
---------- ---------- ---------- ------------
OTHER INCOME (EXPENSES):
Interest and bank charges.................................... (6,784) (2,100) (3,332) (832)
Exchange gains, net.......................................... 3,840 2,050 1,884 269
Other, net (see Note 15)..................................... (4,242) (3,848) (25,401) (1,486)
---------- ---------- ---------- ------------
(7,186) (3,898) (26,849) (2,049)
---------- ---------- ---------- ------------
Income before provision for income tax................... 5,024 28,828 10,017 26,262
PROVISION FOR INCOME TAX....................................... 2,803 10,332 4,128 7,879
---------- ---------- ---------- ------------
Net income............................................... $ 2,221 $ 18,496 $ 5,889 $ 18,383
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
STATEMENTS OF CHANGES IN NET ASSETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
NET ASSETS
----------
<S> <C>
BALANCE AS OF JANUARY 1, 1994......................................................................... $ 123,901
Net income.......................................................................................... 2,221
Transfers to Centromin.............................................................................. (61,632)
----------
BALANCE AS OF DECEMBER 31, 1994....................................................................... 64,490
Net income.......................................................................................... 18,496
Transfers from Centromin............................................................................ 24,681
----------
BALANCE AS OF DECEMBER 31, 1995....................................................................... 107,667
Net income.......................................................................................... 5,889
Transfers to Centromin.............................................................................. (34,981)
----------
BALANCE AS OF DECEMBER 31, 1996....................................................................... 78,575
Net income.......................................................................................... 18,383
Transfers to Centromin.............................................................................. (13,559)
----------
BALANCE AS OF OCTOBER 23, 1997........................................................................ $ 83,399
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO
---------------------------------- OCTOBER 23,
1994 1995 1996 1997
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 2,221 $ 18,496 $ 5,889 $ 18,383
Add (less):
Depreciation and amortization.......................... 4,448 4,729 5,353 4,730
Deferred provision (benefit) of income tax and workers'
profit sharing....................................... 692 1,406 (6,360) 1,409
Increase in environmental liabilities.................. -- -- 21,550 --
Other.................................................. 337 (1,281) (610) (61)
Net changes in assets and liabilities:
Decrease (increase) in trade accounts receivables...... 11,325 1,679 (14,942) 19,854
Decrease (increase) in inventory....................... 26,686 (35,035) 54,208 (7,560)
Decrease (increase) in prepaid expenses................ 423 926 933 (331)
Increase (decrease) in accounts payable................ 16,972 (8,786) (8,784) 7,706
Increase (decrease) in remuneration and taxes
payable.............................................. 386 1,210 (566) (174)
Advances from (payments to) customers, net............. 2,302 (3,749) 2,825 (10,750)
Increase (decrease) in accrued liabilities............. 2 1,004 1,211 (2,108)
Decrease in severance indemnities...................... (51) (5,324) (19,042) (1,001)
Increase (decrease) in deposits of personnel's
severance indemnities................................ 143 3,579 (1,606) (1,973)
---------- ---------- ---------- ------------
Net cash provided by (used in) operating activities...... 65,886 (21,146) 40,059 28,124
---------- ---------- ---------- ------------
FINANCING ACTIVITIES:
Repayments of bank loans, net.............................. (4,262) (3,534) (4,558) (15,068)
Transfers (to) from Centromin.............................. (61,632) 24,681 (34,981) (13,559)
---------- ---------- ---------- ------------
Net cash provided by (used in) financing activities........ (65,894) 21,147 (39,539) (28,627)
---------- ---------- ---------- ------------
NET INCREASE (DECREASE) IN CASH AND DEPOSITS IN BANKS........ (8) 1 520 (503)
CASH AND DEPOSITS IN BANKS AT BEGINNING OF THE PERIOD........ 69 61 62 582
---------- ---------- ---------- ------------
CASH AND DEPOSITS IN BANKS AT THE END OF THE PERIOD.......... $ 61 $ 62 $ 582 $ 79
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
CASH FLOWS ADDITIONAL INFORMATION
Interest paid.............................................. $ 6,163 $ 2,096 $ 3,017 $ 1,776
Income tax paid (see Note 3)............................... $ -- $ -- $ -- $ --
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(1) BUSINESS AND DISPOSITION
The metallurgical complex of La Oroya (hereinafter "La Oroya") a division of
Empresa Minera del Centro del Peru S.A.--Centromin Peru S.A. (hereinafter
"Centromin") is engaged in the smelting and refining of polymetalic concentrates
and marketing and sale of refined metals. La Oroya primarily smelts and refines
the concentrates of polymetalic ores from the mining units of Centromin, which
include copper, lead and zinc. The operations of La Orya are conducted through
the Centromin organization systems, which include administrative, legal,
operating tasks, and all other necessary functions that support its operations.
Centromin is engaged in mining activities as specified by the General Mining
Law (Supreme Decree 014-92-EM), as well as in industrial activities necessary to
sustain mining operations.
On October 23, 1997, Centromin Peru S.A. contributed certain assets and
liabilities of La Oroya to a newly formed company, Metaloroya S.A.
("Metaloroya"), in exchange for shares in Metaloroya. Concurrent with the
transfer, Centromin sold all of the shares received to Doe Run Peru S.R. Ltda.
("Doe Run Peru"), a wholly owned subsidiary of Doe Run Mining S.R. Ltda., an
indirect wholly owned subsidiary of The Doe Run Resources Corporation.
(2) BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The financial statements of La Oroya division have been prepared in
accordance with the accounting principles generally accepted in the United
States of America ("U.S. GAAP"), which differ in certain significant respects
from generally accepted accounting principles in Peru. In addition, these
financial statements were prepared based on Centromin's accounting records
related to the metallurgical complex of La Oroya as if La Oroya had operated as
a separate entity and applying certain allocation methodologies, as specified in
Note 4.
Unless otherwise indicated, all amounts in the financial statements and in
these notes are presented in thousands of U.S. dollars (US$).
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is stated at the lower of cost or net realized value. The cost of
refined metals and concentrates for sale, as well as metal and concentrates for
sale, as well as metal and concentrates in process is determined under the
first-in, first-out method ("FIFO"). The cost of materials, supplies and spare
parts is determined using the average cost method.
F-41
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is calculated
on a straight-line basis at the rates indicated in Note 8. Maintenance and minor
repairs are charged to expenses as incurred. Material improvements and renewals
are capitalized.
In accordance with the Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS 121"), La Oroya's management has determined that there is
no impairment of its long-lived assets.
SEVERANCE INDEMNITIES
Severance indemnities are determined according to governmental regulations
and are provided for on an accrual basis for the amount, which would be paid if
all personnel were to retire at the date of each statement of assets and
liabilities. Under Legislative Decree 650, an accrued liability was established
to recognize the liability for personnel severance indemnities earned by
employees prior to December 31, 1990. These severance indemnities, which are
adjusted for subsequent wage increases, are required to be funded over a maximum
term of ten years, beginning in June 1991. The funding of this obligation
eliminates any adjustment for subsequent wages increases. In 1996, La Oroya
fully funded this obligation. Liabilities relating to personnel severance
indemnities earned by employees after 1991 are accrued and semi-annually
deposited into workers' individual bank accounts.
REVENUE RECOGNITION
Sales are recorded when title passes to the customer, which occurs at the
time of shipment. With respect to concentrates, sales are recorded based on
estimated weights, assays and prices. All such concentrate sales are adjusted
when final weights, assays and prices are known. Adjustments to the provisional
billings are made in the period during which additional information becomes
available.
INTEREST CAPITALIZATION
Interest expense allocable to the construction of the oxygen plant of US
$4,297 was capitalized until the start-up of its operations in 1994. Capitalized
interest is expensed over the depreciable life of the asset to which it relates.
INCOME TAX AND WORKERS' PROFIT SHARING
La Oroya is included in Centromin's income tax return. According, La Oroya
has provided income tax and remitted to Centromin any tax payable, calculated as
if it were filing separate tax returns.
Under Statement of Financial Accounting Standard No. 109, "Accounting for
Income taxes" ("SFAS 109"), which designates the liability method as the
required accounting method for taxes under U.S. GAAP, La Oroya recognizes the
tax effect of certain temporary differences between the financial reporting
basis of assets and liabilities and the related tax basis.
F-42
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Likewise, La Oroya recognizes the effect of temporary differences between
book and tax basis of assets and liabilities related to workers' profit sharing
on a basis similar to that used for income taxes.
(4) ALLOCATION METHODOLOGIES
As described in Note 2, La Oroya's transactions are recorded in Centromin's
accounting systems. The operations of La Oroya conducted through Centromin have
been presented using assumptions and allocations which management believes are
reasonable. They include the following:
(a) Centromin's assets and liabilities not specifically identifiable to La
Oroya have not been allocated in the accompanying financial statements.
These are cash and bank accounts, credit on value-added tax and
liabilities to certain suppliers of administrative services.
(b) Sales have been allocated based on the preliminary and final billings of
the exported refined metals and concentrates identified with La Oroya.
(c) Costs of production have been allocated based on the following:
- Concentrates acquired from Centromin's mining units were transferred
at market value as if La Oroya were an independent party.
- The depreciation charge was based on the fixed assets specifically
identifiable to La Oroya.
- Other allocated costs, included power, were based on the ratio of La
Oroya's usage to total usage by Centromin (mainly time incurred and
consumption of goods and services).
(d) Expenses relating to corporate accounting, finance and administrative
services provided by Centromin have been allocated based on the ratio of
La Oroya's usage to total usage by Centromin.
(e) Selling and marketing expenses have been allocated based on usage
estimated by management.
(f) Interest and bank charges are those which are directly related to La
Oroya's bank loans and overdrafts obtained during the year.
(g) Workers' profit sharing and income tax were provided based on the actual
results as if La Oroya had been operating as a separate entity.
(5) REMEASUREMENT INTO U.S. DOLLAR
La Oroya maintains its accounting records in Peruvian Nuevos Soles. Those
financial statements have been remeasured into U.S. dollars, which is its
functional currency, for all periods presented, in accordance with SFAS 52 using
the following methodology:
(a) Non-monetary accounts have been remeasured at historical exchange rates.
F-43
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(5) REMEASUREMENT INTO U.S. DOLLAR (CONTINUED)
(b) Monetary accounts in Peruvian currency have been remeasured at the
following free market exchange rates for buying (assets) and selling
(liabilities) in effect at the end of the respective period, which are in
Peruvian Nuevos soles per U.S. dollar:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- OCTOBER 23,
1994 1995 1996 1997
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Assets................................................... 2.16 2.299 2.596 2.667
Liabilities.............................................. 2.19 2.322 2.603 2.669
</TABLE>
(c) Income and expenses, other than depreciation, that have been remeasured
at the historical exchange rates that applied to the related assets, have
been remeasured at average monthly basis at average exchange rates. Cost
of sales was determined from its components once remeasured.
The net effect of foreign exchange difference for each period is reflected
in the accompanying statement of revenues and expenses.
(6) FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE RISK EXPOSURE
Under current law, foreign currency transactions are made through the
financial banking system at free market exchange rates.
The assets and liabilities denominated in Peruvian Nuevos Soles are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- OCTOBER 23,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Assets--
Cash and deposits in banks................................ -- 184 169
Accounts receivable....................................... 4,055 1,602 3,698
--------- --------- -----------
4,055 1,786 3,867
--------- --------- -----------
Liabilities--
Trade accounts payable.................................... 7,549 6,919 6
Remuneration and taxes payable............................ 12,249 12,257 15,298
Accrued liabilities....................................... 5,721 9,504 2,200
--------- --------- -----------
25,519 28,680 17,504
--------- --------- -----------
Net position............................................ (21,464) (26,894) (13,637)
--------- --------- -----------
--------- --------- -----------
</TABLE>
The net effects of exchange differences were US$3,840, US$2,050 and US$1,884
for the 1994, 1995 and 1996 years, respectively and US$269 for the period from
January 1 to October 23, 1997.
F-44
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(7) MATERIALS, SUPPLIES AND SPARE PARTS
This account is comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- OCTOBER 23,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Materials, supplies and spare parts......................... $ 25,714 $ 8,335 $ 11,748
Supplies in transit......................................... 2,935 490 --
--------- --------- -----------
28,649 8,825 11,748
--------- --------- -----------
Less--allowance for obsolescence............................ (161) (522) (522)
$ 28,488 $ 8,303 $ 11,226
--------- --------- -----------
--------- --------- -----------
</TABLE>
In management's opinion, the balance of the allowance for obsolescence
adequately covers the related risk as of each statement of assets and
liabilities date.
(8) PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
This account is comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
ANNUAL RATE OF ----------------------- OCTOBER 23,
DESCRIPTION DEPRECIATION 1995 1996 1997
- --------------------------------------------------------- ---------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Land..................................................... -- $ 97 $ 97 $ 97
Buildings and other premises............................. 3% to 10% 21,335 21,335 21,335
Machinery and equipment.................................. 6.67% to 30% 112,072 112,072 112,072
Furniture and fixtures................................... 10% to 15% 1,388 1,388 1,388
Other equipment.......................................... 10% to 20% 13,153 13,153 13,153
Construction in progress................................. -- 3,005 3,005 3,005
---------- ----------- -----------
151,050 151,050 151,050
Accumulated depreciation................................. (95,493) (100,236) (104,905)
---------- ----------- -----------
$ 55,557 $ 50,814 $ 46,145
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Fully depreciated assets amounted to US$80,684, US$80,857, and US$80,907 as
of December 31, 1995, 1996 and October 23, 1997.
There were no significant additions to property, plant and equipment during
the period presented above. The accounting records of Centromin do not identify
the minor additions to fixed assets (other than construction in progress) by
specific year and, therefore, it is not possible to determine fixed asset
additions specifically related to La Oroya in each year. Accordingly, in the
preparation of the accompanying financial statements, the fixed assets in
service at October 23, 1997 have been assumed to be in service as of each
balance sheet date and for each period presented.
F-45
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(9) BANK LOANS
Bank loans are short-term obligations, which were obtained from local and
foreign financial institutions for working capital purposes. As of December 31,
1995 and 1996 and as of October 23, 1997, 70 percent, 100 percent and 100
percent, respectively, of bank loans were denominated in U.S. dollars. The fair
value of these loans approximate their carrying value.
The loans bear interest at international market rates. The weighted average
interest rate on bank loans at December 31, 1995 and 1996 and October 23, 1997
was 8.1 percent, 6.5 percent and 6.7 percent, respectively.
(10) REMUNERATIONS AND TAXES PAYABLE
This account is comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ OCTOBER 23,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Remunerations:
Bonus..................................................... -- -- $ 1,023
Vacations................................................. $ 1,691 $ 1,465 1,248
Vacation bonus............................................ 1,747 1,229 1,109
Payroll and other......................................... 552 544 102
----------- ----------- -----------
3,990 3,238 3,482
----------- ----------- -----------
Taxes and contributions:
Social security........................................... 694 669 275
National housing fund..................................... 339 263 150
Private pension system.................................... -- 202 161
Income tax withholdings................................... 92 211 240
Others.................................................... 160 126 227
----------- ----------- -----------
1,285 1,471 1,053
----------- ----------- -----------
Total................................................... $ 5,275 $ 4,709 $ 4,535
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(11) ADVANCES FROM CUSTOMERS
Advances from customers located abroad are denominated in U.S. dollars.
Advances bore interest at the rate of 8.5% per annum and are offset against
receivables resulting from subsequent sales. The fair value of these advances
approximate their carrying value at each date.
F-46
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(12) ACCRUED LIABILITIES
This account is comprised of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------ OCTOBER 23,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Contingencies (see Note 17)................................. $ 1,808 $ 1,808 $ 1,706
Interest and bank charges payable........................... $ 525 $ 855 --
Withholdings to contractors................................. 454 284 122
Personnel reduction accrual................................. -- 953 --
Other....................................................... 479 577 541
----------- ----------- -----------
$ 3,266 $ 4,477 $ 2,369
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(13) SEVERANCE INDEMNITIES
According to current government regulations, the liability for personnel
severance indemnities earned by employees prior to December 31, 1990, as
adjusted for subsequent wage increases until such time as the liability is
funded, must be accrued and funded over a maximum term of 10 years, beginning in
June 1991. The funding of this obligation eliminates any retroactive adjustments
from subsequent wage increases. In 1996, La Oroya fully funded this obligation.
Obligations relating to personnel severance indemnities accrued subsequent to
1990 are paid semi-annually through deposits in workers' individual bank
accounts. The analysis of the account is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- OCTOBER 23,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Balance at the beginning of period......................... $ 22,540 $ 21,228 $ 2,186
Provision................................................ $ 6,040 $ 5,926 2,154
Payments and advances.................................... (5,750) (23,365) (2,960)
Exchange difference...................................... (1,602) (1,603) (195)
--------- --------- -----------
Balance at the end of period............................... $ 21,228 $ 2,186 $ 1,185
</TABLE>
In addition, as of December 31, 1995 and 1996, certain employees had elected
to deposit their indemnity payments amounting to US$3,579 and US$1973
respectively, with Centromin. In 1997, all such indemnity liabilities were
transferred to banks as directed by each employee.
(14) TAXATION AND WORKERS' PROFIT SHARING
Centromin is subject to the Peruvian tax regulations, which require that
income tax be determined based on financial statements adjusted to reflect the
changes in the wholesale price level, following the methodology prescribed by
Legislative Decree 797. The statutory income tax rate in Peru is 30% of the
taxable income. In 1992, the Peruvian law established an alternative minimum tax
of 2 percent, which is calculated based on the total assets. Beginning in 1994,
exporting corporations may deduct from the
F-47
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(14) TAXATION AND WORKERS' PROFIT SHARING (CONTINUED)
minimum income tax base the accounts receivable and inventories related to
export activities and the value of fixed assets acquired during the current
year, for two consecutive years. In May 1997, the minimum income tax was
abrogated and an extraordinary tax was imposed equal to 0.5% of the net assets
declared in the 1996 income tax return. This tax constitutes a credit against
the monthly income tax prepayments made from July through December 1997 and the
regularization payment for the 1997 year.
La Oroya is included in Centromin's tax return. As such it has provided
income tax, and remitted any tax due to Centromin, based upon the statutory tax
rate in effect for each period, applied as if La Oroya filed a separate income
tax return.
In May 1994, Centromin signed a Tax Stabilization Agreement with the
Peruvian government for a ten-year period beginning in 1997.
The following conditions would be guaranteed to Centromin:
- Utilization of the tax rules prevailing on April 25, 1994.
- Custom duties will be calculated at rates ranging from 15% to 25%.
- Free commercialization of its products.
- No restriction in the use of proceeds from export sales.
- Free conversion of foreign currency generated by local sales.
- No discrimination in foreign currency transactions.
In accordance with current workers' profit sharing government regulations,
La Oroya's workers have the right to receive 8 percent of La Oroya's taxable
income, of which 50 percent is distributed among all employees based on the
number of days worked by each employee and the remaining amount is distributed
in proportion to their salaries. Such profit sharing is limited to 18 times the
annual salary for each worker. Any excess is to be reserved and expended for
training of workers.
The provision for income tax and workers' profit sharing is comprised of the
following for each of the years in the period ended December 31, 1996 and for
the period from January 1 to October 23, 1997:
<TABLE>
<CAPTION>
1994 1995 1996 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Current provision............................... $ 2,924 $ 11,921 $ 11,685 $ 8,754
Deferred provision (benefit).................... 692 1,406 (6,360) 1,409
---------- --------- --------- ---------
Total........................................... $ 3,616 $ 13,327 $ 5,325 $ 10,163
---------- --------- --------- ---------
---------- --------- --------- ---------
Breakdown--
Income tax...................................... $ 2,803 $ 10,332 $ 4,128 $ 7,879
Workers' profit sharing......................... 813 2,995 1,197 2,284
---------- --------- --------- ---------
$ 3,616 $ 13,327 $ 5,325 $ 10,163
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
F-48
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(14) TAXATION AND WORKERS' PROFIT SHARING (CONTINUED)
The following are the components of deferred tax and workers' profit sharing
assets (liability) at December 31, 1995 and 1996 and October 23, 1997:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Environmental costs not deducted in tax return................ $ -- $ 7,672 $ 7,672
Tax depreciation in excess of book depreciation............... (2,656) (4,104) (5,283)
Contingencies not deducted in tax return...................... 644 644 644
Other......................................................... (86) 50 (180)
--------- --------- ---------
$ (2,098) $ 4,262 $ 2,853
--------- --------- ---------
--------- --------- ---------
</TABLE>
The reconciliation of the income tax provision computed at the statutory
Peruvian income tax rate to the provision for income tax recorded on a U.S. GAAP
basis in the statements of revenues and expenses is as follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income before income tax........................... $ 5,024 $ 28,828 $ 10,017 $ 26,262
Statutory tax rate................................. 30% 30% 30% 30%
--------- --------- --------- ---------
Income tax provision at statutory tax rate......... 1,507 8,648 3,005 7,879
Effects of items increasing (decreasing) the
effective tax rate:
Permanent items
Write off of unrecoverable taxes............... -- 883 -- --
Tax penalties and assessments.................. 1,266 -- 335 --
Adjustment of inventory affecting years prior to
1994........................................... -- 1,270 -- --
Adjustment of inventory affecting 1995 and
1996........................................... -- (616) 616 --
Other............................................ 30 147 172 --
--------- --------- --------- ---------
Actual provision for income tax.................... $ 2,803 $ 10,332 $ 4,128 $ 7,879
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-49
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(15) OTHER INCOME AND (EXPENSES)
This caption includes the following:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO
-------------------------------- OCTOBER 23,
1994 1995 1996 1997
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Income:
Storage and other services....................................... $ 136 $ 470 $ 1,038 $ 1,226
Other............................................................ 417 434 -- 706
--------- --------- ---------- ------------
553 904 1,038 1,932
--------- --------- ---------- ------------
Expenses:
Privatization costs.............................................. -- -- (3,570) (3,200)
Environmental program.............................................. -- -- (21,550) --
Write off of unrecoverable taxes................................. -- (2,944) -- --
Contingencies.................................................... -- (1,808) -- --
Tax penalties and assessments.................................... (4,219) -- (1,116) --
Other............................................................ (576) -- (203) (218)
--------- --------- ---------- ------------
(4,795) (4,752) (26,439) (3,418)
--------- --------- ---------- ------------
Other, net................................................. $ (4,242) $ (3,848) $ (25,401) $ (1,486)
--------- --------- ---------- ------------
--------- --------- ---------- ------------
</TABLE>
The privatization costs include costs related to moving La Oroya's personnel
away from the metallurgical complex of Centromin. These costs consist mainly of
demolition and construction of apartments, colleges and parks at the new
location.
(16) PERSONNEL REDUCTION COSTS
La Oroya recognized a charge in 1995 of US$2,504 related to the first part
of its personnel reduction program. This amount was fully paid in 1995. In
January 1996, the Board of Directors approved a second personnel reduction
program which applied to an additional 600 workers. The estimated cost of
US$3,894 was recorded in expenses in 1996. An additional provision of US$1,490
was recorded in the period from January 1 to October 23, 1997, in connection
with the second personnel reduction program.
(17) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
In 1995, in compliance with Supreme Decree 016-93-EM, amended by Supreme
Decree 059-93-EM, (Regulation for the Environmental Protection in the Mining and
Metallurgical Activities), Centromin filed a preliminary evaluation of its
mining units and of the smelter and refineries in La Oroya, which were approved
by the Ministry of Energy and Mining (the competent authority).
F-50
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(17) COMMITMENTS AND CONTINGENCIES (CONTINUED)
At the date of that report, in compliance with the provisions of such
decrees and according to the preliminary evaluation above mentioned, Centromin
prepared a Programa de Adecuacion y Manejo Ambiental (Environmental Adjustment
and Management Program) (the "PAMA") for La Oroya metallurgical complex. The
program comprises the development of engineering projects to remediate any
existing environmental problems and to comply with current environmental
regulations. This program, which was approved by the competent authority in
January 1997, establishes total future disbursements of US$21.5 million to
remediate the damages to the environment and to establish methods of compliance
with current environmental regulations. The Company recognized a charge to
operations in 1996 for the estimated cost of such remedial actions (see Note
15).
The remediation program and the investment in environmental control
equipment required to comply with current regulations is to be implemented over
a ten year period beginning in 1997. Management expects that the cost of future
investments, principally for pollution control equipment, will be capitalized in
future periods and depreciated over the periods to be benefited.
In accordance with a revised program approved by the Ministry of Energy and
Mining, the disbursements are estimated by management to be as follows:
<TABLE>
<CAPTION>
FUTURE
EXPENDITURE
REMEDIATION FOR CONTROL
COSTS EQUIPMENT TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
1997....................................................................... $ 730 -- $ 730
1998....................................................................... 1,800 $ 2,700 4,500
1999....................................................................... 1,950 3,612 5,562
2000....................................................................... 4,000 4,963 8,963
2001....................................................................... 3,750 3,300 7,050
2002....................................................................... 2,050 3,800 5,850
2003....................................................................... 2,100 3,000 5,100
2004....................................................................... 2,100 2,775 4,875
2005....................................................................... 3,070 38,700 41,770
2006....................................................................... -- 44,725 44,725
----------- ----------- ----------
Total.................................................................. $ 21,550 $ 107,575 $ 129,125
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
In addition, PAMA estimated the cost to eventually close the metallurgical
complex of La Oroya at US$24 million. No provision has been recorded for this
amount, since there are no plans to close the complex.
The timing and amounts listed in the above table are estimates and actual
amounts and timing of payments could vary from the estimates. Furthermore, in
accordance with the Article 9 of the rules of the General Law on Mining, annual
expenditures for environmental remediation and control cannot be less than 1
percent of total sales.
F-51
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(17) COMMITMENTS AND CONTINGENCIES (CONTINUED)
POTENTIAL TAX ASSESSMENTS
Centromin's income tax returns of 1993 through 1996, as well as the net
worth tax returns of 1992 and 1993, are pending review by the National
Superintendency of Tax Administration. No significant liabilities arose as a
result of the 1992 income tax return review. If tax assessments were made, any
tax, interest or surcharges would be charged to expense in the years in which
the assessment is known. In the opinion of Centromin's management there are no
matters that should result in significant additional tax assessments.
INVESTMENT PROGRAM
As discussed in Note 14, in May 1994 Centromin signed a Tax Stabilization
Agreement with the Peruvian Government for a ten-year period beginning the year
in which Centromin meets the Investment Program for La Oroya metallurgical
complex, which was then estimated at US$11.1 million. The investment program was
completed in December, 1996. In March 1997, the Mining Bureau approved the
completion of the Investment Program. Actual expenditures amounted to
approximately US$11.5 million.
CONTINGENCIES
At October 23, 1997, La Oroya metallurgical complex has legal suits
aggregating US$15.7 million related to labor matters. The financial statements
include a reserve of US$1.7 million (see note 12) estimated to cover the cost of
defending and settling such matters. In management and legal advisors' opinion,
the ultimate outcome of these suits will not result in a material adverse effect
on La Oroya's financial position and results of operations.
In addition, there is a contingency amounting to approximately US$12
million, related to demands filed by 19 local mining companies, which are
claiming the refund of value-added-tax withheld by La Oroya from 1975 to 1980.
In opinion of La Oroya's management and its legal advisors, the ultimate outcome
of these demands will be favorable to La Oroya.
SALES COMMITMENTS AND CONCENTRATION
La Oroya derives its revenue from the sale of its refined metals and
concentrates to several customers. La Oroya's three largest customers accounted
for: 11%, 6% and 6%, respectively, of net sales in the period from January 1 to
October 23, 1997. The percentages in 1994 were 13%, 11% and 10%; in 1995 were
15%, 14% and 12% and in 1996 were 11%, 7% and 6%. These customers have sales
contracts, which guarantee their supply at prices derived from international
market quotations.
(18) RELATED PARTY TRANSACTIONS
Expenses allocated from Centromin to the operations of La Oroya related
primarily to accounting and administrative support services. These expenses
amounted to US$5,223 in the period from January 1 to October 23, 1997, US$5,660
in 1996, US$4,479 in 1995 and US$4,569 in 1994.
F-52
<PAGE>
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A.
LA OROYA DIVISION
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 23, 1997 AND
DECEMBER 31, 1996, 1995 AND 1994
(18) RELATED PARTY TRANSACTIONS (CONTINUED)
Purchases of concentrates of polymetalic ores from the mining units of
Centromin were:
<TABLE>
<CAPTION>
PERCENTAGE OF
VALUE OF THE TOTAL VALUE
PERIOD PURCHASES OF PURCHASE
- ------------------------------------------------------------------ ---------- -------------------
<S> <C> <C>
1994.............................................................. $ 146,673 60%
1995.............................................................. 182,218 58
1996.............................................................. 178,018 67
For the period from January 1 to October 31, 1997................. 135,644 59
</TABLE>
(19) GEOGRAPHIC DATA
The following is an analysis of net sales by geographic region:
<TABLE>
<CAPTION>
FOR THE
PERIOD
FOR THE YEARS ENDED DECEMBER 31, JANUARY 1 TO
---------------------------------- OCTOBER 23,
1994 1995 1996 1997
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
USA............................................................ $ 131,644 $ 105,837 $ 184,546 $ 94,050
Latin America.................................................. 177,627 201,631 162,620 165,866
Asia........................................................... 28,672 112,401 84,964 65,975
Europe......................................................... 29,114 31,060 24,667 26,914
---------- ---------- ---------- ------------
$ 367,057 $ 450,929 $ 456,797 $ 352,805
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
(20) SUBSEQUENT EVENT
In the Extraordinary Shareholders' Meetings of Doe Run Peru and Metaloroya
held on November 3, 1997, the merger of Metaloroya into Doe Run Peru was
approved, the surviving company being Doe Run Peru. The merger will be on
December 30, 1997.
F-53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ASARCO Incorporated
In our opinion, the accompanying balance sheets and the related statements
of income and statements of divisional equity and of cash flows present fairly,
in all material respects, the financial position of the Missouri Lead Division
at December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
July 28, 1998
F-54
<PAGE>
MISSOURI LEAD DIVISION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Revenues........................................................................ $ 85,308 $ 104,247 $ 97,455
Cost of sales................................................................... 68,429 69,501 60,546
General and administrative...................................................... 4,605 4,160 4,235
Depreciation and depletion...................................................... 8,209 6,543 7,723
Research........................................................................ 349 327 370
--------- ---------- ---------
Operating expenses.............................................................. 81,592 80,531 72,874
--------- ---------- ---------
Earnings before income taxes.................................................... 3,716 23,716 24,581
Income tax expense (benefit).................................................... (168) 5,018 5,758
--------- ---------- ---------
Net earnings.................................................................... $ 3,884 $ 18,698 $ 18,823
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
MISSOURI LEAD DIVISION
BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash........................................................................................ $ 232 $ 92
Receivables, net of allowance for doubtful accounts of $150 for 1997 and 1996............... 9,414 16,967
Metal inventories........................................................................... 5,635 8,010
Supply inventories.......................................................................... 5,564 6,266
Other current assets........................................................................ 86 188
--------- ---------
Current assets............................................................................ 20,931 31,523
Mineral land................................................................................ 30,542 30,209
Buildings................................................................................... 37,069 34,937
Machinery and equipment..................................................................... 86,689 83,384
--------- ---------
Total cost................................................................................ 154,300 148,530
Accumulated depreciation and depletion...................................................... (89,380) (81,553)
--------- ---------
Property, net............................................................................. 64,920 66,977
--------- ---------
Total assets.............................................................................. $ 85,851 $ 98,500
--------- ---------
--------- ---------
Accounts payable and accrued expenses....................................................... $ 5,976 $ 7,337
Salaries and wages accrued.................................................................. 1,096 916
Reserve for workers compensation............................................................ 1,432 1,506
Other current liabilities................................................................... 704 821
--------- ---------
Current liabilities....................................................................... 9,208 10,580
Reclamation reserves........................................................................ 534 --
Other non-current liabilities............................................................... 7 --
Deferred tax liability...................................................................... 8,227 9,241
--------- ---------
Total liabilities......................................................................... 17,976 19,821
Commitments and contingencies
Divisional equity........................................................................... 67,875 78,679
--------- ---------
Total liabilities and equity.............................................................. $ 85,851 $ 98,500
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part to these financial statements.
F-56
<PAGE>
MISSOURI LEAD DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Earnings................................................................... $ 3,884 $ 18,698 $ 18,823
Adjustments to reconcile net earnings to to net cash provided from operating
activities:
Deferred income taxes........................................................ (1,014) 1,336 1,595
Depreciation and depletion................................................... 8,209 6,543 7,723
Cash provided from operating assets and liabilities:
Accounts receivable........................................................ 7,553 (7,214) 4,699
Accounts payable and accrued expenses...................................... (1,298) (3,285) 6,134
Inventories................................................................ 3,077 1,072 (3,189)
Other assets and liabilities............................................... 570 35 240
---------- --------- ----------
Net cash provided from operating activities.................................... 20,981 17,185 36,025
INVESTING ACTIVITIES
Capital expenditures........................................................... (6,153) (15,858) (7,431)
---------- --------- ----------
Net cash used for investing activities......................................... (6,153) (15,858) (7,431)
FINANCING ACTIVITIES
Net distributions to Asarco.................................................... (14,688) (1,252) (28,615)
---------- --------- ----------
Net cash used for financing activities......................................... (14,688) (1,252) (28,615)
Increase (decrease) in cash.................................................... 140 75 (21)
Cash at beginning of year...................................................... 92 17 38
---------- --------- ----------
Cash at end of year............................................................ $ 232 $ 92 $ 17
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
MISSOURI LEAD DIVISION
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Balance at beginning of year................................................... $ 78,679 $ 61,233 $ 71,025
Net earnings................................................................... 3,884 18,698 18,823
Net distribution to Asarco..................................................... (14,688) (1,252) (28,615)
---------- --------- ----------
Balance at end of year......................................................... $ 67,875 $ 78,679 $ 61,233
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
The Missouri Lead Division ("the Company") is an unincorporated division of
Asarco Incorporated ("Asarco"). The financial statements reflect the financial
position, results of operations, changes in divisional equity and cash flows of
the Company as if it were a separate entity for all periods presented. The
financial statements include allocations of certain Asarco corporate
headquarters expenses (including cash management, legal, accounting, tax,
employee benefits, insurance services, data services and other Asarco corporate
overhead). Management believes these allocations are reasonable. However, the
costs of these services and benefits charged to the Company are not necessarily
indicative of the costs that would have been incurred if the Company had
performed or provided these functions as a separate entity.
The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in divisional equity and cash
flows of the Company in the future or what they would have been had it been a
separate stand-alone entity during the periods presented.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates. Estimates are used in the
determination of allowances for doubtful accounts, depreciation and depletion,
expense accruals, taxes and contingencies, among others.
Cash and cash equivalents: Cash equivalents include highly liquid
investments with a maturity of less than three months at the time of investment.
Inventories: Metal inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. Supply inventories are valued at the lower of
average cost or net realizable value.
Long-lived assets: Long-lived assets are valued at cost. In accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of," the Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable.
The Company evaluates the carrying value of assets based on undiscounted
future cash flows and also considers expected metal prices based on historical
metal prices and price trends.
Depreciation, amortization and betterments: Plant assets are depreciated
over their estimated useful lives, generally by the units-of-production method.
Depreciation and depletion of mine assets are computed generally by the
units-of- production method using proven and probable ore reserves. Other non-
plant assets are depreciated using the straight-line method. Renewals and the
cost of major development programs at existing mines are capitalized as mineral
land. Maintenance, repairs, normal development costs at existing mines, and
gains or losses on assets retired or sold are reflected in earnings as incurred.
Revenue Recognition: Revenue is recognized in the month product is shipped
to customers. Substantially all of the Company's lead production is sold to
customers pursuant to annual contracts which provide for pricing at the average
price for lead, on the London Metal Exchange (LME), during the month of shipment
plus a fixed premium. The Company's zinc production is sold in the form of
concentrates under contracts of one to three years which provide for pricing at
the average price for zinc, on the LME, during the month of shipment.
F-59
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments: The Company may use derivative instruments to manage
its exposure to market risk from changes in commodity prices or the value of its
assets and liabilities. Derivative instruments which are designated as hedges
must be deemed effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the contract. Gains
and losses on such instruments are reported as a component of the underlying
transaction. Pre-tax earnings include a gain of $216 in 1996, and a loss of $250
in 1995, related to lead hedging contracts. At December 31, 1997, the Company's
financial instruments also include cash, receivables and accounts payable. At
December 31, 1997 the fair value of cash, receivables and accounts payable
approximates carrying values because of the short-term nature of these
instruments.
Exploration: Tangible and intangible costs incurred in the search for
mineral properties are charged to expense when incurred.
Taxes on Income: The Company's results of operations have been included in
the federal and certain state income tax returns of Asarco. The provisions for
income taxes in the financial statements has been calculated on a separate
- --company basis; income taxes paid on behalf of the Company are included in
divisional equity. Deferred income taxes reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end.
Reclamation Reserve: As the Company's mines approach the end of their ore
reserves and the costs of reclamation are estimable, the Company establishes a
reclamation reserve for restoration of mineral land to usable conditions. The
reserve is accrued for monthly, over the remaining life of the mine, based on
production.
Impact of New Accounting Standards: In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income."
This statement, which is effective for fiscal years beginning after December 15,
1997, requires the Company to make certain disclosures but will have no impact
on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." This statement, which is effective for
fiscal years beginning after December 15, 1997, is not expected to have any
impact on the Company's financial statements.
In March 1998, the FASB issued SFAS No. 132 "Employers Disclosure about
Pensions and other Postretirement Benefits". This statement, which is effective
for fiscal years beginning after December 15, 1997, revises employers'
disclosures about pensions and other postretirement benefit plans but does not
change the measurement or recognition of those plans.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement, which is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999, establishes
accounting and reporting standards for derivative instruments including certain
derivative instruments embedded in other contracts and hedging activities.
Management has not fully assessed what effect, if any, this statement will have
on the financial statements.
Nature of Business and Concentration of Credit Risk: The Company's principal
business is the mining and processing of lead. The Company's primary product is
refined lead, the majority of which is consumed in storage batteries for
automobiles and other equipment, principally in the United States. A change in
refined lead consumption could have a material impact on the Company. The
Company's four largest
F-60
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
customers accounted for 19.3%, 19.1%, 13.2% and 10.4% of revenues in 1997 and
13.5%, 8.5%, 23.8% and 0% of accounts receivable at December 31, 1997.
(3) TAXES ON INCOME
The components of the income tax expense (benefit) was:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
U.S. Federal:
Current............................................................................. $ 768 $ 3,056 $ 3,520
Deferred............................................................................ (910) 1,199 1,431
--------- --------- ---------
(142) 4,255 4,951
--------- --------- ---------
State:
Current............................................................................. 78 626 643
Deferred............................................................................ (104) 137 164
--------- --------- ---------
(26) 763 807
--------- --------- ---------
Total income tax expense (benefit).................................................... $ (168) $ 5,018 $ 5,758
--------- --------- ---------
--------- --------- ---------
</TABLE>
Total taxes paid by Asarco and charged to the Company were: 1997--$846;
1996--$3,682; 1995-- $4,163.
Following is a reconciliation of the U.S statutory income tax rate to the
Company's effective tax rate:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
U.S. statutory income tax rate....................................................... 35.0% 35.0% 35.0%
Percentage depletion................................................................. (39.1) (16.2) (15.9)
Fines and penalties.................................................................. -- 0.3 2.2
State taxes, net of federal effect................................................... (0.5) 2.1 2.1
--------- --------- ---------
Effective income tax rate............................................................ (4.6)% 21.2% 23.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income taxes arise from temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial
statements. The deferred tax liability relates to the depreciation and depletion
of property, plant and equipment.
(4) INTERCOMPANY TRANSACTIONS
Asarco uses a centralized cash management system to finance its operations.
Cash deposits from the Company's business are transferred to Asarco on a daily
basis and Asarco funds the Company's disbursement bank accounts as required. No
interest has been charged on these transactions.
Asarco provided certain centralized services (see Note 1 to the financial
statements) to the Company. Expenses related to these services were allocated to
the Company based on utilization of specific services or, where an estimate
could not be determined, based on the Company's operating expenses in proportion
to Asarco's total operating expenses. Management believes these allocation
methods are reasonable.
F-61
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(4) INTERCOMPANY TRANSACTIONS (CONTINUED)
However, the costs of these services and benefits charged to the Company are not
necessarily indicative of the costs that would have been incurred if the Company
had performed or provided these services and benefits as a separate entity.
These allocations were $6,048, $8,449 and $8,826 in 1997, 1996 and 1995,
respectively and are included in the Statement of Operations. Amounts due to
Asarco for these expenses are included in divisional equity.
The following table summarizes the expenses allocated to the Company by
Asarco.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
General & administrative............................................................. $ 4,114 $ 3,663 $ 3,819
Pension expense...................................................................... 411 454 316
Postretirement benefit expense....................................................... 360 360 266
Current income taxes................................................................. 846 3,682 4,163
Savings plan contributions........................................................... 317 290 262
</TABLE>
The Company has a contract with an environmental services subsidiary of
Asarco for the treatment and disposal of an intermediate product. The net
treatment cost paid by the Company is dependent upon the quantities and value of
salable metal contained in the material. The Company paid $1,800, $2,100 and
$100 in 1997, 1996 and 1995, respectively, to the subsidiary under the contract.
In addition, the Company sells refined lead to a specialty metals subsidiary of
Asarco. Total revenues received for these sales were $1,033, $904 and $767 in
1997, 1996 and 1995, respectively. Contracts between the Company and related
parties are at market terms.
(5) COMMITMENTS
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1997 for each of the
next five years and in the aggregate are:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------- -----------------
<S> <C>
1998...................................................... $ 91
1999...................................................... 91
2000...................................................... 91
2001...................................................... 28
2002...................................................... 8
Thereafter................................................ 25
$ 334
</TABLE>
Total rental expense was $305 in 1997, $211 in 1996 and $254 in 1995.
At December 31, 1997 the Company was committed to the completion of
construction on equipment projects with a value of $448.
The Company is subject to a lease agreement with an owner of land which
contains a portion of the Company's Sweetwater mine. Under the terms of the
lease, the lessors are entitled to certain royalties. A monthly royalty is paid
based on a net profit per ton of ore subject to certain limitation, as defined.
In addition, an annual royalty is paid based upon the number of acres leased, as
defined. The lease expires in
F-62
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) COMMITMENTS (CONTINUED)
June 2012 and is renewable at the option of the Company for an additional fifty
years. The total royalties paid by the Company were $27, $86 and $95 in 1997,
1996 and 1995, respectively.
(6) BENEFIT PLANS
The Company participates in the Asarco non-contributory, defined benefit
pension plan which covers substantially all domestic employees. Benefits for
salaried employees are based on salary and years of service. Benefits for hourly
employees are based on negotiated benefits and years of service. The Company
accounts for the plan as a multi-employer plan. Accordingly, the Company has
recorded pension costs as allocated by Asarco totaling $411, $454 and $316 in
1997, 1996 and 1995, respectively. The assumptions of the multi-employer plan
are described below.
The weighted average expected long-term rate of return on pension plan
assets was 10% for 1997 and 1996 and 8% for 1995. At December 31, 1997 and 1996,
the projected benefit obligations were determined using a weighted average
discount rate of 7% and weighted average rates of increase in future
compensation levels of 4%. Plan assets are invested principally in commingled
stock funds, mutual funds and securities issued by the United States.
In addition to providing pension benefits, Asarco provides health care
coverage under the Asarco Health Plan to substantially all U.S. retirees not
eligible for Medicare. A cost sharing Medicare supplemental plan is available
for retired salaried employees and life insurance coverage is provided to
substantially all retirees. Employees are eligible for these benefits if they
reach normal retirement age while working for the Company.
The Company accounts for the plan as a multi-employer plan. Accordingly, the
Company has recorded post-retirement benefits costs as allocated by Asarco
totaling $360 in 1997 and 1996 and $226 in 1995. The accumulated post-retirement
benefit obligation at December 31, 1997 and 1996 was determined using discount
rates of 7%. The assumed rate of future increases in per capita cost of covered
health care benefits is 6% for 1997, decreasing to 5% by 1999 and remaining at
that level thereafter.
EMPLOYEE SAVINGS PLAN:
The Company participates in the employee savings plans for salaried and
hourly employees maintained by Asarco. These plans permit employees to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. Asarco matches contributions up to 3% of compensation. In
connection with the required match, Asarco's contributions, totalling $317 in
1997, $290 in 1996 and $262 in 1995, were allocated to the Company and charged
to expense.
(7) CONTINGENCIES AND LITIGATION
The operations of the Company are subject to stringent federal, state and
local laws and regulations, including those relating to improving or maintaining
environmental quality and those relating to plant and mine safety and health
conditions. Although the Company believes that it is currently in substantial
compliance with material laws and regulations, it is possible that substantial
additional expenditures in the future may be required to comply with such
legislation and regulations. In light of the frequent changes in such laws and
regulations and the uncertainty inherent in this area, the Company is unable to
estimate accurately the total amount of future expenditures.
F-63
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) CONTINGENCIES AND LITIGATION (CONTINUED)
The Company is involved in pending litigation in the ordinary course of its
business. It is the opinion of management that the outcome of the legal
proceedings and environmental contingencies mentioned will not materially
adversely affect the financial position of the Company. However, it is possible
that litigation and environmental contingencies could have a material effect on
quarterly or annual operating results, when they are resolved in future periods.
This opinion is based on considerations including experience related to previous
court judgments and settlements and remediation costs and terms.
(8) SUBSEQUENT EVENT
On July 28, 1998, Asarco entered into an asset purchase and sale agreement
pursuant to which Asarco will sell certain assets of the Company to The Doe Run
Resources Corporation, a subsidiary of The Renco Group, Inc. The assets to be
sold include the lead smelter and refinery and two mines and associated
equipment.
F-64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ASARCO Incorporated
We have reviewed the accompanying interim condensed balance sheet of the
Missouri Lead Division as of March 31, 1998 and the related interim condensed
statements of operations and cash flows for the three month period ended March
31, 1998 and 1997. These interim condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
New York, New York
July 28, 1998
F-65
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues.................................................................................... $ 17,165 $ 20,296
--------- ---------
Cost of sales............................................................................... 14,944 15,717
General and administrative.................................................................. 1,074 1,148
Depreciation and depletion.................................................................. 2,097 1,938
Research.................................................................................... 69 87
--------- ---------
Operating expenses.......................................................................... 18,184 18,890
--------- ---------
Earnings (loss) before income taxes......................................................... (1,019) 1,406
Income tax benefit.......................................................................... (437) (106)
--------- ---------
Net earnings (loss)......................................................................... $ (582) $ 1,512
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-66
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED BALANCE SHEETS
(UNAUDITED)
AS OF MARCH 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash.................................................................................... $ 86 $ 33
Receivables, net of allowance for doubtful accounts
of $150 for 1998 and 1997............................................................. 8,407 7,640
Metal inventories....................................................................... 5,053 9,429
Supply inventories...................................................................... 5,669 5,948
Other current assets.................................................................... 149 167
----------- -----------
Current assets.................................................................... 19,364 23,217
----------- -----------
Mineral land............................................................................ 30,542 30,505
Buildings............................................................................... 37,283 35,112
Machinery and equipment................................................................. 87,387 83,846
----------- -----------
Total cost........................................................................ 155,212 149,463
Accumulated depreciation and depletion.................................................. (91,477) (83,491)
----------- -----------
Property, net..................................................................... 63,735 65,972
----------- -----------
Total assets...................................................................... $ 83,099 $ 89,189
----------- -----------
----------- -----------
Accounts payable and accrued expenses................................................... $ 4,328 $ 7,808
Salaries and wages accrued.............................................................. 1,084 771
Reserve for workers compensation........................................................ 1,432 1,479
Other current liabilities............................................................... 1,419 1,442
----------- -----------
Current liabilities............................................................... 8,263 11,500
Reclamation reserve..................................................................... 675 134
Other non-current liabilities........................................................... 12 75
Deferred income taxes................................................................... 8,086 8,987
----------- -----------
Total liabilities................................................................. 17,036 20,696
Divisional equity................................................................. 66,063 68,493
----------- -----------
Total liabilities and divisional equity........................................... $ 83,099 $ 89,189
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss)......................................................................... $ (582) $ 1,512
Adjustments to reconcile net earnings (loss) to net cash provided from operating activities:
Deferred income taxes..................................................................... (141) (254)
Depreciation.............................................................................. 2,097 1,938
Cash provided from operating assets and liabilities:
Accounts receivables.................................................................. 1,007 9,327
Accounts payable and accrued expenses................................................. (945) (947)
Inventories........................................................................... 477 (1,101)
Other assets and liabilities.......................................................... 83 203
--------- ----------
Net cash provided from operating activities................................................. 1,996 12,572
INVESTING ACTIVITIES
Capital expenditures........................................................................ (912) (933)
--------- ----------
Net cash used for investing activities...................................................... (912) (933)
FINANCING ACTIVITIES
Net distributions to Asarco................................................................. (1,230) (11,698)
--------- ----------
Net cash used for financing activities...................................................... (1,230) (11,698)
Decrease in cash............................................................................ (146) (59)
Cash at beginning of the period............................................................. 232 92
--------- ----------
Cash at end of the period................................................................... $ 86 $ 33
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A.
The Missouri Lead Division ("the Company") is an unincorporated division of
Asarco Incorporated ("Asarco"). The financial statements reflect the financial
position, results of operations, and cash flows of the Company as if it were a
separate entity for all periods presented. The financial statements include
allocations of certain Asarco corporate headquarters expenses (including cash
management, legal, accounting, tax, employee benefits, insurance services, data
services and other Asarco corporate overhead). Management believes these
allocations are reasonable. However, the costs of these services and benefits
charged to the Company are not necessarily indicative of the costs that would
have been incurred if the Company had performed or provided these functions as a
separate entity.
The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in shareholder equity and
cash flows of the Company in the future or what they would have been had it been
a separate stand-alone entity during the periods presented.
B.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Company's
financial position as of March 31, 1998 and 1997 and the results of operations
and cash flows for the three months ended March 31, 1998 and 1997. This
financial data has been subjected to a review by PricewaterhouseCoopers L.L.P.,
the Company's independent accountants. The results of operations for the three
month period are not necessarily indicative of the results to be expected for
the full year.
C. FINANCIAL INSTRUMENTS:
The Company may use derivative instruments to manage its exposure to market
risk from changes in commodity prices or the value of its assets and
liabilities. Derivative instruments which are designated as hedges must be
deemed effective at reducing the risk associated with the exposure being hedged
and must be designated as a hedge at the inception of the contract. Gains and
losses on such instruments are reported as a component of the underlying
transaction. There were no hedging gains or losses for the three months ended
March 31, 1998 or 1997. At March 31, 1998, the Company's financial instruments
also include cash, receivables and accounts payable. At March 31, 1998 the fair
value of cash, receivables and accounts payable approximates carrying values
because of the short-term nature of these instruments.
D. INCOME TAXES:
The income tax benefit in 1997 is primarily a result of the percentage
depletion benefit arising from the Company's mine earnings.
E. CONTINGENCIES AND LITIGATION:
The operations of the Company are subject to stringent federal, state and
local laws and regulations, including those relating to improving or maintaining
environmental quality and those relating to plant and mine safety and health
conditions. Although the Company believes that it is currently in substantial
compliance with material laws and regulations, it is possible that substantial
additional expenditures in the future may be required to comply with such
legislation and regulations. In light of the frequent changes in
F-69
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
E. CONTINGENCIES AND LITIGATION: (CONTINUED)
such laws and regulations and the uncertainty inherent in this area, the Company
is unable to estimate accurately the total amount of future expenditures.
The Company is involved in pending litigation in the ordinary course of its
business. It is the opinion of management that the outcome of the legal
proceedings and environmental contingencies mentioned, will not materially
adversely affect the financial position of the Company. However, it is possible
that litigation and environmental contingencies could have a material effect on
quarterly or annual operating results, when they are resolved in future periods.
This opinion is based on considerations including experience related to previous
court judgments and settlements and remediation costs and terms.
F. SUBSEQUENT EVENTS:
On July 28, 1998, Asarco entered into an asset purchase and sale agreement
pursuant to which Asarco will sell certain assets of the Company to The Doe Run
Resources Corporation, a subsidiary of The Renco Group, Inc. The assets to be
sold include the lead smelter and refinery and two mines and associated
equipment.
F-70
<PAGE>
GLOSSARY OF CERTAIN METALLURGY TERMS
"Anode copper" means copper blister that, in a furnace, has been blown with
air and natural gas to upgrade its purity to approximately 99.0% copper, which
is then cast into keystone shaped slabs that are shipped to an electrolytic
refinery.
"Bullion" means unrefined raw metals containing impurities.
"By-products" means the products recovered during the refining process, such
as silver, germanium and indium, which may produce gains for the smelter.
"Cathode" means the electrolytically refined form of copper removed from the
refining cells in the refining process that are sold "as is" or melted and cast
into cakes, billets, wirebar or rods.
"Concentrates" means ores that have been crushed, ground and treated in a
flotation process that separates and concentrates the minerals creating the raw
material for smelting.
"Converter" means a principal phase of the smelting process that involves
the blowing of oxygen-enriched air through molten metal, causing oxidation and
the removal of sulfur and other impurities.
"Copper blister" means the material resulting from passing copper
concentrates through a converter that is approximately 98.5% copper and takes
its name from "blisters" that form on the surface.
"Electrolytic refining" means the process of placing copper anodes
alternately with refined copper sheets in a tank through which a copper sulfate
solution and sulfuric acid are circulated and a low voltage current is
introduced that causes the copper metal to transfer from the anodes to the pure
copper sheets, producing 99.9% copper cathodes.
"Electrowinning" means the process of removing metal from solution by the
action of electric currents.
"Flotation" means the process by which minerals attach themselves to the
bubbles in an oily froth and rise to the top where they are skimmed off.
"Flux" means inert oxides of iron, calcium, silica added to the charge to be
smelted or pyrometallurgically converted to assist with the creation of a molten
slag to assist separation of the metal from the low melting molten oxides.
"Galvanizing" means the anti-corrosion process for steel components that
consists of dipping components in a molten zinc bath after chemically stripping
off impurities.
"Leaching" means the process of extracting a metal from ores via
hydrometallurgical techniques by dissolving the metal into a solution for
subsequent treatment or recovery.
"Lead/zinc bullion" means unrefined raw metals containing impurities.
"Ore" means a mineral or aggregate of minerals from which metal can be
economically mined or extracted.
"Refining" means the chemical or metallurgical steps required to purify a
metal or compound into a commercially usable product.
"Reverberatory furnace" means a furnace with a shallow hearth and a roof
which deflects the flame and radiates heat toward the hearth or the surface of
the charge.
"Residues" means impurities remaining after the metallurgical treatment of
concentrates.
"Secondary materials" means products obtained from residues resulting from
the primary smelting process or other industrial activities containing metals
which can be recycled.
G-1
<PAGE>
"Sintering" means the agglomeration and desulfurization of concentrates into
a lumpy product suitable for smelting in a blast furnace.
"Slag" means complex silicates formed mainly by silica, iron oxide and lime
that are residues collected from the blast furnace.
"Smelting" means a pyrometallurgical process of separating metal by fusion
from, those impurities with which it may be chemically combined or physically
mixed.
"Treatment charges" means the amount of money charged per ton of concentrate
by the smelter (buyer) to the miner (seller) to cover the cost (plus profit) for
processing the concentrate.
"Zinc electrolytic process" means the hydrometallurgical process consisting
of the electrolysis of a purified zinc sulfate solution (which is obtained by
dissolving zinc oxidized concentrates in sulfuric acid) and obtaining a zinc
deposit on aluminum cathodes.
"Zinc oxide" means the oxide of zinc normally produced as a fine white power
used mainly as a catalyst for the vulcanization of rubber and also used in paint
pigments and as compounds in the pharmaceutical industry.
G-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY DOE RUN OR THE GUARANTORS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF DOE RUN OR THE GUARANTORS SINCE THE DATE HEREOF
OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 3
Special Note Regarding Forward-Looking
Statements................................... 3
Enforceability of Civil Liabilities............ 3
Presentation of Certain Financial Information.. 4
Exchange Rates................................. 4
Prospectus Summary............................. 6
Risk Factors................................... 21
Use of Proceeds................................ 29
Capitalization................................. 30
Unaudited Pro Forma Consolidated Financial
Data......................................... 31
Selected Historical Consolidated Financial
Data......................................... 38
The Exchange Offer............................. 42
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 49
Industry....................................... 60
Business....................................... 64
Management..................................... 97
Security Ownership............................. 102
Certain Transactions........................... 103
Description of New Revolving Credit
Facilities................................... 105
Description of the Notes....................... 108
Certain U.S. Federal Income Tax
Considerations............................... 134
Plan of Distribution........................... 134
Legal Matters.................................. 135
Experts........................................ 135
Index to Consolidated Financial Statements..... F-1
Glossary of Certain Metallurgy Terms........... G-1
</TABLE>
--------------------------
UNTIL , 1998 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
OFFER TO EXCHANGE ITS
11 1/4% SENIOR NOTES
DUE 2005, SERIES B
AND
FLOATING INTEREST RATE SENIOR NOTES
DUE 2003, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/4% SENIOR NOTES
DUE 2005, SERIES A
AND
FLOATING INTEREST RATE SENIOR NOTES
DUE 2003, SERIES A,
RESPECTIVELY
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 722 and 723 of the Business Corporation Law of New York (the
"NYBCL") empower The Doe Run Resources Corporation, a New York corporation ("Doe
Run"), to indemnify, subject to the limitations and standards set forth therein,
any person made or threatened to be made a party to an action or proceeding
brought or threatened by reason of the fact that such person is or was a
director or officer of Doe Run, Section 726 of the NYBCL provides that Doe Run
may purchase insurance on behalf of any such director or officer. Article V of
Doe Run's By-Laws provides, in effect, for the indemnification by Doe Run of
each director, officer, employee or agent of Doe Run to the full extent
permitted by the NYBCL.
The By-Laws of Doe Run provide, in effect, that Doe Run shall indemnify any
person made, or threatened to be made, a party to an action or proceeding,
whether civil or criminal, including an action by or in the right of Doe Run to
procure a judgment in its favor and an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or any other enterprise which any director
or officer of Doe Run served in any capacity at the request of Doe Run, by
reason of the fact that he, his testator or intestate is or was a director or
officer of Doe Run, or served such other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys' fees, actually and necessarily incurred as a result of such
action or proceeding or any appeal therein.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
(the "DGCL") empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 of the DGCL further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses
II-1
<PAGE>
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Certificate of Incorporation of Fabricated Products, Inc., a Delaware
corporation ("FPI"), provides that a director of FPI shall not be personally
liable to FPI or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to FPI or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which
the director derives an improper personal benefit.
The Bylaws of FPI provide, in effect, that FPI shall indemnify every person
who was or is a party, or is or was threatened to be made a party, to any
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he or she is or was a director,
officer, employee, or agent of FPI, or is or was serving at the request of FPI
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceedings, to the fullest extent permitted by applicable law.
Such indemnifications may, in the discretion of the board of directors, include
advances of the person's expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provisions of any applicable
statute. FPI is empowered to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of FPI, or is or
was serving at the request of FPI as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability incurred by such person in such capacity, or arising out
of such person's capacity.
The Companies Law (1995 Revision) of the Cayman Islands does not set out any
specific restrictions on the ability of a company to indemnify officers or
directors. However, the application of basic principles and certain Commonwealth
case law, which is likely to be persuasive in the Cayman Islands, would indicate
that indemnification is generally permissible except in the event that there had
been fraud or willful default on the part of the officer or director or reckless
disregard of his duties and obligations to the company.
Article 123 of the Articles of Association of Doe Run Cayman Ltd., a Cayman
Islands company ("Doe Run Cayman"), provides, in effect, that Doe Run Cayman
shall indemnify the directors and officers of Doe Run Cayman and any trustees
acting in relation to any of the affairs of Doe Run Cayman and their heirs,
executors, administrators and personal representatives respectively from and
against all actions, proceedings, costs, charges, losses, damages and expenses
which they or any of them shall or may incur or sustain by reason of any act
done or omitted in or about the execution of their duty in their respective
offices or trusts, except such (if any) as they shall incur or sustain by or
through their own wilful neglect or default respectively.
Peruvian law does not provide for the indemnification of officers of
companies organized as Sociedades de Responsibilidad Limitada, which do not have
directors. The Constituciones de Sociedad Comercial de Responsibilidad Limitada
for Doe Run Mining S.R. Ltda. and Doe Run Peru S.R. Ltda. do not contain any
provisions regarding the indemnification of officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 -- Asset Purchase and Sale Agreement, dated as of July 28, 1998, between ASARCO Incorporated and The
Doe Run Resources Corporation for the Missouri Lead Division and the Sugar Creek Project.
3.1 -- Certificate of Incorporation of The Doe Run Resources Corporation.*
3.2 -- Amended and Restated By-laws of The Doe Run Resources Corporation.*
3.3 -- Certificate of Incorporation of Fabricated Products, Inc.*
3.4 -- Bylaws of Fabricated Products, Inc.*
3.5 -- Certificate of Incorporation of Doe Run Cayman Ltd.*
3.6 -- Memorandum and Articles of Association of Doe Run Cayman Ltd.*
3.7 -- Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Mining S.R. Ltda. (with
English translation)*
3.8 -- Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Peru S.R. Ltda. (with
English translation)*
4.1 -- Indenture, dated as of March 12, 1998, by and among the Registrants and State Street Bank and Trust
Company, as trustee, relating to the 11 1/4% Senior Notes due 2005, Series A, Floating Interest Rate
Senior Notes due 2003, Series A, 11 1/4% Senior Notes due 2005, Series B and Floating Interest Rate
Senior Notes due 2003, Series B and the Guarantees thereof (containing, as exhibits, specimens of
the Notes and the Guarantees).*
4.2 -- Purchase Agreement, dated March 6, 1998, among the Registrants, BT Alex. Brown Incorporated,
Donaldson, Lufkin and Jenrette Securities Corporation and UBS Securities LLC, relating to the
11 1/4% Senior Notes due 2005 and Floating Interest Rate Senior Notes due 2003.*
4.3 -- Registration Rights Agreement, dated as of March 12, 1998, by and among the Registrants, BT Alex.
Brown Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation and UBS Securities LLC,
relating to the 11 1/4% Senior Notes due 2005 and Floating Interest Rate Senior Notes due 2003.*
4.4 -- Form Letter of Transmittal.*
5.1 -- Opinion of Cadwalader, Wickersham & Taft.
8.1 -- Opinion of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
10.1.1 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Jeffrey L. Zelms.*
10.1.2 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Marvin K. Kaiser.*
10.1.3 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Richard L. Amistadi.*
10.1.4 -- Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Gary
E. Boyer.*
10.1.5 -- Employment Agreement, dated as of January 1, 1996, between The Doe Run Resources Corporation and
Kenneth R. Buckley.*
10.2.1 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run
Resources Corporation and Jeffrey L. Zelms.*
10.2.2 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run
Resources Corporation and Marvin K. Kaiser.*
10.2.3 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run
Resources Corporation and Richard L. Amistadi.*
10.2.4 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run
Resources Corporation and Gary E. Boyer.*
10.2.5 -- Net Worth Appreciation Agreement, dated as of April 7, 1994, as amended, between The Doe Run
Resources Corporation and Kenneth R. Buckley.*
10.3 -- The Doe Run Resources Corporation Supplemental Employee Retirement Plan.*
10.4 -- The Doe Run Company Executive Tax Services Plan.*
10.5 -- Loan and Security Agreement, dated March 12, 1998, by and among The Doe Run Resources Corporation,
Fabricated Products, Inc. and Congress Financial Corporation.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
10.6 -- Contrato de Transferencia de Acciones, Aumento del Capital Social y Suscripcion de Acciones de La
Empresa Metalurgica La Oroya S.A. (Contract of Stock Transfer, Capital Increase and Stock
Subscription) (with English translation).*
10.7 -- Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program) (with
English translation).*
10.8.1 -- Convenio de Estabilidad Juridica Entre el Estado y La Empresa Metalurgica La Oroya S.A. (Legal
Stability Agreement between the State and Empresa Metalurgica La Oroya S.A.) (with English
translation).*
10.8.2 -- Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe
Run Mining S.R. Ltda.--Commission for Foreign Investments and Technologies) (with English
translation).*
10.8.3 -- Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe
Run Mining S.R. Ltda.--Ministry of Energy and Mines) (with English translation).*
10.8.4 -- Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run
Peru S.R. Ltda.--Minister of Energy and Mines) (with English translation).*
10.8.5 -- Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run
Peru S.R. Ltda.--Vice Minister of Mines) (with English translation).*
10.8.6 -- Convenio de Estabilidad Juridica con Doe Run Cayman Ltd. (Legal Stability Agreement with Doe Run
Cayman Ltd.--Commission for Foreign Investments and Technologies) (with English translation).*
10.8.7 -- Remite Contrato de Estabilidad Administrativa Ambiental (Environmental Stability Agreement) (with
English translation).*
10.9 -- Contrato de Linea de Credito en Moneda Extranjero, (Contract for a Line of Credit in Foreign
Currency) dated June 11, 1998, between Banco de Credito del Peru and Doe Run Peru S.R. Ltda. (with
English translation).
10.10 -- Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza (Collection Account
Agreement) dated June 11, 1998, between Banco de Credito del Peru and Doe Run Peru Ltda. (with
English translation.)
10.11 -- Contrato de Prenda de Minerales (Ore Collateral Agreement) dated June 11, 1998, between Banco de
Credito del Peru and Doe Run Peru Ltda. (with English translation.)
12 -- Statement regarding computation of ratios.
15.1 -- Letter from PricewaterhouseCoopers LLP regarding unaudited interim financial information.
21 -- List of Subsidiaries of Registrant.*
23.1 -- Consent of Cadwalader, Wickersham & Taft (included in Exhibit 5.1).
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC.
23.4 -- Consent of Pincock, Allen & Holt.
23.5 -- Consent of PricewaterhouseCoopers LLP.
24 -- Power of Attorney (included on the signature page).*
25 -- Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust Company.*
</TABLE>
- ------------------------
* Previously filed.
II-4
<PAGE>
(b) Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling any
Registrant pursuant to the foregoing provisions, each Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of a Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Louis,
State of Missouri, on July 31, 1998.
<TABLE>
<S> <C>
THE DOE RUN RESOURCES CORPORATION
BY: /S/ JEFFREY L. ZELMS
------------------------------------------
JEFFREY L. ZELMS
President and Chief Executive Officer
FABRICATED PRODUCTS, INC.
BY: /S/ DAVID A. CHAPUT
------------------------------------------
DAVID A. CHAPUT
President
DOE RUN CAYMAN LTD.
BY: /S/ JEFFREY L. ZELMS
------------------------------------------
JEFFREY L. ZELMS
President
DOE RUN MINING S.R. LTDA.
BY: /S/ KENNETH R. BUCKLEY
------------------------------------------
KENNETH R. BUCKLEY
General Manager
DOE RUN PERU S.R. LTDA.
BY: /S/ KENNETH R. BUCKLEY
------------------------------------------
KENNETH R. BUCKLEY
General Manager
</TABLE>
II-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 31, 1998
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
THE DOE RUN RESOURCES CORPORATION
/s/ IRA LEON RENNERT
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
President and Chief
/s/ JEFFREY L. ZELMS Executive Officer
- ------------------------------ (Principal Executive
JEFFREY L. ZELMS Officer)
Vice President and Chief
/s/ MARVIN K. KAISER Financial Officer
- ------------------------------ (Principal Financial and
MARVIN K. KAISER Accounting Officer)
FABRICATED PRODUCTS, INC.
/s/ IRA LEON RENNERT
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
/s/ DAVID A. CHAPUT
- ------------------------------ President (Principal
DAVID A. CHAPUT Executive Officer)
Vice President and Chief
/s/ MARVIN K. KAISER Financial Officer
- ------------------------------ (Principal Financial and
MARVIN K. KAISER Accounting Officer)
DOE RUN CAYMAN LTD.
/s/ IRA LEON RENNERT
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
/s/ JEFFREY L. ZELMS
- ------------------------------ President (Principal
JEFFREY L. ZELMS Executive Officer)
/s/ MARVIN K. KAISER Vice President (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S> <C>
DOE RUN MINING S.R. LTDA.
/s/ KENNETH R. BUCKLEY
- ------------------------------ General Manager (Principal
KENNETH R. BUCKLEY Executive Officer)
/s/ MARVIN K. KAISER Finance Manager (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
DOE RUN PERU S.R. LTDA.
/s/ KENNETH R. BUCKLEY
- ------------------------------ General Manager (Principal
KENNETH R. BUCKLEY Executive Officer)
/s/ MARVIN K. KAISER Finance Manager (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
</TABLE>
II-8
<PAGE>
Exhibit 2.1
A list briefly identifying the contents of all omitted schedules can be found
on pages (vi) and (vii) of this Exhibit 2.1. A copy of any omitted schedule
will be furnished by the Registrant to the Securities and Exchange Commission
upon request.
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
BETWEEN
ASARCO INCORPORATED
AND
THE DOE RUN RESOURCES CORPORATION
FOR
THE MISSOURI LEAD DIVISION
AND
THE SUGAR CREEK PROJECT
JULY 28, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS......................................................1
ARTICLE 2 BUSINESS ASSETS..................................................9
2.01 Real Property....................................................9
2.02 Machinery and Equipment.........................................10
2.03 Permits.........................................................10
2.04 Contracts.......................................................10
2.05 Business Records................................................10
2.06 Inventory.......................................................11
2.07 Intellectual Property...........................................11
2.08 Goodwill........................................................11
2.09 Miscellaneous Assets............................................11
ARTICLE 3 EXCLUDED ASSETS.................................................11
3.01 Promissory Notes................................................11
3.02 Cash and Investments............................................11
3.03 Prepaid Taxes, Expenses and Advances............................11
3.04 Tax Withholdings................................................11
3.05 Seller's Name and Trademarks....................................11
3.06 Insurance Policies..............................................11
3.07 Business Records................................................12
3.08 Corporate Computer Assets.......................................12
3.09 Other Assets....................................................12
ARTICLE 4 PURCHASE PRICE AND MISCELLANEOUS EXPENSES.......................12
4.01 Assumption of Liabilities.......................................12
4.02 Excluded Liabilities............................................12
4.03 Purchase Price..................................................13
4.04 Payment Terms...................................................14
4.05 Allocation......................................................14
4.06 Sales, Use, Transfer and Similar Taxes and Charges..............15
4.07 Property Taxes..................................................15
4.08 Miscellaneous Charges...........................................15
4.09 Conveyance of Sugar Creek Project...............................16
4.10 Royalty Agreement...............................................17
4.11 Release from Lone Star Earn Out.................................17
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5 SELLER'S WARRANTIES.............................................17
5.01 Organization, Good Standing.....................................17
5.02 No Conflict with Other Instruments or Agreements................17
5.03 Authorization; Binding Effect...................................17
5.04 Litigation and Investigations...................................17
5.05 Environmental Matters...........................................18
5.06 Title to Real Property..........................................18
5.07 Leases..........................................................18
5.08 Title to Tangible Property......................................19
5.09 Contracts and Other Agreements..................................19
5.10 Compliance with Law; Governmental Consents......................19
5.11 Permits.........................................................19
5.12 Brokers or Finders..............................................20
5.13 Taxes...........................................................20
5.14 Labor Matters...................................................20
5.15 Disclosure......................................................20
5.16 Year 2000 Compliance............................................20
5.17 Financial Statements............................................21
5.18 Intellectual Property Rights....................................21
5.19 Affiliate Transactions..........................................21
5.20 Mineral Reserves................................................21
5.21 Operation in Ordinary Course....................................21
5.22 No Other Representations or Warranties..........................22
5.23 No Warranty of Probable Success or Condition of Assets..........22
ARTICLE 6 BUYER'S WARRANTIES..............................................22
6.01 Organization, Good Standing.....................................22
6.02 No Conflict with Other Instruments or Agreements................22
6.03 Authorization, Binding Effect...................................22
6.04 Brokers or Finders..............................................23
6.05 Litigation and Investigations...................................23
6.06 Environmental Matters...........................................23
6.07 Title to Real Property..........................................23
6.08 Leases..........................................................24
6.09 Title to Tangible Property......................................24
6.10 Contracts and Other Agreements..................................24
6.11 Compliance with Law; Governmental Consents......................24
6.12 Permits.........................................................25
6.13 Taxes...........................................................25
6.14 Employee Matters................................................25
6.15 Disclosure......................................................25
6.16 No Other Representations or Warranties..........................25
6.17 No Warranty of Probable Success or Condition of Assets..........25
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 7 BUYER'S INDEMNITY................................................26
7.01 Assumed Liabilities..............................................26
7.02 Buyer's Ownership, Use or Operation of the Business Assets.......26
7.03 Breach of Warranty...............................................26
ARTICLE 8 SELLER'S INDEMNITY...............................................26
8.01 Excluded Liabilities.............................................26
8.02 Seller's Ownership, Use or Operation of the Sugar Creek Assets...26
8.03 Breach of Warranty...............................................26
ARTICLE 9 INTERIM PERIOD...................................................26
9.01 Due Diligence, Confidentiality...................................26
9.02 Operate Business Assets in Ordinary Course.......................27
9.03 No Material Change or Material Commitments to Business Assets....27
9.04 Due Diligence, Confidentiality...................................27
9.05 Operate Sugar Creek Assets in Ordinary Course....................28
9.06 No Material Change or Material Commitments to Sugar Creek Assets.28
9.07 Work Diligently Towards Closing..................................28
9.08 Prompt Notification of Breach....................................28
9.09 Transitional Services Agreement..................................28
ARTICLE 10 EMPLOYEE MATTERS................................................29
10.01 Offer of Employment.............................................29
10.02 Accrued Wages, Salaries.........................................30
10.03 Welfare Liabilities.............................................30
10.04 Employee Benefit Plans - General................................30
10.05 Pension and Savings Plans.......................................31
10.06 Vacation........................................................31
10.07 Wage Reporting..................................................31
10.08 Recognition of Union............................................31
ARTICLE 11 GOVERNMENTAL CONSENTS...........................................32
11.01 Governmental Consents...........................................32
11.02 Efforts.........................................................32
ARTICLE 12 CLOSING.........................................................32
12.01 Place and Date of Closing.......................................32
12.02 Buyer Deliverables at Closing...................................32
12.03 Seller Deliverables at Closing..................................34
12.04 Conditions to Buyer's Obligations...............................36
12.05 Conditions to Seller's Obligation...............................36
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE 13 POST CLOSING....................................................37
13.01 Delivery of Business Records ..................................37
13.02 Buyer Cooperation with Seller's Collection of Receivables
and Disposal of Product .....................................37
13.03 Access to Records .............................................38
13.04 Cooperation in Litigation .....................................38
13.05 Removal of Seller's Name from Property ........................38
13.06 Tax Matters ...................................................38
13.07 Consents to Assignment ........................................39
13.09 Manager's Residence ...........................................40
13.10 Closure of Slag Pile ..........................................40
ARTICLE 14 BULK SALES ACT .................................................41
ARTICLE 15 RIGHT OF TERMINATION; DISPUTE SETTLEMENT .......................41
15.01 Termination ...................................................41
15.02 Alternative Dispute Resolution ................................41
ARTICLE 16 SURVIVAL, REMEDIES AND PROCEDURE FOR INDEMNIFICATION ...........43
16.01 Period for Taking Action ......................................43
16.02 Notice ........................................................43
16.03 Claims ........................................................43
16.04 Limit .........................................................43
16.05 Not a Release of Other Obligations ............................44
16.06 Procedure .....................................................44
16.07 Environmental Procedure; Access and Use of Real Property ......44
16.08 Claim Limitations .............................................46
ARTICLE 17 ENVIRONMENTAL INDEMNITY ........................................46
17.01 Seller's Environmental Indemnity ..............................46
17.02 Buyer's Environmental Indemnity ...............................47
17.03 Allocation of Certain Environmental Liabilities ...............47
ARTICLE 18 MISCELLANEOUS ..................................................49
18.01 Press Release .................................................49
18.02 Fees ..........................................................50
18.03 Amendments ....................................................50
18.04 Successors ....................................................50
18.05 Integration ...................................................50
18.06 Non-waiver of Remedy ..........................................50
18.07 Notices .......................................................50
18.08 Governing Law .................................................51
18.09 Jurisdiction ..................................................51
</TABLE>
(iv)
<PAGE>
<TABLE>
<S> <C>
18.10 Disclosure Schedules and Exhibits .............................52
18.11 Headings ......................................................52
18.12 Counterparts ..................................................52
18.13 Further Assurances ............................................52
</TABLE>
(v)
<PAGE>
<TABLE>
<S> <C>
EXHIBITS:
Exhibit I Form of Warranty Deed - Plant
Exhibit II Undertaking of Assumption
Exhibit III Bill of Sale
Exhibit IV Royalty Agreement
Exhibit V Globe Contract
Exhibit VI Equipment Sublease
Exhibit VII Form of Transitional Services Agreement
Exhibit VIII Form of Warranty Deed - Sugar Creek
Exhibit IX Environmental Methodology
</TABLE>
<TABLE>
<S> <C>
DISCLOSURE SCHEDULES:
Disclosure Schedule 2.01(a) Land
Disclosure Schedule 2.01(c) Leased Premises
Disclosure Schedule 2.01(e) Manager's Residence
Disclosure Schedule 2.02(b) Leased Equipment
Disclosure Schedule 3.08 ASARCO Corporate Computer Systems and
Software
Disclosure Schedule 3.09 Non-Transferable Contracts and Agreements
Disclosure Schedule 4.03(b) Accounting Principles for Inventory
Valuation
Disclosure Schedule 5.04 Litigation and Investigations
Disclosure Schedule 5.05 Environmental Claims, Suits and Proceedings
Disclosure Schedule 5.06 Exceptions to Title to Real Property
Disclosure Schedule 5.07 Leases
Disclosure Schedule 5.08 Exceptions to Title to Machinery and
Equipment
Disclosure Schedule 5.09 Contracts and Other Agreements
Disclosure Schedule 5.10 Compliance with Law
Disclosure Schedule 5.11 Permits
Disclosure Schedule 5.14(a) Agreements Related to Transferred Employees
Disclosure Schedule 5.14(d) Employee Benefit Plans
Disclosure Schedule 5.18 Intellectual Property
Disclosure Schedule 5.19 Affiliate Transactions
Disclosure Schedule 12.02(f) Additional Agreements Required by Seller
and Buyer
Disclosure Schedule 12.04(f) Required Consents
</TABLE>
(vi)
<PAGE>
<TABLE>
<S> <C>
BUYER DISCLOSURE SCHEDULES:
Buyer Disclosure Schedule 4.09(a) Sugar Creek Land
Buyer Disclosure Schedule 4.09(b) Sugar Creek Machinery and Equipment
Buyer Disclosure Schedule 4.09(c) Sugar Creek Permits
Buyer Disclosure Schedule 4.09(d) Sugar Creek Contracts
Buyer Disclosure Schedule 6.03 Consents
Buyer Disclosure Schedule 6.05 Litigation and Investigations
Buyer Disclosure Schedule 6.06 Environmental Claims, Suits and
Proceedings
Buyer Disclosure Schedule 6.07 Exceptions to Title to Real Property
Buyer Disclosure Schedule 6.08 Leases
Buyer Disclosure Schedule 6.11 Compliance with Law
</TABLE>
(vii)
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
MISSOURI LEAD DIVISION
SUGAR CREEK PROJECT
THIS AGREEMENT, entered into and effective as of the 28th day of July,
1998, by and between ASARCO INCORPORATED, a New Jersey corporation, with its
principal place of business at 180 Maiden Lane, New York, New York 10038
("Seller"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation
with its principal business office at Suite 300, 1801 Park 270, St. Louis,
Missouri 63146 ("Buyer").
W I T N E S S E T H, That:
WHEREAS, Seller owns and operates a business in southeastern Missouri
for the mining, milling, smelting and refining of lead and certain associated
metals and Buyer desires, pursuant to the terms and conditions of this
Agreement, to purchase certain assets and acquire certain rights of Seller
relating to such business and assume certain liabilities, and Seller desires
to sell such assets, and transfer such rights and liabilities to Buyer;
WHEREAS, as part of the consideration for its purchase, Buyer desires to
transfer to Seller, and Seller desires to acquire a mineral exploration
project owned by Buyer known as the Sugar Creek Project, located in Jackson
and Smith Counties, Tennessee;
NOW, THEREFORE, subject to the terms, conditions, covenants and
provisions of this Agreement, Seller and Buyer mutually covenant and agree as
follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Affiliate" means any person, partnership, joint venture, corporation
or other form of enterprise which directly or indirectly controls, is
controlled by, or is under common control with, a Party. For purposes of the
preceding sentence, "control" means possession, directly or indirectly, of
the power to direct or cause direction of management and policies through
ownership of voting securities, contract, voting trust or otherwise.
"Agreement" means this Asset Purchase and Sale Agreement together with
all its Disclosure Schedules and Exhibits.
"Assumed Liabilities" has the meaning ascribed to such term in Section
4.01 of this Agreement.
<PAGE>
"Bill of Sale" means the form of assignment attached as Exhibit III to
this Agreement.
"Business" means the exploration, development, extracting, producing,
handling, mining, milling, beneficiation, smelting, refining and sale of lead
and associated metals as conducted by Seller at the Mines, the Smelter and
Seller's offices in Farmington, Missouri.
"Business Assets" has the meaning ascribed to such term in Article 2
of this Agreement.
"Business Day" means any day on which banks in the state of New York
are open for the conduct of normal business.
"Business Records" has the meaning ascribed to such term in Section
2.05 of this Agreement.
"Buyer Environmental Liabilities" has the meaning ascribed to such term
in Section 17.02 of this Agreement.
"Buyer Indemnified Parties" means Buyer, its Affiliates and each of
the officers and directors of Buyer and its Affiliates.
"Buyer's knowledge" means the actual knowledge of Buyer's executive
officers and managers associated with the Sugar Creek Project.
"Closing" has the meaning ascribed to such term in Section 12.01 of
this Agreement.
"Closing Date" means the date on which the Closing occurs.
"Closing Inventory Report" has the meaning ascribed to such term in
Section 4.03(b)(1) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and
corresponding provisions of any subsequent federal revenue act.
"Contracts" has the meaning ascribed to such term in Section 2.04 of
this Agreement.
"Eligible Employees" has the meaning ascribed to such term in Section
10.01(c) of this Agreement.
"Employee Benefit Plans" shall have the meaning specified in Section
3(3) of ERISA.
"Environmental Claim" means any claim, action, cause of action,
investigation or written notice by any person or entity alleging potential
liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
-2-
<PAGE>
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from, in part or in whole, (a) the presence in,
or release or threat of release into the environment, of any Materials of
Environmental Concern or (b) any violation, or alleged violation, of
Environmental Laws.
"Environmental Laws" means any applicable Federal, state and local
environmental, health or safety laws, rules, regulations, ordinances, and
rules of common law, relating to the use, refinement, handling, treatment,
removal, storage, production, manufacture, transportation, disposal,
emission, discharge, release or threatened release of Materials of
Environmental Concern, or otherwise relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, ground water, wetlands, natural resources, land surface or
subsurface strata) or to the reclamation of land used for mining, as the same
may be amended or modified, including, without limitation, the statutes
listed below: Federal Solid Waste Act as amended by the Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Section 6901, et seq.; Federal
Comprehensive Environmental Response, Compensation, and Liability act of
1980, 42 U.S.C. Section 9601, et seq.; Federal Clean Air Act, 42 U.S.C.
Section 7401, et seq.; Federal Water Pollution Control Act, Federal Clean
Water Act of 1977, 33 U.S.C. Section 1251, et seq.; Federal Insecticide,
Fungicide, and Rodenticide Act, Federal Pesticide Act of 1978, 7 U.S.C.
Section 136, et seq.; Federal Hazardous Materials Transportation Act, 48
U.S.C. Section 1801, et seq.; the Emergency Planning and Community Right to
Know Act (42 U.S.C. Sections 11001 et seq.); the Occupational Safety and
Health Act (26 U.S.C. Sections 651 et seq.); the Pollution Prevention Act of
1990 (42 U.S.C Sections 13101 et seq.); the Atomic Energy Act of 1954, 68
Stat. 919; the Energy Reorganization Act of 1974; the Mine Safety and Health
Act of 1977; the Uranium Mill Tailings Radiation Control Act (42 U.S.C
Sections 7901 et seq.); the Federal Land Policy and Management Act (42 U.S.C.
Sections 1701 et seq.); the State of Missouri Land Reclamation Act (Mo. Ann.
Stat. XXIX Section 444.760 et seq.); the Emergency Planning and Community
Right to Know Act (42 U.S.C. Sections 11001 et seq.); the Occupational Safety
and Health Act (26 U.S.C. Sections 651 et seq.); the Pollution Prevention
Act of 1990 (42 U.S.C Sections 13101 et seq.); the Atomic Energy Act of 1954,
68 Stat. 919; the Energy Reorganization Act of 1974; the Mine Safety and
Health Act of 1977; the Uranium Mill Tailings Radiation Control Act (42 U.S.C
Sections 7901 et seq.); the Federal Land Policy and Management Act (42 U.S.C.
Sections 1701 et seq.); the State of Missouri Metallic Minerals Waste
Management Act (Mo. Ann. Stat. Sections 444.350 et seq.); Federal Toxic
Substances Control Act, 15 U.S.C. Section 2601, et seq.; Federal Safe
Drinking Water Act, 42 U.S.C. Section 300f, et seq.; and analogous state and
local regulations.
"Environmental Methodology" means the principles and methodology
attached as Exhibit IX to this Agreement.
"Environmental Permit" means any federal, state or local permits,
licenses, approvals, consents or authorizations required by any governmental
authority under or in connection with any Environmental Law applicable to the
Business or the Business Assets and includes any and all orders, consent
orders or binding agreements issued or entered into by a governmental
authority under any applicable Environmental Law.
"Equipment Sublease" means that agreement attached as Exhibit VI to
this Agreement.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" has the meaning ascribed to such term in Article 3
of this Agreement.
"Excluded Liabilities" has the meaning ascribed to such term in
Section 4.02 of this Agreement.
"Finished Goods Inventories" means inventories of refined lead and
silver held by the Seller on the Closing Date.
"Fixtures" has the meaning ascribed to such term in Section 2.01(b) of
this Agreement.
"GAAP" means generally accepted accounting principles in effect in the
United States from time to time.
"Governmental Authority" means any federal, state, local or other
governmental authority, agency or regulatory body, including, without
limitation, any commission, court, tribunal or panel having jurisdiction over
the matter at issue.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Improvements" has the meaning ascribed to such term in Section
2.01(b) of this Agreement.
"Indemnifier's Basket" has the meaning ascribed to such term in
Section 16.03 of this Agreement.
"In-Process Metals Inventories" means inventories of concentrates and
metals at various stages of milling, smelting and refining that are not Finished
Goods Inventories.
"Intellectual Property" means patents, copyrights, trademarks,
registrations, metal stamps, service marks, trade names, brand names and
application for the same, and Technical Information, in each case used or held
for use in the Business, excluding (i) "off the shelf" software packages which
may readily be obtained by Buyer and (ii) Seller's corporate computer assets
described in Section 3.08 of this Agreement.
"Inventory" has the meaning ascribed to such term in Section 2.06 of
this Agreement.
"Land" has the meaning ascribed to such term in Section 2.01(a) of
this Agreement.
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"Leased Equipment" has the meaning ascribed to such term in
Section 2.02(b) of this Agreement.
"Leased Mining Reserves" has the meaning ascribed to such term in
Section 2.01(d) of this Agreement.
"Leased Premises" has the meaning ascribed to such term in Section
2.01(c) of this Agreement.
"Leases" has the meaning ascribed to such term in Section 2.01(c) of
this Agreement.
"Lien" means, with respect to any asset, any mortgage, title defect,
lien, lease, pledge, charge, security interest, hypothecation, restriction,
judgment, encumbrance or charge of any kind in respect of such asset.
"Lone Star Release" has the meaning ascribed to such term in Section
4.11 of this Agreement.
"Loss" or "Losses" means any and all actual losses (including, without
limitation, actual losses in value), liabilities, costs, damages,
investigative, cleanup, reclamation, disposal, encapsulation, transportation,
remedial and monitoring costs, penalties and expenses (including, without
limitation, reasonable attorneys' fees and expenses and litigation costs and
environmental consultants fees), and any legal or other expenses reasonably
incurred in connection with investigating or defending any claims or actions,
whether or not resulting in any liability, but not including consequential
damages (other than those described above), lost profits or business
opportunities, indirect losses, liabilities, damages or expenses incurred due
to the interruption of the indemnitee's business or punitive damages, except
where such damages are incurred by or awarded to a third party making a claim
against an indemnitee.
"Machinery and Equipment" has the meaning ascribed to such term in
Section 2.02(a) of this Agreement.
"Manager's Residence" has the meaning ascribed to such term in Section
2.01(e) of this Agreement.
"Master Lease Agreements" means the two substantially identical
agreements, namely (a) the Lease Agreement [A] dated as of March 1, 1991,
between The Connecticut National Bank, as Owner Trustee, as Lessor, and
Seller, as Lessee and (b) the Lease Agreement [B] dated as of March 1, 1991,
between the Lessor and The Connecticut National Bank, as Owner Trustee, as
Lessor, and Seller, as Lessee, pursuant to which the Leased Equipment, among
other items of machinery and equipment, are leased by Seller.
"Material" means having an actual or potential economic impact of at
least $250,000.
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"Material Adverse Effect" means an effect which is or would reasonably
be expected to be adverse in any Material respect to the Business Assets or
the Business, or the Sugar Creek Assets, as the case may be (in each case as
presently conducted), its condition (financial or otherwise), results of
operations, properties, liabilities or prospects.
"Material Contracts" means those Contracts with an aggregate remaining
value of at least $100,000 or a remaining term in excess of 180 days,
excluding Contracts which may by their terms be terminated by not more than
45 days notice.
"Materials Inventories" means inventories of coke, smelter flux,
natural gas, refractories, reagents and other raw materials (other than
In-Process Metals Inventories) as well as warehouse inventories of tools and
spare parts and other supplies used by the Mines or the Smelter in connection
with the Business.
"Materials of Environmental Concern" means any toxic or hazardous
waste, pollutants or substances, including, without limitation, substances
defined or listed as a pollutant, air pollutant, "hazardous substance",
"toxic substance", "toxic pollutants", "hazardous constituent", "medical
waste" or similarly identified substance or mixture, in or pursuant to any
Environmental Law.
"Mineral Substances" means all surface and subsurface merchantable and
nonmerchantable ores, metals, minerals and mineral products of every nature or
sort, including, without limitation, all gold, silver, platinum group metals,
iron, cobalt, copper, molybdenum, lead, zinc, chalcopyrite, galena, sphalerite,
bauxite, kaolin, and all other materials or substances of any nature whatsoever
found in natural deposits, whether similar or dissimilar in character to the
foregoing, and any minerals as defined under any mining lease, mineral lease or
similar instrument constituting part of the Business.
"Mines" means all of the operations included with and generally
referred to as Seller's Sweetwater Unit and West Fork Unit, located in Reynolds
and Shannon Counties, Missouri including, without limitation, all mine workings,
support structures, tunnels, adits, drifts, shafts, ventilation shafts,
supports, pillars, winzes, haulage ways, trackage, and other real and personal
property and Mineral Substances relating thereto.
"Non-transferable Contracts" means those agreements that would
otherwise constitute "Contracts" within the meaning of Section 2.04 hereof, but
for the lack of consent of a third party as required by such agreements.
"Owned Mining Reserves" has the meaning ascribed to such term in
Section 2.01(d) of this Agreement.
"Parties" means both Buyer and Seller.
"Party" means either Buyer or Seller.
"Permits" means Environmental Permits, building permits, operating
permits, consents, licenses, certificates of occupancy, authorizations and
approvals issued by a
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Governmental Authority, including, without limitation, permits with respect
to the conduct of mining or mineral exploration activities.
"Permitted Exceptions" has the meaning ascribed to such term in
Section 5.06 of this Agreement.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for
Taxes the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar persons imposed by
applicable law and incurred in the ordinary course of business for sums not
yet delinquent or which are being contested in good faith; and (iii) Liens
relating to deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or to secure the performance of leases, trade contracts or other
similar agreements. Notwithstanding the foregoing, no Lien arising under the
Code or ERISA with respect to the operation, termination, restoration or
funding of any benefit plan sponsored by, maintained by or contributed to by
Seller or arising in connection with any excise tax or penalty tax with
respect to such benefit plan shall be a Permitted Lien.
"Plant" has the meaning ascribed to such term in Section 2.01(b) of
this Agreement.
"Plant Deed" means a special warranty deed substantially in the form
of Exhibit I.
"Pre-Closing Inventory Report" has the meaning ascribed to such term
in Section 4.03(b)(2) of this Agreement.
"Pre-Paid Expenses" means expenditures by the Seller in respect of
future benefits to the Business, including, without limitation, prepaid
royalties and prepaid tax assessments.
"Purchase Price" has the meaning ascribed to such term in Section 4.03
of this Agreement.
"Receivables" means the trade accounts receivable arising from the
sale of products by the Business to its customers prior to the Closing Date
and any amounts due to the Seller from employees of the Business.
"Required Consents" has the meaning ascribed to such term in
Section 12.04(f).
"Royalty Agreement" means that agreement attached as Exhibit IV to
this Agreement.
"Seller Environmental Liabilities" the meaning ascribed to such term
in Section 17.01 of this Agreement.
"Seller Indemnified Parties" means Seller and its Affiliates, and each
of the officers and directors of Seller and its Affiliates.
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"Seller's knowledge" means the actual knowledge of Seller's executive
officers and its managers associated with the Business.
"Smelter" means Seller's lead smelter and refinery located in Iron
County, Missouri.
"Sugar Creek Assets" has the meaning ascribed to such term in Section
4.09 of this Agreement.
"Sugar Creek Deed" means a special warrant deed substantially in the
form of Exhibit VIII.
"Sugar Creek Project" means Buyer's exploration lands and other assets
and the exploration activities conducted to date at such properties in Jackson
and Smith Counties, Tennessee.
"Tax" or "Taxes" means all federal, state or local net or gross
income, gross receipts, net proceeds, goods and services, sales, harmonized
sales, use, ad valorem, value added, transfer, franchise, recapture,
withholding, payroll, employment, social security, health, unemployment, excise,
property, severance, alternative or add-on minimum or environmental taxes,
assessments, duties, fees, levies or other governmental charges, whether
disputed or not, together with any interest, penalties, additions to tax or
additional amounts with respect thereto.
"Technical Information" includes, without limitation, (a) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any invention or patent disclosures, whether or not reduced to
practice and not yet made the subject of a patent application, (b) technology
(including, without limitation, know-how and show-how), including mining,
concentrating, smelting and refining processes and techniques, service and
repair manuals, research and development information, drawings,
specifications, designs, plans and technical data, whether secret or
confidential or not, and (c) geological or geophysical surveys, drill cores
and assays, in each case related to the Business or the Business Assets.
"Transferred Employee(s)" has the meaning ascribed to such term in
Section 10.01 of this Agreement.
"Transitional Services Agreement" means an agreement substantially in
the form attached as Exhibit VII to this Agreement.
"Undertaking of Assumption" means that agreement attached as Exhibit
II to this Agreement.
All dollar amounts set forth herein are expressed in United States
currency.
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ARTICLE 2
BUSINESS ASSETS
Seller agrees to grant, sell, convey, assign, transfer and deliver
unto Buyer, and Buyer agrees to purchase, accept and take delivery of the
Mines, the Smelter and the Business, free and clear of all Liens other than
Permitted Liens (or, with respect to the Plant, Permitted Exceptions) to the
extent the same relate to the Business (hereinafter collectively referred to
as the "Business Assets") as of the Closing Date, as set out below:
2.01 Real Property. (a) Those surface and subsurface lands and, as
and to the same extent owned by Seller, Mineral Substance and mineral estates
in Reynolds and Shannon Counties, Missouri on which the Mines are located and
those surface and, as and to the same extent as owned by Seller, subsurface
lands, Mineral Substances and mineral estates in Iron County, Missouri on
which the Smelter is located and certain associated real property and other
lands shown on Disclosure Schedule 2.01(a) (the "Land") and all easements,
rights-of-way, haulageways, access rights, ventilation rights, rights of
support, boundary rights, rights of subjacent and lateral support and rights
of ingress and egress appurtenant to the Land. Seller has furnished to Buyer
prior to the date of this Agreement a legal description of the Land, which
reflects the boundaries of the Land for each Mine and the Smelter and which
is attached hereto and made a part hereof as Disclosure Schedule 2.01(a).
(b) All above or below ground buildings, improvements, structures and
fixtures now or on the Closing Date located on, in or under the Land,
including, without limitation, headframes, hoists, shaft structures,
ventilation installations, tailings, tailings dams, slag piles, landscaping,
parking lots and structures, roads, drainage and all above ground and below
ground utility structures, equipment systems, and so called "infrastructure"
(the "Improvements"), all above ground and below ground permanently affixed
equipment, machinery, fixtures, and other items of real and personal
property, including, without limitation, all components thereof, now and
hereafter located in, on or used in connection with, and permanently affixed
to or incorporated into the Improvements, all of which, to the greatest
extent permitted by law, are hereby deemed by the parties hereto to
constitute real estate, together with all replacements, modifications,
alterations and additions thereto (the "Fixtures"). The Land, the Owned
Mining Reserves, the Improvements and the Fixtures of the Mines and the
Smelter are collectively referred to herein as the "Plant".
(c) The leasehold interest and, to the extent owned by Seller,
leasehold Improvements and Fixtures created by each lease of real property
and/or Mineral Substances, including mineral lease agreements and surface
lease agreements (the "Leases"), in the locations described in Disclosure
Schedule 2.01(c) (the "Leased Premises"), so long as a party thereto has
consented to the assignment thereof, if such consent is required pursuant to
such Lease or pursuant to a requirement of law, as the case may be. For any
Lease that is not so transferable by Seller without the consent of any other
party, Seller shall use its reasonable best efforts to arrange for Buyer to
obtain such consent, and Buyer shall use its reasonable best efforts to
assist Seller).
(d) All of Seller's interest in mining reserves and Mineral Substances
contained in the Land ("Owned Mining Reserves") and the Leased Premises
("Leased Mining Reserves").
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(e) All of Seller's rights in the residence located at 114 Oak Hill
Drive in Arcadia, Missouri and the real property upon which such residence is
located, as described in Disclosure Schedule 2.01(e) (the "Manager's
Residence").
2.02 Machinery and Equipment. (a) Except as described in Article 3
hereof, all fixed and mobile mining, milling, smelting, refining, storage,
distribution, laboratory, transportation, computer hardware, office and other
machinery and equipment owned by Seller, and primarily used, held for use in,
or related to the Business (the "Machinery and Equipment"). Seller has
furnished to Buyer a list of all Machinery and Equipment as in existence as
of April 30, 1998, with a book value in excess of $5,000 per item.
(b) All rights in and to those items of machinery and equipment
listed on Disclosure Schedule 2.02(b) which are leased by Seller pursuant to
the Master Equipment Lease (the "Leased Equipment").
2.03 Permits. To the extent transferable or assignable to Buyer
without breaching any applicable law or regulation or any other enforceable
obligation of Seller (subject to the obligation of Seller to use its
reasonable best efforts to assign the same to Buyer as described below), all
rights in and to all Permits listed in Disclosure Schedule 5.11, primarily
used, held for use in, or related to the Business, which are required by any
Governmental Authority in order for Seller to conduct the Business as
presently conducted (as distinct from general corporate and other similar
authorizations not specific to the Business, such as qualifications to
transact business). For any such Permit that is not so transferable by
Seller without the consent of any other party, Seller shall use its
reasonable best efforts to arrange for Buyer to obtain such consent, and
Buyer shall use its reasonable best efforts to assist Seller and Buyer shall
be responsible for any costs incurred to obtain the same, other than Seller's
internal costs associated with such efforts. No such costs shall be incurred
without Buyer's prior approval therefor.
2.04 Contracts. Except as identified in Article 3 hereof, all sales
orders and contracts, purchase orders and contracts, equipment and other
personal property leases and other contracts or agreements which relate
primarily to the Business or the Business Assets, the terms of which have not
expired on or before the Closing Date (the "Contracts"), so long as a party
thereto has consented to the assignment thereof, if such consent is required
pursuant to such contract or agreement or pursuant to a requirement of law,
as the case may be. For any such contract or agreement that is not so
transferable by Seller without the consent of any other party, Seller shall
use its reasonable best efforts to arrange for Buyer to obtain such consent,
and Buyer shall use its reasonable best efforts to assist Seller. For the
purposes of this Agreement, the following shall not constitute Contracts: (a)
Receivables and (b) agreements between Seller and its employees, relating to
their terms and conditions of employment with Seller, including, without
limitation, collective bargaining agreements.
2.05 Business Records. All existing business records related to the
Business or the Business Assets, confidential (subject to third party
confidentiality restrictions or legally required consents) and otherwise,
located, as of the Closing Date, at the Plant, the Leased Premises, Seller's
offices in Salt Lake City, Utah, in the case of certain records regarding
environmental matters at the Mines or the Smelter, and Seller's head office
in New York, New
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York, in the case of certain records related to sales of products produced by
the Business, other than records related to (a) the employees of the Business
and (b) the divestiture of the Business (the "Business Records").
2.06 Inventory. All Materials Inventories, In-Process Metals Inventories
and Finished Goods Inventories held for use or generated by the Business,
which are located at or in transit to or from the Plant, the Leased Premises,
field warehouses or customer locations or any toll converting or third party
facilities (the "Inventory").
2.07 Intellectual Property. The rights to all Intellectual Property
used, or held for use in, the Business, including, without limitation, all of
Seller's rights in and to the "Glover Lead" brand name registered with the
London Metals Exchange, but excluding those items referred to in Section 3.08
of this Agreement.
2.08 Goodwill. All goodwill associated with the Business and the
Business Assets.
2.09 Miscellaneous Assets. All (i) counterclaims and defenses relating
to Assumed Liabilities and (ii) Prepaid Expenses, associated with the
Business as prorated to Buyer pursuant to Article 4.
ARTICLE 3
EXCLUDED ASSETS
Notwithstanding anything, express or implied, to the contrary
contained in this Agreement, the following assets of Seller and Seller's
Affiliates are excluded from the transaction described by this Agreement and
shall not constitute a portion of the Business Assets (the "Excluded Assets"):
3.01 Promissory Notes. All promissory notes payable to the Seller.
3.02 Cash and Investments. All cash on hand or in banks, including
cash equivalents and investments.
3.03 Prepaid Taxes, Expenses and Advances. All Prepaid Expenses, as
prorated to Seller in accordance with Article 4.
3.04 Tax Withholdings. All Taxes withheld by Seller from its employees'
salaries and wages, and other Taxes of Seller incurred by it as an employer
or as a vendor, which Seller is obligated to pay, and rights to claims for
refunds of Taxes.
3.05 Seller's Name and Trademarks. All rights in the trade name
ASARCO or any other trademark or trade name of Seller, other than as provided
in Section 2.07.
3.06 Insurance Policies. All insurance policies, agreements and
contracts and all rights in connection therewith the proceeds or benefits
thereof.
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3.07 Business Records. All records with respect to employees, the
divestiture of the Business and all other business records not described in
Section 2.05.
3.08 Corporate Computer Assets. All corporate computer systems and
licenses (including, without limitation, Seller's electronic mail systems, mine
planning systems, accounting systems, metals trading systems, freight related
systems and fixed asset management systems), which are listed in Disclosure
Schedule 3.08, provided that Seller shall provide Buyer with use of certain of
such systems or software pursuant to the Transitional Services Agreement.
3.09 Other Assets. All other assets of Seller and its Affiliates
that do not constitute Business Assets, including, without limitation: (a) any
of Seller's offices or properties located outside of Missouri; (b) exploration
properties within Missouri which are not contiguous to the Mines; (c)
Non-transferable Contracts as set forth on Disclosure Schedule 3.09; (d) the
Receivables; (e) any amounts awarded to Seller in connection with the proceeding
initiated by Seller and Buyer seeking recovery of sales tax paid to the State of
Missouri; and (f) any assets, including, without limitation, contracts or
agreements, allocated or attributable to employee benefit plans or other
compensation or benefit arrangements of Seller and/or its Affiliates, whether or
not held in trust.
ARTICLE 4
PURCHASE PRICE AND MISCELLANEOUS EXPENSES
Subject to the terms and conditions of this Agreement, in
consideration of the sale, conveyance, assignment, transfer and delivery by
Seller of the Business Assets, Buyer and Seller agree as follows:
4.01 Assumption of Liabilities. (a) Pursuant to the terms of the
Undertaking of Assumption and except as otherwise provided in this Agreement,
Buyer shall assume and agree to pay, discharge and perform when due all
liabilities and obligations (whether known or unknown, fixed or contingent), to
the extent that such liabilities and obligations arise out of the conduct of
the Business or the use, ownership or operation of the Business Assets from and
after Closing (the foregoing being hereinafter referred to as the "Assumed
Liabilities"), including liabilities for any Environmental Claims as provided
under Article 17 ("Assumed Environmental Liabilities"). The Assumed Liabilities
include, but are not limited to, all obligations arising on the Closing Date and
at any time after the Closing under Contracts, Permits, Leases and other
agreements assigned by Seller to Buyer in accordance with this Agreement.
(b) Pursuant to an agreement substantially in the form of the
Equipment Sublease, Buyer shall assume all liabilities of Seller arising with
respect to the Leased Equipment under the Master Lease Agreement. The Parties
acknowledge and agree that the Equipment Sublease is subject to the comments of
the Lessor (as defined therein), provided that such comments are reasonably
acceptable to the Parties.
4.02 Excluded Liabilities. Except as provided in Section 4.01, Buyer
shall not assume any liabilities and obligations (whether known or unknown,
fixed or contingent) of Seller
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to the extent that such liabilities and obligations arise out of the conduct,
ownership, use or operation of the Business or the Business Assets prior to
the Closing Date ("Excluded Liabilities"). The Excluded Liabilities include,
without limitation, the following:
(a) Accounts payable incurred prior to the Closing Date;
(b) Wages and salaries earned by employees of the Business prior to
the Closing Date pursuant to Section 10.02 or any obligations of Seller in
respect of workers' compensation claims as set forth in Section 10.03;
(c) All liabilities and claims incurred, accrued or earned under any
employee benefit plan or other compensation or benefit arrangement of
Seller or its Affiliates, to the extent provided in Article 10;
(d) Liabilities, whether presently existing or arising hereafter,
attributable to an Excluded Asset;
(e) Liabilities of Seller for Taxes relating to the conduct of the
Business or the ownership, conduct, use or operation of the Business Assets
prior to the Closing, other than as described in Sections 4.06(a) and
4.07(a) of this Agreement; and
(f) As provided under Article 17, liabilities for any Environmental
Claims to the extent such liabilities arise out of the use, ownership or
operation of the Business Assets or the conduct of the Business prior to
Closing ("Excluded Environmental Liabilities").
4.03 Purchase Price. (a) The purchase price ("Purchase Price") of
the Business Assets shall be the sum of:
(1) Forty-Five Million Dollars ($45,000,000) for the Business Assets
(other than Inventory) and for all other rights and obligations
contemplated hereunder;
(2) the value of the Inventory computed in accordance with Section
4.03(b); and
(3) the transfer by Buyer to Seller of the Sugar Creek Assets, in
accordance with Section 4.09.
(b) (1) The Seller and the Buyer have jointly carried out a physical
inventory and agreed to a calculation of the value of the Inventory as of June
30, 1998 in accordance with the Accounting Principles for Inventory Valuation
described in Disclosure Schedule 4.03(b) hereof. From June 30, 1998 to the
Closing Date, the Seller shall account for additions to and subtractions from
the Inventory in accordance with its normal accounting procedures. Five
Business Days prior to Closing, Seller shall provide to Buyer a report (the
"Pre-Closing Inventory Report") setting out the value of the Inventory, computed
in accordance with the Inventory Valuation Procedure described in Disclosure
Schedule 4.03(b) hereof, as of the date which is the last day in the calendar
month preceding the month which includes the Closing Date, provided that if the
Closing occurs in the first seven days of a calendar month, the Pre-Closing
Inventory Report shall
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be as of the last day of the second preceding calendar month. The
Pre-Closing Inventory Report shall be the basis for the payment at Closing
for Inventory.
(2) No later than 30 days following Closing, Seller shall provide to
Buyer a report (the "Closing Inventory Report") setting forth the Inventory
value at Closing, using the same valuation methods as were used in preparing the
Pre-Closing Inventory Report. Seller shall make available to Buyer Seller's
books, records and personnel related to and involved in the calculation of such
actual values, and Buyer shall make available to Seller the Business books,
records and personnel transferred to Buyer to the extent reasonably necessary
for Seller to complete such valuations.
(A) If the value for Inventory shown on the Closing Inventory Report
is greater than the value shown on the Pre-Closing Inventory Report, Buyer
shall remit to Seller such difference within ten days of receipt by Buyer
of the Closing Inventory Report; and
(B) If the value for Inventory shown on the Closing Inventory Report
is less than the value shown on the Pre-Closing Inventory Report, Seller
shall remit to Buyer such difference within ten days of receipt by Buyer of
the Closing Inventory Report.
(3) By submittal of a written objection thereto no later than 20
business days following receipt of the Closing Inventory Report, Buyer may
dispute any amounts reflected on such report, but only on the basis that the
amounts reflected thereon were not arrived at in accordance with the terms of
this Agreement. Such objection shall identify each disputed item with a
reasonable description of the amount in dispute and the nature of the
objection. If Buyer and Seller are unable to resolve such dispute within 45
business days following Seller's receipt of Buyer's objection, they shall
submit the open matter(s) to the firm of Pricewaterhouse Coopers LLP who
shall, within 30 days of such submittal, issue a determination to both
parties which determination shall have the legal effect of an arbitral award
and be final and binding on the Parties. The fees and expenses of
Pricewaterhouse Coopers LLP incurred pursuant to this Section 4.03 shall be
allocated between Buyer and Seller in the same proportion that the aggregate
amount of disputed items so submitted that is unsuccessfully disputed by
Buyer bears to the total amount of all disputed items so submitted.
4.04 Payment Terms. (a) The Purchase Price provided in Section
4.03(a)(1) and (2) shall be payable in immediately available funds in United
States Dollars by wire transfer to accounts of Seller at a bank or banks to be
designated by Seller in writing to Buyer prior to the Closing Date.
(b) Any amounts due from the Seller to the Buyer pursuant to Section
4.03(b)(2)(B) shall be payable in immediately available funds by wire transfer
to accounts of the Buyer at a bank or banks to be designated by Buyer in writing
to Seller prior to the Closing Date.
4.05 Allocation. Not later than 30 days after the Closing Date, the
Parties will agree as to (i) the value of the Sugar Creek Assets and (ii) the
allocation of the Purchase Price (including for purposes of this Section 4.05,
any other consideration paid to Seller, including consideration in the form of
liabilities being assumed or royalties or earnings being received as
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described in Section 4.10 or Section 4.11) among the various categories of
Business Assets and rights transferred to or otherwise acquired by Buyer
pursuant to this Agreement. The allocation as so agreed (with any resulting
adjustments to asset values arising out of application of Section 4.03(b)(3)
above) shall be used by the Parties in reporting the transactions
contemplated by this Agreement for all tax purposes, including as required by
Section 1060 of the Code. Neither Party shall take any position on any of
its tax returns that is inconsistent with such allocation and each Party
shall file U.S. Internal Revenue Service Form 8594 in a manner consistent
with this allocation.
4.06 Sales, Use, Transfer and Similar Taxes and Charges. (a) Buyer
shall bear and pay all sales or use taxes, any applicable federal excise taxes,
and any transfer, transfer gain, documentation, gross receipts, value added and
other taxes and charges, as well as all interest and penalties thereon payable
because of the action or inaction of Buyer, upon or with respect to the sale or
transfer of the Business Assets by Seller to Buyer pursuant to this Agreement.
To the extent that any applicable law or regulation imposes upon Seller the
obligation to report or to pay such taxes, charges, interest or penalties,
Seller shall issue an invoice to Buyer for the amount of such payments and shall
effect such payments promptly upon receiving the amounts payable from Buyer and
as soon as is practicable thereafter provide Buyer with evidence of such
payments. If the sale or transfer of any or all of the Business Assets is
exempt from such taxes or charges, Buyer shall provide Seller with a certificate
from its Chief Financial Officer to this effect prior to the Closing Date.
(b) Seller shall bear and pay all sales or use taxes, any applicable
federal excise taxes, and any transfer, transfer gain, documentation, gross
receipts, value added and other taxes and charges, as well as all interest and
penalties thereon payable because of the action or inaction of Seller, upon or
with respect to the sale or transfer of the Sugar Creek Assets by Buyer to
Seller pursuant to this Agreement. To the extent that any applicable law or
regulation imposes upon Buyer the obligation to report or to pay such taxes,
charges, interest or penalties, Buyer shall issue an invoice to Seller for the
amount of such payments and shall effect such payments promptly upon receiving
the amounts payable from Seller and as soon as is practicable thereafter provide
Seller with evidence of such payments. If the sale or transfer of any or all of
the Sugar Creek Assets is exempt from such taxes or charges, Seller shall
provide Buyer with a certificate from its Comptroller to this effect prior to
the Closing Date.
4.07 Property Taxes. (a) All applicable real and personal property
taxes levied or assessed for the tax year in which the Closing occurs against
the Business Assets shall be prorated and shall be the responsibility of Seller
up to and including midnight preceding the Closing Date; the balance of any such
taxes shall be borne by Buyer; or, if Seller shall have paid any of the same,
Buyer shall promptly reimburse Seller therefor.
(b) All applicable real and personal property taxes levied or
assessed for the tax year in which the Closing occurs against the Sugar Creek
Assets shall be prorated and shall be the responsibility of Buyer up to and
including midnight preceding the Closing Date; the balance of any such taxes
shall be borne by Seller; or, if Buyer shall have paid any of the same, Seller
shall promptly reimburse Buyer therefor.
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4.08 Miscellaneous Charges. At the Closing, the following charges
with respect to the transactions contemplated by this Agreement shall be paid,
prorated or handled by the Parties, as follows:
(a) Any fees, expenses, charges or accruals for utilities shall be
prorated to and including midnight preceding the Closing Date and shall be
paid by Seller, in the case of the Business, by the Buyer, in the case of
the Sugar Creek Project, and all said amounts applicable to the period
after midnight preceding the Closing Date, shall be paid by Buyer, in the
case of the Business, and by the Seller, in the case of Sugar Creek
Project.
(b) Any Prepaid Expenses relating to the Business shall be prorated
between the parties, and Buyer shall reimburse Seller for amounts paid that
relate to periods on or after the Closing Date for the Business and Seller
shall reimburse Buyer for amounts paid that relate to periods on or after
the Closing Date for the Sugar Creek Project.
(c) Premiums and other charges for the issuance of a title insurance
policy on the Plant, if any is desired by Buyer, shall be paid by Buyer.
(d) The cost for a new survey of the Plant, and preparing a plat
thereof, if any is desired by Buyer, should be paid by Buyer, and the cost
of a new survey of the Sugar Creek Project, and preparing a plat thereof,
if any is desired by Seller, shall be paid by Seller.
(e) The parties shall share equally the filing fee paid by Buyer in
respect of its filing under the HSR Act.
(f) Buyer shall pay Seller the amount of $40,000 in respect of
property acquired by the Seller from Marvin Richards immediately prior to
the Effective Date.
4.09 Conveyance of Sugar Creek Project. Buyer shall grant, sell,
convey, transfer and deliver unto Seller, and Seller agrees to purchase, accept
and take delivery of the following assets of Buyer free and clear of all Liens
other than Permitted Liens, and assume all obligations under any underlying
lease pertaining to the Sugar Creek Project (collectively, the "Sugar Creek
Assets") as of the Closing Date:
(a) All of Buyer's interest in land located in Jackson and Smith
Counties, Tennessee, described in Buyer Disclosure Schedule Section
4.09(a), together with all of Buyer's interest in Mineral Substances and
mineral reserves contained in such land;
(b) All exploration, mining, laboratory and other machinery and
equipment used primarily in connection with the Sugar Creek Project, as
listed in Buyer Disclosure Schedule Section 4.09(b);
(c) To the extent transferable or assignable to Seller without
breaching any applicable law or regulation or any other enforceable
obligation of Buyer, all rights in and to all Permits obtained by Buyer in
connection with the Sugar Creek Project, as listed in Buyer Schedule
Section 4.09(c);
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(d) All contracts or agreements which are related primarily to the
Sugar Creek Project, as listed in Buyer Disclosure Schedule Section
4.09(d); and
(e) All written or electronic information held or controlled by Buyer
relating to geological or geophysical surveys, drill cores and assays in
respect of the Sugar Creek Assets.
4.10 Royalty Agreement. In partial consideration for the Business
and the Business Assets, Buyer and Seller shall enter into the Royalty Agreement
on the Closing Date.
4.11 Release from Lone Star Earn Out. Buyer shall be released from
its profit participation obligations created by Section 2.1(iv) of the Asset
Purchase Agreement dated August 31, 1995 among Lone Star Lead Construction
Corp., the Seller and the Buyer (such release, the "Lone Star Release").
ARTICLE 5
SELLER'S WARRANTIES
Except as otherwise provided in this Agreement, Seller warrants that
as of the Effective Date and as of the Closing Date:
5.01 Organization, Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has corporate power to own the Business Assets and to carry on
the Business as now being conducted.
5.02 No Conflict with Other Instruments or Agreements. Neither the
execution, delivery or performance of this Agreement by Seller, nor the
consummation of the transactions contemplated by this Agreement by Seller will:
(a) violate any provision of the Certificate of Incorporation, Bylaws
or similar constitutional documents of Seller, or any law, rule,
regulation, order, judgment or decree by which Seller, the Business or any
of the Business Assets may be bound; or
(b) conflict with, result in a breach of the terms and conditions of,
or result in the imposition of any Lien (other than Permitted Liens) with
respect to any of the Business Assets as a result of any provision of, or
constitute a default under, any agreement (except with respect to any
Contract under which a default is caused by the assignment thereof by
Seller) to which Seller or the Business is a party or by which either of
them or any of the Business Assets may be bound.
5.03 Authorization; Binding Effect. Seller has the corporate power,
including all necessary authorization in respect of corporate action on the part
of Seller, to execute, deliver and fulfill the provisions of this Agreement, and
this Agreement constitutes a legal, valid and binding agreement of Seller
enforceable against Seller in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, or similar laws
affecting the enforcement of creditors' rights generally and rules and laws
concerning equitable remedies.
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5.04 Litigation and Investigations. Except as disclosed to Buyer in
Disclosure Schedule 5.04 or 5.05, there is no litigation, action, investigation
or proceeding pending or, to Seller's knowledge, threatened against or relating
to the Business or the Business Assets other than those which, individually or
in the aggregate, would not reasonably be expected to have a Material Adverse
Effect; nor has Seller received any written notice (nor, to Seller's knowledge,
are any pending) from any person or Federal, state, or municipal government, or
governmental or regulatory agency threatening to institute same; and the use or
operation of the Business Assets is not subject to any injunction, order,
judgment, writ or decree other than those which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
5.05 Environmental Matters. Except as disclosed to Buyer in
Disclosure Schedule 5.05, there are no pending Environmental Claims which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, nor has Seller received any written notice of any
Environmental Claims which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect, nor to Seller's knowledge are
there any facts or circumstances relating to the Business Assets or the Business
that would reasonably be expected to give rise to any Environmental Claims
which, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Disclosure Schedule 5.05,
Seller has received all Environmental Permits required for operation of the
Plant and Leased Premises, including the emission and/or disposal of solid,
liquid and gaseous materials from the operations at the Plant and Leased
Premises and is operating in conformance with such permits and approvals
required under any Environmental Laws and the Business and the Business Assets
are otherwise in compliance with all applicable Environmental Laws and
Environmental Permits, except in those instances in which failure to comply
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
5.06 Title to Real Property. Seller has good title in fee simple,
such that Buyer could obtain title insurance with respect to surface rights from
a recognized insurer at a reasonable cost, to the Plant, including all Owned
Mining Reserves, and the Manager's Residence, free and clear of any mortgage,
judgment, security interest, restriction, lease, Liens or other encumbrance of
any nature other than Permitted Liens, subject, however, to the following
(collectively, the "Permitted Exceptions"):
(a) real estate taxes and installments of governmental assessments
for public improvements benefiting the Plant or the Manager's Residence for
the tax year in which the Closing Date occurs;
(b) all matters which an inspection of the Plant or the Manager's
Residence would show, as are set forth on Disclosure Schedule 5.06; and
(c) those exceptions and reservations to Seller's title in the Land
and the Manager's Residence as set forth in Disclosure Schedule 5.06.
5.07 Leases. Disclosure Schedule 5.07 sets forth a list of all
Leases, including a list of Leased Mining Reserves. No party to any Lease has
notified Seller that it considers Seller to be in breach thereof, and to
Seller's knowledge neither the Seller nor any other party to any
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Lease has breached or is contemplating the breach thereof. Except as stated
in Disclosure Schedule 5.07, Seller has not defaulted with respect to any
Lease, other than those defaults which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
5.08 Title to Tangible Property. Except as set forth on Disclosure
Schedule 5.08, Seller has good and marketable title to the Machinery and
Equipment, Inventory and other tangible property excluding the Plant and the
Leased Equipment, free and clear of all Liens, other than Permitted Liens.
5.09 Contracts and Other Agreements. (a) Disclosure Schedule 5.09
sets forth a list of Contracts, including a list of Material Contracts. No
party to any Material Contract has notified Seller that it considers Seller to
be in breach thereof, and to Seller's knowledge no other party to any Material
Contract has breached or is contemplating the breach thereof. Except as set
forth on Disclosure Schedule 5.09, Seller has not materially breached or
defaulted with respect to any Material Contract nor does Seller know of any fact
which, if known, would result in a breach, other than in each case those
defaults which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(b) Seller makes no warranty with regard to the assignability of
rights or delegation of duties under the Contracts. Subject to confidentiality
restrictions, Buyer shall form its own opinion with regard to the enforceability
of the commitments of any party thereto therein contained, compliance by the
other parties thereto with their undertakings thereunder, and assignability
thereof, and ongoing obligations of Buyer to such other parties after Buyer's
assumption of obligations as set forth in Section 4.01.
5.10 Compliance with Law; Governmental Consents. (a) Except as set
forth in Disclosure Schedule 5.10 or as otherwise set forth herein, to Seller's
knowledge, the operations of the Business as conducted by Seller are in
compliance with all applicable laws, regulations and codes of the Federal, state
or municipal governments, or other governmental or regulatory bodies having
jurisdiction over the Business except in those instances in which failure to
comply would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, and Seller has not been notified in writing of,
nor to Seller's knowledge is there, any noncompliance therewith.
(b) Except for filing and approval requirements under the HSR Act or
any other antitrust pre-merger or pre-acquisition requirements, no consent,
authorization, or approval of, or exemption by, or filing with, any court or
governmental, public, or self-regulatory body or authority, is required in
connection with the execution, delivery and performance by Seller of this
Agreement or of any of the instruments or agreements herein referred to, or the
taking of any action herein contemplated to be taken by Seller, except where the
failure to obtain or make any such consent, authorization, approval, exemption
or filing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
5.11 Permits. All Permits required to operate the Business and the
Business Assets, as operated by Seller, are set forth on Disclosure Schedule
5.11. The Business and the
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Business Assets are operated by Seller in compliance with all Permits, except
for such non-compliance as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
5.12 Brokers or Finders. Seller has not incurred any obligation or
liability, contingent or otherwise, for broker's or finder's fees with respect
to the matters provided for in this Agreement.
5.13 Taxes. There are no Taxes of Seller, or deficiencies in Taxes
or claims for Taxes against Seller, for any taxable period that could become a
liability of, or which could be assessed or collected against Buyer, or become a
Lien on any Business Assets. No Taxes related to the Business Assets are in
arrears or in material dispute.
5.14 Labor Matters. (a) Except as set forth in Disclosure Schedule
5.14(a), Seller has no oral or written labor contracts or collective bargaining
agreements relating to the Transferred Employees.
(b) The Seller has complied with all applicable laws relating to the
employment of personnel and labor, occupational safety, plant closing, layoffs,
employee benefits, collective bargaining and federal contracting, except for
those failures to comply which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect.
(c) Neither Seller nor any Affiliate contributes to, or is or has
been obligated to contribute to, any multiemployer plan (as defined in Section
3(37) of ERISA) on behalf of any employee of the Business.
(d) Set out in Disclosure Schedule 5.14(d) is a listing of each
employee benefit plan, within the meaning of Section 3(3) of ERISA, in which
employees of the Business participate.
5.15 Disclosure. No representation or warranty of Seller contained
in this Agreement or any other agreements, disclosure schedules or documents to
be executed and delivered by Seller pursuant hereto or in connection herewith is
untrue or omits or misstates a material fact necessary in order to make the
statements herein or therein not misleading.
5.16 Year 2000 Compliance. Seller makes no present or future
warranty, covenant, or representation, express or implied, and there is no
condition including, without limitation, any warranty or condition of
merchantability or fitness for a particular purpose, as to the sufficiency of
its efforts relating to the year 2000 problem (a data handling problem relating
to the Year 2000 date change that would cause a computer system, software or
other equipment that may contain an embedded computer chip or computer algorithm
to fail to correctly perform, process and handle date-related data for the dates
within and between the twentieth and twenty-first centuries and all other
centuries) (the "Year 2000 Problem"), whether the hardware, software, computer
systems, or equipment are Year 2000 compliant or whether the Business will incur
a Year 2000 Problem at any time in the future; the risks of the same and the
costs of correction of any Year 2000 Problem related to the Business after the
Closing are for Buyer's
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account. In no event will Seller be responsible for any direct, indirect,
punitive or consequential damages arising, in whole or in part, from a Year
2000 Problem.
5.17 Financial Statements. (a) Seller has furnished to Buyer the
audited balance sheets of the Missouri Lead Division of Seller as of the fiscal
years ended December 31, 1996 and 1997, and the related statements of income,
shareholders' equity and changes in financial position for the years then ended,
all certified by Coopers & Lybrand LLP. Except as set forth in the notes
thereto, such financial statements were prepared in accordance with generally
accepted accounting principles and fairly present the financial condition and
the results of operations of the Missouri Lead Division of Seller as of the
dates thereof and for the periods covered thereby.
(b) Seller has furnished to Buyer an unaudited statement of earnings
and a balance sheet of the Missouri Lead Division for the period from January 1,
1998 to April 30, 1998, which has been prepared in a manner which is consistent
with the audited financial statements referred to in Section 5.17(a) and fairly
presents the results of operations and the cash flows of the Missouri Lead
Division for the period covered thereby.
5.18 Intellectual Property Rights. Except as disclosed in
Disclosure Schedule 5.18, Seller (i) owns all rights to, has good title to, or
has valid and subsisting license rights to use (as currently used) and (ii) has
the right to convey all Intellectual Property used in connection with the
Business. Seller has not received notice that it is infringing upon the
Intellectual Property of any person, no claim is pending or, to the knowledge of
Seller, has been made to the effect that Seller is infringing upon the
Intellectual Property rights of any person. Other than the "ASARCO" mark and
the "Glover Lead" brand name registered with the London Metals Exchange, there
are no trademarks, services marks or brand names used in the conduct of the
Business.
5.19 Affiliate Transactions. Except as disclosed in Disclosure
Schedule 5.19, as of the date of this Agreement, (i) there are no intercompany
liabilities between the Seller and any Affiliate of Seller which relate
primarily to the Business or the Business Assets, (ii) no Affiliate of Seller
provides or causes to be provided any asset, services, or facilities to the
Business, (iii) the Business does not provide or cause to be provided any asset,
services, or facilities to any Affiliate of the Seller, (iv) there are no
intracompany liabilities between any divisions, formal or informal, of the
Seller. All transactions listed on Disclosure Schedule 5.19 were concluded on
an arm's-length basis.
5.20 Mineral Reserves. Seller has heretofore made available to Buyer
information regarding estimates as to the lead ore reserves contained in the
Mines. Such information and estimates were prepared for Seller in the ordinary
course of business in accordance with Seller's customary practice by persons who
are qualified to make such estimates and in accordance with accepted geologic
and engineering practice.
5.21 Operation in Ordinary Course. Except for events and activities
related to, in connection with or in contemplation of the transactions
contemplated by this Agreement, the Business has been operated in the ordinary
course since April 20, 1998.
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5.22 No Other Representations or Warranties. Except as otherwise
expressly set forth in this Agreement, or any other agreement, document or
instrument to be executed and delivered by Seller pursuant to or in connection
with this Agreement, neither Seller nor any Affiliate, agent or representative
of Seller, has made, and Seller is not liable for or bound in any manner by, any
warranties of merchantability or fitness for a particular purpose, or any
express or implied warranties, guarantees, promises, statements, inducements,
representations, or information pertaining to the Business Assets or any part
thereof, and without limiting the foregoing, except as expressly set forth in
this Agreement, Seller is not liable for or bound by (and Buyer has not relied
upon) any verbal or written statements, representations, or any other
information respecting any portion of the Business Assets furnished by Seller or
any broker, employee, agent, consultant or other person representing or
purportedly representing Seller.
5.23 No Warranty of Probable Success or Condition of Assets. Seller
makes no warranty regarding the probable success or profitability of the
ownership, use or operation of the Business Assets after the Closing. Seller
makes no warranty as to the physical condition or suitability for any particular
purpose of any of the Business Assets, individually or collectively, which are
all being purchased on an "as is, where is" basis.
ARTICLE 6
BUYER'S WARRANTIES
Buyer warrants that as of the Effective Date:
6.01 Organization, Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has all requisite power and authority to execute, deliver and
perform this Agreement.
6.02 No Conflict with Other Instruments or Agreements. Neither the
execution, delivery or performance of this Agreement by Buyer, nor the
consummation of transactions contemplated by this Agreement by Buyer will:
(a) violate any provision of the Buyer's Certificate of
Incorporation, By-Laws or similar constitutional documents of Buyer, or any
law, rule, regulation, order, judgment or decree by which the Buyer may be
bound; or
(b) conflict with, result in a breach of the terms and conditions of,
or constitute a default under, any agreement to which Buyer is a party or
by which it may be bound.
6.03 Authorization, Binding Effect. (a) Buyer has all requisite
power and authority to execute, deliver and fulfill the provisions of this
Agreement, and this Agreement constitutes a legal, valid and binding agreement
of Buyer enforceable against Buyer in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, or similar
laws affecting the enforcement of creditors' rights generally and rules and laws
concerning equitable remedies.
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(b) Except for filing and approval requirements under the HSR Act or
any other antitrust pre-merger or pre-acquisition requirements, and except as
set forth in Buyer Disclosure Schedule 6.03, no consent, authorization, or
approval of, or exemption by, or filing with, any court or governmental, public,
or self-regulatory body of authority, is required in connection with the
execution, delivery and performance by Buyer of this Agreement or of any of the
instruments or agreements herein referred to, or the taking of any action herein
contemplated to be taken by Buyer, except where the failure to obtain or make
any such consent, authorization, approval, exemption or filing would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.04 Brokers or Finders. Buyer has incurred no obligation or
liability, contingent or otherwise, for broker's or finder's fees with respect
to the matters provided for in this Agreement.
6.05 Litigation and Investigations. Except as disclosed to Seller in
Buyer Disclosure Schedule 6.05 or 6.06, there is no litigation, action,
investigation or proceeding pending or, to Buyer's knowledge, threatened against
or relating to the Sugar Creek Assets other than those which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect; nor has Buyer received any written notice (nor to Buyer's knowledge are
any pending) from any person or Federal, state, or municipal government, or
governmental or regulatory agency threatening to institute same; and the use or
operation of the Sugar Creek Assets is not subject to any injunction, order,
judgment, writ or decree other than those which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
6.06 Environmental Matters. Except as disclosed to Seller in Buyer
Disclosure Schedule 6.06 there are no pending Environmental Claims which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, nor has Buyer received any written notice of any
Environmental Claims which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect, nor to Buyer's knowledge are
there any facts or circumstances relating to the Sugar Creek Assets that would
reasonably be expected to give rise to any Environmental Claims which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect. Except as disclosed in Buyer Disclosure Schedule 6.06,
Buyer has received all Environmental Permits required for exploration operations
of the Sugar Creek Project as conducted by Buyer and Buyer is operating in
conformance with such permits and approvals required under any Environmental
Laws and the Sugar Creek Assets are otherwise in compliance with all applicable
Environmental Laws and Environmental Permits, except in those instances in which
failure to comply would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on such Sugar Creek Project.
6.07 Title to Real Property. Buyer has good title in fee simple,
such that Seller could obtain title insurance with respect to surface rights
from a recognized insurer at a reasonable cost, to the land listed on Buyer
Disclosure Schedule 4.09(a) constituting a part of the Sugar Creek Assets, free
and clear of Liens or other encumbrance of any nature other than Permitted
Liens, subject, however, to the following exceptions:
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(a) real estate taxes and installments of governmental assessments
for public improvements benefiting the Sugar Creek Project for the tax year
in which the Closing Date occurs;
(b) all matters which an inspection of the Sugar Creek Assets would
show, as are set forth in Buyer Disclosure Schedule 6.07; and
(c) those exceptions and reservations to Buyer's title in the Land as
set forth in Buyer Disclosure Schedule 6.07.
6.08 Leases. Buyer Disclosure Schedule 6.08 sets forth a list of all
leases of leased real or personal property, including a list of leases of mining
reserves or in respect of leased Mineral Substances, related to the Sugar Creek
Project. No party to any such lease has notified Buyer that it considers Buyer
to be in breach thereof, and to Buyer's knowledge neither the Buyer nor any
other party to any such lease has breached or is contemplating the breach
thereof. Except as stated in Buyer Disclosure Schedule 6.08, Buyer has not
defaulted with respect to any lease set out in such schedule, other than those
defaults which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Sugar Creek Project.
6.09 Title to Tangible Property. Buyer has good and marketable title
to the machinery and equipment and other tangible property listed on Buyer's
Disclosure Schedule 4.09(b), free and clear of all Liens, other than Permitted
Liens.
6.10 Contracts and Other Agreements. (a) Buyer Disclosure Schedule
4.09(d) sets forth a list of contracts related to the Sugar Creek Project. No
party to any such contract has notified Buyer that it considers Buyer to be in
breach thereof, and to Buyer's knowledge no other party to any such contract has
breached or is contemplating the breach thereof. Except as set forth on Buyer
Disclosure Schedule 4.09(d), Buyer has not defaulted with respect to any such
contract, other than those defaults which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(b) Buyer makes no warranty with regard to the assignability of
rights or delegation of duties under the contracts listed on Buyer Disclosure
Schedule 4.09(d). Subject to confidentiality restrictions, Seller shall form
its own opinion with regard to the enforceability of the commitments of any
party thereto therein contained, compliance by the other parties thereto with
their undertakings thereunder, and assignability thereof, and ongoing
obligations of Seller to such other parties after Seller's assumption of
obligations thereunder.
6.11 Compliance with Law; Governmental Consents. Except as set
forth in Buyer Disclosure Schedule 6.11 or as otherwise set forth herein, to
Buyer's knowledge, the exploration and all other operations of the Sugar Creek
Project as conducted by Buyer are in compliance with all applicable laws,
regulations and codes of the Federal, state or municipal governments, or other
governmental or regulatory bodies having jurisdiction over the Sugar Creek
Project, its facilities or its operations, except in those instances in which
failure to comply would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse
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Effect, and the Buyer has not been notified in writing of, nor to Buyer's
knowledge is there, any noncompliance therewith.
6.12 Permits. All Permits required to conduct the exploration and
all other operations as conducted by Buyer in respect of the Sugar Creek Project
are set forth on Buyer Disclosure Schedule 4.09(c). The Sugar Creek Project and
the Sugar Creek Assets have been explored and otherwise operated by Buyer in
compliance with all Permits, except for such non-compliance as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.13 Taxes. There are no Taxes of Buyer, or deficiencies in Taxes or
claims for Taxes against Buyer, for any taxable period that could become a
liability of, or which could be assessed or collected against Seller, or become
a Lien on any Sugar Creek Assets. No Taxes related to the Sugar Creek Assets
are in arrears or in material dispute.
6.14 Employee Matters. As of the date of this Agreement, Buyer has
no employee whose employment relates primarily to the operation of the Sugar
Creek Project or the maintenance or protection of the Sugar Creek Assets. There
are no agreements with former employees, agents, independent contractors or
contractors in respect of the Sugar Creek Project which are not disclosed in
this Agreement and there are no employees that will be transferred with the
Sugar Creek Project.
6.15 Disclosure. No representation or warranty of Buyer contained in
this Agreement or any other agreements, Buyer's Disclosure Schedules or
documents to be executed and delivered by Buyer pursuant hereto or in connection
herewith is untrue or omits or misstates a material fact necessary in order to
make the statements herein or therein not misleading.
6.16 No Other Representations or Warranties. Except as otherwise
expressly set forth in this Agreement, or any other agreement, document or
instrument to be executed and delivered by Buyer pursuant to or in connection
with this Agreement, neither Buyer nor any Affiliate, agent or representative of
Buyer, has made, and Buyer is not liable for or bound in any manner by, any
warranties of merchantability or fitness for a particular purpose, or any
express or implied warranties, guarantees, promises, statements, inducements,
representations, or information pertaining to the Sugar Creek Assets or any part
thereof, and without limiting the foregoing, except as expressly set forth in
this Agreement, Buyer is not liable for or bound by (and Seller has not relied
upon) any verbal or written statements, representations, or any other
information respecting any portion of the Sugar Creek Assets furnished by Buyer
or any broker, employee, agent, consultant or other person representing or
purportedly representing Buyer.
6.17 No Warranty of Probable Success or Condition of Assets. Buyer
makes no warranty regarding the probable success or profitability of the
ownership, use or operation of the Sugar Creek Assets after the Closing. Buyer
makes no warranty as to the physical condition or suitability for any particular
purpose of any of the Sugar Creek Assets, individually or collectively, which
are all being purchased on an "as is, where is" basis.
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ARTICLE 7
BUYER'S INDEMNITY
Subject to the limitations and procedures set forth in Article 16
hereof, and except for Environmental Claims that are dealt with exclusively in
Article 17 hereof, after the Closing Date Buyer shall indemnify and hold each of
the Seller Indemnified Parties harmless against and in respect from all Losses
actually incurred by such Seller Indemnified Parties to the extent that such
Losses arise out of:
7.01 Assumed Liabilities. The Assumed Liabilities assumed by Buyer
as required by Section 4.01 or pursuant to the Undertaking of Assumption.
7.02 Buyer's Ownership, Use or Operation of the Business Assets.
Buyer's ownership, use or operation of the Business Assets on or after the
Closing Date.
7.03 Breach of Warranty. Any breach of any of the warranties of
Buyer contained in this Agreement, or in any document delivered in connection
herewith, or nonfulfillment of any agreement or covenants on the part of Buyer
under this Agreement or in any document delivered in connection herewith.
ARTICLE 8
SELLER'S INDEMNITY
Subject to the limitations and procedures of Article 16 hereof, and
except for Environmental Claims that are dealt with exclusively in Article 17
hereof, after the Closing Date Seller shall indemnify and hold the Buyer
Indemnified Parties harmless against and in respect from all Losses actually
incurred by such Buyer Indemnified Parties to the extent such Losses arise out
of:
8.01 Excluded Liabilities. The Excluded Liabilities.
8.02 Seller's Ownership, Use or Operation of the Sugar Creek Assets.
Seller's ownership, use or operation of the Sugar Creek Assets on or after the
Closing Date.
8.03 Breach of Warranty. Any breach of any of the warranties of
Seller contained in this Agreement or any document delivered in connection
herewith, or nonfulfillment of any agreement or covenants on the part of Seller
under this Agreement or any document delivered in connection herewith.
ARTICLE 9
INTERIM PERIOD
Seller and Buyer covenant and agree that between the date of this
Agreement and the Closing Date:
9.01 Due Diligence, Confidentiality. Buyer, its counsel, accountants
and other representatives shall be permitted reasonable access during normal
business hours to the Mines,
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the Smelter, the Leased Premises and to Seller's books, records, Contracts,
commitments and other data at the Plant, the Leased Premises or other Seller
locations directly related to the operation of the Business Assets or the
Business. It is expected that between the date of this Agreement and either
the Closing Date or termination of this Agreement, whichever is first to
occur, Seller may give Buyer information that Seller considers confidential.
In that event, Buyer shall require that all its representatives granted
access to such data shall treat such data and information as confidential in
accordance with the Confidentiality Agreement between the Parties, dated
March 24, 1997, notwithstanding any termination of this Agreement. Such
obligation of the Buyer shall continue following the Closing, except with
respect to information relating to the Business Assets.
9.02 Operate Business Assets in Ordinary Course. Except as otherwise
provided in this Agreement, or otherwise consented to or requested by Buyer in
writing, Seller, to the best of its ability, shall operate and maintain the
Business and Business Assets solely in the ordinary course of business
consistent with past practice (except as otherwise provided herein or for events
beyond Seller's reasonable control), so as not to diminish the value of the
Business or the Business Assets in a way which would reasonably be expected to
have a Material Adverse Effect.
9.03 No Material Change or Material Commitments to Business Assets.
Seller shall not, without the prior written consent or at the written request of
Buyer:
(a) demolish, remove, alter, enlarge or dispose of any of the
Business Assets (including Inventory) other than in the ordinary course of
business consistent with past practice, other than removal of any of the
Excluded Assets described in Article 3, provided that nothing in this
Agreement shall be deemed to prohibit Seller from duplicating and removing
for its own use copies of the Business Records;
(b) make any individual commitments exceeding $100,000 or aggregate
commitments exceeding $1,000,000 with respect to the Business Assets; and
(c) make any material change in the Plant, the Leased Premises or
Seller's operation of the Business or the Business Assets.
9.04 Due Diligence, Confidentiality. Seller, its counsel,
accountants and other representatives shall be permitted reasonable access
during normal business hours to the Sugar Creek Assets and to Buyer's books,
records, contracts, commitments and other data at the Sugar Creek Assets or
other Buyer locations directly related to the operation of the Sugar Creek
Assets or the Sugar Creek Project. It is expected that between the date of
this Agreement and either the Closing Date or termination of this Agreement,
whichever is first to occur, Buyer may give Seller information that Buyer
considers confidential. In that event, Seller shall and shall require that
all its representatives granted access to such data shall, treat such data
and information as confidential notwithstanding any termination of this
Agreement. Such obligation of the Seller shall continue following the
Closing, except with respect to information relating to the Sugar Creek
Assets.
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9.05 Operate Sugar Creek Assets in Ordinary Course. Except as
otherwise provided in this Agreement, or otherwise consented to or requested by
Seller in writing, Buyer, to the best of its ability, shall maintain the Sugar
Creek Project and Sugar Creek Assets solely in the ordinary course of business
consistent with past practice (except as otherwise provided herein or for events
beyond Buyer's reasonable control), so as not to diminish the value of the Sugar
Creek Project or the Sugar Creek Assets in a way which would reasonably be
expected to have a Material Adverse Effect; provided, however, that the Buyer
does not intend to conduct any further exploration activities (including any
further on-ground or offsite activities) relating to the Sugar Creek Project.
9.06 No Material Change or Material Commitments to Sugar Creek
Assets. Buyer shall not, without the prior written consent or at the written
request of Seller:
(a) demolish, remove, alter, enlarge or dispose of any of the Sugar
Creek Assets other than in the ordinary course of business consistent with
past practice;
(b) make any commitments with respect to the Sugar Creek Assets; and
(c) make any material change in the Sugar Creek Assets or Buyer's
operation of the Sugar Creek Project.
9.07 Work Diligently Towards Closing. Buyer and Seller shall each
use their reasonable best efforts to work diligently, including obtaining all
necessary governmental approvals and filings, towards completing the transaction
contemplated by this Agreement on the scheduled Closing Date.
9.08 Prompt Notification of Breach. Each Party shall use its
reasonable best efforts to notify the other Party of any breach of any of the
notified Party's representations, warranties, covenants or agreements or of any
circumstance or event reasonably likely to cause any of such representations,
warranties, covenants or agreements to be breached.
9.09 Transitional Services Agreement. If transitional services are
requested by the Buyer, the Parties shall negotiate in good faith the terms,
conditions and compensation to the Seller for such services, it being understood
that the Seller has agreed in principle to provide transitional services such as
computer software support, inventory management and payroll administration for a
limited period of time on an "at cost" basis. The Parties have agreed that if
transitional services are requested by the Buyer, they shall be governed by an
agreement substantially in the form of the Transitional Services Agreement, with
such schedules regarding specific services as the Parties have agreed following
good faith negotiations. The Parties acknowledge and agree, however, that if
they are unable to reach agreement on the terms, conditions or compensation in
respect of such specific transitional services prior to the Closing Date, the
execution of the Transitional Services Agreement shall be deemed to have been
waived by each Party as a condition to Closing.
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ARTICLE 10
EMPLOYEE MATTERS
10.01 Offer of Employment. (a) Not less than 15 days prior to the
Closing Date, Seller shall advise Buyer in writing of those employees of the
Business Seller wishes to retain as Seller's employees (the "Retained
Employees"). Not less than seven days prior to the Closing Date, Buyer shall
advise Seller in writing of those employees of the Business (other than Retained
Employees) to whom Buyer does not intend to extend an offer of employment, the
number of which shall not exceed 12 (the "Redundant Employees"). Effective as
of the Closing, Seller shall terminate its employment of all employees of the
Business, other than the Retained Employees and Redundant Employees. On the
Closing Date, Buyer shall provide an offer of employment to all of the employees
of the Business (other than Redundant Employees and Retained Employees), with
each such offer providing for (i) substantially the same terms and substantially
similar benefits as are then provided by Buyer to a similarly situated employee
of Buyer and (ii) employment, if accepted by the employee, to be deemed
effective for wage and benefit purposes as of the Closing Date. Each such offer
shall be contingent upon the employee's (q) passing a drug test to be
administered on behalf of the Buyer by a NIDA certified laboratory and (r)
completion of the Buyer's employment application process to be administered
during the eight Business Day period following the Closing Date. Buyer shall be
responsible for and shall pay each former employee of the Business (other than
Redundant Employees and Retained Employees) a fee for participation in Buyer's
employment application process at a rate equivalent to the wage or salary rate
paid to each such employee by the Seller. Neither Seller nor Buyer shall take
any action intended to cause employees to reject Buyer's offer of employment.
Not later than the 12th calendar day following the Closing Date, Buyer shall
advise Seller of (x) those employees (other than Redundant Employees and
Retained Employees) who did not satisfy the contingencies upon which the offer
of employment was based and (y) those employees who have accepted Buyer's offer
of employment. Those employees who have accepted such offer of employment,
effective as of the Closing Date, shall be referred to herein as "Transferred
Employees".
(b) The term "Eligible Employees" shall mean all employees of the
Business, other than Redundant Employees and Retained Employees, who pass the
drug test administered on behalf of the Buyer by a NIDA certified laboratory
during the eight Business Day period following the Closing Date.
(c) Buyer covenants and agrees that it will comply with all state and
federal laws which are applicable to its evaluation of the employees of the
Business for employment by the Buyer and the extension of any offer of
employment to such employees, including, without limitation, laws prohibiting
employment discrimination.
(d) In the event that 90% or more of all Eligible Employees do not
satisfy the employment contingency specified in Section 10.01(a)(r), Buyer
agrees to indemnify and hold Seller harmless against (i) any amounts payable in
respect of severance or other termination benefits to former employees of the
Business whose employment is terminated by Seller pursuant to Section 10.01(a)
and (ii) any COBRA continuation coverage (as defined in Section 10.03) for such
employees or their spouses or dependents.
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10.02 Accrued Wages, Salaries. Seller will pay to all Transferred
Employees wages, salaries and bonuses earned prior to the Closing Date. Subject
to Section 10.01(d), Seller will be solely responsible for the payment of wages,
salaries, severance, termination benefits and other benefits to employees of the
Business other than Transferred Employees.
10.03 Welfare Liabilities. Except as specifically described herein,
Seller shall retain and be responsible for all liabilities in connection with
claims for services received or expenses incurred by employees of the Business,
other than Transferred Employees, and in connection with claims incurred prior
to the Closing Date by Transferred Employees, under Seller's employee welfare
benefit plans (as defined in Section 3(l) of ERISA) and shall be responsible for
compliance with the continuation health care coverage requirements of Code
Section 4980B and ERISA Sections 601 - 609 ("COBRA") under Seller's group health
plans with respect to Transferred Employees as a result of events occurring
prior to the Closing and with respect to Retained Employees and Redundant
Employees as a result of all events. Buyer shall assume and be responsible for
all liabilities in connection with claims for services received or expenses
incurred or events occurring on and after the Closing Date with respect to
Transferred Employees under any of Buyer's employee welfare benefit plans (as
defined in Section 3(l) of ERISA), including, without limitation, provision of
continuation coverage with respect to Transferred Employees in accordance with
COBRA due to events occurring on or after the Closing Date. For purposes of the
foregoing, a claim shall be considered incurred on the date treatment is
rendered or a service performed. Workers' compensation claims of any
Transferred Employees shall be the responsibility and liability of Seller if the
injury or condition giving rise to the claim occurs or arises prior to the
Closing Date and shall be the responsibility and liability of Buyer if the
injury or condition giving rise to the claim occurs or arises on or after the
Closing Date.
10.04 Employee Benefit Plans - General.
(a) Prior Service Credit: Buyer shall provide credit only for
purposes of eligibility to participate and vesting under Buyer's Employee
Benefit Plans for service of Transferred Employees with Seller and its
subsidiaries and Affiliates prior to the Closing Date, but shall not provide
credit for service for purposes of benefit determination, provided that if the
prior service of a Transferred Employee does not meet the minimum requirements
for vesting under Buyer's Employee Benefit Plans, such Transferred Employee will
be credited with such prior service but will still be required to satisfy
Buyer's requirements for vesting. Notwithstanding the foregoing, service of
Transferred Employees prior to the Closing Date recognized under Seller's
vacation policy shall be recognized by the Buyer under its vacation policies,
but Transferred Employees will not receive credit for service with Seller and
its subsidiaries and Affiliates prior to the Closing Date under any severance
pay plan maintained by Buyer.
(b) Enrollment in Buyer Benefit Plans: Effective on the Closing
Date, Buyer shall enroll each Transferred Employee and their dependents in
Employee Benefit Plans available for similarly situated employees of Buyer and
shall cause any pre-existing conditions restrictions, waiting periods, or
actively-at-work restrictions or similar limitations on participation or
benefits to be waived to the extent necessary to provide full and immediate
coverage under such Employee Benefit Plans. Buyer shall cause each such
Employee Benefit Plan to take into account all co-
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payments and deductibles incurred by Transferred Employees or their
dependents on and prior to the Closing Date, provided that Seller has advised
Buyer within 14 days from the Closing Date of the amount of co-payments and
deductibles paid by each Transferred Employee during 1998.
(c) Relation to Seller Benefit Plans: Certain of the Transferred
Employees may be entitled to post-retirement or post-termination benefits under
Seller provided Employee Benefit Plans (collectively, "Seller's Retirement
Plans"). Buyer agrees that in respect of Transferred Employees, (i) enrollment
in Seller's Retirement Plans shall not constitute evidence of medical insurance
coverage for purposes of opting out of Buyer medical plans, (ii) Buyer's
Employee Benefit Plans shall constitute the primary medical, life insurance and
disability coverage for such employees, and (iii) Buyer shall cause such
Employee Benefit Plans to be administered in such a way that benefits and
coverage thereunder are not reduced or offset by any benefits or coverage
provided or potentially available under Seller's Retirement Plans, and that such
administration does not discriminate as between Buyer and Seller sponsored
Employee Benefit Plans to the detriment of the Seller sponsored Employee Benefit
Plans.
10.05 Pension and Savings Plans. Effective as of the Closing Date,
Seller shall fully vest all Transferred Employees in their accrued benefits
under its tax-qualified defined benefit pension plans. Such pension plan
obligations shall remain the sole responsibility of such Seller plan. Following
the Closing Date, Buyer shall designate a defined contribution plan which is
qualified under Section 401(a) of the Code to which Transferred Employees may
elect to roll over all or a portion of their distributions under such a plan
maintained by Seller in which such employees currently participate.
10.06 Vacation. Buyer shall provide such vacation and other paid
time off entitlements to the Transferred Employees which are generally
comparable to the vacation entitlements of similarly situated employees of Buyer
at comparable Buyer-owned facilities. Effective on the Closing Date, Buyer shall
assume liability for all accrued but unused vacation of the Transferred
Employees.
10.07 Wage Reporting. Buyer and Seller shall follow the standard
Internal Revenue Service procedure (as set forth in Section 4 of Revenue
Procedure 96-60) with regard to reporting of wages on Form W-2 and disposition
of Forms W-4 and W-5 for Transferred Employees.
10.08 Recognition of Union. Buyer or its Affiliate which acquires
the Smelter shall, to the extent required by law, recognize the United Steel
Workers of America for purposes of collective bargaining with respect to wages,
hours and other conditions of employment for production and maintenance
employees at the Smelter only, specifically excluding all office, clerical and
professional employees, guards and supervisors, as defined by the National Labor
Relations Act, as set forth in the Certification of Representation issued by the
National Labor Relations Board on July 22, 1968 in Case No. 14-RC-5966.
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ARTICLE 11
GOVERNMENTAL CONSENTS
11.01 Governmental Consents. The sale contemplated by this Agreement
is conditional upon receipt prior to Closing of the approvals, consents,
authorizations and waivers from governmental and other regulatory agencies which
are required to consummate the sale contemplated by this Agreement (including
the expiration of any applicable premerger notification waiting period), to
enable Buyer to own, use and operate the Business Assets and the Business.
11.02 Efforts. Each Party shall use its reasonable best efforts to
obtain all authorizations, consents, orders and approvals of, and to give all
notices to and make all filings with, all governmental authorities and other
third parties that may be or become necessary for its execution and delivery of,
and the performance of its obligations pursuant to this Agreement or any
document delivered in connection herewith, and also to enable Buyer to own, use
and operate the Business Assets and the Business, and each Party will cooperate
fully with the other Party in promptly seeking to obtain all such
authorizations, consents, orders and approvals, giving such notices, and making
such filings. Each Party has made an appropriate filing of a notification and
report form pursuant to the HSR Act with respect to the transactions
contemplated hereby prior to the date of this Agreement and has and shall
continue to supply promptly any additional information and documentary material
that may be requested pursuant to the HSR Act. The Parties acknowledge that
time shall be of the essence in this Agreement and agree not to take any action
that will have the effect of unreasonably delaying, impairing or impeding the
receipt of any required authorizations, consents, orders or approvals.
ARTICLE 12
CLOSING
12.01 Place and Date of Closing. The closing of the transaction
contemplated by this Agreement (the "Closing") shall take place at the offices
of White & Case LLP at 1155 Avenue of the Americas, New York, New York, at 10:00
a.m. local time on September 1, 1998, or, if any of the conditions to the
Closing set forth in Section 12.04 or Section 12.05 have not been satisfied or
waived by the Parties on or prior to such date, on the fifth Business Day
following the satisfaction or waiver of such conditions. All transactions
contemplated by this Agreement shall be deemed to be effective as of midnight on
the day preceding the Closing Date, provided that the termination of the
employees of the Business shall be effective when actual notice of termination
becomes effective.
12.02 Buyer Deliverables at Closing. At the Closing, Buyer shall:
(a) Pay to Seller, by wire transfer in immediately available funds in
Seller's favor, the cash portion Purchase Price for the Business Assets and
the Inventory as of the Closing Date.
(b) Deliver to Seller a certificate of a duly authorized officer of
Buyer confirming that, as at the Closing Date, all of the warranties of
Buyer contained herein are true, complete and correct, as if made on such
date, and that Buyer has performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied
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with by Buyer at or prior to Closing.
(c) Deliver to Seller an opinion of Buyer's internal legal counsel in
form reasonably satisfactory to Seller's legal counsel that as of the
Closing Date:
(i) Buyer is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York and has all
requisite power to execute, deliver and perform the provisions of this
Agreement.
(ii) Neither the execution, delivery nor performance of this
Agreement or the other documents provided for herein nor the
consummation of the transactions contemplated by this Agreement
violate any provision of Buyer's Certificate of Incorporation or
By-Laws; or conflict with or result in a breach of any material term
or condition or constitute a default under, any agreement, known to
such counsel, and to which Buyer is a Party.
(iii) All necessary proceedings to authorize the transactions
contemplated by this Agreement and the other documents provided for
herein, the performance by Buyer of its obligations under this
Agreement and the other documents provided for herein, and the
execution and delivery by Buyer of all instruments and other documents
contemplated hereby have been taken.
(iv) This Agreement and the other documents provided for herein
and all instruments of transfer required hereunder have been duly
authorized, executed and delivered by Buyer, and, subject to due
execution by Seller if required, are valid, binding and enforceable
upon Buyer in accordance with their terms except as enforcement may be
limited by bankruptcy, insolvency, reorganization, or similar laws
affecting the enforcement of creditors' rights generally and rules and
laws concerning equitable remedies.
(v) Except as otherwise set forth in this Agreement, there is
not, as a result of Buyer's ownership or operation of the Sugar Creek
Assets, to the knowledge of such counsel, any litigation, action,
investigation or proceedings pending against Buyer or the Sugar Creek
Assets, nor has such counsel received notice, nor is he aware of any
notice received by Buyer from any person or Federal, state or
municipal government, or governmental or regulatory agency, of its
intent to institute the same; and the ownership, use and operation of
the Sugar Creek Assets is not subject to compliance with any
injunction, other order or judgment, writ or decree.
(d) Execute and deliver a special warranty deed substantially in the
form of the Sugar Creek Deed reasonably acceptable to Seller and otherwise
in content, form and substance complying with local law and custom
conveying the land, fixtures and improvements owned by Buyer included in
the Sugar Creek Assets to Seller subject only to the Permitted Exceptions.
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(e) Execute and deliver such assignments, bills of sale,
endorsements, notices, consents, assurances and such other instruments of
conveyance and transfer as counsel for Seller shall reasonably request and
as shall be effective to vest in Seller good title or good leasehold
interest to all of the Sugar Creek Assets including, without limitation, a
bill of sale in respect of those assets owned by Buyer. Simultaneously
with the delivery of such bill of sale and subject to receipt of any
required third party consents, Buyer shall take all such steps as may be
necessary to put Seller in actual possession and control of the Sugar Creek
Assets.
(f) Buyer shall enter into a contract with Seller relating to sales
to Seller's Globe, Colorado facility substantially in the form of Exhibit V
to this Agreement providing for the continued sale by Buyer to Seller's
Globe facility of refined lead (low silver "test lead") through December
31, 1999, with such contract being renewable annually thereafter
(g) Execute and deliver the instrument giving effect to Buyer's
assumption of Seller's obligations arising from the 1996 Consent Decree
relating to the Missouri State Implementation Plan in respect of the
Smelter.
(h) Execute and deliver (i) the Royalty Agreement, (ii) the
Transitional Services Agreement (if the terms of such agreement have been
agreed pursuant to Section 9.09) and (iii) the Equipment Sublease.
(i) Execute and deliver the other documents provided for herein and
the agreements described in Disclosure Schedule 12.02(f).
12.03 Seller Deliverables at Closing. At the Closing, Seller shall:
(a) Deliver to Buyer a certificate of a duly authorized officer of
Seller confirming that, as at the Closing Date, all of the warranties of
Seller contained herein are true, complete and correct, as if made on such
date, and that Seller has performed or complied with all of the terms,
covenants and conditions of this Agreement to be performed or complied with
by Seller at or prior to the Closing.
(b) Deliver to Buyer an opinion of Seller's internal legal counsel in
form reasonably satisfactory to Buyer's legal counsel that as of the
Closing Date:
(i) Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey, and has
corporate power to carry on the Business as now being conducted.
(ii) Neither the execution, delivery or performance of this
Agreement or the other documents provided for herein nor the
consummation of the transactions contemplated by this Agreement
violate any provision of Seller's Certificate of Incorporation or
Bylaws, or any law, regulation, order, judgment or decree by which the
Seller or the Business Assets may be bound; or conflict with or result
in a breach of the terms and conditions or constitute a default, under
any agreement,
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known to such counsel, and to which Seller is a Party or by which the
Business Assets may be bound, except as otherwise set forth in this
Agreement.
(iii) All necessary corporate proceedings to authorize the
transactions contemplated by this Agreement and the other documents
provided for herein, the performance by Seller of its obligations
under this Agreement and the other documents provided for herein, and
the execution and delivery by Seller of all instruments and other
documents contemplated hereby have been taken.
(iv) This Agreement and the other documents provided for herein
and, all instruments of transfer required hereunder have been duly
authorized, executed and delivered by Seller, and, subject to due
execution by Buyer if required, are valid, binding and enforceable
upon Seller in accordance with their terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, or similar laws
affecting the enforcement of creditors' rights generally and rules and
laws concerning equitable remedies.
(v) Except as otherwise set forth in this Agreement, there is
not, as a result of Seller's ownership or operation of the Business
Assets, to the knowledge of such counsel, any litigation, action,
investigation or proceedings pending against Seller or the Business
Assets, nor has such counsel received notice, nor is he aware of any
notice received by Seller from any person or Federal, state or
municipal government, or governmental or regulatory agency, of its
intent to institute the same; and the ownership, use and operation of
the Business Assets is not subject to compliance with any injunction,
other order or judgment, writ or decree.
(c) Execute and deliver (i) a special warranty deed substantially in
the form of the Plant Deed pertaining to each Mine and the Smelter
reasonably acceptable to Buyer and otherwise in content, form and substance
complying with local law and custom acceptable to the title company
conveying the Plant, Land, Fixtures and Improvements to Buyer subject only
to the Permitted Exceptions; (ii) such certificates or affidavits as the
title company may reasonably require to delete the general exceptions from
the title policy; and (iii) such agreements as may be necessary to transfer
Seller's rights to the Leased Premises to Buyer.
(d) Execute and deliver (i) the Royalty Agreement, (ii) the
Transitional Services Agreement (if the terms of such agreement have been
agreed pursuant to Section 9.09) and (iii) the Equipment Sublease.
(e) Execute and deliver such assignments, bills of sale in respect of
Business Assets owned by the Seller, endorsements, notices, consents,
assurances and such other instruments of conveyance and transfer as counsel
for Buyer shall reasonably request and as shall be effective to vest in
Buyer good title or good leasehold interest to all of the Business Assets,
including, without limitation, the Bill of Sale and the agreements
described on Disclosure Schedule 12.02(f). Simultaneously with the
delivery of such Bill of Sale and subject to receipt of any required third
party consents, Seller shall take all such
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steps as may be necessary to put Buyer in actual possession and control
of the Business Assets.
(f) Execute and deliver a Lone Star Release which is reasonably
satisfactory to Buyer and its counsel.
(g) Deliver a notice of termination to the employees of the Business
(other than Retained Employees).
12.04 Conditions to Buyer's Obligation. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions:
(a) All of the warranties of Seller contained in Articles 5 and 9
shall be true, complete and correct on and as of the Closing Date as if
made on the Closing Date and Buyer shall have received the certificate
described in Section 12.03(a);
(b) Buyer and Seller shall have received or obtained all governmental
and regulatory consents and approvals as specified in Article 11 hereof,
and the waiting period under the HSR Act shall have expired or been
terminated;
(c) No injunction restraining or prohibiting the transactions
contemplated hereby shall have been issued by a court or governmental
authority;
(d) Seller and its officers and counsel shall have executed and
delivered the items described in Section 12.03 of this Agreement;
(e) No material damage to or loss of any of the Business Assets by
fire or other casualty shall have occurred between the date of this
Agreement and the Closing Date;
(f) Seller shall have obtained the Required Consents listed on
Disclosure Schedule 12.04(f) (the "Required Consents"); and
(g) No changes to the Business or impairment of the Business Assets
shall have occurred between the Effective Date and the Closing Date which
have resulted in or are likely to result in a significant and ongoing
impairment of the value of the Business as a going concern, other than
changes which (a) are a direct result of the transactions contemplated by
this Agreement or the Buyer's acquisition of the Business and the Business
Assets, including, without limitation, any strike or work stoppage by
employees (or an employee group) of the Business, or (b) result from
economic or market conditions which are external to the Business and impact
upon the demand or market for lead and associated products generally,
including, without limitation, a decline in lead prices.
12.05 Conditions to Seller's Obligation. The obligation of Seller to
consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions:
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(a) All of the warranties of Buyer contained in Article 6 shall be
true, complete and correct on and as of the Closing Date as if made on the
Closing Date and Seller shall have received the certificate described in
Section 12.02(b);
(b) Buyer and Seller shall have received or obtained all governmental
and regulatory consents and approvals as specified in Article 11 hereof,
and the waiting period under the HSR Act shall have expired or been
terminated;
(c) No injunction restraining or prohibiting the transactions
contemplated hereby shall have been issued by a court or governmental
authority;
(d) Buyer shall have delivered to Seller the funds required to be
delivered to it pursuant to Sections 12.02(a) of this Agreement;
(e) Buyer, and its officers and counsel shall have executed and
delivered the items described in Section 12.02 of this Agreement; and
(f) No material damage to or loss of any of the Sugar Creek Assets
by fire or other casualty shall have occurred between the date of this
Agreement and the Closing Date.
ARTICLE 13
POST CLOSING
Seller and Buyer agree that after the Closing Date:
13.01 Delivery of Business Records. All Business Records stored on
site (excluding business records referred to in Section 3.07) shall be delivered
to Buyer on the Closing Date. All Business Records stored off site (excluding
business records referred to in Section 3.07) shall be delivered to Buyer as
soon after the Closing as is reasonably practicable but in no event later than
30 days after the Closing Date. Seller shall use any copies of such Business
Records as are retained by Seller solely for purposes of complying with this
Agreement and any other requirement imposed by applicable law and for no other
purposes. All business records maintained or copied by Buyer with respect to
the Sugar Creek Project shall be used solely for purposes of complying with this
Agreement and any other requirement imposed by applicable law and for no other
purposes and shall be maintained in strict confidence.
13.02 Buyer Cooperation with Seller's Collection of Receivables and
Disposal of Product. After the Closing Date:
(a) Buyer shall reasonably cooperate in Seller's efforts to sell or
resell any rejected or returned finished products which have been sold,
shipped or set aside for a customer of the Business prior to the Closing
Date.
(b) If any Receivable is paid to Buyer, Buyer shall promptly pay such
amount to Seller.
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13.03 Access to Records. From time to time, upon request by Seller,
and subject to the obligation of confidentiality set out in Section 9.04, Buyer
shall permit Seller reasonable access to the books and records delivered to
Buyer in accordance with Sections 13.01 for purposes of tax and other legal
compliance, provided Buyer shall not be required to retain such books and
records for a period of more than seven years from the Closing Date or such
longer period as may be required by applicable law; provided, however, that
laboratory notebooks shall be retained and made available to Seller upon request
for a period of 20 years following Closing and employment records shall be
retained and made available to Seller upon request for a period of 30 years
following Closing; and provided, further, that Buyer may, at its sole
discretion, offer to return such books and records to Seller pursuant to this
Section 13.03, and if such offer is rejected by Seller in writing, Buyer may
destroy such books and records.
13.04 Cooperation in Litigation. After Closing, each Party shall
reasonably cooperate with the other Party and the other Party's attorneys in the
defense or prosecution of any litigation, action, suit or proceeding instituted
against or by the other Party pertaining to the Business Assets, the Business,
the Sugar Creek Assets or the Sugar Creek Project, excluding, however, any
litigation, action, suit or proceeding between the Parties (including their
Affiliates). Such cooperation shall include, but not be limited to, conferring
with the other Party's attorneys or experts at their offices during normal
business hours at mutually convenient times and making available to the other
Party's attorneys documents or copies of documents specific to the Business
Assets, the Business, the Sugar Creek Assets or the Sugar Creek Project, and
such cooperation shall include giving testimony voluntarily. Such cooperation
shall not require the cooperating Party to be joined as a Party in any such
litigation. Each Party further agrees that it shall not voluntarily disclose to
any third party without the other Party's consent any information or documents
received by it heretofore or hereafter from the other Party's attorneys in
connection with the defense or prosecution of any litigation or proceedings.
The other Party shall pay the out-of-pocket expenses of the cooperating Party
and those expenses of the cooperating Party's employees and agents reasonably
incurred in connection with providing such cooperation but shall not be
responsible for paying any fees or for reimbursing the cooperating Party for the
salaries or costs of fringe benefits or other similar expenses of the
cooperating Party's employees and agents in connection with time spent providing
such cooperation to the other Party.
13.05 Removal of Seller's Name from Property. Not later than 60 days
after the Closing Date, Buyer shall return to Seller or, if so directed by
Seller, destroy, any letterhead, envelopes, brochures, marketing materials,
invoices, forms, stamps or similar materials bearing the ASARCO name and/or
logo, and shall remove Seller's name from the exterior of the Plant and the
Leased Premises. In the event Buyer fails to remove Seller's name within the 60
day period, Buyer hereby grants Seller the right of access to said property,
during normal business hours to remove Seller's name from the exterior of the
Plant and Leased Premises and other assets.
13.06 Tax Matters. Buyer and Seller agree to reasonably cooperate
and assist one another regarding all Tax matters related to the Business Assets
or the Sugar Creek Assets sold pursuant to this Agreement. Buyer agrees to
cooperate and assist Seller in connection with any tax audits of Seller for any
periods through the Closing Date. For a period of six years after the Closing
Date, Seller shall provide Buyer with such assistance as may reasonably be
requested in connection with the preparation of any tax return and the conduct
of any audit or other
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examination by any taxing authority or in connection with judicial or
administrative proceedings relating to any liability for Taxes.
13.07 Consents to Assignment. Seller is a party to various Contracts
and Leases relating to the Business, and included in the Business Assets, the
transfer of which requires the consent of a third party. If, other than the
Required Consents, notwithstanding the best commercial efforts of the Parties a
consent cannot be obtained for such a Contract or Lease, but for which the
Contract or Lease would have been transferred hereunder to Buyer, the Parties
shall proceed as follows:
(a) until the Contract or Lease is novated or assigned Seller shall
hold it in trust for Buyer absolutely and Buyer shall (if such
sub-contracting or sub-leasing is permissible and lawful under the Contract
or Lease), as Seller's sub-contractor or sub-lessor, perform all the
obligations of Seller under the Contract or Lease to be discharged after
Closing and shall indemnify Seller against all actions, proceedings, costs,
damages, claims and demands in respect of any failure on the part of Buyer
to perform those obligations; and
(b) until the Contract or Lease is novated or assigned Seller shall
(so far as it lawfully may) use its reasonable best efforts to assist Buyer
(at Buyer's request and expense) to enable Buyer to enforce its rights
under the Contract of Lease. If the Contract or Lease prohibits Buyer from
acting as Seller's sub-contractor or sub-lessor (as referred to in
paragraph (a) above) or Buyer cannot be permitted to act as sub-contractor
or sub-lessor because of confidentiality obligations, Seller shall, at the
cost of Buyer and to the extent that Seller is reasonably able, do all such
acts and things as Buyer may reasonably require to enable due performance
of the Contract or Lease and to provide for Buyer the benefits, subject to
the burdens, of the Contract or Lease and Buyer shall indemnify Seller in
respect of all such acts and things. Buyer agrees to cooperate with such
efforts by Seller to the fullest extent practicable, including, without
limitation, supplying Seller with product at no cost to Seller provided
Seller assigns to Buyer all consideration received therefor from a
purchaser thereof.
13.08 Consents to Assignment. Buyer is a party to various contracts
and leases relating to the Sugar Creek Project, and included in the Sugar Creek
Assets, the transfer of which requires the consent of a third party. If
notwithstanding the best commercial efforts of the Parties a consent cannot be
obtained for such a contract or lease, but for which the contract or lease would
have been transferred hereunder to Seller, the Parties shall proceed as follows:
(a) until the contract or lease is novated or assigned Buyer shall
hold it in trust for Seller absolutely and Seller shall (if such
sub-contracting or sub-leasing is permissible and lawful under the contract
or lease), as Buyer's sub-contractor or sub-lessor, perform all the
obligations of Buyer under the contract or lease to be discharged after
Closing and shall indemnify Buyer against all actions, proceedings, costs,
damages, claims and demands in respect of any failure on the part of Seller
to perform those obligations; and
(b) until the contract or lease is novated or assigned Buyer shall
(so far as it lawfully may) use its reasonable best efforts to assist
Seller (at Seller's request and
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expense) to enable Seller to enforce its rights under the contract or
lease. If the contract or lease prohibits Seller from acting as Buyer's
sub-contractor or sub-lessor (as referred to in paragraph (a) above) or
Seller cannot be permitted to act as sub-contractor or sub-lessor because
of confidentiality obligations, Buyer shall, at the cost of Seller and
to the extent that Buyer is reasonably able, do all such acts and things
as Seller may reasonably require to enable due performance of the contract
or lease and to provide for Seller the benefits, subject to the burdens,
of the contract or lease and Seller shall indemnify Buyer in respect of
all such acts and things. Seller agrees to cooperate with such efforts by
Buyer to the fullest extent practicable, including, without limitation,
supplying Buyer with product at no cost to Buyer provided Buyer assigns
to Seller all consideration received therefor from a purchaser thereof.
13.09 Manager's Residence. The Manager's Residence in which the
current General Manager of the Seller's Missouri Lead Division, Darrell
Himmesoete, resides constitutes a part of the Business Assets to be purchased by
the Buyer pursuant to this Agreement. On the Closing Date, Buyer shall enter
into a lease with Mr. Himmesoete permitting Mr. Himmesoete to continue to reside
in the Manager's Residence for up to a period of six months following the
Closing Date, at the same rent and under substantially the same terms and
conditions as are currently enjoyed by Mr. Himmesoete.
13.10 Closure of Slag Pile. (a) The Parties have agreed that the
existing slag pile at the Smelter shall be closed as soon as is reasonably
practicable following the Closing, taking into consideration the necessity for
the Buyer to identify a site, obtain required Permits and prepare the site for
the new slag pile. Buyer will make best efforts to make all required
arrangements for the new slag pile not later than 12 months following the
Closing and will bear any and all costs in connection with the establishment of
the new slag pile. Upon completion of such arrangements, the Buyer shall notify
Seller that the existing slag pile may be closed, following which the Seller
shall cause the slag pile to be closed and capped in accordance with applicable
Environmental Law and Section 16.07(c) of this Agreement, with work on such
closure and capping to commence not later than six months following Buyer's
notice. Buyer agrees to continue to maintain the slag pile at its expense in
accordance with applicable Environmental Law until such time as Seller commences
closure and capping of same, following which Seller will assume responsibility
for maintenance of the slag pile. Seller shall bear all costs associated with
the closure and capping of the existing slag pile, provided that Buyer shall
bear a proportion of such costs which is equal to the proportionate amount of
slag added to the slag pile by the Buyer.
(b) In the event that during the 12 month period referred to in
Section 13.10(a), Buyer in its sole discretion elects not to open a new slag
pile, Buyer shall provide Seller a written notice of such election. Following
receipt of such notice, Seller shall have no further obligations pursuant to
Section 13.10(a).
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ARTICLE 14
BULK SALES ACT
Buyer hereby waives compliance by Seller with the requirements of any
and all laws relating to bulk sales and transfers.
ARTICLE 15
RIGHT OF TERMINATION; DISPUTE SETTLEMENT
15.01 Termination. (a) The Parties recognize the potential damage
to the Business from a failure to close or a delay in Closing. Therefore, the
conditions precedent to Closing are limited as set forth in Sections 12.04 and
12.05.
(b) This Agreement may, by notice given prior to or at the Closing,
be terminated:
(i) by mutual written consent of Buyer and Seller; or
(ii) by either Party if the Closing has not occurred (other than
through the failure of the Party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before
November 30, 1998; or
(iii) by either Party in the event of a material breach by the
other Party of its obligations hereunder where such breach has not been
cured within 30 days following receipt of notice of breach from the
non-breaching Party; or
(iv) by either Party if a change in law makes the transaction
contemplated hereby illegal or otherwise prohibited, or if any final
and nonappealable judgment, injunction, order or decree enjoining
either Party hereto from consummating the transaction contemplated
hereby is entered.
(c) Each Party's right of termination under this Section 15.01 is in
addition to any other rights it may have under this Agreement or otherwise, and
the exercise of a right of termination will not be an election of remedies. If
this Agreement is terminated pursuant to this Section 15.01, all further
obligations of the Parties shall terminate except that the obligations in
Sections 9.01 and 9.04 will survive; provided, however, that if this Agreement
is terminated because of a breach of the Agreement by the other Party or because
one or more conditions to the terminating Party's obligations under this
Agreement is not satisfied as a result of the other Party's failure to comply
with its obligations under this Agreement, the terminating Party's right to
pursue all legal remedies will survive such termination unimpaired.
15.02 Alternative Dispute Resolution. Any dispute, controversy, or
claim arising under this Agreement which cannot reasonably be anticipated to
involve Losses in excess of $5 million ("Dispute") (other than a dispute with
respect to valuation of Inventory which shall be resolved pursuant to Section
4.03(b)(3)) shall be resolved in accordance with this Section 15.02.
(a) Negotiation. Within fifteen (15) days of receipt of notice of a
Dispute and thereafter as often as the parties
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jointly agree is reasonably necessary, executives of the parties who have
authority to settle the Dispute shall meet at a mutually convenient time and
place to attempt in good faith to resolve the Dispute.
(b) Mediation. If the Dispute cannot be resolved in such a
meeting(s) or if no meeting of the parties has taken place within fifteen (15)
days of receipt of notice of a Dispute, either party may initiate mediation as
provided hereinafter by giving written notice. Any such mediation will be
conducted under the Center for Public Resources ("CPR") Model Procedure for
Mediation of Business Disputes (Revision 1994). The mediator shall attempt to
hold an initial mediation conference within thirty (30) days after his
appointment and conclude the mediation within forty-five (45) days after his
appointment.
(c) Arbitration. Any Dispute which has not been resolved within
ninety (90) days after the initiation of mediation shall be resolved by
arbitration in accordance with the CPR Non-Administered Arbitration Rules in
effect on the date of this Agreement by three independent and impartial
arbitrators, of whom each party shall appoint one. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Section 1-16, and
judgment upon an award rendered by the arbitrators may be entered in any court
having jurisdiction hereof. The place of arbitration shall be New York, New
York. The arbitrators are not empowered to award damages in excess of
compensatory damages and each party hereby irrecoverably waives any right to
recover such damages with respect to any dispute resolved by arbitration. The
statute of limitation of the State of New York applicable to the commencement of
a lawsuit shall apply to the commencement of an arbitration hereunder, except
that no defense shall be available based upon the passage of time during any
negotiation or mediation called for by subsections (a) or (b) of this section.
Notwithstanding anything to the contrary contained in the CPR
Non-Administered Arbitration Rules, the arbitration shall be subject to
following procedures:
(i) the parties shall be entitled to no pre-hearing discovery;
(ii) each party may make a written pre-hearing submission of no
more than forty (40) pages (plus exhibits) for each claim;
(iii) the arbitration panel shall hold a hearing within sixty
(60) days of appointment of the panel. The hearing shall be subject
to the following limitations:
(a) each party may make an oral opening statement limited
to sixty (60) minutes;
(b) no more than four (4) affidavits may be submitted;
(c) each party shall be allowed to present no more than
four witnesses, including party, non-party and expert witnesses;
(d) each party shall be limited to a total of ten (10)
hours for witness and exhibit presentation, including rebuttal;
cross examination of same shall be limited to a total of four
(4) hours total;
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(e) each party may make an oral closing statement limited
to sixty (60) minutes; and
(f) the hearing shall be conducted in the English language;
(iv) each party may make a written post hearing submission
limited for each claim to forty (40) pages (plus exhibits) within ten
(10) days of the close of evidence; and
(v) the Tribunal shall render a written decision on the merits
within thirty (30) days of the close of evidence.
ARTICLE 16
SURVIVAL, REMEDIES AND PROCEDURE FOR INDEMNIFICATION
16.01 Period for Taking Action. (a) All obligations of (i) Seller
for breach of the warranties set forth in Section 5.05 and to indemnify and hold
harmless the Buyer Indemnified Parties under Sections 8.01, 8.02 and 17.01 and
(ii) Buyer for breach of the warranties set forth in Section 6.06 and to
indemnify and hold harmless the Seller Indemnified Parties under Sections 7.01,
7.02 and 17.02, shall survive the Closing Date and continue without time
limitation.
(b) No claim shall be brought or any other action instituted against
the other Party with respect to the representations, warranties, covenants,
agreements and indemnifications contained in this Agreement at any time after
the twenty-fourth month anniversary of the Closing Date, other than for the
indemnifications and warranties specified in Section 16.01(a). In the event a
time period other than said twenty-fourth months is stipulated elsewhere in this
Agreement, no claim shall be brought or any other action instituted against the
other Party with respect to the relevant covenant or agreement or
indemnification at any time after the time period stipulated in this Agreement.
16.02 Notice. No claim for indemnification may be made with respect
to any of the indemnification provisions set forth in Articles 7 and 8 unless
notice of such claim for indemnification which satisfies the provisions of
Section 16.06 below or Section 16.07 below with regard to environmental matters
is given to the indemnifying Party on or before the expiration date (if any) for
such indemnification provision as set forth in Section 16.01, but the actual
costs or expenses related thereto may be incurred or assessed after such
expiration date.
16.03 Claims. The indemnification by an indemnifying Party under
Article 7 or Article 8 shall be limited to such Losses which exceed $100,000 in
the aggregate for all claims made for indemnification by the indemnified Party
(the "Indemnifier's Basket").
16.04 Limit. Buyer shall not be required to indemnify Seller
Indemnified Parties pursuant to Article 7 and Seller shall not be required to
indemnify the Buyer Indemnified Parties pursuant to Article 8 for Losses which
exceed the Purchase Price in the aggregate. The foregoing limitation shall not
apply to indemnification by: (a) Buyer or Seller, respectively, in respect of
Assumed Environmental Liabilities and Excluded Environmental Liabilities; (b)
Seller in respect of obligations for Taxes which are the obligation of the
Seller pursuant to Section 4.02(e); and (c)
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Seller in respect of obligations arising under Title IV of ERISA due to the
action or inaction of Seller.
16.05 Not a Release of Other Obligations. Notwithstanding the
limitations in this Article 16, such limits are not intended to terminate or in
any way modify or reduce the obligation of Seller to be responsible for the
payment and performance of its obligations under Sections 8.01, 8.02 and 17.01
and the obligation of Buyer to be responsible for the payment and performance of
its obligations under Sections 7.01, 7.02 and 17.02.
16.06 Procedure. Each Party to this Agreement shall give prompt
written notice to the other Party under each claim for indemnification hereunder
specifying that indemnification is sought pursuant to this Agreement, the amount
(to the extent known), nature of and event giving rise to the claim, and of any
matter which is reasonably likely to give rise to an indemnification claim. The
indemnifying Party has the right to control at its expense the defense of any
such matter or its settlement, but the indemnified Party has the right to
participate with counsel of its own choosing and at its own expense. Failure to
give timely notice of a matter which may give rise to an indemnification claim
shall not affect the rights of the indemnified Party to collect such claims from
the indemnifying Party so long as such failure to so notify does not materially
and adversely affect the indemnifying Party's ability to defend such claim
against a third party. No indemnifying Party, in the defense of any claim or
litigation, shall, except with the prior written consent of an indemnified
Party, which consent shall not be unreasonably withheld or delayed, consent to
entry of any judgment or enter into any settlement by which such indemnified
Party is to be bound and which judgment or settlement does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified Party of a release from all liability in respect to such claim or
litigation.
16.07 Environmental Procedure; Access and Use of Real Property. (a)
Each Party indemnitee will at all times take all reasonable steps to mitigate
the Buyer Environmental Liabilities or Seller Environmental Liabilities or
potential Buyer Environmental Liabilities or Seller Environmental Liabilities,
with respect to which it may claim indemnification under Article 17. As soon as
reasonably practicable after a Party becomes aware of any Buyer Environmental
Liabilities or Seller Environmental Liabilities (whether or not the Party is of
the opinion that it has a valid claim against the other Party under Article 17),
said Party shall give written notice thereof to the other Party including all
material details of any Buyer Environmental Liabilities or Seller Environmental
Liabilities. Failure to give timely notice of a matter which may give rise to
an environmental indemnification claim shall not affect the rights of the
indemnified Party to collect such claims from the indemnifying Party so long as
such failure to so notify does not materially and adversely affect the
indemnifying Party's ability to (x) defend such claim against a third party or
(y) reduce the potential Losses arising as the result of such matter by
performing environmental remediation work in accordance with Section 16.07(c).
(b) With respect to any environmental matter for which Seller has
sole liability pursuant to Article 17 of this Agreement, Seller shall have sole
control over all negotiations with governmental authorities concerning any
remediation measures for such matter. Seller shall apprise and consult with
Buyer from time-to-time as to the status of such negotiations and shall provide
Buyer with copies of all proposed documents involving such remediation,
provided,
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however, that Seller shall not agree to any environmental measures, which,
individually or in the aggregate, would reasonably be expected to have a
material effect on Buyer's ownership, use or operation of the Business Assets
or the Business without the prior written approval of Buyer, which shall not
be unreasonably withheld.
(c) After Closing, Seller shall have access to Plant for
environmental remediation work on the following terms and conditions:
(i) Seller retains a right of access to Plant after the Closing for
purposes of conducting environmental remediation work. Seller shall make
every reasonable effort in implementing the work to reduce to the extent
practicable any interference with Buyer's operations at and use of the
property in question. Seller shall coordinate its need to access the Plant
with Buyer's local management, including providing at least ten days'
advance notice of Seller's intent to enter the Plant to conduct
environmental remediation work, with such notice to include a description
of Seller's plans for such work. Seller shall coordinate its plans with
those of Buyer where remediation work occurs in areas of the Buyer's
operations. Seller shall conduct all such environmental remediation work
in accordance with all applicable laws and regulations, and shall obtain
all necessary permits for such work. Buyer shall promptly provide, upon
Seller's request, any signatures required for permit applications or other
documentation in connection with the conduct of such work. Seller shall
maintain commercial general liability insurance and worker's compensation
insurance with respect to such work, in each case in commercially
reasonable limits, and shall name Buyer as an additional insured in each
such policy.
(ii) If in the conduct of environmental remediation work, the Business
Assets are damaged due to the action or inaction of Seller or Seller's
agent and such damage results in an interruption of the Business as
conducted by Buyer, Seller shall be liable for all Losses and consequential
damages, including lost profits or business opportunities, due to such
interruption, but only to the extent such Losses or consequential damages
are not covered by Buyer's business interruption or other insurance.
(iii) At the conclusion of any environmental remediation project
by Seller at the Plant, Seller shall promptly dispose of and/or
decontaminate all rubbish and debris caused by or otherwise associated with
such work, and shall remove all equipment, materials and supplies, and
shall restore the property in question to its condition immediately prior
to the initiation of the work and leave the same ready for ordinary use,
taking into account any necessary above-ground fixtures necessary for the
work such as groundwater monitoring equipment.
(iv) Buyer agrees to use its reasonable best efforts, consistent with
its ownership, use and operation of the Business Assets and the Business,
not to take affirmative action (including building or construction
activities) that materially and unreasonably increases the cost of any
remediation for which Seller is responsible under Section 17.01. In the
event Buyer takes any action that materially and unreasonably increases the
cost of any such remediation, Buyer shall be responsible for such increased
cost.
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(d) With respect to Buyer's use of Plant and Leased Premises
after Closing, if Buyer disposes of any of the Land, Buyer shall
either (i) impose deed restrictions that the site will continue to
be used for industrial purposes, or (ii) release Seller from any
further obligations for indemnity and remediation hereunder, and
indemnify and hold Seller harmless from any costs and expenses of
remediation above and beyond those costs and expenses associated
with remediation of property used for industrial purposes.
(e) Buyer acknowledges and agrees that:
(i) the Land is currently used by Seller for industrial purposes, and
(ii) Seller's obligations for any environmental measures shall be
limited to those measures applicable to property used for industrial
purposes or such higher standard as is required by applicable Environmental
Law.
16.08 Claim Limitations. (a) Other than for Excluded Liabilities
and covenants that are required to be fulfilled on and after the Closing Date
and except as provided in Section 17.03(d), a Party shall not be liable with
respect to any claim hereunder to the extent the liability of the Party in
respect thereof is incurred or increased as a result of any legislation or
regulation not in force at the Effective Date or as a result of any change in
legislation or regulation thereafter.
(b) It is intended that the provisions of this Agreement with
respect to claims by one Party against the other shall apply to all claims
relating to the transactions contemplated hereby, regardless of whether such
claim is based in tort (including, without limitation, negligence), contract,
or otherwise.
ARTICLE 17
ENVIRONMENTAL INDEMNITY
17.01 Seller's Environmental Indemnity. (a) Subject to the
applicable limitations and procedures of Article 16 hereof, after the Closing,
Seller shall indemnify, defend and hold Buyer harmless against and in respect of
all Losses, including, but not limited to, liabilities, costs, penalties, fines,
financial responsibility requirements and expenses relating to or arising out of
any remediation, removal, response, abatement, cleanup, investigation,
monitoring, personal injury damages, property damages or natural resources
damages arising out of or related to:
(i) Excluded Environmental Liabilities;
(ii) any liabilities for Environmental Claims arising out of Seller's
use, ownership or operation of the Sugar Creek Assets after the Closing
Date; or
(iii) any breach of the representations and warranties set forth in
Section 5.05 of this Agreement.
The matters listed in (i) through (iii) above are referred to collectively as
the "Seller Environmental Liabilities".
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(b) Buyer may not assign its right to indemnity under Section
17.01(a) for the Seller Environmental Liabilities, in whole or in part, to a
third party without the prior written consent of Seller (such consent not to be
unreasonably withheld), except Buyer may assign its rights to: (i) any
purchaser of substantially all of the assets of the Business; or (ii) any
financing entities of Buyer in connection with the Business or Business Assets.
17.02 Buyer's Environmental Indemnity. (a) Subject to the
limitations and procedures of Article 16 hereof after the Closing, Buyer shall
indemnify, defend and hold Seller harmless against and in respect of all Losses,
including, but not limited to, liabilities, costs, penalties, fines, financial
responsibility requirements and expenses relating to or arising out of any
remediation, removal, response, abatement, cleanup, investigation, monitoring,
reclamation, closure requirements, post-closure requirements, personal injury
damages, property damages, closure, capping or natural resources damages arising
out of or related to:
(i) Assumed Environmental Liabilities;
(ii) any liabilities for Environmental Claims arising out of
Buyer's use, ownership or operation of the Sugar Creek Assets prior to the
Closing Date;
(iii) the closure or cessation of operations at the Mines or the
Smelter under Environmental Laws then in force; or
(iv) any breach of the representations and warranties set forth
in Section 6.06 of this Agreement.
The matters listed in (i) through (iv) above are referred to collectively as the
"Buyer Environmental Liabilities".
(b) Seller may not assign its right to indemnity under Section
17.02(a) for the Buyer Environmental Liabilities, in whole or in part, to a
third party without the prior written consent of Buyer (such consent not to be
unreasonably withheld), except Seller may assign its rights to any purchaser of
the Sugar Creek Assets.
17.03 Allocation of Certain Environmental Liabilities.
(a) General Principles of Allocation. As reflected in the
definitions of Assumed Environmental Liabilities and Excluded Environmental
Liabilities in Sections 4.01 and 4.02(f) respectively of this Agreement, and in
the specification of Seller Environmental Liabilities and Buyer Environmental
Liabilities in Sections 17.01(a) and 17.02(a) respectively of this Agreement,
the Parties intend that Seller Environmental Liabilities shall include all
liabilities for Environmental Claims that arise out of the use, ownership or
operation of the Business Assets or the conduct of the Business prior to the
Closing Date, and the use, ownership or operation of the Sugar Creek Assets on
or after the Closing Date, and that the Buyer Environmental Liabilities shall
include all liabilities for Environmental Claims that arise out of the use,
ownership or operation of the Business Assets or the conduct of the Business on
or after the Closing Date, and the use, ownership or operation of the Sugar
Creek Assets prior to the Closing Date. As reflected in such sections, the
Parties also recognize that liabilities for Environmental Claims can arise from
47
<PAGE>
conditions, including the presence, release or threat of release of Materials of
Environmental Concern, or violations or alleged violations of Environmental
Laws, that exist both before and after the Closing Date. To the extent that
Seller Environmental Liabilities or Buyer Environmental Liabilities include an
Environmental Claim that arises from the presence, release or threat of release
of Materials of Environmental Concern, or from the violation or alleged
violation of Environmental Laws, that may exist both before and after the
Closing Date, the Parties intend that their respective liabilities therefor, for
purposes of this Agreement, shall be allocated between them as follows:
(i) The Party that is liable for the conduct of the Business or
the use, ownership or operation of any assets prior to the Closing Date
shall also be liable for (x) any Materials of Environmental Concern that
continue to be present or released, or continue to present the threat of
a release, with respect to such Business or assets, on or after the
Closing Date except to the extent that the Party that is liable for the
conduct of the Business or the use, ownership or operation of any assets
on or after the Closing Date has by virtue of such conduct, use, ownership
or operation on or after the Closing Date contributed to the presence,
release or threat of release of such Materials of Environmental Concern
with respect to such Business or assets, and for (y) any violation or
alleged violation of Environmental Laws that continues on or after the
Closing Date except to the extent that the Party that is liable for the
conduct of the Business or the use, ownership or operation of any assets
on or after the Closing Date is by virtue of such conduct, use, ownership
or operation on or after the Closing Date liable for such violation or
alleged violation under Environmental Laws with respect to such Business
or assets;
(ii) To the extent that both Parties are liable for any Materials of
Environmental Concern under this Section 17.03, their respective
liabilities shall be in proportion to the volume, impact or other relevant
measure of such materials generated, treated, stored, transported, disposed
of or released, as the case may be, during the time each of them conducted
the Business or used, owned or operated the relevant assets; and
(iii) To the extent that both Parties are liable for any violation
or alleged violation of Environmental Laws under this Section 17.03, their
respective liabilities for any fines, penalties or forfeitures in respect
of such violation or alleged violation shall be in proportion to the length
of time each of them conducted the Business or used, owned or operated the
relevant assets during the period of such violation or alleged violation.
Only the Party that is liable for the conduct of the Business or for the
use, ownership or operation of any asset on or following the Closing Date
is liable for the capital or other costs of compliance with Environmental
Laws on or following the Closing Date with respect to such Business or
assets, regardless of whether or not any violation or alleged violation of
such Environmental Laws existed prior to the Closing Date.
(b) Certain Specific Liabilities. Notwithstanding the
foregoing general principles:
(i) The specific methods set forth in the Environmental Methodology
shall govern the allocation of liability between the Parties, for purposes
of this Agreement, with respect to the issues to which such methods are
stated to apply;
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<PAGE>
(ii) The Excluded Liabilities, which are part of the Seller
Environmental Liabilities, shall include all liabilities arising under or
in respect of the Consent Decree filed September 6, 1994, in the Circuit
Court of Iron County, Missouri, in the matter of Asarco v. State of
Missouri, et al. (CV 594-119CC), which are not subject to allocation;
(iii) The Assumed Liabilities, which are part of the Buyer
Environmental Liabilities, shall include all liabilities arising under or
in respect of the Consent Decree with the Missouri Department of Natural
Resources in connection with the State Implementation Plan for Lead, which
are not subject to allocation; and
(iv) The Assumed Liabilities, which are part of the Buyer
Environmental Liabilities, shall include all Losses in connection with the
closure or cessation of operations at the Mines or the Smelter under
Environmental Laws then in force, which Losses are not subject to
allocation.
(c) Disputes Regarding Allocation of Environmental Liabilities. To
the extent that, with respect to any Seller Environmental Liability or Buyer
Environmental Liability that either Party asserts is subject to allocation under
this Section 17.03, the Parties do not agree as to (1) whether or not the
allocation methods set forth in the Environmental Methodology apply to such
liability, (2) how such methods are to be applied to such liability or (3) any
of the facts necessary to an allocation of such liability under this Section
17.03, the allocation of such liability shall be made pursuant to the procedures
set out in Section 15.02 or, if the limitation set out in Section 15.02 applies,
Section 18.09.
(d) Liabilities Arising from Changes in Law. Environmental Laws, as
defined in this Agreement, include such laws as they may be modified, amended or
newly promulgated from time to time. For the avoidance of doubt, the Parties
intend that the Party liable for the conduct of the Business or for the use,
ownership or operation of any assets prior to the Closing Date shall also be
liable for any Environmental Claims that did not exist prior to the Closing
Date but arose after the Closing Date solely due to a modification amendment to
or promulgation of Environmental Laws. To the extent that such a post-Closing
modification amendment or promulgation creates an Environmental Claim arising
from a condition, including the presence or release, or threat of release, of
Materials of Environmental Concern, that existed prior to the Closing Date and
continued on or after the Closing Date, liability for such claim shall be
allocated between the Parties in accordance with this Section 17.03.
ARTICLE 18
MISCELLANEOUS
18.01 Press Release. Buyer and Seller shall each be at liberty to
issue a press release or public announcement following execution of this
Agreement and also following Closing under this Agreement with respect to the
transaction contemplated by this Agreement with the prior written consent of the
other Party, which consent shall not be unreasonably withheld and the Parties
shall consult each other in advance on the form and content of such releases or
announcements. Each party will be free to issue a new press release or
announcement containing previously approved content, provided that this
provision shall not inhibit good faith responses to
49
<PAGE>
questions or inquiries. Each Party shall also be entitled to make such
disclosures as may be required by applicable law or by applicable regulations
of regulatory authorities without prior consultation or consent.
18.02 Fees. Except as otherwise specifically provided herein, the
Parties shall pay their own expenses including attorney's fees, incident to the
preparation and performance of this Agreement, whether or not the transactions
contemplated herein are consummated.
18.03 Amendments. This Agreement shall not be amended or modified
except in writing, signed by both Parties.
18.04 Successors. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns, provided that neither Party shall assign this Agreement or any rights
herein without the other Party's prior consent (which will not be unreasonably
withheld or delayed) except to an Affiliate or in connection with a collateral
pledge for purposes of securing a financing. In the event of assignment by one
Party to an Affiliate, such Party will remain obligated under this Agreement.
This Agreement is not intended to confer upon any person except Buyer or Seller
any rights or remedies hereunder.
18.05 Integration. All understandings and agreements heretofore
existing between the Parties regarding the purchase and sale of the Business
Assets and of the Sugar Creek Assets are merged into this Agreement and the
Schedules and Exhibits hereto, which fully and completely express the agreement
of the Parties and was entered into after adequate investigation, neither Party
relying upon any statement or representation not embodied in this Agreement, or
the Exhibits hereto, made by the other.
18.06 Non-waiver of Remedy. The failure of Seller or Buyer to
insist, in any one or more instances, upon the strict performance of any of the
terms, conditions or covenants of this Agreement shall not be construed as a
waiver or relinquishment for the future of such term, condition or covenant. A
receipt by Seller or Buyer of any money with knowledge of the breach of any
term, condition or covenant of this Agreement, shall not be deemed a waiver of
such breach, and no waiver, change, modification or discharge by either Party
hereto of any provision in this Agreement shall be deemed to have been made or
shall be effective unless expressed in writing and signed by both Seller and
Buyer. In addition to the other remedies provided in this Agreement, Seller and
Buyer shall be entitled to the restraint by injunction of the violation, or
attempted or threatened violation of any of the terms, conditions or covenants
of this Agreement, or to a decree compelling performance of any of such term,
condition or covenant.
18.07 Notices. All notices, consents, requests and approvals, any
notice of change in address for the purpose of this Article, and other
communications provided for or required herein, shall be deemed validly given,
made or served, if in writing, and delivered (a) on the day given if served
personally; (b) two days following if sent by telecopy to the facsimile number
indicated below with a confirmatory notice by delivery to a
nationally-recognized express delivery service with instructions and payment for
overnight delivery to the address set forth below; or (c) five days following if
sent by U.S. Certified Mail, postage prepaid:
50
<PAGE>
(i) if to Seller, at:
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Attention: General Counsel
Facsimile Number: 212-510-1908
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036-2787
Attention: Kevin Keogh
Facsimile Number: 212-354-8113
(ii) if to Buyer, at:
The Doe Run Company
Suite 300
1801 Park 270 Drive
St. Louis, MO 63146
Attention: Vice President - Law
Facsimile Number: 314-453-7177
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Michael C. Ryan, Esq.
Facsimile Number: 212-504-6666
18.08 Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of New York (without regard to any
conflict of laws rules which might apply the laws of any other jurisdiction)
except to the extent that real property transfers are required to be governed by
the laws of the jurisdiction in which the property is located.
18.09 Jurisdiction. Each Party hereby (i) submits to the exclusive
jurisdiction of the state courts of the State of New York and the United States
Federal District Court in the Southern District of New York in the borough of
Manhattan for the purpose of any suit, action or other proceeding arising out of
or based upon this Agreement or the subject matter hereof
51
<PAGE>
brought by the other Party, any indemnified party or their respective heirs,
legal representatives, successors or assigns (an "Action") and (ii) waives,
and agrees not to assert by way of motion, a defense, or otherwise, in any
such Action, any claim that it or he is not subject personally to the
jurisdiction of the above-named courts, that its or his property is exempt or
immune from attachment or execution, that the Action is brought in an
inconvenient forum, that the venue of the Action is improper, or that this
Agreement or the subject matter hereof may not be enforced in or by such
court.
18.10 Disclosure Schedules and Exhibits. All Disclosure Schedules
and Exhibits referred to herein are hereby incorporated in this Agreement by
reference and have been initialed for identification purposes by representatives
of the Parties hereto.
18.11 Headings. The various headings used in this Agreement are
for convenience only and are not to be used in interpreting the text of the
Article in which they appear or to which they relate.
18.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
18.13 Further Assurances. Each of the Seller and the Buyer will
from time to time execute and deliver all such further documents and
instruments and do all acts and things as the other Party may, either before
or after the Closing Date, reasonably require to effectively carry out or
better evidence or perfect the full intent or meaning of this Agreement.
Such further documents, instruments, actions and things shall include,
without limitation, those which are required to (a) convey to Buyer assets
which are or should have been included in the Business Assets conveyed on the
Closing Date, (b) give effect to the assumption by Buyer of liabilities which
are or should have been included in the Assumed Liabilities, (c) convey to
Seller assets which are or should have been included in the Sugar Creek
Assets conveyed on the Closing Date and (d) give effect to the assumption by
Seller of liabilities which are or should have been included in the
liabilities related to the Sugar Creek Project.
52
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed the day and year first above written.
ASARCO INCORPORATED
By: /s/ Kevin R. Morano
-------------------------
Name: Kevin R. Morano
Title: EXECUTIVE VICE PRESIDENT
THE DOE RUN RESOURCES
CORPORATION
By:
---------------------------
Name:
Title:
53
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed the day and year first above written.
ASARCO INCORPORATED
By:
-------------------------
Name:
Title:
THE DOE RUN RESOURCES
CORPORATION
By: /s/ Marvin K. Kaiser
---------------------------
Name: Marvin K. Kaiser
Title: Vice President and
Chief Financial
Officer
53
<PAGE>
EXHIBIT I
Form of Special Warranty
Deed - Plant
SPECIAL WARRANTY DEED
THIS INDENTURE, made on the ______________ day of ______________ A.D. One
Thousand Nine Hundred and Ninety-Eight by and between ASARCO INCORPORATED, a New
Jersey corporation, with its principal business office at 180 Maiden Lane, New
York, New York 10038 of the First Part, and THE DOE RUN RESOURCES CORPORATION, a
New York corporation with its principal business office at Suite 300, 1801 Park
270, St. Louis, Missouri 63146 of the Second Part.
WITNESSETH, that the said party of the First Part, in consideration of the
sum of ____________________________ DOLLARS, paid by the said party of the
Second Part, the receipt of which is hereby acknowledged, does by these
presence, grant, bargain and sell, convey and confirm unto the said party of the
Second Part and its heirs and assigns, the following described Lots, Tracts, or
Parcels of Land, lying, being and situate in the County of _________________ and
State of Missouri, to-wit:
[Legal description of Land comprising each of the Mines and the Smelter]
TO HAVE AND TO HOLD, the premises aforesaid, with all and singular the
rights, privileges, appurtenances and immunities thereto belonging or in anywise
appertaining unto the said party of the Second Part and unto heirs and assigns,
forever hereby covenanting that said party of the First Part will Warrant and
Defend the title to the said premises unto the said party of the Second Part,
and unto heirs and assigns, forever, against the lawful claims and demands of
all persons claiming, under, by or through said grantor, but against no other
person or persons whomsoever.
<PAGE>
EXHIBIT I
Page 2
IN WITNESS WHEREOF, the said party of the First Part has hereunto set its
hand as of the day and year first above written.
ASARCO INCORPORATED
By:
---------------------
Name:
Title:
Signed, and delivered in the presence of us:
- --------------------------------------
- --------------------------------------
STATE OF _________)
) ss.
COUNTY OF _______ )
On this ______ day of ___________1998 before me personally appeared and
proved to me on the basis of satisfactory evidence, and who, upon oath,
acknowledged himself to be the ________ of ASARCO INCORPORATED, the within named
grantor, a New Jersey corporation, and that be as such ______________, executed
the foregoing instrument for the purpose therein contained, by signing the name
of ASARCO INCORPORATED by himself as such _____________.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in ___________ the day and year first above written.
My term expires _____________, 199_.
<PAGE>
EXHIBIT I
Page 3
STATE OF MISSOURI)
) ss.
COUNTY OF _______)
On this _____ day of _______ 199_ before me personally appeared _________
____________________________to me known to be the person described in and who
executed the foregoing instrument, and acknowledged that ______ executed the
same as _______ free act and deed. And the said _____________ further declare
_________ to be single and unmarried.
IN TESTIMONEY WHEREOF, I have hereunto set my hand and affixed my official
seal at my office in ________ the day and year first above written.
My term expires _________, 199_.
STATE OF MISSOURI)
) ss.
COUNTY OF _______)
I, ____________, Recorder of said County do hereby certify that the within
instrument of writing was, at ______ o'clock and _______ minutes ____ M__, on
the _______ day of _________________ A.D. 1998, duly filed for record in my
office, and is recorded in the records of this office, in book ______ at page
____.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal at _____________, this ___________ day of _________A.D. 1998.
Recorder
- ------------------------------
<PAGE>
EXHIBIT II
UNDERTAKING OF ASSUMPTION
UNDERTAKING OF ASSUMPTION (this "Undertaking"), dated as of
August 30, 1998, by and between ASARCO INCORPORATED, a New Jersey corporation
("Seller"), and THE DOE RUN RESOURCES CORPORATION, a New York corporation
("Buyer").
For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Buyer for itself, its successors
and assigns, hereby assumes and agrees to pay or cause to be paid or otherwise
discharge, perform and fulfill or cause to be discharged, performed and
fulfilled to the extent that they are existing and outstanding on the date
hereof, as they become due and payable, all Assumed Liabilities which are to be
assumed by Buyer pursuant to an Asset Purchase and Sale Agreement, dated as of
July __, 1998 between the Seller and the Buyer (the "Asset Purchase Agreement")
(all terms used herein and not otherwise defined shall have the meaning ascribed
thereto in the Asset Purchase Agreement).
To the extent that the assignment of any contract, lease,
commitment, sales order, purchase order, account, license, Permit, or
undertaking to be assigned as provided under the Asset Purchase Agreement shall
not have been assigned because a required consent of another party thereto shall
not have been obtained prior to the date hereof, and Seller shall have made
arrangements or shall be making arrangements designed to provide Buyer the
benefits under such agreements, Buyer hereby assumes the obligations and
liabilities of Seller thereunder and agrees to discharge, perform and fulfill
such obligations and liabilities as though such agreements had been so assigned.
Buyer agrees to indemnify and hold the Seller Indemnified
Parties harmless from and against Losses arising out of the failure of Buyer to
perform its obligations under this Undertaking in accordance with the Asset
Purchase Agreement. This Undertaking is not intended to vary, supplement, modify
or amend the terms and conditions of the Asset Purchase Agreement. In the event
of any conflict or inconsistency between this Undertaking and the Asset Purchase
Agreement, the Asset Purchase Agreement shall govern.
This Undertaking shall inure to the benefit of and be binding
upon the Parties hereto and their respective successors and assigns; provided,
however, neither Party may assign this Undertaking, in whole or in part, without
the express prior written consent of the other Party.
THIS UNDERTAKING SHALL BE DEEMED TO BE A CONTRACT MADE IN AND
UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED,
INTERPRETED AND ENFORCED IN ACORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY WITHIN SUCH STATE.
<PAGE>
IN WITNESS WHEREOF, Buyer and Seller have each caused this
Undertaking to be executed by its respective officers thereunto duly authorized
on the day and year first above written.
ASARCO INCORPORATED
By:
Name:
Title:
THE DOE RUN RESOURCES CORPORATION
By:
Name:
Title:
2
<PAGE>
Exhibit III
BILL OF SALE
ASARCO INCORPORATED, a New Jersey corporation ("Seller"), pursuant to the
Asset Purchase and Sale Agreement dated as of July __, 1998 (the "Agreement"),
between the Seller and THE DOE RUN RESOURCES CORPORATION ("Buyer"), for good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby sell, convey, assign, transfer and deliver to Buyer
and its successors and assigns, to have and to hold forever all of Seller's
right, title and interest in and to the Business (as defined in the Agreement)
and the Business Assets (as defined in the Agreement), except for those assets
identified as "Excluded Assets" in the Agreement.
On or after the date hereof and without further consideration, Seller will
also, from time to time at Buyer's request, execute and deliver such further
instruments of conveyance, assignment and transfer and shall take, or cause to
be taken, such other action as Buyer may reasonably request for the more
effective conveyance, assignment and transfer to the Buyer of any of the
Business or the Business Assets, and the Seller will lend all reasonable
assistance to the Buyer in the collection and reduction to possession of such
Business and Business Assets, in the exercise of rights with respect thereto and
otherwise in the carrying out of the intentions and purposes of the Agreement.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be duly executed
by its duly authorized officer this ____ day of _______, 1998.
ASARCO INCORPORATED
By:
-------------------------------
Name:
Title:
Accepted and agreed on this
_____ day of _____________, 1998.
THE DOE RUN RESOURCES CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE>
Exhibit IV
NET SMELTER RETURN ROYALTY AGREEMENT
NET SMELTER RETURN ROYALTY AGREEMENT (this "Agreement")
entered into and effective as of the [ ]th day of August, 1998, by and between
ASARCO INCORPORATED, a New Jersey corporation, with its principal place of
business at 180 Maiden Lane, New York, New York 10038 ("ASARCO"), and THE DOE
RUN RESOURCES CORPORATION, a New York corporation with its principal business
office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146 ("Doe Run"). Terms
which are defined in the Asset Purchase Agreement (as hereinafter defined) shall
be used herein as so defined.
W I T N E S S E T H, That:
WHEREAS, Doe Run and ASARCO have entered into a Asset Purchase
and Sale Agreement dated July 28, 1998 (the "Asset Purchase Agreement") pursuant
to which, among other things, ASARCO has sold and Doe Run has purchased the
Business and the Business Assets;
WHEREAS, the Business involves the mining, milling, smelting,
refining and sale of lead and associated metals as previously conducted by
ASARCO from the Mines and the Smelter; and
WHEREAS, as partial consideration from Doe Run for the
Business and the Business Assets, the parties have agreed to enter this
Agreement;
NOW, THEREFORE, subject to the terms, conditions, covenants
and provisions of this Agreement, ASARCO and Doe Run mutually covenant and agree
as follows:
1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Amount Subject to Royalty" means Net Smelter Return plus
Gross Proceeds.
"Assay Deduction Lead" means 1.5%.
"Assay Deduction Silver" means 1.0 ounce per dry Ton of
concentrates.
"Assay Lead" means the quantity of lead contained in each Lot
of concentrates from the Mines delivered to the Smelter or any other smelter, as
determined at the Smelter or any other smelter by the wet method, expressed as a
percentage of the concentrates.
"Assay Silver" means the quantity of silver contained in each
Lot of concentrates from the Mines delivered to the Smelter or any other smelter
and as determined by the Smelter or any other Smelter, expressed as the number
of troy ounces per dry Ton of concentrates.
"Average Lead Price" means the annual average closing "cash
settlement" quotation in U.S. dollars per Pound of refined lead published daily
by the London Metal
<PAGE>
Exchange, calculated by dividing the sum of all daily closing prices posted
during the calendar year by the number of days for which such quotations were
posted. If the London Metals Exchange cash settlement quotation lead price
ceases to be published, the parties shall agree upon a similar alternative
method for determining the annual average price for lead.
"Average Silver Price" means the annual average closing market
quotation for the Handy & Harman base price for a troy ounce of silver
determined by dividing the sum of all daily prices posted during the calendar
year by the number of days that prices were posted. If the Handy & Harman base
price for silver ceases to be published, the parties shall agree upon a similar
alternative method for determining the average daily spot market price for
silver or upon failure to so agree, the average of the daily calculated spot
COMEX closing price during such period shall be used.
"Bonus Payment" has the meaning ascribed to such term in
Section 4 of this Agreement.
"Cu Deduction" means $25 per Ton for each 1.0%, or fractional
amounts of same, that the percentage of copper contained in each Lot of
concentrates from the Mines exceeds 0.25%.
"Freight Deduction" means the actual average shipping cost
incurred for shipments of one Lot of concentrates from the Mines to the Smelter,
multiplied by the number of Lots of concentrates shipped from the Mines during
the relevant period, provided that if concentrates are shipped from the Mines to
a smelter other than the Smelter, Doe Run shall nevertheless apply the annual
average shipping costs for shipments from the Mines to the Smelter.
"Gross Proceeds" means the gross amount received by Doe Run
from physical sales of zinc concentrates produced and sold by Doe Run from the
Mines during the relevant calendar year, determined by the price received by Doe
Run for zinc concentrates in bona fide transactions with independent parties or,
if sales are made to an Affiliate of Doe Run, at a price which is equivalent to
that which would be received in an arm's length transaction, but in each case
excluding any Trading Proceeds.
"Gross Weight" means the gross weight of concentrates (dry
basis) produced by the Mines during the relevant calendar year, as received at
the Smelter or any other smelter.
"Lot" shall mean approximately 400 Tons of concentrates.
"Maximum Payments" has the meaning specified in Section 6 of
this Agreement.
"Metal Content Lead" means the Gross Weight, expressed in
Pounds, multiplied by the Net Assay Lead.
"Metal Content Silver" means the number of troy ounces of
silver contained in the Gross Weight, calculated by multiplying the number of
Tons contained in the Gross Weight by the Net Assay Silver (which is expressed
in ounces per Ton).
2
<PAGE>
"Metal Value" means the sum of (i) the Metal Value Lead and
(ii) the Metal Value Silver.
"Metal Value Lead" means the Payable Metal Content Lead
multiplied by the Net Price Lead.
"Metal Value Silver" means the Payable Metal Content Silver
multiplied by the Net Price Silver.
"Moisture Deduction" means a deduction of $0.50 per Ton for
each 1%, or fractional amounts of same, that the moisture content of the
concentrates delivered from the Mines exceed 12%.
"Net Assay Lead" means the Assay Lead less the Assay Deduction
Lead.
"Net Assay Silver" means the Assay Silver less the Assay
Deduction Silver.
"Net Price Lead" means the Average Lead Price.
"Net Price Silver" means the Average Silver Price less the
Price Deduction Silver.
"Net Smelter Return" means for the applicable period, (i)
Metal Value less (ii) the sum of (w) Treatment Charge (plus or minus the
Treatment Charge Adjustment), (x) Moisture Deduction, (y) Cu Deduction and (z)
Freight Deduction.
"Payable Metal Content Lead" means the Metal Content Lead
multiplied by the Percentage Payable.
"Payable Metal Content Silver" means the Metal Content
Silver multiplied by the Percentage Payable.
"Payment Date" has the meaning specified in Section 5(a) of
this Agreement.
"Percentage Payable" means 95%.
"Price Deduction Silver" means $0.30 per troy ounce.
"Pound" means an avoirdupois pound.
"Products" means any ores, concentrates, precipitates,
cathodes, leach solutions or any other primary, intermediate or final product or
any other Mineral Substance obtained from substances mined and removed from the
Mines.
"Royalty" has the meaning ascribed to such term in Section 3
of this Agreement.
"Royalty Period" has the meaning ascribed to such term in
Section 8 of this Agreement.
3
<PAGE>
"Ton" means a short ton or 2,000 avoirdupois pounds.
"Trading Proceeds" means the proceeds and/or losses
attributable to any and all price hedging and price protection activities
undertaken by Doe Run or its Affiliates with respect to any Products including,
without limitation, any forward sale and/or purchase contracts, spot-deferred
contracts, options contracts, speculative purchases and sales of forward,
futures and options contracts, both on and off commodity exchanges.
"Treatment Charge" means for each year, the amount of $145
multiplied by the number of Tons of Gross Weight.
"Treatment Charge Adjustment" an increase or decrease, as the
case may be, of $3.00 per Ton for each $0.01, or proportional amounts of same,
that the Average Lead Price is greater or less than $0.30.
"Work Sheet" has the meaning specified in Section 1 of this
Agreement.
2. Calculation of Net Smelter Return. Net Smelter Return
shall be calculated in accordance with the definitions set out above.
Attached as Schedule I to this Agreement is a work sheet to be used for
purposes of such calculation ("Work Sheet"). Attached as Schedule II to this
Agreement is a sample calculation of Net Smelter Return for illustration
purposes only.
3. Payment of Royalty. During the Royalty Period, in each
calendar year for which the Average Lead Price exceeds $0.285 per pound, Doe Run
shall pay ASARCO an annual royalty (the "Royalty") equal to 4% of the Amount
Subject to Royalty.
4. Bonus Payment. During the Royalty Period and in addition
to the Royalty, in each calendar year that the Average Lead Price exceeds
$0.30 per pound, Doe Run shall pay ASARCO an annual bonus (the "Bonus
Payment") equal to $800,000 for each $0.01 of such excess, or proportional
amounts thereof.
5. Maximum Payments. The aggregate amount of all Royalties
and Bonus Payments paid by Doe Run pursuant to this Agreement shall not
exceed $12,500,000 (the "Maximum Payments").
6. Payment of Royalties and Bonus; Statements.
(a) Royalty and Bonus Payments shall be made by Doe Run no
later than 60 days after the end of each calendar year or, if such date is not a
Business Day, on the next preceding Business Day (the "Payment Date"). Payment
shall be made in immediately available funds in United States Dollars by wire
transfer to such accounts of ASARCO at such bank or banks as are advised by
ASARCO to Doe Run in writing from time to time.
(b) On or before the Payment Date, the Chief Financial Officer
of Doe Run shall provide ASARCO with a certificate showing the calculation of
the Average Lead Price for the preceding calendar year. In the event the Average
Lead Price is such that a Bonus Payment
4
<PAGE>
and/or Royalty is payable in respect of such year, Doe Run shall also provide
ASARCO with a statement certified by the Chief Financial Officer of Doe Run
with respect to (i) the calculation of Net Smelter Return for each calendar
month during the relevant year substantially in the form of the Work Sheet
and (ii) the calculation of the Bonus Payment and/or Royalty for such year.
(c) Upon the request of ASARCO, Doe Run shall provide copies
of all relevant data relating to the Royalty and Bonus calculation (including,
but not limited to, assay reports and settlement sheets used in calculating
ASARCO's Royalty and Bonus) to ASARCO.
(d) Doe Run shall be obligated to effect payments of annual
Bonus Payment and/or Royalty based upon the formula for calculating Net Smelter
Return stated in this Agreement and irrespective of the profitability of Doe
Run's overall business or the business by Doe Run utilizing the Business Assets.
7. Accounting Matters.
(a) Weighing, Sampling And Assaying. Weighing, sampling, assay
determination and the determination of moisture (at which ASARCO or ASARCO's
representative may be present) as done by Doe Run according to Doe Run's
standard practice at the receiving plant promptly after receipt of Products,
will be accepted as final. The absence of ASARCO or ASARCO's representative
shall be deemed a waiver of the right in each instance.
(b) Accounting Principles. The calculation of Royalties shall
be made in accordance with generally accepted accounting principles and
practices consistently applied by Doe Run, using the accrual method.
(c) Audit. ASARCO, upon written notice and at its own cost,
shall have the right to have an independent firm of certified public accountants
audit the records that relate to the calculation of the Royalty within 24 months
after receipt of a payment described in Section 6(a) of this Agreement for any
calendar year.
(d) Disputes. ASARCO shall be deemed to have waived any right
it may have had to object to a payment made for any calendar year, unless it
provides notice in writing of such objection within 24 months after receipt of
final payment for the calendar year. If the parties are unable to resolve the
dispute within 60 days after the receipt of such notice, the dispute shall be
resolved by arbitration in New York, New York, pursuant to the commercial
arbitration rules of the American Arbitration Association. The arbitrator shall
determine what part of the costs and expenses incurred in any such proceeding
shall be borne by each party participating in the arbitration.
8. Royalty Period. The period for which the annual Royalty and
Bonus Payment shall be payable by Doe Run shall commence on January 1, 1999 and
continue for five complete calendar years or until such time as aggregate
payments made by Doe Run equal the Maximum Payment (such period, the "Royalty
Period").
5
<PAGE>
9. Records. Doe Run shall keep accurate records of tonnage,
volume of products, analyses of products, weight, moisture, assays of payable
metal content and other records, as appropriate, related to the computation of
Royalties hereunder.
10. Right to Inspect. ASARCO or its authorized representative
on not less than 30 days' notice to the Doe Run, may enter upon all surface and
subsurface portions of the Mines for the purpose of inspecting the Mines, all
improvements thereto and operations thereon, and may, subject to the obligations
of confidentiality described herein, inspect and copy all records and data
pertaining to the computation of its interest, including without limitation such
records and data which are maintained electronically. ASARCO or its authorized
representative shall enter the Mines at ASARCO's own risk and may not
unreasonably hinder operations on or pertaining to the Mines.
ASARCO shall indemnify and hold harmless the Doe Run and its Affiliates
(including without limitation direct and indirect parent companies), and its or
their respective directors, officers, shareholders, employees, agents and
attorneys, from and against any Liabilities which may be imposed upon, asserted
against or incurred by any of them by reason of injury to ASARCO or any of its
agents or representatives incurred in connection with ASARCO's exercise of its
rights herein.
11. Confidentiality. All information and data provided to
ASARCO under this Agreement or obtained in connection with this
Agreement shall be confidential; provided, however, that ASARCO shall have the
right to disclose the same to its financial advisors and other representatives
under an obligation of confidentiality that is at least as broad as ASARCO would
require with respect to its own similar information. The obligation of
confidentiality shall not apply to any information that is in the public domain
through no fault of ASARCO or its assigns or representatives, or which is
required to be disclosed as a matter of law, provided that in such case ASARCO
notifies Doe Run of such required disclosure prior to disclosing the same.
12. Assignment of Mines. Doe Run and its Affiliates shall
be free to convey, transfer, assign, abandon or encumber all or any portion
of its interest in the Mines. If Doe Run or its Affiliates conveys,
transfers, or assigns all or any portion of its interest in the mineral
substances included with the Mines (other than a collateral assignment or the
granting of a security interest in connection with a secured financing) it
shall require the party or parties acquiring such interest to assume in
writing the obligations of this Agreement, and thereupon it shall be relieved
of all liability under this Agreement as to such interest in the Mines,
except for liabilities existing on the date of such conveyance, transfer, or
assignment.
13. Independent Parties. All production of lead, silver and
other products by Doe Run at the Smelter or otherwise shall be for Doe Run's
own account as an independent party and not as an agent or representative of
ASARCO. ASARCO shall not as the result of this Agreement be in any way
responsible for costs, liabilities or losses arising in connection with the
production of lead, silver and other products by Doe Run. This Agreement
conveys no rights to ASARCO other than the right to receive the Royalties and
Bonus Payments stated herein.
14. Amendments. This Agreement shall not be amended or
modified except in writing, signed by both parties.
6
<PAGE>
15. Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Doe Run shall not assign this Agreement or any
obligations hereunder other than in accordance with Section 12 of this
Agreement. ASARCO shall be permitted to assign this Agreement and its rights
herein upon written notice to Doe Run provided, however, that Doe Run shall
not be required to pay more than one entity and shall not be obligated to
allocate any portion of any payment. No such assignment shall be binding upon
Doe Run until notice of the same has been received in writing by Doe Run.
This Agreement is not intended to confer upon any person except Doe Run or
ASARCO any rights or remedies hereunder.
16. Integration. All understandings and agreements heretofore
existing between the parties regarding the subject matter of this Agreement are
merged into this Agreement which fully and completely express the agreement of
the parties.
17. Non-waiver of Remedy. The failure of ASARCO or Doe Run
to insist, in any one or more instances, upon the strict performance of any
of the terms, conditions or covenants of this Agreement shall not be
construed as a waiver or relinquishment for the future of such term,
condition or covenant. A receipt by ASARCO of any money with knowledge of the
breach of any term, condition or covenant of this Agreement, shall not be
deemed a waiver of such breach, and no waiver, change, modification or
discharge by either party hereto of any provision in this Agreement shall be
deemed to have been made or shall be effective unless expressed in writing
and signed by both ASARCO and Doe Run. In addition to the other remedies
provided in this Agreement, ASARCO and Doe Run shall be entitled to the
restraint by injunction of the violation, or attempted or threatened
violation of any of the terms, conditions or covenants of this Agreement, or
to a decree compelling performance of any of such term, condition or covenant.
18. Notices. All notices, consents, requests and approvals,
any notice of change in address for the purpose of this Article, and other
communications provided for or required herein, shall be deemed validly
given, made or served, if in writing, and delivered (a) on the day given if
served personally, (b) two days following if sent by telecopy to the
facsimile number indicated below with a confirmatory notice by delivery to a
nationally-recognized express delivery service with instructions and payment
for overnight delivery to the address set forth below; or (c) five days
following if sent by U.S. Certified Mail, postage prepaid:
7
<PAGE>
(i) if to ASARCO, at:
ASARCO Incorporated
180 Maiden Lane
New York, New York 10038
Attention: General Counsel
Facsimile Number: (212) 510-1908
(ii) if to Doe Run, at:
The Doe Run Resources Corporation
Suite 300
1801 Park 270 Drive
St. Louis, MO 63146
Attention: Vice President - Law
Facsimile Number: (314) 453-7177
19. Governing Law. This Agreement shall be governed by and
construed according to the laws of the State of New York (without regard to any
conflict of laws rules which might apply the laws of any other jurisdiction).
20. Jurisdiction. Each of Doe Run and Asarco hereby (i)
submits to the exclusive jurisdiction of the United States Federal District
Court in the Southern District of New York in the Borough of Manhattan for
the purpose of any suit, action or other proceeding arising out of or based
upon this Agreement or the subject matter hereof brought by the other Party,
any indemnified party or their respective heirs, legal representatives,
successors or assigns (an "Action") and (ii) waives, and agrees not to assert
by way of motion, a defense, or otherwise, in any such Action, any claim that
it or he is not subject personally to the jurisdiction of the above-named
courts, that its or his property is exempt or immune from attachment or
execution, that the Action is brought in an inconvenient forum, that the
venue of the Action is improper, or that this Agreement or the subject matter
hereof may not be enforced in or by such court.
21. Headings. The various headings used in this Agreement are
for convenience only and are not to be used in interpreting the text of the
Article in which they appear or to which they relate.
22. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original,
and all of which shall constitute one and the same instrument.
8
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed the day and year first above written.
ASARCO INCORPORATED
By:_____________________________
Name:
Title:
THE DOE RUN RESOURCES CORPORATION
By:_____________________________
Name:
Title:
9
<PAGE>
Work Sheet Showing Calculation of Net Smelter Return:
Month of ________, ____
Gross Weight of Products (dry Tons): __________
<TABLE>
<CAPTION>
- ------------------------------------------------- --------------------- --------------------- ---------------------
Lead Silver Total
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
<S> <C> <C>
Prices:
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Average Price $0. $
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Price Deduction 0.00000 (0.3000)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Net Price $ per lb. $ per oz.
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Metal Content:
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Assays % ozs. per Ton
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Assay Deduction (1.50%) (1.0)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Net Assay % ozs. per Ton
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Metal Content lbs. ozs.
(Net Assay x Gross Weight)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Percentage Payable 95% 95%
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Payable Metal Content
(Metal Content x Percentage Payable)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Metal Value: $ $ $
- -----------
(Metal Content x Net Price)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Refining Costs:
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Treatment Charge ( )
(Gross Weight (dry Tons) x $120)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Treatment Charge Adjustment
(Inc/Dec by $3/ton for each $.01 lb
price is greater than or less than $.30/lb)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Cu Deduction ( )
(Assay Cu (%) - 0.250%) x $25/ton
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
<S> <C>
Moisture Deduction ( )
($.50 per dry Ton for each 1% that
moisture content exceeds 12%)
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
Freight Deduction ( )
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
NET SMELTER RETURN
- Lead Concentrates
$
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
$
GROSS PROCEEDS
- Zinc Concentrates
- ------------------------------------------------- --------------------- --------------------- ---------------------
- ------------------------------------------------- --------------------- --------------------- ---------------------
AMOUNT SUBJECT
TO ROYALTY $
- ------------------------------------------------- --------------------- --------------------- ---------------------
</TABLE>
2
<PAGE>
Schedule II
Asarco - Missouri Lead Division
Summary of Sales (West Fork and Sweetwater Combined)
For the Month of ________________
<TABLE>
<CAPTION>
Lead Concentrate (dry tons): 13,082.00
(Gross Weight) Pb Ag Total
----------- ----------- -----------
<S> <C> <C> <C>
PRICES:
Average Price $0.24652 $5.58650
Price Deduction 0.000 (0.300)
----------- -----------
Net Price 0.24652 5.28650
METAL CONTENT:
Assays 78.00 % 1.10 ozs/ton
Assay Deduction (1.50)% (1.00)ozs/ton
----------- -----------
Net Assay 76.50 % 0.10 ozs/ton
Metal Content 20,015,460 lbs 1,308 ozs
Percentage Payable 95 % 95 %
Payable Metal Content 19,014,687 lbs 1,243 ozs
CALCULATION OF NET SMELTER RETURN:
Metal Value $4.687,501 $6,571 $4,694,072
Less:
Treatment Charge ($120 per ton) (1,569,840)
Treatment Charge Adjustment 209,835
(Inc)/Dec by $3/ton for each 1 cent
Pb price is > or < $.30/lb.
Cu Deduction (67,765)
Moisture Deduction 0
Freight Deduction (mine to smelter) (53,636)
-----------
Net Smelter Return - Lead Concentrate $3,212,666
===========
Gross Proceeds From Sales Of Zinc Concentrate $47,695
-----------
Amount Subject to Royalty $3,260,361
===========
</TABLE>
<PAGE>
EXHIBIT V
---------
GLOBE CONTRACT
<PAGE>
Date 1/12/98
Contract No. 4003-98
ASARCO GLOBE
495 EAST 51ST AVENUE
DENVER CO 80216
ATTN: M. STAUB
PRODUCT: REFINED LEAD-(LOW SILVER-"TEST LEAD") AS REGULARLY PRODUCED AND
AVAILABLE AT SELLER'S GLOVER, MO LEAD REFINERY.
QUANTITY: TO BE EX-CONSIGNED AT THE APPROXIMATE RATE OF 120 NET TONS PER
MONTH.
DELIVERY:
F.O.B. RAIL TO ASARCO GLOBE DENVER, CO
SEE ATTACHMENT 1
PAYMENT: NET CASH 30 DAYS FROM DATE OF INVOICE
SHIPMENT: THE PERIOD OF THIS AGREEMENT SHALL BE FROM JANUARY 1, 1998
THROUGH DECEMBER 31, 1998, BOTH DATES INCLUSIVE. (SEE ATTACHMENT 1)
OTHER TERMS AND CONDITIONS:
GENERAL TERMS AND CONDITIONS
1. GENERAL. This contract constitutes the entire agreement between Buyer
and Seller with respect to the product(s) furnished hereunder. NO
REPRESENTATION, PROMISE OR CONDITION NOT SET FORTH HEREIN HAS BEEN RELIED
UPON BY BUYER OR SHALL BE BINDING ON EITHER PARTY HERETO. No waiver,
alteration or modification of any of the provisions hereof shall be binding
unless in writing and signed by an authorized representative of Seller.No
acknowledgement, acceptance of any other communication by Buyer shall modify
or alter the terms and conditions specified herein unless accepted in
writing by an authorized representative of Seller.
2. WARRANTIES. Seller warrants that the product(s) furnished hereunder
will conform to the description stated on the face hereof as interpreted in
accordance with the standard specifications of the American Society for
Testing Materials; that it will convey good title to such product(s); and that
such product(s) will be delivered free from any lawful security interest or
lien or encumbrance unknown to Buyer. THE WARRANTIES SET FORTH ABOVE ARE
EXCLUSIVE AND IN LIEU OF AND SELLER EXPRESSLY DISCLAIMS, ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
OF FITNESS FOR PARTICULAR PURPOSE.
IMPORTANT NOTE: GENERAL TERMS AND CONDITIONS CONTINUED ON REVERSE SIDE.
ACCEPTED__________________________________19___ ASARCO Incorporated
BY: /s/ 2/16/98 BY /s/ 1/27/98
--------------------------------------- -----------------------------
One copy signed by the Buyer to be returned to ASARCO Incorporated,
180 Maiden Lane, New York, N.Y. 10018
<PAGE>
CONTRACT NO. 4003-98
ASARCO GLOBE
ATTACHMENT 1
- ------------
PRICE:
- ------
1. The average London Metal Exchange (LME) cash settlement quotation for
lead expressed in U.S. dollars for the month of scheduled ex-cosignment
as published in PLATT'S METALS WEEK plus the Asarco announced premium
for the month of ex-consignment.
2. In addition to the "Price" an additional premium of $40/N.T. of product
will be applied at a LME Zinc Price less than or equal to $.50/lb. This
premium will be increased by $.50/N.T. to each $.01 increase in the LME
Zinc price above $.50/lb.
TERMS AND AGREEMENTS
- --------------------
FORCE MAJEURE
- -------------
As set forth in Paragraph 5 of General Terms and Conditions, Force
Majeure is understood to include shutdown or permanent closing of any
production unit of a facility (including mine, smelter, and/or refinery)
for economic reasons.
ADDITIONAL TAXES
- ----------------
In the event that the U.S. Government or any state government shall
impose or levy, effective after the date of this agreement, any
"Superfund" or environment tax upon the product which is subject to
this agreement, (i) Seller shall promptly notify Buyer of such tax,
to the extent that Seller is aware of it, and (ii) Buyer shall have
the option of either paying or reimbursing Seller for such tax, or
canceling any uncompleted deliveries provided for under this
agreement.
<PAGE>
CONTRACT NO. 4003-98
ASARCO GLOBE
ATTACHMENT 2
- ------------
SHIPMENT:
- --------
Asarco Glover will ship into consignment at Asarco Denver at a rate such
as to maintain an average consignment inventory of approximately 120 N.T.
When consignment inventory is reduced to 180 N.T. Glover will schedule to
produce and ship an additional kettle of approximately 220 N.T. into the
consignment location. Globe plant is to advise lead product sales when
inventory reaches 180 N.T.
<PAGE>
EXHIBIT VI
NOTE: AGREEMENT SUBJECT TO LESSOR APPROVAL AND COMMENT.
EQUIPMENT SUBLEASE AGREEMENT
EQUIPMENT SUBLEASE AGREEMENT (this "Agreement") entered into and effective
as of the [ ]th day of August, 1998, by and between ASARCO INCORPORATED, a New
Jersey corporation, with its principal business office at 180 Maiden Lane, New
York, New York 10038 ("ASARCO"), and THE DOE RUN RESOURCES CORPORATION, a New
York corporation with its principal business office at Suite 300, 1801 Park 270,
St. Louis, Missouri 63146 ("Doe Run").
W I T N E S S E T H, That:
WHEREAS, Doe Run and ASARCO have entered into an Asset Purchase and Sale
Agreement dated July __, 1998 (the "Asset Purchase Agreement") pursuant to
which, among other things, ASARCO has sold and Doe Run has purchased the
Business and the Business Assets (each as defined in the Asset Purchase
Agreement);
WHEREAS, the Business involves the mining, milling, smelting, refining and
sale of lead and associated metals as previously conducted by ASARCO from the
Mines and the Smelter (each as defined in the Asset Purchase Agreement);
WHEREAS, certain of the equipment used in the West Fork Mine (as further
described herein, the "Leased Equipment") has been leased by the Seller pursuant
to one of two substantially identical agreements, either (i) Lease Agreement [A]
dated as of March 1, 1991, between The Connecticut National Bank, as Owner
Trustee, as Lessor (the "Lessor"), and ASARCO, as Lessee ("Lease [A]"), or (ii)
Lease Agreement [B] dated as of March 1, 1991, between the Lessor and ASARCO
("Lease [B]"; Lease [A] and Lease [B], collectively, the "Lease Agreements" and
individually a "Lease Agreement");
WHEREAS, Doe Run has agreed to sublease the Leased Equipment and assume
certain of ASARCO's obligations in respect of such equipment arising pursuant to
Lease [A] or Lease [B]; and
WHEREAS, ASARCO has obtained all consents required to sublease the Leased
Equipment to Doe Run (including, without limitation, the consent of the Lessor,
the Owner Participant and the Indenture Trustee);
<PAGE>
NOW, THEREFORE, subject to the terms, conditions, covenants and provisions
of this Agreement, ASARCO and Doe Run mutually covenant and agree as follows:
1. Definitions. Terms which are defined in the Lease Agreements shall have
the same respective meanings when used herein, unless otherwise defined.
2. Sublease. Doe Run hereby agrees to sublease from ASARCO the Leased
Equipment, in each case subject to the terms and conditions of the applicable
Lease Agreement. Each Unit of Leased Equipment and the Lease Agreement
applicable to such Unit is set out in Schedule A to this Agreement.
3. Rental Payments. Doe Run shall pay ASARCO rent in respect of the Leased
Equipment on a monthly basis, payable in advance on or before the first day of
each calendar month, in accordance with Schedule A to this Agreement.
4. Maintenance; Improvements. Doe Run shall comply with the requirements of
Sections 5 and 7 of the applicable Lease Agreement in its maintenance and
operation of the Leased Equipment.
5. Acknowledgment of Lien; Inspection. (a) Doe Run acknowledges the
provisions of Section 8(a) of the applicable Lease Agreement and agrees to be
bound by such provisions. In the event Doe Run takes action which is
inconsistent with Section 8(a), Doe Run shall be responsible for performance of
Section 8(b).
(b) Doe Run acknowledges and agrees to give effect to the right of
inspection with respect to the Leased Equipment created by Section 6 of the
applicable Lease Agreement. ASARCO acknowledges and agrees that it shall make
best efforts to cause the Lessor to give effect to the two provisos in Section 6
of the applicable Lease Agreement for the benefit of Doe Run.
6. Insurance. Doe Run shall maintain insurance on the Leased Equipment and
otherwise in the amounts and with the terms and conditions set out in Section 10
of the respective Lease Agreement.
7. Purchase Option; Early Buyout Purchase Option; Termination; Re-delivery;
Loss. (a) Doe Run shall have the right to request ASARCO to purchase the Leased
Equipment on behalf of Doe Run upon the expiration of the Lease Term in
accordance with Section 2(d) of the applicable Lease Agreement by notice to
ASARCO not less than 10 days prior to the date when ASARCO's notice is required
to be delivered to the Lessor pursuant to such Section 2(d). Doe Run provide
ASARCO with the purchase price due in respect of the Leased Equipment to be
purchased in immediately available funds not later than 10:00 AM on the day
before such amount is payable by ASARCO pursuant to the applicable Lease
Agreement. In the event that ASARCO fails to so purchase the Leased Equipment on
Doe Run's behalf, ASARCO shall return to Doe Run the purchase price paid by Doe
Run together with all earnings thereon.
-2-
<PAGE>
(b) Doe Run shall have the right to request ASARCO to exercise the early
buyout purchase option on behalf of Doe Run in accordance with Section 2(e) of
the applicable Lease Agreement by notice to ASARCO not less than 10 days prior
to the date when ASARCO's notice is required to be delivered to the Lessor
pursuant to such Section 2(e). Doe Run shall provide ASARCO with the Early
Buyout Purchase Price due in respect of the Leased Equipment to be purchased in
immediately available funds not later than 10:AM on the day before such amount
is payable by ASARCO pursuant to the applicable Lease Agreement. In the event
that ASARCO fails to so purchase the Leased Equipment on Doe Run's behalf,
ASARCO shall return to Doe Run the purchase price paid by Doe Run together with
all earnings thereon.
(c) Doe Run shall have the right to request ASARCO to cause the applicable
Lease Agreement to be terminated in respect of any Unit of Leased Equipment in
accordance with Section 12 of the applicable Lease Agreement by notice to ASARCO
not less than 10 days prior to the date when ASARCO's notice is required to be
delivered to the Lessor pursuant to Section 12. Doe Run shall pay ASARCO any
amounts payable in respect of the Leased Equipment upon termination in
immediately available funds not later than 10:00 AM on the day before such
amount is payable pursuant to the applicable Lease Agreement.
(d) In the event that Doe Run becomes obliged to re-deliver the Leased
Equipment, it agrees to comply with the provisions of Section 2(b) and (c) of
the applicable Lease Agreement.
(e) Doe Run hereby acknowledges and agrees to be bound by the Section 11 of
the applicable Lease Agreement in regards to loss, requisition or seizure of the
Leased Equipment.
8. Disclaimer of Warranties. Doe Run acknowledges the disclaimers of
warranties set out in Section 3 of the applicable Lease Agreement and Section
5.22 of the Asset Purchase Agreement.
9. Lease Agreement Events of Default; Indemnification. (a) Doe Run hereby
acknowledges the Lease Events of Default set out in Section 14 of the applicable
Lease Agreement and the actions of the Lessor set out in Section 15 of the
applicable Lease Agreement permitted upon the occurrence of a Lease Event of
Default.
(b) If a Lease Event of Default occurs under a Lease Agreement as the
result of action or inaction of Doe Run, Doe Run agrees to indemnify and hold
ASARCO harmless for any and all Losses (as defined in the Asset Purchase
Agreement) occurring as the result of such Lease Event of Default. If a Lease
Event of Default occurs under a Lease Agreement as the result of action or
inaction of ASARCO, ASARCO agrees to indemnify and hold Doe Run harmless for any
and all Losses occurring as the result of such Lease Event of Default.
(c) Doe Run hereby acknowledges the Lessor's right to perform under Section
21 of the Lease Agreement.
-3-
<PAGE>
10. Sublease Events of Default. In the event Doe Run breaches (i) any
obligations under Sections 3 of this Agreement and such breach shall be
continuing at the end of the fifth Business Day after the payment was due, (ii)
any obligations under Section 6 of this Agreement, or (iii) or any other of its
obligations under this Agreement where such breach continues for a period of 30
days after ASARCO's first written notice of same, then ASARCO shall have the
right to repossess the Leased Equipment. Doe Run shall be liable for and shall
indemnify ASARCO against any and all Losses suffered or incurred by ASARCO as
the result of Doe Run's breach of this Agreement other than losses arising out
of or relating to ASARCO's gross negligence, bad faith or willful misconduct.
Recovery of the Leased Equipment by ASARCO shall not limit ASARCO's right to
take action against Doe Run for any such Losses.
11. Amendments. This Agreement shall not be amended or modified except in
writing, signed by both parties. ASARCO shall not permit or enter into any
amendment to either Lease Agreement without the prior written consent of Doe
Run, such consent not to be unreasonably withheld.
12. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Doe Run shall not assign this Agreement or any obligations hereunder.
Doe Run shall not enter into any further sublease of the Leased Equipment.
13. Quiet Enjoyment. So long as no Sublease Event of Default (as set forth
in Section 10 hereof) shall have occurred and be continuing, ASARCO shall not
interfere with Doe Run's continued possession, use and operation of, and quiet
enjoyment of, the Leased Equipment pursuant to the terms of this Sublease.
14. Integration. All understandings and agreements heretofore existing
between the parties regarding the subject matter of this Agreement are merged
into this Agreement which fully and completely express the agreement of the
parties.
15. Non-waiver of Remedy. The failure of ASARCO or Doe Run to insist, in
any one or more instances, upon the strict performance of any of the terms,
conditions or covenants of this Agreement shall not be construed as a waiver or
relinquishment for the future of such term, condition or covenant. A receipt by
ASARCO of any money with knowledge of the breach of any term, condition or
covenant of this Agreement, shall not be deemed a waiver of such breach, and no
waiver, change, modification or discharge by either party hereto of any
provision in this Agreement shall be deemed to have been made or shall be
effective unless expressed in writing and signed by both ASARCO and Doe Run. In
addition to the other remedies provided in this Agreement, ASARCO and Doe Run
shall be entitled to the restraint by injunction of the violation, or attempted
or threatened violation of any of the terms, conditions or covenants of this
Agreement, or to a decree compelling performance of any of such term, condition
or covenant.
16. Notices. All notices, consents, requests and approvals, any notice of
change in address for the purpose of this Article, and other communications
provided for or required herein, shall be deemed validly given, made or served,
if in writing, and delivered (a) on
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<PAGE>
the day given if served personally, (b) two days following if sent by telecopy
to the facsimile number indicated below with a confirmatory notice by delivery
to a nationally-recognized express delivery service with instructions and
payment for overnight delivery to the address set forth below; or (c) five days
following if sent by U.S. Certified Mail, postage prepaid:
(i) if to ASARCO, at:
ASARCO Incorporated
180 Maiden Lane
New York, New York 10038
Attention: General Counsel
Facsimile Number: (212) 510-1908
(ii) if to Doe Run, at:
The Doe Run Resources Corporation
Suite 300
1801 Park 270 Drive
St. Louis, MO 63146
Attention: Vice President - Law
Facsimile Number: (314) 453-7177
17. Governing Law. This Agreement shall be governed by and construed
according to the laws of the State of New York (without regard to any conflict
of laws rules which might apply the laws of any other jurisdiction).
18. Jurisdiction. Each of Doe Run and ASARCO hereby (i) submits to the
exclusive jurisdiction of the state courts of the State of New York and the
United States Federal District Court in the Southern District of New York for
the purpose of any suit, action or other proceeding arising out of or based upon
this Agreement or the subject matter hereof brought by the other Party, any
indemnified party or their respective heirs, legal representatives, successors
or assigns (an "Action") and (ii) waives, and agrees not to assert by way of
motion, a defense, or otherwise, in any such Action, any claim that it or he is
not subject personally to the jurisdiction of the above-named courts, that its
or his property is exempt or immune from attachment or execution, that the
Action is brought in an inconvenient forum, that the venue of the Action is
improper, or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
19. Headings. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Article
in which they appear or to which they relate.
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<PAGE>
20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed the day and year first above written.
ASARCO INCORPORATED
By:
-----------------------------
Name:
Title:
THE DOE RUN RESOURCES
CORPORATION
By:
-----------------------------
Name:
Title:
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<PAGE>
SCHEDULE A
LEASED EQUIPMENT AND RENT PAYABLE IN RESPECT OF SAME
Equipment Leased pursuant to Lease [A] and Monthly Rent
-------------------------------------------------------
<TABLE>
<CAPTION>
Equipment No. of Units Manufacturer Serial No.
--------- ------------ ------------ ----------
<S> <C> <C> <C>
Mine Cars 6 Nat'l Eng. & Con. 25 to 30
Mine Cars 6 Nat'l Eng. & Con. 1 to 6
Dozer 1 Dresser 8382
Loader - Wheel 7 YD 1 Michigan 828AC00707
RENT: $7,860 per month for a period of 30 months, commencing on
September 1, 1998.
</TABLE>
Equipment Leased pursuant to Lease [B] and Monthly Rent
- -------------------------------------------------------
<TABLE>
<CAPTION>
Equipment No. of Units Manufacturer Serial No.
--------- ------------ ------------ ----------
<S> <C> <C> <C>
Locomotive 1 Brookville 66D50520
RENT: $1,553 per month for a period of 90 months, commencing on
September 1, 1998.
</TABLE>
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<PAGE>
EXHIBIT VII
TRANSITIONAL SERVICES AGREEMENT
AGREEMENT, entered into and effective as of the ____ day of _____, 1998
(the "Effective Date"), by and between ASARCO INCORPORATED, a New Jersey
corporation, with its principal place of business at 180 Maiden Lane, New York,
New York 10038 ("ASARCO"), and THE DOE RUN RESOURCES CORPORATION, a __________
corporation with its principal business office at Suite 300, 1801 Park 270, St.
Louis, Missouri 63146 ("Buyer"), (Buyer and ASARCO are at times referred to
herein individually as a "Party" and collectively as the "Parties").
W I T N E S S E T H:
ASARCO INCORPORATEDWHEREAS, ASARCO and Buyer have entered into an Asset
Purchase and Sale Agreement dated as of _________________, 1998 (the "Purchase
Agreement") pursuant to which Buyer agreed to purchase those assets of ASARCO's
Missouri lead business as described in the Purchase Agreement (the "Business");
and
WHEREAS, as set forth in Section ____ of the Purchase Agreement, ASARCO
agreed to make available to Buyer certain transitional administrative and
support services for the Business for a limited period after the completion of
the sale in accordance with the terms of this Agreement.
NOW, THEREFORE, subject to the terms, conditions, covenants and provisions
of this Agreement, ASARCO and Buyer mutually covenant and agree as follows:
ARTICLE 1
SERVICES PROVIDED
1.01 Transitional Services. Upon the terms and subject to the conditions
set forth in this Agreement, ASARCO will provide to Buyer for the Business each
of those administrative and support services listed in Appendix A, which is
attached to and made part of this Agreement (hereinafter referred to
individually as a "Transitional Service", and collectively as the "Transitional
Services"), during the initial term of each Transitional Service set forth on
Appendix A (hereinafter referred to as the "Initial Terms" for all of the
Transitional Services, and the "Initial Term" for each Transitional Service).
1.02 Personnel. In providing the Transitional Services, ASARCO, as it deems
necessary or appropriate in its reasonable discretion acting as a Reasonable and
Prudent Operator (as hereinafter defined), may (a) use personnel of ASARCO or
its affiliates, and (b) employ the services of third parties.
<PAGE>
1.03 Level of Transitional Services. (a) ASARCO shall perform the
Transitional Services exercising the same degree of care as it exercises in
performing the same or similar services for its own account and consistent with
the degree of care a Reasonable and Prudent Operator would exercise, with
priority equal to that provided to its own businesses or those of any of its
affiliates, subsidiaries or divisions. Nothing in this Agreement shall require
ASARCO to favor the Business over its own businesses or those of any of its
affiliates, subsidiaries or divisions.
(b) Unless otherwise specifically set forth in the Appendixes attached
hereto, it is the intention of the Parties that Buyer's use of any Transitional
Service that Buyer elects to use shall not be higher than the level of use
reasonably required by the Business prior to the acquisition thereof by Buyer.
In no event shall Buyer be entitled to any new service or to increase its use of
any of the Transitional Services above that level of use without the prior
written consent of ASARCO.
(c) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transitional Services, Buyer agrees that the
Transitional Services provided by third parties shall be subject to the terms
and conditions of any agreements between ASARCO and such third parties to the
extent that such terms and conditions do not conflict with or supplement the
terms and conditions of this Agreement.
1.04 Limitation of Liability and Warranty. (a) ASARCO shall have no
liability to Buyer for any and all Claims and/or Damages arising out of this
Agreement, whether such Claims and/or Damages arise on account of ASARCO's
furnishing Transitional Services hereunder, the failure to furnish
Transitional Services hereunder, or otherwise, except as provided in Section
1.05(b) below. As used herein, "Damages" means all expenses, costs,
liabilities, obligations, damages, fines, penalties, deficiencies, losses and
judgments, including incidental damages, indirect damages, consequential
damages, strict liability, and reasonable attorneys' fees.
(b) Limitation of ASARCO's Damages. If Buyer suffers Claims and/or Damages
arising out of this Agreement which Claims and/or Damages were caused by the
gross negligence or willful misconduct of ASARCO, ASARCO's sole liability to
Buyer, and Buyer's sole and exclusive monetary remedy, shall be the refund of
the cost of the Transitional Services provided during the occurrence of such
gross negligence or willful misconduct. Buyer shall notify ASARCO of any gross
negligence or willful misconduct by ASARCO promptly upon becoming aware thereof.
(c) In no event shall either ASARCO or its subcontractor be liable for any
damages caused by Buyer's failure to perform Buyer's obligations hereunder. As
long as ASARCO is not in material breach hereunder, ASARCO will not be liable to
Buyer for any act or omission of any other entity (other than due to a default
by ASARCO in any agreement between ASARCO and such other entity) furnishing any
Transitional Service.
(d) OTHER THAN AS PROVIDED IN SECTIONS 1.04 AND 5.01 (TO WHICH THIS
SUBSECTION IS SUBJECT), NOTWITHSTANDING ANYTHING TO
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<PAGE>
THE CONTRARY CONTAINED HEREIN OR AT LAW OR IN EQUITY, IN NO EVENT SHALL ASARCO
NOR ITS SUBCONTRACTORS BE LIABLE FOR PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF
BUSINESS PROFITS, BUSINESS INTERRUPTION OR ANY OTHER LOSS) ARISING FROM OR
RELATING TO ANY CLAIM MADE UNDER THIS AGREEMENT OR REGARDING THE PROVISION OF OR
THE FAILURE TO PROVIDE THE TRANSITIONAL SERVICES, EVEN IF EITHER OF THEM HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(e) Year 2000 Compliance: ASARCO makes no present or future warranty,
covenant, or representation, express or implied, and there is no condition
including but not limited to, any warranty or condition of merchantability or
fitness for a particular purpose, as to the sufficiency of its efforts relating
to the year 2000 problem (a data handling problem relating to the Year 2000 date
change that would cause a computer system, software or other equipment that may
contain an embedded computer chip or computer algorithm to fail to correctly
perform, process and handle date-related data for the dates within and between
the twentieth and twenty-first centuries and all other centuries) (the "Year
2000 Problem") whether the hardware, software, computer systems, or equipment
used in providing Transitional Services are Year 2000 compliant or whether Buyer
will incur a Year 2000 Problem at any time in the future. In no event will
Seller be responsible for any indirect, punitive or consequential damages
arising, in whole or in part, from a Year 2000 Problem.
1.05 No Obligation to Continue to Use Services. a)" \* MERGEFORMAT (a)
Buyer shall have no obligation to continue to use any of the Transitional
Services and may terminate any Transitional Service that ASARCO is providing to
Buyer by giving ASARCO at least ninety (90) days' advance written notice of its
desire to terminate such Transitional Service unless otherwise set forth on the
schedules attached hereto; provided, that the termination of any Transitional
Service can only be effective on the last day of a calendar month, and any
termination may not be effective before the end of the Initial Term for a
Transitional Service.
(b) If any Transitional Service is terminated by Buyer, ASARCO shall have
the option, in its sole and absolute discretion, to discontinue any Transitional
Service(s) related to such terminated Transitional Service(s) as set forth in
Appendix A by providing at least 60 days' advance written notice to Buyer.
(c) If any Transitional Service is not selected by Buyer as of the
consummation of the sale of the Business, or is terminated by Buyer as described
herein, Buyer may not select such Transitional Service or reinstitute such
Transitional Services, as the case may be.
1.06 ASARCO Access. Subject to Article 3 hereof, to the extent reasonably
required for ASARCO personnel to perform the Transitional Services, Buyer shall
provide ASARCO personnel with access to its equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
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<PAGE>
ARTICLE 2
COMPENSATION
2.01 Consideration. (a) As consideration for the Transitional Services,
Buyer shall pay to ASARCO the amount specified for each Transitional Service as
set forth in Appendix A. If the amount to be paid for any Transitional Service
is described in Appendix A as "cost", the use of the term "cost" does not mean
ASARCO's cost to provide that Transitional Service, but the cost to Buyer to
receive such Transitional Service from ASARCO. Upon the termination of any
Transitional Service in accordance with Section 1.06 above, the compensation to
be paid under this Section 2.01 shall be reduced by the amount specified for
such terminated Transitional Service. Upon the reduction of the level of any
specific Transitional Service, ASARCO and Buyer shall determine in good faith a
reduction of the amount to be paid by Buyer hereunder due to such reduction.
(b) In addition to the payments described in subparagraph (a) above, Buyer
shall reimburse to ASARCO an amount equal to the sum of (i) all or a portion of
the costs, if any, required by any third party incurred by ASARCO to obtain
consents from such third parties to permit ASARCO to provide any Transitional
Service to Buyer hereunder. Such costs and expenditures will be billed to Buyer
in the monthly invoice(s) described in Section 2.03 below. In the event that
ASARCO will be making any such disbursements of funds from a ASARCO account on
behalf of Buyer, before any disbursement will be made, Buyer shall deposit funds
equal to a reasonable estimate of such costs and expenditures into a ASARCO bank
account designated by ASARCO.
(c) At the Closing, Buyer shall pay to Seller by wire transfer in
immediately available funds __________ ($_______) dollars representing the
Transitional Services one-time start-up costs, as set forth in Appendices __.
2.02 Taxes. Any applicable taxes (other than income taxes) assessed on the
provision of the Transitional Services shall be paid by Buyer, subject to
exemptions documented by Buyer.
2.03 Invoices. At the end of each month, ASARCO will submit one invoice to
Buyer for (a) all Transitional Services provided to Buyer and its subsidiaries
by ASARCO, and (b) those costs and expenditures described in Section 2.01(b)
above incurred by ASARCO during such month. Such monthly invoices shall be
issued no later than the fifteenth day of each month. Each invoice shall include
a summary list of the previously agreed upon Transitional Services for which
there are fixed dollar fees, together with documentation supporting each of the
invoiced amounts that are not covered by the fixed fee agreements. All invoices
shall be sent to Buyer at the following address or to such other address as
Buyer shall have specified by notice in writing to ASARCO:
The Doe Run Company
[address]
Fax:
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<PAGE>
2.04 Payment of Invoices. (a) Payment of all invoices shall be made by
electronic funds transmission in U.S. Dollars, without any offset or deduction
of any nature whatsoever, within thirty (30) days of the date of the invoice in
accordance with Section 6.04 below, unless otherwise specified in Appendix A.
All payments shall be made to the account set forth below with written
confirmation of payment sent by facsimile to the person set forth below.
Account:
Written Confirmation:
(b) If any amount is not paid within fifteen (15) days after its due date,
ASARCO shall have the right, without any liability to Buyer, or anyone claiming
by or through Buyer, to immediately cease providing either all of the
Transitional Services, or the Transitional Service(s) for which payment has not
been made, which right may be exercised by ASARCO in its sole and absolute
discretion, and shall not limit or otherwise affect ASARCO's right to terminate
this Agreement in accordance with Article 4 below; provided, however, that if
the failure to pay for a particular Transitional Service relates to a dispute
made in good faith by Buyer and Buyer has paid for all Transitional Services
that are not the subject of a good faith dispute, then ASARCO may not cease
providing any Transitional Services that are not the subject of the good faith
dispute pending the resolution of such dispute.
ARTICLE 3
CONFIDENTIALITY
3.01 Obligation. (a) In addition to any obligations of confidentiality
pursuant to other agreements between the Parties, without the prior written
consent of the other Party, each Party shall hold in confidence and not disclose
to any third party (other than for disclosures by ASARCO to its subcontractors,
but only if such subcontractors commit in advance of such disclosure to be bound
by the terms of this Section 3.01 with regard to such information) (i) any
confidential information received by it from the other Party, or generated or
created by it from confidential information received from the other Party,
during the provision of the Transitional Services, including, without
limitation, information which is not related to the Transitional Services; and
(ii) the specific terms, conditions and information contained in this Agreement
and any attachment hereto.
(b) For the purposes of this Agreement, confidential information shall not
include information:
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<PAGE>
(i) which is or becomes part of the public domain other than through breach
of this Agreement or through the fault of the receiving Party;
(ii) which is or becomes available to the receiving Party from a source
other than the disclosing Party, which source has no obligation of
confidentiality to the disclosing Party in respect thereof;
(iii) which is required to be disclosed by law or governmental order; or
(iv) the disclosure of which is mutually agreed to by the Parties.
3.02 Effectiveness. The foregoing obligation of confidentiality shall be in
effect during the term of this Agreement and any extensions thereof and for a
period of ten (10) years after the termination or expiration of this Agreement.
ARTICLE 4
TERM AND TERMINATION
4.01 Term. This Agreement shall become effective on the Effective Date and
shall remain in force until the expiration of the longest Initial Term (after
giving effect to any extensions thereof in accordance with Section 4.02 below)
unless all of the Transitional Services are terminated by Buyer in accordance
with Section 1.06 above, or this Agreement is terminated under Section 4.03,
6.07 or 6.11 below prior to the end of such period.
4.02 Extension. Subject to the earlier termination of this Agreement in
accordance with Section 4.03, 6.07 or 6.11 below, Buyer may only extend any
Initial Term on the terms and conditions set forth herein and in Appendix A, for
up to that number of days of such extension as expressly set forth in such
Appendix by giving ASARCO at least forty-five (45) days, prior written notice
prior to the end of the Initial Term in question.
4.03 Termination. If either Party (hereafter called the "Defaulting Party")
shall fail to perform or default in the performance of any of its obligations
under this Agreement (other than as described in subparagraph (b) below) , the
other Party (hereinafter called the "Non-Defaulting Party") may give written
notice to the Defaulting Party specifying the nature of such failure or default
and stating that the Non-Defaulting Party intends to terminate this Agreement if
such failure or default is not cured within forty-five (45) days of such written
notice. If any failure or default so specified is not cured within such
forty-five (45) day period, the Non-Defaulting Party may elect to immediately
terminate this Agreement; provided, however, that if the failure or default
relates to a dispute made in good faith by the Defaulting Party, the
Non-Defaulting Party may not terminate this Agreement pending the resolution of
such dispute. Such termination shall be effective upon giving a written notice
of termination from the Non-Defaulting Party to the Defaulting Party following
such forty-five (45) day period and shall be without prejudice to any other
remedy which may be available to the Non-Defaulting Party against the Defaulting
Party.
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<PAGE>
4.04 Buyer's Administrative and Support Services. (a) Buyer acknowledges
that ASARCO is providing the Transitional Services as an accommodation to Buyer
to allow Buyer a period of time to obtain its own administrative and support
services. During the term of this Agreement, Buyer agrees that it shall take all
steps necessary to obtain its own administrative and support services prior to
the expiration of the Initial Term for each Transitional Service.
(b) Buyer specifically agrees and acknowledges that all obligations of
ASARCO to provide each Transitional Service shall immediately cease upon the
expiration of the Initial Term (and any extension thereof in accordance with
Section 4.02) for such Transitional Service, and ASARCO's obligations to provide
all of the Transitional Services shall immediately cease upon the termination of
this Agreement. Upon the cessation of ASARCO's obligation to provide any
Transitional Service, Buyer shall immediately cease using, directly or
indirectly, such Transitional Service (including, without limitation, any and
all ASARCO software or third party software provided through ASARCO, or computer
systems or equipment).
(c) ASARCO SHALL HAVE NO LIABILITY OF ANY KIND OR NATURE WHATSOEVER
(INCLUDING, WITHOUT LIMITATION, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR
PUNITIVE DAMAGES) TO BUYER, OR TO ANYONE CLAIMING BY OR THROUGH BUYER, FOR
ASARCO'S CEASING TO PROVIDE ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE
INITIAL TERM (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR
SUCH TRANSITIONAL SERVICE OR ASARCO'S TERMINATION OF THIS AGREEMENT IN
ACCORDANCE WITH THE TERMS HEREOF. BUYER SHALL HOLD ASARCO HARMLESS AND WAIVES
ANY AND ALL RIGHTS, AT LAW OR IN EQUITY, THAT IT MAY HAVE TO BRING ANY SUIT,
INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, OR TO ANY CLAIMS, DAMAGES,
LOSS, COSTS (INCLUDING ATTORNEY FEES), ACTIONS, OR LIABILITY AGAINST ASARCO OR
ASARCO'S EMPLOYEES, AGENTS, ASSIGNEES, SUBSIDIARIES OR AFFILIATES ARISING OUT OF
ASARCO'S CEASING TO PROVIDE ANY TRANSITIONAL SERVICE UPON THE EXPIRATION OF THE
INITIAL TERM (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR
SUCH TRANSITIONAL SERVICE OR ASARCO'S TERMINATION OF THIS AGREEMENT IN
ACCORDANCE WITH THE TERMS HEREOF.
4.05 Survival of Certain Obligations. Without prejudice to the survival of
the other agreements of the Parties, the following obligations shall survive the
termination of this Agreement: (a) for the period set forth therein, the
obligations of each Party under Section Articles 3 and 5, and (b) ASARCO's right
to receive the compensation for the Transitional Services provided, and
reimbursement of the costs and expenditures described in Section 2.01 above
incurred, prior to the effective date of termination, and ASARCO's obligations
under Section 4.06 below.
4.06 Post Termination Arrangements. In the event of termination of this
Agreement, ASARCO shall deliver to Buyer all records, data, confidential
information and reports relating to Buyer or the Business and obtained,
generated or prepared by ASARCO in furtherance of the terms hereof and the
Parties shall take all steps as may be reasonably required to complete
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<PAGE>
any final accounting between them and to provide for an orderly transfer of the
Transitional Services to Buyer or to whom Buyer may direct.
ARTICLE 5
INDEMNITIES
5.01 ASARCO shall indemnify, defend and hold harmless Buyer from and
against any and all Claims and Damages resulting from the provision of or
failure to provide the Transitional Services caused by the failure by ASARCO to
act as a Reasonable and Prudent Operator up to an amount not to exceed the
limitation on ASARCO's liability under Section 1.04.
5.02 Buyer shall indemnify defend and hold harmless ASARCO from and against
any and all Claims and Damages resulting from the receipt of (or failure to
receive) Transitional Services caused by the failure by Buyer to act as a
Reasonable and Prudent Operator up to an amount not to exceed the limitation on
Buyer's liability under Section 1.04.
5.03 Priority Among Agreements. In the event of any inconsistency between
the terms of this Agreement (including, without limitation, any schedule,
appendix or other, attachment thereto) and the Purchase Agreement, the terms of
the Purchase Agreement will govern, provided that Section 5.01 hereof shall
supersede the indemnity obligations of Buyer pursuant to Article 8 of the
Purchase Agreement to the extent that Section 5.01 hereof is applicable.
5.04 Term of Indemnity. The indemnities contained in this Article shall
survive for a period of three (3) years after the termination of the
Transitional Service at issue for any reason.
ARTICLE 6
MISCELLANEOUS
6.01 Amendments. This Agreement shall not be amended or modified except in
writing signed by the Parties.
6.02 Successors and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties hereto and their respective successors and
permitted assigns.
6.03 Merger. All understandings, representations, warranties and
agreements, if any, heretofore existing between the Parties regarding the
Transitional Services are merged into this Agreement, including the Schedules,
Exhibits and Appendices attached hereto, which fully and completely express the
agreement of the Parties with respect to the subject matter hereof.
6.04 Notices. All invoices, notices, consents, requests, approvals, and
other communications provided for or required herein, and all legal process in
regard thereto, must be in writing and shall be deemed validly given, made or
served, (a) when delivered personally or sent by telecopy to the facsimile
number indicated below with a required confirmation copy sent in accordance with
subparagraph (c) below; or (b) on the next business day after delivery to a
nationally-recognized express delivery service with instructions and payment for
overnight
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<PAGE>
delivery; or (c) on the fourth day after deposited in any depository
regularly maintained by the United States postal service, postage prepaid,
certified or registered mail, return receipt requested, addressed to the
following addresses (unless otherwise specified in this Agreement), or to
such other address as the Party to be notified shall have specified, from
time to time, to the other Party in accordance with this paragraph:
If to ASARCO:
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Attention: General Counsel
Fax:
If to Buyer:
The Doe Run Resources Corporation
Suite 300
1801 Park 270 Drive
St. Louis, MO 63146
Attention:
Fax:
6.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and the State of New
York.
6.06 Headings. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Articles
or Sections in which they appear or to which they relate.
6.07 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law. If any portion of this Agreement is declared invalid for any
reason in any jurisdiction, such declaration shall have no effect upon the
remaining portions of this Agreement, which shall continue in full force and
effect as if this Agreement had been executed with the invalid portions thereof
deleted; provided, that the entirety of this Agreement shall continue in full
force and effect in all other jurisdictions.
6.08 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
6.09 Rights of the Parties. Nothing expressed or implied in this Agreement
is intended or will be construed to confer upon or give any person or entity,
other than the Parties and their respective subsidiaries and affiliates, any
rights or remedies under or by reason of this Agreement or any transaction
contemplated thereby.
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6.10 Reservation of Rights. Either Party's waiver of any of its remedies
afforded hereunder or at law is without prejudice and shall not operate to waive
any other remedies which that Party shall have available to it, nor shall such
waiver operate to waive the Party's rights to any remedies due to a future
breach, whether of a similar or different nature.
6.11 Force Majeure. (a) As used herein, "Force Majeure" means, for either
Party, any circumstance(s) beyond the reasonable control of that Party and other
than that caused by the failure of such Party to act as a Reasonable and Prudent
Operator, which prevents full performance, including, but not limited to: acts
of God; fire; accident; flood; explosion; war; hurricanes; tornadoes; riots;
Government Authority action or inaction or request of Governmental Authority,
including any law, decree, order or regulation of any Governmental Authority
whether federal, state or local, strike, collective bargaining obligations,
labor dispute or shortage, injunction, inability to obtain, or shortage of,
fuel, utilities, equipment, transportation or materials, accident to,
malfunction or breakage of machinery, equipment or apparatus.
(b) Provided always that the Party in question operates as a Reasonable and
Prudent Operator to prevent and/or mitigate an event constituting Force Majeure,
the Party affected shall be excused from performance of its obligations under or
pursuant to this Agreement if, and to the extent that, performance of such
obligations is delayed, hindered or prevented by such Force Majeure. For the
avoidance of doubt, a Force Majeure event affecting a third party supplier of
any Transitional Service and any failure by such a supplier to supply (in whole
or in part) any Transitional Service for any other reason (except in the event
of a breach, or alleged breach by ASARCO of its contract with such third party
supplier) shall constitute Force Majeure hereunder if, and to the extent that
such event or failure prevents, hinders or delays ASARCO or its third party in
the performance of its obligations hereunder. A Force Majeure may excuse a delay
in making any payment due hereunder where the delay in payment was caused by the
Force Majeure, but otherwise the parties shall continue to make payments due
hereunder for the particular Transitional Service in question. Notwithstanding
the above, and subject to the last sentence of Section 6.11(f) below with regard
to permanent substitute Transitional Services, with respect to any Force
Majeure, any fee payable to ASARCO pursuant to any Transitional Service set
forth in the Appendixes hereto shall be paid by the Buyer to ASARCO.
(c) If a Party is in a position of Force Majeure or is aware of the
likelihood of a situation constituting Force Majeure arising, it shall notify
the other Party in writing promptly of the cause and extent of such
non-performance or likely non-performance, the date or likely date of
commencement thereof and the means proposed to be adopted to remedy or abate the
Force Majeure; and the parties shall without prejudice to the other provisions
of this Section 6.11 consult with a view to taking such steps as may be
appropriate to mitigate the effects of such Force Majeure.
(d) The Party subject to Force Majeure shall act as follows:
(i) The affected Party shall coordinate closely with the other Party, shall
keep the other Party regularly informed during the course of the Force Majeure
as to when resumption of performance shall or is likely to occur, and shall use
its reasonable best
-10-
<PAGE>
efforts to remedy or abate the Force Majeure as expeditiously as possible;
however, nothing herein shall require a Party to settle or compromise any strike
or labor dispute.
(ii) The affected Party shall resume performance as expeditiously as
possible after termination of the Force Majeure or the Force Majeure has abated
to an extent which permits resumption of such performance.
(iii) The affected Party shall promptly notify the other Party when the
Force Majeure has terminated or abated to an extent which permits resumption of
performance to occur.
(e) If the Party affected by Force Majeure complies with the provisions of
Section 6.11, it shall not be liable for any failure to perform its obligations
hereunder arising from such Force Majeure.
(f) Upon the occurrence and during the continuance of a Force Majeure, a
Buyer shall be entitled to seek to obtain substitute Transitional Services on a
temporary or permanent basis. ASARCO shall cooperate with the Buyer's efforts to
obtain temporary substitute Transitional Services. On the later of: (i).the
thirtieth (30th) day after the date on which the Buyer notifies ASARCO that it
intends to exercise its right to obtain permanent substitute Transitional
Services and (ii) any date of termination specified in such notice, ASARCO will
have no further obligation to provide and the Buyer shall have no further
obligation to accept such Transitional Service or Transitional Services and all
costs associated with such Transitional Service shall cease to accrue.
6.12 Relationship of the Parties. It is expressly understood and agreed
that in rendering the Transitional Services hereunder, ASARCO is acting as an
independent contractor and that this Agreement does not constitute either Party
as an employee, agent or other representative of the other Party for any purpose
whatsoever. Neither Party has the right or authority to enter into any contract,
warranty, guarantee or other undertaking in the name or for the account of the
other Party, or to assume or create any obligation or liability of any kind,
express or implied, on behalf of the other Party, or to bind the other Party in
any manner whatsoever, or to hold itself out as having any right, power or
authority to create any such obligation or liability on behalf of the other or
to bind the other Party in any manner whatsoever (except as to any actions taken
by either Party at the express written request and direction of the other
Party).
IN WITNESS WHEREOF, the parties hereto have caused this Transitional
Services Agreement to be executed the day and year first above written.
ASARCO INCORPORATED
By
-----------------------------------
Name:
Title:
-11-
<PAGE>
THE DOE RESOURCES CORPORATION
By
-----------------------------------
Name:
Title:
-12-
<PAGE>
APPENDIX A
Transitional Services
A(l) Human Resources
A(2) Information Systems
A(3) Finance
A(4) Logistics Services
<PAGE>
EXHIBIT VIII
Form of Special Warranty
Deed - Sugar Creek
<TABLE>
<CAPTION>
Owner/Responsible Taxpayer This Instrument Prepared By: Map Group Parcel
<S> <C> <C> <C> <C>
- ----------------------- ----------------------
- ----------------------- ----------------------- ------ ------ ------
</TABLE>
SPECIAL WARRANTY DEED
THIS INDENTURE is made as of the __day of ____________, 1998, between THE
DOE RUN RESOURCES CORPORATION, a New York corporation with its principal
business office at Suite 300, 1801 Park 270, St. Louis, Missouri 63146
(hereinafter called "First Party"), and ASARCO INCORPORATED, a New Jersey
corporation, with its principal business office at 180 Maiden Lane, New York,
New York 10038 (hereinafter called "Second Party").
W I T N E S S E T H:
THAT for and in consideration of the sum of One Dollar ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, First Party has granted, bargained, sold and conveyed, and does
hereby grant, bargain, sell and convey unto Second Party the following described
premises, to wit:
[legal description of owned Sugar Creek Project land]
together with the hereditaments and appurtenances thereunto appertaining, hereby
releasing all claims to homestead and dower therein.
TO HAVE AND TO HOLD the said premises to the said Second Party, its
successors and assigns, forever.
AND said First Party for itself and for its successors and assigns, does
hereby covenant with said Second Party, its successors and assigns, that First
Party will forever warrant and defend the said premises and the title thereto
against the lawful claims of all persons claiming by, through or under First
Party; but First Party warrants no further or otherwise
<PAGE>
EXHIBIT VIII
Page 2
IN WITNESS WHEREOF, the First Party has caused this instrument to be
executed by its duly authorized officer, as of the date first above written.
THE DOE RUN RESOURCES
CORPORATION
By:
-----------------------------
Name:
Title:
STATE OF _____________)
)
COUNTY OF ____________)
Before me, the undersigned authority, a Notary Public in and for said
County and State, personally appeared ______________ and proved to me on the
basis of satisfactory evidence, and who, upon oath, acknowledged himself to be
the ________ of THE DOE RUN RESOURCES CORPORATION, the within named grantor, a
New York corporation, and that be as such ______________, executed the foregoing
instrument for the purpose therein contained, by signing the name of THE DOE RUN
RESOURCES CORPORATION by himself as such
____________________.
Witness my hand and seal at office this __________ day of ___________1998.
-----------------------------------
Notary Public
My Commission Expires:
---------------
<PAGE>
EXHIBIT VIII
Page 3
STATE OF _____________)
)
COUNTY OF ____________)
I hereby swear or affirm that the actual consideration or true value of
this transfer, whichever is greater, is ___________.
-----------------------------------
Affiant
Sworn to and subscribed before me this ______ day of _________, 199_.
-----------------------------------
Notary Public
My Commission Expires:
----------------
The preparer of this instrument makes no representations nor warranties
concerning the accuracy of the foregoing property description, nor as to the
status of the title to the property conveyed herein.
<PAGE>
EXHIBIT IX
ENVIRONMENTAL METHODOLOGY
The following methodology concepts will be used by the Parties to determine
the allocation of liability for Environmental Claims under the Asset Purchase
and Sale Agreement dated July 28, 1998 (the "Agreement") between ASARCO
INCORPORATED ("Seller") and THE DOE RUN RESOURCES CORPORATION ("Buyer") in
the specific situations described. For situations not described here, the
general principles of the Agreement shall prevail. Capitalized terms which
are defined in the Agreement will have the same respective meanings when used
in this Schedule.
1. Offsite Soil Contamination.
If the Environmental Claim arises from the spillage of material or offsite
mechanical redistribution of material, it shall be allocated to the Party
responsible for the spill or mechanical redistribution or who owned the Business
where the spill or movement occurred. Spill does not include a dam break.
For the Smelter, if the Environmental Claim arises from non-sudden releases
of materials from regular air pollution emissions, then the liability shall be
allocated all or in part according to an air pollution deposition model: US
Environmental Protection Agencies Model ISC-LT3 in deposition mode, or an
equivalent or newer model if agreed to by the Parties. The historical emission
inventory records updated by later fugitive estimates shall be used to model on
a year to year basis and a proportion of impact calculated from the sum impact
of all of the years of operation of each party. If there are operational changes
in the facility that affect emissions or the location of emissions, or changes
in the concentrates that affect chemistry, those changes will be reflected in
the emissions inventory and modeling. The meteorological conditions shall be
taken from a representative multiyear period of onsite data and applied to the
entire period if not readily available for the entire period. This modeling
approach would be applicable to that portion of offsite contamination related to
smelter emissions.
For the Mines, if the Environmental Claim arises from non-sudden releases
of materials from regular air pollution emissions substantially from windblown
tailings, then the liability shall be allocated according to the ratio of
tailings deposited in the tailings pile. The deposition of tailings prior to the
purchase by the Buyer shall be determined from the historical operating records
of the Business for all periods prior to Closing made available during due
diligence (the "Baseline Data"). If either Party states in writing to the other
that it believes the facts suggest that a dispersion model will be a more
accurate representation of the allocation, then the US Environmental Protection
Model ISC-LT3 in deposition mode shall be used or a newer or equivalent model if
agreed to by the parties. The emission inventory shall be generated using the
TRC algorithm "WIND" or an improved function if approved by the parties. If
there are operational changes in the facility that affect emissions or the
location of emissions, or changes in the concentrates that affect chemistry,
those changes will be reflected in the emissions inventory and modeling to the
extent possible. In those situations where such management changes cannot be
quantitatively modeled, then the general principles of the Agreement shall
prevail.
<PAGE>
2. Waste Material Removal.
If the Environmental Claim arises from the process or non-process material
or contaminated material specifically requiring it to be relocated, stabilized,
and/or landfilled, it shall be allocated to the Party responsible for the
generation of the material or that owned the Business when the material was
generated. If the material was generated under the ownership of both Parties,
then the liability shall be allocated by the ratio of the material generated
according to the estimated production from the Baseline Data (and other
information available from historical data) and the subsequent production
records of the Buyer. To the extent such relevant records were not kept for a
specific material, estimates shall be made.
3. Groundwater Contamination.
If the Environmental Claim arises from the contamination of groundwater,
then the responsibility shall be allocated all or in part based on a groundwater
dispersion model. The recommended models to use are published by the Unites
States Geological Survey known as MODCOM or newer or updated models if agreed to
by the Parties. When used with another module PHREEQC, it can be used to predict
the impact of multiple source contributions to stream contamination and
groundwater contamination. The material stockpile inventories which are believed
to be responsible for the liability (as nominated by either one of the Parties)
will be used as they are available from the Baseline Data or other historical
information and the subsequent production records of Buyer. Buyer as the ongoing
operator will make reasonable efforts to manage the materials left behind by
Seller either in the manner that they had been managed or in a manner which will
not exasperate any problems that might potentially arise.
4. Surface Water Impacts and Stream Sediments.
If the Environmental Claim arises from the contamination of Surface
Water or Stream Sediments on a non-sudden basis, then the responsibility
shall be allocated according to the contribution of each party to the
contamination for each period of time in question. Water contamination
liability shall be the responsibility of the operator for contributions to
constituents of water quality from currently treated releases. For releases
due to historic deposition of materials, the responsibility shall be
allocated according to the ratio of deposition of materials where one source
is found to be responsible. Where multiple sources are found to be
responsible, the responsibility shall be determined based on a composite
stream water contamination model consisting of contributions from the
groundwater models referenced in section 3 above, and current emissions from
the water treatment plant or any untreated releases. The Parties shall rely
on models published by the EPA's Center for Exposure Assessment Modeling for
this purpose or an equivalent model or updated version as agreed by the
Parties.
5. Ecotoxic Impacts.
The responsibility for Environmental Claims arising from ecotoxic impacts
shall be allocated based on the underlying contamination for which a Party is
able to successfully demonstrates impact was caused. The allocation of liability
for the contamination shall be determined from the preceding paragraphs.
2
<PAGE>
6. Human Health Risks.
The responsibility for the liability arising from human health risks due
to heavy metal contamination shall be allocated based on the underlying
contamination for which a Party, regulatory or non-government-organization is
able to successfully claim impact. The time factor for which the impact or
health effects are claimed is also a basis for allocation of responsibility.
For example, if a claimant claimed damages for injury incurred when he lived
near the Smelter or Mine as a child, then the allocation will be based on the
underlying contamination contributed during that time period.
------------------------
This Exhibit IX constitutes an integral part of the Agreement and not a
separate and distinct undertaking of the Parties.
3
<PAGE>
EXHIBIT 5.1
[Letterhead of Cadwalader, Wickersham & Taft]
July 31, 1998
The Doe Run Resources Corporation
Fabricated Products, Inc.
Doe Run Cayman Ltd.
Doe Run Mining S.R. Ltda.
Doe Run Peru S.R. Ltda.
c/o The Doe Run Resources Corporation
1801 Park 270 Drive
St. Louis, MO 63146
Re: Registration Statement on Form S-4 related to 11 1/4% Senior Notes due
2005, Series B and Floating Interest Rate Senior Notes due 2003, Series B
Gentlemen:
We have acted as special counsel for The Doe Run Resources Corporation, a New
York corporation ("Doe Run"), Fabricated Products, Inc., a Delaware corporation
("FPI"), Doe Run Cayman Ltd., a Cayman Islands company ("Doe Run Cayman"), Doe
Run Mining S.R. Ltda., a Peruvian company ("Doe Run Mining"), and Doe Run Peru
S.R. Ltda., a Peruvian company ("Doe Run Peru"), (collectively, the "Issuers")
in connection with the preparation of the Issuers' Registration Statement on
Form S-4 pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), being filed with the Securities and Exchange Commission (the
"Commission") on the date hereof and to which this opinion letter is an exhibit.
The Registration Statement relates to Doe Run's offer to exchange its 11 1/4%
Senior Notes due 2005, Series B and Floating Interest Rate Senior Notes due
2003, Series B (collectively, the "Exchange Notes") for any and all of its
outstanding 11 1/4% Senior Notes due 2005, Series A and Floating Interest Rate
Senior Notes due 2003, Series A (collectively, the "Old Notes"), respectively.
The Old Notes were issued, and the Exchange Notes are to be issued, under an
indenture, dated as of March 12, 1998 (the "Indenture"), by and among Doe Run,
as issuer, and FPI, Doe Run Cayman, Doe Run Mining and Doe Run Peru, as
guarantors (collectively, in such capacity, the "Guarantors"), and State Street
Bank and Trust Company, as trustee.
In rendering the opinions expressed below, we have examined and relied upon,
among other things, (a) the Registration Statement, including the Prospectus
constituting a part thereof, (b) the Indenture filed as an exhibit to the
Registration Statement and (c) originals or copies, certified or otherwise
identified to our satisfaction, of such certificates, corporate, public or other
records, and other documents as we have deemed appropriate for the purpose of
rendering this opinion letter. In connection with such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the
<PAGE>
The Doe Run Resources Corporation
Fabricated Products, Inc.
Doe Run Cayman,Ltd.
Doe Run Mining S.R. Ltda.
Doe Run Peru S.R. Ltda.
c/o The Doe Run Resources Corporation
July 31, 1998
Page 2
conformity to original documents and instruments of all documents and
instruments submitted to us as copies or specimens, and the authenticity of the
originals of such documents and instruments submitted to us as copies or
specimens. We have also made such investigations of law as we have deemed
appropriate. In addition, we have assumed that the Exchange Notes and the
guarantees of the Guarantors (the "Guarantees") will be executed and delivered
in substantially the form in which they are filed as exhibits to the
Registration Statement.
Based upon the foregoing and subject to the qualifications set forth herein, we
are of the opinion that:
1. The Exchange Notes and the Guarantees will be legally and validly issued
and binding obligations of Doe Run and the Guarantors, as the case may be,
(except to the extent enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws affecting the enforcement of creditors' rights generally
and by the effect of general principles of equity, regardless of whether
enforceability is considered in a proceeding in equity or at law), when the
Registration Statement, as finally amended, shall have become effective
under the Securities Act and the Indenture shall have been qualified under
the Trust Indenture Act of 1939, as amended, and (b) the Exchange Notes
shall have been duly executed, authenticated and delivered, and the
Guarantees shall have been duly executed and delivered, as contemplated
in the Registration Statement.
2. The statements made in the Prospectus constituting a part of the
Registration Statement under the caption "Certain U.S. Federal Income Tax
Considerations," insofar as such statements purport to summarize certain
federal income tax laws of the United States of America, constitute a fair
summary of the principal federal income tax consequences of an investment
in the Exchange Notes.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and to the reference to this Firm in the Prospectus
constituting a part of the Registration Statement under the caption "Legal
Matters," without admitting that
<PAGE>
The Doe Run Resources Corporation
Fabricated Products, Inc.
Doe Run Cayman,Ltd.
Doe Run Mining S.R. Ltda.
Doe Run Peru S.R. Ltda.
c/o The Doe Run Resources Corporation
July 31, 1998
Page 3
we are "experts" within the meaning of the Securities Act or the rules and
regulations of the Commission issued thereunder with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
<PAGE>
Exhibit 10.9
SENOR NOTARIO:
Sirvase usted extender en su Registro de Escrituras Publicas, una por la cual
conste el Contrato de Linea de Credito en Moneda Extranjera que celebran, de
una parte, el BANCO DE CREDITO DEL PERU, con Registro Unico de Contribuyentes
No. 10004721, con domicilio en Calle Centenario No. 156, esquina con Av.
Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, representado por
el senor Jesus Antonio Zamora Leon y la senora Aida Lucia Ghiglino Zimic,
facultados al efecto segun poderes inscritos en los asientos 19-C y 32-C de
la ficha 117464 del Registro Mercantil de Lima, respectivamente, a quien en
adelante se denominara EL BANCO; y, de la otra parte DOE RUN PERU S.R.L., con
Registro Unico de Contribuyentes No. 37630381, con domicilio en Av. Victor
Andres Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real
3, Piso 9, San Isidro, debidamente representada por el senor Kenneth Richard
Buckley, facultado al efecto segun poder otorgado en Junta General de Socios
de fecha 15 de mayo de 1998, a quien en adelante se denominara EL CLIENTE; en
los terminos y condiciones siguientes:
PRIMERA: DEFINICIONES
En el presente contrato, los terminos que aparecen a continuacion tendran las
definiciones que se senalan:
1.1. CONTRATOS DE GARANTIA.- Son el Contrato de Prenda de Minerales y el
Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza
que suscribe EL CLIENTE a favor del BANCO a la fecha de celebracion de este
contrato.
1.2 DEUDA PERMITIDA.- Es la deuda u obligacion financiera que consiste en:
(i) deudas y obligaciones financieras del CLIENTE derivadas del presente
contrato;
(ii) deudas y obligaciones financieras que aparecen en los Estados
Financieros trimestrales del CLIENTE al cierre del trimestre previo a
la fecha de suscripcion de este contrato;
(iii) deudas y obligaciones financieras derivadas de los Contratos de
Leasing y Lease-back celebrados por EL CLIENTE con posterioridad a la
fecha de suscripcion de este contrato siempre que el monto adeudado
por concepto de principal de dichas obligaciones no exceda en forma
conjunta de US $ 20'000,000.00.
(iv) deudas y obligaciones financieras derivadas de Contratos de Cobertura
celebrados por EL CLIENTE a efectos de protegerse contra la eventual
variacion de la tasa de interes siempre que el monto adeudado por
concepto de principal en dichos contratos no exceda el monto adeudado
por concepto de principal en los contratos a los que sirve de
proteccion, y las obligaciones derivadas de Contratos de Cobertura
(HEDGE AGREEMENTS) celebrados en el
<PAGE>
curso ordinario de los negocios y relacionados exclusivamente a la
venta de la produccion local del CLIENTE.
(v) deudas y obligaciones financieras incurridas en la renovacion,
extension, sustitucion y/o refinanciacion de cualquier deuda
mencionada en los literales (ia), (iib) y este mismo literal (v) del
presente numeral, siempre y cuando dicha renovacion, extension,
sustitucion y/o refinanciacion sea en condiciones iguales o mas
favorables y no resulte en un incremento en el monto por concepto de
principal, en forma agregada, de las deudas representadas por dichos
acuerdos.
(vi) deudas y obligaciones financieras que EL CLIENTE pueda incurrir en el
curso ordinario de sus negocios, tales como: cuentas comerciales,
gastos acumulados, pago de impuestos, cartas-fianza para garantizar el
pago de obligaciones aduaneras y alquiler de equipos.
(vii) otras deudas y obligaciones financieras que EL CLIENTE pueda incurrir
fuera de la Linea de Credito que se le concede en virtud de este
contrato, siempre que el monto por concepto de principal de dichas
deudas y obligaciones financieras no exceda, en forma conjunta, la
suma de US $ 5'000,000.00
1.3. EFECTO MATERIAL ADVERSO PARA EL CLIENTE.- Es cualquier evento o condicion
que origine un efecto adverso sustancial en (a) el negocio, condicion
(financiera u otra), operaciones o propiedades del CLIENTE, (b) la capacidad del
CLIENTE para cumplir con sus obligaciones bajo el presente contrato o alguno de
los Contratos de Garantia, o (c) los derechos creados en los Contratos de
Garantia.
1.4. EVENTO DE INCUMPLIMIENTO.- Son las circunstancias detalladas en la
Clausula Decimo Primera de este contrato, que originan las consecuencias
mencionadas en la Clausula Decimo Segunda de este contrato.
1.5. FECHA DE VENCIMIENTO FINAL.- Es la fecha de vencimiento del plazo de
utilizacion de la Linea de Credito, conforme lo indicado en el numeral 3.3 de la
Clausula Tercera de este contrato.
1.6. FECHA DE VENCIMIENTO.- Es la fecha de vencimiento de cada uno de los
prestamos y/o creditos otorgados por EL BANCO a favor del CLIENTE en el marco de
la Linea de Credito a que se refiere este contrato.
1.7. MONTO BASE DEL PRESTAMO.- Es el monto resultante de la suma de las
siguientes cuentas del activo del CLIENTE, en los porcentajes que se senalan:
(i) 85% de las "cuentas por cobrar de compradores elegibles", (ii) 70% de las
"cuentas inventario elegibles de concentrados adquiridos", (iii) 30% de las
"cuentas inventario elegibles de materias primas y productos en proceso" y (iv)
80% de las "cuentas inventario elegibles de productos finales"; utilizandose
para tal efecto las definiciones que se contemplan en los siguientes parrafos.
<PAGE>
Se entiende por "cuenta por cobrar de compradores elegibles" a aquella(s)
cuenta(s) del CLIENTE elegida(s) por EL BANCO, a su sola discrecion, para ser
incluida(s) en el computo del Monto Base del Prestamo. A efectos de determinar
el monto de la(s) cuenta(s) a ser computado se deducira del valor nominal de
dicha(s) cuenta(s) el monto de los descuentos, reembolsos, deducciones,
reclamos, creditos, cargos, reintegros o rebajas. Para efectos del computo del
valor de aquella(s) cuenta(s) que no se encuentre(n) en dolares americanos, se
procedera a efectuar la conversion correspondiente al tipo de cambio venta de la
fecha del calculo. Salvo que EL BANCO asi lo determine, en ningun caso
constituiran "cuentas por cobrar de compradores elegibles":
(i) aquellas derivadas de la(s) venta(s) efectuadas por EL CLIENTE a su
empresa matriz, empresas subsidiarias o empresas afiliadas,
entendiendose por estas ultimas a aquellas que estan bajo el control
de o bajo el control comun con EL CLIENTE;
(ii) aquellas cuyo plazo para el pago es mas extenso que aquel normalmente
utilizado por EL CLIENTE en sus transacciones comerciales;
(iii) aquellas que se encuentran impagas por mas de sesenta (60) dias desde
su fecha de vencimiento o por mas de noventa (90) dias desde su fecha
de facturacion;
(iv) aquellas cuyo deudor tiene mas del cincuenta por ciento (50%) de sus
deudas como inelegibles de conformidad con el criterio establecido en
el numeral (iii) anterior;
(v) aquellas que, agregadas a las otras cuentas del mismo deudor, excedan
en valor nominal al 10% de todas las cuentas del CLIENTE pendientes de
cobro, pero solo en cuanto al exceso;
(vi) aquellas cuyo deudor es, a su vez, un acreedor del CLIENTE con derecho
a compensacion o dicho deudor ha reclamado o discutido su
responsabilidad respecto de la cuenta, pero solo en cuanto al monto
por el que el deudor tiene derecho a compensacion o ha reclamado o
discutido al CLIENTE;
(vii) aquellas cuyo deudor ha iniciado voluntariamente o le han iniciado un
procedimiento de reestructuracion patrimonial, insolvencia y/o
quiebra, se ha liquidado o disuelto, ha suspendido el desarrollo de
sus negocios o se ha declarado insolvente;
(viii) aquellas derivadas de una venta en la que, por alguna razon, el deudor
tenga el derecho a retornar el bien o EL CLIENTE tenga la obligacion
de recomprarle el mismo;
(ix) aquellas derivadas de una venta respecto de la cual las mercaderias no
han sido aun embarcadas y enviadas a la localidad designada por el
deudor de la cuenta o que no representa una venta definitiva;
<PAGE>
(x) aquellas respecto de las cuales el deudor ha entregado con
anterioridad a la cuenta un monto, valor o bien en garantia, pero solo
en cuanto a dicho monto, valor o bien.
(xi) aquellas que por alguna otra razon sean ilegales o hayan sido
ilegamente constituidas.
Se entiende por "cuentas inventario elegibles de concentrados adquiridos" al
inventario de concentrados adquiridos del CLIENTE que, a criterio y discrecion
del BANCO, cumple con los siguientes requisitos:
(i) consista en concentrados localizados o ubicados fisicamente en las
plantas o establecimientos del CLIENTE o en almacenes generales de
deposito; los mismos que el CLIENTE debera especificar por escrito al
BANCO dentro de los treinta (30) dias calendario siguientes a la fecha
de suscripcion de este contrato y de cada uno de sus aniversarios
--salvo en el caso del traslado de una parte importante de estos
concentrados a lugares no especificados por el CLIENTE al BANCO en el
plazo senalado, supuesto en el cual el CLIENTE se obliga a dar aviso
inmediato al BANCO indicando el lugar de destino--, o que, estando
depositados, localizados o ubicados fisicamente en lugares distintos a
los mencionados, pero siempre dentro del territorio de la Republica
del Peru, puedan ser inspeccionados libremente por EL BANCO y no pese
sobre los mismos derecho o gravamen alguno a favor del depositario;
(ii) este en buena condicion, no danado ni obsoleto, cumpliendo con todos
los estandares establecidos por cualquier autoridad gubernamental que
tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea
normalmente usable o vendible en el curso normal de los negocios del
CLIENTE;
(iii) no sea inventario consignado; y
(iv) sea comerciable.
Se entiende por "cuentas inventario elegibles de materias primas y productos en
proceso" al inventario de materias primas y productos en proceso del CLIENTE
que,
(A) tratandose de materias primas, cumpla, a criterio y discrecion del BANCO,
con los siguientes requisitos:
(i) consista en materias primas localizadas o ubicadas fisicamente en las
plantas o establecimientos del CLIENTE o en almacenes generales de
deposito; los mismos que el CLIENTE debera especificar por escrito al
BANCO dentro de los treinta (30) dias calendario siguientes a la fecha
de suscripcion de este contrato y de cada uno de sus aniversarios
--salvo en el caso del traslado de una parte importante de estas
materias primas a lugares no especificados por el CLIENTE al BANCO en
el plazo senalado, supuesto en el cual el CLIENTE se obliga a dar
aviso inmediato al BANCO indicando el lugar de destino--, o que,
estando
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localizadas o ubicadas fisicamente en lugares distintos a los
mencionados, pero siempre dentro del territorio de la Republica del
Peru, puedan ser inspeccionadas libremente por EL BANCO y no pese
sobre las mismas derecho o gravamen alguno a favor del depositario;
(ii) este en buena condicion, no danadas ni obsoletas, cumpliendo con todos
los estandares establecidos por cualquier autoridad gubernamental que
tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea
normalmente usable o vendible en el curso normal de los negocios del
CLIENTE;
(iii) no sea inventario consignado; y
(iv) sea comerciable; Y
(B) tratandose de productos en proceso, cumpla, a criterio y discrecion del
BANCO, con los siguientes requisitos:
(i) sean productos en proceso que esten en buen estado;
(ii) sean vendibles, comerciables y no obsoletos;
(iii) este localizado o ubicado fisicamente en la planta y/o
establecimientos del CLIENTE o en cualquier otro lugar autorizado por
EL BANCO, dentro del territorio de la Republica del Peru, y sea
posible identificarla en forma separada respecto de los demas bienes
ubicados en los referidos lugares;
(iv) sea de propiedad exclusiva del CLIENTE, el mismo que tiene legitimo
titulo para transferir el mismo; y
(v) esta libre de gravamen o medida alguna que pueda afectar la
titularidad del CLIENTE.
Se entiende por "cuentas inventario elegibles de productos finales" al
inventario de productos finales del CLIENTE que, a criterio y discrecion del
BANCO, cumple con los siguientes requisitos:
(i) consista en productos finales localizados o ubicados fisicamente en las
plantas o establecimientos del CLIENTE o en almacenes generales de
deposito; los mismos que el CLIENTE debera especificar por escrito al BANCO
dentro de los treinta (30) dias calendario siguientes a la fecha de
suscripcion de este contrato y de cada uno de sus aniversarios --salvo en
el caso del traslado de una parte importante de estos productos finales a
lugares no especificados por el CLIENTE al BANCO en el plazo senalado,
supuesto en el cual el CLIENTE se obliga a dar aviso inmediato al BANCO
indicando el lugar de destino--, o que, estando depositados, localizados o
ubicados fisicamente en lugares distintos a los mencionados, pero siempre
dentro del territorio de la Republica del Peru, puedan ser inspeccionados
libremente por EL BANCO y no pese sobre los mismos derecho o gravamen
alguno a favor del depositario;
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(ii) este en buena condicion, no danados ni obsoletos, cumpliendo con todos
los estandares establecidos por cualquier autoridad gubernamental que
tenga autoridad respecto de dichos bienes, su uso y/o su venta y sea
normalmente usable o vendible en el curso normal de los negocios del
CLIENTE;
(iii) no sea inventario consignado; y
(iv) sea comerciable.
1.8. OBLIGACIONES.- Son, en general, todos los compromisos, deberes y
obligaciones asumidas por EL CLIENTE frente al BANCO en virtud de este contrato
y, en particular, aquellos compromisos y obligaciones detallados en la Clausula
Decima.
1.9. OBLIGACIONES FINANCIERAS.- Son los compromisos y obligaciones asumidas por
EL CLIENTE frente al BANCO en virtud de lo dispuesto por el numeral 10.1 de la
Clausula Decima de este contrato.
1.10. PATRIMONIO NETO CONSOLIDADO MINIMO.- El Patrimonio Neto Consolidado
Minimo del CLIENTE es de US$275'000,000.00 (DOSCIENTOS SETENTICINCO Y 00/100
MILLONES DE DOLARES AMERICANOS); donde el Patrimonio Neto Consolidado es la suma
de (i) todas las partidas que, de conformidad con los Principios de Contabilidad
Generalmente Aceptados (GAAP) en el Peru, figuran como patrimonio en su Balance
y (ii) el monto correspondiente a las participaciones representativas del
capital social. Para efectos de determinar el Patrimonio Neto Consolidado Minimo
de Doe Run Peru se deducira de la suma que resulte de la formula anterior el
monto de US$ 125 millones correspondiente al prestamo efectuado por Doe Run Peru
a Doe Run Mining, o, en caso de pre-pago o amortizacion, el monto menor que por
concepto de principal este pendiente de pago, asi como el monto correpondiente a
otros prestamos y adelantos entre companias afiliadas.
1.11. RATIO DE COBERTURA DE LAS OBLIGACIONES FIJAS CONSOLIDADAS.- Es el
Ratio de 2.25 A 1.0, como minimo, determinado en base a proyecciones (PRO FORMA
BASIS) para el Plazo de Utilizacion de la Linea de Credito; que se define como
el ratio DE (i) UAIIDA (tal como se define mas adelante en este mismo parrafo)
durante los cuatro trimestres fiscales previos a la fecha de la transaccion que
da lugar al calculo del ratio A (ii) la suma de (A) gasto por concepto de
intereses, (B) amortizacion del principal de deudas vencidas o por pagar, y (C)
obligaciones financieras por concepto de arrendamiento financiero pagadas,
acumuladas y/o programadas por pagar durante dicho periodo, determinado sobre
una base consolidada de conformidad con los Principios de Contabilidad
Generalmente Aceptados (GAAP) en el Peru; donde la UAIIDA (Utilidad Antes de
Impuestos, Intereses, Depreciaciones y Amortizaciones) de una persona juridica
es la suma (sin duplicar) de (i) la Utilidad Neta Consolidada menos las
ganancias o perdidas extraordinarias, inusuales o no recurrentes, (ii) el
impuesto a la renta de dicha persona y sus subsidiarias, por tal periodo, pagado
o acumulado de conformidad con los Principios de Contabilidad Generalmente
Aceptados (GAAP) en el Peru (siempre que no sea el impuesto a la renta
atribuible a ganancias o perdidas extraordinarias,
<PAGE>
inusuales o no recurrentes), los gastos de por concepto de intereses
consolidados (neto de cualquier ingreso por concepto de intereses), los gastos
de amortizacion (incluyendo amortizacion de costos de financiamiento diferidos)
y los gastos de depreciacion y (iii) otras partidas no monetarias que reducen la
Utilidad Neta Consolidada (incluyendo, sin limitacion, cualquier cargo no
monetario con respecto a beneficios para jubilacion, por concepto de salud,
seguros de vida y beneficios de largo plazo por discapacitacion, requeridos de
conformidad con los Principios de Contabilidad Generalmente Aceptados (GAAP) en
el Peru) MENOS otras partidas no monetarias que incrementan la Utilidad Neta
Consolidada, todo determinado en forma consolidada para dicha persona y sus
subsidiarias, de conformidad con los Principios de Contabilidad Generalmente
Aceptados (GAAP) en el Peru.
Por la presente EL CLIENTE declara conocer y aceptar que, en caso se transforme
en una sociedad anonima, se incluira, como uno de los sumandos de la suma
mencionada en el primer numeral (ii) del parrafo anterior, para efectos del
calculo del referido ratio, al producto de (a) el monto de todos los dividendos
declarados, pagados y/o devengados a favor de las accionistas por (b) una
fraccion cuyo numerador es uno y el denominador es uno menos la tasa de
impuestos vigente.
SEGUNDA: ANTECEDENTES
EL CLIENTE es una empresa privada cuyo objeto es el dedicarse a actividades
mineras, incluyendo, pero no limitado a, el procesamiento de minerales. En
Octubre de 1997, EL CLIENTE adquirio la Empresa Metalurgica La Oroya S.A de su
anterior propietario, la empresa estatal Empresa Minera del Centro del Peru S.A,
en el marco del proceso de privatizacion llevado a cabo por el Gobierno de la
Republica del Peru. En Diciembre de 1997, mediante fusion por absorcion, EL
CLIENTE absorbio a la Empresa Metalurgica La Oroya S.A.
TERCERA: OBJETO DEL CONTRATO
EL CLIENTE requiere financiamiento de capital de trabajo para sus operaciones de
comercio exterior y/o ventas locales, por lo que
ha solicitado a EL BANCO una Linea de Credito Revolvente hasta por la suma
de US$ 40'000,000.00 (CUARENTA MILLONES Y 00/100 DOLARES AMERICANOS) y EL BANCO,
accediendo a la solicitud formulada, conviene en otorgarla, con arreglo a los
terminos y condiciones que se senalan en este contrato:
3.1. LINEA DE CREDITO REVOLVENTE.- EL BANCO conviene en conceder al CLIENTE,
sujeto a los terminos y condiciones de este contrato, diversos prestamos y/o
creditos en dolares durante el periodo comprendido desde la fecha en que se
cumplen las condiciones precedentes para la realizacion de los desembolsos y la
emision de las cartas de credito, senaladas en la Clausula Octava de este
contrato, hasta, pero excluyendo, la Fecha de Vencimiento Final, por la suma
maxima de US$ 40'000,000.00 (CUARENTA MILLONES Y 00/100 DOLARES AMERICANOS), con
la precision mencionada en el numeral 3.2 de esta misma Clausula. Sujeto a las
condiciones de
<PAGE>
este contrato, durante dicho periodo EL CLIENTE podra tomar prestado, pagar y
volver a tomar prestado la suma antes expuesta, en todo o en parte.
3.2. MONTO.- El monto maximo de utilizacion de la Linea de Credito que EL BANCO
concede en virtud de este contrato sera en todo momento la cantidad que resulte
menor de (i) US $ 40'000,000.00, y (ii) el Monto Base del Prestamo, siempre que
lo permitan los limites legales para sus operaciones que establece la Ley
General del Sistema Financiero y del Sistema de Seguros y Organica de la
Superintendencia de Banca y Seguros (Ley No. 26702) o cualquier otra que pudiera
reemplazarla en el futuro, teniendo en consideracion la linea de credito para la
solicitud de emision de cartas-fianza otorgada por EL BANCO y cualquier otro
credito otorgado o que pudiera otorgar en el futuro EL BANCO al CLIENTE.
En caso que, como consecuencia de las variaciones del Monto Base del Prestamo,
el monto utilizado de la Linea de Credito este por encima del monto maximo
permitido contemplado en el parrafo anterior, EL BANCO tendra la facultad de
exigir al CLIENTE el pre-pago de la suma que sea necesaria para que el monto
utilizado de la linea de credito sea igual o inferior al monto maximo permitido
de conformidad con lo dispuesto por el parrafo anterior.
3.3. PLAZO DE UTILIZACION.- El plazo maximo de utilizacion de la Linea de
Credito es de cuatro (4) anos contados a partir de la fecha de suscripcion de
este contrato, sin perjuicio de lo dispuesto en la Clausula Octava de este
contrato. En tal sentido, la Fecha de Vencimiento Final sera el 10 de junio del
2002. Sin embargo, al vencimiento del primer ano, y de cada uno de los anos
subsiguientes del plazo de utilizacion de la Linea de Credito, EL BANCO podra,
sin estar obligado a ello, extender la Fecha de Vencimiento Final por periodos
anuales adicionales.
3.4. FORMAS DE UTILIZACION.- EL CLIENTE podra utilizar la Linea de Credito que
se le concede en virtud de este contrato, mediante la solicitud de (i)
prestamos, incluidos, pero no limitados a, prestamos pre y post embarque, o (ii)
emision por parte del BANCO de Cartas de Credito para el pago de sus
importaciones de concentrados, materias primas y materiales.
3.5 POSIBILIDAD DE REDUCCION DEL MONTO DE LA LINEA DE CREDITO.- EL CLIENTE
podra solicitar en cualquier momento la reduccion del monto maximo de la Linea
de Credito mencionado en el numeral 3.2 anterior. Reducido el monto maximo de la
Linea de Credito, el mismo no podra ser restaurado nuevamente.
3.6. REPAGO DE LA LINEA DE CREDITO.- Sin perjuicio de lo dispuesto en las
Clausulas Decimo Primera y Decimo Segunda, referidas a los "Eventos de
Incumplimiento" y a las "Consecuencias de los Eventos de Incumplimiento",
respectivamente, EL CLIENTE se obliga a pagar integramente al BANCO los
prestamos y/o creditos que se encuentren vigentes en virtud de esta Linea de
Credito en la Fecha de Vencimiento Final.
<PAGE>
CUARTA: DE LOS TERMINOS Y CONDICIONES DE LOS PRESTAMOS
REFERIDOS EN LA CLAUSULA 3.4(i).
4.1. DEL MONTO.- El monto de los prestamos individuales solicitados por EL
CLIENTE no podra ser inferior a US $ 1'000,000.00, salvo en el caso que el monto
disponible de la Linea de Credito sea inferior a dicha suma, y debera ser en
cantidades que sean multiplos de US$ 200,000.00. Los prestamos deberan ser
solicitados por EL CLIENTE al BANCO con una anticipacion minima de tres (3)
dias utiles.
En la solicitud que EL CLIENTE presente al BANCO debera especificar, como
minimo, la siguiente informacion: (a) tratandose de financiamientos para
operaciones de comercio exterior: (i) el monto, (ii) la fecha en la que desea el
desembolso, (iii) el plazo del financiamiento, conforme a lo estipulado en el
numeral siguiente de esta Clausula, (iv) la fecha probable de embarque, (v) la
mercaderia a ser exportada, (vi) el pais de destino, (vii) los documentos que
sustentan la exportacion, (viii) el nombre del comprador y (ix) el numero de
cobranza (en caso se trate de un financiamiento post-embarque); y (b) tratandose
de financiamientos con otros fines mencionados en la Clausula Tercera del objeto
del contrato: (i) la referencia a la linea de credito, (ii) el monto, y (iii) el
plazo del financiamiento, conforme a lo estipulado en el numeral siguiente de
esta Clausula.
Adicionalmente, en el caso de financiamientos para operaciones de comercio
exterior, EL CLIENTE debera adjuntar a su solicitud, debidamente suscrito, el
formato de solicitud de credito externo que le proporcionara oportunamente el
BANCO.
4.2 DE LOS PLAZOS.- Siempre que el plazo de utilizacion de la Linea de Credito
lo permita, teniendo en consideracion lo acordado en el numeral 3.6 de la
Clausula anterior, los prestamos tendran plazos de 1, 3 o 6 meses, a eleccion
del CLIENTE, manifestada por escrito al BANCO en su solicitud. EL CLIENTE podra
solicitar al BANCO el pre-pago de los prestamos otorgados con una anticipacion
de dos (2) dias utiles a la fecha prevista para el pre-pago, lo cual sera
evaluado y decidido por el BANCO, a su entera discrecion, pudiendo en estos
casos cobrar el BANCO al CLIENTE una comision por pre-pago que sera informada en
forma previa y oportuna al CLIENTE.
4.3 DE LA TASA DE INTERES.- La tasa de interes compensatorio que devengaran
estos prestamos, durante el primer ano del plazo de utilizacion de la Linea de
Credito sera la tasa LIBOR a 1, 3 o 6 meses (dependiendo del plazo del prestamo
solicitado por EL CLIENTE) + 1.50%. La tasa LIBOR a 1, 3 o 6 meses es la tasa de
interes a la cual se ofrecen por el mismo plazo depositos de Eurodolares en el
mercado interbancario de Londres, tasa registrada diariamente a las 11:00 horas,
conforme aparece en la pagina LIBO del monitor del sistema informativo REUTERS
(ajustada de ser necesario al 1/16 del 1% superior mas cercano). Las partes
convienen y senalan que la tasa de interes pactada para este prestamo es de
caracter flotante, de acuerdo a las variaciones de la tasa LIBOR y, en tal
virtud, EL BANCO procedera a fijar la tasa que corresponda para cada prestamo
con una anticipacion de dos (2) dias utiles a la fecha prevista de desembolso
del respectivo prestamo, teniendo en cuenta la tasa LIBOR que se senale en el
Monitor Reuters a dicha
<PAGE>
fecha. Sobre esta base se establecera el importe que debera pagar EL CLIENTE por
intereses al final de dicho plazo. El retardo en el cumplimiento de pago de los
intereses y/o capital de los prestamos en la fechas de sus respectivos
vencimientos, estara sujeto a partir de dicho momento y hasta la total
cancelacion de las obligaciones vencidas, al pago de intereses moratorios a la
tasa de 3% anual, adicional a los intereses compensatorios. Para tal efecto, EL
CLIENTE incurrira en mora automatica sin necesidad de requerimiento o intimacion
alguna, de conformidad con lo dispuesto por el inciso 1 del Articulo 1333 del
Codigo Civil.
Al termino del primer ano del plazo de utilizacion de la Linea de Credito y al
vencimiento de los subsiguientes periodos anuales, EL BANCO podra, sin estar
obligado a ello, revisar y modificar la tasa de interes compensatorio mencionada
en el parrafo anterior; de lo cual notificara al CLIENTE con treinta (30) dias
calendario de anticipacion.
4.4 DE LOS PAGARES.- Los prestamos seran instrumentados mediante la emision por
parte del CLIENTE de uno o varios pagares, utilizando para tal efecto el formato
de pagare que, como Anexo I, forma parte integrante de este contrato. Las partes
declaran que este formato de pagare podra ser modificado por EL BANCO en
cualquier momento.
4.5 DEL REPAGO DE LOS PRESTAMOS.- Sin perjuicio de lo dispuesto en el Numeral
3.6 de la Clausula Tercera, referido al "Repago de la Linea de Credito", y en
las Clausulas Decimo Primera y Decimo Segunda, referidas a los "Eventos de
Incumplimiento" y a las "Consecuencias de los Eventos de Incumplimiento",
respectivamente, EL CLIENTE se obliga a pagar al BANCO los prestamos en sus
respectivas Fechas de Vencimiento, para lo cual autoriza al BANCO a cargar en
cualesquiera de las cuentas que EL CLIENTE mantiene en EL BANCO el importe de lo
adeudado, de conformidad con lo dispuesto en la Clausula Decimo Tercera.
QUINTA: DE LOS TERMINOS Y CONDICIONES DE LAS CARTAS DE CREDITO
REFERIDAS EN LA CLAUSULA 3.4(ii)
5.1 DE LA EMISION DE LAS CARTAS DE CREDITO.- Siempre que EL CLIENTE lo solicite
por escrito mediante la suscripcion y presentacion al BANCO del formulario
correspondiente, con una anticipacion de tres (3) dias utiles, EL BANCO podra,
como parte de los creditos otorgados al CLIENTE en virtud de la Linea de Credito
Revolvente a que se refiere este contrato, emitir Cartas de Credito para el pago
de las importaciones de materias primas, concentrados o materiales efectuadas
por EL CLIENTE. En tal sentido, el monto de las Cartas de Credito emitidas por
EL BANCO sera considerado como monto utilizado de la referida Linea de Credito.
5.2 DEL MONTO.- El monto de las Cartas de Credito solicitadas por EL CLIENTE no
podra ser inferior a US $ 100,000.00, salvo en el caso que el monto disponible
de la Linea de Credito sea inferior a dicha suma.
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5.3 DE LOS PLAZOS.- Siempre que el plazo de utilizacion de la Linea de Credito
lo permita, teniendo en consideracion lo acordado en el numeral 3.6 de la
Clausula Tercera, las Cartas de Credito tendran los plazos solicitados por EL
CLIENTE y aprobados por EL BANCO, los mismos que, en principio, no excederan el
plazo de 6 meses.
5.4 DEL PAGO DE LAS CARTAS DE CREDITO.- Al momento del pago efectivo de una
Carta de Credito emitida en virtud de lo dispuesto en esta Clausula, EL BANCO
financiara al CLIENTE la suma adeudada, mediante el otorgamiento de un prestamo
por un plazo de tres (3) meses en los terminos y condiciones senalados en la
Clausula Cuarta y demas Clausulas de este documento; salvo que EL CLIENTE
solicite al BANCO hacerse cobro en forma inmediata de la suma pagada en la carta
de credito, para lo cual, por la presente EL CLIENTE autoriza desde ya al BANCO
para cargar en su cuenta corriente o en una(s) cualesquiera de sus cuentas el
importe correspondiente, de conformidad con lo dispuesto en la Clausula Decimo
Tercera.
SEXTA: DE LAS COMISIONES
EL CLIENTE esta obligado a pagar al BANCO las siguientes comisiones:
6.1 COMISION DE UNDERWRITING.- EL CLIENTE pagara al BANCO, por concepto de
Comision de Underwriting, US$ 500,000.00 (QUINIENTOS MIL Y 00/100 DOLARES
AMERICANOS), equivalente al 1.25% del monto maximo de la Linea de Credito (US $
40'000,000.00) los mismos que seran pagados a la suscripcion del presente
contrato.
6.2 COMISION DE AGENCIA.- EL CLIENTE pagara al BANCO, por concepto de Comision
de Agencia, US$ 30,000.00 (TREINTA MIL Y 00/100 DOLARES AMERICANOS) anuales
durante el plazo de utilizacion de la Linea de Credito, incluida cualquier
prorroga al mismo, los mismos que seran pagados por adelantado a la suscripcion
del presente contrato y en cada fecha de aniversario de la suscripcion del
presente contrato.
6.3 COMISION DE COMPROMISO.- EL CLIENTE pagara al BANCO, por concepto de
Comision de Compromiso, durante el plazo de utilizacion de la Linea de Credito,
la suma equivalente al 0.375% anual de la porcion no utilizada promedio de la
Linea; que sera calculada teniendo en cuenta las porciones no utilizadas
diarias, de lo cual se obtendra un promedio trimestral sobre el que se aplica la
tasa antes mencionada. Esta Comision sera pagada por trimestre vencido dentro de
los primeros diez (10) dias calendario del trimestre siguiente . Para efectos
del calculo, el monto nominal de las Cartas de Credito a que se refiere el
numeral (ii) de la Clausula 3.4 sera considerado como "monto utilizado" de la
Linea de Credito.
6.4 COMISION DE EMISION DE CARTA DE CREDITO.- EL CLIENTE pagara al BANCO, por
concepto de Comision de Emision de Carta de Credito, la suma equivalente al
0.375% del monto de cada Carta de Credito a ser emitida conforme a lo dispuesto
por el numeral (ii) de la Clausula 3.4. Esta comision sera pagada al momento de
la emision de cada Carta de Credito.
<PAGE>
SETIMA: CONDICIONES PRECEDENTES PARA LA CELEBRACION DEL CONTRATO
Son condiciones precedentes para la celebracionCONSUMACION de este contrato:
7.1. CAPACIDAD LEGAL DEL CLIENTEAutorizaciones, etc.- La recepcion por
parte del BBANCO de copias legalizada del acta de la Junta General de Socios del
CLIENTE autorizando la suscripcion y ejecucion de este contrato, y de los
Contratos de Garantia y nombrando a su(s) representante(s) para la suscripcion
de los mismos.
7.2. ESTADOS FINANCIEROS.- La recepcion por parte del BANCO de las copias
de los estados financieros auditados correspondientes al ejercicio economico
cerrado al 31 de diciembre de 1997 y de los estados financieros no auditados
correspondientes al primer trimestre del ejercicio 1998, acompanados de una
certificacion por parte del CLIENTE, de fecha reciente, de que dichos estados
financieros son correctos y completos.
7.3. OPINIONES LEGALES.- La recepcion por parte del BANCO de las opiniones
legales satisfactorias suscritas por los abogados del CLIENTE y de su empresa
matriz, Doe Run Resources Corporation, referida esta ultima a la validez de la
subordinacion de las deudas que pueda tener EL CLIENTE, actuales o futuras,
derivadas de la Emision de Pagares (SENIOR NOTES) efectuada en Marzo de 1998 por
la empresa matriz, a las deudas que EL CLIENTE pueda incurrir ante EL BANCO por
este contrato.
7.4. INEXISTENCIA DE ACCION GUBERNAMENTAL Que el Gobierno peruano no haya
promulgado legislacion ni haya tomado accion alguna que, a criterio y discrecion
del BANCO, pueda limitar la exportacion, por parte del CLIENTE, de sus
productos.
7.5. INEXISTENCIA DE CIRCUNSTANCIAS QUE AFECTEN EL SISTEMA FINANCIERO. -
Que no se hayan producido circunstancias o situaciones que, a criterio y
discrecion del BANCO, afecten en forma negativa (i) el sistema financiero
peruano, (ii) el sistema financiero internacional, (iii) el entorno politico o
economico del Peru, o (iv) las politicas tributarias o monetarias del gobierno
peruano, sus leyes y regulaciones.
7.6. Inexistencia de circunstancias que afecten la Condicion Financiera del
CLIENTE.- Que no se hayan producido, desde la fecha de los ultimos estados
financieros auditados, circunstancias o situaciones que, a criterio y discrecion
del BANCO, afecten o puedan afectar de manera sustancial (i) la capacidad de
repago de los prestamos y/o creditos por parte del CLIENTE, o (ii) los negocios,
operaciones, propiedad, activos o pasivos del CLIENTE.
7.7. INEXISTENCIA DE GRAVAMENES RESPECTO DE LOS INGRESOS Y ACTIVOS DEL
CLIENTE.- Que los activos y cuentas por cobrar del CLIENTE se encuentren
libres de cualquier gravamen.
7.8. CERTIFICADO DEL MONTO BASE DEL PRESTAMO.- La recepcion por parte del
BANCO de un certificado suscrito por el Gerente Financiero del CLIENTE, o el
funcionario
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designado por este para tal efecto y comunicado en forma previa por EL CLIENTE
al BANCO, estableciendo el Monto Base del Prestamo.
7.9. DUE DILIGENCE.- La conclusion, en forma satisfactoria, del due
diligence del CLIENTE por parte del BANCO.
OCTAVA: CONDICIONES PRECEDENTES PARA LA REALIZACION DE LOS DESEMBOLSOS Y LA
EMISION DE LAS CARTAS DE CREDITO
Son condiciones precedentes para la realizacion de los desembolsos de los
creditos y/o prestamos a que se refiere el presente contrato:
8.1. CONTRATOS DE GARANTIA Y ESTABLECIMIENTO DE CUENTAS COBRANZAA.- La
recepcion por parte del BANCO de los Contratos de Garantia, debidamente
suscritos por EL CLIENTE, y su conformidad en relacion con el establecimiento de
las Cuentas Cobranza en Lima y Nueva York. Asimismo, el envio de notificaciones
a los clientes del CLIENTE instruyendolos para que realicen sus pagos en las
Cuentas Cobranza y el consentimiento escrito por parte de aquellos de cumplir
con dichas instrucciones.
8.2. INEXISTENCIA DE CIRCUNSTANCIAS QUE PUEDAN AFECTAR EL SISTEMA
FINANCIERO.- Que no se hayan producido, desde la fecha de suscripcion del
presente contrato, circunstancias o situaciones que, a criterio y discrecion del
BANCO, afecten o puedan afectar en forma negativa (i) el sistema financiero
peruano, (ii) el sistema financiero internacional, (iii) el entorno politico o
economico del Peru, o (iv) las politicas tributarias o monetarias del gobierno
peruano, sus leyes y regulaciones.
8.3. CUMPLIMIENTO DE OBLIGACIONES DEL CLIENTE.- Que el CLIENTE se encuentre
en cumplimiento de todas sus Obligaciones establecidas en el presente contrato,
incluyendo las Obligaciones Financieras.
8.4. INEXISTENCIA DE CIRCUNSTANCIAS QUE PUEDAN AFECTAR LA CONDICION
FINANCIERA DEL CLIENTE.- Que no se hayan producido, desde la fecha de
celebracion del presente contrato, circunstancias o situaciones que, a criterio
y discrecion del BANCO, afecten o puedan afectar de manera sustancial (i) la
capacidad de repago del prestamo por parte del CLIENTE, o (ii) los negocios,
operaciones, propiedad, activos o pasivos del CLIENTE.
8.5. INEXISTENCIA DE ACCION GUBERNAMENTAL.- Que el Gobierno peruano no haya
promulgado legislacion ni haya tomado, desde la fecha de celebracion del
presente contrato, accion alguna que, a criterio y discrecion del BANCO, pueda
limitar la exportacion, por parte del CLIENTE, de sus productos.
8.6. INEXISTENCIA DE ALGUN EVENTO DE INCUMPLIMIENTO.- Que, a la fecha del
respectivo desembolso, no se haya producido Evento de Incumplimiento alguno.
<PAGE>
8.7. DECLARACIONES Y GARANTIAS.- Que las declaraciones y garantias hechas
por el CLIENTE en la Clausula Novena del presente contrato, y en los Contratos
de Garantia, sean correctas y completas en todo aspecto en y desde el momento
del desembolso, a menos que el defecto en tal declaracion o garantia no pueda,
razonablemente, causar un Efecto Material Adverso en la situacion del CLIENTE, y
siempre y cuando tal declaracion o garantia haya sido cierta y completa en todos
sus aspectos en la fecha en que fue hecha.
8.8. INEXISTENCIA DE EFECTO MATERIAL ADVERSO.- Que, a la fecha del
respectivo desembolso, no haya ocurrido evento o circunstancia alguna que
resulte o pueda, razonablemente, resultar en un Efecto Material Adverso para EL
CLIENTE.
8.9. CNSCRIPCION DEL CONTRATO DE PRENDA DE MINERALES.- Que se haya inscrito
en el Registro Publico de Mineria el Contrato de Prenda de Minerales otorgado
por EL CLIENTE a favor
NOVENTA: DECLARACIONES Y GARANTIAS
EL CLIENTE declara y garantiza al BANCO que:
9.1. ORGANIZACION Y CALIFICACION.- EL CLIENTE es una Sociedad Comercial de
Responsabilidad Limitada organizada y en existencia bajo la legislacion peruana,
que esta facultada, bajo las leyes peruanas, para ser propietaria de sus bienes
y llevar a cabo sus actividades ordinarias.
9.2. PODERES Y AUTORIZACIONES.- EL CLIENTE posee y ha otorgado a sus
representantes todos los poderes y autorizaciones necesarias para suscribir este
contrato, y los Contratos de Garantia y para cumplir todas las obligaciones
asumidas en cada uno de ellos.
9.3. CUMPLIMIENTO FORZOSO.- Este contrato, y los Contratos de Garantia
constituyen obligaciones validas y vinculantes, de cumplimiento forzoso para EL
CLIENTE, salvo por lo dispuesto en la legislacion aplicable en materia de
quiebra, insolvencia y reestructuracion patrimonial.
9.4. AUTORIZACIONES GUBERNAMENTALES.- EL CLIENTE cuenta con tTodas las
autorizaciones gubernamentales necesarias, bajo la legislacion vigente, para
cumplir con el presente contrato y los Contratos de Garantia y para cumplir con
las obligaciones asumidas en cada uno de ellos; que las mismas se encuentran en
vigencia y no estan sujetas a condicion o requerimiento alguno. Cualquier
autorizacion que EL CLIENTE requiera desde la fecha de suscripcion del presente
contrato sera obtenida por este oportunamente.
9.5. INEXISTENCIA DE CONFLICTOS.- La suscripcion y ejecucion, por parte del
CLIENTE del presente contrato, y de los Contratos de Garantia, (i) no esta en
conflicto ni crea una situacion de incumplimiento con respecto a (a) cualquiera
de los terminos, condiciones o provisiones de los estatutos y demas documentos
de constitucion del
<PAGE>
CLIENTE, (b) alguna ley o regulacion que le sea aplicable, o alguna sentencia,
mandato judicial o decreto de alguna corte o autoridad pertinente, (c) algun
acuerdo o contrato en que EL CLIENTE es parte o por el cual esta obligado; (ii)
ni puede resultar en la creacion o imposicion de algun gravamen, carga o
afectacion sobre alguna propiedad del CLIENTE, salvo que tal gravamen, carga o
afectacion no pueda, razonablemente, causar un Efecto Material Adverso en la
situacion del CLIENTE y haya sido debidamente informado al BANCO con
anterioridad a la fecha de suscripcion de este contrato.
9.6. SITUACION LEGAL.- EL CLIENTE no se encuentra en situacion de incumplimiento
bajo ley o regulacion alguna que le sea aplicable, sentencia, mandato judicial o
decreto de alguna corte o autoridad pertinente, salvo que tal situacion no
pueda, razonablemente, causar un Efecto Material Adverso en la situacion del
CLIENTE y haya sido debidamente informado al BANCO con anterioridad a la fecha
de suscripcion de este contrato.
9.7. ESTADOS FINANCIEROS.- EL CLIENTE ha puesto a disposicion del BANCO
sulos Estados Financieros al 31 de diciembre de 1997, debidamente auditados.
Toda esta informacion financiera es correcta y completa, y refleja de manera
precisa la condicion financiera del CLIENTE. A la fecha de la suscripcion del
presente contrato, EL CLIENTE no posee pasivos directos o contingentes mas que
los (i) referidos o reflejados en los mencionados estados financieros en tales
fechas, (ii) emergentes del presente contrato y de los Contratos de Garantia, o
(iii) aquellos comunicados al BANCO. A la fecha de la suscripcion del presente
contrato, no ha ocurrido ningun cambio sustancial que sea adverso para la
condicion financiera consolidada del CLIENTE de aquella condicion financiera
reflejada en los estados financieros al 31 de diciembre de 1997.
9.8. PROCESOS JUDICIALES. - A excepcion de lo revelado al BANCO antes
de la suscripcion del presente contrato, no existe accion, investigacion,
demanda o proceso judicial alguno pendiente o, a conocimiento de algun
funcionario o empleado del CLIENTE, no existe demanda o reclamo escrito alguno
contra EL CLIENTE o sus bienes, en alguna corte, comision o comite
gubernamental, junta, agencia gubernamental o arbitro.
9.9. REVELACION.- A la fecha de la firma del presente contrato, las
declaraciones hechas por EL CLIENTE en este documento y en los Contratos de
Garantia, no incluyen declaracion falsa de algun hecho ni omiten algun hecho
material que pueda generar que la informacion proporcionada por EL CLIENTE
conduzca al BANCO a incurrir en error. A la fecha de suscripcion del presente
contrato, no existe hecho alguno conocido por EL CLIENTE que no haya sido
revelado al BANCO, y que puede resultar en un Efecto Material Adverso para EL
CLIENTE.
9.10. INEXISTENCIA DE CASOS FORTUITOS Y FUERZA MAYOR.- Los negocios y
propiedades del CLIENTE no han sido afectados por fuego, explosion, accidentes,
huelgas, paros forzosos o cualquier otro problema laboral, sequia, tormenta,
granizo, terremotos, embargos, o por cualquier otra circunstancia que, de manera
razonable, pueda causar un Efecto Material Adverso al CLIENTE.
<PAGE>
9.11. INEXISTENCIA DE DANOS AL MEDIO AMBIENTE.- EL CLIENTE opera su negocio
cumpliendo todas las normas de la legislacion y regulacion ambiental aplicables
a las actividades minero-metalurgicas, asi como todos los terminos y condiciones
del Programa de Adecuacion al Medio Ambiente (PAMA) que ha presentado al
Ministerio de Energia y Minas. Ningun material danino, toxico o peligroso, asi
definido por dichas normas, ha sido o es vertido, arrojado, esparcido o librado
por EL CLIENTE en violacion de alguna norma de la legislacion o regulacion
ambiental minero-metalurgica, salvo que acciones apropiadas y aceptadas por las
autoridades gubernamentales correspondientes y reveladas al BANCO esten siendo
tomadas para remediar esta situacion. EL CLIENTE no ha transportado ni
transporta material danino, toxico o peligroso alguno, asi definido por las
normas antes mencionadas, salvo que acciones apropiadas y aceptadas por las
autoridades gubernamentales correspondientes y reveladas al BANCO esten siendo
tomadas para remediar esta situacion.
9.12. IMPUESTOS.- EL CLIENTE ha preparado, suscrito y presentado ante la
autoridad competente los formularios de todos los tributos e impuestos a los que
esta obligado legalmente y ha pagado los mismos, excepto aquellos que: (i) estan
siendo reclamados por EL CLIENTE a traves de los recursos impugnativos
apropiados y (ii) sobre los cuales, en los libros contables del CLIENTE, se han
hecho las provisiones y reservas correspondientes. No existe procedimiento o
disputa alguna pendiente entre EL CLIENTE y autoridad gubernamental alguna en
materia de tributos e impuestos, distinto(a) de aquellos(as) detallados(as) en
el Anexo II, que forma parte integrante de este contrato.
9.13. INMUNIDAD.- EL CLIENTE no posee inmunidad respecto de la
jurisdiccion y competencia de corte, juzgado, arbitro o tribunal alguno o
respecto de algun proceso legal o demanda.
9.14. RANGO.- Todas las obligaciones que el CLIENTE asume bajo el presente
contrato son obligaciones de primer rango para EL CLIENTE y, por lo tanto,
tienen preeminencia respecto de las otras obligaciones, directas o indirectas,
presentes o futuras, del CLIENTE. En tal sentido, las obligaciones que pudieran
derivarse para EL CLIENTE de la garantia otorgada a la Emision de Pagares
(SENIOR NOTES) efectuada por Doe Run Resources Corporation en Marzo de 1998,
estaran contractualmente subordinadas respecto de las obligaciones que EL
CLIENTE asume en virtud de este contrato.
DECIMA: OBLIGACIONES
Por medio de la presente Clausula, EL CLIENTE asume ante EL BANCO las siguientes
Obligaciones:
10.1 OBLIGACIONES FINANCIERAS
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(i) Enviar al BANCO, con una anticipacion no menor de sesenta (60) dias a la
fecha prevista para incurrir en una deuda adicional, diferente a una Deuda
Permitida, un certificado suscrito por su Gerente Financiero: (a) senalando que
se encuentra cumpliendo con el Ratio de Cobertura de las Obligaciones Fijas
Consolidadas; (b) describiendo en detalle la naturaleza de dicha deuda
adicional, incluyendo, pero sin limitarse a, una mencion respecto al uso de los
fondos, el acreedor, el plazo de la deuda, el programa de amortizaciones, el
monto del principal e intereses, la garantia, si la hubiere, y cualquier otra
informacion que EL CLIENTE considere importante para entender los alcances de
dicha deuda adicional; y (c) proyectando en detalle un calculo del Ratio de
Cobertura de las Obligaciones Fijas Consolidadas determinado en una base
proforma (Pro Forma Basis) como si la propuesta deuda adicional hubiese sido
incurrida en el primer dia del ultimo trimestre fiscal y, en adelante, por cada
trimestre fiscal durante los cuales este pendiente de pago.
(ii) Enviar al BANCO, dentro de los diez (10) dias utiles posteriores a cada
trimestre fiscal, un certificado suscrito por su Gerente Financiero certificando
que EL CLIENTE cumple con el Patrimonio Neto Consolidado Minimo.
10.2. INFORMACION.
(i) VERACIDAD.- Proporcionar informacion correcta y completa al formular la
solicitud de credito y, en todo momento, a lo largo de la vigencia del presente
contrato.
(ii) INFORMACION FINANCIERA.- Remitir al BANCO o a quien este designe,
informacion financiera completa, asi como una version auditada de la misma al
cierre de cada ejercicio y en un plazo no mayor de ciento veinte (120) dias
calendario del cierre respectivo, obligandose a comunicar prontamente al BANCO,
o a quien este designe, cualquier hecho o circunstancia que pudiere dar origen a
un deterioro sustancial en los ingresos, utilidades, capacidad de pago y/o
situacion financiera del CLIENTE. Asimismo, remitir al BANCO o a quien este
designe una version no auditada de los estados financieros del CLIENTE al cierre
de cada trimestre del ejercicio.
(iii) INFORMACION ADICIONAL.- Remitir al BANCO, tan pronto como sea posible
luego de su solicitud, cualquier informacion adicional relacionada con el
presente contrato, con los Contratos de Garantia y con la capacidad del CLIENTE
de cumplir con las obligaciones asumidas en virtud de dichos documentos.
10.3. NOTIFICACION DE EVENTOS EXTRAORDINARIOS.- Notificar prontamente al
BANCO sobre la ocurrencia de alguno de los siguientes eventos, incluyendo una
descripcion sobre su naturaleza y las acciones que EL CLIENTE planea tomar al
respecto: (i) algun Evento de Incumplimiento, y/o (ii) algun litigio, arbitraje
o procedimiento administrativo en los que EL CLIENTE sea parte y que, de ser
resuelto en forma desfavorable para EL CLIENTE, pueda tener un Efecto Material
Adverso para EL CLIENTE.
10.4. MANTENIMIENTO DE LIBROS Y RREGISTROS CONTABLES. .- Llevar sus libros
y registros de contabilidad de acuerdo con principios y practicas contables de
aceptacion general en el Peru, comprometiendose ante EL BANCO a que los estados
financieros anuales de la empresa seran dictaminados por una firma de auditores
externos de reputacion
<PAGE>
internacional, debiendo poner en conocimiento del BANCO, en forma oportuna, los
auditores seleccionados. Los registros deberan ser llevados con suficiente
detalle para precisar las inversiones realizadas, el costo de ellas y, de ser el
caso, el progreso de su ejecucion.
10.5. Inspeccion.- Permitir que el personal tecnico del BANCO, o el que
este designe, pueda constatar la informacion proporcionada y la correcta
aplicacion de los recursos concedidos en virtud de creditos y/o prestamos
otorgados por EL BANCO al CLIENTE en el marco de este contrato, asi como
realizar inspecciones a la planta y establecimientos del CLIENTE.
10.6. EXISTENCIA Y CAPACIDAD.- Mantener su existencia como Sociedad
Comercial de Responsabilidad Limitada bajo las leyes peruanas.
10.7. NO PARTICIPACION EN ACTIVIDADES NO VINCULADAS Mantener el giro propio
de su negocio y abstenerse de participar directa o indirectamente en actividades
no vinculadas.
10.8. USO DE LOS RECURSOS..- Destinar los recursos de los creditos y/o
prestamos, que EL BANCO le otorgue en el marco del presente contrato, al fin
mencionado en la Clausula Tercera del presente contrato.
10.9. MANTENIMIENTO DE ACTIVOS.-
Mantener en buenas condiciones la planta y otras areas productivas necesarias
para el desarrollo de su objeto social y, cada cierto tiempo, efectuar las
reparaciones y restituciones necesarias en tal sentido.
10.10 LIMITACION EN LA DISPOSICION DE ACTIVOS.- Abstenerse, durante la
vigencia del presente prestamo, de vender, arrendar, traspasar o ceder el uso de
los activos fijos necesarios para mantener la produccion y ventas de la empresa
estimadas en la solicitud de credito presentada al BANCO, a menos que hayan sido
repuestos o vayan a ser repuestos a satisfaccion del BANCO y hubiese
autorizacion expresa y por escrito del BANCO en tal sentido y salvo por los
bienes que sean transferidos por EL CLIENTE en el marco de los Contratos de
Lease-back que pretende celebrar en el futuro, incluyendo aquellos celebrados
con el BANCO al amparo de lo dispuesto en los numerales 10.19 de esta Clausula
Decima y 1.2 (iii) de la Clausula Primera de este contrato. EL BANCO se
compromete a hacer sus mejores esfuerzos para dar respuesta a la referida
solicitud en un plazo maximo de diez (10) dias utiles de presentada la misma.
10.11. AUTORIZACIONES GUBERNAMENTALES.- Mantener vigentes, durante el
plazo de vigencia del presente contrato, todas las licencias, permisos y, en
general, cualquier autorizacion que resulte necesaria para el normal
desenvolvimiento de sus actividades y la ejecucion del presente contrato.
10.12. . IMPUESTOS.- Cumplir con pagar todos los tributos e impuestos que le
correspondan de acuerdo con la legislacion vigente, excepto aquellos que estan
siendo cuestionados y/o reclamados por EL CLIENTE a traves de los recursos
<PAGE>
impugnativos apropiados y respecto de los cuales se han hecho las reservas y
provisiones correspondientes, en los libros y registros contables del CLIENTE.
10.13. ABSTENCION D FUSIONES O ESCISIONES.- Abstenerse de participar en
procesos de fusion o escision y no vender ni transferir todos o una parte
sustancial de sus activos fijos a persona alguna, ni adquirir todos, o
sustancialmente todos, los activos de persona alguna, sin previa autorizacion
expresa y por escrito del BANCO.
10.14. CUMPLIMIENTO DE LA LEY.- Mantenerse al dia en el cumplimiento de sus
obligaciones fiscales, laborales, incluyendo aquellas derivadas de la
legislacion sobre seguridad social y administracion privada de fondo de
pensiones, asi como con las demas aspectos de la legislacion peruana o
extranjera que le sea aplicable y de cualquier regulacion al respecto, a menos
que la necesidad de cumplir con tal legislacion o regulacion este siendo
debatida y/o cuestionada por EL CLIENTE, de buena fe, a traves de los medios
apropiados y haya sido provisionada en los libros y registros contables del
CLIENTE.
10.15. CUMPLIMIENTO DE LA LEGISLACION AMBIENTAL.- Sin perjuicio de la
obligacion contemplada en el numeral anterior, cumplir con todas y cada una de
las obligaciones de la legislacion ambiental minero-metalurgica vigente;
debiendo, para tal efecto, realizar los estudios y cumplir con los requisitos
establecidos en las leyes y reglamentos respectivos.
10.16. INEXISTENCIA DE CONTRATOS DE COBERTURA (HEDGING AGREEMENTS) CON FINES
ESPECULATIVOS.- Abstenerse de celebrar contratos de cobertura con fines
especulativos, que no tengan por objeto esencial protegerse ante la eventual
fluctuacion en el mercado de los precios de los minerales que produce y vende.
10.17. TRANSACCIONES Y CONTRATOS CON PERSONAS AFILIADAS O VINCULADAS.-
Abstenerse de celebrar con empresas o personas vinculadas, transacciones en
condiciones menos ventajosas de aquellas que se obtendrian en caso la
transaccion fuera celebrada con terceras personas no relacionadas. Quedan
excluidas de la limitacion a que se refiere este numeral las obligaciones que
tiene EL CLIENTE con personas afiliadas o vinculadas y que se encuentran
detalladas en el Anexo III que forma parte integrante de este contrato.
10.18. OBLIGACIONES.- Cumplir, en o antes de la fecha de vencimiento, todas
las obligaciones que haya asumido en virtud de este u otros contratos que tenga
celebrados, y cuyo incumplimiento podria resultar, a criterio y discrecion del
BANCO, en un Efecto Material Adverso para EL CLIENTE, a menos que dicho
cumplimiento: (i) este siendo debatido o reclamado por EL CLIENTE, de buena fe,
a traves de los medios apropiados y (ii) sobre los cuales, en los libros
contables del CLIENTE, se han hecho las reservas y provisiones correspondientes.
10.19. LIMITACION EN LA ASUNCION DE DEUDAS Y OBLIGACIONES FINANCIERAS.-
Abstenerse de asumir, crear o incurrir en alguna deuda u obligacion financiera
diferente a una Deuda Permitida, salvo que cuente con la autorizacion previa y
por escrito del BANCO, para lo cual antes de incurrir en dicha deuda u
obligacion financiera
<PAGE>
adicional, EL CLIENTE enviara al BANCO el certificado que se menciona en el
numeral 10.1(i) de esta Clausula Decima. EL BANCO se compromete a hacer sus
mejores esfuerzos para comunicar al CLIENTE con prontitud, pero en todo caso con
una anticipacion minima de treinta (30) dias calendario a la fecha propuesta
para incurrir en dicha deuda u obligacion financiera adicional, su aprobacion o
desaprobacion a dicha propuesta de deuda adicional, basado en un analisis
razonable. En caso EL BANCO desapruebe la deuda adicional propuesta, EL CLIENTE
estara impedido de incurrir en la misma, bajo apercibimiento de considerarse un
Evento de Incumplimiento.
10.20. LIMITACION EN GRAVAMENES.- Abstenerse de crear o asumir gravamenes
sobre alguno de sus bienes, activos o derechos contractuales, presentes o
futuros, salvo que se trate de:
(i) Gravamenes especificamente creados, requeridos o permitidos por el
presente contrato o los Contratos de Garantia; y
(ii) Gravamenes impuestos por alguna autoridad u organo gubernamental por
concepto de impuestos o contribuciones.
10.21. CERTIFICADO INDICANDO EL MONTO BASE DEL PRESTAMO.- Enviar al BANCO un
Certificado suscrito por su Gerente Financiero estableciendo el Monto Base del
Prestamo con efectos al dia vigesimo de cada mes calendario, asi como el detalle
de las cuentas que sirvieron para la determinacion del mismo; teniendo esta
informacion el caracter de declaracion jurada. Este Certificado debera ser
entregado por EL CLIENTE al BANCO dentro de los cinco (5) dias utiles siguientes
al vigesimo dia de cada mes calendario. Este Certificado estara vigente por el
mes calendario siguiente contado a partir del vigesimo dia de cada mes, salvo
que en el interin EL CLIENTE presente al BANCO un nuevo Certificado en reemplazo
de aquel, en cuyo caso este nuevo Certificado estara vigente por los dias que
resten hasta el vigesimo dia del mes calendario.
10.22. LIMITACION EN LA DISTRIBUCION DE DIVIDENDOS.- Abstenerse de
distribuir dividendos o pagar deudas subordinadas, en caso se produzca un Evento
de Incumplimiento o en caso de encontrarse en mora en sus obligaciones
contractuales con el BANCO.
DECIMO PRIMERA: EVENTOS DE INCUMPLIMIENTO
Las partes convienen que cada una de las siguientes circunstancias constituy un
Evento de Incumplimiento:
11.1. INCUMPLIMIENTO EN LA OBLIGACION DE PAGO.- Si EL CLIENTE incumple en el
pago de (i) algun monto correspondiente al principal o intereses de alguno de
los prestamos y/o creditos otorgados bajo el presente contrato,, (ii) alguna
comision,honorario o gasto que deba pagar y/o reembolsar en virtud del presente
contrato o los Contratos de Garantia, o (iii) cualquier otra obligacion asumida
bajo el presente contrato, o los Contratos de Garantia.
<PAGE>
11.2. FALSEDAD DE ALGUNA DECLARACION O GARANTIA.- Si es, o deviene en, falsa
o incompleta alguna de las declaraciones o garantias hechas por EL CLIENTE en el
presente contrato, o en los Contratos de Garantia, y tal circunstancia continua
sin ser corregida por un plazo de quince (15) dias calendario desde la fecha de
notificacion notarial en tal sentido enviada por el BANCO.
11.3. INCUMPLIMIENTO DE OBLIGACION.- Si EL CLIENTE incumple una
cualesquiera de las obligaciones asumidas bajo el presente contrato o los
Contratos de Garantia, distinta a la Obligacion de Pago referida en el numeral
11.1 de esta Clausula Decimo Primera, y tal incumplimiento no es corregido (si
tal incumplimiento es susceptible de correccion) dentro de los quince (15) dias
calendario siguientes a la notificacion en tal sentido enviada por el BANCO, o
si EL CLIENTE incurre en deuda u obligacion financiera adicional sin contar con
la autorizacion previa y por escrito del BANCO.
11.4. INCUMPLIMIENTO DE OBLIGACION FINANCIERA.- Si EL CLIENTE incumple
alguna de las Obligaciones Financieras descritas en el numeral 10.1 de la
Clausula Decima de este contrato y tal incumplimiento no es remediado dentro de
los treinta (30) dias calendario siguientes a la notificacion notarial en tal
sentido enviada por el BANCO.
11.5. QUIEBRA O INSOLVENCIA.- Si EL CLIENTE inicia o le es iniciado un
procedimiento de quiebra, insolvencia o reestructuracion patrimonial, y tal
procedimiento no es declarado inadmisible dentro de los treinta (30) dias
calendario siguientes a su inicio.
11.6. INCUMPLIMIENTO DE OBLIGACIONES CONTEMPLADAS EN OTROS CONTRATOS (CROSS
DEFAULT).- Si EL CLIENTE incumple alguna de las obligaciones asumidas en virtud
de otro contrato de financiamiento que tiene celebrado y dicho incumplimiento
origina la resolucion o el vencimiento anticipado del plazo para el cumplimiento
de sus obligaciones derivadas de dicho contrato.
11.7. INVALIDEZ DE LOS CONTRATOS DE GARANTIA.- Si alguno de los Contratos de
Garantia es rescindido, se resuelve o deja de (i) crear una garantia valida y
completa sobre la propiedad sujeta a dicha garantia, con la prioridad otorgada
en ella, o (ii) encontrarse en total vigencia yo vigor, por haber sido declarado
ineficaz y sin valor.
11.8. AUTORIZACIONES GUBERNAMENTALES.- Si cualquier autorizacion
gubernamental que pueda ser requerida por EL CLIENTE con respecto al presente
contrato, o a los Contratos de Garantia, deja de estar en total vigencia y
eficacia.
11.9. CAMBIO EN EL ACCIONARIADO.- Si Doe Run Resources Corporation deja de
poseer, directa o indirectamente, el 66.66% del accionariado en Doe Run Peru,
salvo que cuente con la aprobacion del BANCO.
11.10. EXPROPIACION.- Si en fecha posterior a la suscripcion del presente
contrato el gobierno peruano realiza cualquier acto que, a criterio y discrecion
del BANCO, (i)
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pueda resultar en la privacion de alguno de sus derechos como acreedor bajo el
presente contrato o los Contratos de Garantia, o (ii) confisque, expropie o
nacionalice la propiedad o control del CLIENTE sobre los bienes materia del
presente contrato, o de los Contratos de Garantia.
11.11. VIOLENCIA POLITICA.- Si en fecha posterior a la suscripcion del
presente contrato, ocurre algun acto de guerra (declarada o no declarada),
guerra civil, revolucion, insurreccion o terrorismo en la Republica del Peru,
que tenga un Efecto Material Adverso en la habilidad del CLIENTE para cumplir
con sus obligaciones bajo el presente contrato, y los Contratos de Garantia.
DECIMO SEGUNDA: CONSECUENCIAS DEL EVENTO DE INCUMPLIMIENTO
12.1 En caso de producirse uno cualesquiera de los Eventos de
Incumplimiento descritos en la Clausula anterior, EL BANCO podra, de pleno
derecho, declarar resuelto el presente contrato, de conformidad con lo dispuesto
en el Articulo 1430 del Codigo Civil, mediante comunicacion escrita enviada por
la via notarial al CLIENTE, acompanando estado de cuenta del saldo deudor;
entendiendose resuelto el presente contrato, sin necesidad de otra comunicacion
o formalidad alguna, dandose por vencido el plazo y exigiendose el pago
inmediato de las sumas adeudadas; en cuyo caso EL BANCO tendra derecho de
ejecutar y/o demandar judicialmente la cancelacion del integro de las sumas
adeudadas, asi como a ejecutar las garantias a que se refiere la Clausula Decimo
Cuarta de este contrato. La demora por parte del BANCO en el ejercicio de este
derecho no significara en ningun caso la presuncion de renuncia al mismo.
12.2 En caso de producirse el supuesto contemplado en el numeral anterior y en
tanto EL BANCO no cobre el integro de lo que le adeude EL CLIENTE, seran
aplicables a la referida deuda los intereses compensatorios y moratorios a las
tasas mas altas que EL BANCO tenga establecidas.
DECIMO TERCERA: DE LA MONEDA Y LA FORMA DE PAGO DE LAS OBLIGACIONES
13.1 Es condicion de este contrato y especialmente respecto del pago del
capital y de los intereses compensatorios y moratorios, de las comisiones y
demas gastos, servicios, tributos e impuestos a que hubiere lugar, que todos los
pagos deberan efectuarse en la misma moneda extranjera en que se han pactado y
otorgado los prestamos y/o creditos, de conformidad con la salvedad establecida
en el articulo 1237 del Codigo Civil.
13.2 Para tal efecto, EL CLIENTE pondra a disposicion del BANCO, en forma
oportuna, los fondos suficientes para atender integramente los pagos. Por medio
del presente documento, EL CLIENTE autoriza de manera irrevocable al BANCO a
realizar los cargos correspondientes a los importes adeudados, procediendo EL
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BANCO a cargar dichos importes en cualquiera de sus cuentas mantenidas en
cualesquiera de sus Sucursales, ya sea en el pais o en el exterior, o aplicar
los fondos en cualquier moneda que tuviese en su poder para serle acreditados al
CLIENTE, sin necesidad de autorizacion previa ni conformidad posterior del
mismo. EL BANCO tambien tendra derecho a retener y aplicar a la amortizacion y/o
cancelacion de lo que EL CLIENTE le adeudare toda suma, deposito o valor de
cualquier naturaleza que por cualquier causa tenga en su poder y este destinado
a serle acreditado o entregado.
13.3 EL BANCO queda expresamente autorizado por EL CLIENTE para que por su
cuenta y orden adquiera en el mercado cambiario que legalmente este disponible,
la moneda extranjera necesaria que aplicara a la amortizacion y/o cancelacion de
lo adeudado, de acuerdo al presente contrato, con cargo a cualquiera de las
cuentas en moneda nacional que EL CLIENTE tuviese en dicha institucion
financiera o cualquiera de sus filiales o subsidiarias, de ser el caso.
DECIMO CUARTA: GARANTIAS
En garantia del cumplimiento de las obligaciones que asume en virtud de este
contrato, EL CLIENTE se obliga a otorgar a favor del BANCO las siguientes
garantias que se regiran por sus respectivos contratos:
(i) Afectar y mantener afectado a favor del BANCO , en forma irrevocable e
incondicional, el producto de las ventas que obtenga de contratos u
operaciones de venta de sus productos, asi como las cobranzas que de
ellos se generen, otorgando en garantia las ccuentas cobranza, locales
o extranjeras, en las que sus clientes depositen el precio de compra;
para lo cual EL CLIENTE procedera a suscribir el Contrato de Garantia
correspondiente.
(ii) Otorgar a favor del BANCO primera y preferencial Prenda de Minerales
sobre la totalidad de los concentrados, materias primas, productos en
proceso y productos finales mantenidos y/o elaborados por EL CLIENTE;
para lo cual procedera a firmar el Contrato de Garantia
correspondiente.
DECIMO QUINTA: INDEMNIZACION
Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus
Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes
Indemnizables") por cualquier perdida, dano o gasto en que una cualesquiera de
las Partes Indemnizables sufra o incurra como consecuencia del presente
contrato, incluyendo, pero no limitado a, honorarios profesionales de abogados y
gastos surgidos de la transaccion celebrada, a menos que dicha perdida, dano o
gasto sea consecuencia de la culpa o dolo de dicha Parte Indemnizable.
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DECIMO SEXTA: CESIONES Y PARTICIPACIONES
Por la presente EL CLIENTE conviene y acepta expresamente que EL BANCO podra
ceder y/o participar la Linea de Credito que le otorga en virtud del presente
contrato con terceras instituciones financieras de primer orden, ya sean
peruanas o extranjeras. Por excepcion y solo en el caso de cesiones a terceras
instituciones financieras en virtud de las cuales EL BANCO deje de estar
obligado parcialmente frente al CLIENTE por la Linea de Credito, sera necesario
el consentimiento previo del CLIENTE respecto de la institucion financiera
cesionaria; el mismo que no podra ser irrazonablemente retenido (dejado de
otorgar) por EL CLIENTE.
Igualmente, EL CLIENTE acepta que los recursos del presente prestamo podran ser
obtenidos por EL BANCO de instituciones financieras de primer orden del
exterior, motivo por el cual debera colaborar razonablemente con EL BANCO
haciendo su mayor esfuerzo a fin de proveer diligentemente toda la informacion
que sea razonablemente solicitada por la(s) referida(s) institucion(es) para la
evaluacion economico-financiera de la empresa.
DECIMO SETIMA: COSTOS Y GASTOS
17.1 Todos los costos y gastos que se originen para EL BANCO como
consecuencia de la preparacion, negociacion y celebracion del presente contrato,
incluyendo, pero no limitandose, a los honorarios profesionales de abogados, los
gastos del due dilligence, los gastos derivados de la participacion y/o
sindicacion del BANCO y las comisiones que cobren los bancos en los que se
establezcan las Cuentas-cobranza, como consecuencia de este contrato, seran
asumidos y pagados por EL CLIENTE.
17.2 Asimismo, seran asumidos y pagados por EL CLIENTE todos los gastos
judiciales y extrajudiciales que pudieran originarse como consecuencia del cobro
de las sumas que EL CLIENTE pudiera adeudar al BANCO en virtud del presente
contrato y/o de la ejecucion de los Contratos de Garantia.
17.3. Igualmente seran asumidos y pagados por EL CLIENTE las comisiones y
gastos que pudieran cobrar al BANCO los bancos corresponsales que participen de
una u otra manera en las Cartas de Credito emitidas por el BANCO, a que se
refiere el numeral (ii) de la Clausula 3.4 de este documento. EL BANCO se
compromete a entegar al CLIENTE una copia de la evidencia de la liquidacion que
le haga(n) llegar el(los) banco(s) corresponsal(es)
17.4. Sin perjuicio de lo senalado en los parrafos anteriores, seran
asumidos por EL CLIENTE todos los demas costos y gastos que se deriven del
presente contrato, incluyendo los gastos notariales derivados de la elevacion a
Escritura Publica de este documento, asi como los de un Testimonio y una Copia
Simple del mismo para EL BANCO.
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DECIMO OCTAVA: IMPUESTOS
Las partes acuerdan que todos los pagos a ser efectuados por EL CLIENTE al BANCO
en virtud del presente contrato deberan ser efectuados libres de todo tributo,
impuesto, contribucion o carga que afecte o pudiera afectar en el futuro a los
mismos.
DECIMO NOVENA: NOTIFICACIONES
Cualquier notificacion, solicitud, demanda, consentimiento, designacion,
direccion, instruccion, certificado u otra comunicacion a ser dada bajo el
presente contrato, debera ser dada por escrito o enviada por facsimil (con
confirmacion escrita de recepcion, confirmacion que puede ser hecha por
facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del
BANCO y cuando sea requerido por la ley peruana, a las direcciones del CLIENTE y
del BANCO indicadas en la introduccion de este Contrato, o a cualquier otra
direccion que sea comunicada por escrito para tal efecto por el CLIENTE y el
BANCO:
CLIENTE DOE RUN PERU S.R.L
Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz
Direccion: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimil: 215-1235
215-1281
BANCO BANCO DE CREDITO DEL PERU
Atencion: Sr. Giorgio Badani - Banca Corporativa
Sra. Marcela Parodi - Area de Operaciones Internacionales
Direccion: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimil: 349-0794
426-5644
VIGESIMA: LEGISLACION APLICABLE
En todo lo no previsto en este documento, el presente Contrato se rige por las
Legislacion de la Republica del Peru.
VIGESIMO PRIMERA: ARBITRAJE
21.1 Las partes acuerdan expresamente que cualquier conflicto o
controversia que pudiera surgir entre ellas como consecuencia de la
interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su
nulidad e invalidez, seran resueltas mediante arbitraje de derecho, a cargo de
un Tribunal Arbitral compuesto por tres miembros que necesariamente deberan ser
abogados colegiados, realizado
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conforme al Reglamento de Conciliacion y Arbitraje Nacional e Internacional de
la Camara de Comercio de Lima.
21.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada
una de las partes designara a un arbitro y el tercero sera designado de comun
acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral.
21.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del
mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la
fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo
respectivo.
21.4 El laudo del Tribunal Arbitral sera definitivo e inapelable.
21.5 Los gastos que ocasione el arbitraje seran de cargo de la parte
perdedora.
21.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso
de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir
previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco
de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL
DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que
dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta
Fianza debera estar vigente durante el tiempo que dure el proceso promovido.
Agregue usted senor Notario las demas Clausulas de Ley y eleve a Escritura
Publica la presente Minuta.
Lima , 11 de junio de 1,998.
DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU
/s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon
GUILLERMO FERRERO ALVAREZ CALDERON
ABOGADO
REG. CAL. 26011
<PAGE>
Exhibit 10.9
(English)
Mr. NOTARY:
Kindly issue in your Registry of Public Deeds one containing the Contract for a
Credit Line in Foreign Currency entered into by and between, on one part, the
BANCO DE CREDITO DEL PERU, with Single Taxpayer's Registration Nr. 10004721,
domiciled at Centenario Street Nr. 156, corner with Av. Huarochiri, Urb. Las
Laderas de Melgarejo, La Molina, Lima, represented by Mr. Jesus Antonio Zamora
Leon and Mrs. Aida Lucia Ghiglino Zimic, empowered by virtue of powers
registered in entries 19-C and 32-C of filing card 117464 of the Government
Registry of Commercial Concerns of Lima, respectively, hereinafter referred to
as THE BANK, and on the other part, DOE RUN PERU S.R.L., with Single Taxpayer's
Registration Nr. 37630381, domiciled at Av. Victor Andres Belaunde 147, Via
Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9, San Isidro, duly
represented by Mr. Kenneth Richard Buckley, empowered by virtue of a
power-of-attorney granted by the General Meeting of Partners on May 15, 1998,
hereinafter referred to as THE CLIENT, under the following terms and conditions:
FIRST DEFINITIONS
The terms that appear below in this contract will have the indicated
definitions:
<PAGE>
1.1 GUARANTEE CONTRACTS.- These are the Ore Collateral Contract and the
Contract of Pledging as a Guarantee for Payments and/or Collections and for
Collection Accounts signed by THE CLIENT in favor of the BANK on the date of
the execution of this contract.
1.2 AUTHORIZED DEBT.- This is the debt or financial obligation which consists
in:
(i) debts and financial obligations of the CLIENT derived from this
contract;
(ii) debts and financial obligations that appear in the quarterly Financial
Statements of the CLIENT at the end of the quarter before the date of
the signing of this contract;
(iii) debts and financial obligations derived from the Leasing and
Lease-back Contracts entered into by the CLIENT after the date of the
signing of this contract, provided that the amount owed as principal
for those obligations does not jointly exceed US$20'000,000.00;
(iv) debts and financial obligations derived from Hedge Agreements entered
into by THE CLIENT to protect itself against possible variations in
interest rates provided that the amount owed as principal in those
agreements does not exceed the amount owed as principal in the
contracts which it protects and the obligations derived from the Hedge
2
<PAGE>
Agreements entered into in the normal course of business that are
solely related to the sale of the CLIENT's local production;
(v) debts and financial obligations incurred in the renewal, extension,
substitution and/or refinancing of any debt mentioned in sections (i),
(ii) and this same section (v) of this subclause, provided that that
renewal, extension, substitution and/or refinancing be made under
equal or more favorable terms and does not result in an increase in
the amount of principal in an added form of the debts that are
represented by those agreements;
(vi) debts and financial obligations that THE CLIENT may incur in the
normal course of his business, such as commercial accounts,
accumulated costs, payment of taxes, letters of guaranty to insure the
payment of customs duties and leasing of equipment;
(vii) other debts and financial obligations that THE CLIENT may incur
outside the Credit Line that is granted to it in accordance with this
contract, provided that the amount of the principal of such debts and
financial obligations does not jointly exceed the sum of
US$5'000,000.00.
3
<PAGE>
1.7 MATERIALLY HARMFUL EFFECT FOR THE CLIENT.- This is any event or condition
that causes a substantially harmful effect on (a) the business, (financial or
other) condition, operations or properties of the CLIENT, (b) the capacity of
the CLIENT to fulfill its obligations under this contract or under any of the
Guarantee Contracts or (c) the rights created in the Guarantee Contracts.
1.8 EVENT OF DEFAULT.- These are the circumstances listed in detail in the
Eleventh Clause of this contract, that result in the consequences mentioned in
the Twelfth Clause of this contract.
1.9 FINAL EXPIRATION DATE.- This is the expiration date of the term for the use
of the Credit Line as indicated in subclause 3.3 of the Third Clause of this
contract.
1.10 EXPIRATION DATE.- It is the expiration date of each of the loans and/or
credits granted by THE BANK in favor of the CLIENT within the framework of the
Credit Line that is mentioned in this contract.
1.11 BASE AMOUNT OF THE LOAN.- This is the amount that results from the addition
of the following accounts of the CLIENT's assets in the indicated percentages:
(i) 85% of the "Accounts Receivable of eligible buyers"; (ii) 70% of the
"eligible inventory accounts of purchased concentrates"; (iii) 30% of the
"eligible
4
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inventory accounts of raw materials and products in process" and (iv) 80% of the
eligible inventory accounts of end products"; using for that purpose the
definitions that are contemplated in the following paragraphs.
The "accounts receivable of eligible buyers" are understood to be that(those)
account(s) of the CLIENT selected by THE BANK at its sole discretion to be
included in the calculation of the Base Amount of the Loan. The amount of the
discounts, reimbursements, deductions, claims, credits, charges, repayments or
reductions shall be deducted from the nominal value of that (those) account(s)
so as to determine the amount of that(those) account(s) that are to be computed.
The respective conversion to the rate of exchange of sale on the date of the
calculation shall be made for the purposes of calculating the value of
that(those) account(s) that are to be calculated. Unless THE BANK determines
otherwise, the "accounts receivable of eligible buyers" will not in any case be:
(i) those derived from the sale (s) made by THE CLIENT to his home office,
subsidiary companies or affiliated companies. The latter shall be
understood to be those that are under the control of or under mutual
control with THE CLIENT:
5
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(ii) those whose term of payment is more extensive that the term normally
used by THE CLIENT in its commercial transactions;
(iii) those that are unpaid from more than sixty (60) days from their
expiration date or more than ninety (90) days from their invoicing
date;
(iv) those whose debtor has more than fifty per cent (50%) of its debts as
ineligible in accordance with the criteria established in the
foregoing section (iii);
(v) those that added to the other accounts of this same debtor exceed in
their face value to 10% of all the outstanding accounts of the CLIENT
but only with regard to the surplus;
(vi) those whose debtor is at the same time a creditor of THE CLIENT
entitled to compensation or such debtor has claimed or argued his
liability with regard to the account but only with regard to the
amount on which the debtor is entitled to compensation or has claimed
or argued THE CLIENT to obtain;
(vii) those whose debtor has voluntarily initiated or against whom
proceedings for restructuring his equity, insolvency and/or
bankruptcy, which has been wound up or dissolved, which
6
<PAGE>
has suspended the development of its business or which has been
declared to be insolvent;
(viii) those derived from a sale in which for some reason the debtor is
entitled to recover the property or THE CLIENT has the obligation of
repurchasing the same;
(ix) those derived from a sale with regard to which the merchandise has not
yet been shipped and sent to the site designated by the debtor of the
account or that does not represent a final sale;
(x) those with regard to which the debtor has handed over before to the
account, an amount, a security or goods as a guarantee but only with
regard to this amount, security or goods;
(xi) those that are illegal for some other reason or have been illegally
established.
The "eligible inventory accounts of acquired concentrates" in the purchased
concentrates' inventory of the CLIENT are understood to be the accounts that in
the judgment and opinion of the BANK comply with the following requirements:
(i) consist in concentrates that are physically located or localized in
the plants or establishments of THE CLIENT or in general deposit
warehouses, the same that THE CLIENT shall specify in writing to THE
BANK within the thirty (30) calendar days
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following to the signing date of this contract and each of its
anniversaries -except for the case of conveying an important part of
these concentrates to places not specified by THE CLIENT to THE BANK
in the indicated term, in which event THE CLIENT may be bound to give
notice immediately to THE BANK indicating the place of destination-,
or that having been deposited, localized or physically located in
sites that are different from the aforementioned but always within the
territory of the Republic of Peru may be freely inspected by THE BANK
and on which there is no right or lien whatsoever in favor of the
depositary;
(ii) is in good condition, not damaged nor obsolete and complies with all
the standards established by any government authority that has faculty
with regard to these goods, their use and/or sale and which is
normally usable or salable in the normal course of business of THE
CLIENT;
(iii) is not a consigned inventory; and
(iv) is marketable.
"Eligible inventory accounts or raw materials and products in process" in the
inventory of raw materials and products in process of the CLIENT are understood
to be:
8
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(A) When dealing with raw materials, those that in the opinion and judgment of
the BANK comply with the following requirements:
(i) consists in raw materials that have been localized or physically
located in the plants or establishments of THE CLIENT or in general
deposit warehouses, the same that THE CLIENT shall specify in writing
to THE BANK within the thirty (30) calendar days following to the
signing date of this contract and each of its anniversaries, except
for the case of conveying an important part of these raw materials to
places not specified by THE CLIENT to THE BANK in the indicated term,
in which event THE CLIENT may be bound to give notice immediately TO
THE BANK indicating the place of destination, or which being
physically located or localized in sites different from those
mentioned but always within the territory of the Republic of Peru may
be freely inspected by THE BANK and are not encumbered with any lien
or right whatsoever in favor of the depository;
(ii) are in good condition, not damaged nor obsolete and comply with all
the standards established by any government authority that has faculty
with regard to these goods, their use and/or
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<PAGE>
their sale and which are normally usable or salable in the normal
course of business of THE CLIENT;
(iii) are not consigned inventory; and
(iv) are marketable; AND
(D) when dealing with products that are in process, complies in the BANK's
judgment and discretion with the following requirements:
(ii) they are products in process which are in good condition;
(iii) they are salable, marketable and not obsolete;
(iv) they are physically localized or located in the plant and/or
establishment of the CLIENT or in any other site authorized by THE
BANK within the territory of the Republic of Peru and it is possible
to separately identify them with regard to the other goods located in
the aforementioned sites;
(v) are solely the property of the CLIENT who has a legitimate title to
transfer the same; and
(vi) are free from any lien or measure that could affect the entitlement of
the CLIENT.
"Eligible inventory accounts of end products" are understood to be the inventory
of end products of the CLIENT that in the BANK's judgment and discretion
complies with the following requirements:
10
<PAGE>
(i) consists in end products that are physically located or localized in
the plants or establishments of the CLIENT or in general deposit
warehouses, the same that THE CLIENT shall specify in writing to THE
BANK within the thirty (30) calendar days following to the signing
date of this contract and each of its anniversaries, except for the
case of conveying an important part of these end products to places
not specified by THE CLIENT to THE BANK in the indicated term, in
which event THE CLIENT may be bound to give notice immediately to THE
BANK indicating the place of destination-, or which are physically
located, deposited or localized in sites different from those
mentioned but always within the territory of the Republic of Peru may
be freely inspected by THE BANK and no lien or right whatsoever exists
on them in favor of the depository;
(ii) are in good condition, not damaged nor obsolete and comply with all
the standards established by any government authority that has faculty
with regard to those goods, their use and/or their sale and which are
normally usable or salable in the normal course of business of the
CLIENT;
(iii) are not consigned inventory; and
(iv) are marketable.
11
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1.4 OBLIGATIONS.- They are generally the commitments, duties and obligations
assumed by THE CLIENT with regard to the BANK due to this contract and
particularly those commitments and obligations listed in detail in the Tenth
Clause.
1.5 FINANCIAL OBLIGATIONS.- They are the commitments and obligations assumed by
THE CLIENT with regard to the BANK in accordance with the provisions of
subclause 10.1 of the Tenth Clause of this contract.
1.6 MINIMUM NET CONSOLIDATED PATRIMONY.- The Minimum Net Consolidated Patrimony
of the CLIENT is of US$275'000,000.00 (TWO HUNDRED AND SEVENTY FIVE AND 00/100
MILLION AMERICAN DOLLARS); where the Consolidated Net Patrimony is the sum of
(i) all the items that in accordance with the Generally Accepted Accounting
Principles (GAAP) in Peru appear as patrimony on its Balance Sheet and (ii) the
amount that corresponds to the representative shares of the capital stock. For
the purposes of determining the Minimum Net Consolidated Patrimony of Doe Run
Peru, the amount of US$125 million which corresponds to the loan made by Doe Run
Peru to Doe Run Mining will be deducted from the sum that results from the above
formula or in case of pre payment or amortization, the lesser amount whose
payment is outstanding as principal as well as the
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amount that corresponds to other loans and advances amongst affiliated
companies.
1.7 HEDGE RATIO OF THE CONSOLIDATED FIXED OBLIGATIONS.- This is the Ratio of
2.25 to 1.0 as a minimum, determined on the basis of projections (PRO FORMA
BASIS) for the Term of Utilization of the Credit Line; that is defined as the
ratio OF (i) UAIIDA (as it is hereinafter defined within this same paragraph)
during the four fiscal quarters prior to the date of the transaction that causes
the calculation of the ratio to (ii) the sum of (A) cost due to interest, (B)
amortization of the principal of due debts or debts payable, and (C) paid,
accumulated and/or scheduled for payment financial obligations due to financial
leasing determined on a consolidated basis in accordance with the Generally
Accepted Accounting Principles (GAAP) in Peru; where the UAIIDA (Profit before
taxes, Interest, Depreciation and Amortization) of a juridical person is the sum
(without duplication) of (i) the Consolidated Net Profit minus the special,
unusual or not repeated profits or losses, (ii) the income tax of that person
and its subsidiaries for that period paid or accumulated in accordance with the
Generally Accepted Accounting Principles (GAAP) in Peru (provided that they are
not the income tax attributable to special, unusual or not repeatable profits or
losses), the costs due to consolidated interest
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(net of any income due to interest), amortization costs (including amortization
of deferred financing costs) and depreciation costs and (iii) other non-monetary
items that reduce the Consolidated Net Profit (including without limitation any
non-monetary charge with regard to retirement benefits, health benefits, life
insurance and long term benefits for disability, required in accordance with the
Generally Accepted Accounting Principles (GAAP) in Peru) MINUS other non
monetary items that increase the Consolidated Net Profit, all of which is
determined in a consolidated manner for that person and its subsidiaries in
accordance with the Generally Accepted Accounting Principles (GAAP) in Peru.
THE CLIENT hereby declares to know and accept that in case it becomes a
corporation, it shall be included, as one of the addends of the mentioned sum in
the first subclause (ii) of the foregoing paragraph, for purposes of calculation
of the referred ratio, the product of (a) the amount of all the declared, paid
and/or accrued dividends in favor of the shareholders for (b) a fraction whose
numerator is one and the demoninator is one minus the tax rate in force.
SECOND: BACKGROUND
THE CLIENT is a private company whose object is to devote itself to mining
activities, including, but not limiting to, the ore
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processing. THE CLIENT purchased in October 1997, the Empresa Metalurgica La
Oroya S.A. (La Oroya Metallurgical Company) from its previous owner, the state
company Empresa Minera del Centro del Peru S.A. within the framework of the
privatization process executed by the Government of the Republic of Peru. THE
CLIENT absorbed the Empresa Metalurgica La Oroya S.A. in December 1997 by a
merger.
THIRD: OBJECT OF THE CONTRACT
THE CLIENT requires working capital financing for its foreign trade operations
and/or local sales which is why it has applied for a Revolving Credit Line from
THE BANK for up to the sum of US$40'000,000.00 (FORTY MILLION AND 00/100
AMERICAN DOLLARS) and THE BANK, accepting the application that was made, agrees
to grant it in accordance with the terms and conditions stipulated in this
contract.
3.1 REVOLVING CREDIT LINE.- THE BANK agrees to grant the CLIENT, subject to the
terms and conditions of this contract, different loans and/or credits in dollars
during the period included from the date on which the foregoing conditions for
making the disbursements and issuing the letters of credit, stipulated in the
Eighth Clause of this contract are complied with up to, but excluding, the Final
Expiration Date, for the maximum sum of
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US$40'000,000.00 (FORTY MILLION AND 00/100 AMERICAN DOLLARS), with the
specification mentioned in subclause 3.2 of this same Clause. Subject to the
terms of this contract, during such term, THE CLIENT may receive loans, pay and
ask once more for loans for part or all of the above indicated sum.
3.2 AMOUNT.-The maximum amount of use of the Credit Line that THE BANK grants
in accordance with this contract, shall be at all times the amount that is less
than (i) US$40'000,000.00 and (ii) the Base Amount of the Loan, provided that
the legal limits allow so for its transactions which are established by the
Financial System and Insurance System General Act and the Organic Act of the
Superintendency of Banking and Insurance (Law Nr. 26702) or any other that may
replace it in the future, considering the credit line for the request of
issuance of letters of guaranty granted by THE BANK and any other credit granted
or which THE BANK may grant in the future to THE CLIENT.
In the event that, as consequence of the variations in the Base Amount of the
Loan, the amount used of the Credit Line is over the maximun amount permitted
which is contemplated in the foregoing paragraph, THE BANK will be entitled to
demand to THE CLIENT the prepayment of the sum which is necessary so that the
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amount used of the credit line be equal or lower than the maximun amount
permitted in accordance with the provisions of the foregoing paragraph.
3.3 TERM OF USE.- The maximum term for the use of the Credit Line is of four
(4) years counted from the signing of this contract, without prejudice to the
provisions set forth in Eighth Clause of this contract . In that sense, the
Final Expiration Date shall be on June 10, 2002. Nevertheless, at the end of the
first year and of each of the subsequent years of the term of use of the Credit
Line, THE BANK may, without being obliged to do so, extend the Final Expiration
Date by additional annual periods.
3.4 FORMS OF USE.- THE CLIENT may use the Credit Line that is granted in
accordance with this contract by requesting (i) loans, including but not
restricted to pre and post-shipment loans, or (ii) issuing on the part of the
BANK of Letters of Credit for the payment of its imports of concentrates, raw
materials and materials.
3.5 POSSIBILITY OF REDUCTION OF THE AMOUNT OF THE CREDIT LINE.- THE CLIENT may
request at any time the reduction of the maximum amount of the Credit Line
mentioned in the foregoing subclause 3.2. Once the maximum amount of the Credit
Line has been reduced, it may not be once more restored.
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3.6 REPAYMENT OF THE CREDIT LINE.- Without prejudice to the provisions of the
Eleventh and Twelfth Clauses which refer to "Events of Default" and the
"Consequences of the Events of Default" respectively, THE CLIENT pledges to
completely pay to the BANK the loans and/or credits that are outstanding in
accordance with this Credit Line on the Final Expiration Date.
FOURTH: OF THE TERMS AND CONDITIONS OF THE LOANS
MENTIONED IN SECTION 3.4(I)
4.1 THE AMOUNT.- The amount of the individual loans requested by THE CLIENT may
not be lower than US$1'000,000.00 (except in the case that the amount available
of the Credit Line is lower than the aforementioned sum) and must be in amounts
that are multiples of US$200,000.00. The loans must be requested by THE CLIENT
to the BANK at least three (3) workdays in advance.
The request that THE CLIENT submits to THE BANK shall specify at least the
following information: (a) in the case of financing for foreign trade
operations: (i) the amount, (ii) the date on which the disbursement is desired,
(iii) the financing term in accordance with what is stipulated in the following
subclause of this Clause, (iv) the probable date of shipment, (v) the
merchandise to
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be exported, (vi) the country of destination, (vii) the documents supporting the
exportation, (viii) the buyer's name and (ix) the number of collections (in case
of post-shipment financing); and (b) in the case of financing for other purposes
mentioned in the Third Clause concerning the object of the contract: (i) the
reference to the credit line, (ii) the amount, and (iii) the financing term in
accordance with the provisions of the following subclause of this Clause.
In addition, in the case of financing for foreign trade operations, THE CLIENT
shall enclose to the request the duly signed form of request for foreign credit
which THE BANK shall timely supply.
TERMS.- Provided that the term of use of the Credit Line permits it, taking into
consideration what was resolved upon in subclause 3.6 of the foregoing Clause,
the loans shall have terms of 1, 3 or 6 months at the option of the CLIENT,
stated in writing to the BANK in his application. THE CLIENT shall request to
THE BANK the prepayment of the loans granted two (2) workdays in advance to the
date foreseen for the prepayment, which will be evaluated and decided by THE
BANK, at its sole discretion, being in these cases THE BANK empowered to collect
from THE CLIENT a fee for prepayment which will be previously and timely
informed to THE CLIENT.
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4.3 INTEREST RATE.- The compensatory interest rate accrued by these loans
during the first year of the term of use of the Credit Line shall be the LIBOR
rate at 1, 3 or 6 months (depending on the term of the loan requested by THE
CLIENT) + 1.50%. The LIBOR rate at 1, 3 or 6 months is the interest rate at
which Eurodollar deposits are offered for that same term on the London
interbanking market, a rate that is recorded daily at 11.00 hours, as appears on
the LIBOR page of the monitor of the REUTERS informative system (adjusted if
necessary to 1/16 of the closest high 1%). The parties agree and stipulate that
the interest rate agreed upon for this loan is of a floating nature in
accordance with the variations of the LIBOR rate and therefore THE BANK will
proceed to set the rate the applies to each loan not less than two (2) workdays
in advance of the date provided for the disbursement of the respective loan,
taking into account the LIBOR rate stipulated in the Reuters Monitor on that
date. The amount that must be paid by THE CLIENT for interest at the end of that
term will be established on this basis. Delays on the fulfillment of the payment
of interest and/or capital of the loans on the dates of their respective
expiration shall be subject at that time and until the total repayment of the
expired obligations, to the payment of interests for delayed payments at the
rate of 3% yearly in addition to the
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compensatory interest. For that purpose, THE CLIENT will incur in automatic
default without need for any summons or notice whatsoever in accordance with the
provisions of section 1 of Article 1333 of the Civil Code.
At the end of the first year of the term of use of the Credit Line and at the
expiration of the subsequent annual periods, THE BANK may, without being obliged
to do so, review and amend the compensatory interest rate mentioned in the
foregoing paragraph; which it will notify the CLIENT thirty (30) calendar days
in advance.
4.4 PROMISSORY NOTES.- The loans shall be documented by the issuing on the part
of the CLIENT of one or several promissory notes, using for this purpose the
form of promissory note which as Exhibit 1 forms an integral part of this
contract. The parties declare that this form of promissory note may be modified
by THE BANK at any moment.
4.5 REPAYMENT OF THE LOANS.- Without prejudice to the provisions of Subclause
3.6 of the Third Clause, which refers to the "Repayment of the Credit Line" and
to the Eleventh and Twelfth Clauses, which refer to "Events of Default" and the
"Consequences of the Events of Default" respectively, THE CLIENT pledges to pay
the BANK the loans on their respective
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Expiration Dates, for which purpose it authorizes the BANK to charge the amount
owed to any of the accounts that THE CLIENT maintains in THE BANK in accordance
with the provisions of the Thirteenth Clause.
FIFTH: OF THE TERMS AND CONDITIONS OF THE LETTERS OF
CREDIT MENTIONED IN CLAUSE 3.4(II)
5.1 ISSUING OF LETTERS OF CREDIT.- Provided that THE CLIENT requests in writing
by signing and submitting the respective form to the BANK three (3) workdays in
advance, THE BANK may, as part of the credits granted to THE CLIENT in
accordance with the Revolving Credit Line which this contract refers to, issue
Letters of Credit for the payment of imports of raw materials, concentrates or
materials made by THE CLIENT. The amount of the Letters of Credit issued by THE
BANK shall be considered in this sense as an amount that has been used of the
aforementioned Credit Line.
5.2 THE AMOUNT.- The amount of the Letters of Credit requested by THE CLIENT
may not be less than US$100,000.00 except in the case that the amount available
of the Credit Line is lower than that sum.
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5.3 THE TERMS.- Provided that the term of use of the Credit Line permits it,
taking into consideration what was resolved in subclause 3.6 of the Third
Clause, the Letters of Credit will have the terms requested by THE CLIENT and
approved by THE BANK, the same which, in principle, shall not exceed the term of
6 months.
5.4 PAYMENT OF THE LETTERS OF CREDIT.- At the time of the effective payment of
a Letter of Credit issued in accordance with the provisions of this Clause, THE
BANK shall finance to THE CLIENT the amount due, by granting a loan for a term
of (3) months in the terms and conditions indicated in the Fourth Clause and
other Clauses of this document; unless THE CLIENT requests to THE BANK to
immediately collect the sum paid through the letter of credit for which THE
CLIENT hereby authorizes THE BANK to charge in his current account or in any of
his accounts the corresponding amount, in accordance with the Thirteenth Clause.
SIXTH: FEES
THE CLIENT is obliged to pay the following fees to the BANK:
6.1 UNDERWRITING FEE.- THE CLIENT will pay to the BANK as an Underwriting Fee,
US$500,000.00 (FIVE HUNDRED THOUSAND AND 00/100 AMERICAN DOLLARS) equivalent to
1.25% of the maximum amount of the Credit Line
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(US$40'000,000.00) which will be paid on the signing of this contract.
6.2 AGENCY FEE.- THE CLIENT will pay to the BANK as Agency Fee US$30,000.00
(THIRTY THOUSAND AND 00/100 AMERICAN DOLLARS) a year during the term of use of
the Credit Line including any extension of the same, which shall be paid in
advance on the signing of this contract and on each date of anniversary of the
signing of this contract.
6.3 COMMITMENT FEE.- THE CLIENT will pay the BANK as a Commitment Fee, during
the term of use of the Credit Line, a sum equivalent to 0.375% annually of the
average unused portion of the Line, which shall be calculated by taking into
account the daily unused portions, from which a quarterly average shall be
obtained on which the aforementioned rate will be applied. This Fee will be paid
on a lapsed quarter within the first ten (10) calendar days of the following
quarter. For purposes of the calculation, the nominal amount of the Letters of
Credit mentioned in subclause (ii) of Clause 3.4 shall be considered to be the
"amount used" of the Credit Line.
6.4 FEE ON THE ISSUING OF A LETTER OF CREDIT.- THE CLIENT will pay the BANK as
a Fee for the Issuing of a Letter of Credit, a sum equivalent to 0.375% of the
amount of each Letter of Credit
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to be issued in accordance with the provisions of subclause (ii) of Clause 3.4.
This fee will be paid at the time of the issuing of each Letter of Credit.
SEVENTH: PRIOR CONDITIONS FOR THE EXECUTION OF THE CONTRACT
The prior conditions for the execution of this contract are:
7.1 LEGAL CAPACITY OF THE CLIENT.- The reception on behalf of the BANK of a
legalized copy of the minutes of the General Meeting of Partners of the CLIENT
authorizing the signing and execution of this contract and of the Guarantee
Contracts and appointing their attorneys for the signing of the same.
7.2 FINANCIAL STATEMENTS.- The reception on behalf of the BANK of the copies of
the audited financial statements which correspond to the economic fiscal year
which ended on December 31, 1997 and of the unaudited financial statements which
correspond to the first quarter of the 1998 Fiscal Year together with a
certification from THE CLIENT of a recent date that those financial statements
are correct and complete.
7.3 LEGAL OPINIONS.- The reception on behalf of the BANK of satisfactory legal
opinions signed by the lawyers of THE CLIENT and of the parent company, Doe Run
Resources Corporation, this latter referred to the validity of the subordination
of the present or
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future debts, which THE CLIENT may have, derived from the issuance of Senior
Notes made in March 1998 by the parent company, to the debts that THE CLIENT may
incur before THE BANK by virtue of this contract.
7.4 NONEXISTENCE OF GOVERNMENT ACTION.- That the Peruvian Government shall not
have enacted legislation nor taken any measure whatsoever that at the criteria
and discretion of the BANK could restrict the exporting of its products by THE
CLIENT.
7.5 NONEXISTENCE OF CIRCUMSTANCES THAT AFFECT THE FINANCIAL SYSTEM.- That no
circumstances or situations have arisen that, in the opinion and judgment of the
BANK negatively affect (i) the Peruvian financial system, (ii) the international
financial system, (iii) the political or economic environment of Peru, or (iv)
the tax or currency policies of the Peruvian government, its laws and
regulations.
7.6 NONEXISTENCE OF CIRCUMSTANCES THAT AFFECT THE FINANCIAL CONDITION OF THE
CLIENT.- That no circumstance or situation has arisen since the date of the last
audited financial statements that in the BANK'S opinion and judgment affect or
could substantially affect (i) the repayment capacity of the loans and/or
credits by
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THE CLIENT or (ii) the business, operations, properties, assets or liabilities
of THE CLIENT.
7.7 NONEXISTENCE OF LIENS WITH REGARD TO THE CLIENT'S INCOME AND ASSETS.- That
the assets and accounts receivable of the CLIENT be free from any lien.
7.8 CERTIFICATE OF THE BASE AMOUNT OF THE LOAN.- The reception on behalf of the
BANK of a certificate signed by the Financial Manager of THE CLIENT or the
official designated by him for that purpose which was previously communicated by
THE CLIENT to the BANK establishing the Base Amount of the Loan.
7.9 DUE DILIGENCE.- The conclusion by the BANK in a satisfactory manner of THE
CLIENT's due diligence.
EIGHTH: PRIOR CONDITIONS FOR THE EXECUTION OF THE
DISBURSEMENTS AND THE ISSUANCE OF LETTERS OF CREDIT
The prior conditions for the execution of the disbursements of the credits
and/or loans referred to in this contract are:
8.1 GUARANTEE CONTRACTS AND ESTABLISHMENT OF COLLECTION ACCOUNTS.- The
reception by THE BANK of the Guarantee Contracts duly signed by THE CLIENT and
its conformity with the establishment of the Collection Accounts in Lima and New
York. Likewise, the service of notices to the clients of THE
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CLIENT instructing them to make their payments in the Collection Accounts and
the written consent by them indicating their compliance with such instructions.
8.2 NONEXISTENCE OF CIRCUMSTANCES THAT COULD AFFECT THE FINANCIAL SYSTEM.- That
no circumstances or situations have arisen since the date of the signing of this
contract that in the opinion and judgment of the BANK affect or could affect in
a negative form (i) the Peruvian financial system, (ii) the international
financial system, (iii) the political or economic environment of Peru, or (iv)
the tax or monetary policies of the Peruvian government, its laws and
regulations.
8.3 FULFILLMENT OF OBLIGATIONS BY THE CLIENT.- That THE CLIENT has fulfilled
all his Obligations established in this contract, including the Financial
Obligations.
8.4 NONEXISTENCE OF CIRCUMSTANCES THAT COULD AFFECT THE FINANCIAL SITUATION OF
THE CLIENT.- That there have not occurred since the date of the execution of
this contract, circumstances or situations that in the opinion and judgment of
the BANK affect or could affect in a substantial manner (i) the loan repayment
capacity of THE CLIENT or (ii) the businesses, operations, properties, assets or
liabilities of THE CLIENT.
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8.5 NONEXISTENCE OF GOVERNMENT ACTION.- That the Peruvian Government not have
enacted any legislation nor taken, since the date of the signing of this
contract, any action whatsoever that in the opinion and judgment of the BANK
could restrict the exporting of his products by THE CLIENT.
8.6 NONEXISTENCE OF ANY EVENT OF DEFAULT.- That on the date of the respective
disbursement, no Event of Default whatsoever have occurred.
8.7 STATEMENTS AND GUARANTEES.- That the statements and guarantees made by THE
CLIENT in the Ninth Clause of this contract and in the Guarantee Contracts be
correct and complete in all aspects in and from the time of the disbursement
unless the flaw in that statement or guarantee cannot reasonably cause a
Materially Harmful Effect on the situation of THE CLIENT and provided that such
declaration or guarantee has been true and complete in all its aspects on the
date on which it was made.
8.8 NONEXISTENCE OF MATERIALLY HARMFUL EFFECT.- That on the date of the
respective disbursement, no event or circumstance whatsoever has taken place
that results or which could reasonably result in a Materially Harmful Effect for
THE CLIENT.
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8.9 REGISTRATION OF THE ORE COLLATERAL CONTRACT.- That the Ore Collateral
Contract executed by THE CLIENT in favor of the BANK have been registered in the
Public Mining Registry.
NINTH: STATEMENTS AND GUARANTEES
THE CLIENT states and guarantees to the BANK that:
9.1 ORGANIZATION AND QUALIFICATION.- THE CLIENT is a Limited Liability
Commercial Company that was incorporated and exists under Peruvian laws. It is
authorized under Peruvian law to own its property and to perform its normal
activities.
9.2 POWERS OF ATTORNEY AND AUTHORIZATIONS.- THE CLIENT possesses and has
granted to its attorneys all the necessary powers of Attorney and authorizations
to sign this contract and the Guarantee Contracts and to comply with all the
obligations assumed in each one of them.
9.3 COMPULSORY COMPLIANCE.- This contract and the Guarantee Contracts are valid
and binding obligations that are of compulsory compliance for THE CLIENT except
for what is provided for in the applicable bankruptcy, insolvency and equity
restructuring laws.
9.4 GOVERNMENT AUTHORIZATIONS.- THE CLIENT has all the necessary government
authorizations under the laws in force to execute this contract and the
Guarantee Contracts and to comply
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with the obligations assumed in each of them. These authorizations are in force
and are not subject to any condition or requirement whatsoever. THE CLIENT shall
obtain timely any authorization he requires since the signing date of this
contract.
9.5 NONEXISTENCE OF CONFLICTS.- The signing and execution on behalf of THE
CLIENT of this Contract and of the Guarantee Contracts, (i) is not in conflict
nor does it create a situation of default with regard to (a) any of the terms,
conditions or provisions of the bylaws and other incorporation documents of THE
CLIENT, (b) any law or regulation that may be applicable, or any sentence,
judicial order or decree from any relevant court or authority, (c) any
resolution or contract in which THE CLIENT is a party or by which it is bound,
(ii) nor can it result in the creation or imposition of any lien, charge or
encumbrance on any property of THE CLIENT unless that lien, charge or
encumbrance cannot reasonably cause a Materially Harmful Effect on the situation
of THE CLIENT and has been duly reported to the BANK before the date of the
signing of this contract.
9.6 LEGAL SITUATION.- THE CLIENT is not in default under any law or regulation
whatsoever that may be applicable nor any sentence, judicial order or decree of
any relevant authority or court, unless that situation cannot reasonably cause a
Materially
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Harmful Effect in the situation of THE CLIENT and has been duly reported to the
BANK before the date of the signing of this contract.
9.7 FINANCIAL STATEMENTS.- THE CLIENT has placed at the disposal of the BANK
its Financial Statements to December 31, 1997 which have been duly audited. All
this financial information is correct and complete and precisely reflects the
financial condition of THE CLIENT. On the date of signing of this contract, THE
CLIENT does not have direct or contingent liabilities aside from those (i)
mentioned or reflected in the aforementioned financial statements on those
dates, (ii) that emerge from this contract and from the Guarantee Contracts, or
(iii) those that were communicated to the BANK. No substantial change has
occurred on the date of the signing of this contract that is harmful for the
consolidated financial condition of THE CLIENT with regard to that financial
condition that is reflected in the financial statements up to December 31, 1997.
9.8 JUDICIAL PROCEEDINGS.- Except for what was revealed to the BANK before the
signing of this contract, there is no action, investigation, demand or judicial
proceeding whatsoever that is pending or as far as any official or employee of
THE CLIENT may know, there is no suit or written claim whatsoever against
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THE CLIENT or its property in any court, fee or government committee, board,
governmental agency or arbitration court.
9.9 DISCLOSURE.- On the date of the signing of this contract, the statements
made by THE CLIENT in this document and in the Guarantee Contracts do not
include any false statement of any fact nor do they omit any material fact that
could cause the information furnished by THE CLIENT to lead the BANK to incur in
a mistake. On the date of the signing of this contract, there is no fact known
by THE CLIENT that has not been disclosed to the BANK, and that could result in
a Materially Harmful Effect for THE CLIENT.
9.10 NONEXISTENCE OF ACTS OF GOD AND FORCE MAJEURE.- The businesses and
properties of THE CLIENT have not been affected by fire, explosion, accidents,
strikes, shutdowns or any other labor problem, drought, storm, hail,
earthquakes, embargoes or any other circumstance that in a reasonable manner
could cause a Materially Harmful Effect on THE CLIENT.
9.11 NONEXISTENCE OF DAMAGES TO THE ENVIRONMENT.- THE CLIENT operates his
business complying with all environmental legal and regulatory standards
applicable to mining-metallurgical activities, as well as with all the terms and
conditions of the Environment Adaptation Program (PAMA) that it has submitted to
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the Ministry of Energy and Mines. No harmful, toxic or dangerous material as
defined by said standards has been or is being spilled, thrown, spread or freed
by THE CLIENT violating any mining-metallurgical environmental law or regulatory
standard unless suitable measures accepted by the respective government
authorities and disclosed to the BANK are being taken to remedy this situation.
THE CLIENT has not transported nor is he transporting any harmful, toxic or
dangerous material whatsoever as defined by the aforementioned standards unless
suitable measures that are accepted by the respective government authorities and
disclosed to the BANK are being taken to remedy this situation.
9.12 TAXES.- THE CLIENT has prepared, signed and submitted before the competent
authority the forms of all taxes and contributions which he is legally obliged
to pay and has paid the same except for those that: (i) are being claimed by THE
CLIENT through suitable impugning appeals and (ii) those on which the respective
provisions and reserves have been made in THE CLIENT's accounting records. There
is no outstanding proceeding or dispute between THE CLIENT and any government
authority with regard to contributions and taxes,
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different from those detailed in Exhibit II, which forms integral part of this
contract.
9.13 IMMUNITY.- THE CLIENT has no immunity with regard to the jurisdiction and
rights of any court, judge or tribunal or with regard to any legal proceeding or
demand.
9.14 PRIORITY.- All the obligations assumed by THE CLIENT under this contract
are first priority for THE CLIENT and therefore prevail with regard to the other
direct or indirect, present or future obligations of THE CLIENT. In this sense,
the obligations that could be derived for THE CLIENT from the guarantee given to
the Issuance of Senior Notes made by Doe Run Resources Corporation in March
1998, will be contractually subordinated with regard to the obligations assumed
by THE CLIENT in accordance with this contract.
TENTH: OBLIGATIONS
THE CLIENT assumes by this Clause the following Obligations with regard to THE
BANK:
10.1 FINANCIAL OBLIGATIONS.-
(1) To send to the BANK, not less than 60 days in advance of the date
foreseen to incur in an Additional Debt, which differs from an
Authorized Debt, a certificate signed by its Financial Manager (a)
indicating that it is complying with the Fixed
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Consolidated Obligations Hedge Ratio, (b) describing in detail the
nature of that Additional Debt, including but without restricting
itself to, a mention with regard to the use of the funds, the
creditor, the term of the debt, the amortization program, the amount
of the principal and interest, the guarantee, should there be any, and
any other information that THE CLIENT considers to be important to
understand the scope of that Additional Debt; and (c) projecting in
detail a calculation of the Fixed Consolidated Obligations Hedge Ratio
determined on a Pro Forma Basis as if the proposed additional debt had
been incurred on the first day of the last fiscal quarter and
thereinafter on each fiscal quarter during which its payment is
pending.
(ii) Send to the BANK within the ten (10) workdays after each fiscal
quarter, a certificate signed by its Financial Manager certifying that
THE CLIENT complies with the Net Minimum Consolidated Patrimony.
10.2 INFORMATION.-
(ii) VERACITY.- Providing correct and complete information when drafting
the credit application and at all times during the time this contract
is in force.
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(iii) FINANCIAL INFORMATION.- Send to the BANK or to whomever it designates
complete financial information as well as an audited version of the
same at the end of each fiscal year and within a term of not more than
120 (one-hundred and twenty) calendar days from the respective
closing, committing to promptly communicate to the BANK or whomever it
designates any fact or circumstance that could lead to a substantial
deterioration in the income, profits, ability to pay and/or financial
situation of THE CLIENT. Likewise, to send to THE BANK or to whomever
it designates a non-audited version of the financial statements of THE
CLIENT at the closing of each quarter of the fiscal year.
(iv) ADDITIONAL INFORMATION.- Send to the BANK as soon as possible after
its application, any additional information related to this contract
with the Guarantee Contracts and with the capacity of THE CLIENT to
comply with the obligations assumed in accordance with those
documents.
10.3 NOTIFICATION OF SPECIAL EVENTS.- Immediately notify the BANK when any of
the following events takes place, including a description on its nature and the
measures that THE CLIENT plans to take with regard to it: (i) an Event of
Default, and (ii) any suit, arbitration or administrative proceeding in which
THE
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CLIENT is a party, and in case of being solved in an unfavorable manner for THE
CLIENT, it may have a materially harmful effect for THE CLIENT.
10.4 MAINTENANCE OF ACCOUNTING BOOKS AND RECORDS.- Keep accounting books
and records in accordance with generally accepted accounting principles and
practices that are accepted in Peru, committing before THE BANK that the annual
financial statements of the company will be reported upon by a firm of
independent auditors with an international reputation. The names of the selected
auditors must be communicated to THE BANK in a timely manner. The records must
be kept in sufficient detail so as to specify the investments made, their cost
and should this be the case, the progress of their execution.
10.5 INSPECTION.- Allow the technical personnel of THE BANK or the persons
that THE BANK designate, to verify the information that is supplied and the
proper application of the resources granted due to credits and/or loans granted
by THE BANK to THE CLIENT within the framework of this contract as well as to
perform inspections in the plant and establishments of THE CLIENT.
10.6 EXISTENCE AND CAPACITY.- Maintain its existence as a Limited Liability
Commercial Company under Peruvian law.
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10.7 NON-PARTICIPATION IN UNRELATED ACTIVITIES.- Maintain the proper line
of its business and abstain from directly or indirectly participating in
unrelated activities.
10.8 USE OF THE RESOURCES.- Assign the resources from the credits and/or
loans that THE BANK grants within the framework of this contract for the
purpose indicated in the Third Clause of this contract.
10.9 MAINTENANCE OF ASSETS.- Maintain the plant and other productive areas
that are necessary for the development of its corporate purpose in good
condition and at certain times perform the repairs and restorations that may be
necessary for this purpose.
10.10 LIMITATIONS IN THE DISPOSAL OF ASSETS.- Abstain, during the time this
loan is in force, from selling, leasing, transferring or assigning the use of
the fixed assets that are necessary to maintain the production and sales of the
company that are estimated in the credit application submitted to the BANK
unless they have been replaced or are to be replaced upon satisfaction of THE
BANK and there has been a specific authorization in writing by the BANK in that
sense, and except for the properties which may be transferred by THE CLIENT
within the framework of the Lease-back Contracts which he intends to enter into
in the future, including those entered into with THE BANK, under the
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provisions of subclauses 10.19 of the Tenth Clause and 1.2 (iii) of the First
Clause of this contract. THE BANK commits its best efforts to answer the
aforementioned application within a maximum period of ten (10) workdays after it
has been submitted.
10.11 GOVERNMENT AUTHORIZATIONS.- Maintain in force during the time that
this contract is in force, all licenses, permits and generally any authorization
that is necessary for the normal performance of its activities and the execution
of this contract.
10.12 TAXES.- Comply with the payment of all contributions and taxes that
may correspond to it in accordance with the laws in force except for those that
are been questioned and/or claimed by THE CLIENT through proper impugning
appeals and concerning which the respective reserves and provisions have been
made in the accounting books and records of THE CLIENT.
10.13 ABSTAIN FROM MERGERS OR SPLITS.- Abstain from participating in merger
or split processes and not sell nor transfer all or a substantial part of its
fixed assets to any person whatsoever nor acquire all or substantially all the
assets of any person whatsoever without the specific prior authorization in
writing of the BANK.
10.14 COMPLIANCE WITH THE LAW.- Keep up to date in the fulfillment of its
fiscal and labor obligations including those that derive from the social
security laws and private management of pension funds
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as well as with the other aspects of Peruvian or foreign legislation that may be
applicable and of any regulations concerning this unless the need for that
legislation or regulation is being debated and/or questioned by THE CLIENT in
good faith through suitable means and provisions have been taken in the
accounting records and books of THE CLIENT.
10.15 COMPLIANCE WITH ENVIRONMENTAL LEGISLATION.- Without prejudice to the
obligation contemplated in the foregoing subclause, comply with each and all the
obligations in the mining-metallurgical environmental legislation in force and
for that purpose it must perform the studies and comply with the requirements
established in the respective laws and regulations.
10.16 NONEXISTENCE OF HEDGING AGREEMENTS FOR SPECULATIVE PURPOSES.- Abstain
from executing hedging agreements for speculative purposes that do not have the
essential purpose of protecting oneself against possible fluctuations on the
market of the prices of the minerals that it produces and sells.
10.17 TRANSACTIONS AND CONTRACTS WITH AFFILIATED OR LINKED PERSONS.- Abstain
from entering into transactions with related companies or persons that are less
advantageous than those that would be obtained should the transaction be entered
into with non-related third parties. Excluded from the limitation referred to in
this
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subclause are the obligations THE CLIENT have with affiliated or linked persons
and who appear in detail on Exhibit III which forms integral part of this
contract.
10.18 OBLIGATIONS.- Comply on or before the expiration date with all the
obligations assumed due to this or other contracts that it has entered into and
whose default could result in the opinion and judgment of the BANK in a
Materially Harmful Effect for THE CLIENT unless this compliance: (i) is being
questioned by THE CLIENT in good faith through the proper means and (ii) on
which the respective reserves and provisions have been made in the accounting
books of THE CLIENT.
10.19 RESTRICTION IN THE ASSUMPTION OF FINANCIAL DEBTS AND OBLIGATIONS.-
Abstain from assuming, creating or incurring in any financial debt or obligation
different from an Authorized Debt unless it has the prior authorization in
writing of the BANK; for which before incurring in this additional debt or
financial obligation, THE CLIENT will send to the BANK the certificate
mentioned in subclause 10.1(i) of the Tenth Clause. THE BANK commits its best
efforts to communicate to THE CLIENT promptly, but at least thirty (30) calendar
days before the proposed date to incur in such additional financial debt or
obligation, its approval or rejection of the proposal of additional debt based
on a
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reasonable analysis. In case that THE BANK disapproves the proposed additional
debt, THE CLIENT will not be permitted to incur in the same under penalty of
being regarded as an Event of Default.
10.20 LIMITATION IN LIENS.- Abstain from creating or assuming liens on any
of its present or future properties, assets or contractual rights, unless they
refer to:
(xix) Liens that are specifically created, required or permitted by this
contract of by the Guarantee contracts.
(xx) Liens imposed by some government body or authority due to taxes or
contributions.
10.2 CERTIFICATE INDICATING THE BASE AMOUNT OF THE LOAN.- Send to the BANK,
a Certificate signed by its Financial Manager establishing the Base Amount of
the Loan effective on the twentieth day of every calendar month, as well as the
details of the accounts that served to determine the same. This information is
of the nature of an affidavit. This certificate shall be delivered by THE CLIENT
to THE BANK within five (5) workdays following to the twentieth day of every
calendar month. This certificate shall be in force during the next calendar
month counted as from the twentieth day of every month, unless in the meanwhile
THE CLIENT submits to THE BANK a new certificate replacing the
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former, in which case this new certificate shall be in force for the remaining
days until the twentieth day of the calendar month.
10.3 LIMITATION IN THE DISTRIBUTION OF DIVIDENDS.- Abstain from
distributing dividends or paying subordinate debts should an Event of Default
occur or should it be in default on its contractual obligations with THE BANK.
ELEVENTH EVENTS OF DEFAULT
The parties agree that each of the following circumstances constitutes an Event
of Default:
11.1 DEFAULT IN THE OBLIGATION OF PAYMENT.- If THE CLIENT does not comply
with the payment of (i) some amount which corresponds to the principal or
interest of any of the loans and/or credits granted under this contract, (ii)
some commission, fee or expense that must be paid and/or reimbursed in
accordance with this contract or the Guarantee Contracts, or (iii) any other
obligation assumed under this contract or the Guarantee Contracts.
11.2 FALSITY OF SOME STATEMENT OR GUARANTEE.- If any of the statements or
guarantees made by THE CLIENT in this contract or in the Guarantee Contracts is
or becomes false or incomplete and this circumstance continues without being
corrected during a term of fifteen (15) calendar days from the date of the
notice sent for that purpose by the BANK.
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11.3 DEFAULT ON OBLIGATION.- If THE CLIENT defaults on any of the
obligations assumed under this contract or under the Guarantee Contracts,
different from the Obligation of Payment mentioned in subclause 11.1 of this
Eleventh Clause and this default is not corrected (if this default is
susceptible to correction) within the fifteen (15) calendar days after the
notice in this sense sent by the BANK or if THE CLIENT incurs in an additional
debt or financial obligation without the prior authorization in writing of the
BANK.
11.4 DEFAULT ON FINANCIAL OBLIGATION.- If THE CLIENT defaults on any of the
Financial Obligations described in subclause 10.1 of the Tenth Clause of this
contract and this default is not remedied within the thirty (30) calendar days
following the notice in that sense sent by the BANK.
11.5 BANKRUPTCY OR INSOLVENCY.- If THE CLIENT initiates a bankruptcy,
insolvency or equity restructuring proceeding or one is initiated for him and
these proceedings are not declared to be inadmissible within the thirty (30)
calendar days following its initiation.
11.6 DEFAULT ON OBLIGATIONS CONTEMPLATED IN OTHER CONTRACTS (CROSS DEFAULT).- If
THE CLIENT defaults on any of the obligations assumed in accordance with another
financing contract that he has
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entered into and this default causes the conclusion or anticipated expiration of
the term for the compliance with his obligations derived from that contract.
11.7 INVALIDITY OF GUARANTEE CONTRACTS.- If any of the Guarantee Contracts
is terminated, cancelled or ceases to (i) create a valid and complete guarantee
on the property subject to this guarantee with the priority granted on it or
(ii) be fully in force and valid because it was declared ineffective and without
value.
11.8 GOVERNMENT AUTHORIZATIONS.- If any government authorization that may
be required by THE CLIENT with regard to this contract or the Guarantee
Contracts ceases to be fully in force and valid.
11.9 CHANGES IN THE SHAREHOLDERS.- If Doe Run Resources Corporation ceases
to directly or indirectly own 66.66% of the shares of Doe Run Peru unless it has
the approval of the BANK.
11.10 EXPROPRIATION.- If on a date after the signing of this contract, the
Peruvian Government should perform any act that in the opinion and judgment of
the BANK (i) could result in depriving it of any of its rights as a creditor
under this contract or under the Guarantee Contracts or (ii) confiscates,
expropriates or nationalizes the ownership or control of THE CLIENT on the
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property that is the subject of this contract or the Guarantee Contracts.
11.11 POLITICAL VIOLENCE.- If on a date after the signing of this contract,
some act of war (declared or undeclared), civil war, revolution, insurrection or
terrorism in the Republic of Peru that has a materially harmful effect on the
capacity of THE CLIENT to comply with its obligations under this contract and
under the Guarantee Contracts.
TWELFTH: CONSEQUENCES OF THE EVENT OF DEFAULT
12.1 Should any of the Events of Default described in the foregoing Clause
take place, THE BANK is fully entitled to declare this contract cancelled in
accordance with the provisions of Article 1430 of the Civil Code by means of a
written communication served through notarial way to THE CLIENT, attaching a
statement of accounts of the debtor balance. This contract shall be understood
to have been cancelled without need for any other communication or procedure.
The term shall be regarded as expired and the immediate payment of the sums owed
may be demanded, in which case THE BANK shall be entitled to execute and/or
demand in court the payment of all the sums owed as well as to execute the
guarantees mentioned in the Fourteenth
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Clause of this contract. A delay on the part of THE BANK in the exercise of this
right will not mean in any case a presumption of waiver of the same.
12.2 Should the presumption contemplated in the foregoing subclause occur
and until THE BANK does not collect all the amounts owed by THE CLIENT, the
compensatory interest and additional interest for delays will be applicable at
the highest rates established by THE BANK.
THIRTEENTH: CURRENCY AND FORM OF PAYMENT OF OBLIGATIONS
13.1 A condition of this contract and particularly with regard to the
payment of the interests for delayed payments and compensatory interest, of the
fees and the other costs, services, contributions and taxes that are applicable,
is that all payments must be made in the same foreign currency in which the
loans and/or credits have been stipulated and granted in accordance with the
exception provided for in article 1237 of the Civil Code.
13.2 THE CLIENT shall place for that purpose at the disposal of the BANK in
a timely manner, sufficient funds to fully make the payments. By means of this
document, THE CLIENT irrevocably authorizes the BANK to make the charges that
correspond to the amounts owed. THE BANK shall proceed to charge these
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amounts in any of its accounts maintained in any of its Branch Offices, whether
in Peru or abroad, or apply the funds in any currency that it has in its hands
to credit it to THE CLIENT without need of prior authorization or later
acceptance of the same. THE BANK shall also be entitled to withdraw and apply to
the amortization and/or cancellation of the amount owed to it by THE CLIENT, all
sums, deposits or securities of any nature that it has in its hands for any
reason and which is destined to be credited or delivered to it.
13.3 THE BANK is expressly authorized by THE CLIENT so that on its account
and order it will acquired on the exchange market that is legally available, the
necessary foreign currency that it will apply to the amortization and/or
cancellation of the amount owed in accordance with this contract, charged to any
of the accounts in Peruvian currency that THE CLIENT had in that financial
institution or any of its branches or subsidiaries, should this be the case.
FOURTEENTH: GUARANTEES
As a guarantee for the fulfillment of the obligations assumed according to this
contract, THE CLIENT is bound to grant in favor of the BANK the following
guarantees that will be governed by their respective contracts:
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(i) Pledge and keep pledged in favor of the BANK, in an irrevocable and
unconditional manner, the proceeds of the sales obtained from
contracts or operations of sale of its products as well as the
collections generated from them, granting as a guarantee the local or
foreign collection accounts in which its clients deposit the purchase
price, for which purpose THE CLIENT will proceed to sign the
corresponding Guarantee Contract.
(ii) Grant in favor of THE BANK a first and preferential Ore Collateral on
all the concentrates, raw materials, products in process and end
products that are maintained and/or prepared by THE CLIENT, for which
purpose THE CLIENT will proceed to sign the corresponding Guarantee
Contract.
FIFTEENTH: INDEMNITY
By this Clause, THE CLIENT commits to indemnify the BANK and its Directors,
officials and employees (hereinafter in this Clause "the Compensable Parties")
for any loss, damage or expense in which any of the Compensable Parties suffers
or incurs as a result of this contract, including but not limited to
professional fees of lawyers and costs arising from the transaction that took
place unless such loss, damage or expense is a result of the negligence or fraud
of the aforementioned Compensable Party.
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SIXTEENTH: ASSIGNMENTS AND SHARES
By these presents THE CLIENT expressly agrees and accepts that THE BANK may
assign and/or offer shares in the Credit Line that it grants in virtue of this
contract to third financial institutions of first order whether Peruvian or
foreign. As an exception and only in the case of assignments to other financial
institutions by virtue of which THE BANK ceases to be bound partially before THE
CLIENT for the Credit Line, the prior consent of THE CLIENT shall be necessary
with regard to the assignee financial institution, and this consent may not be
unreasonably retained (failed to be granted) by THE CLIENT.
THE CLIENT also accepts that the resources of this loan may be obtained by THE
BANK from foreign financial institutions of first order. This is the reason why
it must reasonably cooperate with THE BANK making the greatest efforts to
diligently furnish all the information reasonably requested by the
institution(s) for the economic and financial evaluation of the company.
SEVENTEENTH: COSTS AND EXPENSES
17.1 THE CLIENT shall assume and pay all the costs and expenses that are
originated for THE BANK as a result of the preparation, negotiation and
execution of this contract, including but not limited to the professional fees
of the lawyers, the due
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diligence expenses and the costs derived from THE BANK's participation and/or
syndication, and the fees collected by the banks where the Collection Accounts
are established, as a result of this contract.
17.2 THE CLIENT shall also assume all the in and out-of-court expenses that
may arise as a result of the collection of the sums that THE CLIENT may owe THE
BANK due to this contract and/or the execution of the Guarantee Contracts.
17.3 THE CLIENT shall also assume and pay the fees and costs that may be
charged by the correspondent banks that participate in one way or another in the
Letters of Credit issued by THE BANK mentioned in subclause (ii) of Clause 3.4
of this document. THE BANK is bound to deliver to THE CLIENT a copy of the
evidence of liquidation that the correspondent bank(s) remit(s) to THE BANK.
17.4 Without prejudice to what is indicated in the foregoing paragraphs,
THE CLIENT shall assume all the other costs and expenses derived from this
contract, including the Notary's expenses derived from the recording as a Public
Deed of this document as well as those of a Testimony and of a Simple Copy of
the same for THE BANK.
EIGHTEENTH TAXES
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The parties agree that all the payments to be made by THE CLIENT to THE BANK in
accordance with this contract must be made free from all contribution, tax,
payment or charge that could be charged now or in the future on the same.
NINETEENTH: NOTICES
Any notice, application, demand, consent, designation, address, instruction,
certificate or other communication that is to be given under this contract shall
be given in writing or sent by facsimile (with a written confirmation of
receipt, which may be made via facsimile) to the address and facsimile number
indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian
law, to the addresses of THE CLIENT and THE BANK indicated in the introduction
of this Contract, or to any other address that is communicated in writing for
that purpose by THE CLIENT and by THE BANK:
CLIENT: DOE RUN PERU S.R.L.
Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz
Address: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimile: 215-1235
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215-1281
BANK: BANCO DE CREDITO DEL PERU
Attention: Mr. Giorgio Badani - Corporate Banking
Mrs. Marcela Parodi - International Transactions Area
Address: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimile: 349-0794
426-5644
TWENTIETH: APPLICABLE LAWS
This contract shall be governed in all matters not provided for in this document
by the Legislation of the Republic of Peru.
TWENTY FIRST: ARBITRATION
21.1 The parties expressly agree that any conflict or controversy that may
arise between them as a result of the interpretation or execution of this
Contract including those related to its being invalid or void shall be resolved
by means of a de jure arbitration entrusted to an Arbitration Court formed by
three members that must necessarily be lawyers registered in the Bar Association
held in accordance with the National and International Conciliation and
Arbitration Regulations of the Chamber of Commerce of Lima.
21.2 The Arbitration Court will be formed in the following manner: each of
the parties will designate one arbitrator and the
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third will be designated by mutual agreement by the first two arbitrators, who
will be the Chairman of the Arbitration Court.
21.3 The arbitration will be held in the city of Lima and the duration of
the same may not exceed sixty (60) workdays counted from the date of
installation of the Arbitration Court until the respective award is issued.
21.4 The award of the Arbitration Court shall be final and may not be
appealed.
21.5 The losing party shall assume the costs caused by the arbitration.
21.6 Should any of the parties decide to appeal for the annulment of the
arbitration award before the Judiciary, it must first issue a Letter of Guaranty
to the other party executed by a first rank Bank with headquarters in Lima
equivalent to US$50,000.00 (FIFTY THOUSAND AND 00/100 UNITED STATES OF AMERICA
DOLLARS) that can be executed should that appeal be declared in a final
sentence to be without grounds. This Letter of Guaranty must be in force during
the time that the proceedings that have been filed are in force.
Please add, Mr. Notary the other Clauses required by Law and record this Draft
as a Public Deed.
Lima, June 11, 1998.
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DOE RUN PERU S.R.L.
/s/ Kenneth Buckley
BANCO DE CREDITO DEL PERU
/s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon, Attorney
Lima Bar registration Nr. 26011
- --------------------------------------------------------------------------------
I CERTIFY that the copy on the reverse side is identical to the document I have
seen.
Lima, June 19, 1998
/s/ Anibal Corvetto Romero
Notary - Attorney - at - law
Lima - Peru
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Exhibit 10.10
SENOR NOTARIO:
Sirvase usted extender en su Registro de Escrituras Publicas, una por la cual
conste el Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas
Cobranza que otorga DOE RUN PERU S.R.L.COMPANIA MINERA ARES S.A., con Registro
Unico de Contribuyentes No. 3763038119277933, con domicilio en Av. Victor Andres
Belaunde 147, Via Principal 155, Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidroesquina calle "Z" con Pasaje El Carmen, Urb. El Vivero de Monterrico,
Santiago de Surco, Provincia de Lima, Departamento de Lima, debidamente
representada por el senor Kenneth Richard Buckley, Eduardo Hochschild Beeck y
Carlos Fernando Ortiz Ugarte, facultados al e facultado al efecto segun poder
otorgado en Junta General de Socios de fecha 15 de mayo de 1998,fecto segun
a quien en adelante se denominara EL "CLIENTEtda; a favor del BANCO DE CREDITO
DEL PERU, con Registro Unico de Contribuyentes No. 10004721, con domicilio en
Calle Centenario No. 156, esquina con Av. Huarochiri, Urb. Las Laderas de
Melgarejo, La Molina, Lima, representado por el senor Jesus Antonio Zamora Leon
y la senora Aida Lucia Ghiglino Zimic, facultados al efecto segun poderes
inscritos en los asientos 19-C y 32-C de la ficha 117464 del Registro Mercantil
de Lima, respectivamente, a quien en adelante se denominara EL BANCO; en los
terminos y condiciones siguientes:
PRIMERA: ANTECEDENTES
1.1 En virtud de Contrato de Linea de Credito en Moneda Extranjera suscrito en
esta misma fecha, EL BANCO ha otorgado a favor de EL CLIENTE una linea de
credito hasta por US $ 40'000,000.00 para efectos de financiar capital de
trabajo que requiere EL CLIENTE para sus operaciones de comercio exterior; en
los terminos y condiciones contemplados en el referido contrato.
1.2. En la Clausula Decimo Cuarta.................... del referido Contrato de
Linea de Credito se establece que, en garantia del cumplimiento de todas las
oObligaciones que asume en virtud del mismo (en adelante, en este contrato, "las
Obligaciones Garantizadas"), EL CLIENTE se obliga obliga a afectar y mantener
afectado a favor del BANCO , en forma irrevocable e incondicional, el producto
de las ventas que obtenga de contratos u operaciones deo transacciones de venta
de sus productos, asi como el producto de las cobranzas que de ellos se generen,
otorgando en garantia las ccuentas cobranza, locales o extranjeras, en las que
sus clientes depositen el precio de compra; para lo cual procedera a suscribir
el Contrato de Garantia correspondiente.
1.3 Los terminos Cada termino en mayusculas o con iniciales en mayusculas, que
no esten definidos en forma expresa en este documento, tienen la definicion que
se les asigna en el Contrato de Linea de Credito en Moneda Extranjera mencionado
en el numeral 1.1 anterior.
SEGUNDA: OBJETO
En virtud de lo senalado en el numeral 1.2 de la Clausula anterior y en garantia
del pago oportuno y total y fiel cumplimiento por parte del EL CLIENTE de todas
y cada una de las OObligaciones Ggarantizadas, ya sean presentes o futuras, EL
CLIENTE afecta y se obliga a mantener afectado a favor del BANCO, en forma
irrevocable e incondicional, el producto de las ventas que obtenga de contratos
u operaciones de venta, actuales o futuras, de sus productos, asi como las
cobranzas que de ellos se generen, otorgando en garantia las cuentas cobranza,
locales o extranjeras, en las que sus clientes depositen el precio de compra;
para lo cual EL
<PAGE>
CLIENTE afecta en garantia a favor del BANCO el producto de las ventas que
obtenga de contratos o transacciones de transferencia de sus productos asi como
las cobranzas que de ellos se generen, otorgando en garantia las cuentas
cobranza locales o extranjeras en las que sus clientes depositen el precio de
compra; para lo cual, EL CLIENTE se obligacompromete a canalizar, a trave
s de las cuentass cuentas senaladas en el numeral 5.2 de la Clausula Quinta de
este contrato (en adelante, en este contrato, "las Cuentas Cobranza"), el
integro de los pagos y/o cobranzas por la la totalidad de sus ventas de
minerales provenientes de contratos comerciales suscritos con anterioridad o
posterioridad a la fecha de suscripcion de este Contrato de Garantia de
minerales;, asi como a asignar y mantener asignado a favor del BANCO la
totalidad de las cobranzas derivadas de sus ventas provenientes de contratos de
venta de minerales.en los terminos y condiciones estipulados en este documento.
TERCERA: ASIGNACION DE LOS CONTRATOS
3.1 En virtud de lo acordado en la Clausula anterior, EL CLIENTE afecta en
garantia a favor del BANCO la totalidad de las cobranzas derivadas de sus ventas
de minerales provenientes de contratos comerciales, incluyendo las ventas en los
mercados futuros, celebrados por EL CLIENTE; Para efectos de la afectacion a que
se refiere la Clausula anterior y respecto de los contratos vigentes a la fecha
de suscripcion de este Contrato de Garantiapara lo cual EL CLIENTE (i) enviara
un aviso a cada uno de sus compradores con contrato vigente, que se encuentran
comprendidos en la lista proporcionada por EL CLIENTE al BANCO, utilizando el
modelo que como ANEXOnexo I forma parte integrante de este cContrato,
informandole de la afectacion en garantia a favor del BANCO , en forma
irrevocable, de los pagos a cobranza o cuenta por cobrarpendientes e
instruyendolo a efectuar los mismospagos correspondientes en la Cuenta Cobranza
abierta en el BANCO y (ii) debera recabar de cada uno de ellos y remitir al
BANCO su respectiva conformidad y consentimiento a la afectacion comunicada, la
misma que se instrumentara mediante el modelo de comunicacion que como ANEXOnexo
II forma parte integrante de este contrato.
3.2 Para la afectacion de los contratos de venta de minerales y de
transferencia por cualquier otro titulo a ser suscritos por EL CLIENTE con
posterioridad a la suscripcion de este Contrato de Garantia, EL CLIENTE se
obliga a incluir en los mismos la Clausula que, como ANEXO III, forma parte
integrante de este contrato, en virtud de la cual comunica al comprador y/o
adquirente, de la afectacion en garantia a favor del BANCO, en forma
irrevocable, de los pagos y lo instruye a efectuar los mismos en la Cuenta
Cobranza abierta en el BANCO; a lo cual el comprador y/o adquirente prestara su
consentimiento en la misma Clausula. Los terminos y condiciones de cada Contrato
de Compraventa a ser suscritos en el futuro por EL CLIENTE, deberan contar con
la aprobacion previa del BANCO.
3.3 Para la afectacion de las operaciones de venta, existentes o futuras, que,
por los usos y costumbres del mercado, no constan en un contrato formal, EL
CLIENTE (i) enviara un aviso a los respectivos compradores, utilizando el
modelo que como ANEXOnexo I forma parte integrante de este cContrato,
informandole de la afectacion en garantia a favor del BANCO , en forma
irrevocable, de los pagos a cobranza o cuenta por cobrarpendientes e
instruyendolo a efectuar los mismospagos correspondientes en la Cuenta Cobranza
abierta en el BANCO y (ii) debera recabar de cada uno de ellos y remitir al
BANCO su respectiva conformidad y consentimiento a la afectacion comunicada, la
misma que se instrumentara mediante el modelo de comunicacion que como ANEXOnexo
II forma parte integrante de este contrato.
CUARTA: DE LOS PAGOS POR PARTE DE LOS COMPRADORES
Las obligaciones de pago de los compradores y/o adquirentes del CLIENTE seran
cumplidas en forma absoluta e incondicional, sin lugar a descuentos, rebajas,
deducciones o compensaciones que no sean usuales en este tipo de contratos;
efectuandose el pago en las Ccuentas Cobranza indicadas por EL BANCO.
<PAGE>
QUINTA: DE LAS CUENTAS COBRANZA
5.1 EL CLIENTE abrira dos Cuentas Cobranza en EL BANCO , una en Lima-Peru y
otra en la Sucursal del BANCO en Nueva York,una cuenta especial (en adelante en
este documento la "Cuenta Cobranza") en las cuales los compradores y/o
adquirentes del CLIENTE del CLIENTE (o EL CLIENTE en caso que aquellos
incumplan sus instrucciones irrevocables de pago y le entreguen las sumas
gravadas), depositaran el integro de los pagos y/olas cobranzas afectadas en
garantia.
5.2 Los compradores y/o adquirentes locales del CLIENTE procederan a afectuar
los pagos en la Cuenta Cobranza No. 191-1040982-1-78 abierta en EL BANCO en
Lima-Peru; en tanto que los compradores y/o adquirentes del CLIENTE residentes
en el exterior procederan a efectuar los pagos en la Cuenta Cobranza No.
866700-001 abierta en la Sucursal del BANCO en Nueva York.
5.3 Las partes acuerdan que, siempre que no se haya producido luna Causal de
Ejecucion de la Garantia prevista en la Clausula Novena de este contrato, EL
BANCO entregara al CLIENTE, siguiendo sus instrucciones, toda suma que haya sido
depositada en las Cuentas Cobranza, que exceda al monto equivalente a un
trimestre de pago de intereses, calculado en base a una tasa de interes del 8%
anual sobre un monto del 75% de US $ 40'000,000.00 o, en caso se haya producido
una reduccion del monto de la Lineas de Credito, del monto menor comprometido.
Las partes acuerdan que el referido porcentaje de 8% podra ser revisado
periodicamente por EL BANCOlo adeudado por EL CLIENTE en el proximo trimestre,
por concepto de intereses por los prestamos y/o creditos que le ha otorgado EL
BANCO en virtud del Contrato de Linea de Credito. Esta obligacion del BANCO
cesara en caso se produzca luna Causal de Ejecucion de la Garantia, en cuyo caso
y sin perjuicio de lo dispuesto en la Clausula Decima de este contrato, EL BANCO
retendra en las Cuentas Cobranza todos las sumas que en ellas se depositen de
conformidad con lo previsto en este documento.
5.4 Asimismo, EL BANCO se compromete a informar periodicamente/mensualmente/
trimestralmente al CLIENTE sobre el monto de dinero depositado en las Cuentas
Cobranza.
SEXTA: PLAZO
En la medida que existan Obligaciones Ggarantizadas del CLIENTE para con EL
BANCO derivadas del Contrato de Linea de Credito en Moneda Extranjera, EL
CLIENTE estara obligado a afectar en garantia la totalidad de loas pagos y/o
cobranzas derivadas de sus ventas de minerales provenientes de contratos
comerciales, en los terminos y condiciones senalados en este contrato.
SETIMA: DECLARACIONES Y GARANTIAS
EL CLIENTE declara y/o garantiza al BANCO que:
7.1 EL CLIENTE es el unico y absoluto titular de las cobranzas que en virtud
de este contrato afecta en garantia a su favor.
7.2 Sobre las cobranzas afectadas en garantia en virtud de lo dispuesto en
este contrato no existe prenda, embargo, carga, gravamen, medida judicial o
extrajudicial alguna que limite su derecho a ser libremente transferidas y/o
gravadas por EL CLIENTE.
<PAGE>
En cualquier caso, EL CLIENTE se obliga a sanear el titulo y cualquier vicio
oculto que las cobranzas afectadas en garantia puedan tener.
OCTAVA: OBLIGACIONES
EL CLIENTE se obliga, durante todo el tiempo que permanezca vigente el presente
Contrato, a:
8.1 Cumplir en forma oportuna todas las obligaciones asumidas en los cContratos
de Compraventa y demas contratos de venta que haya celebrado y cuyos pagos y/oa
cobranzas ha afectado en garantia a favor del BANCO.
8.2 En el eventual caso que EL CLIENTE desee constituir una nueva prenda o
gravamen de cualquier tipo o transferir o celebrar cualquier contrato o acto
sobre parte o todoas loas pagos y/o cobranzas afectadas en garantia en virtud de
este Contrato, EL CLIENTE debera obtenersolicitar el previo consentimiento por
escrito del BANCO. En caso contrario, elCualquier contrato o acto, remocion y/o
retiro de parte o toda la Garantia sin dicho consentimiento, sera invalido e
ineficaz, siempre que ello no contravenga la ley peruana. EL CLIENTE conviene
en incluir en cualquier contrato o convenio por el cual transfiera, prende o
constituya cualquier otro tipo de garantia o prometa transferir a terceros todo
o parte de la Garantia, una clausula por la cual dicho tercero expresamente
reconozca este Contrato de Afectacion y todos y cada uno de los derechos
establecidos en este Contrato en favor del BANCO.
8.3 Notificar oportunamente al BANCO cualquier circunstancia o hecho
relacionado a las cobranzas afectadas en garantia que pudiera afectar su
exigibilidad, su rango o su valor como garantia.
8.4. No realizarNo tomar u omitir accion alguna, que, como resultado, ocasione
un perjuicio que pueda tener un Efecto Material Adverso sobre ael valor de las
cobranzas afectadas en garantia.
8.5 Depositar en la Cuenta Cobranza que corresponda aquellos pagos y/o
cobranzas que hubiera recibido directamente de sus compradores que hayan
incumplido su compromiso de canalizacion de sus pagos a traves de las referidas
Cuentas Cobranza.
8.6 Pagar al BANCO la comision anual por la administracion de la Cuenta
Cobranza abierta en la Sucursal del BANCO en Nueva York, como contraprestacion
por los servicios que dicha entidad le presta.
NOVENA: CAUSALES DE EJECUCION DE LA GARANTIA
EL BANCO podra ejecutar la garantia que se otorga en virtud de este contrato en
caso se produzcaujera un Evento de Incumplimiento conforme al Contrato de Linea
de Credito.
DECIMA: EJECUCION DE LA GARANTIA
En el caso contemplado en establecido en la Cclausula anteriorprecedente, EL
BANCO podra, de conformidad con lo dispuesto poren el Articulo 1089 del Codigo
Civil, cobrarse directamente de los montos depositados en las Cuentas Cobranza
las sumas que le adeude EL CLIENTE.
<PAGE>
DECIMO PRIMERA: INDEMNIZACION
Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus
Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes
Indemnizables") por cualquier perdida, dano o gasto en que este(os) incurra(n) o
pudiera(n) sufrir como consecuencia del presente contrato, incluyendo, pero no
limitado a, honorarios profesionales de abogados y gastos surgidos de la
transaccion celebrada, a menos que dicha perdida, dano o gasto sea consecuencia
de la culpa o dolo de las Partes Indemnizables.
DECIMO SEGUNDA: NOTIFICACIONES
Cualquier notificacion, solicitud, demanda, consentimiento, designacion,
direccion, instruccion, certificado u otra comunicacion a ser dada bajo el
presente contrato, debera ser dada por escrito o enviada por facsimil (con
confirmacion escrita de recepcion, confirmacion que puede ser hecha por
facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del
BANCO y cuando sea requerido por la ley peruana, a las direcciones del CLIENTE y
del BANCO indicadas en la introduccion de este Contrato, o a cualquier otra
direccion que sea comunicada por escrito para tal efecto por el CLIENTE y el
BANCO:
CLIENTE DOE RUN PERU S.R.L
Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz
Direccion: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimil: 215-1235
215-1281
BANCO BANCO DE CREDITO DEL PERU
Atencion: Sr. Giorgio Badani - Banca Corporativa
Sra. Marcela Parodi - Area de Operaciones Internacionales
Direccion: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimil: 349-0794
426-5644
DECIMO TERCERA: GASTOS
Seran asumidos por EL CLIENTE todos los costos y gastos que se deriven del
presente contrato, incluyendo los gastos notariales derivados de la elevacion a
Escritura Publica de este documento, asi como los de un Testimonio y una Copia
Simple del mismo para EL BANCO.
<PAGE>
DECIMO CUARTA: LEGISLACION APLICABLE
En todo lo no previsto en este documento, el presente Contrato se rige por la
Legislacion de la Republica del Peru.
DECIMO QUINTA: ARBITRAJE
15.1 Las partes acuerdan expresamente que cualquier conflicto o
controversia que pudiera surgir entre ellas como consecuencia de la
interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su
nulidad, invalidez e ineficacia, seran resueltas mediante arbitraje de derecho,
a cargo de un Tribunal Arbitral compuesto por tres miembros que necesariamente
deberan ser abogados colegiados, realizado conforme al Reglamento de
Conciliacion y Arbitraje Nacional e Internacional de la Camara de Comercio de
Lima.
15.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada
una de las partes designara a un arbitro y el tercero sera designado de comun
acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral.
15.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del
mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la
fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo
respectivo.
15.4 El laudo del Tribunal Arbitral sera definitivo e inapelable.
15.5 Los gastos que ocasione el arbitraje seran de cargo de la parte
perdedora.
15.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso
de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir
previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco
de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL
DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que
dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta
Fianza debera estar vigente durante el tiempo que dure el proceso promovido.
Agregue usted, senor Notario, las demas Clausulas de Ley, eleve a Escritura
Publica la presente Minuta.
Lima, 11 de junioabril de 1998
DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU
/s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon
GUILLERMO FERRERO ALVAREZ CALDERON
ABOGADO
REG. CAL. 26011
<PAGE>
ANEXO I
MODELO DE AVISO DE CESION DE DERECHOS
E INSTRUCCIONES IRREVOCABLES DE PAGO
Lima, ....... de ................. de .........
Senores
(NOMBRE Y DIRECCION
DEL COMPRADOR)
- -------------------
Atencion: Sr. .
------------------------------------------
De nuestra consideracion:
Nos dirigimos a Uds. en relacion con el [[(1)Contrato de Compraventa que
celebramos con fecha ....... de ................ de ........ o (2) la operacion
de venta de nuestros productos acordada con Uds.]], en virtud de la cual les
vendimos .............. (producto: calidad y cantidad).......... por el precio
de venta acordado [[(1)en el referido contrato o (2)en dicha ocasion]].
ascendente a US$ ............ (precio de venta) ............... Por la presente
damos a Uds. instrucciones irrevocables de realizar el(los) pago(s)
correspondiente(s) al mencionado precio de venta por medio de una transferencia
a la Cuenta de Cobranza No. establecida en el Banco de
Credito del Peru/la Sucursal Nueva York del Banco de Credito del Peru..
Asimismo, les informamos que el producto de nuestras ventas esta afectado encomo
gGarantia en favor del Banco de Credito del Peru, en virtud de lo dispuesto por
los Contratos de Linea de Credito en Moneda Extranjera y de Afectacion en
Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza celebrados entre
nuestra empresa y el referido Banco, y les senalamos que cualquier modificacion
de estas instrucciones podra ser efectuada unica y exclusivamente por el Banco
de Credito del Peru.
DOE RUN PERU S.R.LTDA.
/s/ Kenneth Buckley
NOTA: Se utilizara la alternativa (1) para aquellos contratos a que se refiere
el numeral 3.1 del Contrato y la alternativa (2) para las operaciones de venta a
que se refiere el numeral 3.3 del Contrato.
<PAGE>
ANEXO II
MODELO DE CARTA DE CONFORMIDAD Y CONSENTIMIENTO
Senores
BANCO DE CREDITO DEL PERU
Centenario 156, La Molina
Lima- Peru.-
- ------------
Att.: Sres. Giorgio Badani/Alvaro Ossio
Division de Banca Corporativa
---------------------------------
De nuestra consideracion:
El suscrito presta su conformidad a los terminos de la carta de aviso de cesion
de derechos e instrucciones irrevocables de pago (en adelante en este documento
"el AvisoVISO") de fecha ...... de .............. de ......, recibida de DOE RUN
PERU S.R.LtdaTDA. (en adelante en este documento "la EmpresaMPRESA"), remitida
de conformidad con los Contratos de Linea de Credito en Moneda Extranjera y de
Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en Cobranza
celebrados entre la referida empresa y el Banco de Credito del Peru (en adelante
en este documento "el BancoANCO").
Por la presente el suscrito se compromete, en beneficio del BancoANCO, a
realizar el pago de todas las sumas debidas a la EmpresaMPRESA [[(1)bajo el
Contrato de Compraventa o (2)por la operacion de venta]] mencionado(a) en el
AvisoVISO y ascendentes a US $ ..................... directamente al BancoANCO
en la Cuenta de Cobranza No abierta en el Banco/la
Sucursal Nueva York del BancoANCO,; sin descuento, rebaja o reduccion alguna por
concepto de demanda, reclamo o derecho alguno que el suscrito pudiera tener
contra la EmpresaMPRESA o alguna otra entidad, que no sean usuales en este tipo
de contratos, o por alguna otra razon; y acuerda que tales pagos seran
definitivos por lo que el suscrito no intentara recobrar del BancoANCO la
totalidad o alguna parte de tales pagos.
Este documento se regira por las leyes de la Republica del Peru.
(COMPRADOR)
NOTA: Se utilizara la alternativa (1) para aquellos contratos a que se refiere
el numeral 3.1 del Contrato y la alternativa (2) para las operaciones de venta a
que se refiere el numeral 3.3 del Contrato.
<PAGE>
ANEXO III
MODELO DE CLAUSULA DE CESION DE DERECHOS E INSTRUCCIONES IRREVOCABLES
DE PAGO A SER INCLUIDA EN LOS CONTRATOS DE VENTA QUE CELEBRE
EN EL FUTURO EL CLIENTE
CLAUSULA : Por la presente LA VENDEDORAascendente a US$ ..........
(precio de venta) ............... instruye en forma irrevocable a LA COMPRADORA
para que efectue el(los) pago(s) correspondiente(s) al precio de venta
mencionado en la Clausula .............. de este contrato por medio de una
transferencia a la Cuenta de Cobranza No. establecida en el
Banco de Credito del Peru/la Sucursal Nueva York del Banco de Credito del Peru.
Por la presente LA VENDEDORA informa a LA COMPRADORA y esta declara tomar
conocimiento que LA VENDEDORA ha afectado en garantia el producto de sus ventas
acomo favor del Banco de Credito del Peru, en virtud de lo dispuesto por los
Contratos de Linea de Credito en Moneda Extranjera y de Afectacion en Garantia
de Pagos y/o Cobranzas y de Cuentas en Cobranza celebrados con fecha 11 de junio
de 1998, entre LA VENDEDORA y el referido Banco.
Asimismo LA VENDEDORA senala a LA COMPRADORA que cualquier modificacion de las
instrucciones contenidas en esta Clausula podra ser efectuada unica y
exclusivamente por el Banco de Credito del Peru.
<PAGE>
Exhibit 10.10
(English)
MR. NOTARY:
Kindly issue in your Registry of Public Deeds, a deed recording the Contract for
Pledging as a Guarantee of Payments and/or Collections and of Collection
Accounts executed by DOE RUN PERU S.R.L. with Single Taxpayer's Registration
Number 37630381, domiciled at Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real-Torre Real 3, Piso 9, San Isidro, duly represented by
Mr. Kenneth Richard Buckley, empowered by virtue of power of attorney granted in
the General Meeting of Partners dated May 15, 1998, hereinafter referred to as
THE CLIENT in favor of the BANCO DE CREDITO DEL PERU, with Single Taxpayer's
Registration Number 10004721, domiciled at Calle Centenario NDEG. 156, corner
with Av. Huarochiri, Urb. Las Laderas de Melgarejo, La Molina, Lima, represented
by Mr. Jesus Antonio Zamora Leon and Mrs. Aida Lucia Ghiglino Zimic, empowered
by virtue of powers of attorney respectively registered in entries 19-C and 32-C
of filing card 117464 of the Government Registry of Commercial Concerns of Lima,
hereinafter referred to as THE BANK, under the following terms and conditions:
FIRST: BACKGROUND
<PAGE>
1.1 In accordance with the Contract for a Credit Line in Foreign Currency that
was signed on this same date, THE BANK has granted in favor of THE CLIENT a
credit line for up to US$40'000,000.00 for the purpose of financing working
capital required by THE CLIENT for its foreign trade operations; in the
terms and under the conditions that are contemplated in the aforementioned
contract.
1.2 In the Fourteenth Clause of the aforementioned Contract for a Credit Line,
it is established that as a guarantee for the enforcement of all the
obligations assumed in accordance with the same (hereinafter in this
contract, "the Guaranteed Obligations"), THE CLIENT commits itself to
pledge as a lien and maintain as a lien in favor of THE BANK in an
irrevocable and unconditional manner, the proceeds of the sales obtained
from sales contracts or sales operations of its products, as well as the
proceeds of collections generated by them, granting as guarantee the local
or foreign collection accounts in which its clients deposit the purchase
price; for which purpose it will proceed to sign the respective Guarantee
Contract.
1.3 The terms with capitalized initials which are not expressly defined in this
document will have the definition assigned to
2
<PAGE>
them in the Contract for a Credit Line in Foreign Currency mentioned in the
foregoing subclause 1.1.
SECOND: PURPOSE
In accordance with the provisions of subclause 1.2 of the foregoing Clause and
as a guarantee for the timely and total fulfillment on the part of THE CLIENT of
each and all of the Guaranteed Obligations, whether present or future, THE
CLIENT pledges and commits itself to maintain as a lien in favor of THE BANK in
an irrevocable and unconditional manner, the proceeds of the sales obtained from
present or future sales contracts or sales operations of its products as well as
the collections generated by them, granting the local or foreign collection
accounts in which its clients deposit the purchase price as guarantee; for which
purpose THE CLIENT commits itself to channel through the accounts indicated in
subclause 5.2 of the Fifth Clause of this contract (hereinafter within this
contract, "the Collection Accounts"), all the payments and/or collections for
all its ore sales from the commercial contracts that were signed before or after
the date of the signing of this Guarantee Contract, in the terms and under the
conditions stipulated within this document.
3
<PAGE>
THIRD: ASSIGNMENT OF THE CONTRACTS
3.1 For the purposes of the lien mentioned in the foregoing Clause and with
regard to the contracts in force on the date of the signing of this
Guarantee Contract, THE CLIENT (i) will notify each one of its purchasers
which has a contract in force that is included in the list supplied by THE
CLIENT to THE BANK, using the model that as EXHIBIT I forms an integral
part of this contract, informing them of the lien in favor of THE BANK in
an irrevocable manner of the outstanding payments and instructing them to
make the payments into the Collection Account opened in THE BANK and (ii)
must obtain from each one of them and send to THE BANK their respective
acceptance and consent to the reported lien, the same which will be
documented by the communication model that forms an integral part of this
contract as Exhibit II.
3.2 To pledge as a lien, the sales contracts for ores and for the assignment of
any other title to be signed by THE CLIENT after the signing of this
Guarantee Contract, THE CLIENT commits itself to include within them the
Clause that as EXHIBIT III forms an integral part of this contract, in
accordance with which it will communicate to the purchaser and/or buyer,
the pledging as a guarantee in favor of THE
4
<PAGE>
BANK in an irrevocable manner of the payments and instructs them to make
them into the Collection Account opened in THE BANK; to which the purchaser
and/or buyer will grant his consent within the same Clause.
3.3 For the pledging of the present or future sales operations that, due to the
uses and customs of the market, are not recorded in a formal contract, THE
CLIENT (i) shall send a notice to the respective purchasers, using the
model that as EXHIBIT I forms an integral part of this contract, informing
them of the pledging of the outstanding payments as a lien in favor of THE
BANK in an irrevocable manner and instructing them to pay the same into the
Collection Account opened in THE BANK and (ii) must obtain from each of
them and forward to THE BANK their respective acceptance and consent to the
lien that has been communicated to them, which shall be documented by the
communication model that forms an integral part of this contract as EXHIBIT II.
FOURTH: THE PAYMENTS ON THE PART OF THE PURCHASERS
The payment obligations of the purchasers and/or buyers of THE CLIENT shall be
absolutely and unconditionally executed without any discounts, rebates,
deductions or compensations that are not
5
<PAGE>
normal for this type of contracts. The payment shall be made into the Collection
Accounts indicated by THE BANK.
FIFTH: COLLECTION ACCOUNTS
5.1 THE CLIENT shall open two Collection Accounts in THE BANK, one in Lima-Peru
and another in the Branch of THE BANK in New York, in which the purchasers
or buyers of THE CLIENT (or THE CLIENT should they not comply with their
irrevocable instructions for payment and not deliver the pledged sums),
shall deposit all the payments and/or collections subject to lien.
5.2 THE CLIENT's local purchasers and/or buyers shall proceed to pay their
payments into Collection Account NDEG. 191-1040982-1-78 opened in THE BANK
in Lima-Peru; while the purchasers and/or buyers of THE CLIENT that reside
abroad shall proceed to pay their payments into Collection Account NDEG.
866700-0001 opened in the New York Branch of THE BANK.
5.3 The Parties agree that, provided that the Cause for the Execution of the
Lien provided for in the Ninth Clause of this Contract has not occurred,
THE BANK shall deliver to THE CLIENT in accordance with its instructions,
any sum that has been deposited into the Collection Accounts that exceeds
the amount equivalent to a quarter term of payment of interest,
6
<PAGE>
calculated on the basis of an interest rate of 8% a year on an amount that
represents 75% of US$40'000,000.00 or, should a reduction of the amount of
Credit Lines have occurred, of the lesser amount that has been committed.
The Parties agree that the respective 8% percentage may be periodically
reviewed by THE BANK. This obligation of THE BANK shall cease, should the
Cause for the Execution of the Lien arise, in which case and without
prejudice to the provisions of the Tenth Clause of this contract, THE BANK
shall withhold within the Collection Accounts all the sums that are
deposited in them in accordance with the provisions of this document.
5.4 THE BANK also pledges to inform THE CLIENT on a monthly basis on the amount
of money deposited in the Collection Accounts.
SIXTH: TERM
Insofar as there are Guaranteed Obligations of THE CLIENT to THE BANK, THE
CLIENT shall be obliged to pledge as a lien all the payments and/or collections
derived from his ore sales from commercial contracts, under the terms and
conditions stipulated within this contract.
SEVENTH: STATEMENTS AND GUARANTEES
THE CLIENT states and/or guarantees to THE BANK that:
7
<PAGE>
7.1 THE CLIENT is the sole and absolute holder of the collections that are
pledged as a lien in its favor in accordance with this contract.
7.2 That with regard to the collections pledged as a lien in accordance with
the provisions of this contract there is not any lien, attachment, charge,
encumbrance, decree in or out of court that restrict their right to be
freely transferred and/or encumbered by THE CLIENT.
THE CLIENT pledges a title clearance and a clearance of any hidden defect that
the collections pledged as a lien may have.
EIGHTH: OBLIGATIONS
THE CLIENT commits during all the time that this Contract is in force to:
8.1 Comply in a timely manner with all the obligations assumed in the sales
contracts and in the other sales contracts that it has entered into and
whose payments and/or collections have been pledged as a lien in favor of
THE BANK.
8.2 Should THE CLIENT wish to establish a new lien or encumbrance of any type
or to transfer or enter into any contract or act on part or all the
payments and/or collections pledged as a lien in accordance with this
Contract, THE
8
<PAGE>
CLIENT must previously obtain THE BANK's consent in writing. Otherwise, the
contract or act shall be null and void.
8.3 Notify THE BANK in a timely manner of any circumstance or fact related to
the collections pledged as a lien that could affect their demandability,
their rank or their value as a guarantee.
8.4 Not to execute or omit any measure that as a result should harm the value
of the collections that are pledged as a guarantee.
8.5 To deposit in the respective Collection Account those payments and/or
collections that it may receive directly from its purchasers that have not
complied with their commitment to channel their payments through the
aforementioned Collection Accounts.
8.6 Pay to THE BANK the annual commission for the management of the Collection
Account opened in the New York Branch of THE BANK, as a consideration for
the services rendered by that entity.
NINTH: CAUSE FOR THE EXECUTION OF THE LIEN
THE BANK may execute the lien granted in accordance with this contract should a
Cause of Default occur in accordance with the Contract for a Credit Line.
TENTH: EXECUTION OF THE LIEN
10
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In the case contemplated in the foregoing Clause, THE BANK may, in accordance
with the provisions of Article 1089 of the Civil Code, directly collect from the
amounts deposited in the COLLECTION ACCOUNTS the sums owed by THE CLIENT.
ELEVENTH: INDEMNITY
By this Clause, THE CLIENT commits to indemnify THE BANK and its Directors,
officers and employees (hereinafter in this Clause "the Compensable Parties")
for any loss, damage or expense incurred by them or in which they may incur as a
result of this contract, including, but not limited to, professional fees by
lawyers and expenses arising from the transaction that was entered into unless
this loss, damage or expense were the result of fault or fraud of the
Compensable Parties.
TWELFTH: NOTICES
Any notice, application, demand, consent, designation, address, instruction,
certificate or other communication that is to be given under this contract shall
be given in writing or sent by facsimile (with a written confirmation of
receipt, which may be made via facsimile) to the address and facsimile number
indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian
law, to the addresses of THE CLIENT and THE BANK
10
<PAGE>
indicated in the introduction of this Contract, or to any other address that is
communicated by writing for that purpose by THE CLIENT and by THE BANK:
CLIENT: DOE RUN PERU S.R.L.
Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz
Address: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimile: 215-1235
215-1281
BANK: BANCO DE CREDITO DEL PERU
Attention: Mr. Giorgio Badani - Corporate Banking
Mrs. Marcela Parodi - International Transactions Area
Address: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimile: 349-0794
426-5644
THIRTEENTH: EXPENSES
11
<PAGE>
THE CLIENT shall assume all the costs and expenses derived from this contract,
including the Notary's expenses derived from the recording as a Public Deed of
this document, as well as those of a Testimony and of a Simple Copy of the same
for the THE BANK.
FOURTEENTH: APPLICABLE LEGISLATION
In all matters not provided for in this document, this Contract shall be
governed by the Legislation of the Republic of Peru.
FIFTEENTH: ARBITRATION
15.1 The parties expressly agree that any conflict or controversy that may arise
between them as a result of the interpretation or execution of this
Contract, including those related to its nullity, invalidity and
inefficiency shall be resolved by means of a de jure arbitration entrusted
to an Arbitration Court formed by three members that must necessarily be
lawyers registered in the Bar Association, held in accordance with the
Regulations for Conciliation and National and International Arbitration of
the Chamber of Commerce of Lima.
15.2 The Arbitration Court shall be constituted in the following manner: each of
the parties shall designate an arbitrator and the third shall be designated
by mutual agreement by the first two, who will be the Chairman of the
Arbitration Court.
12
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15.3 The arbitration shall be held in the city of Lima and the duration of the
same may not exceed sixty (60) workdays, counted from the date of the
installation of the Arbitration Court until the issuing of the respective
award.
15.4 The award of the Arbitration Court shall be final and may not be appealed.
15.5 The costs that arise from the arbitration shall be borne by the losing
party.
15.6 Should either or several of the parties decide to file an appeal for
annulment against the arbitration award before the Judiciary, it must first
establish in favor of the opposing party a Letter of Guaranty issued by a
first rank Bank with headquarters in Lima, equivalent to US$50,000.00
(FIFTY THOUSAND DOLLARS AND 00/100 OF THE UNITED STATES OF AMERICA),
executable should said appeal in a final sentence be declared to be without
grounds. This Letter of Guaranty must be in force during the time that the
process that has been promoted lasts.
Please insert you, Mr. Notary, the clauses of law and raise this Draft to a
Public Deed.
Lima, June 11, 1998
DOE RUN PERU S.R.L.
/s/ Kenneth Buckley
13
<PAGE>
BANCO DE CREDITO DEL PERU
/s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon
Guillermo Ferrero Alvarez Calderon, Attorney
Lima Bar Registration Nr. 26011
- --------------------------------------------------------------------------------
I CERTIFY that the copy on the reverse side is identical to the document I have
seen.
Lima, June 19, 1998
/s/ Anibal Corvetto Romero
Notary - Attorney - at - law
Lima - Peru
14
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EXHIBIT I
MODEL OF NOTICE OF ASSIGNMENT OF RIGHTS
AND IRREVOCABLE PAYMENT INSTRUCTIONS
Lima, ,
Messrs.
(NAME AND ADDRESS
OF THE BUYER)
- -----------------------------
ATTENTION: MR.________
Dear sirs:
We are addressing you with regard to [[(1) the Sales Contract we entered into
with you dated .......... OR (2) the sales operation of our products resolved
upon with you, ]] in accordance with which we sold to you.......(PRODUCT,
QUALITY AND AMOUNT)......for the agreed upon sales price [[(1) in the
aforementioned contract OR (2) in that occasion ]]. By these presents we are
giving you irrevocable instructions to execute the respective payment(s) of the
aforementioned sales price by means of a transfer to the Collection Account No.
......... established in the Banco de Credito del Peru/ New York Branch Office
of the Banco de Credito del Peru. We also inform you that the proceeds of our
sales is pledged as a guarantee in favor of the Banco de Credito del Peru in
accordance
15
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with the provisions of the Contracts of a Credit Line in Foreign Currency and of
Pledging as a Guarantee of Payments and/or Collections and Collection Accounts
entered into between our company and the aforementioned Bank, and we indicate
that any amendment of these instructions may solely and exclusively be made by
the Banco de Credito del Peru.
/s/ Kenneth Buckley
DOE RUN PERU S.R.L.
NOTE: Alternative (1) will be used for those contracts referred to in
subclause 3.1 of the Contract and alternative (2) for the sales
operations referred to in subclause 3.3 of the Contract.
16
<PAGE>
EXHIBIT II
MODEL OF A LETTER OF ACCEPTANCE AND CONSENT
Messrs.
BANCO DE CREDITO DEL PERU
Centenario 156, La Molina
Lima-Peru
- -------------------------
Att.: Messrs. Giorgio Badani/Alvaro Ossio
Corporate Banking Division
-----------------------------------
Dear sirs:
The undersigned accepts the terms of the letter of notice of assignment of
rights and irrevocable payment instructions (hereinafter in this document "the
Notice") dated received from DOE RUN PERU S.R. LTDA.
(hereinafter in this document "the Company") sent in accordance with the
Contracts for a Credit Line in Foreign Currency and of Pledging as a Guarantee
of Payments and/or Collections and of Collection Accounts entered into between
the aforementioned company and the Banco de Credito del Peru (hereinafter in
this document "the Bank").
By these presents, the undersigned commits to the benefit of the Bank, to pay
all the sums owed to the Company [[ under the Sales Contract OR (2) by the sales
operation]] mentioned in the Notice
17
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directly to the Bank in the Collection Account No. opened in the
Bank/New York branch office of the Bank without any discount, rebate or
reduction whatsoever due to claim or right whatsoever that the undersigned may
have against the Company or any other entity, which are not common in this kind
of contracts or for any other reason and agrees that such payments shall be
final and therefore the undersigned will not attempt to recover from the Bank
all or any part of said payments.
This document shall be governed by the laws of the Republic of Peru.
(PURCHASER)
NOTE: Alternative (1) shall be used for those contracts referred to in
subclause 3.1 of the Contract and alternative (2) for sales operations
mentioned in subclause 3.3 of the Contract.
18
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EXHIBIT III
MODEL OF CLAUSE OF ASSIGNMENT OF RIGHTS AND IRREVOCABLE
PAYMENT INSTRUCTIONS TO BE INCLUDED IN THE SALE CONTRACTS
ENTERED INTO BY THE CLIENT IN THE FUTURE
CLAUSE : THE SELLER by these presents instructs THE BUYER in an
irrevocable manner to make the respective payment(s) of the sales price
mentioned in Clause .......... of this contract by means of a transfer to the
Collection Account No. ......... established in the Banco de Credito del
Peru/New York Branch Office of the Banco de Credito del Peru.
By these presents, THE SELLER informs THE BUYER and it declares that it
understands that THE SELLER has pledged as a guarantee the proceeds of its sales
in favor of the Banco de Credito del Peru, in accordance with the provisions of
the Contracts for a Credit Line in Foreign Currency and of Pledging as a
Guarantee of Payments and/or Collections and of Collection Accounts entered into
on June 11, 1998, between THE SELLER and the aforementioned Bank.
19
<PAGE>
THE SELLER also indicates to THE BUYER that any amendment of the instructions
contained in this Clause may only be solely and exclusively made by the Banco de
Credito del Peru.
(An illegible signature)
<PAGE>
Exhibit 10.11
SENOR NOTARIO:
Sirvase usted extender en su Registro de Escrituras Publicas, una de
Constitucion de Primera y Preferencial Prenda de Minerales que otorga DOE RUN
PERU S.R.L.COMPANIA MINERA ARES S.A., con Registro Unico de Contribuyentes No.
37630381, con domicilio en Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9, San Isidroesquina calle "Z" con
Pasaje El Carmen, Urb. El Vivero de Monterrico, Santiago de Surco, Provincia de
Lima, Departamento de Lima, debidamente representada por el senor Kenneth
Richard Buckley, Eduardo Hochschild Beeck y Carlos Fernando Ortiz Ugarte,
facultados al e facultado al efecto segun poder otorgado en Junta General de
Socios de fecha 15 de mayo de 1998,fecto segun
a quien en adelante se denominara EL CLIENTE; a favor del BANCO DE CREDITO DEL
PERU, con Registro Unico de Contribuyentes No. 10004721, con domicilio en Calle
Centenario No. 156, esquina con Av. Huarochiri, Urb. Las Laderas de Melgarejo,
La Molina, Lima, representado por el senor Jesus Antonio Zamora Leon y la senora
Aida Lucia Ghiglino Zimic, facultados al efecto segun poderes inscritos en los
asientos 19-C y 32-C de la ficha 117464 del Registro Mercantil de Lima,
respectivamente, a quien en adelante se denominara EL BANCO; en los terminos y
condiciones siguientes:
PRIMERA: ANTECEDENTES
1.1 En virtud de Contrato de Linea de Credito en Moneda Extranjera suscrito en
esta misma fecha, EL BANCO ha otorgado a favor de EL CLIENTE una linea de
credito hasta por US $ 40'000,000.00 para efectos de financiar capital de
trabajo que requiere EL CLIENTE; para sus operaciones de comercio exterior; en
los terminos y condiciones contemplados en el referido contrato.
1.2. En la Clausula Decimo Cuarta.................... del referido Contrato de
Linea de Credito se establece que, en garantia del cumplimiento de todas las
oObligaciones que asume en virtud del mismo (en adelante, en este contrato, "las
Obligaciones Garantizadas"), EL CLIENTE se obliga a otorgar a favor del BANCO
primera y preferencial Prenda de Minerales sobre loas concentrados, materias
primas, productos en proceso concentrados y productos finales elaborados por EL
CLIENTE; para lo cual procedera a firmar el Contrato de Garantia
correspondiente.
1.3 LosCada terminos en mayusculas o con iniciales en mayusculas, que no esten
definidos en forma expresa en este documento, tienen la definicion que se les
asigna en el Contrato de Linea de Credito en Moneda Extranjera mencionado en el
numeral 1.1 anterior.
SEGUNDA: OBJETO
2.1 En virtud de lo senalado en el numeral 1.2 de la Clausula anterior y en
garantia del pago oportuno y total y fiel cumplimiento por parte delr EL CLIENTE
de todas y cada una de las Obligaciones Ggarantizadas, ya sean presentes o
futuras, por el presente documento, EL CLIENTE constituye primera y preferencial
Pprenda de Minerales en favor del BANCO, sobre
<PAGE>
los concentrados, materias primas, productos en proceso y productos finales de
propiedad del CLIENTE de minerales, sobre los minerales ya refinados y sobre
cualquier otro mineral o producto derivado, cualquiera sea su e, cualquiera sea
su estado, que, en cualquier momento durante la vigencia de este cContrato de
Prenda de Minerales, esten ubicados fisicamente dentro de, o en transito hacia,
cualquier propiedad del CLIENTE o almacenes de terceros contratados por EL
CLIENTE para el deposito de los referidos bienes (tales concentradosen adelante,
en este contrato de minerales, sobre los minerales ya refinados y sobre
cualquier otro mineral o producto derivado que en cualquier momento esten
prendados conforme a esta clausula constituyen, en adelante,, dichos bienes se
denominaran "la Garantia"),, hasta por la suma determinable equivalente a las
Obligaciones Ggarantizadas que, en cualquier momento y por cualquier concepto
durante la vigencia de este cContrato de Prenda de Minerales, esten pendientes
de pago y/o de cumplimiento. bajo el Contrato de Linea de Credito en Moneda
Extranjera.
La prenda descrita en el primerel parrafo anterior de este numeral 2.1 se
denomina, en adelante, en este contrato, la "Prenda de Minerales", estando la
Garantia sustituyendose y/o reponiendose permanentemente.
2.2. Solo para fines de calculo de los derechos de inscripcion a ser pagados
para el registro de la Prenda de Minerales en el Registro Publico de Mineria, EL
CLIENTE y EL BANCO han establecido que la Prenda de Minerales es por US$
40'000,000.00. Sin embargo, (i) no podra interpretarse, entenderse, considerarse
o suponerse que tal cantidad sea el importe de la Prenda de Minerales para
efectos de la venta de la Garantia, si se produjera tal venta, (ii) dicho
importe no limita en forma alguna el ejercicio por EL BANCO de los terminos y
condiciones de este Contrato de Prenda de Minerales, y (iii) la suma
determinable equivalente a las Obligaciones Garantizadas puede exceder los
referidos US$ 40'000,000.00
La Prenda de Minerales se extiende al importe de indemnizaciones por seguros y
al justiprecio que en caso de expropiacion, pudiera pagarse por parte o toda la
Garantia.
2.3. El ANEXO I, conteniendo la descripcion generica de las caracteristicas de
cada uno de los concentrados, materias primas, productos en proceso y productos
finales de minerales, minerales refinados y demas minerales y productos
derivados que conforman la Garantia y el valor referencial que a la fecha
corresponde a los mismos, forma parte integrante de este contrato.
TERCERA: INDIVISIBILIDAD DE LA PRENDA DE MINERALES
3.1 La Prenda de Minerales es indivisible y subsiste por entero sobre toda la
Garantia, garantizando el oportuno y total cumplimiento de todas y cada una de
las Obligaciones Garantizadas, y no puediendo levantarsee ser parcial o
totalmente levantada., removida o separada. Sin embargo, EL CLIENTE podra
procesar los concentrados de minerales y vender el mineral refinado y demas
productos derivados que integran la Garantia, siempre EL CLIENTE podra procesar
los concentrados y materias primas y vender los productos finales que conforman
la Garantia siempre queque para tal efecto cuenta con la aprobacion escrita del
BANCO y el respectivo el comprador de los productos finales se obligue a
efectuar los pagos correspondientes al precio de venta en las Cuentas Cobranza
que EL CLIENTE constituye y afecta en garantia a favor del BANCO, conforme al
Contrato de Afectacion en Garantia de Pagos y/o Cobranzas y de Cuentas en
Cobranza suscrito en esta misma fecha; entendiendose
<PAGE>
por comprador para estos efectos a los compradores actuales del CLIENTE que se
encuentran comprendidos en la lista proporcionada por EL CLIENTE al BANCO, asi
como todos los compradores futuros del CLIENTE.
3.2 La Prenda de Minerales se mantendra plenamente vigente hasta que (i) las
Obligaciones Garantizadas esten totalmente pagadas y/o cumplidas, y (ii) el
Contrato de Prenda de Minerales este terminado conforme a la Clausula Decimo
Primera de este contrato.............
CUARTA: DECLARACIONES Y GARANTIAS
ELCLIENTE declara y/o garantiza al BANCO que:
4.1 EL CLIENTE es el unico y absoluto propietario de la Garantia.
4.2 Sobre la Garantia no existe prenda, embargo, carga, gravamen, medida
judicial o extrajudicial alguna que limite su derecho a ser libremente
transferida y/o gravada por EL CLIENTE. En cualquier caso, EL CLIENTE se obliga
a sanear el titulo y cualquier vicio oculto que la Garantia pueda tener.
QUINTA: OBLIGACIONES
EL CLIENTE se obliga, durante todo el tiempo que permanezca vigente el Contrato
de Prenda de Minerales a:
5.1 Actuar como depositario de la Garantia, de conformidad con las
estipulaciones del Titulo I, Seccion 4, Libro V; y el Capitulo V, Titulo IX,
Seccion 2, Libro VII del Codigo Civil Peruano. Tambien actuara como depositario
su Gerente General, con las mismas responsabilidades del CLIENTE, siendo ambos
solidariamente responsables por el cuidado y existencia de la Garantia.
5.2 Cumplir oportunamente todas las obligaciones relativas a la Garantia bajo
la Ley General de Mineria, cuyo Texto Unico Ordenado fue aprobado por Decreto
Supremo No.014-92-EM, sus normas modificatorias y reglamentarias, y bajo
cualquier otra disposicion legal aplicable que este vigente en el Peru.
5.3 Mantener la Garantia dentro del perimetro de sus propiedades o en los
almacenes contratados para su deposito, salvo los casos en que sea vendida con
la previa aprobacion escrita del BANCO, o en transito entre los mismos.
5.4 Tener asegurada la Garantia contra todos los riesgos que EL BANCO senale y
necesariamente contra huelga y conmocion civil, dano malicioso, vandalismo y
terrorismo, explosion, terremoto, temblor, danos de agua., inundacion, incendio
y rayos, en una Compania de Seguros y por una cantidad a
<PAGE>
satisfaccion de EL BANCO. EL CLIENTE queda obligado a transferir a EL BANCO su
derecho a la indemnizacion que debe pagar la compania aseguradora en caso de
siniestro, para cuyo efecto le entregara la poliza debidamente endosada de
manera que EL BANCO cobre el importe de la indemnizacion y lo aplique a la
amortizacion o cancelacion de lo que se le adeudase.
5.5 En el eventual caso que EL CLIENTE desee constituir una nueva prenda o
gravamen de cualquier tipo sobre parte o toda la Garantia, EL CLIENTE debera
obtener el previo consentimiento por escrito del BANCO. En caso contrario, dicho
acto o contrato sera invalido, sin perjuicio de lo dispuesto por el Articulo 175
de la Ley General del Sistema Financiero y del Sistema de Seguros y Organica de
la Superintendencia de Banca y Seguros (Ley 26702).
5.6 Notificar oportunamente al BANCO cualquier circunstancia o hecho
relacionado a la Garantia que pudiera afectar la exigibilidad de la Prenda de
Minerales, su rango, o el valor de la Garantia.
5.7. No realizar u omitir accion alguna que, como resultado, pueda ocasionar un
perjuicio a la Garantia o afectarar o impedir la ejecucion de cualquier parte de
la Garantia.
SEXTA: CAUSALES DE EJECUCION DE LA GARANTIA
EL BANCO podra ejecutar la Prenda de Minerales y la Garantia en caso que se
produzcajera un Evento de Incumplimiento conforme al Contrato de Linea de
Credito.
SETIMA: VENTA DE LA GARANTIA
En el caso contemplado establecido en la Cclausula anteriorprecedente, EL BANCO
podra, a su sola discrecion:
7.1 Ejecutar y vender toda o parte de la Garantia sin necesidad de un proceso
judicial previo, conforme al articulo 1069 del Codigo Civil de una manera
comercialmente razonable en un mercado en que activos como los que integran la
Garantia se negocian normalmente, en el lugar o lugares que EL BANCO considere
mas apropiado, a traves de ventas publicas o privadas, dando un aviso notarial
con una anticipacion de quince (15) dias, indicando el momento y lugar en que la
respectiva venta tendra lugar. Para fines de la venta extrajudicial de la
Garantia contemplada en este numeral 7.1, los valores de la Garantia
establecidos en el Anexo 1 son unicamente referenciales para EL BANCO. Por el
presente, EL CLIENTE renuncia expresamente a cualquier otra notificacion y
derecho en conexion con la venta extrajudicial de la Garantia y se obliga a
<PAGE>
entregar la Garantia al BANCO y a permitir el ingreso de posibles compradores a
sus propiedades; o
7.2. Conforme al articulo 1069 del Codigo Civil Peruano, rematar parte o toda
la Garantia a traves de un proceso judicial de ejecucion de garantias iniciado
ante un Tribunal competente y sujeto a las reglas del Codigo Procesal Civil.
7.3. Ejecutar todos los derechos sobre la Garantia que este Contrato de Prenda
de Minerales otorga al BANCO. En caso que el BANCO ejercite el poder otorgado a
su favor conforme a la Clausula .................... y venda todo o parte de la
Garantia en la forma en que EL BANCO lo estime mas conveniente, tal venta debera
ser hecha en una forma comercialmente razonable y en un mercado en que bienes
como los que integran la Garantia son normalmente negociados.
7.4 EL CLIENTE renuncia a su derecho a formular cualquier reclamo contra EL
BANCO sobre la base de que el precio obtenido en la venta extrajudicial de la
Garantia o de cualquier parte de la misma (aun en el caso de una venta privada)
fuera inferior al precio de venta que pudiera ser obtenido bajo otro
procedimiento de venta.
7.5 EL CLIENTE debera entregar o poner a disposicion del BANCO toda la Garantia
existente en la forma y oportunidad requerida por EL BANCO. Si el EL CLIENTE no
entrega al BANCO o no pone a su disposicion toda la Garantia dentro del plazo
establecido por EL BANCO, EL BANCO podra solicitar al Juez que ordene al
CLIENTE entregar dicha Garantia conforme a lo dispuesto en el articulo 183 de la
Ley General de Mineria, cuyo Texto Unico Ordenado ha sido aprobado por Decreto
Supremo No.014-92-EM.
OCTAVA: REDUCCION DE LA PRENDA DE MINERALES
EL CLIENTE renuncia expresamente a su derecho a la reduccion del importe de la
Prenda de Minerales contenido en el Articulo 1083 del Codigo Civil Peruano.
NOVENA: INDEMNIZACION
Por la presente Clausula, EL CLIENTE se obliga a indemnizar al BANCO y a sus
Directores, funcionarios y empleados (en adelante en esta Clausula "las Partes
Indemnizables") por cualquier perdida, dano o gasto en que este(os) incurra(n) o
pudiera(n) sufrir como consecuencia del presente contrato, incluyendo, pero no
limitado a, honorarios profesionales de abogados y gastos surgidos de la
transaccion celebrada, a menos que dicha perdida, dano o gasto sea consecuencia
de la culpa o dolo de las Partes Indemnizables.
<PAGE>
DECIMA: NOTIFICACIONES
Cualquier notificacion, solicitud, demanda, consentimiento, designacion,
direccion, instruccion, certificado u otra comunicacion a ser dada bajo el
presente contrato, debera ser dada por escrito o enviada por facsimil (con
confirmacion escrita de recepcion, confirmacion que puede ser hecha por
facsimil) a la direccion y numero de facsimil abajo indicadas del CLIENTE y del
BANCO y cuando se requerido por la ley peruana, a las direcciones del CLIENTE y
del BANCO indicadas en la introduccion de este Contrato de Prenda de Minerales,,
o a cualquier otra direccion que sea comunicada por escrito para tal efecto por
el CLIENTE y el BANCO:
CLIENTE DOE RUN PERU S.R.L
Atencion: Sres. Kenneth Richard Buckley y Henry Eric Peitz
Direccion: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimil: 215-1235
215-1281
BANCO BANCO DE CREDITO DEL PERU
Atencion: Sr. Giorgio Badani - Banca Corporativa
Sra. Marcela Parodi - Area de Operaciones Internacionales
Direccion: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimil: 349-0794
426-5644
DECIMO PRIMERA: LEVANTAMIENTO Y TERMINO DE LA GARANTIA
Ante el pago y/o cumplimiento total de las Obligaciones Ggarantizadas, la Prenda
de Minerales quedara terminada y todos los derechos sobre la Garantia revertiran
al CLIENTE. Ocurrida tal terminacion, EL BANCO debera, por cuenta y costo del
CLIENTE y dentro de un plazo de dos (2)tres meses, celebrar aquellos documentos
que EL CLIENTE le solicite para evidenciar dicha terminacion.
DECIMO SEGUNDA: GASTOS
Seran asumidos por EL CLIENTE todos los costos y gastos que se deriven del
presente contrato, incluyendo los gastos notariales derivados de la elevacion a
Escritura Publica de este documento, asi como los de un Testimonio y una Copia
Simple del mismo para EL BANCO, y los gastos registrales.
<PAGE>
DECIMO TERCERA: LEGISLACION APLICABLE
En todo lo no previsto en este documento, el presente Contrato se rige por las
Legislacion de la Republica del Peru.
DECIMO CUARTA: ARBITRAJE
14.1 Las partes acuerdan expresamente que cualquier conflicto o
controversia que pudiera surgir entre ellas como consecuencia de la
interpretacion o ejecucion de este Contrato, incluidas las relacionadas con su
nulidad e invalidez, seran resueltas mediante arbitraje de derecho, a cargo de
un Tribunal Arbitral compuesto por tres miembros que necesariamente deberan ser
abogados colegiados, realizado conforme al Reglamento de Conciliacion y
Arbitraje Nacional e Internacional de la Camara de Comercio de Lima.
14.2 El Tribunal Arbitral estara constituido de la siguiente manera: cada
una de las partes designara a un arbitro y el tercero sera designado de comun
acuerdo por los dos primeros, quien sera el Presidente del Tribunal Arbitral.
14.3 El arbitraje se llevara a cabo en la ciudad de Lima y la duracion del
mismo no podra exceder los sesenta (60) dias utiles, contados a partir de la
fecha de instalacion del Tribunal Arbitral hasta la expedicion del laudo
respectivo.
14.4 El laudo del Tribunal Arbitral sera definitivo e inapelable.
14.5 Los gastos que ocasione el arbitraje seran de cargo de la parte
perdedora.
14.6 En caso de que alguna(s) de las partes decidiera(n) interponer recurso
de anulacion contra el laudo arbitral ante el Poder Judicial, debera constituir
previamente a favor de la parte contraria una Carta Fianza otorgada por un Banco
de primer orden con sede en Lima, equivalente a US$ 50,000.00 (CINCUENTA MIL
DOLARES Y 00/100 DE LOS ESTADOS UNIDOS DE NORTEAMERICA), ejecutable en caso que
dicho recurso, en fallo definitivo, no fuera declarado fundado. Dicha Carta
Fianza debera estar vigente durante el tiempo que dure el proceso promovido.
Agregue Ud. senor Notario las clausulas de ley y sirvase pasar partes al
Registro Publico de Mineria para su inscripcion.
Lima, 11 de junio de 1998
DOE RUN PERU S.R.L. BANCO DE CREDITO DEL PERU
/s/ Kenneth Buckley /s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon
<PAGE>
Exhibit 10.11
(English)
Mr. NOTARY:
Kindly issue in your Registry of Public Deeds one of constitution of First and
Preferential Ore Collateral, granted by DOE RUN PERU S.R.L., with Single
Taxpayer's Registration Nr. 37630381, domiciled at Av. Victor Andres Belaunde
147 Via Principal 155, Centro Empresarial Real-Torre Real 3, Piso 9 - San
Isidro, duly represented by Mr. Kenneth Richard Buckley, empowered by virtue of
power of attorney granted in General Meeting of Partners on May 15, 1998,
hereinafter referred to as THE CLIENT, in favor of the BANCO DE CREDITO DEL
PERU, with Single Taxpayer's Registration Nr. 10004721, domiciled at Calle
Centenario Nr. 156, corner with Av. Huarochiri, Urb. Las Laderas de Melgarejo,
La Molina, Lima, duly represented by Mr. Jesus Antonio Zamora Leon and Mrs. Aida
Lucia Ghiglino Zimic, empowered by virtue of powers of attorney registered in
entries 19-C and 32-C of filing card 117464 of the Government Registry of
Commercial Concerns of Lima, hereinafter referred to as THE BANK, under the
following terms and conditions:
FIRST: BACKGROUND
1.1 In accordance with the Contract for a Credit Line signed on this same date,
THE BANK has granted in favor of THE CLIENT a credit line of up to
US$40'000,000.00 for
<PAGE>
purposes of financing working capital required by THE CLIENT for its
foreign trade operations in the terms and conditions contemplated in the
aforementioned contract.
1.2 In the Fourteenth Clause of the aforementioned Contract for a Credit Line,
it is established that as a guarantee for the enforcement of all the
obligations assumed in accordance with the same (hereinafter in this
contract: "the Guaranteed Obligations"), THE CLIENT pledges in favor of the
BANK a first and preferential Ore Collateral on the concentrates, raw
materials, products in process and end products worked by THE CLIENT, for
which it will proceed to sign the respective Guarantee Contract.
1.3 The terms with capitalized initials which are not expressly defined in this
document will have the definition assigned to them in the Contract for a
Credit Line in Foreign Currency mentioned in the foregoing subclause 1.1.
SECOND: OBJECT
2.1 In accordance with the provisions of subclause 1.2 of the foregoing Clause
and as a guarantee of the timely and total fulfillment on the part of THE
CLIENT of each and all of the Guaranteed Obligations, whether present or
future, THE
2
<PAGE>
CLIENT constitutes a first and preferential Ore Collateral in favor of THE
BANK on the concentrates, raw materials, products in process and end
products, owned by THE CLIENT, whatever their state, that at any time
during the time this contract is in force are physically located within or
in transit to any property of THE CLIENT or warehouses of third parties
controlled by THE CLIENT for the deposit of the aforementioned goods
(hereinafter in this contract, those goods shall be designated as "the
Guarantee") for up to the determinable sum equivalent to the Guaranteed
Obligations that at any time and for any concept during the time this
contract is in force are pending of payment and/or enforcement.
The collateral described in the foregoing paragraph shall hereinafter be
designated within this contract as the "Ore Collateral", the Guarantee shall be
permanently substituted and/or replaced.
2.2 Solely for the purpose of the calculation of the registration fees to be
paid for the registration of the Ore Collateral in the Public Registry of
Mining, THE CLIENT and THE BANK have established that the Ore Collateral is
for
3
<PAGE>
US$40'000,000.00 Nevertheless, (i) may not be interpreted, understood,
considered or presumed to be that said amount is the amount of the Ore
Collateral for the purpose of the sale of the Guarantee should such sale
occur, (ii) said amount does not restrict in any way the exercise by THE
BANK of the terms and conditions of this Ore Collateral Contract and (iii)
the determinable sum equivalent to the Guaranteed Obligations may exceed
the aforementioned US$40'000,000.00.
The Ore Collateral extends to the amount of indemnities by insurance and to the
appraisal that in case of expropriation may be paid for part or all the
Guarantee.
2.3 EXHIBIT I containing the generic description of the characteristics of each
of the concentrates, raw materials, products in process and end products
that form the Guarantee and the referential value that to date corresponds
to the same forms an integral part of this contract.
THIRD: INDIVISIBILITY OF THE ORE COLLATERAL
3.1 The Ore Collateral is indivisible and fully subsists on all the Guarantee,
guaranteeing the timely and total fulfillment of each and all the
Guaranteed Obligations and may not be
4
<PAGE>
partially or totally released. THE CLIENT may process the concentrates and
raw materials and sell the end products that form the Guarantee provided
that the buyer of the end products pledges to make the respective payment
at the sales price into the Collection Accounts that THE CLIENT constitutes
and pledges as a guarantee in favor of THE BANK in accordance with the
Contract for Pledging as a Guarantee of Payments and/or Collections and
Collection Accounts signed on this same date; it being understood that
buyers for these purposes are the present buyers of THE CLIENT who appear
on the list provided by THE CLIENT to THE BANK, as well as all the future
buyers of THE CLIENT.
3.2 The Ore Collateral shall remain fully in force until (i) the Guaranteed
Obligations are fully paid up and/or complied with, and (ii) the Ore
Collateral Contract is concluded in accordance with the Eleventh Clause of
this contract.
FOURTH: STATEMENTS AND GUARANTEES
THE CLIENT declares and/or guarantees to THE BANK that:
4.1 THE CLIENT is the sole and absolute owner of the Guarantee.
5
<PAGE>
4.2 There does not exist any lien, attachment, charge, encumbrance, judicial or
out of court measure whatsoever that restricts its right to be freely
transferred and/or pledged by THE CLIENT. THE CLIENT commits in any case to
warrant free from encumbrance the title and any hidden flaw that the
Guarantee may have.
FIFTH: OBLIGATIONS
THE CLIENT commits during all the time that the Ore Collateral Contract is in
force to:
5.1 Act as depository of the Guarantee, in accordance with the stipulations of
Title I, section 4, Book V and of Chapter V, Title IX, Section 2, Book VII
of the Peruvian Civil Code. Its General Manager will also act as depository
with the same responsibilities as THE CLIENT, both being jointly and
severally liable for the care and existence of the Guarantee.
5.2 Comply in a timely manner with all the obligations that refer to the
Guarantee under the General Mining Law, whose Single Ordered Text was
approved by Supreme Decree No. 014-92-EM,. its amending and regulatory
rules and under any other applicable legal provision that is in force in
Peru.
6
<PAGE>
5.3 Maintain the Guarantee within the perimeter of its properties or in the
warehouses hired for its deposit or in transit among them.
5.4 Maintain the Guarantee insured against all the risks indicated by THE BANK
and necessarily against strike and civil riots, malicious mischief,
vandalism and terrorism, explosion, earthquake, earth tremors, damage by
water, flood, fire and rays, in an Insurance Company and for an amount that
is to the satisfaction of THE BANK. THE CLIENT is obliged to transfer to
THE BANK his right to the indemnity that must be paid by the insurance
company in case of damages for which purpose he will deliver the duly
endorsed policy so that THE BANK will collect the amount of the indemnity
and apply it to the amortization or cancellation of the amount owed.
5.5 Should THE CLIENT wish to constitute a new collateral or encumbrance of any
type on part or all of the Guarantee, THE CLIENT must obtain the prior
consent in writing of THE BANK. The act or contract will otherwise be null
and void, without prejudice of the provisions set forth in Article 175 of
the Financial System and Insurance System General
7
<PAGE>
Act and Organic Act of the Superintendency of Banking and Insurance (Law
26702).
5.6 Notify the BANK in a timely manner of any circumstance or fact related to
the Guarantee that could affect the demandability of the Ore Collateral,
its rank or the value of the Guarantee.
5.7 Not perform or omit any action that as a result could cause harm to the
Guarantee or affect or hinder the execution of any part of the Guarantee.
SIXTH: CAUSE FOR THE EXECUTION OF THE GUARANTEE
THE BANK may execute the Ore Collateral and the Guarantee should an Event of
Default occur in accordance with the Contract for a Credit Line.
SEVENTH: SALE OF THE GUARANTEE
In the case contemplated in the foregoing Clause, THE BANK may, at its sole
option:
7.1 Execute and sell all or part of the Guarantee without need for prior
judicial proceedings, in accordance with article 1069DEG. of the Civil
Code in a reasonably commercial manner in a market in which assets such as
those that form part of the
8
<PAGE>
Guarantee are normally negotiated, at the site or sites, that THE BANK
considers most suitable, through private or public sales giving a notice
legalized by a notary fifteen (15) days in advance indicating the time and
place in which the respective sale will take place. For the purposes of the
sale out of court of the Guarantee contemplated in this subclause 7.1, the
Guarantee values established in Exhibit I are only referential for THE
BANK. By these presents, THE CLIENT expressly waives any other notice and
right with regard to the out of court sale of the Guarantee and obliges
himself to deliver the Guarantee to THE BANK and permit the entrance of
possible buyers into its properties; and/or
7.2 In accordance with article 1069DEG. of the Peruvian Civil Code, auction
off part or all the Guarantee through judicial proceedings for the
execution of guarantees filed before a competent Court and subject to the
rules of the Code of Civil Procedure; and/or
7.3 Execute all rights on the Guarantee that this Ore Collateral Contract
grants THE BANK. Should THE BANK sell all or part of the Guarantee in the
form that THE BANK deems most advisable, that sale must be made in a
commercially
9
<PAGE>
reasonable manner and in a market in which properties such as those that
make up the Guarantee are normally negotiated.
7.4 THE CLIENT waives its right to make any claim against THE BANK on the basis
that the price obtained in the out of court sale of the Guarantee or any
part of the same (even in the case of a private sale) is lower than the
sales price that could be obtained under another sales procedure.
7.5 THE CLIENT must deliver or place at the disposal of THE BANK all the
existing Guarantee in the form and at the time required by THE BANK. Should
THE CLIENT not deliver to the BANK or not place at its disposal all the
Guarantee within the term stipulated by THE BANK, THE BANK may request the
Judge to order THE CLIENT to deliver this Guarantee in accordance with the
provisions of article 183DEG. of the General Mining Act, whose Sole
Orderly Text has been approved by Supreme Decree No. 014-92-EM.
EIGHTH: REDUCTION OF THE ORE COLLATERAL
THE CLIENT expressly waives his right to the reduction of the amount of the Ore
Collateral contained in Article 1083DEG. of the Peruvian Civil Code.
NINTH: INDEMNITY
10
<PAGE>
By this Clause, THE CLIENT commits to indemnify THE BANK and its Directors,
officials and employees (hereinafter in this Clause "the Compensable Parties")
for any loss, damage or expense in which they incur or suffer as a result of
this contract, including but not limited to, professional fees of lawyers and
expenses arising from the transaction that was entered into unless that loss,
damage or expense was a result of gross negligence or fraud of the Compensable
Parties.
TENTH: NOTICES
Any notice, application, demand, consent, designation, address, instruction,
certificate or other communication that is to be given under this contract shall
be given in writing or sent by facsimile (with a written confirmation of
reception, which may be made via facsimile) to the address and facsimile number
indicated below of THE CLIENT and of THE BANK, and when so required by Peruvian
law, to the addresses of THE CLIENT and THE BANK indicated in the introduction
of this Ore Collateral Contract, or to any other address that is communicated in
writing for that purpose by THE CLIENT and by THE BANK:
CLIENT: DOE RUN PERU S.R.L.
11
<PAGE>
Attention: Mr. Kenneth Richard Buckley and Mr. Henry Eric Peitz
Address: Av. Victor Andres Belaunde 147, Via Principal 155,
Centro Empresarial Real - Torre Real 3, Piso 9,
San Isidro
Facsimile: 215-1235
215-1281
BANK: BANCO DE CREDITO DEL PERU
Attention: Mr. Giorgio Badani - Corporate Banking
Mrs. Marcela Parodi - International Transactions Area
Address: Centenario 156, Las Laderas de Melgarejo
La Molina
Facsimile: 349-0794
426-5644
ELEVENTH: RELEASE AND TERMINATION OF THE GUARANTEE
Upon payment and/or full compliance with the Guaranteed Obligations, the Ore
Collateral shall be terminated and all the rights on the Guarantee shall revert
to THE CLIENT. Once such termination occurred, THE BANK shall, for THE CLIENT'S
12
<PAGE>
account and expense and within the term of two (2) months, execute such
documents as THE CLIENT may request to evidence such termination.
TWELFTH: EXPENSES
THE CLIENT will pay all the costs and expenses derived from this contract,
including the notary's fee for converting this instrument into a public deed, as
well as the expenses from a Testimony and a Simple Copy thereof for THE BANK,
and the registration fees.
THIRTEENTH: APPLICABLE LEGISLATION
In all matters not provided for in this document, this Contract shall be
governed by the Legislation of the Republic of Peru.
FOURTEENTH: ARBITRATION
14.1 The parties expressly agree that any conflict or controversy that may arise
between them as a result of the interpretation or execution of this
Contract, including those related to its nullity or invalidity shall be
resolved by means of a de jure arbitration entrusted to an Arbitration
Court formed by three members that must necessarily be lawyers registered
in the Bar Association, held in accordance with the Regulations for
Conciliation and National and International Arbitration of the Chamber of
Commerce of Lima.
13
<PAGE>
14.2 The Arbitration Court shall be constituted in the following manner: each of
the parties shall designate an arbitrator and the third shall be designated
by mutual agreement by the first two, who will be the Chairman of the
Arbitration Court.
14.3 The arbitration shall be held in the city of Lima and the duration of the
same may not exceed sixty (60) workdays, counted from the date of the
installation of the Arbitration Court until the issuing of the respective
award.
14.4 The award of the Arbitration Court shall be final and may not be appealed.
14.5 The costs that arise from the arbitration shall be borne by the losing
party.
14.6 Should either or several of the parties decide to file an appeal for
annulment against the arbitration award before the Judiciary, it must first
establish in favor of the opposing party a Letter of Guaranty issued by a
first rank Bank with headquarters in Lima, equivalent to US$50,000.00
(FIFTY THOUSAND DOLLARS AND 00/100 OF THE UNITED STATES OF AMERICA),
executable should said appeal in a final sentence be declared to be without
grounds. This Letter
14
<PAGE>
of Guaranty must be in force during the time that the process that has been
promoted lasts.
Please insert you, Mr. Notary, the clauses of law and render the pertinent
documents to the Public Registry of Mining for its registration.
Lima, June 11, 1998
DOE RUN PERU S.R.L.
/s/ Kenneth Buckley
BANCO DE CREDITO DEL PERU
/s/ Jesus Antonio Zamora Leon
/s/ Aida Lucia Ghiglino Zimic
/s/ Guillermo Ferrero Alvarez Calderon
Attorney
Lima Bar Registration Nr. 26011
- --------------------------------------------------------------------------------
I CERTIFY that the copy on the reverse side is identical to the document I have
seen.
Lima, June 19, 1998
/s/ Anibal Corvetto Romero
Notary - Attorney
Lima - Peru
15
<PAGE>
DOE RUN PERU
MEMORANDUM
CMV - 069 - 98
DATE : June 11, 1998
TO : E. Peitz
FROM : J. Begazo
SUBJECT : INVENTORY OF PRODUCTS IN PROCESS AND END PRODUCTS AS OF MAY 31, 1998
Enclosed hereto are the appraised summary table and its respective exhibits
(units and essays) according to your order.
The values in dollars are preliminary and subject to variation as soon as
Financial Statements from May are issued.
(Illegible signature)
(Illegible signature)
<PAGE>
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Thousands)
<TABLE>
<CAPTION>
The Doe Run Resources Corporation
---------------------------------------------------------------
Seven Months
Ended Year Ended October 31, Six Months Ended
October 31, -------------------------- April 30,
1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income before taxes 1,018 7,575 18,916 3,978 5,375 16,759
Fixed charges 8,568 14,831 15,635 16,049 8,752 15,687
Less: capitalized interest (12) (8) (253) (461) (208) (110)
------- ------- ------- ------- ------- -------
Earnings 9,574 22,398 34,298 19,566 13,919 32,336
Interest Expense, excluding
capitalization of interest 7,927 13,229 13,703 13,565 7,644 13,771
Amortization of financing costs 460 1,140 898 636 132 844
Rental/lease interest 181 462 1,034 1,848 976 1,072
------- ------- ------- ------- ------- -------
Fixed Charges 8,568 14,831 15,635 16,049 8,752 15,687
Ratio of earnings to fixed charges 1.12 x 1.51 x 2.19 x 1.22 x 1.59 x 2.06 x
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
Exhibit 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Doe Run Resources Corporation
Registration on Form S-4
We are aware that our report dated July 28, 1998 on our review of the interim
financial information of the Missouri Lead Division for the periods ended March
31, 1998 and 1997 is included in this Amendment No. 1 to the registration
statement on Form S-4 (File No. 333-52285). Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP
New York, New York
July 30, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Doe Run Resources Corporation
and Subsidiaries
We consent to the use of our report, which was based on our audits and the
audits of other auditors, dated December 19, 1997, except for note 15 as to
which the date is March 12, 1998, included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
St. Louis, Missouri
July 31, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
July 27, 1998
Dear Sirs:
As independent public accountants, we hereby consent to the use of our
auditors' report dated December 5, 1997, on the financial statements of La
Oroya Division of Empresa Minera del Centro del Peru S.A. as of October 23,
1997 and December 31, 1996 and 1995 and for the period from January 1 to
October 23, 1997 and the three-year period ended December 31, 1996; and our
auditors' report dated December 5, 1997 on the financial statements of Doe
Run Cayman Ltd. as of October 31, 1997 and the period from October 23, 1997
to October 31, 1997 (included in the audited financial statements of The Doe
Run Resources Corporation as of October 31, 1997 and for the year then ended)
which were prepared in accordance with U.S. generally accepted accounting
principles, and to all references to our firm, in connection with the
Registration Statement on Form S-4 to be filed by The Doe Run Resources
Corporation.
MEDINA, ZALDIVAR Y ASOCIADOS, a Member Firm
of Andersen Worldwide S.C.
Marco Antonio Zaldivar
Partner
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT MINING CONSULTANTS
July 28, 1998
Mr. Marvin Kaiser
Chief Financial Officer
The Doe Run Resources Corporation
1801 Park 270 Drive
Suite 300
St. Louis, Missouri 63146
Dear Sirs:
Pincock, Allen & Holt, a mining consulting firm based in Lakewood, Colorado,
hereby consents to the incorporation by reference the reserve statement entitled
"The Doe Run Resources Corporation--Reserve Audit--Mineable Reserves as of March
31, 1998" and all references to our firm included in or made part of The Doe Run
Resources Corporation's Registration Statement on Form S-4.
Sincerely,
PINCOCK, ALLEN & HOLT
/s/ Gregory F. Chlumsky
Gregory F. Chlumsky
Manager, Process Engineering
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Amendment No.
1 to Form S-4 (File No. 333-52285) of our report dated July 28, 1998, on our
audits of the financial statements of the Missouri Lead Division. We also
consent to the reference to our firm under the caption "Experts".
PricewaterhouseCoopers LLP
New York, New York
July 28, 1998
