<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1999
REGISTRATION NO. 333-66291
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
THE DOE RUN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 1031, 3339, 3341
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
FABRICATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1799, 2819, 3356, 3442
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DR LAND HOLDINGS, LLC
(Exact name of registrant as specified in its charter)
DELAWARE 1031
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DOE RUN CAYMAN LTD.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 3331, 3339
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DOE RUN MINING S.R.L.
(Exact name of registrant as specified in its charter)
PERU 3331, 3339
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DOE RUN PERU S.R.L.
(Exact name of registrant as specified in its charter)
PERU 3331, 3339
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DOE RUN AIR S.A.C.
(Exact name of registrant as specified in its charter)
PERU 4522
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
DOE RUN DEVELOPMENT S.A.C.
(Exact name of registrant as specified in its charter)
PERU 8711
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
EMPRESA MINERA COBRIZA S.A.
(Exact name of registrant as specified in its charter)
PERU 1021
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
<CAPTION>
NEW YORK 13-1255630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
DELAWARE 43-1755268
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
DELAWARE NOT APPLICABLE
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
CAYMAN ISLANDS NOT APPLICABLE
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
PERU NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PERU NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PERU NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PERU NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PERU NOT APPLICABLE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
<CAPTION>
</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
(Name, address, including zip code, and telephone
(Address, including zip code, and telephone number, including 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
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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. / /
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.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED; DATED JANUARY
20, 1999
PROSPECTUS
[LOGO]
THE DOE RUN RESOURCES CORPORATION
EXCHANGE OFFER FOR
11 1/4% SENIOR SECURED NOTES DUE 2005
GUARANTEED BY: FABRICATED PRODUCTS, INC.
DR LAND HOLDINGS, LLC
DOE RUN CAYMAN LTD.
DOE RUN MINING S.R.L.
DOE RUN PERU S.R.L.
DOE RUN AIR S.A.C.
DOE RUN DEVELOPMENT S.A.C.
EMPRESA MINERA COBRIZA S.A.
INVESTMENT IN THE EXCHANGE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 17.
TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
/ / The Exchange Offer expires at 5:00
p.m., New York City time, on
, 1999, unless extended.
/ / The Exchange Offer is not subject
to any condition other than that
the exchange notes be freely
tradeable and that the interests of
holders of outstanding notes not be
materially adversely affected by
consummation of the Exchange Offer.
/ / All outstanding notes that are
validly tendered and not validly
withdrawn will be exchanged.
/ / Tenders of outstanding notes may be
withdrawn at any time prior to the
expiration of the Exchange Offer.
/ / The exchange of outstanding notes
for exchange notes will not be a
taxable event for federal income
tax purposes.
/ / We will not receive any proceeds
from the Exchange Offer.
/ / The terms of the exchange notes are
substantially identical to the
outstanding notes, except that the
exchange notes will be freely
tradeable.
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE SECURITIES LAWS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS
INCLUDED IN THIS PROSPECTUS, INCLUDING CERTAIN STATEMENTS UNDER THE CAPTIONS
"SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "INDUSTRY" AND "BUSINESS" AND LOCATED ELSEWHERE
REGARDING OUR FINANCIAL POSITION AND BUSINESS STRATEGY MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALSO, 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 THEIR
NEGATIVES OR VARIATIONS OR SIMILAR TERMINOLOGY. ALTHOUGH WE BELIEVE THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, SUCH
EXPECTATIONS COULD BE INCORRECT. CAUTIONARY STATEMENTS THAT DESCRIBE FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR EXPECTATIONS ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING IN CONJUNCTION WITH FORWARD-LOOKING
STATEMENTS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF
ARE QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS PROSPECTUS. WE
DISCLAIM ANY OBLIGATION OR UNDERTAKING TO PROVIDE ANY UPDATES OR REVISIONS TO
ANY FORWARD-LOOKING STATEMENT TO REFLECT ANY CHANGE IN OUR EXPECTATIONS OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED.
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 Doe Run Peru S.R.L. and Empresa Minera del
Centro del Peru S.A.-- Centromin Peru S.A., La Oroya Division included in this
Prospectus are prepared in U.S. dollars and in accordance with generally
accepted accounting principles in the United States ("U.S. GAAP").
Our Peruvian subsidiaries 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 financial statements of 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%, or $115.4 million, of the pro forma operating costs of
our Peruvian operations for the twelve months ended October 31, 1997, were
denominated in nuevos soles. Because
2
<PAGE>
substantially all the revenues of our Peruvian operations 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 our Peruvian operations will be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources--Inflation
and Seasonality." We have not in the past entered into any foreign exchange
hedging arrangements.
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, 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 July 31, 1998 was S/.2.720 and S/.2.930,
respectively, per $1.00.
We currently do not, and do not intend to, engage in any hedging or other
transactions which are intended to manage risks relating to foreign currency and
interest rate fluctuations.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN THIS
PROSPECTUS. WE URGE YOU TO READ THE ENTIRE PROSPECTUS BEFORE MAKING ANY
INVESTMENT DECISIONS. REFERENCES TO THE TERMS "OUNCE" MEAN A TROY OUNCE (1.09
OUNCES); "TON" MEAN A SHORT TON (2,000 POUNDS); AND "WESTERN WORLD" MEAN THE
ENTIRE WORLD EXCLUDING EASTERN EUROPE, THE FORMER SOVIET UNION AND CHINA. OUR
FISCAL YEAR ENDS OCTOBER 31; HOWEVER PRIOR TO OCTOBER 23, 1997 WHEN WE ACQUIRED
OUR PERUVIAN OPERATIONS, THEY HAD A FISCAL YEAR ENDED DECEMBER 31.
THE COMPANY
Through our U.S. operations, we are the largest fully-integrated lead
producer in North America and the second largest primary lead producer in the
western world. Through our Peruvian subsidiary Doe Run Peru S.R.L. ("Doe Run
Peru"), we operate one of the largest polymetallic processing facilities in the
western world. Our facilities offer an extensive product mix of non-ferrous and
precious metals, including copper, silver, zinc, lead and gold. The combined
production of our U.S. and Peruvian operations represent the largest primary
lead producer in the western world.
On October 23, 1997, Doe Run Peru acquired Empresa Metalurgica La Oroya
("Metaloroya") from Empresa Minera del Centro del Peru S.A. ("Centromin"), a
Peruvian government-owned conglomerate, as part of Peru's ongoing privatization
program. On August 31, 1998, Doe Run Mining S.R.L. ("Doe Run Mining"), our
Peruvian holding company subsidiary, acquired Empresa Minera Cobriza S.A.
("Cobriza"), which operates a mine that supplies Doe Run Peru with copper
concentrates, from Centromin in another phase of Peru's privatization efforts.
On September 1, 1998, we purchased certain assets of ASARCO Incorporated's
Missouri Lead Division, including a smelter and refinery and two mines.
For the year ended October 31, 1997, our pro forma net sales were $795.1
million, income before extraordinary item was $3.0 million and net income (loss)
before extraordinary item plus the sum of net interest expense, income taxes and
depletion, depreciation and amortization ("EBITDA") was $90.9 million. For the
nine months ended July 31, 1998 our pro forma net sales were $581.8 million,
income before extraordinary item was $4.8 million and EBITDA was $64.1 million.
Our principal executive offices and those of our subsidiaries are located at
1801 Park 270 Drive, St. Louis, Missouri 63146, and our telephone number is
(314) 453-7100.
OUR DOMESTIC OPERATIONS
Our integrated domestic operations permit us to participate in and manage
the entire lead life cycle:
- mining lead ore;
- producing refined lead metal;
- fabricating value-added lead products; and
- recycling lead-bearing materials, such as spent lead-acid batteries.
We believe our reputation for excellent service, product quality and timely
delivery are the key factors leading to our ability to consistently obtain
above-market prices for lead.
In fiscal 1997, we shipped approximately 350,000 tons of refined lead metal
and lead alloy products, including recycled lead. These shipments represented
approximately 18% of North American consumption and 6% of western world
consumption. For fiscal 1997 (excluding the results of Doe Run Peru for the
eight days immediately after we acquired Metaloroya on October 23, 1997), our
domestic operations' net sales were $277.9 million, net loss was $1.1 million
and EBITDA was $31.9 million. For
4
<PAGE>
the nine months ended July 31, 1998 (excluding intercompany transactions), our
domestic operations' net sales were $180.8 million, net loss was $22.5 million
and EBITDA was $5.2 million.
Refined lead product sales accounted for approximately 67% of net sales
($185.1 million) in fiscal 1997 and 80% of net sales ($144.6 million) for the
nine months ended July 31, 1998. Providing tolling services to major U.S.
lead-acid battery manufacturers, producing lead by-products, such as zinc and
copper concentrates, and fabricating value-added lead products, such as lead
sheet and bricks, comprise the balance of our domestic operations' net sales.
Net sales from tolling services, by-products and fabricated products provide
sources of revenue largely independent of lead prices.
In 1997, the western world consumed an estimated 5.8 million tons of lead,
which represented an approximately $3.2 billion lead market. The production of
lead-acid batteries accounted for approximately 4.2 million tons, nearly 75% of
overall lead consumption. Approximately 75% of those 4.2 million tons produced
starting-lighting-ignition ("SLI") batteries. Replacing car batteries accounts
for approximately 77% of SLI battery sales. Demand in the automotive battery
replacement market tends to be stable, depending primarily on the number of
automobiles in service and battery life.
The lead-acid battery remains the most cost competitive battery technology
for SLI batteries, and management believes that this trend will continue. In
addition, refined lead is used in products such as 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.
As the global economy grows and the number of vehicles in service increases,
the demand for lead-acid batteries also continues to grow. Between 1987 and
1997, the compound annual growth rate ("CAGR") of lead consumption in the
western world was 2.0%. As developing economies continue to grow, management
believes that batteries will become an even larger portion of the lead market,
particularly given the expected economic growth in developing economies leading
to increased vehicle population.
Approximately 45% of the lead consumed by the western world annually comes
from newly mined or "primary" ore. Secondary sources, principally the recycling
of spent lead-acid batteries and other lead-bearing materials, supply the
balance. Since 1990, secondary lead capacity has increased, whereas primary lead
capacity has remained relatively constant. Management believes that this trend,
due to heightened environmental awareness, will continue, and that secondary
sources of lead will continue to account for an increasing share of the total
worldwide lead market.
The average London Metal Exchange ("LME") price for refined lead was $.29
per pound in fiscal 1997. As of December 31, 1998, the LME price for lead was
$.23 per pound. Over the past ten years, the average price of lead has been $.28
per pound. Management believes that lead prices over the long term will reflect
the historical industry average. Due to the recent decreases in lead prices we
incurred an operating loss in our U.S. operations and such price decreases
adversely affected our EBITDA in fiscal 1998. We expect to reduce certain costs
and achieve certain operating efficiencies during fiscal 1999, and do not
anticipate incurring operating losses during fiscal 1999. However, lead prices
could decrease further in the future to levels resulting in operating losses.
We conduct our domestic mining operations along approximately 40 miles of
the Viburnum Trend in Southeastern Missouri, one of the world's most productive
lead deposits. Prior to the acquisition of the assets of ASARCO Incorporated's
Missouri Lead Division, we operated six production shafts, four processing
mills, one primary smelter and one secondary smelter. We now operate eight
production shafts, six processing mills, two primary smelters and one secondary
smelter. During fiscal 1997, we 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, our proven and probable reserves consisted of approximately 70
million tons, containing approximately 3.8 million tons of recoverable lead
which should support approximately fourteen years of production at current
mining rates.
5
<PAGE>
Our primary smelter in Herculaneum, Missouri is the largest in North America
and the second largest in the world. The smelter has an annual capacity of
approximately 250,000 tons of refined lead. We added annual primary smelting
capacity of 135,000 tons with the acquisition of a smelter in Glover, Missouri
from ASARCO Incorporated on September 1, 1998. Since entering the recycling
business in 1992, we have become a leading producer of secondary lead at our
Buick recycling facility and secondary smelter located in Boss, Missouri. Here,
we reclaim approximately 105,000 tons of refined lead per year. Tolling
arrangements with major U.S. battery manufacturers account for approximately 60%
of that refined lead.
OUR PERUVIAN OPERATIONS
Our Peruvian operations' unique combination of base metal smelters,
refineries and by-product circuits enable us to process complex polymetallic
concentrates and to recover base metals and by-products at international quality
standards. Doe Run Peru's La Oroya smelter is located in central Peru,
approximately 110 miles from Lima. This strategic location allows us to source
concentrates advantageously from mines located throughout the central Andes
mountains, particularly in Peru. Our Cobriza mine is located approximately 330
miles from the La Oroya smelter. Moreover, Doe Run Peru's proximity to Lima's
Callao port provides ready access to major world markets.
For the twelve months ended October 31, 1997 and the nine months ended July
31, 1998, Doe Run Peru shipped approximately 70,000 tons and 54,000 tons,
respectively, of refined copper, 107,000 tons and 88,000 tons, respectively, of
refined lead, 71,000 tons and 60,000 tons, respectively, of refined zinc, 20.5
million ounces and 20.2 million ounces, respectively, of refined silver and
42,000 ounces and 43,000 ounces, respectively, of gold bullion. In addition, we
shipped various by-products including bismuth, indium, tellurium, antimony,
cadmium and copper blister. For the year ended October 31, 1997, our Peruvian
operations' net sales were $431.9 million, net income was $26.4 million and
EBITDA adjusted for certain non-recurring charges was $50.7 million. For the
nine months ended July 31, 1998 (excluding intercompany transactions), our
Peruvian operations' net sales were $346.9 million, net income was $29.5 million
and EBITDA was $54.5 million.
Refined copper, silver, zinc, lead and gold accounted for 35%, 23%, 19%, 15%
and 3%, respectively, of our Peruvian operations' net sales for the twelve
months ended October 31, 1997 and 24%, 33%, 17%, 13% and 4%, respectively, of
our Peruvian operations' net sales for the nine months ended July 31, 1998. The
balance of our net sales came 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. Our customers
include end-users of base metals and metal by-products, as well as international
metal trading companies.
Our Peruvian operations consist of smelting and refining complex
concentrates which Doe Run Peru purchases from our Cobriza mine as well as from
unaffiliated mining operations. We have typically purchased concentrate
feedstock pursuant to annual contracts where the price is based on a percentage
of the payable base metal and precious metal content of the concentrates,
reduced by processing fees, treatment charges to refine the concentrates, and
penalties for impurities within the concentrates, such as arsenic, antimony and
bismuth, which we must remove. We are now entering into contracts with terms of
two to three years. Base metal prices, treatment charges and penalties are
generally established by reference to prevailing market prices. Currently, we
have contracted for approximately 80%-90% of our concentrate requirements for
fiscal 1999 through the acquisition of Cobriza and contracts with suppliers. For
the nine months ended July 31, 1998, approximately 38% of the La Oroya smelter's
copper concentrate requirements were met by Cobriza, representing 100% of
Cobriza's output.
6
<PAGE>
Because we pay for the majority of the metal content of the concentrates
purchased, we derive our operating profit primarily from treatment charges and
penalties. In addition, we generate operating profit from the sale of
by-products, as well as from metals sold above the price we paid for such metal.
Moreover, because our metallurgical recoveries are typically greater than the
anticipated yield, we are able to sell the excess recoveries and increase our
operating profit.
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, our Peruvian operations' financial performance is not solely
dependent upon any single product or by-product. Moreover, since the La Oroya
smelter is primarily a processor of complex concentrates, Doe Run Peru's
financial performance is less sensitive to the volatility of base metal prices.
RECENT TRANSACTIONS
ACQUISITION OF METALOROYA
Doe Run Peru acquired Metaloroya from Centromin on October 23, 1997 pursuant
to a subscription agreement which provided that Doe Run Peru would acquire in
excess of 99.97% of Metaloroya's shares for approximately $247.0 million. We
made (i) a capital contribution to Metaloroya of $126.5 million in exchange for
newly issued shares of Metaloroya representing a 51% ownership interest and (ii)
a payment to Centromin of $120.5 million in exchange for substantially all of
the previously outstanding shares. As mandated by Peruvian law, employees of
Centromin purchased a negligible number of the pre-existing shares.
The acquisition was financed through our Peruvian holding company
subsidiary, Doe Run Mining, and our Cayman Island holding company subsidiary,
Doe Run Cayman Ltd. ("Doe Run Cayman"). The interim financing used to close the
acquisition was largely refinanced through our March 1998 financing described
below. As of October 31, 1997, Doe Run Mining had $103.0 million of borrowings
outstanding composed of $100.0 million in term loans and $3.0 million under its
revolving credit facility.
Under the subscription agreement with Centromin, Doe Run Peru committed to
invest $120.0 million through October 23, 2002 to expand and modernize its
operations. Certain expenditures must be made to satisfy environmental
regulations within Peru as set forth in the Programa de Adecuacion y Manejo
Ambiental (Environmental Remedy and Management Program), an environmental
adjustment and management program. If Doe Run Peru does not satisfy these
investment commitments, it will be obligated to pay a penalty payment to
Centromin in 2002 equal to 30% of any shortfall. As of October 31, 1998, Doe Run
Peru had expended $10.6 million toward fulfilling its investment requirement.
MARCH 1998 FINANCING
On March 12, 1998, we sold $200.0 million of our 11 1/4% Senior Notes due
2005 and $55.0 million of our Floating Interest Rate Senior Notes due 2003
(collectively, the "March 1998 Notes"). The net proceeds from the March 1998
financing, approximately $248.6 million, were used as follows:
- We made a $125.0 million special term deposit in a bank to serve as
collateral for a back-to-back loan of the same amount by the bank to Doe
Run Mining. The payment terms of the special term deposit and the
back-to-back loan match the timing and amount of the payments on $125.0
million of the fixed rate March 1998 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.
- Doe Run Mining used the proceeds of the back-to-back loan to repay its
$103.0 million of outstanding borrowings and the $23.0 million loan from
us incurred in connection with the acquisition of Metaloroya.
- We repaid our existing indebtedness.
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<PAGE>
- We redeemed all of our preferred stock held by Renco and paid accrued
dividends on the preferred stock.
- We paid related fees and expenses.
ACQUISITION OF COBRIZA
On August 31, 1998, Doe Run Mining acquired Cobriza from Centromin for a
purchase price of $7.5 million. Of that, $3.0 million was paid at closing and
the balance is payable in equal annual installments over three years. The assets
of Cobriza are a copper mine and other assets related to the operation of the
mine. Cobriza is located approximately 500 kilometers southeast of Lima, Peru.
Our La Oroya complex is located approximately 330 kilometers from the Cobriza
mine, between Cobriza and Lima. The Cobriza mine produces copper concentrates
and currently supplies approximately 40% of Doe Run Peru's copper concentrate
requirements.
ACQUISITION OF ASARCO INCORPORATED'S MISSOURI LEAD DIVISION
On September 1, 1998, we purchased the assets of ASARCO Incorporated's
Missouri Lead Division, including a smelter and refinery and two mines. The
purchase price for these assets was $54.4 million, plus any potential deferred
payments. Whether any deferred payments have to be made depends on the LME lead
prices during the five years after the acquisition. We will only be required to
make a deferred payment in any year if the annual LME spot lead price exceeds
$.285 per pound. Our aggregate deferred payments will not exceed $12.5 million.
See "Business--ASARCO MLD Acquisition."
OFFERING OF OUTSTANDING NOTES
On September 1, 1998, we sold and issued the 11 1/4% Senior Secured Notes
due 2005, Series A. We used the net proceeds of the offering of outstanding
notes, together with borrowings under our revolving credit facility to:
- fund the acquisition of ASARCO Incorporated's Missouri Lead Division; and
- pay related fees and expenses.
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CONTROL OF THE COMPANY
All of our issued and outstanding capital stock is owned indirectly by The
Renco Group, Inc. ("Renco"). We indirectly own more than 99% of the interests in
Doe Run Peru through Doe Run Cayman and Doe Run Mining (with a negligible number
of shares owned by employees pursuant to Peruvian law).
The following chart sets forth our corporate structure.
[GRAPHIC REPRESENTATION OF CORPORATE STRUCTURE]
Renco is 97.9% owned by Mr. Ira Leon Rennert, its Chairman and Chief
Executive Officer as well as our Chairman, through trusts established for
himself and members of his family. Because of such ownership, our company is
controlled by Mr. Rennert.
9
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THE EXCHANGE OFFER
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Registration Rights.......... You are entitled to exchange your notes for freely tradeable
exchange notes with substantially identical terms. The
Exchange Offer is intended to satisfy your exchange rights.
After the Exchange Offer is complete, you will no longer be
entitled to any exchange or registration rights with respect
to your notes. Accordingly, if you do not exchange your
notes, you will not be able to reoffer, resell or otherwise
dispose of your notes unless you comply with the
registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"),
or there is an exemption available.
The Exchange Offer........... We are offering to exchange $1,000 principal amount of our
11 1/4% Senior Secured Notes due 2005, Series B, which have
been registered under the Securities Act, for $1,000
principal amount of our outstanding 11 1/4% Senior Secured
Notes due 2005, Series A, which were issued in a private
offering in September 1998. As of the date of this
Prospectus, there are $50.0 million of notes outstanding. We
will issue exchange notes promptly after the expiration of
the Exchange Offer.
Resales...................... We believe that the exchange notes issued in the Exchange
Offer may be offered for resale, resold or otherwise
transferred by you without compliance with the registration
and prospectus delivery requirements of the Securities Act
provided that:
- you are acquiring the exchange notes in the ordinary
course of your business;
- you are not participating, do not intend to
participate and have no arrangement or understanding
with any person to participate, in a distribution of
the exchange notes; and
- you are not an "affiliate" of ours.
If you do not meet the above criteria you will have to
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any
reoffer, resale or other disposition of your exchange notes.
Each broker or dealer that receives exchange notes for its
own account in exchange for outstanding notes that were
acquired as a result of market-making or other trading
activities must acknowledge that it will deliver this
Prospectus in connection with any sale of exchange notes.
Expiration Date.............. 5:00 p.m., New York City time, on , 1999, unless we
extend the expiration date.
Accrued Interest on the
Exchange Notes and Old
Notes...................... The exchange notes will bear interest from September 15,
1998. If your outstanding notes are accepted for exchange,
then you will
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<S> <C>
waive interest on such outstanding notes accrued and unpaid
to the date the exchange notes are issued.
Conditions to the Exchange
Offer...................... The Exchange Offer is not subject to any condition other
than that the exchange notes be freely tradeable and that
the interests of holders of outstanding notes not be
materially adversely affected by the consummation of the
Exchange Offer. See "The Exchange Offer--Conditions."
Procedures for Tendering Old
Notes...................... If you wish to tender outstanding notes, you must complete,
sign and date the Letter of Transmittal, or a facsimile of
it, in accordance with its instructions and transmit the
Letter of Transmittal, together with your notes to be
exchanged and any other required documentation to State
Street Bank and Trust Company, who is the exchange agent, at
the address set forth in the Letter of Transmittal to arrive
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, you will represent to us that you
are acquiring the exchange notes in the ordinary course of
your business, that you are not participating, do not intend
to participate and have no arrangement or understanding with
any person to participate in the distribution of exchange
notes, and that you are not an "affiliate" of ours. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Holders......... If you are the beneficial holder of notes that are
registered in the name of your broker, dealer, commercial
bank, trust company or other nominee, and you wish to tender
in the Exchange Offer you should contact the person in whose
name your notes are registered promptly and instruct such
person to tender on your behalf. See "The Exchange
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures................. If you wish to tender your notes and you cannot deliver your
notes, the Letter of Transmittal or any other required
documents to the exchange agent before the expiration date,
you may tender your 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 before 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, we will accept for exchange
any and all outstanding notes which are properly tendered in
the Exchange Offer before 5:00 p.m., New York City time, on
the expiration date. The exchange notes 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 outstanding notes for exchange notes will
not be a taxable event for federal income tax purposes. You
will not
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11
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<S> <C>
recognize any taxable gain or loss as a result of exchanging
outstanding notes for exchange notes, and you will have the
same tax basis and holding period in the exchange notes as
you had in the outstanding notes immediately before the
exchange. 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 about
the Exchange Offer, call the exchange agent at telephone
number: (860) 244-1846 or facsimile number: (860) 244-1881.
SUMMARY OF TERMS OF EXCHANGE NOTES
Securities Offered........... $50.0 million aggregate principal amount of 11 1/4% Senior
Secured Notes due 2005, Series B.
Issuer....................... The Doe Run Resources Corporation.
Guarantors................... Fabricated Products, Inc., DR Land Holdings, LLC, Doe Run
Cayman Ltd., Doe Run Mining S.R.L., Doe Run Peru S.R.L., Doe
Run Air S.A.C., Doe Run Development S.A.C. and Empresa
Minera Cobriza S.A.
Maturity Date................ March 15, 2005.
Interest Payment Dates....... March 15 and September 15, commencing March 15, 1999.
Security..................... The exchange notes are secured by a first priority lien on
the property, plant and equipment of ASARCO Incorporated's
Missouri Lead Division that we acquired on September 1,
1998.
Ranking...................... The exchange notes will be senior secured obligations of The
Doe Run Resources Corporation and will rank:
- effectively senior in right of payment to all of our
existing and future senior unsecured indebtedness to the
extent of the assets securing the exchange notes; and
- equally with our existing and future senior unsecured
indebtedness to the extent the assets securing the
exchange notes are insufficient to discharge the
exchange notes.
- senior in right of payment to all of our and our
subsidiaries' existing and future senior subordinated
and subordinated indebtedness.
The guarantees will be general senior obligations of the
guarantors and will rank:
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12
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- equally in right of payment to all of their existing
and future senior unsecured indebtedness, including the
guarantees of the March 1998 Notes; and
- senior in right of payment to all of their existing
and future subordinated indebtedness, subject, in the
case of the guarantees of our Peruvian subsidiaries,
to preferred exceptions and mandated priorities of
payment obligations based on the date of issuance
under applicable Peruvian law.
The indebtedness under our revolving credit facility is
secured by substantially all of our current assets, and the
indebtedness under Doe Run Peru's revolving credit facility
is secured by substantially all of its current assets.
Holders of such secured indebtedness, and any other secured
indebtedness of us and the guarantors, will have claims that
effectively rank prior to yours as a holder of exchange
notes with respect to the assets securing such indebtedness.
In addition, Doe Run Peru's guarantee is contractually
subordinated to the indebtedness of Doe Run Peru under the
its revolving credit facility. As of October 31, 1998, on a
consolidated basis, we had approximately $358.5 million of
indebtedness outstanding (excluding the original issue
discount of $5.2 million recorded on the outstanding notes,
the back-to-back loan of $125.0 million and aggregate unused
commitments of $78.1 million under both revolving credit
facilities), and none of our indebtedness was subordinated
to the outstanding notes or the March 1998 Notes.
Optional Redemption.......... The exchange notes will be redeemable, in whole or in part,
at our option, on or after March 15, 2002 at the redemption
prices set forth under "Description of the Notes," plus
accrued and unpaid interest to the date of redemption. In
addition, at any time on or prior to March 15, 2001, notes
having a principal amount of up to $17.5 million may be
redeemed with the proceeds of one or more offerings of our
capital stock (other than to any subsidiary), at a price
equal to 111.25% of their principal amount, plus accrued
interest to the date of redemption; PROVIDED that at least
$32.5 million principal amount of notes remains outstanding.
See "Description of the Notes--Optional Redemption."
Change of Control............ Upon a change of control of The Doe Run Resources
Corporation, DR Acquisition Corp. or The Renco Group, Inc.,
we are required to offer to purchase your exchange notes at
a price equal to 101% of their principal amount, plus
accrued and unpaid interest to the date of repurchase. See
"Description of the Notes--Certain Covenants--Change of
Control."
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Certain Covenants............ The indenture governing the exchange notes contains certain
covenants that restrict our subsidiaries' ability to:
- 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 us and other
subsidiaries;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of our assets
See "Description of the Notes--Certain Covenants."
Original Issue Discount...... The outstanding notes were issued with original issue
discount for Federal income tax purposes. See "Certain U.S.
Federal Income Tax Considerations."
</TABLE>
For additional information regarding the exchange notes, see "Description of
the Notes."
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. See "Use of
Proceeds." We have agreed to bear the expenses of the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer.
For a description of the use of proceeds of the offering of outstanding
notes, see "--Recent Transactions--Offering of Outstanding Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables set forth historical financial data of (i) The Doe Run
Resources Corporation and our subsidiaries for each of the three fiscal years
ended October 31, 1997, which have been derived from our audited consolidated
financial statements, and for the nine months ended July 31, 1997 and 1998 and
as of July 31, 1998, which are unaudited, (ii) Doe Run Peru's predecessors for
each of the two fiscal years ended December 31, 1996, which have been derived
from Doe Run Peru's predecessors' audited consolidated financial statements, and
for the period November 1, 1996 to October 23, 1997 (the date the acquisition of
Metaloroya was completed) and the nine months ended July 31, 1997, which are
unaudited, (iii) Doe Run Cayman Ltd. and its subsidiaries for the nine months
ended July 31, 1998, which are unaudited, and (iv) pro forma financial data of
The Doe Run Resources Corporation and our subsidiaries for the fiscal year ended
October 31, 1997 and as of and for the nine months ended July 31, 1998. The pro
forma statement of operations data and other data for the fiscal year ended
October 31, 1997 give effect to the acquisition of Metaloroya, the March 1998
financing, the acquisition of the assets of ASARCO Incorporated's Missouri Lead
Division (the "ASARCO MLD") and the offering of outstanding notes and for the
nine months ended July 31, 1998 give effect to the March 1998 financing, the
acquisition of the ASARCO MLD and the offering of outstanding notes as if they
had occurred on November 1, 1996. The pro forma balance sheet data give effect
to the acquisition of the ASARCO MLD and the offering of outstanding notes as if
they had occurred on July 31, 1998. It is important that you read the summary
historical and pro forma consolidated financial data presented below along 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 our and Doe Run Peru's predecessors'
audited financial statements and the notes thereto included elsewhere in this
Prospectus.
THE DOE RUN RESOURCES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
-------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
--------- --------- ---------------------- --------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ACTUAL PRO FORMA ACTUAL PRO FORMA
--------- ----------- --------- -----------
<CAPTION>
(DOLLARS AND TONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $ 225,143 $ 274,930 $ 280,467 $ 795,088 $ 206,411 $ 527,765 $ 581,805
Cost of sales................................ 180,398 215,489 234,351 666,119 170,145 439,691 485,756
Depletion, depreciation and amortization..... 12,486 13,654 14,718 27,957 10,959 17,012 22,094
Selling, general and administrative
expenses................................... 8,405 10,079 10,959 34,437 8,049 25,731 29,228
Exploration expense.......................... 1,926 2,912 2,705 2,705 2,262 2,764 2,764
--------- --------- --------- ----------- --------- --------- -----------
Operating income............................. 21,928 32,796 17,734 63,870 14,996 42,567 41,963
OTHER DATA:
EBITDA(a).................................... $ 34,282 $ 46,805 $ 32,415 $ 90,927 $ 25,904 $ 59,648 64,126
Capital expenditures......................... 5,377 10,534 13,476 7,432 17,032
OTHER OPERATING DATA:
Average LME lead price per pound(b).......... $ .28 $ .35 $ .29 $ .30 $ .25
Tons of primary lead metal sold.............. 218.0 228.9 245.1 182.0 261.1
Tons of secondary lead metal sold............ 27.9 39.7 44.1 26.3 36.9
Tons of secondary lead metal tolled.......... 52.4 51.7 60.9 44.8 40.9
Tons of zinc concentrates sold............... 55.5 68.3 69.7 51.4 51.2
Tons of copper concentrates sold............. 23.9 31.3 26.6 19.6 13.3
Tons of copper metal sold.................... -- -- 0.8 -- 54.1
Ounces of silver metal sold (in millions).... -- -- 0.1 -- 20.2
Tons of zinc metal sold...................... -- -- -- -- 58.1
Herculaneum primary smelter lead tons per
manshift(c)................................ 2.1 2.2 2.4 2.47 2.42
</TABLE>
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<CAPTION>
AS OF JULY 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash...................................................................................................... $ 12,389 $ 12,389
Working capital........................................................................................... 105,218 110,430
Property, plant and equipment, net........................................................................ 206,371 258,741
Total assets.............................................................................................. 586,351 646,539
Total debt (including current portion).................................................................... 399,662 456,054
Shareholders' equity...................................................................................... 18,535 18,535
</TABLE>
DOE RUN PERU'S PREDECESSOR AND DOE RUN CAYMAN
<TABLE>
<CAPTION>
DOE RUN PERU'S PREDECESSOR(D) DOE RUN
---------------------------------------------- CAYMAN(E)
PERIOD -----------
YEAR ENDED NOVEMBER 1, NINE MONTHS NINE MONTHS
DECEMBER 31, 1996 TO ENDED ENDED
-------------------- OCTOBER 23, JULY 31, JULY 31,
1995 1996 1997(F) 1997 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 $ 332,518 $ 349,444
Cost of sales........................................ 397,524 397,158 364,901 278,036 283,037
Depreciation and amortization........................ 4,729 5,353 5,623 4,254 5,010
Selling, general and administrative expenses......... 15,950 17,420 18,524 14,762 24,632
--------- --------- ----------- ----------- -----------
Operating income..................................... 32,726 36,866 40,265 35,466 36,765
OTHER DATA:
EBITDA(a)............................................ $ 35,657 $ 18,702 $ 45,025 $ 38,531 $ 42,417
Adjusted EBITDA(h)................................... 38,161 47,716 50,190 42,721
</TABLE>
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<S> <C> <C> <C> <C> <C>
OTHER OPERATING DATA:
Tons of lead metal sold.............................. 98.7 104.1 106.7 80.7 88.4
Tons of copper metal sold............................ 70.0 71.3 68.9 53.9 54.1
Ounces of silver metal sold (in millions)............ 19.6 21.2 20.4 15.1 20.2
Tons of zinc metal sold.............................. 74.3 77.6 71.0 55.0 60.3
Average LME copper price per pound................... $ 1.33 $ 1.04 $ 1.07 $ 1.10 $ .79
Average LBMA silver price per ounce(i)............... 5.20 5.10 4.79 4.80 5.78
Average LME zinc price per pound..................... .47 .47 .59 .56 .49
</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 that we realize generally is at a premium
over the average LME price.
(c) Primary smelter lead tons per manshift is computed by dividing the metal we
produce 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, one of our wholly-owned subsidiaries, 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 $346.9 million, $280.5 million and $12.6
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 nine
months ended July 31, 1997, $3.2 million relating to privatization costs and
$1.0 million relating to personnel reduction costs.
(i) "LBMA" means the London Bullion Market Association.
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RISK FACTORS
WE URGE YOU TO CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE
OTHER INFORMATION APPEARING IN THIS PROSPECTUS, BEFORE MAKING ANY INVESTMENT
DECISIONS.
SUBSTANTIAL INDEBTEDNESS
We have, and will continue to have, substantial indebtedness and debt
service requirements. As of October 31, 1998, on a consolidated basis, we had
$358.5 million of indebtedness outstanding (excluding the original issue
discount of $5.2 million on the outstanding notes, the $125.0 million
back-to-back loan and aggregate unused commitments of $78.1 million under the
revolving credit facilities). None of our indebtedness was subordinated to the
March 1998 Notes or the outstanding notes. In addition, the indentures governing
the exchange notes and the March 1998 Notes permit us to incur certain other
indebtedness. See "Description of the Notes--Certain Covenants--Limitation on
Indebtedness."
Our level of indebtedness will have several important effects on our future
operations, including the following:
- a significant portion of our cash flow from operations will be spent on
interest payments and will not be available for other purposes;
- our ability to borrow or dispose of assets is limited by the financial
covenants and other restrictions contained in the documents governing the
revolving credit facilities;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or
other purposes may be impaired.
Our ability to meet our debt service obligations and to reduce our total debt
depends upon our future performance, which is subject to general economic
conditions as well as financial, business and other factors affecting our
operations. Many of these factors are beyond our control. Moreover, if we cannot
meet financial covenants required by the terms of our indebtedness, we may be
subject to acceleration of amounts due. For the fiscal quarter ended January 31,
1998 we were not in compliance with the financial covenants under a term loan
and the revolving credit facility existing at that time, for which we obtained
waivers.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
Our ability to incur debt, pay dividends, make acquisitions, create liens,
make capital expenditures and make certain investments is restricted by the
terms and conditions of our revolving credit facilities and the indentures
governing the exchange notes and the March 1998 Notes. Events beyond our control
could impair our ability to comply with the various restrictions and covenants
to which we are subject. Breaching any of these covenants could result in a
default under our indebtedness, including the revolving credit facilities and
the indentures governing the exchange notes and the March 1998 Notes. In such
event, we may be unable to make any payments of principal or interest on the
exchange notes for a period of time depending on the actions of the lenders
under the revolving credit facilities. In addition, a default could prompt the
lenders under the revolving credit facilities to declare all amounts borrowed,
together with accrued and unpaid interest, to be immediately due and payable. If
we were unable to repay such amounts, the lenders under the revolving credit
facilities have the right to foreclose upon certain collateral. If our
indebtedness under the revolving credit facilities were to be accelerated, our
assets may not be sufficient to repay in full that indebtedness or any of our
other indebtedness, including the exchange notes.
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SECURITY
The exchange notes are secured by the property, plant and equipment of
ASARCO Incorporated's Missouri Lead Division that we acquired (as described
under "Description of the Notes--Security"), and are not secured by any other
plant, property or equipment or any inventory, accounts receivable or other
current assets, intangibles, or the capital stock or assets of our subsidiaries.
The exchange notes are also secured by a pledge of the membership interests of
DR Land Holdings, LLC, which holds as its sole assets a mineral lease and all
rights and proceeds associated with such lease
The fair value of the collateral as of August 31, 1998 was approximately
$55.7 million. The proceeds of the sale of any collateral following a
declaration of acceleration of the exchange notes may not be sufficient to
satisfy payment of the notes outstanding at that time. Any deficiency claim
would rank equally in right of payment with all of our other unsecured senior
indebtedness, including the March 1998 Notes. However, the ability of the
holders of the outstanding notes to realize upon the collateral may be subject
to certain bankruptcy law limitations if we declare bankruptcy. See "Description
of the Notes--Certain Bankruptcy Limitations."
The indenture governing the exchange notes permits the release of collateral
without substitution of collateral of equal value under certain circumstances.
See "Description of the Notes--Possession, Use and Release of Collateral."
DEPENDENCE ON CASH FLOW FROM PERUVIAN SUBSIDIARIES
We depend 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 our debt service requirements. We have entered into various
intercompany agreements with Doe Run Mining and Doe Run Peru which provide for
certain payments to us. See "Certain Transactions--Intercompany Transactions."
We believe that these intercompany agreements and the availability of dividends,
distributions, loans or advances from Doe Run Mining or Doe Run Peru will
provide sufficient funds, combined with our available resources, to adequately
service our debt service requirements. However, such amounts may not be
sufficient, and changes in Peruvian laws could 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 our
control, including inflation, speculative activities, global and regional demand
and production, political and economic conditions and production costs in major
producing regions. We cannot predict the aggregate effect of these factors, and
they could have a material adverse effect on our results of operations,
financial condition and liquidity.
If the market price for lead falls below our production costs and remains at
such level for a sustained period, we will experience losses and may need to
curtail or discontinue the development of a project or mining at one or more of
our properties. In fiscal 1992 and 1993, we experienced operating losses due in
part to unfavorable lead prices. As of December 31, 1998, the LME price for lead
was $.23 per pound, which was below the ten-year average price of $.28 per
pound. As a result of the recent lead price decreases, we incurred an operating
loss in our U.S. operations and such price decreases adversely affected our
EBITDA in fiscal 1998. We expect to reduce certain costs and achieve certain
operating efficiencies in fiscal 1999, and do not anticipate incurring an
operating loss in our U.S. operations for fiscal 1999. However, lead prices
could decrease further in the future to levels resulting in operating losses.
18
<PAGE>
With the acquisition of Cobriza, Doe Run Peru became an integrated copper
producer. As such, Doe Run Peru's results of operations and financial condition
are now more 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. Base metal prices,
treatment charges or penalties could decrease in the future to levels resulting
in operating losses for Doe Run Peru.
While we may periodically use hedging techniques to reduce a portion of our
exposure to the volatility of base metal prices, we may not be able to do so
effectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources-- Hedging
Activities."
GOVERNMENTAL REGULATION
Our domestic mining operations 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 of our
other domestic operations 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 our policy to comply with the directives and regulations of MSHA and OSHA.
In addition, we take actions we believe are required to provide for the safety
and health of our employees. MSHA and OSHA directives have had no material
adverse impact on our domestic results of operations or financial condition, and
we believe that our domestic operations are 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
our results of operations, financial condition and liquidity.
In connection with the acquisition of Metaloroya, Doe Run Peru, Doe Run
Mining and Doe Run Cayman entered into a series of stabilization agreements with
two Peruvian government agencies, the Ministry for Energy and Mines (the "MEM")
and the National Commission for Foreign Investments. Under these stabilization
agreements, the Peruvian government 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. However, the Peruvian
government could impose other conditions that may adversely affect Doe Run
Peru's business, financial condition or results of operations not covered by the
stabilization agreements. In addition, changes in Peruvian legal regimes could
adversely affect Doe Run Peru, Doe Run Mining or Doe Run Cayman after these
agreements expire.
ENVIRONMENTAL MATTERS AND CLAIMS
We are 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. We are a defendant in four lawsuits filed in
1995 claiming property damage and personal injury from alleged releases of lead
from the Herculaneum smelter. Plaintiffs in these lawsuits are also seeking
punitive damages. 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
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<PAGE>
available to companies within this industry. If we cannot fully fund the cost of
compliance or of remediating an environmental problem, we 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 our results of
operations, financial condition and liquidity. See "Business--The Company's
Domestic Operations--Environmental Matters."
Our Peruvian operations are 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 our Peruvian
operations is modified by certain agreements with the MEM. Given the developing
nature of environmental law and enforcement policies in Peru, however, the
Peruvian government could require compliance with additional environmental
requirements in the future that could adversely affect our Peruvian
subsidiaries' businesses, financial conditions or results of operations.
Further, the Peruvian government or other interested persons could seek changes
to the terms and conditions of any of the agreements made by Doe Run Peru or Doe
Run Mining with the MEM that may adversely affect our Peruvian subsidiaries'
businesses, financial conditions or results of operations. Doe Run Peru is also
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 nor 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 our Peruvian subsidiaries' businesses, financial conditions or
results of operations. Generally, 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 available to
companies within this industry. If our Peruvian subsidiaries are subject to
environmental liabilities, the payment of such liabilities would reduce their
available funds. If our Peruvian subsidiaries cannot fully fund the cost of
remediating an environmental problem, they could be required to suspend
operations or take interim compliance measures pending completion of the
required remedy. See "Business--The Company's Peruvian Operations--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 we
maintain insurance coverage consistent with industry practice, such insurance
could become economically unfeasible in the future.
In July 1992, workers at the Herculaneum smelter went on strike, lasting 29
months, resulting in metal output significantly lower than planned levels and
higher operating expenses due to increased security costs and outside services.
Although our work force is no longer significantly unionized, we could still
experience labor disputes in the future. At the newly acquired Glover smelter,
127 employees are members of local 7450 of the United Steelworkers of America
(the "USWA"). We have recognized the USWA to the extent required by law, and
have begun negotiating a collective bargaining agreement. Although we anticipate
that, if required, we will be able to reach an agreement with the USWA, we may
not be able to reach such an agreement.
In addition, other factors could lead to decreased productivity. In July and
August 1993, for example, production at the Herculaneum smelter was curtailed
significantly due to flooding of the
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Mississippi River. Future flooding or other adverse conditions beyond our
control could adversely affect our operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The business of smelting and refining complex concentrates 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 our Peruvian subsidiaries maintain insurance coverage
consistent with industry practice, such insurance could become economically
unfeasible in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
FACTORS RELATING TO OUR DOMESTIC OPERATIONS
DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS
We rely heavily on a small number of customers who purchase a significant
portion of our lead to produce lead-acid batteries. Johnson Controls, Inc.
purchased lead and tolling services representing approximately 10% of our fiscal
1998 net sales. The loss of any of our largest customers or curtailment of
purchases by such customers could have a material adverse effect on our results
of operations, financial condition and liquidity.
DEPENDENCE ON LEAD-ACID BATTERY USE
We sell a significant portion of our lead production for use in lead-acid
batteries. Lead-acid battery producers or their suppliers accounted for
approximately 63% of our fiscal 1998 net sales. The obsolescence of, or any
curtailment in the use of, lead-acid batteries could have a material adverse
effect on our results of operations, financial condition and liquidity.
RESERVES
The ore reserve figures presented in this Prospectus are, in large part,
estimates made by our technical personnel. The indicated level of recovery of
these metals may not 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 our results of operations in any particular accounting period.
We assume certain metal prices for our 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--The Company's Domestic Operations--Reserves."
EXPLORATION AND DEVELOPMENT
We compete to acquire properties producing or capable of producing lead and
other minerals, conduct exploration activities and engage in development
projects. Competition for property, especially from companies with greater
financial resources, may preclude us from acquiring attractive mining properties
on acceptable terms. Mineral exploration is highly speculative in nature,
involves many risks and frequently is nonproductive. Our mineral exploration
efforts may not 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.
Our ability to increase production longevity depends on the successful
development of new ore bodies and/or expansion of existing mining operations.
Actual cash operating costs and economic returns of any and all development
projects may materially differ from the estimated costs and returns.
Accordingly, our programs
21
<PAGE>
may not yield new reserves to expand and replace existing reserves that are
being depleted by current production.
FACTORS RELATING TO PERUVIAN OPERATIONS
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--The Company's
Peruvian Operations--Environmental Matters") and the subscription agreement with
Centromin. Doe Run Peru has developed a ten-year capital investment program of
approximately $300.0 million. The capital investment program is designed to
improve its operations, comply with environmental requirements and fulfill an
investment commitment with Centromin. Under the subscription agreement with
Centromin, Doe Run Peru has until October 2002 to fulfill a commitment to invest
$120.0 million to expand and modernize its operations. The maximum penalty that
may be assessed for failing to comply with this investment commitment is 30% of
the unfulfilled commitment. Overall, Doe Run Peru expects to invest
approximately $195.0 million over ten years in order to comply with
environmental requirements, some of which will satisfy Doe Run Peru's commitment
to Centromin.
Although management expects that cash from existing and future operations,
borrowings under Doe Run Peru's revolving credit facility and anticipated future
borrowings will cover the costs of its capital investment program, Doe Run Peru
may need to seek additional funds to complete its expansion and modernization
program. If Doe Run Peru incurs borrowings under its revolving credit facility,
its increased leverage could have an adverse effect on its liquidity. If Doe Run
Peru needs additional funds, it may not be able to obtain the required funds on
terms and conditions it finds acceptable. If Doe Run Peru cannot obtain
acceptable financing, it may have to delay completion of its expansion and
modernization program until it can obtain additional financing or generate
sufficient funds internally. Such delay could have a material adverse effect on
the business, financial condition or results of operations of Doe Run Peru.
AVAILABILITY OF CONCENTRATES
Doe Run Peru purchases only a portion of its concentrates feedstock
requirements from affiliated mining operations. In fiscal 1999, Doe Run Peru
will obtain approximately 65% of its copper concentrates from the Peruvian
domestic market, approximately 35% of which will be sourced from the Cobriza
mine. All of Doe Run Peru's lead and zinc concentrates are sourced from the
Peruvian domestic market. Currently, we have contracted for approximately
80%-90% of our concentrate requirements for fiscal 1999 through the acquisition
of Cobriza and contracts with suppliers. The terms of the new contracts Doe Run
Peru is entering into are predominantly for two to three years. Doe Run Peru may
find that it can only renew these contracts on less favorable terms or not at
all. If mines which supply concentrates close due to exhaustion of reserves, low
metals prices or otherwise, or if Doe Run Peru is not able to obtain
concentrates on favorable terms, this difficulty in obtaining concentrates could
have a material adverse effect on its business, financial condition or results
of operations.
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 fulfills 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. to supply
electricity on satisfactory terms, though at costs higher than those
22
<PAGE>
paid by Doe Run Peru's predecessor. The availability of raw materials is subject
to natural disasters and 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 that present
labor relations are generally good, in the past, work stoppages and strikes have
interrupted operations. A work stoppage or strike could occur prior to the
expiration of the current labor agreements or during negotiations for new labor
agreements (including extensions of the existing labor agreements). We cannot
predict the effect of any work stoppage or strike on Doe Run Peru's production
levels. Such work stoppages or other labor-related developments could have a
material adverse effect on the business, financial condition or results of
operations of Doe Run Peru. See "Business--The Company's Peruvian
Operations--Employees" and "--Benefit Plans."
ENFORCEABILITY OF JUDGMENTS UNDER PERUVIAN LAW
Substantially all of the assets of Doe Run Peru and Doe Run Mining are
located in Peru. In the event that the holders of the 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 will be recognized and enforced by
Peruvian courts if a treaty between the country where such foreign court sits
and Peru, regarding the recognition and enforcement of foreign judgments, is in
effect. Without such treaty, as is the case between the United States and Peru,
Peruvian courts will treat the foreign judgment with the same force as that
given by the country where such foreign court sits to 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 exclusive jurisdiction of
Peruvian courts applies (for example, 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.
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<PAGE>
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, 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, current and/or future administrations may not be able to sustain such
progress. While the Peruvian economy has experienced strong growth in recent
years, such growth may not continue at similar rates in the future. Our Peruvian
subsidiaries' financial conditions 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, the government strictly controlled
currency exchange rates. The government required all export sales revenues 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. Currently, companies
operating in Peru are not restricted from transferring foreign currency from
Peru to other countries or converting 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. The
Peruvian government could discontinue its current policy of permitting
unrestricted currency transfers and conversions. Our Peruvian subsidiaries could
become unable to service their debt obligations in a timely manner if the
Peruvian government reinstituted exchange controls. Notwithstanding the
foregoing, certain of the stabilization agreements relate to free access to
foreign exchange. However, changes in the Peruvian legal regimes could adversely
effect Doe Run Peru, Doe Run Mining or Doe Run 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
the Peruvian government, an estimated 25,000 deaths and an estimated $25 billion
in damage to property and the economy have been caused by terrorist activity in
Peru during the past 16 years.
There has been substantial progress in suppressing terrorist activity since
1990. Terrorist leaders and approximately 2,000 members of the two principal
terrorist groups have been arrested. Approximately 6,000 additional persons have
agreed to cooperate with the government under an amnesty law. Notwithstanding
the success achieved, some terrorist activity continues to occur, including the
recently resolved hostage incident at the residence of the ambassador of Japan
to Peru. Although our Peruvian subsidiaries have implemented certain
anti-terrorist practices, future terrorist activity could have a
24
<PAGE>
material adverse effect on the businesses, financial conditions or results of
operations of our Peruvian subsidiaries.
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,
inflation could 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. Because a portion of the operating costs of our Peruvian
subsidiaries are denominated in nuevos soles, fluctuations in the rate of
inflation in Peru could significantly affect such operating costs. If inflation
in Peru were to increase significantly without a corresponding devaluation of
the nuevo sol, the financial condition and results of operations of our Peruvian
subsidiaries could be materially and adversely affected.
CONTROL BY RENCO
The Doe Run Resources Corporation 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, Mr. Rennert is, and will
continue to be, able to direct and control our policies, including mergers,
sales of assets and similar transactions.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The outstanding notes were issued at a substantial discount from their
principal amount. Consequently, the holders of exchange notes generally will be
required to include amounts in gross income for federal income tax purposes in
advance of receipt of any cash payment on the exchange notes to which the income
is attributable. See "Certain U.S. Federal Income Tax Considerations" for a more
detailed discussion of the federal income tax consequences to the holders of the
exchange notes of the ownership and disposition of exchange notes.
If we commence a bankruptcy case, or one is commenced against us, under the
United States Bankruptcy Code, the claim of a holder of exchange notes with
respect to the principal amount thereof will likely be limited to an amount
equal to the accreted value as of the commencement of such case and not the
principal amount thereof.
ABSENCE OF A PUBLIC MARKET
The exchange notes will be new securities for which there is currently no
public market. We do not intend to list the exchange notes on any national
securities exchange or quotation system. Jefferies & Company, Inc., the initial
purchaser in the offering of outstanding notes, have advised us 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, no market may develop for the exchange notes, and if a market
does develop, it may have limited or no liquidity. As outstanding notes are
tendered and accepted in the Exchange Offer, the aggregate principal amount of
outstanding notes will decrease, which will decrease their liquidity.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your notes for exchange notes, you will continue to
be subject to the restrictions on transfer of your notes set forth in their
legend because the outstanding notes were
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issued pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. In general, outstanding 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. We currently do not
anticipate registering the outstanding notes under the Securities Act.
USE OF PROCEEDS
We will not receive any proceeds from the Exchange Offer. In consideration
for issuing the exchange notes, we will receive in exchange outstanding notes of
like principal amount, the terms of which are identical in all material respects
to the exchange notes. The outstanding 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 our
indebtedness. We have agreed to bear the expenses of the Exchange Offer. No
underwriter is being used in connection with the Exchange Offer.
For a description of the use of proceeds of the offering of outstanding
notes, see "Prospectus Summary--Recent Transactions--Offering of Outstanding
Notes."
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CAPITALIZATION
The following table sets forth the consolidated capitalization of The Doe
Run Resources Corporation and our subsidiaries as of July 31, 1998 on an actual
basis and as adjusted for the acquisition of ASARCO Incorporated's Missouri Lead
Division, the offering of outstanding notes and borrowings under our revolving
credit facility. It is important that you read the table below along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1998
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Long-term debt (including current portion):
Revolving credit facility(a)....................................... $ 6,767 $ 18,446
Peruvian revolving credit facility(b).............................. 12,000 12,000
11 1/4% Senior Notes due 2005, Series B............................ 200,000 200,000
Floating Interest Rate Senior Notes due 2003, Series B............. 55,000 55,000
11 1/4% Senior Secured Notes due 2005, Series A(c)................. -- 44,713
Back-to-back loan(d)............................................... 125,000 125,000
Industrial revenue bonds........................................... 895 895
--------- -----------
Total long-term debt................................................. $ 399,662 $ 456,054
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.................................................. 13,535 13,535
--------- -----------
Total shareholders' equity........................................... 18,535 18,535
--------- -----------
Total capitalization................................................. $ 418,197 $ 474,589
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(a) Represents our $100.0 million revolving credit facility which will expire in
March 2001. See "Description of Revolving Credit Facilities--Doe Run
Revolving Credit Facility."
(b) Represents Doe Run Peru's $40.0 million revolving credit facility. See
"Description of Revolving Credit Facilities--Doe Run Peru Revolving Credit
Facility."
(c) Represents $50.0 million face amount of the outstanding notes less an
original issue discount of approximately $5.3 million.
(d) Represents a $125.0 million loan to Doe Run Mining from proceeds of the
March 1998 financing that we deposited in a bank. See "Prospectus
Summary--Recent Transactions--March 1998 Financing."
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data has been
prepared to give effect to:
- the acquisition of Metaloroya;
- the offering of the March 1998 Notes and the application of the proceeds
from that offering (see "Prospectus Summary--Recent Transactions--March
1998 Financing") (the "March 1998 Financing");
- the acquisition of the ASARCO MLD from ASARCO Incorporated ("ASARCO"); and
- the offering of outstanding notes.
The unaudited pro forma balance sheet gives effect to the acquisition of the
ASARCO MLD and the offering of outstanding notes as if they had occurred on July
31, 1998. The unaudited pro forma consolidated statement of operations and other
data for the year ended October 31, 1997 give effect to the acquisition of
Metaloroya, the March 1998 Financing, the acquisition of the ASARCO MLD and the
offering of outstanding notes and for the nine months ended July 31, 1998 give
effect to the March 1998 Financing, the acquisition of the ASARCO MLD and the
offering of outstanding notes as if they had occurred on November 1, 1996.
The pro forma adjustments are based upon available information and certain
assumptions that we believe are reasonable under the circumstances. Pro forma
adjustments are applied to account for the acquisitions of Metaloroya and the
ASARCO MLD under the purchase method of accounting. Under the purchase method of
accounting, the total purchase price was allocated to Doe Run Peru's or the
ASARCO MLD's, as the case may be, assets and liabilities based on their relative
fair values. The purchase price for the ASARCO MLD was $54.4 million plus any
potential deferred payments. Whether any deferred payments have to be made
depends on the LME lead prices during the five years after the acquisition. We
will only be required to make a deferred payment in any year if the annual LME
spot lead price exceeds $.285 per pound. Our aggregate deferred payments will
not exceed $12.5 million.
The pro forma consolidated financial data has been prepared in accordance
with U.S. GAAP. It is important that you read the pro forma consolidated
financial data along with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our and our predecessor's audited
financial statements and those of the ASARCO MLD, and the related notes, and the
other financial information included elsewhere in this Prospectus. 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 of
Metaloroya, the March 1998 Financing, the acquisition of the ASARCO MLD and the
offering of outstanding notes been consummated on the dates indicated or which
may be expected to occur in the future.
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THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
ACQUISITION OF
THE ASARCO MLD
AND THE
OUTSTANDING
NOTES
HISTORICAL OFFERING(A) PRO FORMA
---------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................................. $ 12,389 $ -- $ 12,389
Trade accounts receivable, net of allowance for doubtful
accounts........................................................ 72,746 -- 72,746
Inventories....................................................... 109,172 6,057 115,229
Prepaid expenses and other current assets......................... 34,299 261 34,560
---------- ------- -------------
Total current assets............................................ 228,606 6,318 234,924
Property, plant and equipment, net.................................. 206,371 52,370 258,741
Special term deposit................................................ 125,000 -- 125,000
Net deferred tax assets............................................. 8,364 -- 8,364
Other noncurrent assets, net........................................ 18,010 1,500 19,510
---------- ------- -------------
Total assets.................................................... $ 586,351 $ 60,188 $ 646,539
---------- ------- -------------
---------- ------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt...... $ 12,895 $ -- $ 12,895
Accounts payable.................................................... 52,219 -- 52,219
Accrued liabilities................................................. 49,629 1,106 50,735
Net deferred tax liabilities........................................ 8,645 -- 8,645
---------- ------- -------------
Total current liabilities......................................... 123,388 1,106 124,494
Long-term debt, less current maturities............................... 386,767 56,392 443,159
Other noncurrent liabilities.......................................... 57,661 2,690 60,351
---------- ------- -------------
Total liabilities................................................. 567,816 60,188 628,004
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized, issued, and
outstanding....................................................... -- -- --
Additional paid in capital.......................................... 5,000 -- 5,000
Retained earnings................................................... 13,535 -- 13,535
---------- ------- -------------
Total shareholders' equity........................................ 18,535 -- 18,535
---------- ------- -------------
Total liabilities and shareholders' equity........................ $ 586,351 $ 60,188 $ 646,539
---------- ------- -------------
---------- ------- -------------
</TABLE>
29
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(a) Represents the purchase price allocation related to the acquisition of the
ASARCO MLD and the offering of outstanding notes.
30
<PAGE>
THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL FOR THE
----------------------- ACQUISITION OF
THE DOE RUN THE
RESOURCES ASARCO MLD
CORPORATION ADJUSTMENTS AND THE
AND ASARCO FOR THE OUTSTANDING NOTES
SUBSIDIARIES MLD(A) TRANSACTIONS OFFERING PRO FORMA
------------ --------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................. $ 527,765 $ 54,040 $ -- $ -- $ 581,805
Costs and expenses:
Cost of sales............................ 439,691 46,823 -- (758)(d) 485,756
Depletion, depreciation and
amortization........................... 17,012 6,569 -- (1,487)(e) 22,094
Selling, general and administrative
expenses............................... 25,731 3,497 -- -- 29,228
Exploration expense...................... 2,764 -- -- -- 2,764
------------ --------- ------------ ------- -----------
Total costs and expenses............... 485,198 56,889 -- (2,245) 539,842
------------ --------- ------------ ------- -----------
Income from operations................. 42,567 (2,849) -- 2,245 41,963
Other income (expense):
Interest expense......................... (27,037) -- (7,174)(b) (5,773)(f) (39,984)
Interest income.......................... 6,000 -- -- -- 6,000
Other, net............................... 69 -- -- -- 69
------------ --------- ------------ ------- -----------
(20,968) -- (7,174) (5,773) (33,915)
Income before income taxes and
extraordinary item................... 21,599 (2,849) (7,174) (3,528) 8,048
Income tax expense (benefit)............... 7,942 (241) (2,511)(c) (1,991)(c) 3,199
------------ --------- ------------ ------- -----------
Income (loss) before extraordinary
item................................. $ 13,657 $ (2,608) $ (4,663) $ (1,537) $ 4,849
------------ --------- ------------ ------- -----------
------------ --------- ------------ ------- -----------
Other data:
EBITDA(g).............................. $ 64,126
</TABLE>
------------------------
In addition to the pro forma adjustments directly attributable to the
acquisition of the ASARCO MLD set forth above, the effect of the elimination of
ASARCO corporate overhead allocations, which would have decreased selling,
general and administrative expenses by $2.9 million for the nine months ended
July 31, 1998, should be considered.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1998
(a) Represents the historical results of operations of the ASARCO MLD for the
period November 1, 1997 to July 31, 1998.
(b) 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 $21.8
million on the March 1998 Notes, interest on the back-to-back loan of $10.8
million and amortization of debt issuance costs totaling $1.6 million. The
pro forma consolidated statement of operations does not reflect interest
income on the special term deposit of $10.5 million.
(c) 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%.
(d) 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 our programs, into which substantially all of
the employees of the ASARCO MLD were enrolled as a condition of the
acquisition of the ASARCO MLD pursuant to the related asset purchase
agreement.
(e) Reflects the decrease in depreciation based upon allocating the effective
purchase price to the fair value of the assets to be purchased in the
acquisition of the ASARCO MLD.
(f) Reflects incremental interest at 11.25% on $50.0 million aggregate principal
amount of outstanding notes issued to finance the acquisition of the ASARCO
MLD of $4.2 million, incremental interest on loans of $11.0 million under
our revolving credit facility of $.8 million, amortization of original issue
discount on the outstanding notes of $.6 million and amortization of related
financing costs of $.2 million.
(g) 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.
32
<PAGE>
THE DOE RUN RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
HISTORICAL FOR THE
--------------------------------------- ACQUISITION
THE DOE RUN OF THE
RESOURCES ADJUSTMENTS ADJUSTMENTS ASARCO MLD
CORPORATION DOE RUN FOR THE FOR THE AND THE
AND PERU'S ASARCO ACQUISITION OF MARCH 1998 OUTSTANDING
SUBSIDIARIES PREDECESSOR(A) MLD(B) METALOROYA FINANCING NOTES OFFERING PRO FORMA
----------- --------------- ------- -------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $280,467 $429,313 $85,308 $-- $ -- $-- $795,088
Costs and expenses:
Cost of sales............... 234,351 364,901 68,429 -- -- (1,562)(g) 666,119
Depletion, depreciation and
amortization.............. 14,718 5,623 8,209 1,119(c) -- (1,433)(h) 28,236
Selling, general and
administrative expenses... 10,959 18,524 4,954 -- -- -- 34,437
Exploration expense......... 2,705 -- -- -- -- -- 2,705
----------- --------------- ------- ------- ------------ -------------- ---------
Total costs and
expenses................ 262,733 389,048 81,592 1,119 -- (2,995) 731,218
----------- --------------- ------- ------- ------------ -------------- ---------
Income from operations.... 17,734 40,265 3,716 (1,119) -- 2,995 63,870
Other income (expense):
Interest expense............ (13,740) (1,211) -- -- (30,871)(e) (7,697)(i) (53,519)
Interest income............. 21 -- -- -- -- -- 21
Other, net.................. (37) (863) -- -- -- -- (900)
----------- --------------- ------- ------- ------------ -------------- ---------
(13,756) (2,074) -- -- (30,871) (7,697) (54,398)
Income before income taxes
and extraordinary
item.................... 3,978 38,191 3,716 (1,119) (30,871) (4,702) 9,193
Income tax expense
(benefit)................... 4,331 11,513 (168 ) 1,518(d) (10,805)(f) (177)(j) 6,212
----------- --------------- ------- ------- ------------ -------------- ---------
Income (loss) before
extraordinary item...... $ (353) $ 26,678 $3,884 $(2,637) $(20,066) $ (4,525) $ 2,981
----------- --------------- ------- ------- ------------ -------------- ---------
----------- --------------- ------- ------- ------------ -------------- ---------
EBITDA(k)................... $ 90,927
</TABLE>
------------------------
In addition to the pro forma adjustments directly attributable to the
acquisition of Metaloroya set forth above, the effect of the following on
historical results for the year ended October 31, 1997 should be considered: (i)
an increase in power costs associated with a market price contract negotiated in
conjunction with the acquisition of Metaloroya would have increased cost of
sales by $9.6 million, (ii) 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 such elimination would
have decreased selling, general and administrative expenses by $3.3 million and
(iii) 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 of Metaloroya occurred on November 1, 1996 would
have increased other, net by $3.3 million.
In addition to the pro forma adjustments directly attributable to the
acquisition of the ASARCO MLD set forth above, the effect of the elimination of
ASARCO corporate overhead allocations, which would have decreased selling,
general and administrative expenses by $4.1 million for the year ended October
31, 1997, should be considered.
33
<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 the historical results of operations of the ASARCO MLD for the
period from January 1, 1997 to December 31, 1997.
(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 of Metaloroya.
(d) Represents the income tax effects of the above adjustments at the U.S.
statutory rate, which reduced income tax expense by $.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.
(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 March 1998 Notes, interest on the back-to-back loan of $14.5
million, amortization of debt issuance costs totaling $2.1 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) Reflects the income tax effect of the pro forma adjustments at an assumed
statutory tax rate of 35%.
(g) 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 our programs, into which substantially all of
the employees of the ASARCO MLD were enrolled, as a condition of the
acquisition of the ASARCO MLD pursuant to the related asset purchase
agreement.
(h) Represents the decrease in depreciation based upon allocating the effective
purchase price to the fair value of the assets to be purchased in the
acquisition of the ASARCO MLD.
(i) Reflects incremental interest at 11.25% on $50.0 million aggregate principal
amount of outstanding notes issued to finance the acquisition of the ASARCO
MLD of $5.6 million, incremental interest on loans of $11.5 million under
our revolving credit facility of $1.0 million, amortization of original
issue discount on the outstanding notes of $.8 million and amortization of
related financing costs of $.3 million.
(j) Reflects the income tax effect of pro forma adjustments at, and adjusts the
ASARCO MLD tax provision to, an assumed statutory rate of 35%.
(k) 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.
34
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth historical financial data of (i) our
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 our predecessor's
unaudited consolidated financial statements, (ii) The Doe Run Resources
Corporation and our subsidiaries 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 our audited consolidated financial
statements, and for the nine months ended July 31, 1997 and as of and for the
nine months ended July 31, 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 the acquisition
of Metaloroya was completed), 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 nine months ended July 31, 1997,
which are unaudited, and (iv) Doe Run Cayman as of and for the nine months ended
July 31, 1998, which are unaudited. It is important that you read the selected
historical consolidated financial data presented below along with "Unaudited Pro
Forma Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our and Doe Run Peru's
predecessor's audited financial statements and the notes thereto included
elsewhere in this Prospectus.
THE DOE RUN RESOURCES CORPORATION AND SUBSIDIARIES AND PREDECESSOR
<TABLE>
<CAPTION>
PREDECESSOR(A) THE DOE RUN RESOURCES CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
FIVE SEVEN NINE MONTHS ENDED
YEAR MONTHS MONTHS
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, JULY 31,
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 $ 206,411 $ 527,765
Cost of sales....................... 140,107 65,511 102,582 180,398 215,489 234,351 170,145 439,691
Depletion, depreciation and
amortization...................... 22,515 8,808 6,251 12,486 13,654 14,718 10,959 17,012
Selling, general and administrative
expenses.......................... 8,243 3,295 4,360 8,405 10,079 10,959 8,049 25,731
Exploration expense................. 1,525 271 912 1,926 2,912 2,705 2,262 2,764
----------- ----------- ----------- --------- --------- --------- --------- ---------
Operating income (loss)............. (51,289) (7,217) 9,230 21,928 32,796 17,734 14,996 42,567
Interest expense.................... 206 65 8,375 14,361 14,348 13,740 (10,634) (27,037)
Interest income..................... 404 31 12 140 113 21 7 6,000
Other income (expense).............. 1,684 (652) 151 (132) 355 (37) (51) 69
----------- ----------- ----------- --------- --------- --------- --------- ---------
Income (loss) before income tax
expense and extraordinary item.... (49,407) (7,903) 1,018 7,575 18,916 3,978 4,318 21,599
Income tax expense.................. -- -- 2,523 3,252 6,451 4,331 4,241 7,942
----------- ----------- ----------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.............................. (49,407) (7,903) (1,505) 4,323 12,465 (353) 77 13,657
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) $ (237) $ 7,050
----------- ----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- ----------- --------- --------- --------- --------- ---------
FINANCIAL RATIOS AND OTHER DATA:
EBITDA(c)........................... $ (27,090) $ 939 $ 15,632 $ 34,282 $ 46,805 $ 32,415 $ 25,904 $ 59,648
Capital expenditures................ 9,487 2,146 1,599 5,377 10,534 13,476 7,432 17,032
Ratio of earnings to fixed
charges(d)........................ -- -- 1.13x 1.56x 2.28x 1.22x 1.34x 1.97x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR(A) THE DOE RUN RESOURCES CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
FIVE SEVEN NINE MONTHS ENDED
YEAR MONTHS MONTHS
ENDED ENDED ENDED YEAR ENDED OCTOBER 31, JULY 31,
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 $ .30 $ .25
Tons of primary lead metal sold...... 169.2 92.4 134.5 218.0 228.9 245.1 182.0 261.1
Tons of secondary lead metal sold.... 39.1 18.9 22.1 27.9 39.7 44.1 26.3 36.9
Tons of secondary lead metal
tolled............................. 26.4 15.1 23.3 52.4 51.7 60.9 44.8 40.9
Tons of zinc concentrates sold....... 35.9 20.1 23.3 55.5 68.3 69.7 51.7 51.2
Tons of copper concentrates sold..... 17.5 11.9 15.5 23.9 31.3 26.6 19.6 13.3
Tons of copper metal sold............ -- -- -- -- -- 0.8 -- 54.1
Ounces of silver metal sold (in
millions).......................... -- -- -- -- -- 0.1 -- 20.2
Tons of zinc metal sold.............. -- -- -- -- -- -- -- 58.1
Herculaneum primary smelter lead tons
per manshift(f).................... 2.0 2.0 2.0 2.1 2.2 2.4 2.47 2.42
</TABLE>
<TABLE>
<CAPTION>
THE DOE RUN RESOURCES CORPORATION
PREDECESSOR(A) AND SUBSIDIARIES
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
AS OF AS OF OCTOBER 31, AS OF
OCTOBER 31, ------------------------------------------ JULY 31,
1993 1994 1995 1996 1997 1998
------------- --------- --------- --------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ -- -- -- -- $ 8,943 $ 12,389
Working capital..................................... $ 51,057 $ 35,373 $ 32,571 $ 33,989 76,951 105,218
Property, plant and equipment, net.................. 131,926 109,700 102,606 104,162 206,348 206,371
Total assets........................................ 212,993 197,563 195,246 203,914 380,841 586,351
Total debt (including current portion).............. 4,952 98,834 90,645 82,791 234,740 399,662
Shareholders' equity................................ 122,536 5,995 10,318 20,830 14,174 18,535
</TABLE>
36
<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 NINE MONTHS NINE MONTHS
------------------------------- OCTOBER 23, OCTOBER 23, ENDED JULY ENDED JULY
1994 1995 1996 1997 1997(I) 31, 1997 31, 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 $ 332,518 $ 349,444
Cost of sales............ 339,302 397,524 397,158 305,959 364,901 278,036 283,037
Depreciation and
amortization........... 4,448 4,729 5,353 4,730 5,623 4,254 5,010
Selling, general and
administrative
expenses............... 11,097 15,950 17,420 13,805 18,524 14,762 24,632
--------- --------- --------- ----------- ----------- ----------- -----------
Operating income......... 12,210 32,726 36,866 28,311 40,265 35,466 36,765
Interest expense......... 6,784 2,100 3,332 832 1,211 (866) (10,104)
Interest income.......... -- -- -- -- -- -- 559
Other income (expense)... (402) (1,798) (23,517) (1,217) (863) (1,189) 642
--------- --------- --------- ----------- ----------- ----------- -----------
Income before income tax
expense and
extraordinary item..... 5,024 28,828 10,017 26,262 38,191 33,411 27,862
Income tax expense....... 2,803 10,332 4,128 7,879 11,513 10,078 8,031
Income before
extraordinary item..... 2,221 18,496 5,889 18,383 26,678 23,333 19,831
Extraordinary item net of
income tax benefit..... -- -- -- -- -- -- (2,369)
--------- --------- --------- ----------- ----------- ----------- -----------
Net income............... $ 2,221 $ 18,496 $ 5,889 $ 18,383 $ 26,678 $ 23,333 $ 17,462
--------- --------- --------- ----------- ----------- ----------- -----------
--------- --------- --------- ----------- ----------- ----------- -----------
OTHER DATA:
EBITDA(c)................ $ 16,256 $ 35,657 $ 18,702 $ 31,824 $ 45,025 $ 38,531 $ 42,417
Adjusted EBITDA(k)....... 16,256 38,161 47,716 36,514 50,190 42,721
OTHER OPERATING DATA:
Tons of lead metal
sold................... 95.1 98.7 104.1 87.1 106.7 80.7 88.4
Tons of copper metal
sold................... 65.6 70.0 71.3 56.7 68.9 53.9 54.1
Ounces of silver metal
sold (in millions)..... 18.5 19.6 21.2 17.3 20.4 15.1 20.2
Tons of zinc metal
sold................... 72.6 74.3 77.6 58.4 71.0 55.0 60.3
Average LME copper price
per pound.............. $ 1.05 $ 1.33 $ 1.04 $ 1.07 $ 1.07 $ 1.10 $ .79
Average LBMA silver price
per ounce.............. 5.28 5.20 5.10 4.77 4.79 4.80 5.78
Average LME zinc price
per pound.............. 0.45 0.47 0.47 0.61 0.59 0.56 0.49
</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, JULY 31,
1994 1995 1996 1997 1998
--------- --------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 61 $ 62 $ 582 $ 7,364 $ 12,389
Working capital.......................................... 6,081 54,208 44,319 7,713 54,797
Property, plant and equipment, net....................... 46,092 55,557 50,814 97,739 96,641
Total assets............................................. 146,482 188,474 148,314 170,969 236,375
Total debt (including current portion)................... 23,160 19,626 15,068 103,000 137,000
Net assets............................................... 51,481 107,667 78,575 1,729 19,191
</TABLE>
(FOOTNOTES COMMENCE ON FOLLOWING PAGE)
37
<PAGE>
(a) The Doe Run Resources Corporation 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 interest expense net of interest income plus
capitalized interest and the portion of rental expense representative of
interest expense, less amortization of deferred financing costs. Earnings
consist of income before income tax expense and extraordinary item plus
fixed charges less capitalized interest.
(e) The average lead price per pound that we realize generally is at a premium
over the average LME price.
(f) Primary smelter lead tons per manshift is computed by dividing the metal we
produce 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, one of our wholly-owned subsidiaries, 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 $346.9 million, $280.5 million and $12.6
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
nine months ended July 31, 1997, $3.2 million relating to privatization
costs and $1.0 million relating to personnel reduction costs.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Renco acquired The Doe Run Resources Corporation ("Doe Run" and together
with its subsidiaries, the "Company") on April 1, 1994. 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 subsidiaries, Doe Run Peru and
Doe Run Mining, 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 Peru
acquired Metaloroya from Centromin on October 23, 1997. The combined production
of Doe Run, Doe Run Peru and Doe Run Mining represent the largest primary lead
producer in the western world.
The following discussion and analysis of Doe Run and its Peruvian
subsidiaries should be read in conjunction with the historical and pro forma
financial statements of Doe Run and Doe Run Peru and the ASARCO MLD, 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
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approximately 250,000 tons presently. Increased production capacity enables Doe
Run to lower unit costs by better leveraging its fixed cost base.
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 December 31, 1998, the LME price for lead was $.23 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 during fiscal
1999 and over the long term will reach historical industry averages. During the
second quarter of fiscal 1998 the Company implemented plans to minimize the
impact of the decline in metal prices through cost reductions and productivity
and revenue enhancements. These plans included maintenance and other expense
reductions, increased lead ore grade at the Company's lead mines and increased
secondary smelter production. Despite significant reductions in costs and
enhancement of revenues as a result of these plans, as a result of the recent
lead price decreases, the Company incurred an operating loss in its U.S.
operations and such price decreases adversely affected its EBITDA in fiscal
1998.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED JULY 31, 1997
NET SALES for the nine months ended July 31, 1998 (the "1998 period") were
$527.8 million compared to $206.4 million for the nine months ended July 31,
1997 (the "1997 period"). Of this increase, $346.9 million is attributable to
the addition of Doe Run Peru. Doe Run's net sales for the 1998 period were $25.5
million less than the 1997 period primarily due to lower lead prices. Lead metal
net sales decreased 11.2% from $138.0 million in the 1997 period to $122.5
million in the 1998 period. Doe Run's net realized price was 11.9% lower in the
1998 period compared to the 1997 period due to an 18.0% decline in the average
LME prices for lead metal. The resulting $16.5 million net sales decrease was
partially offset by improved lead metal sales volume. Copper concentrate net
sales were lower by $4.3 million or 60.8% in the 1998 period compared to the
1997 period due to a 31.9% decrease in volume and a 42.3% decrease in net
realized price. The volume decrease is primarily due to lower production
resulting from the focus on lead production while the net realized price
decrease is the result of a 28.2% decrease in the LME average price of copper.
Sales by Seafab Metals Company ("Seafab"), the Company's lead oxide and
fabrication division acquired in August, 1996, by Fabricated Products, Inc.
("FPI"), were $4.6 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. A slowdown in oxide sales due to
lower battery demand also contributed to the reduction.
COST OF SALES for the 1998 period was $439.7 million compared to $170.1
million for the 1997 period. Of this increase, $280.5 million is attributable to
the addition of Doe Run Peru. Doe Run's cost of sales was $159.2 million for the
1998 period compared to $170.1 million for the 1997 period. Increased volume of
lead metal offset by lower zinc, copper and lead concentrate and toll volumes
accounted for $2.0 million of the cost decrease. The cost of purchased lead
concentrates and higher costs for purchased feed material and salaries and wages
were offset by reduced spending on purchased services, purchased lead metal and
materials and supplies, and the impact of a 4.2% increase in lead metal
production volume. As a result, the average cost per ton produced was 2.8% lower
in the 1998 period, compared to the 1997 period, reducing cost of sales by $5.6
million from the 1997 period.
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Lower volume at Seafab, primarily related to the relocation of the fabrication
plant, reduced cost of sales by $3.3 million.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 1998 period increased by
$6.1 million compared to the 1997 period. An increase of $5.0 million for the
1998 period is attributable to the addition of Doe Run Peru. 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 $17.7 million for
the 1998 period compared to the 1997 period. The addition of Doe Run Peru
accounts for $12.6 million of the increase. Increased domestic general and
administrative expenses associated with the operation of Doe Run Peru totaled
$3.4 million for the 1998 period. Other expenses, primarily salaries, wages and
benefits, long-term incentive compensation for executives and audit fees,
account for the remainder of the increase.
EXPLORATION EXPENSE for the 1998 period increased $.5 million or 22.2%
compared to the 1997 period. These increases were due to increased drilling
activities on potential properties located in Missouri and the Republic of South
Africa.
OPERATING INCOME for the 1998 period was $42.6 million compared to $15.0
million for the 1997 period. An increase of $48.8 million for the 1998 period is
attributable to the addition of Doe Run Peru. The remainder of the changes are
due to the factors discussed above.
INTEREST EXPENSE increased by $16.4 million in the 1998 period compared to
the prior year due to an increase of approximately $300 million in the Company's
average outstanding debt balance partially offset by lower average interest
rates. The increase in the Company's outstanding debt balance is primarily
associated with the acquisition of Metaloroya and operation of Doe Run Peru.
INTEREST INCOME increased $6.0 million in the 1998 period compared to the
1997 period, primarily due to interest income on the $125.0 million special term
deposit associated with the back-to-back loan.
INCOME TAX EXPENSE for the nine month period ended July 31, 1998 reflects an
effective rate of approximately 37%. Income tax expense for the nine month
period ended July 31, 1997 reflects the effect of a valuation allowance of U.S.
alternative minimum tax in excess of the Company's regular tax liability.
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 an
acquisition of assets from 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, through October 31, 1997 added $2.6 million. Other net
sales were lower by $.1 million accounting for the remainder of the change.
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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 Old 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 Lead Construction Company ("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 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.
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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. 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
NINE MONTHS ENDED JULY 31, 1998 COMPARED TO NINE MONTHS ENDED JULY 31, 1997
NET SALES for the 1998 period were $349.4 million compared to $332.5 million
for the 1997 period. The increase is due primarily to higher prices and volumes
for silver offset by lower copper prices. The production improvements previously
discussed increased silver sales volume by 5.2 million ounces or 34.2% in the
1998 period contributing $25.2 million to the net sales increase. The average
LBMA price for silver was 21.0% higher in the 1998 period, compared to the 1997
period. As a result, the net realized price for refined silver increased by $.93
per ounce, increasing net sales by $18.8 million. Net
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sales of refined copper were 29.2% or $34.9 million lower in the 1998 period due
to lower prices partially offset by increased volume. The net realized price for
refined copper was lower by 29.5%, which reduced net sales by $35.2 million.
Bullion lead net sales were higher by $7.2 million in the 1998 period compared
to the 1997 period due to a 234.3% increase in volume and a 32.6% increase in
net realized price. The volume increase is the result of the increased lead and
silver production while the price increase is a result of increased silver
content in the lead bullion due to increased silver in feed material. Refined
lead net sales were $4.4 million lower in the 1998 period compared to the 1997
period due to a 16.7% decrease in the net realized price offset by a 9.6%
increase in sales volume.
COST OF SALES increased 1.8% from $278.0 million in the 1997 period compared
to $283.0 million in the 1998 period. The 1998 period included higher power cost
resulting from the new electricity contract, a sales volume increase of
approximately 10.8% and $2.3 million of workers' profit sharing expense which
was classified as administrative expense in the 1997 period. These increases
were offset by the impact of improved metallurgical recoveries and a decrease in
feed cost due to lower average prices of copper, silver, gold and lead.
DEPRECIATION AND AMORTIZATION expense increased by $.7 million in the 1998
period compared to the 1997 period, primarily due to the change in asset basis
resulting from purchase accounting for the acquisition of Metaloroya.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased 14.9% from $14.8
million in the 1997 period to $12.6 million in the 1998 period. Of this
decrease, $1.3 million was due to the personnel reduction program undertaken by
Centromin, which was completed during the 1997 period and $2.9 million was due
to the reclassification of workers' profit sharing to cost of sales. Selling
expenses were $.7 million lower due to a decrease in sales commissions and other
commercial expenses, primarily salaries. These decreases were offset by
increases in audit and legal fees, salaries and other administrative costs.
INTERCOMPANY FEES for the 1998 period represent charges recorded pursuant to
various services and agency agreements between Doe Run and Doe Run Peru, which
are designed to reimburse Doe Run for the cost of selling and administrative
services provided to Doe Run Peru.
OPERATING INCOME increased $1.3 million in the 1998 period compared to the
1997 period due to the factors discussed above.
INTEREST EXPENSE increased $9.2 million in the 1998 period compared to the
1997 period, due primarily to the increases in the long-term debt associated
with the acquisition of Metaloroya.
OTHER, NET for the 1998 period increased by $1.8 million over the 1997
period due to the factors discussed above and to the elimination of expenses
related to the acquisition of Metaloroya.
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
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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.
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
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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.
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 its
revolving credit facility (the "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 October 31, 1998, $20.8 million was
outstanding, exclusive of $4.9 million of letters of credit, under the Doe Run
Revolving Credit Facility. See "Description of Revolving Credit Facilities--Doe
Run Revolving Credit Facility." Doe Run was not in compliance with the minimum
net worth and maximum leverage ratio covenants under agreements governing
certain indebtedness repaid in the March 1998 financing for the fiscal quarter
ended January 31, 1998, for which Doe Run received waivers.
Doe Run Peru's primary available source of liquidity is cash provided by
operating activities. Doe Run Peru also has available its revolving credit
facility ("the 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 October 31, 1998,
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$28.0 million was outstanding, exclusive of $8.2 million of letters of credit,
under the Doe Run Peru Revolving Credit Facility. See "Description of Revolving
Credit Facilities--Doe Run Peru Revolving Credit Facility."
The net unused availability under the Doe Run Revolving Credit Facility and
the Doe Run Peru Revolving Credit Facility was $34.8 million and $3.8 million,
respectively, as of October 31, 1998. Management believes that availability will
improve from these levels and will be adequate to support ongoing operations.
On September 1, 1998, Doe Run purchased the assets of the ASARCO MLD,
including a smelter and two mines. Net proceeds of $43.4 million from the
offering of outstanding notes plus net loans under the Doe Run Revolving Credit
Facility of $11.0 million financed the purchase price for such assets. Also in
September, the Company paid interest on the March 1998 Notes in the amount of
$15.1 million.
With respect to the Company, for the nine months ended July 31, 1998, the
$3.4 million net increase in cash was a result of $3.8 million used in operating
activities, $142.0 million used in investing activities (including the $125.0
million special term deposit discussed below) and $149.3 million provided by
financing activities. 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 a term loan to finance, in part, the
acquisition of Metaloroya. The net proceeds of that term loan were used to pay
$60.0 million to Doe Run's former parent corporation in full settlement of
acquisition indebtedness, to make the $23.0 million subordinated loan to Doe Run
Mining, 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.
As part of its financing activities, Doe Run issued the March 1998 Notes
with a face amount of $255.0 million. The net proceeds of the March 1998 Notes
offering were primarily used to pay $128.1 million plus accrued interest to
financial institutions in full settlement of a Doe Run term loan and to make the
$125.0 million special term deposit in a bank to collateralize the back-to-back
loan of the same amount by the bank to Doe Run Mining. Doe Run Mining used the
proceeds of the back-to-back loan to pay $100.0 million plus accrued interest to
financial institutions in full settlement of a term loan and to pay $23.0
million to Doe Run in full settlement of a subordinated note. Due Run used the
proceeds of the repayment of the subordinated note to pay $14.4 million plus
accrued interest to financial institutions in full settlement of its then
existing revolving credit facility, to pay Renco $5.0 million to redeem the
preferred stock for $2.5 million plus accrued dividends and a transaction fee,
and to pay related fees and expenses.
Doe Run had capital expenditures of approximately $16.8 million for fiscal
1998, primarily for maintenance of operations and operational 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 nine months ended July 31, 1998, the
$4.3 million net increase in cash was a result of $8.6 million used in operating
activities, $3.9 million used in investing activities and $16.9 million provided
by financing activities. 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.
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As part of the acquisition of Metaloroya, Doe Run Peru has undertaken over a
ten-year period a capital investment program of approximately $300.0 million, in
part to satisfy its investment commitment of $120.0 million as set forth in the
acquisition contract. Doe Run Peru had capital expenditures of approximately
$11.7 million for fiscal 1998, primarily for maintenance of operations and
operational and environmental improvements.
The Company has significant indebtedness outstanding. See "Risk
Factors--Substantial Indebtedness." As of October 31, 1998, on a consolidated
basis, the Company had $483.5 million of indebtedness outstanding, or $358.5
million (excluding the original issue discount of $5.2 million on the
outstanding notes, the $125.0 million back-to-back loan and aggregate unused
commitments of $78.1 million under the revolving credit facilities), of which
the Company incurred $50.0 million aggregate principal amount of Old Notes plus
additional loans of $11.5 million under the Doe Run Revolving Credit Facility to
finance the acquisition of the ASARCO MLD. Management believes that cash flow
from operations at Doe Run and Doe Run Peru, in addition to availability under
the revolving credit facilities, will be sufficient to provide for the Company's
liquidity needs for the foreseeable future.
The revolving credit facilities and the indentures governing the March 1998
Notes and the outstanding notes 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 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, $7.3 million and $4.8 million for the fiscal years
1995, 1996, 1997 and 1998, 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 $5.2 million and $10.1 million, respectively,
in fiscal 1999. See "Business--The Company's Domestic Operations--Environmental
Matters," "--The Company's Peruvian Operations--Environmental Matters" and
"ASARCO MLD Acquisition--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 and $12.7 million in fiscal years 1997 and
1998, respectively, and the Company estimates such expenditures will be $14.9
million in fiscal 1999.
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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--The Company's
Domestic Operations--Environmental Matters."
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. 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. The Company has conducted a comprehensive review of its
computerized information systems to identify the systems that could be affected
by the "year 2000 problem" and has implemented a plan to resolve the issues
identified. Currently, most of the major information systems of the Company have
been modified to be year 2000 compliant. The Company anticipates that the
appropriate modifications to all information systems will be completed by
mid-1999.
Process control and other systems are being evaluated individually and may
require replacement software, reprogramming and other corrective actions. The
Company has not completed an evaluation of the status of these systems, and is
unable at this time to estimate the required actions, if any, and related costs
of making these systems year 2000 compliant.
The Company's operations depend on the availability of utility services,
primarily electricity and transportation services. A substantial disruption in
any of these services due to providers of these services failing to achieve year
2000 compliance could have a material adverse effect on the Company's results of
operations, financial condition and liquidity. The Company intends to assess
possible modifications to mitigate the risk of disruption to its operations.
The cost of achieving year 2000 compliance is included in the Company's
operating and administrative expenses.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the sale of our 11 1/4% Senior Secured Notes due 2005,
Series A (the "Old Notes") to Jefferies & Company, Inc. (the "Initial
Purchaser") pursuant to the Purchase Agreement, dated August 26, 1998, among Doe
Run, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air S.A.C. and
Doe Run Development S.A.C. (collectively, the "Initial Guarantors" and together
with DR Land Holdings, LLC and Empresa Minera Cobriza S.A., the "Guarantors")
and the Initial Purchaser, the holders of the Old Notes became entitled to the
benefits of the Registration Rights Agreement, dated as of September 1, 1998
(the "Registration Rights Agreement"), among Doe Run, the Initial Guarantors and
the Initial Purchaser.
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 September 1, 1998, the date the Old Notes were issued (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 were approximately six beneficial
owners of such Old Notes as of October 6, 1998. 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 (as defined). Doe Run will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding Old
Notes 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 Securities and Exchange
Commission (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
the 11 1/4% Senior Secured Notes due 2005, Series B (the "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 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 the Company within the meaning of Rule 405
under the Securities Act) 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.
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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, as it may be amended or supplemented from time to time,
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.
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 State Street Bank and
Trust Company, as exchange agent (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
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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.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from September 15, 1998, payable
semiannually on March 15 and September 15 of each year, commencing March 15,
1999, at the rate of 11 1/4% per annum. 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 and unpaid 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
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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 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
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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, as it may be amended or supplemented from time to time,
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 September 1, 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 make 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
54
<PAGE>
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 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 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 January 29, 1999.
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.
"Exchange Offer Termination Date" means the date on which the earliest of
any of the following events occurs: (a) applicable interpretations of the staff
of the Commission do not permit Doe Run to effect the Exchange Offer, (b) any
holder of Notes notifies Doe Run that either (i) such holder is not eligible to
participate in the Exchange Offer or (ii) such holder participates in the
Exchange Offer and does not receive freely transferable Exchange Notes in
exchange for tendered Old Notes or (c) the Exchange Offer is not consummated
within 150 days after the Issue Date.
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
55
<PAGE>
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>
<CAPTION>
BY MAIL BY HAND/OVERNIGHT DELIVERY
<S> <C>
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.
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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
This summary is based on interpretations of the Internal Revenue Code of
1986, as amended, regulations issued thereunder, and rulings and decisions
currently in effect (or in some cases proposed)
56
<PAGE>
as of the date of this Prospectus, all of which are subject to change. Any such
change may be applied retroactively and may adversely affect the federal income
tax consequences described herein. This summary addresses only Holders that own
Exchange Notes as capital assets and not as part of a "straddle" or a
"conversion transaction" for federal income tax purposes, or as part of some
other integrated investment. This summary does not discuss all of the tax
consequences that may be relevant to particular investors or to investors
subject to special treatment under the federal income tax laws (such as life
insurance companies, retirement plans, regulated investment companies,
securities dealers, or investors whose functional currency is not the U.S.
dollar). No ruling from the Internal Revenue Service will be sought with respect
to the Exchange Notes, and the IRS could take a contrary view with respect to
the matters described below. Accordingly, U.S. Holders of Old Notes are urged to
consult their tax advisors with respect to the federal, state, local and foreign
tax consequences of the Exchange Offer.
The exchange of Old Notes for Exchange Notes in the Exchange Offer will not
be a taxable exchange for federal income tax purposes. A U.S. Holder will not
recognize any taxable gain or loss as a result of such exchange and will have
the same tax basis and holding period in the Exchange Notes as it had in the Old
Notes immediately before the exchange. See "Certain U.S. Federal Income Tax
Considerations."
57
<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
58
<PAGE>
cables. 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
59
<PAGE>
lead-acid batteries and 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 December 31, 1998 was $.23 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 December 31, 1998 was $.66 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
60
<PAGE>
consumer products and zinc-aluminum used in the production of pressure die cast
parts. From 1987 to 1997, western world zinc 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 December 31, 1998 was $.42 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).................... $ 5.10 $ 4.90
</TABLE>
The LBMA silver price as of December 31, 1998 was $5.01 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.
61
<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 Doe Run's
Peruvian subsidiary Doe Run Peru, Doe Run operates one of the largest
polymetallic processing facilities in the western world. Doe Run's facilities
offer an extensive product mix of non-ferrous and precious metals, including
copper, silver, zinc, lead and gold. The combined production of the Company's
U.S. and Peruvian operations 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 Peru's ongoing privatization
program. On August 31, 1998, Doe Run Mining, the Company's Peruvian holding
company subsidiary, acquired Cobriza, which operates a mine that supplies Doe
Run Peru with copper concentrates, from Centromin in another phase of Peru's
privatization efforts. On September 1, 1998, Doe Run purchased certain assets of
the ASARCO MLD, including a smelter and refinery and two mines.
For the year ended October 31, 1997, the Company's pro forma net sales were
$795.1 million, income before extraordinary item was $3.0 million and EBITDA was
$90.9 million. For the nine months ended July 31, 1998 the Company's pro forma
net sales were $581.8 million, income before extraordinary item was $4.8 million
and EBITDA was $64.1 million.
THE COMPANY'S DOMESTIC OPERATIONS
Doe Run's integrated operations permit it to participate in and manage the
entire lead life cycle:
- mining lead ore;
- producing refined lead metal;
- fabricating value-added lead products; and
- recycling lead-bearing materials, such as spent lead-acid batteries.
Doe Run believes its reputation for excellent service, product quality and
timely delivery are the key factors leading to its ability to consistently
obtain above-market prices for lead.
In fiscal 1997, Doe Run shipped approximately 350,000 tons of refined lead
metal and lead alloy products, including recycled lead. These shipments
represented approximately 18% of North American consumption and 6% of western
world consumption. For fiscal 1997 (excluding the results of Doe Run Peru for
the eight days immediately after Doe Run Peru acquired Metaloroya on October 23,
1997), Doe Run's net sales were $277.9 million, net loss was $1.1 million and
EBITDA was $31.9 million. For the nine months ended July 31, 1998 (excluding
intercompany transactions), Doe Run's net sales were $180.8 million, net loss
was $22.5 million and EBITDA was $5.2 million.
Refined lead product sales accounted for approximately 67% of net sales
($185.1 million) in fiscal 1997 and 80% of net sales ($144.6 million) for the
nine months ended July 31, 1998. Providing tolling services to major U.S.
lead-acid battery manufacturers, producing lead by-products, such as zinc and
copper concentrates, and fabricating value-added lead products, such as lead
sheet and bricks, comprise the balance of Doe Run's net sales. Net sales from
tolling services, by-products and fabricated products provide sources of revenue
largely independent of lead prices.
In 1997, the western world consumed an estimated 5.8 million tons of lead,
which represented an approximately $3.2 billion lead market. The production of
lead-acid batteries accounted for approximately 4.2 million tons, nearly 75% of
overall lead consumption. Approximately 75% of those 4.2 million tons produced
SLI batteries. Replacing car batteries accounts for approximately 77% of SLI
battery sales. Demand in the automotive battery replacement market tends to be
stable, depending primarily on the number of automobiles in service and battery
life.
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<PAGE>
The lead-acid battery remains the most cost competitive battery technology
for SLI batteries, and management believes that this trend will continue. In
addition, refined lead is used in products such as 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.
As the global economy grows and the number of vehicles in service increases,
the demand for lead-acid batteries also continues to grow. Between 1987 and
1997, the CAGR of lead consumption in the western world was 2.0%. As developing
economies continue to grow, management believes that batteries will become an
even larger portion of the lead market, particularly given the expected economic
growth in developing economies leading to increased vehicle population.
Approximately 45% of the lead consumed by the western world annually comes
from newly mined or "primary" ore. Secondary sources, principally the recycling
of spent lead-acid batteries and other lead-bearing materials, supply the
balance. Since 1990, secondary lead capacity has increased, whereas primary lead
capacity has remained relatively constant. Management believes that this trend,
due to heightened environmental awareness, will continue, and 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 December 31, 1998, the LME price for lead was $.23 per pound. Over the past
ten years, the average price of lead has been $.28 per pound. Management
believes that lead prices over the long term will reflect the historical
industry average. Due to the recent decreases in lead prices Doe Run incurred an
operating loss and such price decreases adversely affected its EBITDA in fiscal
1998. The Company expects to reduce certain costs and achieve certain operating
efficiencies during fiscal 1999, and does not anticipate incurring operating
losses during fiscal 1999. However, lead prices could decrease further in the
future to levels resulting in operating losses.
Doe Run conducts its domestic mining operations along approximately 40 miles
of the Viburnum Trend in Southeastern Missouri, one of the world's most
productive lead deposits. Prior to the acquisition of the assets of the ASARCO
MLD, Doe Run operated six production shafts, four processing mills, one primary
smelter and one secondary smelter. Doe Run now operates eight production shafts,
six processing mills, two primary smelters and one secondary smelter. As of
March 31, 1998, Doe Run's proven and probable reserves consisted of
approximately 64 million tons, containing approximately 3.5 million tons of
recoverable lead which should support approximately fourteen years of production
at current mining rates. During fiscal 1998, Doe Run mined in excess of 5.0
million tons of ore containing average grades of 5.52% lead, 1.10% zinc and
0.18% copper.
Doe Run's primary smelter in Herculaneum, Missouri is the largest in North
America and the second largest in the world. The smelter has an annual capacity
of approximately 250,000 tons of refined lead. Doe Run added annual primary
smelting capacity of 135,000 tons with the acquisition of a smelter in Glover,
Missouri from ASARCO on September 1, 1998. 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. Here, Doe
Run reclaims approximately 105,000 tons of refined lead per year. Tolling
arrangements with major U.S. battery manufacturers account for approximately 60%
of that refined lead.
THE COMPANY'S PERUVIAN OPERATIONS
The Company's Peruvian operations' unique combination of base metal
smelters, refineries and by-product circuits enable it to process complex
polymetallic concentrates and to recover base metals and by-products at
international quality standards. Doe Run Peru's La Oroya smelter is located in
central Peru, approximately 110 miles from Lima. This strategic location allows
Doe Run Peru to source concentrates advantageously from mines located throughout
the central Andes mountains, particularly in Peru. The Cobriza mine is located
approximately 330 miles from the La Oroya smelter. Moreover, Doe Run Peru's
proximity to Lima's Callao port provides ready access to major world markets.
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For the twelve months ended October 31, 1997 and the nine months ended July
31, 1998, Doe Run Peru shipped approximately 70,000 tons and 54,000 tons,
respectively, of refined copper, 107,000 tons and 88,000 tons, respectively, of
refined lead, 71,000 tons and 60,000 tons, respectively, of refined zinc, 20.5
million ounces and 20.2 million ounces, respectively, of refined silver and
42,000 ounces and 43,000 ounces, respectively, of gold bullion. In addition, Doe
Run Peru shipped various by-products including bismuth, indium, tellurium,
antimony, cadmium and copper blister. For the year ended October 31, 1997, Doe
Run Peru's net sales were $431.9 million, net income was $26.4 million and
EBITDA adjusted for certain non-recurring charges was $50.7 million. For the
nine months ended July 31, 1998 (excluding intercompany transactions), Doe Run
Peru's net sales were $346.9 million, net income was $29.5 million and EBITDA
was $54.5 million.
Refined copper, silver, zinc, lead and gold accounted for 35%, 23%, 19%, 15%
and 3%, respectively, of Doe Run Peru's net sales for the twelve months ended
October 31, 1997 and 24%, 33%, 17%, 13% and 4%, respectively, of Doe Run Peru's
net sales for the nine months ended July 31, 1998. The balance of Doe Run Peru's
net sales came 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.
The Company's Peruvian operations consist of smelting and refining complex
concentrates which Doe Run Peru purchases from the Cobriza mine as well as
unaffiliated mining operations. Doe Run Peru typically purchases concentrate
feedstock pursuant to annual contracts where the price is based on a percentage
of the payable base metal and precious metal content of the concentrates,
reduced by processing fees, treatment charges to refine the concentrates, and
penalties for impurities within the concentrates, such as arsenic, antimony and
bismuth, which Doe Run Peru must remove. Base metal prices, treatment charges
and penalties are generally established by reference to prevailing market
prices. Currently, Doe Run Peru has contracted for approximately 80%-90% of Doe
Run Peru's concentrate requirements for fiscal 1999 through the acquisition of
Cobriza and contracts with suppliers. For the nine months ended July 31, 1998,
approximately 38% of the La Oroya smelter's copper concentrate requirements were
met by Cobriza, representing 100% of Cobriza's output.
Because Doe Run Peru pays for the majority of the metal content of the
concentrates purchased, Doe Run Peru 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 above the price
Doe Run Peru paid for such metal. Moreover, because Doe Run Peru's metallurgical
recoveries are typically greater than the anticipated yield, Doe Run Peru is
able to sell the excess recoveries and increase its operating profit.
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
any single product or by-product. Moreover, since the La Oroya smelter is
primarily a processor of complex 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
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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.
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 of Metaloroya, approximately 74% and 81% of
the Company's net sales for the twelve months ended October 31, 1997 and the
nine months ended July 31, 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, predominantly with terms of two to three years,
that meet approximately 80%-90% of its concentrate requirements for fiscal 1999.
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 nine months
ended July 31, 1998, exports accounted for 78% and 72%, respectively, of Doe Run
Peru's shipments and more than 79% and 78%, 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
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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 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 $47.8 million of capital investments through October
31, 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
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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 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 Centromin
mines, private mines and Cobriza, as well as from other Latin American
suppliers. Currently, Doe Run Peru has contracted for approximately 80%-90% of
its concentrate requirements for fiscal 1999 through the acquisition of Cobriza
and contracts with suppliers. The acquisition of Cobriza will ensure a secure
source of copper concentrates to the La Oroya facility.
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 of Metaloroya 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 acquisition of the ASARCO MLD assets reflects the Company's strategy of
growing the core lead business. Furthermore, the proximity of the ASARCO MLD to
our existing operations offers opportunities to reduce combined operating costs.
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THE COMPANY'S DOMESTIC OPERATIONS
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 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>
NINE MONTHS
YEAR ENDED OCTOBER 31, ENDED
---------------------------------- JULY 31,
1995 1996 1997 1998
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Primary Lead................................................... $ 148,067 $ 165,932 $ 156,077 $ 100,535
Secondary Lead: Tolling........................................ 14,435 15,119 22,369 15,076
Metal Sales..................................... 19,156 29,782 29,039 22,010
Other........................................... 3,175 3,910 6,063 6,040
Fabricated Products............................................ 1,643 9,294 24,121 12,421
Zinc Concentrates.............................................. 17,694 22,363 24,772 17,738
Copper Concentrates............................................ 11,619 12,431 8,822 2,783
Other.......................................................... 9,354 16,099 6,633 4,216
---------- ---------- ---------- ------------
Total...................................................... $ 225,143 $ 274,930 $ 277,896 $ 180,819
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</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. The ASARCO MLD, acquired by Doe Run on September 1, 1998,
shipped approximately 127,000 tons of refined lead in 1997, which accounted for
approximately 92% of its sales in that period.
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
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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.
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.
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CUSTOMERS
Doe Run had approximately 159 lead metal customers in fiscal 1998, of which
the five largest accounted for approximately 42% 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 2% of Doe
Run's net sales in fiscal 1998.
Doe Run's customers include six of the seven largest lead-acid battery
manufacturers in the world which accounted for approximately 41% of Doe Run's
net sales in fiscal 1998, including Johnson Controls, Inc. which purchased lead
and tolling services representing approximately 10% of Doe Run's fiscal 1998 net
sales. No other single customer accounted for more than 10% of Doe Run's net
sales in fiscal 1998. 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 of Metaloroya, however, no single customer accounted
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, with operations in Europe,
as well as North America where it operates secondary operations under the name
of RSR Corporation. 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 Corporation 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 eight production shafts and six
processing mills. 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 1998, Doe Run's mining
operations produced in excess of 5.0 million tons of ore, containing average
grades of 5.52% lead, 1.10% zinc and 0.18% 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.
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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.
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
has 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.
Doe Run acquired the Glover primary smelter on September 1, 1998 from
ASARCO. The smelter is located approximately 90 miles southwest of St Louis. The
smelter commenced operations in 1968 and has been in continuous operation since
that time. The smelter has a capacity of approximately 135,000 tons and utilizes
a pyrometallurgical process to produce 99.99% refined lead.
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 1998, the facility reclaimed approximately 113,000 tons of refined
lead. Approximately 49% of this total results from tolling contracts, while 50%
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.
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MINING OPERATIONS
Doe Run's operations are centered around the ore-rich Viburnum Trend in
Southeastern Missouri.
[MAP OF MISSOURI WITH LOCATIONS OF OPERATIONS]
- ------------------------
+ Smelting operations
* Mining and milling operations
x Acquired September 1, 1998 from ASARCO
GEOLOGY
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.
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PRODUCTION SHAFTS
Doe Run's mining operations utilize eight 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, Missouri. The
Buick, Brushy Creek West Fork, Fletcher and Sweetwater production shafts are
eight miles, sixteen miles, 18 miles, 20 miles and 29 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 Buick
production shaft 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. The West Fork shaft was developed by ASARCO, Incorporated in
the 1980s. The Sweetwater shaft was developed in the late 1960s by Kennecott
Copper, Inc. until the property was closed in the early 1980s. It was idle until
ASARCO acquired it in 1986, when production resumed. Doe Run acquired the assets
of the West Fork and Sweetwater mining operations September 1, 1998.
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. Five of the production leases are private leases, and
11 are government leases. The mineral leases with private landowners have no
expiration periods. The government leases are for a period of either ten or 20
years and are renewable. The related mining operations are conducted pursuant to
four development contracts, which also are for ten or 20, as the case may be,
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. West Fork and Sweetwater are each producing under a
single lease, due to expire January 31, 2003 and June 30, 2000, respectively.
The government has not yet assigned development contracts to these leases. 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. An underground rail ore haulage system is employed at the
Sweetwater mine. 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.
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<PAGE>
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 accessing the eastern blanket ore body access, and in the
northern section of the mining area, following the main mineralization trend.
Doe Run has completed 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 1998, Doe Run spent
$5.3 million on exploration activities, including $4.1 million outside the
Viburnum Trend.
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
West Fork..................................................... Bunker, Missouri 475 79,700
Fletcher...................................................... Bunker, Missouri 162 88,000
Sweetwater.................................................... Ellington, Missouri 1,015 131,074
SMELTING:
Herculaneum--Primary.......................................... Herculaneum, Missouri 235 365,000
Glover--Primary............................................... Glover, Missouri 1,080 347,000
Buick--Secondary.............................................. Boss, Missouri 193 200,000
FABRICATING:
Seafab(a)..................................................... Casa Grande, Arizona (b) 75,000
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 six 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. The Fletcher mill is located at the site of the Fletcher
production shaft, and its
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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. The West Fork mill is located at the site of the West
Fork production shaft and its concentrator has a capacity of 4,000 tons per day.
The Sweetwater mill is located at the site of the Sweetwater production shaft
and has a capacity of 6,800 tons per day. At the Viburnum mill and Buick mill,
lead concentrates are placed in rail cars for transport to the Herculaneum
smelter. The Brushy Creek, West Fork, Fletcher and Sweetwater mills do not have
rail access. Lead concentrates from the Brushy Creek and Fletcher mills are
first trucked to a rail siding near the Buick mill for transport by rail. Lead
concentrates produced at the West Fork and Sweetwater mills are trucked to the
Glover smelter. 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.
Located in Glover, Missouri, approximately 20 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 adjacent mining operations, formerly a part
of the ASARCO MLD, 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.
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 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, containing grades of 8.50% lead, 1.72%
zinc and 0.40% copper, and 55.2 million probable tons, containing grades of
4.97% lead, 1.05% zinc and 0.24% copper. The term "reserve" means that part of a
mineral deposit which could be economically and legally extracted or produced at
the time of the reserve determination. The term "proven (measured) reserves"
means 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 (indicated)
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<PAGE>
reserves" means reserves for which quantity and grade and/or quality are
computed from information similar to that used for proven (measured) reserves,
but the sites for inspection, sampling, and measurement are farther apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven (measured) reserves, is high enough to assume continuity between
points of observation.
Proven and probable reserves, as stated above, are part of a mineral deposit
which could be economically and legally extracted or produced at the time of the
reserve determination.
The following tables sets forth the mineable reserves and mineral deposit as
of March 31, 1998 for Doe Run's Viburnum Trend ore body (inclusive of the Higdon
deposit, which is outside the Viburnum Trend) which have been audited by
Pincock, Allen & Holt, Lakewood, Colorado, an international mineral industry
consulting firm.
RESERVE AUDIT--MINEABLE RESERVES
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
GRADE+
---------------------------------
MINE TONS LEAD ZINC COPPER
- ----------------------------------------------------------- ----------- --------- --------- -----------
(IN
THOUSANDS)
<S> <C> <C> <C> <C>
PROVEN:
Viburnum-28................................................ 714 4.88% 0.22% 0.28%
Viburnum-29................................................ 1,411 6.11 0.79 0.37
Fletcher................................................... 1,806 9.18 0.87 0.09
Brushy Creek............................................... 717 5.37 1.41 0.46
Viburnum-35................................................ 893 4.85 0.33 1.71
Buick...................................................... 3,126 11.36 3.48 0.21
Magmont.................................................... 250 13.52 1.36 0.63
-----------
Total Proven............................................. 8,916 8.50 1.72 0.40
PROBABLE:
Viburnum-28................................................ 2,081 4.51 0.23 0.59
Viburnum-29................................................ 2,304 4.05 0.53 0.53
Fletcher................................................... 6,574 5.97 0.41 0.09
Brushy Creek............................................... 16,979 5.11 1.40 0.07
Viburnum-35................................................ 10,760 4.08 0.72 0.64
Buick...................................................... 13,241 5.02 1.23 0.08
Magmont.................................................... 762 9.22 0.93 0.37
Higdon..................................................... 4,374 4.97 1.61 0.26
Mined from November 1, 1997 to March 31, 1998.............. (1,925) 5.37 0.95 0.20
-----------
Total Probable........................................... 55,149 4.97 1.00 0.24
-----------
Total Proven and Probable.............................. 64,065 5.46 1.20 0.28
-----------
-----------
</TABLE>
- ------------------------
+ The estimated average extraction recovery after allowing for expected
dilution for lead, zinc and copper are 88.97%, 88.22% and 87.38%,
respectively. Estimated average metallurgical recoveries for lead, zinc and
copper are 95.70%, 81.40% and 57.50%, respectively. None of the above losses
have been computed in the above reserve table.
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<PAGE>
RESERVE AUDIT--MINERAL DEPOSIT
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
GRADE
---------------------------------
MINE TONS LEAD ZINC COPPER
- ----------------------------------------------------------- ----------- --------- --------- -----------
(IN
THOUSANDS)
<S> <C> <C> <C> <C>
Viburnum-28................................................ 8,621 3.30% 0.35% 0.26%
Viburnum-29................................................ 7,056 3.25 0.43 0.35
Fletcher................................................... 11,702 5.26 0.35 0.13
Brushy Creek............................................... 23,970 4.78 1.32 0.09
Viburnum-35................................................ 18,433 3.83 0.56 0.46
Buick...................................................... 17,305 4.90 1.17 0.09
Magmont.................................................... 794 9.57 0.93 0.39
Higdon..................................................... 6,592 4.33 1.34 0.28
Pillars.................................................... 29,412 5.87 1.12 0.27
Mined from November 1, 1997 to March 31, 1998.............. (1,925) 5.37 0.95 0.20
-----------
Total Mineral Deposit.................................... 121,960 4.76 0.93 0.23
-----------
-----------
</TABLE>
As of September 1, 1998, West Fork's and Sweetwater's ore reserves consisted
of approximately 14.6 million proven and probable tons, containing approximately
0.8 million tons of recoverable lead or approximately six years of production at
current mining rates. These ore reserve estimates have been derived from
preliminary evaluation by Doe Run 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 the methodology used in the previous tables.
The term "mineral deposit" or "mineralized material" means a mineralized
body which has been delineated by appropriately spaced drilling and/or
underground sampling to support a sufficient tonnage and average grade of
metal(s). Such a deposit does not qualify as a reserve, until a comprehensive
evaluation based upon unit cost, grade, recoveries, and other material factors
conclude legal and economic feasibility.
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<PAGE>
MINING AND MILLING
The following table sets forth production information for Doe Run's mining
and milling operations for the four years ended October 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------
1995 1996 1997 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Wet tons (in thousands) of ore milled........................................... 3,956 4,869 5,168 5,113
No. of operating days........................................................... 252 253 252 251
Average tons (in thousands) per operating day................................... 16 19 21 20
Average ore grade:
Lead.......................................................................... 5.7% 5.2% 5.2% 5.6%
Zinc.......................................................................... 1.1% 1.1% 1.0% 1.1%
Copper........................................................................ 0.3% 0.3% 0.3% .2%
Lead concentrate:
Tons (in thousands)........................................................... 267 303 314 334
Average Lead grade............................................................ 76% 77% 79% 79%
Tons (in thousands) of lead metal contained in concentrate.................... 204 234 247 263
Zinc concentrate:
Tons (in thousands)........................................................... 54 69 70 77
Average Zinc grade............................................................ 59% 59% 60% 59%
Tons (in thousands) of zinc metal contained in concentrate.................... 32 40 42 45
Copper concentrate:
Tons (in thousands)........................................................... 25 31 27 17
Average Copper grade.......................................................... 29% 28% 29% 29%
Tons (in thousands) of copper metal contained in concentrate.................. 7 9 8 5
</TABLE>
In addition, 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.
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 are
seeking to have certified two
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<PAGE>
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
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.
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 $2.9 million for fiscal 1999 and an additional $3.0
million during the three year compliance period.
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
("EE/CA") on the Bonne Terre Site. In March 1998, an AOC was signed to perform
on EE/CA on the National 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/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 two years. 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.
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<PAGE>
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 Mine
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 Company has received from the EPA a
request for information under CERCLA concerning a mine site in Iron County,
Missouri, identified as the Annapolis Mine Site. A predecessor of Doe Run owned
the site from 1952 to 1982, but did not conduct mining operations at the site.
At this time it is not known what, if any, actions may be taken at the site. The
site is substantially smaller than the sites in St. Francois County.
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,
EPA and the U.S. Forrest Service.
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's predecessor which
was sold to RSR Corporation ("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.
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<PAGE>
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 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, with the acquisition of the
assets of the ASARCO MLD, seven 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 July 31, 1998 of $26.9 million for CERCLA
response costs, corrective action and closure costs as discussed above, $16.6
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, $12.7 million in fiscal 1998, and estimates such expenditures will be
$14.9 million in fiscal 1999.
Pursuant to the Asset Purchase Agreement relating to the acquisition of the
ASARCO MLD, Doe Run has not assumed, and will be indemnified for, any
environmental liability or obligation arising out of the conduct, ownership, use
or operation by ASARCO of the ASARCO MLD assets acquired, except with respect to
certain matters specified below. Doe Run assumed 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 is to continue compliance with the operating conditions. Doe Run has
also assumed 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.
At the Glover smelter, compliance with sulphur dioxide emission limitations
is now achieved by use of an intermittent control strategy involving periodic
curtailment of operation of the sinter to achieve compliance. This imposes a
practical limitation of approximately 133,000 to 135,000 tons per year on
production. The EPA is considering adoption of a new control strategy for
sulphur dioxide emissions in the next few years which, if implemented, could
require adoption of control measures and/or additional limits on sinter
operation. Based on available information, the Company does not believe that
such a new control strategy would have a material adverse effect on operations
of the smelter.
ASARCO is currently a party to a Consent Decree with the Missouri Department
of Natural Resources requiring a site assessment investigation at the Glover
facility and, if necessary, appropriate corrective action with respect to soil
and/or ground water contamination. Under the Asset Purchase Agreement, ASARCO
has retained full responsibility for all actions related to this site assessment
investigation.
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.
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<PAGE>
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 July 31, 1998, Doe Run had 343 active salaried employees and 979
active hourly employees. Management believes that its labor relations are good.
Effective as of the closing of the acquisition of the ASARCO MLD, substantially
all of the ASARCO MLD employees were terminated from employment with the ASARCO
MLD and were offered employment under Doe Run's terms and conditions upon
successful completion of Doe Run's application process. As of September 1, 1998,
of the 434 employees hired, 127 were members of Local 7450 of the United
Steelworkers of America (the "USWA"). Doe Run has recognized the USWA to the
extent required by law, and has begun negotiating a collective bargaining
agreement. Although Doe Run anticipates that, if required, we will be able to
reach an agreement with the USWA, Doe Run may not be able to reach such an
agreement.
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 of 1986, as amended. 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."
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THE COMPANY'S PERUVIAN OPERATIONS
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, 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 NINE MONTHS
YEAR ENDED DECEMBER 31, OCTOBER 31, ENDED JULY 31,
---------------------------------- ---------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997 1998
---------- ---------- ---------- ---------- ---------- --------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Copper............................... $ 129,007 $ 186,905 $ 148,426 $ 155,641 $ 148,898 $ 84,649
Silver............................... 97,311 100,853 110,967 114,544 98,006 116,622
Zinc................................. 62,507 72,599 73,753 74,855 83,521 60,798
Lead................................. 45,259 58,999 76,353 74,648 65,385 46,008
Gold Bullion......................... 21,383 19,619 20,361 21,084 14,605 12,834
By-Products.......................... 11,590 11,954 26,937 19,869 21,469 28,533
---------- ---------- ---------- ---------- ---------- --------------
Total.......................... $ 367,057 $ 450,929 $ 456,797 $ 460,641 $ 431,884 $ 349,444
---------- ---------- ---------- ---------- ---------- --------------
---------- ---------- ---------- ---------- ---------- --------------
</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.
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. Metal sales within Peru are sold both on a
delivered and "free on board" basis from facilities
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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 a 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 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.
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 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 acquisitions of Metaloroya and Cobriza, Doe Run Peru and Doe
Run Mining entered into certain agreements with the MEM under which they are
required to expand and modernize our Peruvian subsidiaries' operations,
including expenditures to comply with environmental regulations in Peru, such as
those governing the treatment, handling and disposal of solid wastes, liquid
effluent discharges and gaseous emissions. Principal projects related to
environmental matters at the La
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Oroya smelter 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."
Under its agreement with the MEM, Doe Run Mining is required to make certain
improvements by May 2002 at Cobriza at an estimated cost of approximately $5.0
million.
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.
POSSIBLE EXTENSION OF TAX STABILIZATION AGREEMENT
As part of its capital investment program, Doe Run Peru will undertake
certain capital projects, primarily improvements in the copper circuit, totaling
$90 million over nine years. If Doe Run Peru completes these capital projects as
outlined in annual expenditure schedules, the tax stabilization agreement will
be extended for a period of 15 years. The annual expenditure schedule may be
amended with the approval of the Peruvian government. Doe Run Peru's 1998
expenditures have been approved by the Peruvian government. See "Risk
Factors--Government Regulations" for discussion of the Tax Stabilization
Agreement.
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 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.
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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.
For the nine months ended July 31, 1998, approximately 38% of the La Oroya
smelter's copper concentrates requirements were met by Cobriza. In fiscal 1999,
Doe Run Peru will obtain approximately 70% of its copper concentrates from the
Peruvian domestic market, 35% of which will be sourced from Cobriza. 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
impurities are deposited at the bottom of the cells as an insoluble slime that
is collected at the
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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.
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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.
COBRIZA MINING OPERATIONS
Cobriza is a manto-type deposit, effectively a replaced limestone bed. The
ore body dips approximately 45 degrees and is 25 to 30 meters thick and presents
nearly vertical outcrops of mineralization. The ore body has been developed in
two adjacent sections, Coris and Pumagayoc, within an area approximately two
kilometers in length and 1,000 meters in vertical extent. Primary access to the
deposit is provided by adits in or adjacent to the outcrop.
The Cobriza mine is located southeast of Lima in the district of San Pedro
de Coris, Chucampa Province, Department of Huancavelica. Access to the site is
by improved dirt road through rugged topography. Concentrates produced at the
mine are trucked 206 kilometers over dirt road to Huancayo, and then an
additional 298 kilometers over paved road to the La Oroya smelter. In addition,
access to the Cobriza mine is also possible from the city of Ayacucho,
approximately a five-hour drive southwest of the mine.
The Pampa de Coris mill at Cobriza is a modern facility with a throughput
capacity of approximately 9,900 tons per day of ore. Ore arrives at the facility
by rail. A three-stage crushing facility prepares run of mine ore for two
grinding circuits. Conventional flotation technology is used for separation. The
mill produces a copper/silver concentrate, all of which is shipped by truck to
the La Oroya smelter.
The Cobriza mine was initially developed by Cerro De Pasco Copper
Corporation ("Cerro de Pasco"), which commenced mining activities in 1967 with
an initial production capacity of approximately 1,000 tons per day. In 1982, the
Pampa de Coris concentrator was completed and capacity increased to
approximately 9,900 tons per day. Cerro de Pasco was nationalized in 1974. and
Doe Run Mining acquired Empresa Minera Cobriza S.A., the entity which holds the
Cobriza assets, from Centromin in August 1998, as part of the Peruvian
government's privatization program.
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. Operations at this location
began in 1922 under Cerro de Pasco, and it continues to utilize many of the
original structures. Additions include a new lead sinter plant installed in 1983
and the oxygen plant completed in 1994.
The copper refinery, lead refinery, copper fabricating plant and several
storage yards are located three kilometers west of the smelter facilities at
Huaymanta. Operations at this location also began in 1922, and many of the
existing structures remain in use. Major additions include the wirerod plant
constructed in 1966 and additional refinery cell blocks added in the mid-1970s.
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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>
Landholdings at Cobriza include approximately 2,600 acres of surface
ownership and approximately 125,000 acres of mining concessions. The area
encompassed by these mining concessions is larger than is required for existing
mining operations. Economic mineralization outside the existing mining area has
not been confirmed. The Company's estimates, which have not been audited by a
consulting firm, indicate proven and probable reserves sufficient for
approximately five years of production at approximately 2.5 million tons per
year. The surface structures of the Cobriza mining operations cover
approximately 200,000 square feet.
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 July 31, 1998, Doe Run Peru employed 864 active salaried employees and
2,053 active hourly employees. In addition, Doe Run Peru employed 1,001 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 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,
combined, equal one month's salary. Other benefits include a social security
system operated by the
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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 Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and
Management Program) (the "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 of Metaloroya to reflect a 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 (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
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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 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.
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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.
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
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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 design work will begin in fiscal
1998, and construction will follow in the next two years at an estimated cost of
$3.0 million.
COBRIZA
With the purchase of the Cobriza mine, Doe Run Mining undertook to meet a
five year environmental program that is expected to be completed in May 2002.
The main project is to redirect coarse tailings into the mine as backfill. The
remaining fine tailings will be contained in a tailings impoundment. The mine
water effluent will be clarified and discharged. Domestic sewage will be treated
in lagoons. Solid waste must be collected and buried in a landfill.
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PENDING LITIGATION
All existing litigation of Doe Run Peru at the time of the acquisition of
Metaloroya 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.
ASARCO MLD ACQUISITION
On September 1, 1998, Doe Run acquired certain assets relating to the ASARCO
MLD, including 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,
pursuant to the Asset Purchase Agreement, dated July 28, 1998 (the "Asset
Purchase Agreement"). The Westfork and Sweetwater production shafts are located
adjacent to Doe Run's mining operations. The purchase price for these assets was
$54.4 million paid with the net proceeds of the offering of outstanding notes
and borrowings under the Doe Run Revolving Credit Facility, plus contingent
deferred payments, if any. Such deferred payments are contingent upon prevailing
LME lead prices during the five-year period subsequent to the acquisition of the
ASARCO MLD. 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 $.285 per pound, with such payments not to exceed $12.5
million in the aggregate.
ASSETS AND LIABILITIES ASSUMED AND DISPOSED
Upon closing the acquisition of the ASARCO MLD, Doe Run assumed 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 did not acquire certain excluded assets, such
as accounts receivable, as specified in the Asset Purchase Agreement. Doe Run
also expressly assumed 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 acquisition of
the ASARCO MLD, 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
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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.
ENFORCEABILITY OF CIVIL LIABILITIES
Each of Doe Run Peru, Doe Run Mining, Doe Run Air S.A.C. ("Doe Run Air"),
Doe Run Development S.A.C. ("Doe Run Development") and Cobriza 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 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.
AVAILABLE INFORMATION
Doe Run and the Guarantors have filed with 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.
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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....................... 55 President and Chief Executive Officer of Doe Run and President of
Doe Run Cayman
Marvin K. Kaiser....................... 57 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.................... 54 Vice President--Sales and Marketing of Doe Run
Gary E. Boyer.......................... 58 Vice President--Mining of Doe Run
Kenneth R. Buckley..................... 60 Vice President--Primary and Secondary Smelting of Doe Run and
General Manager of Doe Run Mining, Doe Run Peru and Cobriza
Juan Carlos Huyhua, Ph.D. ............. 47 Operations Manager of Doe Run Peru
Jerry L. Pyatt......................... 40 President of FPI
Anthony W. Worcester................... 57 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 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, General Manager of Doe Run Mining and
Doe Run Peru since October 1997
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and General Manager of Cobriza since August 31, 1998. 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.
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.
JERRY L. PYATT has been President of FPI since October 1, 1998. Mr. Pyatt
has served, and will continue to serve, as General Manager of Doe Run's Resource
Recycling Division. Mr. Pyatt joined Doe Run in 1991 as a Metallurgical
Engineer.
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)............................. 1998 -- -- -- $ 4,311,004
Chairman of the Board 1997 -- -- -- 1,200,000
1996 -- -- -- 1,200,000
Jeffrey L. Zelms................................ 1998 $ 251,952 $ 450,000 $ 125,000 33,042
President and Chief Executive Officer 1997 240,000 $ 100,000 $ 262,068 34,885
1996 210,000 100,000 97,637 40,319
Marvin K. Kaiser................................ 1998 187,200 180,000 25,000 18,558
Chief Financial Officer 1997 156,000 74,000 52,414 22,164
1996 150,000 70,000 19,527 28,279
Richard L. Amistadi............................. 1998 180,000 75,000 37,500 17,471
Vice President--Sales and Marketing 1997 163,248 60,000 78,620 23,197
1996 160,032 60,000 29,291 30,169
Gary E. Boyer................................... 1998 142,176 60,000 25,000 3,353
Vice President--Mining 1997 135,216 60,000 52,414 5,492
1996 132,540 75,000 19,527 10,633
Kenneth R. Buckley.............................. 1998 186,398 225,000 12,500 120,356
Vice President--Primary and Secondary 1997 142,132 60,000 26,207 21,657
Smelting 1996 121,500 60,000 9,764 13,889
</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.
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(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 fiscal 1998
for each named executive officer, except Mr. Rennert, represent payments to
Messrs. Zelms, Kaiser, Amistadi, Boyer and Buckley under the gainsharing
plan of $27,139, $18,558, $17,741, $3,353 and $8,415, respectively, and $781
of life insurance premiums for Mr. Zelms and $2,982 of medical expenses and
$111,941 of expatriot compensation, including relocation, for Mr. Buckley.
See "Business--The Company's Domestic Operations--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. In addition, for fiscal 1998,
Doe Run paid to Renco a transaction fee of approximately $2.3 million upon
consummation of the Existing Notes Offering. See "Certain
Transactions--Transactions with Renco and its Affiliates."
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 1998(B)
----------------- ----------- -----------------
<S> <C> <C> <C>
Jeffrey L. Zelms................................. 5.0 % 4/7/94 $ 561,200
Marvin K. Kaiser................................. 1.0 4/7/94 112,240
Richard L. Amistadi.............................. 1.5 4/7/94 168,360
Gary E. Boyer.................................... 1.0 4/7/94 112,240
Kenneth R. Buckley............................... 0.5 4/7/94 56,120
</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, 1998, 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
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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 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 requires 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 has agreed to maintain
the confidentiality of information obtained during employment with Doe Run.
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PRINCIPAL SHAREHOLDERS
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 trusts established by him 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, 1998, Doe Run paid management fees to Renco in the
amount of $2.0 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
1998 by Doe Run was approximately $2.8 million and by Doe Run Peru was
approximately $1.6 million. 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. These sales totalled $.8 million in fiscal 1998.
Upon consummation of the Existing 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
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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.
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.
DR Land Holdings, LLC ("DRLH"), pays a fee in kind to Doe Run, and Doe Run
pays royalties to DRLH, pursuant to an operating agreement, dated as of January
13, 1999, by and between DRLH 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 operational and professional services with respect
to the property subject to the Drey Lease and pays a royalty to DRLH in exchange
for all right, title and interest in and to the minerals mined and extracted
from such property.
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 REVOLVING CREDIT FACILITIES
The following descriptions of the Doe Run Revolving Credit Facility and the
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 Doe Run Revolving
Credit Facility and the Doe Run Peru Revolving Credit Facility, copies of 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.
DOE RUN REVOLVING CREDIT FACILITY
GENERAL
The $100.0 million Doe Run Revolving Credit Facility is provided pursuant to
a Loan and Security Agreement, dated March 12, 1998, as amended, by and among
Doe Run, FPI and Congress Financial Corporation ("Congress"). As of October 31,
1998, $20.8 million (exclusive of outstanding letters of credit) was outstanding
under the Doe Run Revolving Credit Facility. Under the 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 December 31, 1998 was 8.5%. In the event of a
default under the 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 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 Doe Run Revolving Credit Facility has a three-year term and beginning on
March 12, 2001, can be renewed from year to year thereafter, PROVIDED that the
agreement may be terminated by any party as of March 12, 2001 or any subsequent
anniversary date on 60 days advance written notice.
CERTAIN COVENANTS
In addition to customary covenants, the Doe Run Revolving Credit Facility
requires that Doe Run and FPI be subject to certain covenants, including,
without limitation, 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 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 Doe Run Revolving Credit
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Facility and/or the acceleration of all amounts due thereunder. See "--Events of
Default." In connection with the offering of Old Notes and the acquisition of
the ASARCO MLD, Doe Run, FPI and Congress entered into Amendment No. 1 to Loan
and Security Agreement (i) to include the acquired ASARCO MLD assets in Eligible
Inventory as of the date of the consummation of the acquisition and (ii) to
permit the incurrence of indebtedness represented by the Old Notes.
EVENTS OF DEFAULT
The 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 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 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 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.
DOE RUN PERU REVOLVING CREDIT FACILITY
GENERAL
Under the 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. As of October 31, 1998, $28.0 million (exclusive of
outstanding letters of credit) was outstanding under the Doe Run Peru Revolving
Credit Facility. 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 December 31,
1998 was 7.43%. In the event of a nonpayment of any part of the principal or
interest owed under the 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,
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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 deposit their payments directly 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.
TERM
The 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 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 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 Doe Run
Peru Revolving Credit Facility and/or the acceleration of all amounts due
thereunder. See "--Events of Default." In connection with the offering of Old
Notes, Doe Run Peru obtained written approval of the incurrence of indebtedness
represented by the Old Notes.
EVENTS OF DEFAULT
The 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 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 Doe Run Peru
Revolving Credit Facility.
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DESCRIPTION OF THE MARCH 1998 NOTES
The March 1998 Notes were issued under an indenture, dated as of March 12,
1998 (the "March 1998 Indenture"), as supplemented, among Doe Run, the
Guarantors and State Street Bank and Trust Company, as trustee. The provisions
of the March 1998 Indenture are substantially similar to the provisions of the
Indenture governing the Old Notes and the Exchange Notes with the exception that
the March 1998 Notes are unsecured. See "Description of the Notes."
The 11 1/4% Senior Notes due 2005 (the "March 1998 Fixed Rate Notes") mature
on March 15, 2005, and the Floating Interest Rate Senior Notes due 2003 (the
"March 1998 Floating Rate Notes") mature on March 15, 2003. The March 1998 Notes
and the guarantees thereof are general unsecured obligations of Doe Run and the
Guarantors, respectively.
Interest on the March 1998 Fixed Rate Notes accrues at the rate of 11 1/4%
per annum. Interest on the March 1998 Floating Rate Notes accrues interest at a
rate per annum, reset semi-annually, equal to LIBOR (as defined in the March
1998 Indenture) plus 6.29%.
The redemption provisions applicable to the March 1998 Fixed Rate Notes are
substantially similar to those applicable to the Old Notes and the Exchange
Notes. The March 1998 Floating Rate Notes are subject to redemption in whole or
in part at any time at a redemption price equal to 104% of the aggregate
principal amount thereof through March 14, 1998 and declining annually by 1% to
100% on or after March 15, 2002.
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DESCRIPTION OF THE NOTES
The Old Notes were, and the Exchange Notes will be, issued under an
Indenture, dated as of September 1, 1998 (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." The Old Notes and Exchange Notes are collectively referred to as
the "Notes."
GENERAL
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 (the
"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 September 1, 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.
Interest on the Notes will accrue at the rate of 11 1/4% per annum. Interest
on the Notes will be computed on the basis of a 360 day year composed of twelve
30 day months.
OPTIONAL REDEMPTION
The 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>
OPTIONAL REDEMPTION UPON EQUITY OFFERINGS
In addition, at any time prior to March 15, 2001, Doe Run may redeem up to
35% of the Notes 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%
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of the Notes 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 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 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, DR Land Holdings, LLC, Doe
Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air S.A.C., Doe Run
Development S.A.C. and Empresa Minera Cobriza S.A., 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
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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 to the extent of any assets securing the Notes (see "--Security"),
the Notes will rank equally in right of payment with the Existing Notes. 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
other secured indebtedness of Doe Run and secured indebtedness of the Guarantors
will have claims that effectively rank prior to those of the Holders with
respect to the assets securing such indebtedness. As of October 31, 1998, on a
consolidated basis, the Company had approximately $358.5 million of indebtedness
outstanding (excluding the original issue discount of $5.2 million recorded on
the Notes, the back-to-back loan of $125.0 million and aggregate unused
commitments of $78.1 million under the revolving credit facilities), and none of
the Company's indebtedness was subordinated to the Notes or the March 1998
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
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.
SECURITY
Pursuant to the Security Documents, Doe Run assigned and pledged as
collateral to the Trustee for the benefit of the Trustee and the Holders of the
Notes a security interest in substantially all of the existing property, plant
and equipment of the ASARCO MLD acquired by Doe Run (other than inventory,
accounts receivable, or other current assets and intangibles of the ASARCO MLD).
Other than such fixed assets of the ASARCO MLD, no existing or future assets of
Doe Run and its Subsidiaries will be pledged to secure the Notes.
No appraisals of any of the Collateral have been prepared in connection with
the offering of Old Notes. The fair value of the Collateral as of August 31,
1998 was approximately $55.7 million. There can be no assurance that the
proceeds of any sale of the Collateral in whole or in part pursuant to the
Indenture and the related Security Documents following an Event of Default would
be sufficient to satisfy payments due on the Notes. See "Risk
Factors--Security." In addition, the ability of the Holders of Notes to realize
upon the Collateral may be subject to certain bankruptcy law limitations in the
event of a bankruptcy. See "--Certain Bankruptcy Limitations" below.
Doe Run will be permitted to transfer all or a portion of the Collateral to
one or more of its Wholly-Owned Restricted Subsidiaries; PROVIDED that any such
Wholly-Owned Restricted Subsidiary executes a senior guarantee (secured by the
Collateral transferred) of Doe Run's obligations under the Notes and the
Indenture. See "--Certain Covenants--Future Guarantees."
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The collateral release provisions of the Indenture permit the release of
Collateral without substitution of collateral of equal value under certain
circumstances. See "--Release of Collateral." As described under "--Certain
Covenants--Limitation on Sale of Assets", the Net Cash Proceeds of such Asset
Sales may be required to be utilized to make an offer to purchase Notes. To the
extent an offer to purchase Notes is not subscribed to by Holders thereof on the
basis described under "--Certain Covenants--Limitation on Sale of Assets," the
unutilized Net Cash Proceeds may be retained by Doe Run, free of the lien of the
Indenture and the Security Documents.
Pursuant to the Security Documents, Doe Run assigned and pledged to the
Trustee, for its benefit and the benefit of the Holders of the Notes, each of
the following assets: (a) all machinery and equipment acquired in the
acquisition of the ASARCO MLD (together with all improvements and additions
thereto and replacements thereof); (b) the instruments deposited or required to
be deposited in the Collateral Account upon the sale or other disposition of
Collateral; (c) all real property acquired in the acquisition of the ASARCO MLD
Acquisition (together with all additions, improvements and accessions thereto)
(the "Real Property Collateral"); and (d) all proceeds and products of any and
all of the foregoing.
The personal property Collateral was pledged pursuant to a security
agreement between Doe Run and the Trustee (the "Security Agreement") and the
Real Property Collateral was pledged pursuant to mortgages (the "Mortgages").
If an Event of Default occurs under the Indenture and a declaration of
acceleration of the Notes occurs as a result thereof, the Trustee, on behalf of
the Holders of the Notes, in addition to any rights or remedies available to it
under the Indenture, may take such action as it deems advisable to protect and
enforce its rights in the Collateral, including the institution of foreclosure
proceedings. The proceeds received by the Trustee from any foreclosure will be
applied by the Trustee first to pay the expenses of such foreclosure and fees
and other amounts then payable to the Trustee under the Indenture, and
thereafter to pay the principal, premium, if any, and interest on the Notes.
Dispositions of Real Property Collateral may be subject to delay pursuant to
an intercreditor agreement with the lenders under the U.S. Revolving Credit
Facility. Such intercreditor agreement provides that the Trustee will provide
access to and use of the real property and, under certain circumstances, may
delay liquidation of the real property for a period of time to permit the agent
for the lenders under the U.S. Revolving Credit Facility to conduct an orderly
liquidation of inventory located on the real property (including, without
limitation, the processing of work in process).
Real property pledged as security to a lender may be subject to known and
unforeseen environmental risks. Under CERCLA, a secured lender may be held
liable, in certain limited circumstances, for the costs of remediating or
preventing releases or threatened releases of hazardous substances at or from a
mortgaged property. There may be similar risks under various state laws and
common law theories. Lender liability may be imposed where the lender actually
participates in the management or operational affairs of the mortgaged property
with certain exceptions.
Under the Indenture, the Trustee may, prior to taking certain actions,
request that Holders of Notes provide an indemnification against its costs,
expenses and liabilities. It is possible that CERCLA (or analogous) cleanup
costs could become a liability of the Trustee and cause a loss to any Holders of
Notes that provided an indemnification. In addition, such Holders may act
directly rather than through the Trustee, in specified circumstances, in order
to pursue a remedy under the Indenture. If Holders of Notes exercise that right,
they could, under certain circumstances, be subject to the risks of
environmental liability discussed above.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon the
occurrence of an Event of Default is likely to be significantly impaired by
applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or
against Doe Run prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor such as the Trustee is
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prohibited from repossessing its security from a debtor in a bankruptcy case, or
from disposing of security repossessed from such debtor, without bankruptcy
court approval. Moreover, the Bankruptcy Code permits the debtor to continue to
retain and to use collateral even though the debtor is in default under the
applicable debt instruments, provided that the secured creditor is given
"adequate protection." The meaning of the term "adequate protection" may vary
according to circumstances, but it is intended in general to protect the value
of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the lack of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the Notes could be delayed following commencement of a
bankruptcy case, whether or when the Trustee could repossess or dispose of the
Collateral or whether or to what extent Holders of the Notes would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection."
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
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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:
(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 March 12, 1998 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 the Notes
pursuant to, and in accordance with, the provisions described under the
caption "--Optional Redemption--Optional Redemption upon 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
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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 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; and
(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;
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) or (5)) 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 the extent such Net Cash Proceeds are received from an
Asset Sale not involving the sale, transfer or disposition of Collateral
("Non-Collateral Proceeds"), 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 Non-Collateral Proceeds remaining after
application pursuant to the preceding paragraph (a) equal to the Notes Pro
Rata Amount (as defined) and any Net Cash Proceeds received from an Asset
Sale involving Collateral ("Collateral Proceeds" and, together with such
remaining Non-Collateral Proceeds equal to the Notes Pro Rata Amount, 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; and, if the Net Cash
Proceeds so invested were Collateral Proceeds, the property and assets
constituting such Related Business Investment and any other non-cash
consideration received as a result of such Asset Sale are made
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subject to the Lien of the Indenture and the applicable Security Documents;
PROVIDED, FURTHER, that to the extent any such assets subject to an Asset
Sale constituted Collateral, any property and assets constituting a Related
Business Investment and any other non-cash consideration received as a
result of such Asset Sale shall not consist of inventory or receivables and
shall constitute Collateral under the terms of the Indenture and under the
terms of the Security Documents; 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 Notes, Doe Run and the Restricted Subsidiaries may obtain a
release of the unutilized portion of the Available Amount from the Lien of
the Security Documents and use it for any purpose not prohibited by the
Indenture.
The "Notes Pro Rata Amount" means an amount equal to the Non-Collateral
Proceeds remaining after application pursuant to clause (a) of the preceding
paragraph multiplied by a fraction, (i) the numerator of which is the aggregate
principal amount of Notes outstanding on the second business day immediately
preceding the commencement of the applicable Asset Sale Offer and (ii) the
denominator of which is the sum of (x) the aggregate principal amount of Notes
determined pursuant to clause (i) above and (y) the aggregate principal amount
of Indebtedness outstanding under the Existing Notes Indenture on the second
business day immediately preceding the commencement of the applicable Asset Sale
Offer.
All Collateral Proceeds shall constitute Trust Moneys and shall be delivered
by Doe Run (or the applicable Subsidiary) to the Trustee and shall be deposited
in the Collateral Account in accordance with the Indenture. Collateral Proceeds
so deposited may be withdrawn from the Collateral Account pursuant to the
Indenture.
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.
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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 and the Outstanding 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 Existing Notes ($255 million outstanding)
and 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 Revolving Credit Facilities--Doe Run
Revolving Credit Facility--Events of Default" and "--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 Existing Notes Indenture or 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 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
(i) upon any item of Collateral other than the Liens created by the Notes, the
Indenture and the Security Documents and the Liens expressly permitted by the
applicable Security Document and (ii) upon any other 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.
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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 of assets not
constituting Collateral 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 (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
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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 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.
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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.
IMPAIRMENT OF SECURITY INTEREST
Doe Run shall not, and shall not permit any of its Subsidiaries to, take or
omit to take any action which action or omission might or would have the result
of affecting or impairing the security interest in favor of the Trustee, on
behalf of itself and the Holders of the Notes, with respect to the Collateral,
and Doe Run shall not grant to any Person (other than the Trustee on behalf of
itself and the Holders of the Notes) any interest whatsoever in the Collateral
other than Liens permitted by the Indenture and the Security Documents.
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 agreements relating to the Notes 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 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
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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;
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(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); or
(k) any of the Security Documents after the date of its effectiveness
ceases to be in full force and effect or any of the Security Documents
ceases to give the Trustee the Liens, rights, powers and privileges
purported to be created thereby in any material respect.
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.
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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.
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 or, 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; (x) release the
Guarantee of any Significant Subsidiary; or (xi) directly or indirectly release
any Lien on the Collateral except in compliance with the terms of the Indenture,
the Notes and the Security Documents.
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
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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
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.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, Doe Run
will have the right to remain in possession and retain exclusive control of the
Collateral securing the Notes or freely operate the Collateral and to collect,
invest and dispose of any income therefrom.
RELEASE OF COLLATERAL
Upon compliance by Doe Run with the conditions set forth below in respect of
any Asset Sale Release, and upon delivery by Doe Run to the Trustee of an
opinion of counsel to the effect that such conditions have been met, the Trustee
will release the Released Interests (as hereinafter defined) from the Lien of
the Security Documents and reconvey the Released Interests to Doe Run.
ASSET SALE RELEASE
Doe Run will have the right to obtain a release of items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
condition that Doe Run deliver to the Trustee the following:
(a) A notice from Doe Run requesting the release of Released Interests,
(i) describing the proposed Released Interests, (ii) specifying the value of
such Released Interests on a date within 60 days of such notice (the
"Valuation Date"), (iii) stating that the purchase price received is at
least equal to the Fair Market Value of the Released Interests, (iv) stating
that the release of such Released Interests will not interfere with the
Trustee's ability to realize the value of the remaining Collateral and will
not impair the maintenance and operation of the remaining Collateral and (v)
certifying that such Asset Sale complies with the terms and conditions of
the Indenture with respect thereto;
(b) An Officers' Certificate of Doe Run stating that (i) such Asset Sale
covers only the Released Interests and complies with the terms and
conditions of the Indenture with respect to
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Asset Sales, (ii) all Net Cash Proceeds from the sale of any of the Released
Interests will be applied pursuant to the provisions of the Indenture in
respect of Asset Sales, (iii) there is no Default or Event of Default in
effect or continuing on the date thereof, the Valuation Date or the date of
such Asset Sale, (iv) the release of the Collateral will not result in a
Default or Event of Default under the Indenture, and (v) all conditions
precedent in the Indenture relating to the release in question have been
complied with;
(c) The Net Cash Proceeds and other non-cash consideration from the
Asset Sale required to be delivered to the Trustee pursuant to the
Indenture; and
(d) All documentation required by the TIA prior to the release of
Collateral by the Trustee.
DISPOSITION OF COLLATERAL WITHOUT RELEASE
So long as no Event of Default shall have occurred and be continuing, Doe
Run may, without any release or consent by the Trustee, sell or otherwise
dispose of any machinery, equipment, furniture, apparatus, tools or implements
or other similar property subject to the Lien of the Security Documents, which
may have become worn out or obsolete, not exceeding individually, in Fair Market
Value, $250,000.
USE OF TRUST MONEYS
All Trust Moneys (including, without limitation, all Collateral Proceeds)
shall be held by the Trustee as a part of the Collateral securing the Notes and,
so long as no Event of Default shall have occurred and be continuing, may either
(i) be released in accordance with "Possession, Use and Release of Collateral"
above if such Trust Moneys represent Collateral Proceeds in respect of any Asset
Sale or (ii) at the direction of the Company be applied by the Trustee from time
to time to the payment of the principal of, premium, if any, and interest on any
Notes at maturity or upon redemption or to the purchase of Notes upon tender or
in the open market or at private sale or upon any exchange or in any one or more
of such ways, in each case in compliance with the Indenture. The Company may
also withdraw Trust Moneys constituting the proceeds of insurance upon any part
of the Collateral or an award for any Collateral taken by eminent domain to
reimburse the Company for repair or replacement of such Collateral, subject to
certain conditions.
The Trustee shall be entitled to apply any Trust Moneys to the cure of any
Default or Event of Default under the Indenture. Trust Moneys deposited with the
Trustee shall be invested in Cash Equivalents pursuant to the direction of the
Company and, so long as no Event of Default shall have occurred and be
continuing, the Company shall be entitled to any interest or dividends accrued,
earned or paid on such Cash Equivalents.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees are 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
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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
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
(other than a Sale/leaseback of an asset constituting Collateral)) 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).
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"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.
"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
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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.
In deeming a sale of assets by a corporation to be a sale of "all or
substantially all its assets" under New York law, the focus is not on the dollar
amount involved, but rather on the nature of the sale as it affects the ability
of the corporation to conduct the business for which it was established. If the
sale of certain assets is significant enough to render the corporation unable,
in whole or in part, to accomplish the purposes or objects for which it was
incorporated, such sale is not in the ordinary course of business and would be
deemed a sale of "all or substantially all its assets." So long as the
corporation remains able to conduct its business, the sale of such corporation's
assets, even its sole asset, may be within the ordinary course of business and
will not be deemed a sale of "all or substantially all its assets."
"Collateral" means, collectively, all of the property and assets (including,
without limitation, Trust Moneys) that are from time to time subject to the
Security Documents.
"Collateral Account" means the collateral account to be established pursuant
to 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 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 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
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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
Wholly-Owned Subsidiary (Wholly-Owned Restricted Subsidiary,
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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 Existing 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.L., a Peruvian company.
"Doe Run Peru" means Doe Run Peru S.R.L., 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.
"Existing Notes" means (i) the $200 million 11 1/4% Senior Notes due 2005
and (ii) the $55 million Floating Interest Rate Senior Notes due 2003, in each
case issued by Doe Run and guaranteed by the Guarantors.
"Existing Notes Indenture" means the indenture governing the Existing Notes.
"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
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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.
"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
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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.
"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 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 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.
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"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.
"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 Existing Notes 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 the Notes
and 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
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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 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.
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"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.
"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
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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.
"Security Documents" means the Security Agreement and the Mortgages referred
to under "Security" above and the documentation relating to the Collateral
Account.
"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 (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 March 12, 1998, 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.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
of the acquisition, beneficial ownership and disposition of Exchange Notes. This
summary deals only with a beneficial owner of an Exchange Note that is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other business entity created or organized in or under the laws of the United
States or any state or political subdivision thereof (including the District of
Columbia), (iii) an estate the income of which is subject to United States
federal income taxation regardless of its source, or (iv) a trust if a court
within the United States is able to exercise primary supervision over its
administration, and one or more United States persons have the authority to
control all of its substantial decisions (each, a "U.S. Holder").
This summary is based on interpretations of the Internal Revenue Code of
1986, as amended (the "Code"), regulations issued under the Code, and rulings
and decisions currently in effect (or in some cases proposed), all of which are
subject to change. Any such change may be applied retroactively and may
adversely affect the federal income tax consequences described in this summary.
This summary addresses only U.S. Holders that own Exchange Notes as capital
assets and not as part of a "straddle" or a "conversion transaction" for federal
income tax purposes, or as part of some other integrated investment. This
summary does not discuss all of the tax consequences that may be relevant to
particular investors or to investors subject to special treatment under the
federal income tax laws (such as life insurance companies, retirement plans,
regulated investment companies, securities dealers, or investors whose
functional currency is not the U.S. dollar). No ruling from the Internal Revenue
Service (the "IRS") will be sought with respect to the Exchange Notes, and the
I.R.S. could take a contrary view with respect to the matter described below.
ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF OWNING EXCHANGE
NOTES, AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION TO WHICH THEY MAY BE SUBJECT.
CONSEQUENCES OF THE EXCHANGE
The exchange of Old Notes for Exchange Notes in the Exchange Offer will not
be a taxable exchange for federal income tax purposes. A U.S. Holder will not
recognize taxable gain or loss as a result of such exchange and will have the
same tax basis and holding period in the Exchange Notes as it had in the Old
Notes immediately before the exchange.
TAX TREATMENT OF U.S. HOLDERS
STATED INTEREST
Stated interest on the Exchange Notes will be taxable to a U.S. Holder as
ordinary interest income as the interest accrues or is paid (in accordance with
the U.S. Holder's method of tax accounting).
ORIGINAL ISSUE DISCOUNT
The Exchange Notes will be treated as issued with original issue discount
("OID") for federal income tax purposes. The aggregate amount of OID in respect
of an Exchange Note will be equal to the difference between its principal amount
and its "issue price." An Exchange Note's "issue price" is equal to the first
price (including any accrued interest) at which a substantial portion of the Old
Notes were first sold to investors.
U.S. Holders generally will be required to include OID on an Exchange Note
in income over the term of the Exchange Note as the OID accrues, without regard
to the timing of receipt of the cash attributable to such income. OID will
accrue under a constant yield method based on the original yield
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to maturity of the Exchange Note calculated by reference to its issue price. The
amount of OID on an Exchange Note allocable to each semi-annual accrual period
is determined by (i) multiplying the "adjusted issue price" (as defined) of the
Exchange Note at the beginning of the accrual period by a fraction, the
numerator of which is the annual yield to maturity of the Exchange Note and the
denominator of which is two and (ii) subtracting from that product the stated
interest payable on the Exchange Note with respect to that semi-annual accrual
period. The "adjusted issue price" of an Exchange Note generally will be the sum
of its issue price and the amount of accrued OID. Doe Run will provide to U.S.
Holders OID information with respect to the Exchange Notes upon request to the
Chief Financial Officer at Doe Run's address set forth under
"Business--Available Information."
ACQUISITION PREMIUM
If a U.S. Holder purchases an Exchange Note (or purchased the Old Note for
which the Exchange Note was exchanged, as the case may be) for an amount that is
(i) less than or equal to the principal amount of the Exchange Note, and (ii)
greater than the adjusted issue price of the Exchange Note (or the Old Note),
then the Exchange Note will be treated as having been purchased with
"acquisition premium" in an amount equal to the difference between the purchase
price and the Exchange Note's (or Old Note's) adjusted issue price. A U.S.
Holder acquiring an Exchange Note with acquisition premium generally will reduce
the amount of OID includible in income for each accrual period by a fraction,
the numerator of which is the acquisition premium on the Exchange Note, and the
denominator of which is the principal amount of the Exchange Note, less its
adjusted issue price. Alternatively, a U.S. Holder may elect to compute accruals
of OID on a constant yield method by treating the purchase of an Exchange Note
(or Old Note) with acquisition premium as a purchase of the Exchange Note (or
Old Note) at initial issuance.
MARKET DISCOUNT
If a U.S. Holder purchases an Exchange Note (or purchased the Old Note for
which the Exchange Note was exchanged, as the case may be) for an amount that is
less than its adjusted issue price, the excess of the adjusted issue price over
the U.S. Holder's purchase price will be treated as "market discount." However,
such market discount will be considered to be zero if it is less than 1/4 of 1%
of the adjusted issue price multiplied by the number of complete years to
maturity from the date the U.S. Holder purchased such Exchange Note (or Old
Note). Under the market discount rules of the Code, a U.S. Holder generally will
be required to treat any principal payment on, or any gain realized on the sale,
exchange, retirement or other disposition of, an Exchange Note as ordinary
income (generally treated as interest income) to the extent of the market
discount which accrued but was not previously included in income. In addition,
the U.S. Holder may be required to defer, until the maturity of the Exchange
Note or its earlier disposition in a taxable transaction, the deduction of all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such Exchange Note (or the Old Note for which the Exchange
Note was exchanged, as the case may be). In general, market discount will be
considered to accrue ratably during the period from the date of acquisition of
the Exchange Note (or Old Note for which the Exchange Note was exchanged, as the
case may be) to the maturity date of the Exchange Note, unless the U.S. Holder
makes an irrevocable election (on an instrument-by-instrument basis) to accrue
market discount under a constant yield method. A U.S. Holder may elect to
include in income market discount currently as it accrues (under either a
ratable or constant yield method), in which case the rules described above
regarding the treatment of gain as ordinary income upon the disposition of the
Exchange Note and upon the receipt of certain payments, and the deferral of
interest deductions, will not apply. The election to include market discount in
income currently, once made, applies to all market discount obligations acquired
on or after the first day of the first taxable year to which the election
applies, and may not be revoked without the consent of the I.R.S.
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AMORTIZABLE BOND PREMIUM
If a U.S. Holder purchases an Exchange Note (or purchased the Old Note for
which the Exchange Note was exchanged, as the case may be) for an amount in
excess of its principal amount (or, in certain circumstances, the amount payable
upon redemption by Doe Run), the excess of the purchase price over the principal
amount (or, in certain circumstances, the amount payable upon redemption by Doe
Run) will be treated as "amortizable bond premium." A U.S. Holder may elect to
amortize such premium, if any, using a constant yield method over the period
ending on the maturity date of the Exchange Notes (or, in certain circumstances,
the first date on which the Exchange Notes are subject to redemption by Doe
Run). The amortized amount of such premium for a taxable year generally will be
treated first as a reduction of interest on such Exchange Note included in such
taxable year to the extent thereof, then as a deduction allowed in that taxable
year to the extent of the U.S. Holder's prior interest inclusions on such
Exchange Note, and finally as a carryforward allowable against the U.S. Holder's
future interest inclusions on such Exchange Note. Such election, once made, is
irrevocable without the consent of the I.R.S. and applies to all taxable bonds
held during the taxable year for which the election is made or subsequently
acquired.
SALE, EXCHANGE AND RETIREMENT OF EXCHANGE NOTES
Upon the sale, exchange or retirement of an Exchange Note, a U.S. Holder
will recognize gain or loss equal to the difference between the amount received
(other than amounts in respect of accrued and unpaid interest) and the U.S.
Holder's adjusted tax basis in the Exchange Note. A U.S. Holder's adjusted tax
basis in an Exchange Note will be, in general, such U.S. Holder's cost therefor,
increased by the aggregate OID with respect thereto previously included in
income by the U.S. Holder and by the amount of any market discount previously
included in the U.S. Holder's gross income, and reduced by the amount of any
amortizable bond premium applied to reduce, as a deduction against, interest
with respect to such Exchange Notes. Any such gain or loss will be capital gain
or loss (except with respect to amounts received upon a disposition attributable
to accrued but unpaid interest or accrued market discount not previously
included in income, which in either case will be taxable as ordinary income) and
will be long-term capital gain or loss if, at the time of sale, exchange or
retirement, the Exchange Note has been held for more than one year.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, the Code requires "information reporting"
annually to the I.R.S., and "backup withholding" at a rate of 31% with respect
to certain payments (including OID) made on or with respect to the Exchange
Notes. Backup withholding generally does not apply with respect to certain U.S.
Holders, including corporations, tax-exempt organizations, qualified pension and
profit sharing trusts and individual retirement accounts.
Backup withholding is not an additional tax and may be refunded (or credited
against the U.S. Holder's U.S. federal income tax liability, if any) provided
that certain required information is furnished. The information reporting
requirements may apply regardless of whether withholding is required.
STATE, LOCAL AND FOREIGN TAXES
U.S. Holders should consult their tax advisors with respect to state, local
and foreign tax considerations relevant to an investment in Exchange Notes.
141
<PAGE>
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, as it may be amended or
supplemented from time to time, available to any broker-dealer for use in
connection with any such resale.
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.
142
<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 in reliance upon the report of KPMG
LLP, independent public accountants, as set forth in their reports. In those
reports, that firm states that with respect to certain subsidiaries, its opinion
is based on the reports of other independent public accountants, namely Medina,
Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC,
independent certified public accountants, appearing elsewhere herein.
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
years in the three year period ended December 31, 1996 and the period January 1,
1997 to October 23, 1997, and of Doe Run Peru as of October 31, 1997, 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.
The financial statements of the Missouri Lead Division as of December 31,
1997 and 1996 and for each of the years in the three year period ended December
31, 1997 included in this Prospectus have been audited by PricewaterhouseCoopers
LLP, independent accountants, as stated in their report appearing herein. With
respect to the unaudited interim financial information of the Missouri Lead
Division for the six month periods ended June 30, 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 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 Securities Act.
143
<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................................................ F-4
Consolidated Statements of Operations and Shareholders' Equity for the years ended October 31, 1995, 1996
and 1997................................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended October 31, 1995, 1996 and 1997.................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Balance Sheet as of October 31, 1997 and unaudited as of July 31, 1998.............. F-33
Condensed Consolidated Statements of Operations for the nine months ended July 31, 1997 and 1998........... F-34
Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 1997 and 1998........... F-35
Notes to Condensed Consolidated Financial Statements....................................................... F-36
DOE RUN PERU S.R.L.
Report of Independent Public Accountants................................................................... F-45
Consolidated Balance Sheet as of October 31, 1997.......................................................... F-46
Consolidated Statement of Income for the period from October 23, 1997 (Inception Date) to October 31,
1997..................................................................................................... F-47
Consolidated Statement of Changes in Shareholders' Equity for the period from October 23, 1997 (Inception
Date) to October 31, 1997................................................................................ F-48
Consolidated Statement of Cash Flows for the period from October 23, 1997 (Inception Date) to October 31,
1997..................................................................................................... F-49
Notes to the Consolidated Financial Statements............................................................. F-50
Condensed Consolidated Balance Sheet as of July 31, 1998................................................... F-57
Condensed Consolidated Statements of Operations for the nine months ended July 31, 1997 and 1998........... F-58
Condensed Consolidated Statement of Cash Flows for the nine months ended July 31, 1997 and 1998............ F-59
Notes to Condensed Consolidated Financial Statements....................................................... F-60
EMPRESA MINERA DEL CENTRO DEL PERU S.A.--CENTROMIN PERU S.A., LA OROYA DIVISION
Report of Independent Public Accountants................................................................... F-61
Statements of Assets and Liabilities as of December 31, 1995 and 1996 and October 23, 1997................. F-62
Statements of Revenues and Expenses for the years ended December 31, 1994, 1995, 1996 and the period
January 1 to October 23, 1997............................................................................ F-63
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-64
Statements of Cash Flows for the years ended December 31, 1994, 1995, 1996 and the period January 1 to
October 23, 1997......................................................................................... F-65
Notes to Financial Statements.............................................................................. F-66
ASARCO INCORPORATED--MISSOURI LEAD DIVISION
Report of Independent Accountants.......................................................................... F-80
Statements of Operations for the years ended December 31, 1995, 1996 and 1997.............................. F-81
Balance Sheets as of December 31, 1996 and 1997............................................................ F-82
Statement of Cash Flows for the years ended December 31, 1995, 1996 and 1997............................... F-83
Statement of Changes in Divisional Equity for years ended December 31, 1995, 1996 and 1997................. F-84
Notes to Financial Statements.............................................................................. F-85
Report of Independent Accountants.......................................................................... F-91
Condensed Statements of Operations for the six months ended June 30, 1997 and 1998......................... F-92
Condensed Balance Sheets as of June 30, 1997 and 1998...................................................... F-93
Condensed Statements of Cash Flows for the six months ended June 30, 1997 and 1998......................... F-94
Notes to Condensed Financial Statements.................................................................... F-95
</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 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
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................................................... -- $ 8,943
Trade accounts receivable, net of allowance for doubtful accounts of $947 and $729 at
October 31, 1996 and 1997, respectively............................................... $ 54,493 52,470
Inventories............................................................................. 30,019 88,648
Prepaid expenses and other current assets............................................... 2,919 5,263
Net deferred tax assets................................................................. 3,792 69
---------- ----------
Total current assets.................................................................. 91,223 155,393
Property, plant and equipment, net........................................................ 104,162 206,348
Net deferred tax assets................................................................... -- 7,481
Other noncurrent assets, net.............................................................. 8,529 15,218
---------- ----------
Total assets.......................................................................... $ 203,914 $ 384,440
---------- ----------
---------- ----------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt.................................................... $ 16,590 $ 12,345
Accounts payable........................................................................ 16,324 41,086
Accrued liabilities..................................................................... 24,320 28,893
Net deferred tax liabilities............................................................ -- 7,481
---------- ----------
Total current liabilities............................................................. 57,234 89,805
Long-term debt, less current maturities................................................... 66,201 222,395
Net deferred tax liabilities.............................................................. 3,792 --
Postretirement benefits................................................................... 12,817 12,455
Reclamation and environmental costs....................................................... 26,773 31,685
Other noncurrent liabilities.............................................................. 16,267 13,926
---------- ----------
Total liabilities..................................................................... 183,084 370,266
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
Retained earnings....................................................................... 13,330 6,674
---------- ----------
Total shareholders' equity............................................................ 20,830 14,174
---------- ----------
Total liabilities and shareholders' equity............................................ $ 203,914 $ 384,440
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these 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>
YEAR ENDED OCTOBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales..................................................... $ 225,143 $ 274,930 $ 280,467
Costs and expenses:
Cost of sales............................................... 180,398 215,489 234,351
Depletion, depreciation and amortization.................... 12,486 13,654 14,718
Selling, general and administrative expenses, including
related party management fees of $1,200 per year.......... 8,405 10,079 10,959
Exploration expense......................................... 1,926 2,912 2,705
--------- --------- ---------
Total costs and expenses.................................. 203,215 242,134 262,733
--------- --------- ---------
Income from operations.................................... 21,928 32,796 17,734
Other income (expense):
Interest expense............................................ (14,361) (14,348) (13,740)
Interest income............................................. 140 113 21
Other, net.................................................. (132) 355 (37)
--------- --------- ---------
(14,353) (13,880) (13,756)
--------- --------- ---------
Income before income tax expense and extraordinary item... 7,575 18,916 3,978
Income tax expense............................................ 3,252 6,451 4,331
--------- --------- ---------
Net income (loss) before extraordinary item............... 4,323 12,465 (353)
Extraordinary item related to early retirement of debt, net of
income tax benefit.......................................... -- -- (1,062)
--------- --------- ---------
Net income (loss)......................................... $ 4,323 $ 12,465 $ (1,415)
Shareholders' equity, beginning of year..................... 5,995 10,318 20,830
Less dividends declared and paid:
Preferred stock--$140 and $100 per share, respectively.... -- (350) (250)
Redemption of preferred stock.............................
Common stock--$1,603 and $4,991 per share, respectively... -- (1,603) (4,991)
--------- --------- ---------
Shareholders' equity, end of period......................... $ 10,318 $ 20,830 $ 14,174
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................. $ 4,323 $ 12,465 $ (1,415)
Extraordinary item related to retirement of debt.................................. -- -- 1,327
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization........................................ 12,486 13,654 14,718
Amortization of deferred financing fees......................................... 1,140 898 257
Imputed interest................................................................ 7,132 6,617 5,635
Increase (decrease) resulting from changes in assets and liabilities, net of
effects of business acquisitions:
Trade accounts receivable..................................................... (5,641) (10,291) 2,023
Inventories................................................................... 665 3,209 (3,062)
Prepaid expenses and other current assets..................................... (994) (339) (1,201)
Accounts payable.............................................................. 2,028 771 6,636
Accrued liabilities........................................................... 3,955 1,492 (1,939)
Other noncurrent assets and liabilities, net.................................. (5,028) (526) (4,959)
--------- --------- -----------
Net cash provided by (used in) operating activities......................... 20,066 27,950 18,020
Cash flows from investing activities:
Purchases of property, plant and equipment........................................ (5,377) (10,534) (13,476)
Payments for acquisitions......................................................... -- (1,742) (128,242)
--------- --------- -----------
Net cash used in investing activities....................................... (5,377) (12,276) (141,718)
Cash flows from financing activities:
Proceeds from (payments on) revolving loan, net................................... (5,139) 1,044 (6,399)
Proceeds from long-term debt...................................................... -- -- 365,945
Payments on long-term debt........................................................ (9,550) (14,765) (212,453)
Payment of deferred financing costs............................................... -- -- (8,573)
Extraordinary item related to retirement of debt.................................. -- -- (638)
Payment of dividends.............................................................. -- (1,953) (5,241)
--------- --------- -----------
Net cash provided by (used in) financing activities......................... (14,689) (15,674) 132,641
--------- --------- -----------
Net increase in cash........................................................ -- -- 8,943
Cash at beginning of period......................................................... -- -- --
--------- --------- -----------
Cash at end of period............................................................... $ -- $ -- $ 8,943
--------- --------- -----------
--------- --------- -----------
Supplemental disclosure of cash flow information--
Cash paid during the period for:
Interest, net of capitalized interest........................................... $ 6,850 $ 6,575 $ 9,196
--------- --------- -----------
--------- --------- -----------
Income taxes.................................................................... $ -- $ 6,787 $ 3,480
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these 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.L. ("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
--------- ---------
<S> <C> <C>
Finished metals and concentrates........................................ $ 6,408 $ 11,460
Metals and concentrates in process...................................... 9,520 51,129
Materials, supplies and repair parts.................................... 14,091 26,059
--------- ---------
$ 30,019 $ 88,648
--------- ---------
--------- ---------
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of $4,866 and $4,977 at October 31, 1996 and 1997, 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.
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.
F-15
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) LONG-TERM DEBT (CONTINUED)
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 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.
F-16
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) LONG-TERM DEBT (CONTINUED)
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>
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
F-17
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(8) INCOME TAXES (CONTINUED)
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.
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
F-21
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(9) EMPLOYEE BENEFITS (CONTINUED)
in 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 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
F-25
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
of 1976, as amended ("RCRA"). The Company has accrued approximately $1,200
related to the Herculaneum 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
F-26
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
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.
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.
F-27
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(14) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
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 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
F-28
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(15) SUBSEQUENT EVENTS (CONTINUED)
$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.
(16) GUARANTOR SUBSIDIARIES
The Guarantor Subsidiaries (Fabricated Products, Inc. ("FPI"), Doe Run
Cayman and its wholly-owned subsidiary, Doe Run Mining S.R.L. ("Doe Run
Mining"), and Doe Run Peru) have jointly and severally, fully, unconditionally
and irrevocably 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% indirectly owned by the Company, with the remainder of a de
minimis number of shares owned by employees of Centromin pursuant to Peruvian
law. Financial information regarding the Guarantor Subsidiaries as of and for
the year ended October 31, 1997 is presented below for purposes of complying
with the reporting requirements of the Guarantor Subsidiaries. Separate
financial statements of Doe Run Peru have been presented to fulfill the
disclosure requirement for guarantor subsidiaries that are not wholly-owned. 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. The
results of operations of Doe Run Peru for the eight day period from October 24
to October 31, 1997 were not material to results of operations of the Company
for the year ended October 31, 1997.
F-29
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING BALANCE SHEETS
OCTOBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING DOE RUN CAYMAN
GUARANTOR AND WHOLLY-OWNED DOE RUN
SUBSIDIARIES FPI SUBSIDIARY PERU ELIMINATIONS THE COMPANY
------------- --------- ----------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 1,579 $ -- $ 2,351 $ 5,013 $ -- $ 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............................. 2,272 239 183 2,569 -- 5,263
Due from subsidiaries................ 29,878 -- 78 -- (29,956) --
Due from parent...................... -- -- -- 125,000 (125,000) --
Net deferred tax assets.............. -- -- (91) 160 -- 69
------------- --------- ----------------- ---------- ------------ -------------
Total current assets............... 107,342 8,759 2,521 192,164 (155,393) 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 -- 247,817 -- (251,817) --
------------- --------- ----------------- ---------- ------------ -------------
Total assets....................... $ 234,905 $ 12,881 $ 253,961 $ 289,903 $ (407,210) $ 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.................. 18,510 383 625 9,375 -- 28,893
Net deferred tax liabilities......... 7,481 -- -- -- -- 7,481
Due to subsidiaries.................. -- -- 125,000 -- (125,000) --
Due to parent........................ -- -- 23,607 1,214 (24,821) --
------------- --------- ----------------- ---------- ------------ -------------
Total current liabilities.......... 49,919 3,087 153,232 33,740 (150,173) 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 10,610 252,232 42,086 (155,308) 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) --
Common stock, one nuevos soles par
value, 648,672,941 shares
authorized, issued and
outstanding........................ -- -- -- 247,926 (247,926) --
Additional paid in capital........... 5,000 935 -- -- (935) 5,000
Retained earnings.................... 6,759 1,335 (276) (109) (1,035) 6,674
------------- --------- ----------------- ---------- ------------ -------------
Total shareholders' equity......... 14,259 2,271 1,729 247,817 (251,902) 14,174
------------- --------- ----------------- ---------- ------------ -------------
Total liabilities and shareholders'
equity............................. $ 234,905 $ 12,881 $ 253,961 $ 289,903 $ (407,210) $ 384,440
------------- --------- ----------------- ---------- ------------ -------------
------------- --------- ----------------- ---------- ------------ -------------
</TABLE>
F-30
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(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)
Extraordinary item............... (1,062) -- -- -- (1,062)
------------- ----------- ------- ------------ -------------
Net income (loss)................ $ (1,342) $ 1,163 $ (276) $ (960) $ (1,415)
------------- ----------- ------- ------------ -------------
------------- ----------- ------- ------------ -------------
</TABLE>
F-31
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(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>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
1997 1998
----------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash.................................................................................. $ 8,943 $ 12,389
Trade accounts receivable, net of allowance for doubtful accounts..................... 52,470 72,746
Inventories........................................................................... 88,648 109,172
Prepaid expenses and other current assets............................................. 5,263 34,299
Net deferred tax assets............................................................... 69 --
----------- -----------
Total current assets................................................................ 155,393 228,606
Property, plant and equipment, net...................................................... 206,348 206,371
Special term deposit.................................................................... -- 125,000
Net deferred tax assets................................................................. 7,481 8,364
Other noncurrent assets, net............................................................ 15,218 18,010
----------- -----------
Total assets........................................................................ $ 384,440 $ 586,351
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt........................ $ 12,345 $ 12,895
Accounts payable...................................................................... 41,086 52,219
Accrued liabilities................................................................... 28,893 49,629
Net deferred tax liabilities.......................................................... 7,481 8,645
----------- -----------
Total current liabilities........................................................... 89,805 123,388
Long-term debt, less current maturities................................................. 222,395 386,767
Other noncurrent liabilities............................................................ 58,066 57,661
----------- -----------
Total liabilities................................................................... 370,266 567,816
Shareholders' equity:
Preferred stock, $1,000 par value, 2,500 shares issued, authorized and outstanding;
liquidation and redemption value of $2,618 at October 31, 1997...................... 2,500 --
Common stock, $.10 par value, 1,000 shares authorized, issued, and outstanding........ -- --
Additional paid-in capital............................................................ 5,000 5,000
Retained earnings..................................................................... 6,674 13,535
----------- -----------
Total shareholders' equity.......................................................... 14,174 18,535
----------- -----------
Total liabilities and shareholders' equity.......................................... $ 384,440 $ 586,351
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-33
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
Net sales................................................................................. $ 206,411 $ 527,765
Costs and expenses:
Cost of sales........................................................................... 170,145 439,691
Depletion, depreciation and amortization................................................ 10,959 17,012
Selling, general and administrative..................................................... 8,049 25,731
Exploration............................................................................. 2,262 2,764
---------- ----------
Total costs and expenses.............................................................. 191,415 485,198
---------- ----------
Income from operations................................................................ 14,996 42,567
Other income (expense):
Interest expense........................................................................ (10,634) (27,037)
Interest income......................................................................... 7 6,000
Other, net.............................................................................. (51) 69
---------- ----------
(10,678) (20,968)
---------- ----------
Income (loss) before income tax expense and extraordinary item........................ 4,318 21,599
Income tax expense........................................................................ 4,241 7,942
---------- ----------
Income (loss) before extraordinary item............................................... 77 13,657
Extraordinary item related to early retirement of debt, net of income tax benefit..... (314) (6,607)
---------- ----------
Net income (loss)..................................................................... $ (237) $ 7,050
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-34
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31,
----------------------
<S> <C> <C>
1997 1998
--------- -----------
Net cash provided by (used in) operating activities....................................... $ 14,200 $ (3,825)
Cash flows from investing activities:
Special term deposit.................................................................... -- (125,000)
Purchases of property, plant and equipment (7,432) (17,032)
--------- -----------
Net cash used in investing activities................................................. (7,432) (142,032)
Cash flows from financing activities:
Proceeds from revolving loan and short-term borrowings, net............................. 12,961 15,767
Proceeds from long-term debt............................................................ 10,945 380,000
Payments on long-term debt.............................................................. (25,186) (230,845)
Payment of deferred financing costs..................................................... (247) (12,930)
Payment of dividends.................................................................... (5,241) (189)
Redemption of preferred stock........................................................... -- (2,500)
--------- -----------
Net cash provided by (used in) financing activities................................... (6,768) 149,303
--------- -----------
Net increase in cash.................................................................. -- 3,446
Cash at beginning of period............................................................... -- 8,943
--------- -----------
Cash at end of period..................................................................... $ -- $ 12,389
--------- -----------
--------- -----------
Supplemental disclosure of cash flow information-
Cash paid during the period for:
Interest, net of capitalized interest................................................. $ 7,202 $ 9,445
--------- -----------
--------- -----------
Income taxes.......................................................................... $ 2,506 $ 14,089
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-35
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) UNAUDITED INTERIM FINANCIAL STATEMENTS
These condensed consolidated financial statements include the accounts of
the Doe Run Resources Corporation and its subsidiaries (the "Company"). The
common stock of the Company is owned by DR Acquisition Corp. a wholly-owned
subsidiary of The Renco Group, Inc ("Renco"). In the opinion of management, the
interim condensed consolidated financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
consolidated financial position as of July 31, 1998 and results of operations
for the three month and nine month periods ended July 31, 1998 and 1997. Interim
periods are not necessarily indicative of results to be expected for the year.
The accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto as of
October 31, 1997 and 1996 and for the years ended October 31, 1997, 1996 and
1995.
(2) INVENTORIES
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1998 1997
----------- -----------
<S> <C> <C>
(UNAUDITED)
Finished metals and concentrates.................................... $ 12,887 $ 11,460
Metals and concentrates in process.................................. 65,522 51,129
Materials, supplies and repair parts................................ 30,763 26,059
----------- -----------
$ 109,172 $ 88,648
----------- -----------
----------- -----------
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of $4,747 and $4,738 as of July 31, 1998 and October 31, 1997,
respectively.
(3) LONG-TERM DEBT
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 7). The Company used $125,000 of
the proceeds from the Notes offering 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 S.R.L. ("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 a $225,000 term loan, plus accrued
interest thereon of $1,004, repay a $23,000 subordinated note to the Doe Run
Resources Corporation, and pay fees of $313.
The remaining $130,000 of the proceeds of the Notes offering, plus the
$23,000 repayment of the subordinated note by Doe Run Mining, were used by the
Doe Run Resources Corporation to: i) repay principal and interest on a $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 $2,500 of outstanding
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.
F-36
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(3) LONG-TERM DEBT (CONTINUED)
As a result of these transactions, the Company recognized an extraordinary
loss of $6,607, net of income tax benefit of $143.
(4) HEDGING
The fair market value of the Company's net hedging positions at July 31,
1998 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 fair market value of the Company's net open hedging positions at July
31, 1998 was ($265).
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.
(5) ENVIRONMENTAL AND LITIGATION MATTERS
The Company is subject to numerous U.S. and Peruvian 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, the Company's facilities are located on sites
that have been used for heavy industrial purposes for decades and may require
remediation. The Company 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 $34,058 as of July 31, 1998, which
represents management's best estimate of known obligations relating to
environmental and reclamation matters, which are discussed below.
DOMESTIC OPERATIONS
Primary smelter slag produced by and stored at the primary smelter in
Herculaneum, Missouri is exempt from hazardous waste regulation under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"). The U.S.
Environmental Protection Agency (the "EPA") has completed a rule making process
where the status of slag and other secondary materials generated at primary lead
smelters were considered for regulation under RCRA. The final rule has been
issued, and slag will continue to be exempt from hazardous waste regulation
under RCRA. Further, if certain management practices are followed for the
handling and storage of other secondary materials, these materials will not be
subject to full RCRA requirements. The Company is developing the requisite
management practices, which will be in place by the end of 1999, and which will
require expenditures, primarily capital, of no more than $500.
F-37
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
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 while the plan is developed and anticipates future
cash requirements of approximately $3,000 for the three-year plan.
The Company 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. The Company has signed a voluntary Administrative
Order of Consent ("AOC") in 1994 with the EPA to remediate the Big River Mine
Tailings Site. In February 1997, The Company signed an AOC to perform an
Engineering Evaluation/Cost Analysis on the Bonne Terre Site. In March 1998, the
Company signed an AOC to perform an EE/CA on the National 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 and the U.S. Forest
Service for the tailings site.
The Company'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 reserved for closure costs for the permitted storage area. Spending against
the reserve has not been significant since October 31, 1997.
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
F-38
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
of ultimate closure at a rate of approximately $300 per year. Spending against
the reserve has not been significant since October 31, 1997.
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
Mine La Motte 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 Company's
results of operations or cash flows.
FOREIGN OPERATIONS
In connection with the acquisition by the Company of Empresa Metalugica La
Oroya S.A. ("La Oroya"), the Company is required to expand and modernize its
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 that has been submitted to the
Ministry for Energy and Mines (the "MEM"). The PAMA functions as the equivalent
of an operating permit with which the operator must comply. To meet its
obligations under the PAMA, the Company has negotiated a capital spending plan
with the Peruvian government to invest $107,575 million during the next nine
years 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>
The Company's operations at the La Oroya smelter 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 projects
contemplated by the PAMA have been designed to achieve compliance with the
applicable legal requirements prior to the expiration of the PAMA on January 13,
2007. Under the PAMA, future changes in regulations and maximum permissible
levels would not affect the Company for ten years from the date of the
acquisition contract.
F-39
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) ENVIRONMENTAL AND LITIGATION MATTERS (CONTINUED)
According to the acquisition contract, the Company has the option to
continue the use of an 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., the former owner of La Oroya.
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 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, Missouri 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. 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 are also 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.
(6) SUBSEQUENT EVENT--ACQUISITION OF ASARCO MISSOURI LEAD DIVISION
On September 1, 1998, the Company purchased the assets of the Missouri Lead
Division ("MLD") of ASARCO Incorporated ("ASARCO"), including a smelter and
refinery and two mines. Proceeds of $43,400 from an offering of $50,000 11.25%
Senior Secured Notes due 2005 (the "Secured Notes"), plus loans under the
revolving credit facility of $12,427 financed the payment of the purchase price
made at the closing. The payment was based on the MLD's inventories as of July
31, 1998, and an adjustment based upon the inventories at the closing date is
expected to result in an amount receivable from ASARCO of between $1,000 and
$2,000.
F-40
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES
The Guarantor Subsidiaries (FPI, Doe Run Cayman and its wholly-owned
subsidiary, Doe Run Mining, and Doe Run Peru) have jointly and severally, fully,
unconditionally and irrevocably guaranteed the Notes and the Secured Notes. Each
of the Guarantor Subsidiaries is a wholly-owned direct or indirect subsidiary of
the Company with the exception of Doe Run Peru, which is over 99.97% indirectly
owned by the Company, with the remainder owned by employees of Centromin
pursuant to Peruvian law. Financial information regarding the Guarantor
Subsidiaries as of July 31, 1998 and for the nine month period ending July 31,
1998 is presented for purposes of complying with the reporting requirements of
the Guarantor Subsidiaries. Separate financial statements of Doe Run Peru have
been presented to fulfill the disclosure requirements for guarantor subsidiaries
that are not wholly-owned. FPI was incorporated in August 1996, and its
operations were not material to the results of operations of the Company for the
nine month period ending July 31, 1997. Doe Run Mining and Doe Run Cayman are
holding companies which do not have operations separate from those of Doe Run
Peru S.R.L. 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-41
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING BALANCE SHEETS
AS OF JULY 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING DOE RUN CAYMAN
GUARANTOR AND WHOLLY-OWNED DOE RUN
SUBSIDIARIES FPI SUBSIDIARY PERU ELIMINATIONS
--------------- --------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash........................................ $ -- $ -- $ 3,070 $ 9,319 $ --
Trade accounts receivable, net of allowances
for doubtful accounts..................... 40,433 4,943 -- 27,619 (249)
Inventories................................. 37,211 2,533 -- 69,441 (13)
Prepaid expenses and other current assets... 10,022 156 4,384 24,265 (4,528)
Due from subsidiary......................... 22,543 -- 6,830 -- (29,373)
Due from parent............................. -- -- -- 134,095 (134,095)
--------------- --------- -------- ----------- ------------
Total current assets...................... 110,209 7,632 14,284 264,739 (168,258)
Property, plant and equipment, net............ 102,040 7,690 -- 96,641 --
Special term deposit.......................... 125,000 -- -- -- --
Net deferred tax assets....................... 8,364 -- -- -- --
Other noncurrent assets, net.................. 15,959 415 296 1,340 --
Investment in subsidiaries.................... 20,299 -- 275,393 -- (295,692)
--------------- --------- -------- ----------- ------------
Total assets.............................. $ 381,871 $ 15,737 $ 289,973 $ 362,720 $ (463,950)
--------------- --------- -------- ----------- ------------
--------------- --------- -------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt......................... $ 895 $ -- $ -- $ 12,000 $ --
Accounts payable............................ 13,803 3,173 -- 35,492 --
Accrued liabilities......................... 33,255 383 6,587 13,932 (4,528)
Net deferred tax liabilities.................. 6,792 -- -- 1,853 --
Due to subsidiaries......................... -- -- 134,095 -- (134,095)
Due to parent............................... -- 9,106 5,100 15,167 (29,373)
--------------- --------- -------- ----------- ------------
Total current liabilities................. 54,745 12,662 145,782 78,444 (168,245)
Long-term debt, less current maturities....... 261,767 -- 125,000 -- --
Postretirement benefits.......................
Reclamation and environmental costs...........
Other noncurrent liabilities..................
--------------- --------- -------- ----------- ------------
Total liabilities......................... 363,336 14,616 270,782 87,327 (168,245)
Shareholders' equity:
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)
Common stock, one nuevos soles par value,
648,672,941 shares authorized, issued and
outstanding............................... -- -- -- 247,926 (247,926)
Additional paid in capital.................. 5,000 935 -- -- (935)
Retained earnings........................... 13,535 185 17,186 27,467 (44,838)
--------------- --------- -------- ----------- ------------
Total shareholders' equity................ 18,535 1,121 19,191 275,393 (295,705)
--------------- --------- -------- ----------- ------------
Total liabilities and shareholders'
equity.................................. $ 381,871 $ 15,737 $ 289,973 $ 362,720 $ (463,950)
--------------- --------- -------- ----------- ------------
--------------- --------- -------- ----------- ------------
<CAPTION>
THE COMPANY
-------------
<S> <C>
Current assets:
Cash........................................ $ 12,389
Trade accounts receivable, net of allowances
for doubtful accounts..................... 72,746
Inventories................................. 109,172
Prepaid expenses and other current assets... 34,299
Due from subsidiary......................... --
Due from parent............................. --
-------------
Total current assets...................... 228,606
Property, plant and equipment, net............ 206,371
Special term deposit.......................... 125,000
Net deferred tax assets....................... 8,364
Other noncurrent assets, net.................. 18,010
Investment in subsidiaries.................... --
-------------
Total assets.............................. $ 586,351
-------------
-------------
LIAB
Current liabilities:
Short-term borrowings and current maturities
of long-term debt......................... $ 12,895
Accounts payable............................ 52,219
Accrued liabilities......................... 49,629
Net deferred tax liabilities.................. 8,645
Due to subsidiaries......................... --
Due to parent............................... --
-------------
Total current liabilities................. 123,388
Long-term debt, less current maturities....... 386,767
Postretirement benefits.......................
Reclamation and environmental costs...........
Other noncurrent liabilities..................
-------------
Total liabilities......................... 567,816
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares
authorized, issued, and outstanding....... --
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding........ --
Common stock, $1 par value, 2,005,000 shares
authorized, issued and
outstanding............................... --
Common stock, one nuevos soles par value,
648,672,941 shares authorized, issued and
outstanding............................... --
Additional paid in capital.................. 5,000
Retained earnings........................... 13,535
-------------
Total shareholders' equity................ 18,535
-------------
Total liabilities and shareholders'
equity.................................. $ 586,351
-------------
-------------
</TABLE>
F-42
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JULY 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING DOE RUN CAYMAN
GUARANTOR AND WHOLLY-OWNED DOE RUN
SUBSIDIARIES FPI SUBSIDIARY PERU ELIMINATIONS THE COMPANY
--------------- --------- ------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 181,356 $ 12,441 $ 5,049 $ 349,444 $ (20,525) $ 527,765
Costs and expenses:
Cost of sales........................ 148,674 11,470 -- 283,037 (3,490) 439,691
Depletion, depreciation and
amortization....................... 11,463 539 -- 5,010 -- 17,012
Selling, general and administrative
expenses........................... 12,155 1,002 3,158 26,523 (17,107) 25,731
Exploration expenses................. 2,764 -- -- -- -- 2,764
--------------- --------- ------- ----------- ------------ -------------
Total costs and expenses........... 175,056 13,011 3,158 314,570 (20,597) 485,198
--------------- --------- ------- ----------- ------------ -------------
Income (loss) from operations...... 6,300 (570) 1,891 34,874 72 42,567
Other income (expense):
Interest expense..................... (16,933) (534) (9,825) (279) 534 (27,037)
Interest income...................... 5,975 -- 10 549 (534) 6,000
Other, net........................... (543) (30) 179 463 -- 69
Equity in earnings of subsidiaries... 16,384 -- 27,576 -- (43,960) --
--------------- --------- ------- ----------- ------------ -------------
4,883 (564) 17,940 733 (43,960) (20,968)
--------------- --------- ------- ----------- ------------ -------------
Income (loss) before income taxes
and extraordinary item........... 11,183 (1,134) 19,831 35,607 (43,888) 21,599
Income tax expense (benefit)............. (105) 16 -- 8,031 -- 7,942
--------------- --------- ------- ----------- ------------ -------------
Income (loss) before extraordinary
item............................... 11,288 (1,150) 19,831 27,576 (43,888) 13,657
Extraordinary item................... (4,238) -- (2,369) -- -- (6,607)
--------------- --------- ------- ----------- ------------ -------------
Net income (loss).................. $ 7,050 $ (1,150) $ 17,462 $ 27,576 $ (43,888) $ 7,050
--------------- --------- ------- ----------- ------------ -------------
--------------- --------- ------- ----------- ------------ -------------
</TABLE>
F-43
<PAGE>
(16) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
EXCLUDING DOE RUN CAYMAN
GUARANTOR AND WHOLLY-OWNED DOE RUN
SUBSIDIARIES FPI SUBSIDIARY PERU ELIMINATIONS THE COMPANY
--------------- --------- ----------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $ 25,584 $ 420 $ 22,771 $ (8,640) $ (43,960) $ (3,825)
Cash flows from investing activities:
Special term deposit................. (125,000) -- -- -- -- (125,000)
Purchases of property, plant and
equipment.......................... (8,729) (4,391) -- (3,912) -- (17,032)
Investment in subsidiary............. (16,384) -- (27,576) -- 43,960 --
--------------- --------- -------- ----------- ------------ -------------
Net cash used in investing
activities......................... (150,113) (4,391) 27,576 (3,912) 43,960 (142,032)
Cash flows from financing activities:
Proceeds from (payments on) revolving
loan and short-term borrowings,
net................................ 6,767 -- (3,000) 12,000 -- 15,767
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.............................. (12,618) -- (312) -- -- (12,930)
Loan from parent..................... 7,335 3,971 (16,164) 4,858 -- --
Payment of dividends................. (189) -- -- -- -- (189)
Redemption of preferred stock........ (2,500) -- -- -- -- (2,500)
--------------- --------- -------- ----------- ------------ -------------
Net cash provided by financing
activities......................... 122,950 3,971 5,524 16,858 -- 149,303
--------------- --------- -------- ----------- ------------ -------------
Net increase (decrease) in cash...... (1,579) -- 719 4,306 -- 3,446
Cash at beginning of period.............. 1,579 -- 2,351 5,013 -- 8,943
--------------- --------- -------- ----------- ------------ -------------
Cash at end of period.................... $ -- $ -- $ 3,070 $ 9,319 $ -- $ 12,389
--------------- --------- -------- ----------- ------------ -------------
--------------- --------- -------- ----------- ------------ -------------
</TABLE>
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
DOE RUN PERU S.R.L.:
We have audited the accompanying consolidated balance sheet of DOE RUN PERU
S.R.L. (a Peruvian company) as of October 31, 1997 and the related consolidated
statements of income, changes in shareholders' 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 PERU S.R.L. 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-45
<PAGE>
DOE RUN PERU S.R.L.
CONSOLIDATED BALANCE SHEET
AS OF OCTOBER 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................ $ 5,013
Trade accounts receivable....................................................... 390
Inventory....................................................................... 59,032
Prepaid expenses and other assets............................................... 2,729
---------
Total current assets.......................................................... 67,164
DUE FROM SHAREHOLDER.............................................................. 125,000
PROPERTY, PLANT AND EQUIPMENT, net................................................ 97,739
---------
Total assets.................................................................. $ 289,903
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.......................................................... $ 23,151
Accrued liabilities............................................................. 9,375
Due to related party............................................................ 1,214
---------
Total current liabilities..................................................... 33,740
LONG-TERM LIABILITIES............................................................. 8,346
---------
Total liabilities............................................................. 42,086
---------
SHAREHOLDERS' EQUITY
Capital stock................................................................... 247,926
Retained loss................................................................... (109)
---------
Total shareholders' equity.................................................... 247,817
---------
Total liabilities and shareholders' equity.................................... $ 289,903
---------
---------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-46
<PAGE>
DOE RUN PERU S.R.L.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM OCTOBER 23, 1997 (INCEPTION DATE) TO OCTOBER 31,1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
NET SALES........................................................................... $ 2,571
---------
OPERATING COSTS AND EXPENSES:
Costs of sales.................................................................... 2,048
Depreciation expense.............................................................. 151
Administrative and general expenses............................................... 32
---------
2,231
---------
Operating income................................................................ 340
OTHER EXPENSES:
Exchange loss..................................................................... 28
---------
Income before provision for
income tax.................................................................... 312
PROVISION FOR INCOME TAX............................................................ 421
---------
Net loss........................................................................ $ (109)
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-47
<PAGE>
DOE RUN PERU S.R.L.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 23, 1997 (INCEPTION DATE) TO OCTOBER 31,1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CAPITAL RETAINED
STOCK LOSS
---------- -----------
<S> <C> <C>
Capital contributions...................................................................... $ 247,926 $ --
Net loss................................................................................... -- (109)
---------- -----
BALANCE AS OF OCTOBER 31, 1997............................................................. $ 247,926 $ (109)
---------- -----
---------- -----
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-48
<PAGE>
DOE RUN PERU S.R.L.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 23, 1997 (INCEPTION DATE) TO OCTOBER 31, 1997
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net loss........................................................................ $ (109)
Add:
Depreciation.................................................................. 151
Deferred provision of income tax and workers' profit sharing.................. 3
Net changes in assets and liabilities:
Increase in trade accounts receivable......................................... (390)
Increase in inventory......................................................... (3,465)
Increase in prepaid expenses and other assets................................. (1,347)
Increase in trade accounts payable............................................ 5,025
Increase in accrued liabilities............................................... 3,003
Increase in long-term liabilities............................................. 1,146
---------
Net cash provided by operating activities....................................... 4,017
---------
INVESTING ACTIVITIES:
Increase in due from shareholder................................................ (125,000)
Acquisition of net assets of Metaloroya......................................... (123,015)
Additions of property, plant and equipment...................................... (129)
---------
Net cash used in investing activities........................................... (248,144)
---------
FINANCING ACTIVITIES:
Capital contributions........................................................... 247,926
Increase in due to related party................................................ 1,214
---------
Net cash provided by financing activities....................................... 249,140
---------
NET INCREASE IN CASH AND DEPOSITS IN BANKS........................................ 5,013
CASH AND DEPOSITS IN BANKS AT BEGINNING OF PERIOD................................. --
---------
CASH AND DEPOSITS IN BANKS AT END OF PERIOD....................................... $ 5,013
---------
---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-49
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 31, 1997
1. BUSINESS ACTIVITY AND ACQUISITION
Doe Run Peru S.R.L. ("Doe Run Peru" or the "Company"), is a Peruvian Company
incorporated on September 8, 1997 and 99.9% owned by Doe Run Mining S.R.L. On
October 23, 1997, Doe Run Peru acquired substantially all of the outstanding
shares of Metaloroya S.A. ("Metaloroya"), a Peruvian company which was formed
for purposes of consummating the sale of certain assets and liabilities of La
Oroya, a division of Centromin Peru S.A. ("CENTROMIN"), an entity owned by the
Peruvian government.
The acquisition was made through a Contract of Stock Transfer, Capital
Increase and Stock Subscription (the "Contract"), which required a capital
increase in Metaloroya of US$126.5 million in exchange for the 51% for the
shares and a payment of US$121.4 million for the transfer of the remaining 49%.
The acquisition has been accounted for as a purchase and the effective purchase
price of US$123 million, including transaction costs of approximately US$2.5
million, has been allocated to the fair value of the assets acquired and
liabilities assumed. Because of the "bargain purchase" inherent in the
acquisition, the excess of the fair values of the net assets acquired over the
purchase price of approximately US$157 million has been mainly used to reduce
the value of the fixed assets acquired.
Doe Run Peru and its subsidiary are engaged in the smelting and refining of
polymetalic concentrates, mainly copper, lead and zinc, which are sold as
refined metals primarily to customers located outside of Peru. Substantially all
of the Company's assets and liabilities are denominated in U.S. dollars.
2. BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated financial statements of the Company have been prepared in
accordance with the accounting principles generally accepted in the United
States of America ("U.S. GAAP").
Unless otherwise indicated, all amounts in the financial statements and in
these notes are presented in thousands of U.S. dollars (US$).
The consolidated financial statements include all the accounts of the
Company and its subsidiary, after eliminating intercompany balances and
transactions, including gains and losses resulting from such transactions. The
minority interest is not significant and represents a minimal ownership by
Metaloroya's employees.
Doe Run Peru had no operations prior to the acquisition of Metaloroya.
Accordingly, the accompanying consolidated statements of income and cash flows
reflect the results of operations for the period from October 23, 1997 to
October 31, 1997.
F-50
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY
Inventory is stated at the lower of cost or net realizable value. The cost
of refined metals and concentrates for sale, as well as metals and concentrates
in process are determined under the first-in, first-out method (FIFO). Inventory
costs include concentrates purchased, labor, depreciation and other production
costs. The cost of materials, supplies and spare parts are determined using the
average cost method.
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 7. Maintenance and minor
repairs are charged to expenses as incurred. Material improvements and renewals
are capitalized.
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.
INCOME TAX AND WORKERS' PROFIT SHARING
Under Statement of Financial Accounting Standard N DEG.109, "Accounting for
Income Taxes" ("SFAS 109"), which designates the liability method as the
required accounting method for taxes under U.S. GAAP, the Company recognizes the
tax effect of the temporary differences between the financial reporting basis of
assets and liabilities and the related tax basis.
The Company also recognizes the effect of the 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 tax.
4. REMEASUREMENT INTO U.S. DOLLAR
The accounting records of Doe Run Peru and Metaloroya, which are kept in
Peruvian nuevos soles, have been re-measured into U. S. dollars, their
functional currency, following the methodology established by SFAS 52:
(a) Non-monetary accounts have been re-measured at historical exchange
rates.
(b) Monetary accounts in Peruvian currency have been re-measured at free
market average exchange rate in effect at October 31,1997, which is S/2.71 per
each US$1.
(c) Income and expenses have been re-measured at the average monthly
exchange rates. Cost of sales was determined from its components once
re-measured. The net effect of foreign exchange difference has been reflected in
the accompanying statement of income.
F-51
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
5. FOREIGN CURRENCY TRANSACTIONS AND EXCHANGE RISK EXPOSURE
Under current law, foreign currency transactions are made through the
Peruvian financial banking system at free market exchange rates.
As of October 31,1997, the assets and liabilities denominated in Peruvian
nuevos soles are as follows (in thousands):
<TABLE>
<S> <C>
Assets -
Prepaid expenses and other assets................................ S/7,396
---------
Liabilities -
Accrued liabilities............................................ 6,229
---------
Net position....................................................... S/1,167
---------
---------
</TABLE>
The net effect of exchange differences applicable to the net assets position
denominated in Peruvian nuevos soles was a loss of US$28 for the period from
October 23, 1997 to October 31, 1997, which has been reflected in the
accompanying statement of income.
6. INVENTORY
Inventory consists of the following as of October 31, 1997:
<TABLE>
<S> <C>
Refined metals and concentrates for sale........................... $ 5,324
Metals and concentrates in process................................. 43,188
Materials, supplies and spare parts................................ 10,520
---------
$ 59,032
---------
---------
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following as of October 31,
1997:
<TABLE>
<CAPTION>
ANNUAL
DEPRECIATION
RATE
---------------
<S> <C> <C>
Land........................................................... -- $ 5,866
Buildings...................................................... 5% and 10% 16,619
Machinery and equipment........................................ 6.67% 70,388
Transportation units........................................... 33.33% 1,955
Other equipments............................................... 10% 2,933
Work in progress............................................... -- 129
---------
97,890
Less--Accumulated depreciation................................. (151)
---------
$ 97,739
---------
---------
</TABLE>
F-52
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
8. ACCRUED LIABILITIES
Accrued liabilities consists of the following as of October 31, 1997:
<TABLE>
<CAPTION>
Remunerations payable............................................................... $ 3,856
<S> <C>
Taxes payable....................................................................... 1,521
Fees and expenses payable........................................................... 1,286
Severance indemnities............................................................... 1,238
Other............................................................................... 1,476
---------
$ 9,377
---------
---------
</TABLE>
Severance indemnities are determined according to legal regulations and are
provided for on an accrual basis for the amount, which would be paid if all
personnel were to retire at the balance sheet date. Under Legislative Decree
650, liabilities relating to severance indemnities earned currently by employees
are accrued and semi-annually deposited into workers' individual bank accounts
designated by the employees.
9. LONG-TERM LIABILITIES
Long-term liabilities consists primarily of estimated closure costs of a
zinc ferrite site of US$7.2 million, as explained in Note 12.
10. TAXATION AND WORKERS' PROFIT SHARING
The Company and its subsidiary are subject to the Peruvian tax regulations.
The statutory income tax rate in Peru is 30% of taxable income.
Metaloroya has signed a Tax Stabilization Agreement with the Peruvian
Government for a ten-year period effective November 6, 1997. The benefits are
the following:
- Utilization of the tax rules prevailing on April 25, 1994. In exercise of
the regulation permitted in the tenth clause of the Tax Stabilization
Agreement, Metaloroya has adopted the tax rules prevailing on November 6,
1997.
- Custom duties will be calculated at rates ranging from 15% to 25%.
- Free commercialization of its products.
- No restrictions on 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 regulations in Peru, the
Company's workers have the right to receive 8 percent of the Company'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, which is taxable, is
limited to 18 times the annual salary for each worker. Any excess is to be
reserved and expensed for training of the workers.
F-53
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
10. TAXATION AND WORKERS' PROFIT SHARING (CONTINUED)
The provision for income tax and workers' profit sharing is comprised of the
following for the period from October 23, 1997 to October 31, 1997:
<TABLE>
<CAPTION>
WORKERS' PROFIT
INCOME TAX SHARING
------------- -----------------
<S> <C> <C>
Current provision..................................................................... $ 419 $ 121
Deferred provision.................................................................... 2 1
----- -----
Total............................................................................. $ 421 $ 122
----- -----
----- -----
</TABLE>
The effective income tax rate recorded on a U.S. GAAP basis is 135% because
of difference between inflation and devaluation of US$1,002, which is taxable.
11. SHAREHOLDERS' EQUITY
The capital stock is comprised of 648,672,941 authorized, totally subscribed
and paid-in common shares, with a face value of one Peruvian nuevos soles each.
Under Peruvian current regulations, there are no restrictions on dividend
remittance abroad or the repatriation of foreign capital. Dividend distribution
is exempt from Peruvian income tax.
12. COMMITMENTS AND CONTINGENCIES
INVESTMENT COMMITMENT
According to the Contract described in Note 1, Metaloroya is obligated to
invest US$120 million through October 23, 2002 to expand and modernize its
operations, including certain expenditures to comply with environmental
regulations within Peru, as discussed below. In the event that Metaloroya has
not fulfilled its obligations under the investment commitment by the end of
October 23, 2002, it will be obligated to pay in 2002 a penalty to CENTROMIN
equal to 30% of any shortfall.
ENVIRONMENTAL MATTERS
On October 17, 1997, Metaloroya signed with the Peruvian government an
Administrative Environmental Stabilization Contract, the purpose of which is to
provide environmental stability to resolve the environmental matters included in
the Environmental Protection Adequacy and Management Program (PAMA).
Accordingly, future changes in legal rules and maximum permissible levels would
not affect Metaloroya for ten years from the date of the Contract.
F-54
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Metaloroya's management estimates that it will invest US$107.6 million
during the next nine years in order to meet its obligations under the PAMA. Also
under this agreement, Metaloroya is obligated to invest a minimum of 1% of
annual sales each year on such commitments. The schedule 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>
Management expects that the cost of future investments will be capitalized
in future periods and depreciated over periods to be benefited.
In accordance with the Contract described in Note 1, damages caused to the
environment on or prior to October 23, 1997, as well as any future claims
originated by those damages are responsibility of CENTROMIN. These obligations
of CENTROMIN have been guaranteed by the Republic of Peru through a Supreme
Decree.
POTENTIAL TAX ASSESSMENTS
All existing and pending tax contingencies at the time of the acquisition of
Metaloroya were retained by CENTROMIN.
Income tax and value added tax from October 23, 1997 to the date of this
report are pending examination by the tax authorities. If tax assessments were
made, any taxes or surcharges that must be paid would be charged to expenses in
the years in which they are assessed. In the opinion of the Company's
management, there are no matters that should result in significant tax
contingencies.
LITIGATIONS
All existing and pending litigations at the time of the acquisition of
Metaloroya were retained by CENTROMIN.
ZINC FERRITE DISPOSAL
According to the Contract described in Note 1, the Company has the option to
continue to use the existing zinc ferrite disposal site for three years, after
which it can either take ownership of the site or develop a new site. If the
Company decides to take ownership of the site, it will be responsible for its
F-55
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF OCTOBER 31, 1997
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ultimate closure costs, which have been estimated at US$7.2 million and recorded
as a reserve in the caption long-term liabilities in the accompanying
consolidated balance sheet. If the Company decides to develop a new site, it is
required to pay to CENTROMIN the US$7.2 million estimated closure costs.
13. RELATED PARTY TRANSACTION
On October 23, 1997, Metaloroya granted to its shareholder, Doe Run Mining
S.R.Ltda., a US$125 million loan which does not accrue interest and matures on
October 23, 2002.
In addition, Doe Run Peru has a payable to Doe Run Resources Corporation of
US$1.2 million related to payments made on behalf of the Company for the
acquisition of Metaloroya. This payable does not accrue interest.
14. 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, being the surviving company Doe Run Peru. The merger will become
effective on December 30, 1997.
F-56
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 31, 1998
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash............................................................................ $ 9,319
Trade accounts receivable, net of allowance for doubtful accounts............... 27,619
Inventories..................................................................... 69,441
Prepaid expenses and other current assets....................................... 24,265
Due from parent................................................................. 134,095
---------
Total current assets........................................................ 264,739
Property, plant and equipment, net................................................ 96,641
Other noncurrent assets, net...................................................... 1,340
---------
Total assets................................................................ $ 362,720
---------
---------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Short-term borrowing............................................................ $ 12,000
Accounts payable................................................................ 35,492
Accrued liabilities............................................................. 13,932
Net deferred tax liabilities.................................................... 1,853
Due to parent................................................................... 15,167
---------
Total current liabilities................................................... 78,444
Other non-current liabilities..................................................... 8,883
---------
Total liabilities........................................................... 87,327
---------
Shareholders' equity:
Common stock, one nuevo sd par value, 648,672,941 shares authorized, issued and
outstanding................................................................... 247,926
Retained earnings............................................................... 27,467
---------
Total shareholders' equity.................................................. 275,393
---------
Total liabilities and shareholders' equity.................................. $ 362,720
---------
---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-57
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
DOE RUN
LA OROYA PERU S.R.L.
-----------------------
NINE MONTHS ENDED
JULY 31,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Net sales................................................................................ $ 332,518 $ 349,444
Costs and expenses:
Costs of sales......................................................................... 278,036 283,037
Depreciation........................................................................... 4,254 5,010
Selling, general and administrative expenses........................................... 14,762 26,523
---------- -----------
Total costs and expenses........................................................... 297,052 314,570
---------- -----------
Income from operations............................................................... 35,466 34,874
Other income (expense):
Interest expense....................................................................... (866) (279)
Interest income........................................................................ -- 549
Other, net............................................................................. (1,189) 463
---------- -----------
(2,055) 733
---------- -----------
Income before income tax expense..................................................... 33,411 35,607
Income tax expense....................................................................... 10,078 8,031
---------- -----------
Net income........................................................................... $ 23,333 $ 27,576
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-58
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
DOE RUN
LA OROYA PERU S.R.L.
----------------------
NINE MONTHS ENDED
JULY 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Net cash provided by (used in) operating activities.................... $ 20,733 $ (8,640)
Cash flows from investing activities:
Purchases of property, plant and equipment........................... -- (3,912)
--------- -----------
Net cash used in investing activities................................ -- (3,912)
Cash flows from financing activities:
Proceeds from short-term borrowing, net.............................. -- 12,000
Payments on long-term debt........................................... (15,068) --
Loans from parent.................................................... -- 4,858
Transfer to Centromin................................................ (6,197) --
--------- -----------
Net cash provided by (used in) financing activities.................. (21,265) 16,858
--------- -----------
Net increase (decrease) in cash...................................... (532) 4,306
Cash at beginning of period............................................ 572 5,013
--------- -----------
Cash at end of period.................................................. $ 40 $ 9,319
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-59
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF U.S. DOLLARS)
AS OF JULY 31, 1998
1. BASIS OF PRESENTATION
COMPARABILITY OF FINANCIAL STATEMENTS
The condensed consolidated statement of operations and the condensed
consolidated statement of cash flows for the nine months ended July 31, 1997
reflect the basis of assets and liabilities of La Oroya, a division of Centromin
Peru S.A. The condensed consolidated statement of operations and the
consolidated statement of cash flows for the nine months ended July 31, 1998
reflect the new basis of assets and liabilities of Doe Run Peru S.R.L. (the
"Company") acquired as of October 23, 1997. The Company's results may not be
comparable in all respects to those of La Oroya.
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 as of July 31, 1998 and
results of operations for the nine months ended July 31, 1998 and 1997. Interim
periods are not necessarily indicative of results to be expected for the year.
2. INVENTORIES
Inventories consist of the following as of July 31, 1998:
<TABLE>
<S> <C>
Refined metals and concentrates for sale........................... $ 1,347
Metals and concentrates in process................................. 53,724
Materials, supplies and spare parts................................ 14,370
---------
$ 69,441
---------
---------
</TABLE>
F-60
<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-61
<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-62
<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-63
<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-64
<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-65
<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.L. ("Doe
Run Peru"), a wholly owned subsidiary of Doe Run Mining S.R.L., 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-66
<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-67
<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-68
<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-69
<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-70
<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-71
<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-72
<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.
F-73
<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 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>
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>
F-74
<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 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-75
<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-76
<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-77
<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-78
<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-79
<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-80
<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-81
<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-82
<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-83
<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-84
<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
F-85
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-86
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
F-87
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(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. 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.
F-88
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(5) COMMITMENTS (CONTINUED)
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 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.
F-89
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
(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.
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-90
<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 June 30, 1998 and the related interim condensed
statements of operations and cash flows for the six month period ended June 30,
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.
PricewaterhouseCoopers LLP
New York, New York
August 19, 1998
F-91
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues.................................................................................... $ 37,904 $ 44,178
--------- ---------
Cost of sales............................................................................... 31,193 34,661
General and administrative.................................................................. 2,148 2,472
Depreciation and depletion 4,374 3,997
Research.................................................................................... 138 174
--------- ---------
Operating expenses.......................................................................... 37,853 41,304
--------- ---------
Earnings before income taxes................................................................ 51 2,874
Income tax expense.......................................................................... 19 143
--------- ---------
Net earnings................................................................................ $ 32 $ 2,731
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-92
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED BALANCE SHEETS
(UNAUDITED)
AS OF JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash...................................................................................... $ 62 $ 44
Receivables, net of allowance for doubtful accounts of $150 for 1998 and 1997............. 8,482 12,712
Metal inventories......................................................................... 3,887 5,967
Supply inventories........................................................................ 5,569 5,939
Other current assets...................................................................... 199 316
---------- ----------
Current assets.......................................................................... 18,199 24,978
---------- ----------
Mineral land.............................................................................. 30,542 30,515
Buildings................................................................................. 37,320 35,249
Machinery & equipment..................................................................... 87,647 84,622
Total cost.............................................................................. 155,509 150,386
Accumulated depreciation and depletion.................................................... (93,754) (85,550)
Property, net........................................................................... 61,755 64,836
---------- ----------
Total assets.............................................................................. $ 79,954 $ 89,814
---------- ----------
---------- ----------
Accounts payable and accrued expenses..................................................... $ 4,653 $ 7,053
Salaries and wages accrued................................................................ 653 322
Reserve for workers compensation.......................................................... 1,432 1,469
Other current liabilities................................................................. 1,051 1,393
---------- ----------
Current liabilities..................................................................... 7,789 10,237
Reclamation reserve....................................................................... 808 267
Other non-current liabilities............................................................. 8 --
---------- ----------
Deferred income taxes..................................................................... 7,946 8,395
---------- ----------
Total liabilities....................................................................... 16,551 18,899
Divisional equity....................................................................... 63,403 70,915
---------- ----------
Total liabilities and divisional equity................................................. $ 79,954 $ 89,814
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
MISSOURI LEAD DIVISION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Earnings................................................................................ $ 32 $ 2,731
Adjustments to reconcile net earnings to net cash provided from operating activities:
Deferred income taxes..................................................................... (281) (846)
Depreciation and depletion................................................................ 4,374 3,997
Cash provided from operating assets and liabilities:
Accounts receivable................................................................... 932 4,255
Accounts payable and accrued expenses................................................. (1,323) (284)
Salaries and wages accrued............................................................ (443) (594)
Inventories........................................................................... 1,743 2,370
Other assets and liabilities.......................................................... 509 674
--------- ----------
Net cash provided from operating activities................................................. 5,543 12,303
INVESTING ACTIVITIES
Capital expenditures........................................................................ (1,209) (1,856)
--------- ----------
Net cash used for investing activities...................................................... (1,209) (1,856)
FINANCING ACTIVITIES
Net distributions to Asarco................................................................. (4,504) (10,495)
--------- ----------
Net cash used for financing activities...................................................... (4,504) (10,495)
Decrease in cash............................................................................ (170) (48)
Cash at beginning of the period............................................................. 232 92
--------- ----------
Cash at end of the period................................................................... $ 62 $ 44
--------- ----------
--------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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 accompanying condensed financial statements should be read
in conjunction with the Company's annual financial statements as of December 31,
1997 and 1996 and for the three year periods ended December 31, 1997 included in
the Registration Statement on Form S-4 (File No. 333-52285) filed by The Doe Run
Resources Corporation and certain of its subsidiaries with the Securities and
Exchange Commission.
The financial information included herein may not necessarily reflect the
results of operations, financial position 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 June 30, 1998 and 1997 and the results of operations
and cash flows for the six months ended June 30, 1998 and 1997. This financial
data has been subjected to a review by PricewaterhouseCoopers LLP, the Company's
independent accountants. The results of operations for the six 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. The Company had no hedging contracts outstanding during the six
months ended June 30, 1998 or 1997. At June 30, 1998, the Company's financial
instruments also include cash, receivables and accounts payable. At June 30,
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:
Total taxes paid by Asarco and charged to the Company were $300 and $989 for
the six months ended June 30, 1998 and 1997, respectively. Income tax expense in
1997 includes a tax benefit for percentage depletion arising from the Company's
mine earnings.
F-95
<PAGE>
MISSOURI LEAD DIVISION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(DOLLARS IN THOUSANDS)
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 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.
On July 28, 1998, Asarco entered into an asset purchase and sales agreement,
pursuant to which Asarco will sell certain assets to The Doe Run Resources
Corporation, a subsidiary of The Renco Group, Inc., which is expected to close
in the third quarter. The assets to be sold include the lead smelter and
refinery and two mines and associated equipment.
F-96
<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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OR TO MAKE ANY
REPRESENTATION TO YOU THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. YOU SHOULD NOT UNDER ANY CIRCUMSTANCES ASSUME THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Special Note Regarding Forward-Looking
Statements................................... 2
Presentation of Certain Financial
Information.................................. 2
Exchange Rates................................. 2
Prospectus Summary............................. 4
Risk Factors................................... 17
Use of Proceeds................................ 26
Capitalization................................. 27
Unaudited Pro Forma Consolidated Financial
Data......................................... 28
Selected Historical Consolidated Financial
Data......................................... 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 39
The Exchange Offer............................. 50
Industry....................................... 58
Business....................................... 62
Management..................................... 99
Principal Shareholders......................... 103
Certain Transactions........................... 104
Description of Revolving Credit Facilities..... 106
Description of the March 1998 Notes............ 109
Description of the Notes....................... 110
Certain U.S. Federal Income Tax
Considerations............................... 139
Plan of Distribution........................... 142
Legal Matters.................................. 143
Experts........................................ 143
Index to Consolidated Financial Statements..... F-1
Glossary of Certain Metallurgy Terms........... G-1
</TABLE>
------------
[LOGO]
THE DOE RUN
RESOURCES CORPORATION
EXCHANGE OFFER
FOR
11 1/4% SENIOR SECURED NOTES
DUE 2005
GUARANTEED BY:
FABRICATED PRODUCTS, INC.
DR LAND HOLDINGS, LLC
DOE RUN CAYMAN LTD.
DOE RUN MINING S.R.L.
DOE RUN PERU S.R.L.
DOE RUN AIR S.A.C.
DOE RUN DEVELOPMENT S.A.C.
EMPRESA MINERA COBRIZA S.A.
-----------------
PROSPECTUS
-----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 (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
II-1
<PAGE>
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.
Section 18-108 of the Delaware Limited Liability Company Act provides that,
subject to any such standards or restrictions as are set forth in its limited
liability company agreement, a limited liability company may, and shall have the
power to, indemnify and hold harmless any member or manager or other person from
and against any and all claims and demands whatsoever. The limited liability
company agreement of DR Land Holdings, LLC ("DRLH") does not specify any
standards nor set forth any restrictions on the limited liability company
regarding indemnification of any member, manager or other person from and
against any claims.
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 willful neglect or default respectively.
Peruvian law does not provide for the indemnification of directors or
officers of entities organized as Sociedades de Responsibilidad Limitada (which
do not have directors), Sociedades Anonima Cerrada and Sociedades Anonima. The
Constituciones de Sociedad Comercial de Responsibilidad
II-2
<PAGE>
Limitada for Doe Run Mining S.R.L. ("Doe Run Mining") and Doe Run Peru S.R.L.
("Doe Run Peru"), the Constitucion Simultanea de Sociedad Anonima Cerrada for
Doe Run Air S.A.C. ("Doe Run Air") and Doe Run Development S.A.C. ("Doe Run
Development"), and the Modificacion Total de Estatuto Social, Designacion de
membros de Directorio, Nombramiento de Gerente General, Nombriento de Apoderados
Especiales y Otorgamiento de Poderes Especiales of Empresa Miera Cobriza S.A.
("Cobriza") do not contain any provisions regarding the indemnification of
directors or officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
2.1 --Asset Purchase and Sale Agreement, dated as of July 28, 1998, between ASARCO Incorporated and Doe Run
for the Missouri Lead Division and the Sugar Creek Project.(1)
3.1 --Certificate of Incorporation of Doe Run.(1)
3.2 --Amended and Restated By-laws of Doe Run.(1)
3.3 --Certificate of Incorporation of FPI.(1)
3.4 --Bylaws of FPI.(1)
3.5 --Certificate of Incorporation of Doe Run Cayman.(1)
3.6 --Memorandum and Articles of Association of Doe Run Cayman.(1)
3.7 --Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Mining (with English
translation).(1)
3.8 --Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Peru (with English
translation).(1)
3.9.1 --Constitucion Simultanea de Sociedad Anonima Cerrada de Doe Run Air (with English translation).(3)
3.9.2 --Constitucion Simultanea de Sociedad Anonima Cerrada de Doe Run Development (with English
translation).(3)
3.9.3 --Modificacion Total de Estatuto Social, Designacion de membros de Directorio, Nombramiento de Gerente
General, Nombriento de Apoderados Especiales y Otorgamiento de Poderes Especiales de Cobriza (with
English translation).(3)
3.10 --Certificate of Formation of DRLH.
3.11 --Limited Liability Company Agreement of DRLH.
4.1.1 --Indenture, dated as of March 12, 1998, by and among Doe Run, as issuer, FPI, Doe Run Cayman, Doe Run
Mining and Doe Run Peru, as guarantors, 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).(1)
4.1.2 --First Supplemental Indenture, dated as of September 1, 1998, by and among Doe Run, as issuer, FPI,
Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air and Doe Run Development, as guarantors, and
State Street Bank and Trust Company, as trustee, supplementing the Indenture, dated as of March 12,
1998.(2)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
4.1.3 --Second Supplemental Indenture, dated as of September 16, 1998, by and among Doe Run, as issuer, FPI,
Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development and Cobriza, as
guarantors, and State Street Bank and Trust Company, as trustee, supplementing the Indenture, dated
as of March 12, 1998.(3)
4.1.4 --Third Supplemental Indenture, dated as of January 13, 1999, by and among Doe Run, as issuer, FPI, Doe
Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development, Cobriza and DR Land
Holdings, LLC ("DRLH"), as guarantors, and State Street Bank and Trust Company, as trustee,
supplementing the Indenture, dated as of March 12, 1998.
4.2.1 --Indenture, dated as of September 1, 1998, by and among Doe Run, as issuer, FPI, Doe Run Cayman, Doe
Run Mining, Doe Run Peru, Doe Run Air and Doe Run Development, as guarantors, and State Street Bank
and Trust Company, as trustee, relating to the 11 1/4% Senior Secured Notes due 2005, Series A and
11 1/4% Senior Secured Notes due 2005, Series B and the Guarantees thereof (containing, as exhibits,
specimens of the Notes and the Guarantees).(2)
4.2.2 --First Supplemental Indenture, dated as of September 16, 1998, by and among Doe Run, as issuer, FPI,
Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development and Cobriza, as
guarantors, and State Street Bank and Trust Company, as trustee, supplementing the Indenture, dated
as of September 1, 1998.(3)
4.2.3 --Second Supplemental Indenture, dated as of January 13, 1999, by and among Doe Run, as issuer, FPI,
Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development, Cobriza and DRLH, as
guarantors, and State Street Bank and Trust Company, as trustee, supplementing the Indenture, dated
as of September 1, 1998.
4.2.4 --Pledge Agreement, dated as of January 15, 1999, by Doe Run to State Street Bank and Trust Company.
4.3 --Purchase Agreement, dated August 26, 1998, among Doe Run, FPI, Doe Run Cayman, Doe Run Mining, Doe
Run Peru, Doe Run Air, Doe Run Development and Jefferies & Company, Inc., relating to the 11 1/4%
Senior Secured Notes due 2005.(2)
4.4 --Registration Rights Agreement, dated as of September 1, 1998, by and among Doe Run, FPI, Doe Run
Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development and Jefferies & Company, Inc.,
relating to the 11 1/4% Senior Secured Notes due 2005.(2)
4.5 --Form Letter of Transmittal.(3)
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.(1)
10.1.2 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Marvin
K. Kaiser.(1)
10.1.3 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Richard L. Amistadi.(1)
10.1.4 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and Gary
E. Boyer.(1)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.1.5 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Kenneth R. Buckley.(1)
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.(1)
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.(1)
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.(1)
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.(1)
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.(1)
10.3 --The Doe Run Resources Corporation Supplemental Employee Retirement Plan.(1)
10.4 --The Doe Run Company Executive Tax Services Plan.(1)
10.5.1 --Loan and Security Agreement, dated March 12, 1998, by and among Doe Run, FPI and Congress Financial
Corporation.(1)
10.5.2 --Amendment No. 1 to Loan and Security Agreement, dated September 1, 1998, among Doe Run, FPI and
Congress Financial Corporation. (2)
10.5.3 --Amendment No. 2 to Loan and Security Agreement, dated January 13, 1999, by and among Doe Run, FPI and
Congress Financial Corporation.
10.5.4 --Guarantee, dated January 13, 1999, between DRLH and Congress Financial Corporation.
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).(1)
10.7 --Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program) (with English
translation).(1)
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).(1)
10.8.2 --Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe
Run Mining--Commission for Foreign Investments and Technologies) (with English translation).(1)
10.8.3 --Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with Doe
Run Mining--Ministry of Energy and Mines) (with English translation).(1)
10.8.4 --Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run
Peru--Minister of Energy and Mines) (with English translation).(1)
10.8.5 --Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with Doe Run
Peru--Vice Minister of Mines) (with English translation).(1)
10.8.6 --Convenio de Estabilidad Juridica con Doe Run Cayman Ltd. (Legal Stability Agreement with Doe Run
Cayman--Commission for Foreign Investments and Technologies) (with English translation).(1)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
10.8.7 --Remite Contrato de Estabilidad Administrativa Ambiental (Environmental Stability Agreement) (with
English translation).(1)
10.9.1 --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 (with English
translation).(1)
10.9.2 --Modificacion al Contrato de Linea de Credito en Moneda Extranjera y al Contrato de Afectacion en
Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza (amendment to the Contract for Line of Credit
in Foreign Currency and Collection Account Agreement, dated as of October 6, 1998, between Banco de
Credito del Peru and Doe Run Peru S.R.L. (English translation to be filed by amendment).(3)
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 (with English
translation).(1)
10.11 --Contrato de Prenda de Minerales (Ore Collateral Agreement), dated June 11, 1998, between Banco de
Credito del Peru and Doe Run Peru (with English translation).(1)
10.12 --Security Agreement, dated as of September 1, 1998, by Doe Run in favor of State Street Bank and Trust
Company, as trustee and collateral agent.(2)
10.13 --Intercreditor Agreement, dated as of September 1, 1998, between State Street Bank and Trust Company,
as note trustee, and Congress Financial Corporation, as lender.(2)
10.14 --Management Consulting Agreement, dated as of April 17, 1994, as amended, between The Renco Group,
Inc. and The Doe Run Resources Corporation.(3)
12 --Statement regarding computation of ratios.(3)
15 --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 LLP.
23.3 --Consent of Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC.
23.4 --Consent of PricewaterhouseCoopers LLP.
23.5 --Consent of Pincock, Allen & Holt.
24 --Power of Attorney (included on the signature page).(3)
25 --Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust Company.(3)
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registration Statement on Form S-4, as
amended, (File No. 333-52285) originally filed May 11, 1998
(2) Incorporated by reference to Form 8-K (File No. 333-52285) filed September
16, 1998.
(3) Previously filed.
II-6
<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 that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration
II-7
<PAGE>
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.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply be 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-8
<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 January 20, 1999.
<TABLE>
<S> <C> <C>
THE DOE RUN RESOURCES CORPORATION
By: /s/ JEFFREY L. ZELMS
-----------------------------------------
JEFFREY L. ZELMS
President and Chief Executive Officer
FABRICATED PRODUCTS, INC.
By: /s/ MARVIN K. KAISER
-----------------------------------------
MARVIN K. KAISER
Vice President and Chief Financial Officer
DOE RUN CAYMAN LTD.
By: /s/ JEFFREY L. ZELMS
-----------------------------------------
JEFFREY L. ZELMS
President
DOE RUN MINING S.R.L.
By: /s/ KENNETH R. BUCKLEY
-----------------------------------------
KENNETH R. BUCKLEY
General Manager
DOE RUN PERU S.R.L.
By: /s/ KENNETH R. BUCKLEY
-----------------------------------------
KENNETH R. BUCKLEY
General Manager
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C> <C>
DOE RUN AIR S.A.C.
By: /s/ JEFFREY L. ZELMS
-----------------------------------------
JEFFREY L. ZELMS
Attorney-in-Fact
DOE RUN DEVELOPMENT S.A.C.
By: /s/ JEFFREY L. ZELMS
-----------------------------------------
JEFFREY L. ZELMS
Attorney-in-Fact
EMPRESA MINERA COBRIZA S.A.
By: /s/ JEFFREY L. ZELMS
-----------------------------------------
JEFFREY L. ZELMS
Attorney-in-Fact
DR LAND HOLDINGS, LLC
By: /s/ MARVIN K. KAISER
-----------------------------------------
MARVIN K. KAISER
Vice President
</TABLE>
II-10
<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 January 20, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
THE DOE RUN RESOURCES CORPORATION
*
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
President and Chief
* 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.
*
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
*
- ------------------------------ President (Principal
JERRY L. PYATT Executive Officer)
Vice President, Chief
/s/ MARVIN K. KAISER Financial Officer and
- ------------------------------ Treasurer (Principal
MARVIN K. KAISER Financial and Accounting
Officer)
DOE RUN CAYMAN LTD.
*
- ------------------------------ Chairman of the Board and
IRA LEON RENNERT Director
*
- ------------------------------ President (Principal
JEFFREY L. ZELMS Executive Officer)
/s/ MARVIN K. KAISER Vice President (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
DOE RUN MINING S.R.L.
*
- ------------------------------ General Manager (Principal
KENNETH R. BUCKLEY Executive Officer)
/s/ MARVIN K. KAISER Finance Manager (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
DOE RUN PERU S.R.L.
*
- ------------------------------ General Manager (Principal
KENNETH R. BUCKLEY Executive Officer)
/s/ MARVIN K. KAISER Finance Manager (Principal
- ------------------------------ Financial and Accounting
MARVIN K. KAISER Officer)
DOE RUN AIR S.A.C.
*
- ------------------------------ General Manager (Principal
ANTHONY W. WORCESTER Executive Officer)
* Finance Manager (Principal
- ------------------------------ Financial and Accounting
HENRY E. PEITZ Officer)
DOE RUN DEVELOPMENT S.A.C.
General Manager (Principal
* Executive Officer and
- ------------------------------ Principal Financial and
VICTOR RAUL EYZAGUIRRE Accounting Officer)
EMPRESA MINERA COBRIZA S.A.
General Manager (Principal
* Executive Officer and
- ------------------------------ Principal Financial and
KENNETH R. BUCKLEY Accounting Officer)
DR LAND HOLDINGS, LLC
/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>
<TABLE>
<S><C> <C>
*By: /s/ MARVIN K. KAISER Attorney-in-Fact
------------------------------
MARVIN K. KAISER
</TABLE>
II-12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 --Asset Purchase and Sale Agreement, dated as of July 28, 1998, between ASARCO Incorporated and
Doe Run for the Missouri Lead Division and the Sugar Creek Project.(1)
3.1 --Certificate of Incorporation of Doe Run.(1)
3.2 --Amended and Restated By-laws of Doe Run.(1)
3.3 --Certificate of Incorporation of FPI.(1)
3.4 --Bylaws of FPI.(1)
3.5 --Certificate of Incorporation of Doe Run Cayman.(1)
3.6 --Memorandum and Articles of Association of Doe Run Cayman.(1)
3.7 --Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Mining (with English
translation).(1)
3.8 --Constitucion de Sociedad Comercial de Responsibilidad Limitada de Doe Run Peru (with English
translation).(1)
3.9.1 --Constitucion Simultanea de Sociedad Anonima Cerrada de Doe Run Air (with English translation).
3.9.2 --Constitucion Simultanea de Sociedad Anonima Cerrada de Doe Run Development (with English
translation).
3.9.3 --Modificacion Total de Estatuto Social, Designacion de membros de Directorio, Nombramiento de
Gerente General, Nombriento de Apoderados Especiales y Otorgamiento de Poderes Especiales de
Cobriza (with English translation).
3.10 --Certificate of Formation of DRLH.
3.11 --Limited Liability Company Agreement of DRLH.
4.1.1 --Indenture, dated as of March 12, 1998, by and among Doe Run, as issuer, FPI, Doe Run Cayman,
Doe Run Mining and Doe Run Peru, as guarantors, 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).(1)
4.1.2 --First Supplemental Indenture, dated as of September 1, 1998, by and among Doe Run, as issuer,
FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air and Doe Run Development, as
guarantors, and State Street Bank and Trust Company, as trustee, supplementing the Indenture,
dated as of March 12, 1998.(2)
4.1.3 --Second Supplemental Indenture, dated as of September 16, 1998, by and among Doe Run, as
issuer, FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development
and Cobriza, as guarantors, and State Street Bank and Trust Company, as trustee, supplementing
the Indenture, dated as of March 12, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
4.1.4 --Third Supplemental Indenture, dated as of January 13, 1999, by and among Doe Run, as issuer,
FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development, Coloriza
and DRLH, as guarantors, and State Street Bank and Trust Company, as trustee, supplmenting the
Indenture, dated as of March 12, 1998.
4.2.1 --Indenture, dated as of September 1, 1998, by and among Doe Run, as issuer, FPI, Doe Run
Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air and Doe Run Development, as guarantors, and
State Street Bank and Trust Company, as trustee, relating to the 11 1/4% Senior Secured Notes
due 2005, Series A and 11 1/4% Senior Secured Notes due 2005, Series B and the Guarantees
thereof (containing, as exhibits, specimens of the Notes and the Guarantees).(2)
4.2.2 --First Supplemental Indenture, dated as of September 16, 1998, by and among Doe Run, as issuer,
FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development and
Cobriza, as guarantors, and State Street Bank and Trust Company, as trustee, supplementing the
Indenture, dated as of September 1, 1998.(3)
4.2.3 --Second Supplemental Indenture, dated as of January 13, 1999, by and among Doe Run, as issuer,
FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development, Cobriza
and DRLH, as guarantors, and State Street Bank and Trust Company, as trustee, supplementing
the Indenture, dated as of September 1, 1998.
4.2.4 --Pledge Agreement, dated as of January 15, 1999, by Doe Run to State Street Bank and Trust
Company.
4.3 --Purchase Agreement, dated August 26, 1998, among Doe Run, FPI, Doe Run Cayman, Doe Run Mining,
Doe Run Peru, Doe Run Air, Doe Run Development and Jefferies & Company, Inc., relating to the
11 1/4% Senior Secured Notes due 2005.(2)
4.4 --Registration Rights Agreement, dated as of September 1, 1998, by and among Doe Run, FPI, Doe
Run Cayman, Doe Run Mining, Doe Run Peru, Doe Run Air, Doe Run Development and Jefferies &
Company, Inc., relating to the 11 1/4% Senior Secured Notes due 2005.(2)
4.5 --Form Letter of Transmittal.(3)
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.(1)
10.1.2 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Marvin K. Kaiser.(1)
10.1.3 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Richard L. Amistadi.(1)
10.1.4 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Gary E. Boyer.(1)
10.1.5 --Employment Agreement, dated as of April 7, 1994, between The Doe Run Resources Corporation and
Kenneth R. Buckley.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
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.(1)
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.(1)
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.(1)
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.(1)
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.(1)
10.3 --The Doe Run Resources Corporation Supplemental Employee Retirement Plan.(1)
10.4 --The Doe Run Company Executive Tax Services Plan.(1)
10.5.1 --Loan and Security Agreement, dated March 12, 1998, by and among Doe Run, FPI and Congress
Financial Corporation.(1)
10.5.2 --Amendment No. 1 to Loan and Security Agreement, dated September 1, 1998, among Doe Run, FPI
and Congress Financial Corporation. (2)
10.5.3 --Amendment No. 2 to Loan and Security Agreement, dated January 13, 1999, by and among Doe Run,
FPI and Congress Financial Corporation.
10.5.4 --Guarantee, dated January 13, 1999, between DRLH and Congress Financial Corporation.
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).(1)
10.7 --Programa de Adecuacion y Manejo Ambiental (Environmental Remedy and Management Program) (with
English translation).(1)
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).(1)
10.8.2 --Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with
Doe Run Mining--Commission for Foreign Investments and Technologies) (with English
translation).(1)
10.8.3 --Convenio de Estabilidad Juridica con Doe Run Mining S.R. Ltda. (Legal Stability Agreement with
Doe Run Mining--Ministry of Energy and Mines) (with English translation).(1)
10.8.4 --Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with
Doe Run Peru--Minister of Energy and Mines) (with English translation).(1)
10.8.5 --Convenio de Estabilidad Juridica con Doe Run Peru S.R. Ltda. (Legal Stability Agreement with
Doe Run Peru--Vice Minister of Mines) (with English translation).(1)
10.8.6 --Convenio de Estabilidad Juridica con Doe Run Cayman Ltd. (Legal Stability Agreement with Doe
Run Cayman--Commission for Foreign Investments and Technologies) (with English
translation).(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------
<C> <S> <C>
10.8.7 --Remite Contrato de Estabilidad Administrativa Ambiental (Environmental Stability Agreement)
(with English translation).(1)
10.9.1 --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 (with
English translation).(1)
10.9.2 --Modificacion al Contrato de Linea de Credito en Moneda Extranjera y al Contrato de Afectacion
en Garantia de Pagos y/o Cobranzas y de Cuentas Cobranza (amendment to the Contract for Line
of Credit in Foreign Currency and Collection Account Agreement, dated as of October 6, 1998,
between Banco de Credito del Peru and Doe Run Peru S.R.L. (English translation to be filed by
amendment).(3)
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
(with English translation).(1)
10.11 --Contrato de Prenda de Minerales (Ore Collateral Agreement), dated June 11, 1998, between Banco
de Credito del Peru and Doe Run Peru (with English translation).(1)
10.12 --Security Agreement, dated as of September 1, 1998, by Doe Run in favor of State Street Bank
and Trust Company, as trustee and collateral agent.(2)
10.13 --Intercreditor Agreement, dated as of September 1, 1998, between State Street Bank and Trust
Company, as note trustee, and Congress Financial Corporation, as lender.(2)
10.14 --Management Consulting Agreement, dated as of April 17 1994, as amended, between The Renco
Group, Inc. and the Doe Run Resources Corporation.(3)
12 --Statement regarding computation of ratios.(3)
15 --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 LLP.
23.3 --Consent of Medina, Zaldivar y Asociados S. Civ. R.L., a member firm of Andersen Worldwide SC.
23.4 --Consent of PricewaterhouseCoopers LLP.
23.5 --Consent of Pincock, Allen & Holt.
24 --Power of Attorney (included on the signature page).(3)
25 --Statement of Eligibility and Qualification on Form T-1 of State Street Bank and Trust
Company.(3)
</TABLE>
- ------------------------
(1) Incorporated by reference to the Registration Statement on Form S-4, as
amended, (File No. 333-52285) originally filed May 11, 1998.
(2) Incorporated by reference to Form 8-K (File No. 333-52285) filed September
16, 1998.
(3) Previously filed.
<PAGE>
Exhibit 3.10
CERTIFICATE OF FORMATION
OF
DR LAND HOLDINGS, LLC
The undersigned, in order to form a limited liability company under and
pursuant to the provisions of the Delaware Limited Liability Company Act, hereby
certifies that:
First. The name of the limited liability company is DR Land Holdings,
LLC (the "Company").
Second. The address of the Company's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the city of
Wilmington, county of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Formation on December 4, 1998.
/s/ Marvin K. Kaiser
----------------------------------
Marvin K. Kaiser
Vice President
<PAGE>
Exhibit 3.11
LIMITED LIABILITY COMPANY AGREEMENT
OF
DR LAND HOLDINGS, LLC
This Limited Liability Company Agreement (this "Agreement") of DR Land
Holdings, LLC is entered into as of the 4th day of December, 1998 by The Doe
Run Resources Corporation, as member (the "Member").
The Member hereby forms a limited liability company pursuant to and in
accordance with the Delaware Limited Liability Company Act, as amended from
time to time (6 Del.C. Section 18-101, et seq.) (the "Act"), and hereby
agrees as follows:
1. Name. The name of the limited liability company formed hereby is
DR Land Holdings, LLC (the "Company").
2. Purpose. The Company is formed for the object and purpose of,
and the nature of the business to be conducted and promoted by the Company
is, engaging in any lawful act or activity for which limited liability
companies may be formed under the Act (including, without limitation,
acquiring, managing and disposing of real and personal property), and
engaging in any and all activities necessary or incidental to the foregoing.
3. Registered Office. The address of the registered office of the
Company in the State of Delaware is Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801.
4. Registered Agent. The name and address of the registered agent
of the Company for service of process on the Company in the State of Delaware
is The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801.
5. Member. The name and the business, residence or mailing address
of the Member is as follows:
<TABLE>
<CAPTION>
Name Address
---- --------
<S> <C>
The Doe Run Resources Corporation 1801 Park 270 Drive
St. Louis, MO 63146
</TABLE>
6. Powers. The business and affairs of the Company shall be managed
by the Member. The Member shall have the power and authority to do any and
all acts necessary or convenient to or for the furtherance of the purposes
described herein, including all powers and authorities, statutory or
otherwise, possessed by members of limited liability companies
<PAGE>
under the laws of the State of Delaware. In connection with the foregoing, the
Member is hereby authorized and empowered to act through its officers and
employees and other persons designated by the Member in carrying out any and all
of its powers and authorities under this Agreement, and to delegate any and all
powers and authorities that the Member possesses under this Agreement to any of
its officers and employees and to any other person designated by the Member.
Marvin K. Kaiser is hereby designated as an authorized person, within the
meaning of the Act, to execute, deliver and file the certificate of formation of
the Company (and any amendments and/or restatements thereof) and any other
certificates (and any amendments and/or restatements thereof) necessary for the
Company to qualify to do business in a jurisdiction in which the Company may
wish to conduct business. The Company may (i) acquire, hold and dispose of
interests (whether by the making of investments or otherwise and on such terms
and conditions as the Member may determine) in other entities, including as a
partner of a partnership, a member of a limited liability company and a
stockholder of a corporation, and (ii) borrow money (on such terms and
conditions as the Member may determine) in connection with its business.
7. Dissolution. The Company shall dissolve, and its affairs shall
be wound up upon the first to occur of the following: (a) the written consent
of the Member, (b) the bankruptcy or dissolution of the Member or the
occurrence of any other event which terminates the continued membership of
the Member in the Company, or (c) the entry of a decree of judicial
dissolution under Section 18-802 of the Act.
8. Capital Contributions. The Member has contributed the following
amount, in cash, and no other property, to the Company:
The Minerals Lease between Leo A. Drey, Kay K. Drey
and Ozark Lead Company, dated as of January 1, 1969,
as amended from time to time, by assignment.
9. Additional Contributions. The Member is not required to make any
additional capital contribution to the Company.
10. Allocation of Profits and Losses. The Company's profits and
losses shall be allocated in proportion to the capital contribution of the
Member.
11. Distributions. Distributions shall be made to the Member at the
times and in the aggregate amounts determined by the Member. Such
distributions shall be allocated to the Member in the same proportion as its
then capital account balance.
12. Assignments. The Member may assign in whole or in part its
limited liability company interest.
13. Resignation. The Member may resign from the Company.
14. Admission of Additional Members. One (1) or more additional
members of the Company may be admitted to the Company with the consent of the
Member.
2
<PAGE>
15. Liability of Member. The Member shall not have any liability for
the obligations or liabilities of the Company except to the extent provided
in the Act.
16. Governing Law. This Agreement shall be governed by, and
construed under, the laws of the State of Delaware, all rights and remedies
being governed by said laws.
This Agreement and any controversy or claim arising out of or relating to
this Agreement shall be governed by the laws of the State of Delaware without
giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Limited Liability Company Agreement as of the
date and year first aforesaid.
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
--------------------------------------------
Marvin K. Kaiser
Vice President and Chief Financial Officer
3
<PAGE>
Exhibit 4.1.4
THIRD SUPPLEMENTAL INDENTURE
THIS THIRD SUPPLEMENTAL INDENTURE, dated as of January 13, 1999 (this
"Third Supplemental Indenture"), to the Indenture (as defined below), among The
Doe Run Resources Corporation, a New York corporation (the "Company"), the
Guarantors (as defined in the Indenture), the Subsidiary of the Company listed
on Schedule A annexed hereto (the "Additional Guarantor") and State Street Bank
and Trust Company, as Trustee (the "Trustee").
WHEREAS, the Company has issued its 111/4% Senior Notes due 2005 and
Floating Interest Rate Senior Notes due 2003 (collectively, the "Securities") in
the aggregate principal amount of $255,000,000 under and pursuant to the
Indenture, dated as of March 12, 1998, supplemented by the First Supplemental
Indenture, dated as of September 1, 1998, and the Second Supplemental Indenture,
dated as of September 16, 1998 (as supplemented, the "Indenture"), among the
Company, the Guarantors named therein and the Trustee; and
WHEREAS, the Additional Guarantor has become a Restricted Subsidiary
and pursuant to Section 4.20 of the Indenture is entering into this Third
Supplemental Indenture to thereby become a Guarantor as provided in Article
Eleven of the Indenture; and
WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Company,
the Guarantors, the Additional Guarantor and the Trustee may enter into this
Third Supplemental Indenture without the consent of any Holder; and
WHEREAS, all consents and notices required to be obtained and given as
conditions to the execution of this Third Supplemental Indenture pursuant to the
Indenture and all other documents relating to the Securities have been obtained
and given;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
AUTHORIZATION; DEFINITIONS
Section 1.01. THIRD SUPPLEMENTAL INDENTURE. This Third Supplemental
Indenture is supplemental to, and is entered into, in accordance with Section
9.01 of the Indenture, and except as modified, amended and supplemented by this
Third Supplemental Indenture, the provisions of the Indenture are in all
respects ratified and confirmed and shall remain in full force and effect.
Section 1.02. DEFINITIONS. Unless the context shall otherwise
require, all terms which are defined in Section 1.01 of the Indenture shall have
the same meanings, respectively, in this Third Supplemental Indenture as such
terms are given in said Section 1.01 of the Indenture.
<PAGE>
ARTICLE II
ADDITIONAL GUARANTOR
Section 2.01. ADDITIONAL GUARANTOR. Pursuant to Section 11.01 of the
Indenture, the Additional Guarantor hereby expressly assumes the obligations of,
and otherwise agrees to perform all of the duties of, a Guarantor under the
Indenture, subject to the terms and conditions thereof, as of the date set forth
opposite the name of such Additional Guarantor on Schedule A hereto.
ARTICLE III
MISCELLANEOUS
Section 3.01. EFFECTIVE DATE. This Third Supplemental Indenture
shall become effective upon execution and delivery hereof.
Section 3.02. COUNTERPARTS. This Third Supplemental Indenture may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
Section 3.03. ACCEPTANCE. The Trustee accepts the Indenture, as
supplemented by this Third Supplemental Indenture, and agrees to perform the
same upon the terms and conditions set forth therein as so supplemented. The
Trustee shall not be responsible in any manner whatsoever for or in respect of
the validity or sufficiency of this Third Supplemental Indenture or the due
execution by the Company, the Guarantors or the Additional Guarantor, or for or
in respect of the recitals contained herein, all of which are made solely by the
Company.
Section 3.04. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Third Supplemental Indenture, by the Company, the Guarantors, the
Additional Guarantor or the Trustee shall bind its respective successors and
assigns, whether so expressed or not.
Section 3.05. SEVERABILITY. In case any provision in this Third
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 3.06. GOVERNING LAW. This Third Supplemental Indenture shall
be governed by and construed in accordance with the laws of the State of New
York, as applied to contracts made and performed within the State of New York,
without regard to principles of conflict of laws. Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Third Supplemental
Indenture.
Section 3.07. INCORPORATION INTO INDENTURE. All provisions of this
Third Supplemental Indenture shall be deemed to be incorporated in, and made
part of, the Indenture, and the Indenture, as amended and supplemented by this
Third Supplemental Indenture, shall be read, taken and construed as one and the
same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Third Supplemental
Indenture to be duly executed as of the date first above written.
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President and Chief Financial
Officer
FABRICATED PRODUCTS, INC.
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President, Chief Financial
Officer and Treasurer
DOE RUN CAYMAN LTD.
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President
DOE RUN MINING S.R.L.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DOE RUN PERU S.R.L.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DOE RUN AIR S.A.C.
By: /s/ Henry Peitz
-----------------------------------
Henry Peitz
Finance Manager
DOE RUN DEVELOPMENT S.A.C.
By: /s/ Victor Raul Eyzaguirre
-----------------------------------
Victor Raul Eyzaguirre
General Manager
4
<PAGE>
EMPRESA MINERA COBRIZA S.A.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DR LAND HOLDINGS, LLC
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Robert L. Reynolds
-----------------------------------
Robert L. Reynolds
Vice President
5
<PAGE>
SCHEDULE A
ADDITIONAL GUARANTOR
NAME DATE
- ---- ----
DR Land Holdings, LLC, a Delaware limited liability company . . January 13, 1999
---------
6
<PAGE>
Exhibit 4.2.3
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of January 13, 1999 (this
"Second Supplemental Indenture"), to the Indenture (as defined below), among The
Doe Run Resources Corporation, a New York corporation (the "Company"), the
Guarantors (as defined in the Indenture), the Subsidiary of the Company listed
on Schedule A annexed hereto (the "Additional Guarantor") and State Street Bank
and Trust Company, as Trustee (the "Trustee").
WHEREAS, the Company has issued its 111/4% Senior Secured Notes due
2005 (the "Securities") in the aggregate principal amount of $50,000,000 under
and pursuant to the Indenture, dated as of September 1, 1998 (the "Indenture"),
among the Company, the Guarantors named therein and the Trustee; and
WHEREAS, the Additional Guarantor has become a Restricted Subsidiary
and pursuant to Section 4.20 of the Indenture is entering into this Second
Supplemental Indenture to thereby become a Guarantor as provided in Article
Thirteen of the Indenture; and
WHEREAS, pursuant to Section 9.01(4) of the Indenture, the Company,
the Guarantors, the Additional Guarantor and the Trustee may enter into this
Second Supplemental Indenture without the consent of any Holder; and
WHEREAS, all consents and notices required to be obtained and given as
conditions to the execution of this Second Supplemental Indenture pursuant to
the Indenture and all other documents relating to the Securities have been
obtained and given;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
ARTICLE I
AUTHORIZATION; DEFINITIONS
Section 1.01. SECOND SUPPLEMENTAL INDENTURE. This Second
Supplemental Indenture is supplemental to, and is entered into, in accordance
with Section 9.01 of the Indenture, and except as modified, amended and
supplemented by this Second Supplemental Indenture, the provisions of the
Indenture are in all respects ratified and confirmed and shall remain in full
force and effect.
Section 1.02. DEFINITIONS. Unless the context shall otherwise
require, all terms which are defined in Section 1.01 of the Indenture shall have
the same meanings, respectively, in this Second Supplemental Indenture as such
terms are given in said Section 1.01 of the Indenture.
ARTICLE II
ADDITIONAL GUARANTOR
<PAGE>
Section 2.01. ADDITIONAL GUARANTOR. Pursuant to Section 13.01 of the
Indenture, the Additional Guarantor hereby expressly assumes the obligations of,
and otherwise agrees to perform all of the duties of, a Guarantor under the
Indenture, subject to the terms and conditions thereof, as of the date set forth
opposite the name of such Additional Guarantor on Schedule A hereto.
ARTICLE III
MISCELLANEOUS
Section 3.01. EFFECTIVE DATE. This Second Supplemental Indenture
shall become effective upon execution and delivery hereof.
Section 3.02. COUNTERPARTS. This Second Supplemental Indenture may
be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
Section 3.03. ACCEPTANCE. The Trustee accepts the Indenture, as
supplemented by this Second Supplemental Indenture, and agrees to perform the
same upon the terms and conditions set forth therein as so supplemented. The
Trustee shall not be responsible in any manner whatsoever for or in respect of
the validity or sufficiency of this Second Supplemental Indenture or the due
execution by the Company, the Guarantors or the Additional Guarantor, or for or
in respect of the recitals contained herein, all of which are made solely by the
Company.
Section 3.04. SUCCESSORS AND ASSIGNS. All covenants and agreements
in this Second Supplemental Indenture, by the Company, the Guarantors, the
Additional Guarantor or the Trustee shall bind its respective successors and
assigns, whether so expressed or not.
Section 3.05. SEVERABILITY. In case any provision in this Second
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 3.06. GOVERNING LAW. This Second Supplemental Indenture
shall be governed by and construed in accordance with the laws of the State of
New York, as applied to contracts made and performed within the State of New
York, without regard to principles of conflict of laws. Each of the parties
hereto agrees to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Second
Supplemental Indenture.
Section 3.07. INCORPORATION INTO INDENTURE. All provisions of this
Second Supplemental Indenture shall be deemed to be incorporated in, and made
part of, the Indenture, and the Indenture, as amended and supplemented by this
Second Supplemental Indenture, shall be read, taken and construed as one and the
same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture
to be duly executed as of the date first above written.
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President and Chief Financial
Officer
FABRICATED PRODUCTS, INC.
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President, Chief Financial
Officer and Treasurer
DOE RUN CAYMAN LTD.
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President
DOE RUN MINING S.R.L.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DOE RUN PERU S.R.L.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DOE RUN AIR S.A.C.
By: /s/ Henry Peitz
-----------------------------------
Henry Peitz
Finance Manager
DOE RUN DEVELOPMENT S.A.C.
By: /s/ Victor Raul Eyzaguirre
-----------------------------------
Victor Raul Eyzaguirre
General Manager
3
<PAGE>
EMPRESA MINERA COBRIZA S.A.
By: /s/ Kenneth R. Buckley
-----------------------------------
Kenneth R. Buckley
General Manager
DR LAND HOLDINGS, LLC
By: /s/ Marvin K. Kaiser
-----------------------------------
Marvin K. Kaiser
Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Robert L. Reynolds
-----------------------------------
Robert L. Reynolds
Vice President
4
<PAGE>
SCHEDULE A
ADDITIONAL GUARANTOR
NAME DATE
- ---- ----
DR Land Holdings, LLC, a Delaware limited liability company . . January 13, 1999
---------
5
<PAGE>
Exhibit 4.2.4
================================================================================
PLEDGE AGREEMENT
by
THE DOE RUN RESOURCES CORPORATION,
as Pledgor,
to
STATE STREET BANK AND TRUST COMPANY,
as Trustee for the holders of the
11 1/4% Senior Secured Notes due 2005
Dated as of January 15, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1.
PLEDGE
1.1. Grant of Pledge..........................................................1
1.2. Delivery of Collateral...................................................2
1.3. Secured Obligations......................................................2
1.4. No Release...............................................................2
SECTION 2.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR
2.1. Ownership................................................................3
2.2. Interests Validly Issued; Necessary Consents Obtained....................3
2.3. Perfection...............................................................3
2.4. Government Regulations...................................................3
2.5. Authorization; Enforceability............................................3
2.6. No Consents, etc.........................................................3
2.7. No Conflicts.............................................................4
2.8. Pledgor's Duties.........................................................4
2.9. Preservation of Collateral...............................................4
2.10. Further Assurances; Supplements.........................................4
2.11. Trustee May Perform; Trustee Appointed Attorney-in-Fact.................4
2.12. Accuracy of Information.................................................5
2.13. Indemnification.........................................................5
2.14. LLC Interests...........................................................5
SECTION 3.
SPECIAL PROVISIONS CONCERNING COLLATERAL
3.1. Voting Rights, Dividends, Etc., Prior to Event of Default................5
3.2. Voting Rights and Dividends After Event of Default.......................6
3.3. Further Assurances for Voting Rights and Dividends.......................6
3.4. Dividends Received in Trust..............................................7
3.5. Transfers and Other Liens; Additional Interests..........................7
SECTION 4.
REMEDIES UPON DEFAULT
4.1. Event of Default.........................................................7
4.2. Dispositions of Collateral...............................................7
4.3. Securities Laws Limitations..............................................8
4.4. Additional Information...................................................8
<PAGE>
4.5. Waivers..................................................................8
4.6. Deficiency...............................................................9
4.7. Application of Proceeds..................................................9
4.8. Expenses.................................................................9
4.9. No Waiver; Discontinuance of Proceeding..................................9
SECTION 5.
MISCELLANEOUS PROVISIONS
5.1. Entire Agreement........................................................10
5.2. Execution in Counterparts...............................................10
5.3. Survival................................................................10
5.4. Headings................................................................10
5.5. Severability of Provisions..............................................10
5.6. Notices.................................................................10
5.7. Amendments..............................................................10
5.8. Governing Law...........................................................10
5.9. Consent To Jurisdiction And Service Of Process..........................11
5.10. Agents.................................................................11
5.11. Reasonable Care........................................................11
5.12. Trustee................................................................11
5.13. Continuing Security Interest; Assignment...............................11
5.14. Obligations Absolute...................................................12
5.15. Termination; Release...................................................12
5.16. Location of Pledged Interests..........................................12
Schedule A Pledged Interests
Schedule B Filing Jurisdictions
ii
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Agreement"), dated as of January 15,
1999, made by The Doe Run Resources Corporation, a New York corporation
("Pledgor"), in favor of State Street Bank and Trust Company (together with any
successors or assigns, the "Trustee"), in its capacity as trustee under the
Indenture (as hereinafter defined).
WHEREAS, Pledgor and the Trustee have entered into an
indenture, dated as of September 1, 1998 (the "Indenture"; capitalized terms
used herein but not otherwise defined herein have the meanings assigned to such
terms in the Indenture), pursuant to which the Company's 11 1/4% Senior Secured
Notes due 2005 (the "Notes") were issued.
WHEREAS, Pledgor is the legal and beneficial owner of the
Collateral (as hereinafter defined).
WHEREAS, in order to secure the performance of the Secured
Obligations (as hereinafter defined), the parties hereto are entering into this
Agreement regarding the terms and conditions of Pledgor's pledge of the
Collateral to the Trustee, for the benefit of itself and the holders of the
Notes (the Trustee and such holders, each a "Secured Party" and collectively,
the "Secured Parties").
NOW, THEREFORE, Pledgor and the Trustee agree as follows:
SECTION 1.
PLEDGE
1.1. GRANT OF PLEDGE. In order to secure the payment and
performance when due of the Secured Obligations, Pledgor does hereby transfer,
convey, warrant, deliver, pledge, assign, hypothecate and grant to the Trustee,
for its benefit and the benefit of the holders of the Notes, and its successors
and assigns a first priority lien on, continuing security interest in and pledge
of all of Pledgor's present and future right, title and interest in, to and
under the following properties, rights, interests and privileges (collectively,
the "Collateral"):
(a) the membership interests of DR Land Holdings, LLC., a
Delaware limited liability company ("DRLH"), set forth on SCHEDULE A hereto
(collectively, the "Current Interests");
(b) all additional membership interests of DRLH hereto from
time to time acquired by Pledgor in any manner (collectively, the "Additional
Interests"; together with the Current Interests, the "Pledged Interests");
(c) subject to the provisions of Section 3 hereof, all
dividends, cash or proceeds, options, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Interests
(collectively, the "Dividends"); and
<PAGE>
(d) all cash, instruments, securities, funds and credits of
Pledgor from time to time on deposit with the Trustee, all investments of such
funds and all certificates, securities and instruments evidencing any such
investments of such funds, and all interest, dividends, cash, instruments and
other property received as proceeds of, or in substitution or exchange for, and
all collections and claims in respect of, any and all of the foregoing
(collectively, the "Cash Collateral").
1.2. DELIVERY OF COLLATERAL. All certificates or instruments
representing or evidencing the Collateral shall be delivered to and held by or
on behalf of the Trustee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Trustee. The Trustee shall have the right, at any time upon or after the
occurrence and during the continuance of an Event of Default (as hereinafter
defined) and without notice to Pledgor, to transfer to or to register in the
name of the Trustee or any of its nominees any or all of the Collateral. In
addition, the Trustee shall have the right at any time to exchange certificates
representing or evidencing Collateral for certificates of smaller or larger
denominations.
1.3. SECURED OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the payment and performance in full when
due, whether at stated maturity, by acceleration or otherwise (including,
without limitation, the payment of interest and other amounts which would accrue
and become due but for the filing of a petition in bankruptcy (whether or not a
claim is allowed against Pledgor for such interest or other amounts in any such
bankruptcy proceeding) or the operation of the automatic stay under Section
362(a) of the Bankruptcy Law), of (i) all obligations of Pledgor now existing or
hereafter arising under or in respect of the Indenture (including, without
limitation, Pledgor's obligations to pay principal, interest and all other
charges, fees, expenses, commissions, reimbursements, premiums, indemnities and
other payments related to or in respect of the obligations contained therein)
and (ii) without duplication of the amounts described in clause (i), all
obligations of Pledgor now existing or hereafter arising under or in respect of
this Agreement, including, without limitation, with respect to all charges,
fees, expenses, commissions, reimbursements, premiums, indemnities and other
payments related to or in respect of the obligations contained in this Agreement
(the obligations described in clauses (i) and (ii), collectively, the "Secured
Obligations").
1.4. NO RELEASE. Nothing set forth in this Agreement shall
relieve Pledgor from the performance of any term, covenant, condition or
agreement on Pledgor's part to be performed or observed under or in respect of
any of the Collateral or from any liability to any person under or in respect of
any of the Collateral or shall impose any obligation on the Trustee to perform
or observe any such term, covenant, condition or agreement in respect of any of
the Collateral on Pledgor's part to be so performed or observed or shall impose
any liability on the Trustee for the operation, control, care, management or
repair of the Collateral or for any act or omission on the part of Pledgor
relating to Pledgor's obligations thereto or for any breach of any
representation or warranty on the part of Pledgor contained in this Agreement,
under or in respect of the Collateral or made in connection herewith or
therewith.
2
<PAGE>
The provisions set forth in this Section 1.4 shall survive the termination of
this Agreement and the discharge of the Pledgor's obligations under this
Agreement.
SECTION 2.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR
Pledgor represents, warrants and covenants (as applicable) as
follows:
2.1. OWNERSHIP. Pledgor is as of the date hereof, and, as to
Collateral acquired by it from time to time after the date hereof, Pledgor will
be, the legal, record and beneficial owner of all of the Collateral free and
clear of any Lien or other right, title or interest of any person other than the
Lien and security interest granted by Pledgor to the Trustee pursuant to this
Agreement.
2.2. INTERESTS VALIDLY ISSUED; NECESSARY CONSENTS OBTAINED.
All of the Pledged Interests have been duly authorized and validly issued and
are fully paid and non-assessable. All necessary or required consents of each
member in DRLH to the grant of the security interest provided hereby and to the
transfer of the Pledged Interests to the Trustee or its designee pursuant to the
exercise of any remedies under Section 4 hereof have been obtained and are in
full force and effect.
2.3. PERFECTION. Upon the filing of UCC-1 financing statements
in the relevant jurisdictions listed on SCHEDULE B attached hereto and made a
part hereof (or any supplement thereto), which filings have been executed by the
Pledgor and submitted for filing, the Lien granted pursuant to this Agreement
shall constitute a perfected first priority Lien on the Collateral in favor of
the Trustee, for the ratable benefit of the Lender, enforceable as such against
all creditors of the Pledgors and any Persons purporting to purchase any
Collateral from the Pledgors;
2.4. GOVERNMENT REGULATIONS. The pledge of the Collateral
pursuant to this Agreement does not violate Regulation T, U or X of the
Federal Reserve Board.
2.5. AUTHORIZATION; ENFORCEABILITY. Pledgor has full corporate
power, authority and legal right to pledge and grant a security interest in all
the Collateral pursuant to this Agreement. This Agreement constitutes the legal,
valid and binding obligation of Pledgor, enforceable against Pledgor in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and similar laws affecting
creditors' rights generally and to general equitable principles.
2.6. NO CONSENTS, ETC. No authorization, consent, approval,
license, qualification or formal exemption from, or any filing, declaration or
registration with, any court, governmental agency or regulatory authority, or
with any securities exchange or any other person, is required in connection with
(i) the execution, delivery or performance by Pledgor of this Agreement, (ii)
the grant of a Lien on (including the priority thereof) the Collateral by
Pledgor in the manner and for the purpose contemplated by this Agreement or
3
<PAGE>
(iii) the exercise of the rights and remedies of the Trustee created hereby,
except (a) those that have been obtained or made concurrently with the execution
hereof, and (b) as may be required in connection with such disposition by laws
affecting the offering and sale of securities generally.
2.7. NO CONFLICTS. The execution, delivery and performance by
Pledgor of this Agreement do not (or with notice or lapse of time or both, will
not) violate, conflict with or constitute a default under, or result in the
termination of or accelerate the performance required by, or result in there
being declared void, voidable or without further binding effect, any provision
of any other agreement, instrument or document to which Pledgor is a party.
2.8. PLEDGOR'S DUTIES. Pledgor shall perform, abide by and be
governed by each and all of the terms, provisions, covenants and agreements set
forth in this Agreement and in each and every supplement hereto or amendment
hereof which may at any time or from time to time be executed and delivered by
the parties hereto or their successors and assigns.
2.9. PRESERVATION OF COLLATERAL. All rights, powers and
privileges of the Trustee herein set forth are coupled with an interest and are
irrevocable, subject to the terms and conditions hereof, and Pledgor shall not
take or omit to take any action with respect to the Collateral or otherwise
which is inconsistent with this Agreement, and any such action inconsistent
herewith or therewith shall be void. Pledgor shall not further pledge, encumber,
hypothecate, sell, convey or assign, or grant any option with respect to all or
any part of the Collateral or suffer any of the foregoing to occur by operation
of law or otherwise, except for the Liens and security interests granted by
Pledgor to the Trustee pursuant to this Agreement, and shall promptly take such
action as is reasonably necessary to remove any such other Lien. Pledgor will,
at its expense, warrant and defend the title to the Collateral against all
claims and demands of all third persons or persons claiming by, through or under
Pledgor at any time claiming any interest therein adverse to the Trustee.
2.10. FURTHER ASSURANCES; SUPPLEMENTS. Pledgor agrees that at
any time and from time to time, Pledgor will, at its expense, promptly do,
execute, acknowledge and deliver all and every further act, deed, conveyance,
transfer, waiver, subordination, supplement and other instruments, documents and
assurances that may be reasonably necessary or that the Trustee reasonably deems
appropriate or advisable, including, without limitation, supplemental or
additional UCC-1 financing statements, for the continued perfection,
preservation and protection of the security interest in the Collateral granted
hereby or to enable the Trustee to exercise and enforce its rights and remedies
hereunder with respect to any Collateral.
2.11. TRUSTEE MAY PERFORM; TRUSTEE APPOINTED ATTORNEY-IN-FACT.
If Pledgor fails to perform any agreement contained in this Agreement, the
Trustee may itself perform, or cause performance of, such agreement, and the
expenses of the Trustee, including, without limitation, the reasonable fees and
expenses of its counsel and the allocated cost of staff counsel, incurred in
connection therewith shall be payable by Pledgor on demand. Pledgor hereby
appoints the Trustee its attorney-in-fact, with full authority in the place and
stead of Pledgor and in the name of Pledgor, or otherwise, from time to time in
the Trustee's
4
<PAGE>
discretion to take any action which the Trustee may take pursuant to the
provisions of this Section.
2.12. ACCURACY OF INFORMATION. All information set forth
herein (including the exhibits hereto) relating to the Collateral is accurate
and complete in all material respects.
2.13. INDEMNIFICATION. Pledgor hereby agrees to indemnify the
Trustee for any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against the
Trustee in any way relating to or arising out of this Agreement or the pledge
and security interest contemplated hereby or the enforcement of any of the terms
hereof or otherwise arising or relating in any manner to the Lien contemplated
hereunder; PROVIDED, HOWEVER, that Pledgor shall not be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Trustee.
2.14 LLC INTERESTS. None of the Pledged LLC Interests (i) are
dealt in or traded on securities exchanges or in securities markets, (ii) are by
their terms expressly subject to Article 8 of the Uniform Commercial Code of any
jurisdiction, (iii) constitute an investment company security or (iv) are held
in a securities account (in each case within the meaning of Section 8-103 of the
Uniform Commercial Code of New York).
SECTION 3.
SPECIAL PROVISIONS CONCERNING COLLATERAL
3.1. VOTING RIGHTS, DIVIDENDS, ETC., PRIOR TO EVENT OF
DEFAULT. As long as no Event of Default shall have occurred and be
continuing:
(a) Pledgor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement or the Indenture;
PROVIDED, HOWEVER, that Pledgor shall give the Trustee at least five days' prior
written notice of the manner in which it intends to exercise any such right. It
is understood, however, that Pledgor's consent to or approval of any action
otherwise permitted under this Agreement and the Indenture, shall not be deemed
inconsistent with the terms of this Agreement or the Indenture within the
meaning of this Section 3.1, and no notice of any such voting or consent need be
given to the Trustee.
(b) Pledgor shall be entitled to receive and retain, and to
utilize free and clear of the Lien of this Agreement, any and all dividends and
distributions in respect of the Collateral; PROVIDED, HOWEVER, that any and all
Extraordinary Distributions shall be, and shall be delivered forthwith to the
Trustee to hold as, Collateral and shall, if received by Pledgor, be received in
trust for the benefit of the Trustee, be segregated from the other property or
funds of Pledgor, and be delivered forthwith to the Trustee as Collateral in the
same form as so received (with any necessary endorsement or other instruments
required by Section 1.2 of this Agreement).
5
<PAGE>
(c) In order to permit Pledgor to exercise the voting and
other rights which it is entitled to exercise pursuant to Section 3.1(a) above
and to receive the dividends and distributions which it is authorized to receive
and retain pursuant to Section 3.1(b) above, the Trustee shall, if necessary,
upon written request of Pledgor, from time to time execute and deliver (or cause
to be executed and delivered) to Pledgor all such proxies, dividend payment
orders and other instruments as Pledgor may reasonably request.
(d) For purposes of Section 3.1(b) above, "Extraordinary
Distribution" shall mean any and all dividends, cash, instruments and other
property and proceeds received, receivable or otherwise distributed on the
Pledged Interests constituting (i) any liquidating dividend or other
liquidating distribution or other similar extraordinary dividend or
distribution; (ii) any dividend or other distribution in respect of the
Pledged Interests in the form of membership interests or any other property
or assets (including cash and Cash Equivalents) to the extent the Fair Market
Value (determined at the time of the dividend or distribution) of all
dividends and other distributions in respect of the Pledged Interests made on
or after the date hereof to and including the date of such dividend or other
distribution exceeds 100% of the Consolidated Net Income of DRLH accrued on a
cumulative basis subsequent to the date hereof.
"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 the Company and its Subsidiaries shall be determined by the Member
of the Company acting in good faith and shall be evidenced by a Resolution of
the Member thereof delivered to the Trustee; PROVIDED that with respect to any
Asset Sale which involves in excess of $5.0 million, the Fair Market Value of
any such asset or assets shall be determined by an Independent Financial
Advisor.
3.2. VOTING RIGHTS AND DIVIDENDS AFTER EVENT OF DEFAULT.
Upon the occurrence and during the continuance of an Event of Default:
(a) Upon written notice from the Trustee to Pledgor, all
rights of Pledgor to exercise the voting and other consensual rights which it
would otherwise be entitled to exercise pursuant to Section 3.1 above shall
cease, and all such rights shall thereupon become vested in the Trustee, which
shall thereupon have the sole right to exercise such voting and other consensual
rights during the continuance of such Event of Default.
(b) Upon written notice from the Trustee to Pledgor, all
rights of Pledgor to receive the dividends and distributions which it would
otherwise be authorized to receive and retain pursuant to Section 3.1 above
shall cease and all such rights shall thereupon become vested in the Trustee,
which shall thereupon have the sole right to receive and hold as Collateral such
dividends and distributions during the continuance of such Event of Default.
3.3. FURTHER ASSURANCES FOR VOTING RIGHTS AND DIVIDENDS. In
order to permit the Trustee to receive all dividends and other distributions to
which it may be entitled under Section 3.1(b) above, to exercise the voting and
other consensual rights which it may be
6
<PAGE>
entitled to exercise pursuant to Section 3.2(a) above, and to receive all
dividends and distributions which it may be entitled to receive under Section
3.2(b) above, Pledgor shall, if necessary, upon written notice from the
Trustee, from time to time execute and deliver to the Trustee appropriate
proxies, dividend payment orders and other instruments as the Trustee may
reasonably request.
3.4. DIVIDENDS RECEIVED IN TRUST. All Dividends and
distributions which are received by Pledgor contrary to the provisions of
Section 3.2 above shall be received in trust for the benefit of the Trustee,
shall be segregated from other funds of Pledgor and shall be forthwith paid over
to the Trustee as Collateral in the same form as so received (with any necessary
endorsement).
3.5. TRANSFERS AND OTHER LIENS; ADDITIONAL INTERESTS.
(a) TRANSFERS AND OTHER LIENS. Pledgor shall not (i) pledge,
encumber, hypothecate, sell, convey, assign or otherwise dispose of, or grant
any option or warrant with respect to, any of the Collateral or suffer any of
the foregoing to occur by operation of law or otherwise except for the Liens and
security interests granted by Pledgor to the Trustee pursuant to this Agreement
or (ii) permit DRLH to merge or consolidate unless all the outstanding capital
stock of the surviving or resulting corporation is, upon such merger or
consolidation, pledged hereunder and no cash, securities or other property is
distributed in respect of the outstanding shares of any other constituent
corporation (or membership interests of any other constituent limited liability
company, as the case may be); provided, HOWEVER, that in the event of an Asset
Sale of all of the Collateral, pursuant to, and in compliance with, the
provisions of the Indenture, the Trustee shall release the Collateral that is
the subject of such sale to Pledgor free and clear of the Lien and security
interest under this Agreement upon the making of proper arrangements by the
Trustee for the application of the proceeds of such Asset Sale in accordance
with the provisions of the Indenture.
(b) ADDITIONAL INTERESTS. Pledgor agrees that it will cause
each issuer of Collateral consisting of membership interests not to issue any
membership interests or other securities in addition to or in substitution for
such Collateral issued by such issuer, except to Pledgor.
SECTION 4.
REMEDIES UPON DEFAULT
4.1. EVENT OF DEFAULT. It shall be an Event of Default
hereunder if there shall occur an Event of Default under the Indenture.
4.2. DISPOSITIONS OF COLLATERAL. If any Event of Default shall
have occurred and be continuing, the Trustee may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of New York at
that time, and may also in its sole discretion, without notice except as
specified
7
<PAGE>
below, subject to applicable law, at any time or from time to time, sell,
assign and deliver, or grant options to purchase, all or any part of the
Collateral, or any interest therein, at any public or private sale, at any
exchange or broker's board for cash, for immediate or future delivery without
any assumption of credit risk, and for such price or prices and on such terms
as may be reasonable; PROVIDED that at least 10 days' notice of the time and
place of any such sale shall be given to Pledgor. At any such sale, unless
prohibited by applicable law, the Trustee on behalf of the Secured Parties
may bid for and purchase all or any part of the Collateral so sold free from
any right or equity of redemption of Pledgor. Neither the Trustee nor any
Secured Party shall be liable for failure to collect or realize upon any or
all of the Collateral or for any delay in so doing nor shall any of them be
under any obligation to take any action whatsoever with regard thereto.
4.3. SECURITIES LAWS LIMITATIONS. Pledgor recognizes that, by
reason of certain prohibitions contained in the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws, the
Trustee may be compelled, with respect to any sale of all or any part of the
Collateral, to limit purchasers to those who will agree, among other things, to
acquire the Collateral for their own account, for investment and not with a view
to the distribution or resale thereof. Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable to the Trustee than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act), and, notwithstanding such circumstances, agrees that
any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Trustee shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if Pledgor would agree to do so.
4.4. ADDITIONAL INFORMATION. If the Trustee determines to
exercise its right to sell any or all of the Collateral, upon written request,
Pledgor shall, and shall cause each issuer of any Collateral to be sold
hereunder from time to time to, furnish to the Trustee all such information as
the Trustee may request in order to determine the number of membership interests
and other instruments included in the Collateral which may be sold by the
Trustee as exempt transactions under the Securities Act and the rules of the
Securities and Exchange Commission thereunder, as the same are from time to time
in effect.
4.5. WAIVERS. Pledgor hereby waives, to the extent permitted
by applicable law, notice or judicial hearing in connection with the Trustee's
taking possession or the Trustee's disposition of any Collateral, including,
without limitation, any and all prior notice and hearing for any prejudgment
remedy or remedies and any such right which Pledgor would otherwise have under
law, and Pledgor hereby further waives: (a) all damages occasioned by such
taking of possession; (b) all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of the Trustee's
rights hereunder; and (c) all rights of redemption, appraisal, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law. Any
sale of, or the grant of options to purchase,
8
<PAGE>
or any other realization upon, any Collateral shall operate to divest all
right, title, interest, claim and demand, either at law or in equity, of
Pledgor therein and thereto, and shall be a perpetual bar both at law and in
equity against Pledgor and against any and all persons claiming or attempting
to claim the Collateral so sold, optioned or realized upon, or any part
thereof, from, through and under Pledgor.
4.6. DEFICIENCY. Notwithstanding any other provision of this
Agreement to the contrary, if, after giving effect to any sale, transfer or
other disposition of any or all of the Collateral pursuant hereto and after the
application of the proceeds hereunder and any Collateral sold, transferred or
otherwise disposed of, any Secured Obligations remain unpaid or unsatisfied,
Pledgor shall remain liable for the unpaid and unsatisfied amount of such
Secured Obligations.
4.7. APPLICATION OF PROCEEDS. The proceeds of any sale made
under or by virtue of the provisions of Section 4.16 of the Indenture, together
with any other sums then held by the Trustee pursuant to this Agreement, shall
be applied promptly from time to time by the Trustee as set forth in the
Indenture.
4.8. EXPENSES. Pledgor will upon demand pay to the Trustee the
amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel and the allocated fees and expenses of staff counsel and
the reasonable fees and expenses of any experts and agents, which the Trustee
may incur in connection with (i) the administration of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Trustee hereunder or (iv) the failure by Pledgor to
perform or observe any of the provisions hereof. All amounts payable by Pledgor
under this Section 4.8 shall be due upon demand and shall be part of the Secured
Obligations. Pledgor's obligations under this Section shall survive the
termination of this Agreement and the discharge of Pledgor's other obligations
hereunder.
4.9. NO WAIVER; DISCONTINUANCE OF PROCEEDING.
(a) No failure on the part of the Trustee to exercise, and no
course of dealing with respect to, and no delay in exercising, any right, power
or remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise by the Trustee of any right, power or remedy hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy. The remedies herein provided are to the fullest extent permitted by
law cumulative and are not exclusive of any remedies provided by law.
(b) In the event the Trustee shall have instituted any
proceeding to enforce any right, power or remedy under this instrument by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee, then and in every such case Pledgor, the Trustee and each
Secured Party shall be restored to their respective former positions and rights
hereunder with respect to the Collateral, and all rights, remedies and powers of
the Trustee shall continue as if no such proceeding had been instituted.
9
<PAGE>
SECTION 5.
MISCELLANEOUS PROVISIONS
5.1. ENTIRE AGREEMENT. This Agreement and the documents
and agreements referred to herein embody the entire agreement and
understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof.
5.2. EXECUTION IN COUNTERPARTS. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts shall constitute one and the same Agreement.
5.3. SURVIVAL. All representations, warranties, covenants
and agreements herein contained on the part of Pledgor shall survive the
payment and performance of all the Secured Obligations and the termination of
this Agreement.
5.4. HEADINGS. The Section headings used in this Agreement
are for convenience of reference only and shall not affect the construction
of this Agreement.
5.5. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
5.6. NOTICES. All notices or other communications required
to be given hereunder shall be given at the address and in the manner
required in the Indenture.
5.7. AMENDMENTS. No amendment, modification, supplement,
termination or waiver of or to any provision of this Agreement, or consent to
any departure by Pledgor therefrom, shall be effective unless in writing and
signed by the Trustee and Pledgor. Any amendment, modification or supplement of
or to any provision of this Agreement, any waiver of any provision of this
Agreement and any consent to any departure by Pledgor from the terms of any
provision of this Agreement shall be effective only in the specific instance and
for the specific purpose for which made or given.
5.8. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO NEW YORK'S PRINCIPLES OF CONFLICTS OF LAWS).
5.9. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE
OF NEW YORK AND BY EXECUTION
10
<PAGE>
AND DELIVERY OF THIS AGREEMENT, PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO
RIGHT OF APPEAL. PLEDGOR HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND PLEDGOR
HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING WITHOUT LIMITATION, ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH JURISDICTION. NOTHING HEREIN SHALL AFFECT THE
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT OF THE TRUSTEE TO BRING PROCEEDINGS AGAINST PLEDGOR IN THE COURTS
OF ANY OTHER JURISDICTION.
5.10. AGENTS. The Trustee may use one or more agents to
perform its obligations hereunder.
5.11. REASONABLE CARE. The Trustee shall be deemed to have
exercised reasonable care in the custody and preservation of Collateral in its
possession if such Collateral is accorded treatment substantially equivalent to
that which the Trustee, in its individual capacity, accords its own property, it
being understood that the Trustee shall not have responsibility for taking any
necessary steps to preserve rights against any person with respect to any
Collateral.
5.12. TRUSTEE. The Trustee has been appointed as trustee
pursuant to the Indenture. The actions of the Trustee hereunder are subject to
the provisions of the Indenture. The Trustee may resign and a successor Trustee
may be appointed in the manner provided in the Indenture. Upon the acceptance of
any appointment as the Trustee by a successor Trustee, that successor Trustee
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Trustee under this Agreement, and the
retiring Trustee shall thereupon be discharged from its duties and obligations
under this Agreement. After any retiring Trustee's resignation, the provisions
of this Agreement shall inure to its benefit as to any actions taken or omitted
to be taken by it under this Agreement while it was the Trustee.
5.13. CONTINUING SECURITY INTEREST; ASSIGNMENT. This Agreement
shall create a continuing security interest in the Collateral and shall (i) be
binding upon Pledgor and its successors and assigns and (ii) inure, together
with the rights and remedies of the Trustee hereunder, to the benefit of the
Trustee and each Secured Party and each of their successors, transferees and
assigns. No other person (including, without limitation, any other creditor of
Pledgor) shall have any interest herein or any right or benefit with respect
hereto. Pledgor may not assign its rights under this Agreement without the prior
written consent of the Trustee.
11
<PAGE>
5.14. OBLIGATIONS ABSOLUTE. All obligations of Pledgor
hereunder shall be absolute and unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like of Pledgor;
(b) any lack of validity or enforceability of any loan
document, or any other agreement or instrument relating thereto;
(c) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Indenture, or
any other agreement or instrument relating thereto;
(d) any exchange or non-perfection of the Pledged
Collateral, or any re-lease or amendment or waiver of or consent to any
departure from any guarantee, for all or any of the Secured Obligations;
(e) any exercise or non-exercise or any waiver of any
right, remedy, power or privilege under or in respect of any document
relating to the Indenture; or
(f) any other circumstances which might otherwise
constitute a defense available to, or a discharge of, Pledgor.
5.15. TERMINATION; RELEASE. When all of the Secured
Obligations have been paid in full or the Collateral has been sold pursuant to
an Asset Sale described in, and complying with, Section 4.16 of the Indenture,
this Agreement shall terminate. Upon termination of this Agreement or any
release of Collateral in accordance with the provisions of the Indenture, the
Trustee shall, upon the request and at the sole cost and the expense of Pledgor,
forthwith assign, transfer and deliver to Pledgor against receipt and without
express or implied recourse to or warranty by the Trustee, such of the
Collateral to be released as may be in possession of the Trustee and as shall
not have been sold or otherwise applied pursuant to the terms hereof, and proper
instruments acknowledging the termination of this Agreement or the release of
such Collateral, as the case may be.
5.16. LOCATION OF PLEDGED INTERESTS. The Trustee will take
all reasonable steps to ensure that the Pledged Interests are at all times
located within the State of New York.
12
<PAGE>
IN WITNESS WHEREOF, Pledgor and the Trustee have executed
this Agreement as of the day and year first above written.
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
-------------------------------------
Marvin K. Kaiser
Vice President and Chief Financial
Officer
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Robert L. Reynolds
-------------------------------------
Name: Robert L. Reynolds
Title: Vice President
13
<PAGE>
SCHEDULE A
PLEDGED INTERESTS
Percentage of All Capital
or Other Equity Interests
Issuer of Issuer
- -------------------------------------- -----------------------------------
DR Land Holdings, Inc. 100%
13
<PAGE>
SCHEDULE B
FILING JURISDICTIONS
Missouri:
Secretary of State
County of St. Louis, Indep. City
Delaware:
Secretary of Sate
15
<PAGE>
Exhibit 5.1
[Letterhead of Cadwalader, Wickersham & Taft]
January 20, 1999
The Doe Run Resources Corporation
Fabricated Products, Inc.
DR Land Holdings, LLC
Doe Run Cayman Ltd.
Doe Run Mining S.R.L.
Doe Run Peru S.R.L.
Doe Run Air S.A.C.
Doe Run Development S.A.C.
Empresa Minera Cobriza S.A.
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
Secured Notes due 2005, 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"), DR Land Holdings, LLC, a Delaware limited liability company
("DRLH"), Doe Run Cayman Ltd., a Cayman Islands company ("Doe Run Cayman"), Doe
Run Mining S.R.L., a Peruvian company ("Doe Run Mining"), Doe Run Peru S.R.L., a
Peruvian company ("Doe Run Peru"), Doe Run Air S.A.C., a Peruvian corporation
("Doe Run Air"), Doe Run Development S.A.C., a Peruvian corporation ("Doe Run
Development), and Empresa Minera Cobriza S.A., a Peruvian corporation
("Cobriza"), (collectively, the "Issuers") in connection with the preparation of
the Issuers' Amendment No. 1 to Registration Statement on Form S-4 (Registration
No. 333-66291) 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 Secured Notes due 2005, Series B (the "Exchange Notes") for any and all
of its outstanding 11 1/4% Senior Secured Notes due 2005, Series A (the "Old
Notes"). The Old Notes were issued, and the Exchange Notes are to be issued,
under an indenture, dated as of September 1, 1998 (the "Indenture"), by and
among Doe Run, as issuer, and FPI, Doe Run Cayman, Doe Run Mining, Doe Run Peru,
Doe Run Air and Doe Run Development, as guarantors (collectively, in such
capacity, the "Initial Guarantors"), and State Street Bank and Trust Company, as
trustee (the "Trustee"), and supplemented by the First Supplemental Indenture,
dated as of September 16, 1998 (the "First Supplemental Indenture"), by and
among Doe Run, as issuer, and the Initial Guarantors and Cobriza, as guarantors,
and the Trustee and the Second Supplemental Indenture (the "Second Supplemental
Indenture"), dated as of January 13, 1999, by and among Doe Run, as issuer, and
the Initial Guarantors, Cobriza and DRLH, as guarantors (collectively, in such
capacity, the "Guarantors"), and the 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, First Supplemental Indenture and
Second Supplemental Indenture filed as exhibits 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
<PAGE>
The Doe Run Resources Corporation -2- January 20, 1999
Fabricated Products, Inc.
DR Land Holdings, LLC
Doe Run Cayman Ltd.
Doe Run Mining S.R.L.
Doe Run Peru S.R.L.
Doe Run Air S.A.C.
Doe Run Development S.A.C.
Empresa Minera Cobriza S.A.
c/o The Doe Run Resources Corporation
originals, the 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 (a) 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 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 10.5.3
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
---------------------------
January 13, 1999
The Doe Run Resources Corporation
Fabricated Products, Inc.
1801 Park 270 Drive, Suite 300
St. Louis, Missouri 63146
Ladies and Gentlemen:
Congress Financial Corporation ("Lender") has entered into financing
arrangements with The Doe Run Resources Corporation ("Doe Run") and
Fabricated Products, Inc. ("Fabricated Products", and together with Doe Run,
collectively "Borrowers") pursuant to which Lender has made and may make
loans and advances and provide other financial accommodations to Borrowers as
set forth in the Loan and Security Agreement, dated March 12, 1998, by and
among Lender and Borrowers (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement") and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, including this letter agreement (all of the foregoing,
including the Loan Agreement, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced,
being collectively referred to herein as the "Financing Agreements"). All
capitalized terms used herein shall have the meaning assigned thereto in the
Loan Agreement, unless otherwise defined herein.
Borrowers have requested that Lender consent to: (a) the formation
of DR Land Holdings, LLC, a Delaware limited liability company ("DR Land")
whose sole member is and shall be Doe Run; (b) the assignment by Doe Run to
DR Land of all of Doe Run's right, title and interest in and to a Mineral
Lease, dated as of January 1, 1969, by and between Leo A. Drey and Kay K.
Drey, as lessors, and ASARCO, Inc. ("ASARCO"), as successor in interest to
Ozark Lead Company ("Ozark"), as lessee, as amended and recorded in Reynolds
County, Missouri at Book 194, Page 223 (the "Drey Lease"); (c) the Operating
Agreement, dated as of January 13, 1999, by and between Doe Run and DR Land
(the "Operating Agreement"), as the same exists on the date hereof, by Doe
Run and DR Land, pursuant to which Doe Run will perform mining operations on
the real property which is leased to DR Land pursuant to the Drey Lease; (d)
the pledge of the membership interest of Doe Run in DR Land to the Secured
Note Trustee; and (e) the guarantee by DR Land of the Indebtedness of Doe Run
evidenced by the Senior Notes and the Senior Secured Notes.
<PAGE>
The Drey Lease was purchased by Doe Run from ASARCO (the successor in
interest to Ozark) pursuant to the ASARCO Purchase Agreements.
Subject to the terms and conditions contained herein, Lender consents
to: (a) the formation of DR Land; (b) the assignment by Doe Run to DR Land of
Doe Run's interest in the Drey Lease; (c) the Operating Agreement; (d) the
pledge of the membership interest of Doe Run in DR Land to the Senior Secured
Note Trustee as security for the Senior Secured Notes; and (e) the guarantee
by DR Land of the Indebtedness of Doe Run evidenced by the Senior Notes and
the Senior Secured Notes; PROVIDED, THAT, all of the foregoing have occurred
by no later than January 29, 1999.
The definition of "Senior Secured Note Guarantors" in the Loan
Agreement is hereby amended to include, in addition and not in limitation, DR
Land.
Schedule 5.1(b) to the Loan Agreement is hereby amended by adding
thereto the material set forth on Exhibit A hereto.
The consents set forth above shall be subject to each of the
following, and Borrowers hereby jointly and severally represent, warrant and
covenant with and to Lender as follows (which representations, warranties and
covenants are continuing and shall survive the execution and delivery hereof
and shall be incorporated into and made part of the Financing Agreements):
(a) DR Land's sole purpose shall be to hold the right, title and
interest in the Drey Lease, to enter into the Operating
Agreement and to realize the benefits of the Drey Lease and
the Operating Agreement, and the only assets of DR Land shall
be the interest of DR Land in the Drey Lease and the
Operating Agreement and all rights and proceeds associated
therewith; provided, however, such assets shall not include
any minerals at any time extracted from any of the property
subject to the Drey Lease all of which shall only be
transferred to Doe Run immediately upon extraction;
(b) DR Land shall not conduct any business or engage in any
commercial activities except to the extent required by and as
specified in the Operating Agreement as in effect on the date
hereof;
(c) each Borrower shall not, and shall not permit any Subsidiary
to, directly or indirectly, make any loan or advance money or
property to DR Land, or invest in (by capital contribution,
dividend or otherwise) DR Land or make any other payment to
DR Land or transfer any assets or properties to DR Land or
guarantee or otherwise become liable in any respect for any
obligations of DR Land, other than the transfer to DR Land of
Doe Run's right, title and interest in and to the Drey Lease
and Doe Run providing the Services (as such term is defined
in the Operating Agreement as in effect on the date hereof)
to DR
2
<PAGE>
Land in accordance with the terms of the Operating Agreement
(as in effect on the date hereof) and to make the payments
required under the Drey Lease on behalf of DR Land as
provided for in the Operating Agreement (as in effect on the
date hereof), but only to the extent that Doe Run has been
reimbursed by the transfer by DR Land to Doe Run of minerals
mined and extracted pursuant to the Drey Lease (which
transfer shall be free and clear of any liens, security
interests, claims and other encumbrances) and; PROVIDED,
THAT, any payment by Doe Run to DR Land or made by Doe Run on
behalf of DR Land shall only be made when due under the terms
of the Drey Lease and shall only exceed the amounts required
to be paid to the lessors under the Drey Lease as set forth
in the Operating Agreement as in effect on the date hereof;
(d) a true, correct and complete copy of the Operating Agreement
is annexed hereto as Exhibit B;
(e) promptly after the end of each fiscal quarter, DR Land shall
make a distribution to its sole member, Doe Run, of
substantially all of its tangible assets (including any cash
or cash equivalents) other than its interest in the Drey
Lease and the Operating Agreement;
(f) Lender shall have received true, correct and complete copies
of all the documents relating to the formation of DR Land,
the transfer to DR Land of the Drey Lease, and the pledge of
the membership interest of Doe Run in DR Land to the Secured
Note Trustee; EXCEPT, THAT, in the case of such pledge,
Lender shall have received true, correct and complete copies
of such documents within five (5) days hereof and such
documents shall be in form and substance similar to the draft
pledge documents received by Lender as of the date hereof;
(g) Lender shall have received, in form and substance
satisfactory to Lender, the guarantee by DR Land of the
Obligations of Borrowers in favor of Lender, duly authorized,
executed and delivered by DR Land;
(h) Lender shall have received, in form and substance
satisfactory to Lender, the Manager's Certificate of Member's
and Manager's Resolutions, Operating Agreement, Incumbency
and Member's Consent duly authorized, executed and delivered
by Doe Run; and
(i) Lender shall have received an original of this letter
agreement duly authorized, executed and delivered by
Borrowers.
The terms herein shall not limit or otherwise affect in any manner
whatsoever the rights of the Lender to require Borrowers to execute and
deliver or cause to be executed, delivered or obtained any further
agreements, documents or instruments as provided in the Financing Agreements.
The parties hereto acknowledge, confirm and agree that the failure of
3
<PAGE>
Borrowers to comply with the representations, warranties and covenants set
forth herein shall constitute an Event of Default under the Loan Agreement.
This letter agreement may be executed in counterparts, but all of
such counterparts shall together constitute but one and the same agreement.
In making proof of this letter agreement, it shall not be necessary to
produce or account for more than one counterpart thereof signed by each of
the parties thereto.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ Herbert Korn
----------------------------
Title: Assistant Vice President
-------------------------
ACKNOWLEDGED:
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
------------------------------
Title: Vice President/CFO
---------------------------
FABRICATED PRODUCTS, INC.
By: /s/ Marvin K. Kaiser
------------------------------
Title: Vice President/CFO
---------------------------
4
<PAGE>
Exhibit 10.5.4
GUARANTEE
---------
January 13, 1999
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: The Doe Run Resources Corporation
and Fabricated Products, Inc.
---------------------------------
Gentlemen:
Congress Financial Corporation ("Lender"), The Doe Run Resources
Corporation ("Doe Run") and Fabricated Products, Inc. ("Fabricated Products",
together with Doe Run, individually and collectively, "Borrowers") have
entered into certain financing arrangements pursuant to which Lender has made
and may make loans and advances and provide other financial accommodations to
Borrowers as set forth in the Loan and Security Agreement, dated as of March
12, 1998, by and among Doe Run, Fabricated Products and Lender (as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, the "Loan Agreement"), and other agreements,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto, including, but not
limited to, this Guarantee (all of the foregoing, together with the Loan
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
Due to the close business and financial relationships between
Borrowers and the undersigned ("Guarantor"), in consideration of the benefits
which will accrue to Guarantor and as an inducement for and in consideration
of Lender continuing to make loans and advances and providing other financial
accommodations to Borrowers pursuant to the Loan Agreement and the other
Financing Agreements, and in accordance with the terms of Section 6.2 of the
Loan Agreement, Guarantor hereby agrees in favor of Lender as follows:
1. GUARANTEE.
(a) Guarantor absolutely and unconditionally guarantees and
agrees to be liable for the full and indefeasible payment and performance
when due of the following (all of which are collectively referred to herein
as the "Guaranteed Obligations"): (i) all Obligations (as defined in the Loan
Agreement) of Borrowers to Lender, and (ii) all expenses (including, without
limitation, attorneys' fees and legal expenses) incurred by Lender in
connection with
<PAGE>
the preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of Guaranteed Obligations, under this
Guarantee and or in any way involving claims by or against Lender directly or
indirectly arising out of or related to the relationships arising out of this
Guarantee and the other Financing Agreements to which Guarantor is a party,
whether such expenses are incurred before, during or after the initial or any
renewal term of the Loan Agreement and the other Financing Agreements or
after the commencement of any case with respect to Borrowers or Guarantor
under the United States Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of
collection. Guarantor agrees that Lender need not attempt to collect any
Guaranteed Obligations from Borrowers, Guarantor or any other Obligor (as
defined in the Loan Agreement) or to realize upon any collateral, but may
require Guarantor to make immediate payment of all of the Guaranteed
Obligations to Lender when due, whether by maturity, acceleration or
otherwise, or at any time thereafter. Lender may apply any amounts received
in respect of the Guaranteed Obligations to any of the Guaranteed
Obligations, in whole or in part (including attorneys' fees and legal
expenses incurred by Lender with respect thereto or otherwise chargeable to
Borrowers or Guarantor) and in such order as Lender may elect.
(c) Payment by Guarantor shall be made to Lender at the office
of Lender from time to time on demand as Guaranteed Obligations become due.
Guarantor shall make all payments to Lender on the Guaranteed Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. One or more
successive or concurrent actions may be brought hereon against Guarantor
either in the same action in which Borrowers or any other Obligor is sued or
in separate actions. In the event any claim or action, or action on any
judgment, based on this Guarantee is brought against Guarantor, Guarantor
agrees not to deduct, set-off, or seek any counterclaim for or recoup any
amounts which are or may be owed by Lender to Guarantor.
2. WAIVERS AND CONSENTS.
(a) Notice of acceptance of this Guarantee, the making of loans
and advances and providing other financial accommodations to Borrowers and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which each of Borrowers or Guarantor is
entitled are hereby waived by Guarantor. Guarantor also waives notice of and
hereby consents to, (i) any amendment, modification, supplement, extension,
renewal, or restatement of the Loan Agreement and any of the other Financing
Agreements with respect to Borrowers only and not Guarantor, including,
without limitation, extensions of time of payment of or increase or decrease
in the amount of any of the Guaranteed Obligations, the interest rate, fees,
other charges, or any collateral, and the guarantee made herein shall apply
to the Loan Agreement and the other Financing Agreements and the Guaranteed
Obligations as so amended, modified, supplemented, renewed, restated or
extended, increased or decreased, (ii) the taking, exchange, surrender and
releasing of
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<PAGE>
collateral or guarantees now or at any time held by or available to Lender
for the obligations of each of Borrowers or any Obligor, (iii) the exercise
of, or refraining from the exercise of any rights against each of Borrowers
or any other Obligor or any collateral, (iv) the settlement, compromise or
release of, or the waiver of any default with respect to, any of the
Guaranteed Obligations and (v) any financing by Lender of Borrowers under
Section 364 of the United States Bankruptcy Code or consent to the use of
cash collateral by Lender under Section 363 of the United States Bankruptcy
Code. Guarantor agrees that the amount of the Guaranteed Obligations shall
not be diminished and the liability of Guarantor hereunder shall not be
otherwise impaired or affected by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or
any part of the Guaranteed Obligations shall affect, impair or be a defense
to this Guarantee, nor shall any other circumstance which might otherwise
constitute a defense available to or legal or equitable discharge of
Borrowers in respect of any of the Guaranteed Obligations, or Guarantor in
respect of this Guarantee, affect, impair or be a defense to this Guarantee
(except the defense of payment in full). Without limitation of the
foregoing, the liability of Guarantor hereunder shall not be discharged or
impaired in any respect by reason of any failure by Lender to perfect or
continue perfection of any lien or security interest in any collateral of the
Borrowers or any delay by Lender in perfecting any such lien or security
interest. As to interest, fees and expenses, whether arising before or after
the commencement of any case with respect to Borrowers under the United
States Bankruptcy Code or any similar statute, Guarantor shall be liable
therefor, even if Borrowers' liability for such amounts does not, or ceases
to, exist by operation of law. Guarantor acknowledges that Lender has not
made any representations to Guarantor with respect to Borrowers, any other
Obligor or otherwise in connection with the execution and delivery by
Guarantor of this Guarantee and Guarantor is not in any respect relying upon
Lender or any statements by Lender in connection with this Guarantee.
(c) Guarantor hereby irrevocably and unconditionally waives and
relinquishes all statutory, contractual, common law, equitable and all other
claims against Borrowers, any collateral of the Borrowers for the Guaranteed
Obligations or other assets of Borrowers or any other Obligor, for
subrogation, reimbursement, exoneration, contribution, indemnification,
setoff or other recourse in respect to sums paid or payable to Lender by
Guarantor hereunder and Guarantor hereby further irrevocably and
unconditionally waives and relinquishes any and all other benefits which
Guarantor might otherwise directly or indirectly receive or be entitled to
receive by reason of any amounts paid by or collected or due from Guarantor,
Borrowers or any other Obligor upon the Guaranteed Obligations or realized
from their property, until the Guaranteed Obligations have been indefeasibly
paid and satisfied in full and the Financing Agreements have been terminated.
3. SUBORDINATION. Payment of any amounts now or hereafter owed to
Guarantor by Borrowers or any other Obligor is hereby subordinated in right
of payment to the indefeasible payment in full to Lender of the Guaranteed
Obligations (subject to such payments thereof as
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<PAGE>
are permitted under the Loan Agreement) and all such amounts and any security
and guarantees therefor are hereby assigned to Lender as security for the
Guaranteed Obligations.
4. ACCELERATION. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantor for the entire Guaranteed Obligations shall mature and
become immediately due and payable, even if the liability of Borrowers or any
other Obligor therefor does not, upon the occurrence of any act, condition or
event which constitutes an Event of Default as such term is defined in the
Loan Agreement.
5. ACCOUNT STATED. The books and records of Lender showing the
account between Lender and Borrowers shall be admissible in evidence in any
action or proceeding against or involving Guarantor as PRIMA FACIE proof of
the items therein set forth, and the monthly statements of Lender rendered to
Borrowers shall absent manifest errors or omissions, be considered correct
and deemed accepted by Guarantor and conclusively binding upon Guarantor as
an account stated except to the extent that Lender receives a written notice
from Borrowers or Guarantor of any specific exceptions of Borrowers or
Guarantor thereto within thirty (30) days after the date such statement has
been mailed by Lender.
6. TERMINATION. This Guarantee is continuing, unlimited, absolute
and unconditional. All Guaranteed Obligations shall be conclusively presumed
to have been created in reliance on this Guarantee. Guarantor shall continue
to be liable hereunder until one of Lender's officers actually receives a
written termination notice from Guarantor sent to Lender at its address set
forth above by certified mail, return receipt requested and thereafter as set
forth below. Revocation or termination hereof by Guarantor shall not affect,
in any manner, the rights of Lender or any obligations or duties of Guarantor
under this Guarantee with respect to (a) Guaranteed Obligations which have
been created, contracted, assumed or incurred prior to the receipt by Lender
of such written notice of revocation or termination as provided herein,
including, without limitation, (i) all amendments, extensions, renewals and
modifications of such Guaranteed Obligations (whether or not evidenced by new
or additional agreements, documents or instruments executed on or after such
notice of revocation or termination), (ii) all interest, fees and similar
charges accruing or due on and after revocation or termination, and (iii) all
attorneys' fees and legal expenses, costs and other expenses paid or incurred
on or after such notice of revocation or termination in attempting to collect
or enforce any of the Guaranteed Obligations against each of Borrowers,
Guarantor or any other Obligor (whether or not suit be brought), or (b)
Guaranteed Obligations which have been created, contracted, assumed or
incurred after the receipt by Lender of such written notice of revocation or
termination as provided herein pursuant to any contract entered into by
Lender prior to receipt of such notice. The sole effect of such revocation
or termination by Guarantor shall be to exclude from this Guarantee the
liability of Guarantor for those Guaranteed Obligations arising after the
date of receipt by Lender of such written notice which are unrelated to
Guaranteed Obligations arising or transactions entered into prior to such
date. Without limiting the foregoing, this Guarantee may not be terminated
and shall
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<PAGE>
continue so long as the Loan Agreement shall be in effect (whether during its
original term or any renewal, substitution or extension thereof).
7. REINSTATEMENT. If after receipt of any payment of, or proceeds
of collateral applied to the payment of, any of the Guaranteed Obligations,
Lender is required to surrender or return such payment or proceeds to any
Person for any reason, then the Guaranteed Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and
this Guarantee shall continue in full force and effect as if such payment or
proceeds had not been received by Lender. Guarantor shall be liable to pay
to Lender, and does indemnify and hold Lender harmless for the amount of any
payments or proceeds surrendered or returned. This Section 7 shall remain
effective notwithstanding any contrary action which may be taken by Lender in
reliance upon such payment or proceeds. This Section 7 shall survive the
termination or revocation of this Guarantee.
8. AMENDMENTS AND WAIVERS. Neither this Guarantee nor any
provision hereof shall be amended, modified, waived or discharged orally or
by course of conduct, but only by a written agreement signed by an authorized
officer of Lender and, as to amendments, by an authorized officer of
Guarantor. Lender shall not by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Lender would otherwise
have on any future occasion, whether similar in kind or otherwise.
9. CORPORATE EXISTENCE, POWER AND AUTHORITY. Guarantor is a
limited liability company duly organized and in good standing under the laws
of its state or other jurisdiction of formation and is duly qualified as a
foreign limited liability company and in good standing in all states or other
jurisdictions where the nature and extent of the business transacted by it or
the ownership of assets makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the financial condition, results of operation or businesses
of Guarantor or the rights of Lender hereunder or under any of the other
Financing Agreements. The execution, delivery and performance of this
Guarantee are within the powers of Guarantor as a limited liability company,
have been duly authorized and are not in contravention of law or the terms of
the operating agreement, formation agreement or other organizational
documentation of Guarantor, or any indenture, agreement or undertaking to
which Guarantor is a party or by which Guarantor or its property are bound.
This Guarantee constitutes the legal, valid and binding obligation of
Guarantor enforceable in accordance with its terms.
10. GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
(a) The validity, interpretation and enforcement of this
Guarantee and any dispute arising out of the relationship between Guarantor
and Lender, whether in contract,
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<PAGE>
tort, equity or otherwise, shall be governed by the internal laws of the
State of New York (without giving effect to principles of conflicts of law).
(b) Guarantor hereby irrevocably consents and submits to the
non-exclusive jurisdiction of the Supreme Court of the State of New York in
New York County and the United States District Court for the Southern
District of New York and waives any objection based on venue or FORUM NON
CONVENIENS with respect to any action instituted therein arising under this
Guarantee or any of the other Financing Agreements or in any way connected
with or related or incidental to the dealings of Guarantor and Lender in
respect of this Guarantee or any of the other Financing Agreements or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising and whether in contract, tort, equity or otherwise, and
agrees that any dispute arising out of the relationship between Guarantor or
Borrowers and Lender or the conduct of any such persons in connection with
this Guarantee, the other Financing Agreements or otherwise shall be heard
only in the courts described above (except that Lender shall have the right
to bring any action or proceeding against Guarantor or its property in the
courts of any other jurisdiction which Lender deems necessary or appropriate
in order to realize on any collateral at any time granted by Borrowers or
Guarantor to Lender or to otherwise enforce its rights against Guarantor or
its property).
(c) Guarantor hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
on the signature pages hereof and service so made shall be deemed to be
completed ten (10) days after the same shall have been so deposited in the
U.S. mails, or, at Lender's option, by service upon Guarantor in any other
manner provided under the rules of any such courts. Within thirty (30) days
after such service, Guarantor shall appear in answer to such process, failing
which Guarantor shall be deemed in default and judgment may be entered by
Lender against Guarantor for the amount of the claim and other relief
requested.
(d) GUARANTOR AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF GUARANTOR AND
LENDER IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS
OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. GUARANTOR AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN ORIGINAL COUNTERPART
OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
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<PAGE>
CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Guarantor (whether
in tort, contract, equity or otherwise) for losses suffered by Guarantor in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Guarantee, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit
of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of the Loan
Agreement and the other Financing Agreements.
11. NOTICES. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender at its address set forth above and to
Guarantor at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, ten (10) days
after mailing.
12. PARTIAL INVALIDITY. If any provision of this Guarantee is held
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be permitted by
applicable law.
13. ENTIRE AGREEMENT. This Guarantee represents the entire
agreement and understanding of this parties concerning the subject matter
hereof, and supersedes all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written.
14. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon
Guarantor and its successors and assigns and shall inure to the benefit of
Lender and its successors, endorsees, transferees and assigns. The
liquidation, dissolution or termination of Guarantor shall not terminate this
Guarantee as to such entity or as to Guarantor.
15. CONSTRUCTION. All references to the term "Guarantor" wherever
used herein shall mean Guarantor and its successors and assigns (including,
without limitation, any receiver, trustee or custodian for Guarantor or any
of its assets or Guarantor in its capacity as debtor or debtor-in-possession
under the United States Bankruptcy Code). All references to the term
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<PAGE>
"Lender" wherever used herein shall mean Lender and its successors and
assigns and all references to the term "Borrowers" wherever used herein shall
mean each of Borrowers and their successors and assigns, jointly and
severally, individually and collectively (including, without limitation, any
receiver, trustee or custodian for each Borrower or any of its assets or each
Borrower in its capacity as debtor or debtor-in-possession under the United
States Bankruptcy Code). All references to the term "Person" or "person"
wherever used herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation
which elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof. All references to the plural shall also mean
the singular and to the singular shall also mean the plural.
IN WITNESS WHEREOF, Guarantor has executed and delivered this
Guarantee as of the day and year first above written.
DR LAND HOLDINGS, LLC
By: /s/ Marvin K. Kaiser
--------------------------------
Title: Vice President
-----------------------------
Chief Executive Office
----------------------
1801 Park 270 Drive
St. Louis, Missouri
Attn: Managing Member
-8-
<PAGE>
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Doe Run Resources Corporation
Amendment No. 1 to
Registration Statement on Form S-4
We are aware that our report dated August 19, 1998 on our review of the
interim financial information of the Missouri Lead Division for the six month
periods ended June 30, 1998 and 1997 is included in this amendment no. 1
to the registration statement on Form S-4 (filed by The Doe Run Resources
Corporation on January 21, 1999). 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
New York, New York
January 20, 1999
<PAGE>
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION OR ORGANIZATION
<S> <C>
Fabricated Products, Inc. Delaware
DR Land Holdings, LLC Delaware
Doe Run Cayman Ltd. Cayman Islands
Doe Run Mining S.R.L. Peru
Doe Run Peru S.R.L. Peru
Doe Run Air S.A.C. Peru
Doe Run Development S.A.C. Peru
Empresa Minera Cobriza S.A. Peru
DR Exploration SA (Proprietary) Limited South Africa
</TABLE>
<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
January 20, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
January 20, 1999
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; our
auditors' report dated December 5, 1997 on the financial statements of Doe
Run Cayman Ltd. and Doe Run Peru S.R.Ltda 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.
/s/ Marco Antonio Zaldivar
- --------------------------
Marco Antonio Zaldivar
Partner
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to this registration
statement on Form S-4 (Registration No. 333-66291) 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".
/s/ PricewaterhouseCoopers LLP
New York, New York
January 20, 1999
<PAGE>
EXHIBIT 23.5
January 19, 1999
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.
Respectfully,
PINCOCK, ALLEN & HOLT
/s/ John W. Rozelle, P.G.
John W. Rozelle, P.G.
Principal Geologist
