<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1995
REGISTRATION NO. 33-98876
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
SUNSHINE MERGER COMPANY
(Exact name of registrant as specified in its charter)
SUNSHINE MINING AND REFINING COMPANY
(Name of registrant upon effectiveness of the merger described herein)
<TABLE>
<S> <C> <C>
DELAWARE 1044 75-2618333
(STATE OR OTHER JURISDICTION OF MARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER IDENTIFICATION NO.)
</TABLE>
877 W. Main Street, Suite 600
Boise, Idaho 83702
(208) 345-0660
(Address, including ZIP Code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------
John S. Simko, President
SUNSHINE MERGER COMPANY
877 W. Main Street, Suite 600
Boise, Idaho 83702
(208) 345-0660
(Address, including ZIP Code, and telephone number,
including area code, of agent for service)
--------------------
COPY TO:
James D. Hovren, Esq.
Evans, Keane
1101 W. River St., Suite 200
Boise, Idaho 83701-0959
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME OF THE MERGER DESCRIBED IN THIS
REGISTRATION STATEMENT.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.[ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Amount to be Maximum Offering Maximum Aggregate Amount of
Securities to be Registered Registered Price Per Security Offering Price Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C><C> <C>
Common Stock, $.01 par value 206,917,404(1) $ 1.6875 $ 349,173,119 120,404.00
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value 66,645,531(2) - 68,526,653 (2) 23,629.00
- ------------------------------------------------------------------------------------------------------------------------------------
New Warrants to purchase common stock 14,332,372(2) - - (2) -
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value, to be
issued upon exercise of New Warrants 14,332,372 1.85625 (3) 26,604,465 9,173.00
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants to Purchase Common Stock, $2.12
exercise price 10,086,076(4) $ .703125 $ 7,091,772 2,445.00
- ------------------------------------------------------------------------------------------------------------------------------------
8 7/8% Convertible Subordinated Debentures 1,519,000 - 1,519,000 (5) 523.00
- ------------------------------------------------------------------------------------------------------------------------------------
$ 156,177.58(6)
====================================================================================================================================
</TABLE>
(1) To be issued in exchange for existing common stock. Fee calculated
pursuant to 457 (f)(1) based upon the average of high and low prices on
NYSE for existing common stock on October 24, 1995.
(2) Common Stock and Warrants to purchase common stock to be issued in
exchange for existing Preferred Stock. Fee calculated pursuant to
457(f)(1), aggregate price based upon the average of high and low
prices on NYSE for Preferred Stock on October 24, 1995.
(3) Pursuant to 457(g), based upon 110% of the average high and low prices
on NYSE for existing common stock on October 24, 1995.
(4) To be issued in exchange for existing Warrants ($2.12 exercise price)
to purchase Common Stock. Fee calculated pursuant to 457(f)(1) based
upon the average of high and low prices on the NNM for existing
warrants ($.65625) on October 24, 1995.
(5) Fee calculated pursuant to 457(f)(2).
(6) Previously paid (Continued)
<PAGE> 2
Also includes such indeterminate number of shares of Common Stock of the
Company as are issuable pursuant to Rule 416 on conversion or exercise, as well
as such additional shares of Common Stock as may become issuable pursuant to
antidulition provisions.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
SUNSHINE MERGER COMPANY
CROSS-REFERENCE SHEET
This cross-reference sheet is provided pursuant to Item 501(b) of Regulation
S-K showing the location in the Proxy Statement Prospectus of information
required by Part I of Form S-4.
FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
- ----------- --------------------------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front Cover
Page of Prospectus . . . . . . . . . . . . . . . . . . . . . Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus . . . Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information . . . . . . . . . . . . . . . . . . . . . . . . . Available Information; Prospectus
Summary; Certain Risk Factors; The
Merger Proposal; Sunshine Mining
and Refining Company; Sunshine
Merger Company; Capitalization;
Comparative Per Share Data;
Selected Financial Data; Security
Ownership of Certain Beneficial
Owners and Management; Federal
Income Tax Consequences; Voting
Securities and Record Date.
4. Terms of Transaction . . . . . . . . . . . . . . . . . . . . The Merger Proposal; Prospectus
Summary; Sunshine Mining and
Refining Company; Sunshine Merger
Company; Description of The
Warrants; Federal Income Tax
Consequences; Annex A
5. Pro Forma Financial Information . . . . . . . . . . . . . . . Capitalization; Comparative Per
Share Data
6. Material Contacts with the Company Being Acquired . . . . . . The Merger Proposal; Annex A
7. Additional Information Required for Reoffering by Person and Not Applicable
Parties Deemed to be Underwriters Interests of Name Experts
and Counsel . . . . . . . . . . . . . . . . . . . . . . . . .
8. Not Applicable
Disclosure of Commission Position on Indemnification for
9. Securities Act Liabilities . . . . . . . . . . . . . . . . .
Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect S-3 Registrants . . . . . . . . . .
Not Applicable
11. Incorporation of Certain Information by Reference . . . . . .
Not Applicable
12. Information with Respect to S-2 or S-3 Registrants . . . . .
Not Applicable
13. Incorporation of Certain Information by Reference . . . . . .
Not Applicable
14. Information with Respect to Registrants Other than S-3 or S-2
Registrants . . . . . . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Sunshine Merger
Company; Sunshine Mining and
Refining Company; The Merger
Proposal; Selected Financial Data;
Capitalization; Comparative Per
Share Data; Annex B
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
FORM S-4
ITEM NUMBER LOCATION IN PROXY STATEMENT/PROSPECTUS
- ----------- --------------------------------------
<S> <C> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies . . . . . . . . . . Not Applicable
16. Information with Respect to S-2 or S-3 Companies . . . . . . Not Applicable
17. Information with Respect to Companies Other Than
S-3 or S-2 Companies . . . . . . . . . . . . . . . . . . . . Prospectus Summary; Sunshine Merger
Company; Sunshine Mining and
Refining Company; The Merger
Proposal; Selected Financial Data;
Capitalization; Comparative Per
Share Data
18. Information if Proxies, Consents or Authorizations are to be
Solicited . . . . . . . . . . . . . . . . . . . . . . . . . . Notice of Special Meeting of
Stockholders; Outside Front Cover
Page of Proxy Statement/Prospectus;
The Merger Proposal; Sunshine
Mining and Refining Company;
Security Ownership of Certain
Beneficial Owners and Management;
Directors of Sunshine; Annex B
19. Information if Proxies, Consents or Authorizations are not to
be Solicited or in an Exchange Offer . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 5
SUNSHINE MINING AND REFINING COMPANY
877 WEST MAIN STREET, SUITE 600
BOISE, IDAHO 83702
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
[____________________]
A special meeting of shareholders of Sunshine Mining and Refining
Company ("Sunshine" or the "Company") will be held on [________], 1996, at
10:00 a.m., local time, at _____________________________, Boise, Idaho, for the
purpose of voting on the approval and adoption of an Agreement and Plan of
Merger dated [________________________] (the "Merger Agreement") between the
Company and Sunshine Merger Company, a wholly-owned subsidiary of the Company,
and approval of the transactions contemplated thereby as described in the
accompanying Proxy Statement/Prospectus, and all other matters properly coming
before the meeting. If the merger contemplated by the Merger Agreement (the
"Merger") is consummated, then the Company will be merged with and into
Sunshine Merger Company, and Sunshine Merger Company will be the surviving
entity. The Merger will become effective (the "Effective Date") immediately
upon the filing of a Certificate of Merger in accordance with Delaware General
Corporation Law and upon satisfaction or waiver of the conditions to the
Merger. On the Effective Date, the name of Sunshine Merger Company will be
changed to Sunshine Mining and Refining Company.
Only holders of the Company's Common Stock, $.01 par value (the
"Existing Common Stock") and holders of the Company's $11.94 (Stated Value)
Cumulative Redeemable Preferred Stock (the "Preferred Stock") of record as of
the close of business on ____________________ ( the "Record Date"), have the
right to receive notice of and to vote at the meeting. A list of these
stockholders will be available for inspection for ten (10) days preceding the
meeting at the office of the Secretary of the Company, 877 West Main Street,
Suite 600, Boise, Idaho 83702, and will also be available for inspection at the
meeting.
A copy of the Merger Agreement is attached as Annex A to the
accompanying Proxy Statement/Prospectus. As stated in the Proxy
Statement/Prospectus, upon consummation of the Merger, the Board of Directors
of Sunshine Merger Company will consist of the current Directors of the
Company, with the exception of Messrs. George M. Elvin, Hoffer Kaback and
Douglas K. Stewart, who were elected directors by the holders of Preferred
Stock at the Company's 1995 Annual Meeting on June 13, 1995. On the Effective
Date, the Preferred Stock of the Company will be terminated and all dividend
and redemption rights thereunder will cease to exist, as more fully explained
in the accompanying Proxy Statement/Prospectus.
The Proxy Statement/Prospectus also relates to the shares of Sunshine
Merger Company's Common Stock, par value $.01 (the "New Common Stock") and the
Sunshine Merger Company Warrants to be issued pursuant to the Merger. See
"DESCRIPTION OF MERGER."
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE,
SIGN, AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE PROVIDED AS SOON AS
POSSIBLE. IF YOU ATTEND THE MEETING IN PERSON, YOU MAY WITHDRAW YOUR PROXY AND
VOTE YOUR SHARES. THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT YOU
MARK YOUR PROXY IN FAVOR OF THE MERGER AGREEMENT. IT WILL NOT BE NECESSARY FOR
THE HOLDERS OF COMMON STOCK TO SURRENDER OR EXCHANGE THEIR CERTIFICATES FOR NEW
CERTIFICATES REPRESENTING COMMON STOCK IN SUNSHINE MERGER COMPANY. HOLDERS OF
PREFERRED STOCK SHOULD NOT SEND IN ANY CERTIFICATES FOR PREFERRED STOCK AT THIS
TIME. IF THE MERGER IS CONSUMMATED, HOLDERS OF PREFERRED STOCK WILL RECEIVE
INSTRUCTIONS REGARDING SURRENDER OF THOSE STOCK CERTIFICATES.
By Order of the Board of Directors
REBECCA L. SAUNDERS
Secretary
[_______________], 1996
<PAGE> 6
PROXY STATEMENT/PROSPECTUS
--------------------
SUNSHINE MINING AND REFINING COMPANY
SUNSHINE MERGER COMPANY
877 W. Main Street, Suite 600
Boise, Idaho 83702
--------------------
SPECIAL MEETING OF STOCKHOLDERS
--------------------
TO BE HELD [______], 1996
This Proxy Statement/Prospectus is being furnished to holders of the
common stock, par value $.01 per share, (the "Existing Common Stock") and
holders of $11.94 (Stated Value) Cumulative Redeemable Preferred Stock (the
"Preferred Stock") of Sunshine Mining and Refining Company, a Delaware
corporation ("Sunshine" or the "Company"), in connection with the solicitation
of proxies by and on behalf of the Board of Directors of the Company for use at
the special meeting of Shareholders of the Company, to be held on [_________],
1996, at 10:00 a.m., local time, at [_], Boise, Idaho, and any adjournment
thereof (the "Special Meeting"). This Proxy Statement/Prospectus and
accompanying Notice of Special Meeting of Stockholders and Form of Proxy are
first being mailed to stockholders on or about [______], 1996.
At the Special Meeting, stockholders will be asked to consider and
vote upon approval of the Merger Agreement between the Company and Sunshine
Merger Company, a Delaware corporation and a wholly-owned subsidiary of the
Company, with Sunshine Merger Company being the surviving corporation (the
"Merger"). On the Effective Date of the Merger, the name Sunshine Merger
Company will be changed to Sunshine Mining and Refining Company. The purpose
of the Merger is to retire all of the Company's outstanding Preferred Stock,
which pursuant to the terms of the Merger will be exchanged for Common Stock of
Sunshine Merger Company and newly issued Warrants to purchase additional shares
of Sunshine Merger Company Common Stock. On consummation of the Merger, each
outstanding share of Existing Common Stock will be converted, without any
action by the holder thereof, into one share of Common Stock, par value $.01
per share of Sunshine Merger Company ("New Common Stock"). Each outstanding
share of Preferred Stock will be converted by the Merger into [_____] shares
of New Common Stock and either .9 (9/10) share of New Common Stock or, at
the option of the holder, two (2) Warrants, each to purchase one (1) share
of New Common Stock at the exercise price described herein. The number of
shares of New Common Stock issued for each share of Preferred Stock and the
exercise price of the Warrants are subject to adjustment pursuant to a formula
based on the trading price of Common Stock. Based on the composite closing
price of the Common Stock on the New York Stock Exchange ("NYSE") of $[______]
per share on [_________], 1996, it is estimated that the value of the [______]
shares of New Common Stock plus an additional .9 share of New Common Stock
have an aggregate value of approximately [______]. It is also estimated that
the option of receiving two (2) Warrants in lieu of .9 share of New Common
Stock has the same value. However, there can be no assurance that the value
of the securities received will not decline in value. SEE, CERTAIN RISK
FACTORS--VALUE OF PREFERRED STOCK EXCHANGED; PROSPECTUS SUMMARY-TERMS OF THE
MERGER; THE MERGER PROPOSAL; DESCRIPTION OF THE WARRANTS. SEE "TERMS OF
THE MERGER."
This Proxy Statement/Prospectus also constitutes a prospectus of
Sunshine Merger Company for up to [] shares of New Common Stock and up to
14,332,372 Warrants to purchase New Common Stock pursuant to the terms of the
Merger.
Prior to the Merger, the Existing Common Stock and Preferred Stock are
listed on the NYSE. Following the Merger, the New Common Stock will be listed
on the NYSE under the symbol "SSC" and the Warrants will be listed on the
Nasdaq National Market ("NNM"), under the symbol "SILVZ."
THE SECURITIES ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SEE "CERTAIN RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT STOCKHOLDERS SHOULD CONSIDER PRIOR TO EXECUTING A PROXY OR CASTING
A VOTE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Price to Public Underwriting Discounts Proceeds to Issue or
and Commissions Other Persons (1)(2)
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Per Unit(1) . . . . . . . . -0-
Total(2) . . . . . . . . . -0-
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes exercise price of Warrants to be [$_________], which may be
reduced pursuant to the terms of the Warrants. See "DESCRIPTION OF
THE WARRANTS."
(2) Assumes all of the Warrants are issued incident to the Merger and
exercised prior to expiration. See "THE MERGER PROPOSAL" and
"DESCRIPTION OF THE WARRANTS."
The date of this Proxy Statement/Prospectus is [_____], 1996.
<PAGE> 7
EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED FOR THE MERGER PROPOSAL.
AVAILABLE INFORMATION
The Company is (and following the Merger Sunshine Merger Company will
be) subject to the informational requirements of the Exchange Act, and in
accordance therewith files (and Sunshine Merger Company will file) reports,
proxy statements and other information with the Commission. Reports, proxy
statements and other information, filed by the Company (and to be filed by
Sunshine Merger Company) may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Regional offices of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such information can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Existing Common Stock is listed for quotation on the New York Stock
Exchange ("NYSE") and such material also can be inspected and copied at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
Sunshine's principal executive offices are located at 877 West Main
Street, Suite 600, Boise, Idaho 83702. Sunshine's telephone number at this
address is (208) 345-0660.
The Company has appointed The Herman Group, Inc., as Information Agent
for the Merger. Questions regarding the enclosed Proxy Statement/Prospectus
may be directed to The Herman Group, Inc. at (800) 747-2967.
This Proxy Statement/Prospectus does not contain all of the
information in the Form S-4 and exhibits thereto. Statements in this Proxy
Statement/Prospectus as to the contents of any contract, agreement or other
document are summaries only and are not necessarily complete. For complete
information as to these matters, stockholders should refer to the applicable
exhibit to the Form S-4. The Form S-4 and the exhibits thereto filed by
Sunshine Merger Company with the Commission may be inspected at the public
reference facilities of the Commission listed above.
<PAGE> 8
For 38 years, from 1933 to 1971, the Sunshine Mine produced ore from
the Chester Vein, the Sunshine Vein and their associated systems, at an average
grade of 32 ounces of silver per ton, and average annual silver production was
over 6.5 million ounces. We are looking for the analogy to those systems in the
previously unexplored western portion of the mine.
The Company began the evaluation of the potential of the West Chance
area in 1992. A single drill intercept on the 4200 Level (4200 feet below the
collar of the Jewell Shaft) indicated the presence of a structure capable of
hosting mineralization. The 4200 Level drift was initiated to test for
mineralization at this elevation. The drift encountered over 800 feet of
mineralization, although at grades that are not economic at today's silver
price.
Additional core drilling indicated the continuation of the structure
above and below the drift. Ore grade mineralization was delineated above the
drift, and the drilling encountered the mineralized West Chance Footwall
structure.
To further the evaluation process, the 3100 Level drift into the West
Chance Vein was commenced in 1993, and the 4400 Level was opened into the Chance
Footwall Vein. Work is continuing in these areas at the present time. As of
September 30, 1995, 3.4 million ounces of reserves had been delineated on these
two levels.
Core drilling from the 4200 Level and from the 3100 Level continues to
provide impressive drill intercepts, as illustrated in these drawings. As a
result, the 2700 and 3700 Level drifts were initiated in the latter half of
1995. An additional six drill stations will be completed in the two drifts by
the end of 1996 to continue the process of reserve delineation around these
levels.
Assuming drilling from the 2700 Level provides evidence that the vein
continues above the Level, the Company expects to commence a drift into the
structure on the 2300 Level in 1996. Preliminary work for this drift is
underway at this time.
2700 LEVEL (FACING NORTH)
[GRAPHIC OF DIAGRAM]
The diagram above illustrates the projected advance of the 2700 Level
drift in relation to some of the assays of drill holes recently completed below
the Level. The 2700 drift will be in a position to begin to evaluate the area
around these drill holes by August 1996. No reserves have yet been assigned to
this area, despite the impressive nature of these drill hole intercepts. The
introduction of trackless mining methods will allow the Company to develop any
new reserves found below the level of the drift advance.
3100 LEVEL (FACING NORTH)
[GRAPHIC OF DIAGRAM]
This diagram illustrates the location of three reserve blocks which
have been delineated on the 3100 Level drift. These blocks aggregate over
2.1 million ounces of silver reserves, and also contain an average of about
6% lead. Mining has commenced from the WC9 Block in September and will commence
in the WC10 Block in November. Drilling indicates good potential to extend the
reserves outside the indicated blocks.
3700 LEVEL (FACING NORTH)
[GRAPHIC OF DIAGRAM]
This diagram illustrates the projected advance of the 3700 Level drift
in relation to the assays of some of the recently completed drill holes in the
area. The drift will be in a position to better delineate the area by about
March 1996. No reserves have yet been assigned to this area. However, given the
width and grade of core drill intercepts, it is expected that reserves will be
added in the future once the 3700 Drift is completed.
4400 LEVEL CHANCE FOOTWALL (MAP VIEW)
[GRAPHIC OF DIAGRAM]
The Company has delineated over 900 thousand ounces of silver reserves
on the 4400 Level of the Chance Footwall, with about 600 thousand ounces of
those reserves in the CF4 reserve block, illustrated above. The total length of
the structure has yet to be determined, as the stope is continuing to advance
to the east on a high-grade vein.
- --------------
* indicates the location of certain ore grade drill intercepts, the true width
of the mineralized section, and the silver ounces per ton (opt).
<PAGE> 9
SUNSHINE MINING
WEST CHANCE DEVELOPMENT PROGRESS
[GRAPHIC]
DESCRIPTION:
Cross section of the Sunshine Mine reflecting the Sunshine Vein System, Chester
Vein System, Copper Vein, West Chance Vein, West Chance Footwall Vein, Jewel
Shaft, Ten Shaft, Twelve Shaft, certain drifts and proposed drift advances.
<PAGE> 10
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the detailed information
and financial statements appearing elsewhere herein. Reference is made to the
Glossary of Certain Mining Terms appearing elsewhere herein.
THE COMPANY
Sunshine Mining and Refining Company ("Sunshine" or the "Company"),
through its principal subsidiary, Sunshine Precious Metals, Inc. ("SPMI"), owns
and operates the Sunshine Mine located in the Coeur d'Alene Mining District
near Kellogg, Idaho. The Sunshine Mine began operations in 1884 and has
produced in excess of 340 million ounces of silver since that time. The mine
also produces significant amounts of copper, lead and antimony as by-products.
The Sunshine Mine and Refinery Complex consists of the Sunshine Mine, a 1,000
ton-per-day concentrator, an antimony refinery, a silver refinery and
associated facilities.
SPMI estimates that, as of January 1, 1995, the proven and probable
ore reserves at the Sunshine Mine were 1,320,600 tons of ore, at a weighted
average grade of 21.8 ounces per ton silver, containing 28,836,500 ounces of
silver, of which SPMI's share is approximately 97%. Significant portions of
the Sunshine Mine remain unexplored and undeveloped, and the Company is
presently actively exploring in one area of the mine, the West Chance, which it
feels has significant potential to add to the Company's reserves and
production.
The Company's earnings are directly related to the price of silver,
which has been depressed since 1985. As a result, the Company has reported
operating losses for the last ten years. Industry data suggests that excessive
above- ground inventories of silver generated in the 1980's are being consumed.
The Company believes that elimination of these above-ground excess inventories
will cause silver prices to increase significantly over the next several years.
The Company is actively exploring to develop new sources of production
to achieve positive earnings and cash flow at current silver prices. In
response to low silver prices, the Sunshine Mine has been operating at about
one-half of its capacity since June, 1991. As a result of exploration of
previously undeveloped areas of the Sunshine Mine and the successful testing of
a trackless mining method in the Sunshine Mine, the Company has recently
accelerated its development program at the Sunshine Mine, and is making
plans to return the mine to full production by the end of 1996.
The Company has also initiated exploration programs at other locations
than the Sunshine Mine in an attempt to develop new sources of reserves and
cash flow. As a result, the Company is presently active in exploration
projects in Argentina, Peru, Colorado, and Arizona. Of particular
significance is the Company's recent acquisition of the Pirquitas property in
Argentina.
Exploration at its Sunshine Mine is currently focused on an area
called the West Chance, where the Company has identified at least two new vein
systems. Prior to June, 1995, the Company had drifts on four levels in various
stages of completion, from which it is conducting an extensive drilling program
to better delineate the ore bodies. The total proven and probable reserves
developed as of September 30, 1995 in the West Chance area total 3.4 million
ounces of silver, with only a small portion of the potential ore body having
been explored.
In June of 1995, because of encouraging results, the Company decided
to accelerate the pace of exploration work in the area by commencing two new
exploration drifts and more than doubling the rate of diamond drilling. The
present status of West Chance exploration is described in detail in the map
inset in the prospectus cover. During 1996 the Company expects to spend
approximately $2.5 million in further exploration work, and $4.5 million in
development activity and equipment purchases. This will enable the Company to
return the mine to full production by the end of 1996 should sufficient
economic mineralization be found in the targeted areas of the West Chance.
1
<PAGE> 11
The Company has successfully tested the potential to introduce
trackless mining methods using diesel powered equipment in the development and
stoping (ore-extraction) operations at the Sunshine Mine. Through the use of
specially built low profile front-end loaders, certain ore reserves can now be
accessed and mined more productively at lower cost than the Company's
traditional mining methods.
As a result of the demonstrated success of these front-end loaders,
commonly referred to as LHD (load-haul- dump) units, and the expected additions
to production from the West Chance area in 1996, the Company anticipates silver
production to increase from approximately 1.7 million ounces in 1995 to between
2.7 and 3.2 million ounces in 1996.
The Company is also studying the potential for the LHD units to
support various trackless mining methods to allow for the economic reopening
at current silver prices of the presently inactive eastern portion of the
Sunshine Mine. Production was curtailed in this portion of the mine in June of
1991 when the Company went to its reduced operating plan.
The Company is actively engaged in exploration in Argentina and Peru,
as well as in other parts of the United States. Argentina is a highly
prospective geologic region, which, due to political and economic problems in
this century, has not had the necessary investment in exploration to fully
evaluate its mineral potential. Peru, a major mining area since colonial
times, had until recent years seen investments in mine maintenance and
development decline due to political and economic chaos. Both countries are
presently actively pursuing foreign investment, particularly in mining, and
have apparently stable, democratically elected governments. The Company has
recently opened exploration and development offices in Mendoza, Argentina and
in Lima, Peru.
In Argentina, the majority of the Company's exploration projects will
be of a "grass roots" nature. However, the major project at this time is
Pirquitas, which has been a producing property in the past. The Company has
obtained data which suggests that the Pirquitas deposit could contain more than
130 million ounces of silver. The Company will immediately commence the work
to verify this resource estimate and to do the engineering and metallurgical
testwork necessary to determine if this deposit can be brought into production.
In Peru, many previously nationalized properties are being returned to
the private sector through a privatization process. The Company is aware of
certain properties scheduled for privatization in 1996 on which it would have
an interest in bidding. In addition, the Company believes its metallurgical
technology may have application in Peru to activate certain inactive properties
whose ores contain elevated levels of arsenic and antimony.
See "CERTAIN RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SUNSHINE MERGER COMPANY
Sunshine Merger Company, a Delaware corporation ("Sunshine Merger
Company"), is a wholly owned subsidiary of the Company, and was formed for the
purpose of effectuating the Merger. The Certificate of Incorporation and
Bylaws of Sunshine Merger Company are identical in all material terms to those
of the Company. Upon consummation of the Merger, Sunshine Merger Company's
name will be changed to Sunshine Mining and Refining Company.
THE MERGER
This Proxy Statement/Prospectus relates to the proposed merger of
Sunshine into Sunshine Merger Company with Sunshine Merger Company being the
surviving corporation (the "Merger").
2
<PAGE> 12
The purpose of the Merger is to convert the Company's outstanding
($11.94) Stated Value Cumulative Redeemable Preferred Stock (the "Preferred
Stock") into Common Stock. Due to the losses the Company has experienced, the
dividends on the Preferred Stock have not been declared or paid since December
1990. As a result of the dividends in arrears, the Company has also been
prohibited from making annual partial redemptions of 10% of the original issue
amount of the Preferred shares which, pursuant to the Certificate of
Preferences, were to have begun in July, 1991. At the present time, the
Company does not expect to resume the payment of dividends until it has
earnings sufficient to support such payments.
Management and the Directors of the Company have determined that it is
in the best interest of the Common stockholders, the Preferred Stockholders,
and the Company, to eliminate the Preferred Stock from the Company's capital
structure. This will improve the book value per Common share and the results
of operations per Common share, while providing the Preferred stockholders a
security with more liquidity than the Preferred Stock. See "CAPITALIZATION"
AND "COMPARATIVE PER SHARE DATA."
The Merger will become effective (the "Effective Date") immediately
upon the filing of a Certificate of Merger in accordance with Delaware General
Corporation Law ("DGCL") and upon satisfaction or waiver of the conditions to
the Merger. On the Effective Date, the name of Sunshine Merger Company will be
changed to Sunshine Mining and Refining Company.
On the Effective Date, each share of Sunshine's common stock, $.01 par
value (the "Existing Common Stock") outstanding immediately prior to the Merger
will be converted, by reason of the Merger, pursuant to the Merger Agreement
and without any action by the holder thereof, into a share of the common stock,
$.01 par value of Sunshine Merger Company (the "New Common Stock"). The
relative powers, designations, preferences, rights and qualifications of the
New Common Stock, as in effect on the Effective Date, will be substantially
equivalent in all material respects to the Existing Common Stock so converted.
Holders of Preferred Stock will, upon consummation of the Merger, receive for
each share of Preferred Stock held [______] shares of New Common Stock and
either an additional .9 (9/10) share of New Common Stock or, at the option of
the holders, two (2) Warrants, each to purchase one share of New Common Stock.
The number of shares of New Common Stock and the exercise price of the Warrants
are subject to modification as described elsewhere herein. See "THE MERGER
PROPOSAL"; "DESCRIPTION OF THE WARRANTS."
Based on the closing price of the Common Stock on [______] of
[$______] per share, the total value of the [______] shares of Common Stock
plus the option to receive .9 (9/10) share of Common Stock (in lieu of two
Warrants), has an estimated value of [$______], which is [______%] below the
liquidation preference of $17.89 per share at December 31, 1995. However,
it is a [______%] premium to the trading price of the Preferred Stock of
$8.00 per share immediately prior to the announcement of the Transaction.
There can be no assurance that the New Common Stock and Warrants will not
decline in value. The number of shares of New Common Stock and the exercise
price of Warrants to be issued for each share of Preferred Stock, is subject
to adjustment if the average price of the New Common Stock declines in the
120 trading days after the Merger. See "THE MERGER PROPOSAL -- CONVERSION OF
SECURITIES IN THE MERGER." However, if the average NYSE composite closing
price of the Common Stock for the 120 trading days following the Effective
Date is less than $1.25, the value of the securities received for each share
of Preferred Stock will be significantly lower, as the maximum number of New
Common Shares issuable per Preferred Share pursuant to the adjustment formula
is 8.4.
On the Effective Date, the Preferred Stock of the Company will be
canceled and all dividend, redemption, liquidation and voting rights thereunder
will be terminated and will cease to exist. The three largest holders of
Preferred Stock, Elliott Associates, L.P., Grace Holdings, L.P., and Lloyd I.
3
<PAGE> 13
Miller, III (collectively the "Consenting Shareholders") have stated to the
Company that they will support the Merger. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." As a result of the Merger, the litigation
initiated by Grace Holdings, L.P. against the Company, currently pending in
the United States District Court for the District of Delaware, will be
dismissed with prejudice. See "SUNSHINE MINING AND REFINING COMPANY - LEGAL
PROCEEDINGS- OTHER LITIGATION."
As a result of the Merger, the capital structure of Sunshine Merger
Company, as the surviving corporation, will be substantially identical to the
Company with the exception that the Preferred Stock will have been retired in
its entirety, and initially, up to [___________] shares of New Common Stock and
up to 14,332,372 Warrants to purchase up to an additional 14,332,372 shares
of New Common Stock will have been issued. See "THE MERGER PROPOSAL"
"DESCRIPTION OF SUNSHINE MERGER COMPANY" "DESCRIPTION OF THE WARRANTS"
"DESCRIPTION OF CAPITAL STOCK." Reference is made to, and holders should
consider prior to voting on the Merger, the matters set forth under "CERTAIN
RISK FACTORS."
TERMS OF THE MERGER
Each holder of Preferred Stock will receive [_________] shares
(subject to adjustment) of New Common Stock and either an additional .9 (9/10)
shares of New Common Stock or, at the option of the holder, two (2) Warrants to
purchase New Common Stock for each share of Preferred Stock held on [_________]
(the "Record Date").
At the NYSE Composite closing price of Existing Common Stock of
$______ per share on ________, a total of up to __________shares of New Common
Stock, and up to 14,332,372 Warrants each to purchase one share of New Common
Stock, will be issued incident to the retirement of the Preferred Stock. The
number of shares of New Common Stock issued may be increased. If the average
closing price of the New Common Stock as reported on the NYSE Composite
Transactions for the first 120 NYSE trading days after the Effective Date is
less than [$_____________], the additional number of shares issuable will be
determined by the following formula:
$10.50 - Y
------
X
Where,
X = Average New Common Stock closing price on NYSE
Composite for the first 120 NYSE trading days after
the Effective Date; and
Y = Common Shares initially issuable per Preferred Share
In no event will the total number of shares of New Common Stock
issuable upon conversion of a share of Preferred Stock, exclusive of shares
issuable upon exercise of Warrants or in lieu of Warrants, exceed 8.4.
Each Warrant will entitle the holder thereof to purchase one (1) share
of New Common Stock at an exercise price of [______]. The Exercise Price is
subject to adjustment to 110% of the average closing price of the Existing
Common Stock on the NYSE Composite for the first 120 NYSE trading days after
the Effective Date, if that price is less than ______________. The Warrants
will expire on the fifth anniversary of the Effective Date. The Warrants will
be separately transferrable upon issuance. See "THE MERGER PROPOSAL" AND
"DESCRIPTION OF THE WARRANTS."
If no holders accepted Warrants, and the price of the Common Stock
declines to average $1.25 or less during the 120 trading days after the
Effective Date, the maximum New Common Stock issuable
4
<PAGE> 14
for the Preferred Stock would total approximately 66.6 million shares
(approximately 25.6% of the New Common Stock outstanding after the Merger).
Warrants to purchase up to 14.3 million shares of New Common Stock could be
issuable in lieu of the issuance of 6.4 million shares of New Common Stock
referred to above. If all such Warrants are exercised, the total shares
issuable would be 74.5 million, representing approximately 28% of the Common
Stock outstanding after the merger (the "Maximum Dilution").
<TABLE>
<S> <C>
Record Date . . . . . . . . . . . [ ]
----------------
Procedure for Exchanging Shares Following the Effective Date of the Merger, holders of Preferred
of Preferred Stock for New Common Stock will receive a Transmittal Letter instructing them on the
Stock and Warrants . . . . . . . submission of their Preferred Stock Certificates in exchange for
New Common Stock and, if selected, Warrants. It will not be
necessary for holders of Common Stock to surrender or exchange
their certificates for new certificates representing New Common
Stock. See "MERGER PROPOSAL" and "EXCHANGE OF PREFERRED STOCK
CERTIFICATES."
Exchange Agent and Warrant
Agent: . . . . . . . . . . . . . American Stock Transfer & Trust Company, New York, New York, will
act as the Exchange Agent. See "EXCHANGE AGENT." American Stock
Transfer & Trust Company will also act as the Warrant Agent. See
DESCRIPTION OF THE WARRANTS.
Information Agent . . . . . . . . The Herman Group, Dallas, Texas, will act as Information Agent.
Its toll free telephone number is (800) 747-2967. See "INFORMATION
AGENT."
Use of Proceeds . . . . . . . . . The net cash proceeds received by Sunshine Merger Company from the
exercise of Warrants offered hereby, when received, will be used
for general corporate purposes and possible acquisition or
development of mining properties.
Risk Factors . . . . . . . . . . There are substantial risks in connection with this offering that
should be considered by prospective purchasers. See "CERTAIN RISK
FACTORS."
</TABLE>
5
<PAGE> 15
CERTAIN RISK FACTORS
In addition to the other information in this Proxy
Statement/Prospectus, the following risk factors should be carefully considered
before voting on the Merger Proposal.
OPERATING LOSSES
Sunshine's revenues have historically been derived from sales of
silver and, from 1985 to 1991, from sales of oil and natural gas. In 1991 and
1992, Sunshine sold substantially all of the assets of its subsidiary Argent
Energy, Inc., previously Woods Petroleum Corporation ("Woods"), which was
engaged in the production of oil and natural gas. As a result, substantially
all of the Company's revenues are now derived from the sale of silver mined
from its Sunshine Mine in Kellogg, Idaho. Accordingly, the Company's earnings
are directly related to the price of silver. Silver prices have been depressed
since 1985, and as a result the Company has experienced losses from operations
for each of the last ten years. The Company reported losses from continuing
operations of $4.9 million, $28.6 million and $40.3 million in fiscal 1994,
1993 and 1992 respectively. The Company expects to fund its losses for fiscal
1995 from the Company's cash and cash equivalents and silver bullion held for
investment. At September 30, 1995, Sunshine's cash and silver bullion held for
investment totalled approximately $28 million.
The operating losses and cash flow deficiencies of the Company are
expected to continue until silver prices recover substantially or the Company's
exploration efforts at the Sunshine Mine or its other properties are successful
in developing significant additional production. Absent the foregoing, the
Company may eventually be required to further curtail operations or cease its
mining activities at the Sunshine Mine altogether. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
"BUSINESS AND PROPERTIES," and the Consolidated Financial Statements (including
the Notes thereto) of the Company appearing elsewhere herein.
VOLATILITY OF SILVER PRICES
The Company's earnings are directly related to the price of silver,
and the value of the Common Stock has historically moved in correlation with
movements in silver prices. Silver prices are subject to fluctuation and are
affected by numerous factors beyond the control of the Company, which alone or
in combination may cause the price of silver to rise or fall. These factors
include, among others, expectations for inflation, speculative activities,
levels of silver production and demand for silver as a component of
manufactured goods. The following table sets forth for the periods indicated
the high, low and average closing prices per ounce of silver on the Commodity
Exchange, Inc. ("COMEX") and also translate the average price as stated into
constant 1994 dollars.
<TABLE>
<CAPTION>
Constant
Nominal Dollars 1994 Dollars
--------------- ------------
Year High Low Avg. Avg.
- ---- ---- --- ---- ----
<S> <C> <C> <C> <C>
1983 . . . . . . . . . . . . . . . . . . . . . . $14.74 $8.38 $11.46 $18.13
1984 . . . . . . . . . . . . . . . . . . . . . . 10.17 6.25 8.15 12.11
1985 . . . . . . . . . . . . . . . . . . . . . . 6.89 5.48 6.14 8.71
1986 . . . . . . . . . . . . . . . . . . . . . . 6.32 4.85 5.49 7.58
1987 . . . . . . . . . . . . . . . . . . . . . . 11.25 5.35 6.99 9.41
1988 . . . . . . . . . . . . . . . . . . . . . . 8.06 6.01 6.53 8.41
1989 . . . . . . . . . . . . . . . . . . . . . . 6.20 5.02 5.47 6.68
1990 . . . . . . . . . . . . . . . . . . . . . . 5.35 3.94 4.82 5.49
1991 . . . . . . . . . . . . . . . . . . . . . . 4.55 3.51 4.03 4.37
1992 . . . . . . . . . . . . . . . . . . . . . . 4.32 3.63 3.94 4.13
1993 . . . . . . . . . . . . . . . . . . . . . . 5.44 3.52 4.31 4.41
1994 . . . . . . . . . . . . . . . . . . . . . . 5.78 4.61 5.28 5.28
1995* . . . . . . . . . . . . . . . . . . . . . . 6.10 4.38 5.22 -
</TABLE>
*Through December 18, 1995.
6
<PAGE> 16
On [_____________], the closing price of silver reported on the COMEX
was [$______] per ounce. In constant 1994 dollars, the average silver price
from 1967 through 1994 has been approximately $11.48.
DEPENDENCE ON EXPLORATION SUCCESS
Substantially all of the Company's revenues are derived from the
Sunshine Mine which at current silver prices is not profitable. Therefore, the
future earnings of the Company are presently dependent on the success of
exploration at the Sunshine Mine and at the Company's other exploration
projects. No assurance can be given that the Company's exploration program
will prove successful. See "BUSINESS AND PROPERTIES -- OPERATIONS --
EXPLORATION ACTIVITIES AT THE SUNSHINE MINE."
IMPRECISION OF RESERVE ESTIMATES
The ore reserve estimates presented in this Prospectus are estimates
made by the Company's geologic personnel, and no assurance can be given that
the indicated quantity of in situ silver will be realized. No independent
consultants have been retained by Sunshine to review and verify such estimates.
Reserve estimates are expressions of judgment based largely on data from
diamond drill holes and underground openings, such as drifts or raises which
expose the mineralization on 1, 2 or 3 sides, sampling and similar
examinations. Reserve estimates may change as ore bodies are mined and
additional data is derived. The Company's estimates of proven and probable
reserves for the Sunshine Mine are as of January 1, 1995.
MINING RISKS AND INSURANCE
The Company's operations may be affected by risks and hazards
generally associated with the mining industry, including fires, cave-ins, rock
bursts, flooding, industrial accidents, mechanical or electrical failures, and
unusual or unexpected rock formations. Such risks could result in damage to,
or destruction of, mineral properties or producing facilities, personal injury,
environmental damage, delays in mining, monetary losses and possible legal
liability. Although the Company maintains insurance at levels consistent with
its historical experience and industry practice, no assurance can be given that
such insurance will continue to be available at economically feasible premiums.
Insurance for environmental risks (including potential for pollution or other
hazards as a result of the disposal of waste products occurring from
production) is not generally available to the Company or to other companies
within the industry.
GOVERNMENT REGULATION
The Company's activities are subject to extensive federal, state, and
local laws and regulations controlling not only the mining of and exploration
for mineral properties, but also the possible effects of such activities upon
the environment. Except as described under "LEGAL PROCEEDINGS -- ENVIRONMENTAL
MATTERS," the Company is not aware of any material violations of environmental
laws, regulations, permits or licenses issued with respect to the Company's
operations. Future legislation and regulations could cause additional expense,
capital expenditures, restrictions and delays in the mining, production or
development of the Company's properties, the extent of which cannot be
predicted.
POTENTIAL LOSS OF NYSE LISTING
The NYSE has approved, subject to shareholder approval, the listing of
the Sunshine Common Stock to be issued incident to the Merger. Sunshine's
Common Stock is listed on the NYSE under the symbol "SSC," and its Preferred
Stock is listed on the NYSE under the symbol "SSCPr." The Company is below
certain of the NYSE's original listing criteria and is currently below certain
of the NYSE's continued listing standards. Upon consummation of the Merger and
the retirement of the Preferred Stock, the Company will no longer be below
continued listing standards of the NYSE, but will continue to fall below
certain original listing standards. However, if the Merger is not consummated,
there can be no assurance that any future issuance of Common Stock would be
listed on the NYSE.
7
<PAGE> 17
NO PRIOR MARKET FOR WARRANTS
Prior to this offering, there has been no market for the Warrants.
The Company has been advised that the Warrants will be traded on the NNM, under
the symbol "SILVZ." There can be no assurance that a market for the Warrants
will develop or, if a market develops, how liquid a market it will be. The
liquidity of any market for the Warrants will depend on a number of factors,
including the interest of broker-dealers in making a market.
DILUTION
Holders of Common Stock will have their ownership interest in the
Company diluted by the issuance of New Common Stock to holders of Preferred
Stock incident to the Merger, and incident to the exercise of Warrants.
Because the ultimate number of shares of New Common Stock that will be so
issued is dependent upon the future market price of the Common Stock, up to
[_____] additional shares of New Common Stock may be issued, and up to
14,332,372 additional shares of New Common Stock may be issuable upon exercise
of Warrants. Therefore, if all Warrants are exercised and the maximum number of
shares of New Common Stock is issued, the Preferred Stock would have been
converted into New Common Stock representing 28% of the New Common Stock
outstanding after the Merger.
VALUE OF SECURITIES EXCHANGED FOR PREFERRED STOCK
Based on the composite closing price of the Common Stock on the
New York Stock Exchange ("NYSE") of $[_____] per share on [_____], 1996, it
is estimated that the value of the [______] shares of New Common Stock plus an
additional .9 share of New Common Stock have an aggregate value of
approximately [$______]. It is also estimated that the option of receiving
two (2) Warrants in lieu of .9 share of New Common Stock has the same value.
However, there can be no assurance that the New Common Stock and Warrants will
not decline in value. The actual value of the shares of New Common Stock and
Warrants to be issued for each share of Preferred Stock, and their comparative
value to the redemption value and trading range of the Preferred Stock, is
subject to fluctuation. If the average NYSE composite closing price of the
Common Stock for the 120 trading days following the Effective Date is less than
$1.25, the value of the securities received for each share of Preferred Stock
will be significantly lower, as the maximum number of shares of New Common
Stock issuable per share of Preferred Stock pursuant to the adjustment formula
is 8.4. On the Effective Date of the Merger, the Preferred Stock will be
canceled and all dividend, redemption, liquidation, and voting rights
thereunder will be terminated. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL
RESOURCES" "DESCRIPTION OF THE MERGER," "DESCRIPTION OF THE WARRANTS" and
"DESCRIPTION OF CAPITAL STOCK."
THE MERGER PROPOSAL
At the Special Meeting of shareholders, holders of Sunshine's Common
Stock and Sunshine's Preferred Stock will be asked to approve the Merger
Agreement, pursuant to which the Company will be merged with and into Sunshine
Merger Company, with Sunshine Merger Company being the surviving corporation.
The purpose of the Merger is to retire all of the outstanding shares of
Sunshine's Preferred Stock.
Due to continuing low silver prices, the Company has generated
operating losses for a number of years. Prospects for improvement in the
operating results appear positive based on the outlook for increased production
from the Sunshine Mine, the Company's outlook for silver prices, which are
expected to improve, and the Company's exploration program. However, there are
significant risks to the positive outcome of any and all of the above potential
improvements in the Company's outlook, and the improvements may take a
considerable amount of time.
8
<PAGE> 18
Based on its evaluation of the Company's future prospects, the
relative market values of the Common Stock and the Preferred Stock, the
liquidation preferences held by the Preferred Stockholders (which will total
$128 million at December 31, 1995), and the ongoing $10.5 million annual charge
against earnings to Common Stock which is added to the liquidation preference,
the Board determined that the proposed structure was in the best interests of
the Company, the Preferred Stockholders, and the Common Stockholders at this
time. The transaction will remove concerns held by the investment community
about the Company's future outlook as a result of the Preferred Stock being
outstanding. The transaction moves forward the date at which the Company will
be able to report earnings attributable to Common Stock, while limiting the
dilution of the Common Stock against other potential alternatives, such as the
redemption of the Preferred Stock.
The Merger must be approved by the holders of a majority of the
outstanding shares of Sunshine's Common Stock and by the holders of a majority
of the outstanding shares of Sunshine's Preferred Stock. THE COMPANY'S BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER PROPOSAL. Approval of the Merger
Proposal by such holders will also constitute approval of the related matters
described herein, which include, without limitation: (i) the Certificate of
Incorporation of Sunshine Merger Company, including, its authorized capital
stock, and an amendment thereto upon consummation of the Merger to change
Sunshine Merger Company's name to Sunshine Mining and Refining Company; (ii)
The assumption by Sunshine Merger Company of the Company's obligations under
the Convertible Subordinated Debentures, the warrants of the Company, the
employee benefit and stock option plans, and all amendments thereto necessary
to implement such assumptions; and (iii) all other matters relating to the
Merger Proposal, and the transactions contemplated thereby substantially as
described in this Proxy Statement/Prospectus.
BACKGROUND OF THE MERGER
The Company had been contacted from time to time by various Preferred
Stockholders regarding the interest of the Company in eliminating the
outstanding Preferred Stock in exchange for Common Stock and/or common stock
derivatives such as rights or warrants. The management and Board of Directors
of the Company did not pursue these discussions until the third quarter of
1995. At that time, discussions with the three largest Preferred Stockholders
centered on structures fairly similar to the one proposed. The primary
negotiation centered on the targeted value of the package of securities to be
issued.
Because of fluctuations in the value of the securities to be issued,
the actual value of the securities to be issued may be more or less than the
targeted value. Management believes that the three largest Preferred
Stockholders, being sophisticated investors, aggressively negotiated on behalf
of themselves, and the same benefits are being provided to all holders of
Preferred Stock.
BENEFITS OF THE MERGER
The purpose of the Merger is to convert all of the Company's
outstanding Preferred Stock into Common Stock and Warrants to purchase Common
Stock. Due to the losses the Company has experienced, the dividends on
Preferred Stock have not been declared or paid since December 1990. As a
result of the arrearage, the Company has also been prohibited from making
annual partial redemptions of 10% of the original issue amount, which were to
have begun in July 1991. Currently, accumulated dividends in arrears and
redemptions in arrears total $79,948,859. Management and the directors of the
Company believe it is in the best interest of the Company, the holders of
Common Stock and the holders of Preferred Stock to eliminate the Preferred
Stock from the Company's capital structure.
A maximum of 66,645,530 (60,195,962 if all holders of Preferred Stock
elect to receive Warrants) shares of Common Stock will be issued, representing
up to 26% (24% if all holders of Preferred Stock elect to receive Warrants) of
the outstanding shares of Common Stock after the Merger. This is far less than
the number of shares that would be required to eliminate the Preferred Stock
pursuant to the terms
9
<PAGE> 19
of the Certificate of Preferences. As a result of the elimination of the
Preferred Stock, the book value per Common share and the results of operations
per Common share will be improved. In addition, upon consummation of the
Merger and the retirement of the Preferred Stock, the Company will no longer be
below continued listing standards of the NYSE, but will continue to fall below
certain original listing standards.
Holders of Preferred Stock, although receiving securities having an
aggregate value less than the Liquidation Preference for the Preferred Stock
($17.89 as of December 31, 1995), will receive securities having potentially
greater liquidity and value than the Preferred Stock. This is reflected by the
increase of approximately 25% in the trading price of the Preferred Stock
immediately after the announcement of the transaction.
Management and the Directors of the Company have determined that it is
in the best interest of the Common Stockholders, the Preferred Stockholders,
and the Company, to eliminate the Preferred Stock from the Company's capital
structure. This will improve the book value per Common share and the results
of operations per Common share, while providing the Preferred Stockholders a
security with more liquidity than the Preferred Stock. See "CAPITALIZATION"
AND "COMPARATIVE PER SHARE DATA." Based on the closing price of the Common
Stock on [______] of [$______] per share, the total value of the [______] share
of Common Stock plus the option to receive .9 (9/10) share of Common Stock (in
lieu of two Warrants), has an estimated value of [$______], which is [______%]
below the liquidation preference of $17.89 per share at December 31, 1995.
However, it is a [______%] premium to the trading price of the Preferred Stock
of $8.00 per share immediately prior to the announcement of the Transaction.
However, there can be no assurance that the New Common Stock and Warrants will
not decline in value . The number of shares of New Common Stock and the
exercise price of Warrants to be issued for each share of Preferred Stock, is
subject to adjustment. See "THE MERGER PROPOSAL -- CONVERSION OF SECURITIES IN
THE MERGER. If the average NYSE composite closing price of the Common Stock
for the 120 trading days following the Effective Date is less than $1.25, the
value of the securities received for each share of Preferred Stock will be
significantly lower, as the maximum number of Common Shares issuable per
Preferred Share pursuant to the adjustment formula is 8.4. See "CERTAIN RISK
FACTORS - DILUTION, VALUE OF PREFERRED STOCK EXCHANGED."
In the event that the Merger is not approved by the Company's Common
Stockholders and Preferred Stockholders, the Preferred Stock will continue to
accrue dividends in arrears. The Company does not know when it will resume the
payment of dividends on, and the partial redemption of, the Preferred Stock.
At the present time, the Company does not expect to resume payments of
dividends until it has earnings sufficient to support such payments.
EFFECTIVE DATE OF THE MERGER
The Merger will become effective immediately upon the filing of a
Certificate of Merger in accordance with the Delaware General Corporation Law
(the "DGCL") and upon the satisfaction or waiver of the conditions to the
Merger (the "Effective Date"). It is presently contemplated that the
Certificate of Merger will be filed, and the Effective Date will occur, on
[___________], or as soon as practicable thereafter as the conditions to the
Merger may be satisfied.
MERGER STRUCTURE
The Merger will be accomplished under the DGCL pursuant to the Merger
Agreement by and between the Company and Sunshine Merger Company. Pursuant to
the Merger Agreement, the Company will be merged with and into Sunshine Merger
Company, with Sunshine Merger Company being the surviving corporation. Upon
consummation of the Merger, Sunshine Merger Company will become the successor
in interest to the Company in all respects and the name of Sunshine Merger
Company will be changed, pursuant to the Merger Agreement, to Sunshine Mining
and Refining Company. The Merger Agreement has been approved by each of the
Company's and Sunshine Merger Company's Board of
10
<PAGE> 20
Directors and is included as Annex A to this Proxy Statement/Prospectus. The
Merger Agreement is incorporated herein in its entirety by this reference.
Sunshine Merger Company's Board of DIRECTORS immediately after the
Merger will consist of the persons serving on the Company's Board of Directors
immediately prior to the Merger, with the exception of Messrs. Elvin, Kaback
and Stewart, who were elected to the Company's Board of Directors by holders of
Preferred Stock and who, incident to the elimination of the Preferred Stock,
will not be Directors of Sunshine Merger Company. Sunshine Merger Company's
executive officers immediately after the Merger will consist of persons serving
as the Company's executive officers immediately prior to the Merger in their
respective positions. See "DIRECTORS" AND "EXECUTIVE OFFICERS." There are no
other material contracts between the Company and Sunshine Merger Company other
than the Merger Agreement.
Pursuant to Section 251(d) of the DGCL, the Board of Directors of the
Company and Sunshine Merger Company, by mutual consent, may amend, modify or
supplement the Merger Agreement in such manner as may be agreed at any time
before or after approval thereof by the stockholders of the Company, and either
of the respective Boards of Directors may terminate the Merger Agreement or
abandon the Merger at any time prior to the Effective Date, even following
stockholder approval; provided, however, that after the approval of the Merger
Agreement by the stockholders of the Company no such amendment may be made
which (i) alters or changes the amount or kind of securities to be delivered
upon the Merger (ii) alters or changes any term of the Certificate of
Incorporation of Sunshine Merger Company to be effected by the Merger, or (iii)
alters or changes any of the terms and conditions of the Merger Agreement if
such alteration or change would adversely affect the holders of any shares of
any series of stock to be issued upon the Merger.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to approval by the holders of a
majority of the outstanding shares of Existing Common Stock and by the holders
of a majority of the outstanding shares of Preferred Stock, and receipt of all
orders, consents or approvals, governmental or otherwise, that may be required
or advisable. The Company and Sunshine Merger Company believe that no material
federal or state regulatory approvals are necessary other than registrations in
connection with securities laws.
Directors, executive officers and their affiliates of the Company own
less than one percent (1%) of the outstanding shares of Existing Common Stock
and Preferred Stock entitled to vote on the Merger Proposal. All of the shares
of New Common Stock outstanding immediately prior to the Merger and entitled to
vote on the Merger Proposal are owned by the Company.
Management believes that all of the conditions precedent to the Merger
will be satisfied prior to the anticipated Effective Date.
APPRAISAL RIGHTS
Pursuant to Section 262 of the DGCL, no holder of the Company's
securities will have appraisal rights in connection with the Merger.
SUNSHINE MERGER COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Sunshine Merger Company's Certificate of Incorporation contains
articles substantially the same as those in the Company's Certificate of
Incorporation, with the following exceptions: Article First in the Company's
Certificate of Incorporation, as amended, provides that the corporate name is
Sunshine Mining and Refining Company, while Article First in Sunshine Merger
Company's Certificate of Incorporation provides that the corporate name is
Sunshine Merger Company. A copy of Sunshine Merger Company's Certificate of
Incorporation is included as Annex B to this Proxy
11
<PAGE> 21
Statement/Prospectus. All summaries of the provisions of that document in this
Proxy Statement/Prospectus are qualified by reference to the provisions set
forth therein. Upon consummation of the Merger, the name of Sunshine Merger
Company, as the surviving corporation, will be changed to Sunshine Mining and
Refining Company. The Bylaws of Sunshine Merger Company will be identical to
the Company's Bylaws.
Approval by stockholders of the Merger Proposal also constitutes
approval of the Certificate of Incorporation of Sunshine Merger Company.
The books, records and accounts of the Company, upon consummation of
the Merger, will become the books, records and accounts of Sunshine Merger
Company.
CONVERSION OF SECURITIES IN THE MERGER
Each share of the Company's Existing Common Stock outstanding
immediately prior to the Merger will be converted, by reason of the Merger,
pursuant to the Merger Agreement and without any action by the holder thereof,
into one share of Common Stock of Sunshine Merger Company (the "New Common
Stock"). The relative powers, designations, preferences, rights and
qualifications of the New Common Stock, as in effect upon consummation of the
Merger, will be substantially equivalent in all material respects to the
Existing Common Stock so converted. It will not be necessary for holders of
Existing Common Stock to surrender or exchange their certificates for new
certificates representing New Common Stock.
Each share of the Company's existing Preferred Stock outstanding
immediately prior to the Merger will be converted, by reason of the Merger and
pursuant to the Merger Agreement, upon delivery of the Preferred Stock
certificates to American Stock Transfer & Trust Company, New York, New York,
(the "Exchange Agent") pursuant to the Transmittal Letter, into [______] shares
of New Common Stock and either an additional .9 (9/10) share of New Common
Stock or, at the option of the holder, two (2) Warrants, each to purchase one
(1) additional share of New Common Stock. Fractional shares will not be
issued. Shares of New Common Stock issued will be rounded-up to the nearest
whole number. On the Effective Date, the Preferred Stock of the Company, and
the Certificate of Designation, Rights and Preferences governing the same, will
be canceled and all dividends, redemption, liquidation and voting rights
thereunder will be extinguished and will cease to exist.
The number of shares of New Common Stock to be issued upon conversion
of Preferred Stock is subject to adjustment. If the average closing price of
the New Common Stock as reported on the NYSE Composite transactions for the
first 120 NYSE trading days after the Effective Date is less than [$______],
then additional shares of New Common Stock will be issued as soon as practical
after the end of the 120-trading day period as determined pursuant to the
following formula:
$10.50 - Y
------
X
Where,
X = Average New Common Stock closing price on NYSE
Composite Transactions for the first 120 NYSE trading
days after the Effective Date; and
Y= Common Shares initially issuable per
Preferred Share
In no event will the total number of shares of New Common Stock
issuable upon conversion of a share of Preferred Stock, exclusive of
shares issuable upon exercise of Warrants or in lieu of Warrants,
exceed 8.4.
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<PAGE> 22
The exercise price of the Warrants has been set as [$_____] and is
subject to adjustment. The Exercise Price will be reset to 110% of the average
closing price of the New Common Stock as reported on the NYSE Composite
transactions for the first 120 NYSE trading days after the Effective Date if
such average price is less than [$______]. The Warrants will expire 5 years
from the Effective Date. See "DESCRIPTION OF THE WARRANTS."
In the examples below the initial Common Stock price (used to
calculate the initial shares issuable) is assumed to be: Examples 1 and 2 -
$1.50; Example 3 $2.00; Example 4 - $1.25. The average trading price of the
Common Stock for the first 120 trading days after the merger Effective Date
is assumed to be: Example 1 - $1.75; Example 2 - $1.00; Example 3 - $1.25;
Example 4 - $1.00.
<TABLE>
<CAPTION>
Example 1 Example 2 Example 3 Example 4
<S> <C> <C> <C> <C>
Initial shares issuable 7 7 5.25 8.4
Initial Warrant exercise price $1.65 $1.65 $ 2.20 $1.375
Additional shares issuable 0 1.4 3.15 0
Adjusted warrant exercise price $1.65 $1.10 $1.375 $ 1.10
</TABLE>
All outstanding rights to acquire Existing Common Stock by reason of
Warrants, Options, rights to purchase stock, rights to convert other
instruments into stock, and options or other rights to acquire any such
interest (collectively "Rights") will be converted immediately upon
consummation of the Merger, without any action taken by the holder of such
Rights and as a matter of law, and pursuant to the documents governing such
Rights, into Rights with respect to the same number of shares of New Common
Stock and on the same terms and conditions as previously were applicable to
such Rights. All pension and employee benefit plans of the Company will
continue in effect following the effectiveness of the Merger.
The following categories of Rights currently exist with respect to the
Existing Common Stock: (i) Warrants ($2.12 exercise price) to purchase up to
10,086,076 shares of Existing Common Stock issued under the Warrant Agreement
dated as of February 3, 1994, by and among the Company and American Stock
Transfer & Trust Company as Warrant Agent; (ii) options to purchase up to
171,000 shares of Existing Common Stock under the Company's 1987 Employee
Non-Qualified Stock Option Plan; (iii) options to purchase up to 1,438,500
shares of Existing Common Stock under the Company's 1993 Incentive Stock Option
Plan; (iv) up to 915,060 shares of Existing Common Stock issuable upon
conversion of the Company's 8-7/8% Convertible Subordinated Debentures. See
"DESCRIPTION OF THE WARRANTS"; "CERTAIN RISK FACTORS-NO PRIOR MARKET FOR
WARRANTS."
After effectiveness of the Merger Proposal, each certificate
previously representing shares of Common Stock of the Company will
automatically represent an equal number of shares of New Common Stock of
Sunshine Merger Company.
IT WILL NOT BE NECESSARY FOR THE HOLDERS OF COMMON STOCK TO SURRENDER
OR EXCHANGE THEIR CERTIFICATES FOR NEW CERTIFICATES REPRESENTING NEW COMMON
STOCK IN SUNSHINE MERGER COMPANY.
ALTERNATIVES TO HOLDERS OF PREFERRED STOCK
Upon consummation of the Merger, holders of Preferred Stock will be
allowed the Option of receiving, for each share of Preferred Stock held, Common
Stock and either .9 additional shares of Common Stock or two Warrants, each to
purchase one share of Common Stock.
Holders of Preferred Stock electing to receive .9 shares of New Common
Stock, in lieu of two Warrants, will not benefit from any subsequent reduction
in the exercise price of the Warrants pursuant
13
<PAGE> 23
to the above formula. However, because a market for the Warrants does not
currently exist, holders of Preferred Stock electing to receive two Warrants
will bear the risk that a trading market in the Warrants may not develop.
EXCHANGE OF PREFERRED STOCK CERTIFICATES
Following the Merger, Sunshine Mining and Refining Company will
furnish a letter of transmittal to stockholders for use in exchanging their
Preferred Stock certificates (each a "Letter of Transmittal"), which will
contain instructions with respect to the surrender of Preferred Stock
certificates, and the Distribution of New Common Stock certificates and, if
selected, Warrant certificates to holders of Preferred Stock. Holders of the
Company's Preferred Stock should send in certificates with the Letter of
Transmittal.
The Company's stockholders who fail to exchange their Preferred Stock
certificates after the Effective Date by surrendering such certificates,
together with a properly completed Letter of Transmittal, to the Exchange
Agent, will not receive their New Common Stock and Warrants until such time as
their existing certificates are later surrendered to the Exchange Agent for
transfer, accompanied by such instruments of transfer and supporting evidence
as Sunshine Merger Company may reasonably require. No interest will accrue or
be payable with respect to any dividends or distributions retained on unissued
New Common Stock certificates. On the Effective Date, public trading of
Preferred Stock will cease.
On the Effective Date, holders of certificates representing Preferred
Stock will cease to have any rights with respect to such shares and each such
certificate will be deemed for all corporate purposes to evidence only the
right of holders of Preferred Stock to receive New Common Stock and, if
selected, Warrants for which such shares may be exchanged. The stock transfer
books of the Company will be closed at the close of business on the business
day immediately preceding the Effective Date, and the holders of record of
Preferred Stock as of the Effective Date will be the stockholders entitled to
exchange their shares of Preferred Stock for shares of New Common Stock and
Warrants, as provided in the Merger Agreement. No transfer or assignment of
any shares of Preferred Stock will take place after the Effective Date until
the certificates for such shares are exchanged pursuant to the Merger
Agreement. In the event of a transfer of ownership of any such shares which
is not registered in the stock transfer records of the Company, no shares of
New Common Stock exchangeable for such shares will be issued to the transferee
until the certificate or certificates representing such transferred shares are
delivered to the Exchange Agent together with all documents required to
evidence and effect such transfer. In addition, it will be a condition to the
issuance of any certificate for any shares of New Common Stock in a name other
than the name in which the surrendered Preferred Stock is registered that the
person requesting the issuance of such certificate either pay to the Exchange
Agent any transfer or other taxes required by reason of the issuance of a
certificate of New Common Stock and, if selected, Warrant certificate in a
name other than the registered holder of the certificate surrendered, or
establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
In no event will the Exchange Agent, the Company or Sunshine Merger
Company be liable to any holder of Preferred Stock for shares of New Common
Stock, or dividends or distributions thereon, or Warrants, delivered in good
faith to a public official pursuant to any applicable abandoned property,
escheat or similar law. All shares of New Common Stock and Warrants issued
upon the surrender of shares of Preferred Stock shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of
Preferred Stock.
DESCRIPTION OF THE WARRANTS
The Warrants are to be issued under a Warrant Agreement (the "Warrant
Agreement") between Sunshine Merger Company and American Stock Transfer & Trust
Company, as warrant agent (the "Warrant Agent"). The following summaries of
certain provisions of the Warrant Agreement do not
14
<PAGE> 24
purport to be complete and are subject to, and are qualified in their entirety
by reference to, the Warrant Agreement, a copy of which may be obtained from
Sunshine Merger Company.
GENERAL
Each Warrant will entitle the holder thereof to purchase one share of
New Common Stock at an exercise price (the "Exercise Price") equal to
[$______], subject to adjustment to 110% of the average closing price of the
New Common Stock as reported on the NYSE Composite Transactions for the first
120 NYSE trading days after the Effective Date, if such average price is less
than [$______]. The Warrants will expire at 5:00 p.m., New York City time, on
the fifth anniversary of the Effective Date (the "Expiration Date"). The
Warrants are exercisable at any time after issuance and will be immediately
transferable separately from the New Common Stock.
Sunshine Merger Company anticipates that the Warrants will trade on
the NNM under the symbol "SILVZ." See "CERTAIN RISK FACTORS-NO PRIOR MARKET
FOR WARRANTS." American Stock Transfer & Trust Company is the transfer agent
for the Warrants.
EXERCISE OF WARRANTS
Warrants may be exercised by tendering the aggregate Exercise Price
and any other amounts required to be paid under the Warrant Agreement and
surrendering to the Warrant Agent a Warrant certificate with the form of
election to purchase the New Common Stock, duly completed and signed by the
registered holder or such holder's duly appointed legal representative or by a
duly authorized attorney. Upon surrender of a Warrant certificate for
exercise, the Warrant Agent will deliver or cause to be delivered, to or upon
the written order of the holder, certificates representing the shares of New
Common Stock issued upon the exercise of the Warrants, together with Warrant
certificates evidencing any Warrants not exercised. No fractional shares will
be issued upon exercise of Warrants.
Certificates for the Warrants will be exchangeable without service
charge for similar certificates of different denominations at the office of the
Warrant Agent maintained for that purpose. Sunshine Merger Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Warrant Certificates.
Sunshine Merger Company has authorized and reserved for issuance such
number of shares of New Common Stock as shall be issuable upon the exercise of
all outstanding Warrants. Such shares of New Common Stock, when issued, will
be validly issued, fully paid and nonassessable.
OTHER PROVISIONS
The number of shares of New Common Stock issuable upon the exercise of
each Warrant is subject to adjustment in the event Sunshine Merger Company pays
a dividend on its New Common Stock in New Common Stock, subdivides its
outstanding shares of New Common Stock into a greater number of shares,
combines its outstanding shares of New Common Stock into a lesser number of
shares, or issues by reclassification of its New Common Stock any other shares
of its capital stock. Sunshine Merger Company may, at its option, increase the
number of shares purchasable upon exercise of the Warrants by any amount and
for any period of time or reduce the exercise price by any amount and for any
period of time (provided that such period is not less than 20 business days).
In case of consolidation, merger or sale of all or substantially all of the
assets of Sunshine Merger Company, the holder of each outstanding Warrant shall
have the right to exercise such Warrant for the kind and amount of securities,
cash or other assets, if any, receivable by a holder of the number of shares of
Common Stock into which such Warrants were exercisable immediately prior
thereto.
ACCOUNTING TREATMENT
15
<PAGE> 25
The Merger will be accounted for as a reorganization of entities under
common control and, accordingly, the consolidated assets, liabilities,
stockholders' equity and results of operations will not be affected. See
"CAPITALIZATION."
FEDERAL INCOME TAX CONSEQUENCES
The Company has received an opinion from Hawley Troxell Ennis & Hawley
regarding the material Federal income tax consequences of the Merger, which is
summarized below, these consequences will be different depending on whether the
holder of Preferred Stock receives in exchange solely New Common Stock or
receives both New Common Stock and Warrants pursuant to the Merger.
This discussion is based on the provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), final, temporary and proposed United
States Treasury Regulations promulgated thereunder, and the administrative and
judicial interpretations thereof, all as in effect as of the date of this Proxy
Statement/Prospectus. Such laws or interpretations may differ at the Effective
Time or thereafter. The effectiveness of the Merger is not conditioned upon
the receipt of any ruling from the Internal Revenue Service.
CONSEQUENCES TO HOLDERS OF PREFERRED STOCK RECEIVING SOLELY NEW COMMON STOCK.
If the holder of Preferred Stock chooses to receive only New Common
Stock in exchange for such Preferred Stock, the following tax consequences will
result, unless the holder is deemed to be in constructive receipt of new
Warrants in Sunshine Merger Company:
1. The Merger will be treated as a reorganization under Section
368(a) of the Code.
2. The holder of Preferred Stock will recognize no loss on the
exchange of such holder's Preferred Stock for New Common Stock.
Except to the extent explained in paragraph 3 below, the holder of
Preferred Stock will recognize no gain on the exchange of such
holder's Preferred Stock for New Common Stock.
3. The amount by which the fair market value of the New Common
Stock received in the exchange exceeds the issue price (fair market
value at time of original issuance) of $7.625 of the Preferred Stock
given up in the exchange will be deemed a distribution to which
Section 301 of the Code applies (the "Deemed Distribution")1 The
Deemed Distribution will be treated as a return of the holder's
adjusted tax basis in such holder's Preferred Stock.2 To the extent
the Deemed Distribution exceeds the holder's adjusted tax basis, the
holder will recognize a gain from the sale or exchange of property3
4. The holder's tax basis in the New Common Stock received in
exchange for Preferred Stock will be made up of two portions. First,
the tax basis in the Deemed Distribution portion
__________________________________
1 The Deemed Distribution is generally limited to the extent of the
Preferred Stock Dividends in arrears, which is, as of December 31, 1995,
$5.95.
2 The Deemed Distribution is treated as a dividend, reportable as
ordinary income, from the Company to the extent of the Company's earnings and
profits available for distribution. Because the Company has no accumulated
earnings and profits and anticipates no distributable earnings and profits for
the 1995 tax year, the Deemed Distribution should not be treated as a
dividend.
3 The Company made distributions to the holders of Preferred Stock in
1985, 1986, 1987, 1988, 1989, and 1990. Except for the distribution in the
year 1989 (when the Company had distributable earnings and profits), the
adjusted tax basis in the Preferred Stock would be reduced for holders who
received these distributions.
16
<PAGE> 26
of the New Common Stock received will be equal to the amount of such
Deemed Distribution. Second, the holder's tax basis in the remaining
portion of the New Common Stock received will
17
<PAGE> 27
be the same as the holder's adjusted tax basis in the Preferred Stock
given up in the exchange, reduced by the amount of the Deemed
Distribution (but in no event less than $0).
5. The holder of New Common Stock received in exchange for
Preferred Stock will have two separate holding periods for such New
Common Stock. First, the holder will have a new holding period as of
the Effective Date of the Merger for the Deemed Distribution portion
of the New Common Stock received. Second, the holder holding period
in the remaining portion of the New Common Stock received will include
the holder's holding period in the Preferred Stock given up by such
holder in the exchange, provided the Preferred Stock was held by such
holder as a capital asset at the time of the Merger.
If a holder of Preferred Stock is deemed to have chosen to receive
both New Common Stock and Warrants in exchange for such Preferred Stock under
constructive receipt principles, then the tax consequences discussed in the
following section would apply and the holder would be deemed to have purchased
additional New Common Stock with the new Warrants.
CONSEQUENCES TO HOLDERS OF PREFERRED STOCK RECEIVING BOTH NEW COMMON STOCK AND
WARRANTS.
If the holder of Preferred Stock chooses to receive both New Common
Stock and Warrants in exchange for such Preferred Stock, the following tax
consequences will result:
1. The Merger will be treated as a reorganization under Section
368(a) of the Code.
2. The holder of Preferred Stock will recognize no loss on the
exchange of such holder's Preferred Stock for New Common Stock and
Warrants.
3. If a holder of Preferred Stock has an adjusted tax basis in
such stock that is less than the fair market value of the New Common
Stock and Warrants such holder receives in exchange for each share of
Preferred Stock, such holder will realize a tax gain in the amount of
the difference, computed on a per share basis. However, such gain
realized per share of Preferred Stock exchanged that is recognized and
reportable by such holder is limited to the fair market value of the
Warrants received in the exchange. The holder of Preferred Stock with
an adjusted tax basis in such stock that is equal to or greater than
the estimated fair market value will recognize no gain on the exchange
of such holder's Preferred Stock for New Common Stock and Warrants.
4. The amount by which the fair market value of the New Common
Stock and Warrants received in the exchange exceeds the issue price
(fair market value at time of original issuance) of $7.625 of the
Preferred Stock given up in the exchange will be deemed a distribution
to which Section 301 of the Code applies (the "Deemed Distribution").
The Deemed Distribution will be treated as a return of the holder's
adjusted tax basis in such holder's Preferred Stock. To the extent
the Deemed Distribution exceeds the holder's adjusted tax basis, the
holder will recognize a gain from the sale or exchange of property
(refer to footnotes 1, 2 and 3 in the prior section for a more
complete explanation).
5. A holder's tax basis in the New Common Stock received in
exchange for Preferred Stock will be made up of two portions. First,
the tax basis in the Deemed Distribution portion of the New Common
Stock received will be equal to the amount of such Deemed
Distribution. Second, the holder's tax basis in the remaining portion
of the New Common Stock received will be the same as the holder's
adjusted tax basis in the Preferred Stock given up in the exchange,
increased by the amount of the gain such holder recognizes as a result
of the exchange (as explained in paragraph 3, above), and decreased by
both the amount of the Deemed Distribution and by the fair market
value of the Warrants received by the holder in the exchange (but in
no event less than $0). The holder's adjusted tax basis in the
Warrants received in the exchange will be the fair market value of the
Warrants at the time of the Merger.
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<PAGE> 28
6. The holder of New Common Stock received in exchange for
Preferred Stock will have two separate holding periods for such New
Common Stock. First, the holder will have a new holding period as of
the Effective Date of the Merger for the Deemed Distribution portion
of the New Common Stock received. Second, the holder's holding period
in the remaining portion of the New Common Stock received will include
the holder's holding period in the Preferred Stock given up by such
holder in the exchange, provided the Preferred Stock was held by such
holder as a capital asset at the time of the Merger. The holder will
also receive a new holding period as of the date of the Merger for the
Warrants they receive in the exchange.
CONSEQUENCES TO HOLDERS OF THE COMPANY'S COMMON STOCK.
No gain or loss will be recognized by the holder of Common Stock of
the Company as a result of the conversion of such shares for New Common Stock
pursuant to the Merger. The holder's tax basis and holding period in the New
Common Stock received in exchange for the Company's Common Stock will be the
same as the holder's adjusted tax basis and holding period in the Company's
Common Stock given up in the exchange.
CONSEQUENCES TO HOLDERS OF THE WARRANTS TO PURCHASE EXISTING COMMON STOCK.
Subject to the discussion in the following paragraph, the conversion
of any Warrants to purchase Existing Common Stock in the Company that were
issued before the Merger ("$2.12 Warrants") for converted warrants in Sunshine
Merger Company, and that have an adjusted tax basis equal to or less than the
fair market value of the converted warrants, will be treated as a taxable
exchange separate from the Merger. The holder of $2.12 Warrants will recognize
gain to the extent that the fair market value of the converted warrants exceeds
the holder's adjusted tax basis in the $2.12 Warrants. The holder's tax basis
in the converted warrants will be the fair market value of such converted
warrants as of the Effective Date of the Merger. The holder will also receive
a new holding period for such converted warrants as of the Effective Date of
the Merger. The conversion of $2.12 Warrants in the Company for converted
warrants in Sunshine Merger Company, and which have an adjusted tax basis more
than the fair market value of the converted warrants, will result in a realized
loss. However, the holder of the $2.12 Warrants, except for certain dealers in
stocks and securities, will be prohibited from recognizing such loss. The
holder's tax basis in the converted warrants will be the adjusted tax basis in
the $2.12 Warrants adjusted for differences, if any, between the fair market
value of the $2.12 Warrants and of the converted warrants as of the Effective
Date of the Merger. The holder's holding period in the converted warrants will
include the holder's holding period in the $2.12 Warrants given up by such
holder in the exchange, provided the $2.12 Warrants were held by such holder as
a capital asset at the time of the Merger.
If it was determined that the converted warrants do not differ
materially in either kind or extent from the $2.12 Warrants, then the holder
would have no recognizable gain or loss on the exchange and the holder's tax
basis and holding period in the converted warrants would be the same as the
holder's adjusted tax basis and holding period in the $2.12 Warrants.
CONSEQUENCES TO THE COMPANY.
The Company will not recognize gain or loss upon the transfer of its
assets to Sunshine Merger Company pursuant to the Merger, and Sunshine Merger
Company will not recognize gain or loss on the receipt of the Company's assets
and Sunshine Merger Company's assumption of the Company's liabilities. The tax
basis of the Company's assets acquired by Sunshine Merger Company will be the
same as the basis of those assets in the Company's hands immediately prior to
the Merger, and the Sunshine Merger Company's holding period will include the
Company's holding period with respect to the assets.
The above discussion does not include any state, local and foreign tax
consequences, and does not specifically address the Federal income tax
consequences to the shareholders other than individual United States citizens
who hold the Company's securities as a capital asset. This discussion is for
general
19
<PAGE> 29
information only, and each shareholder should consult with his or her own tax
advisor as to the consequences of the Merger.
SUNSHINE MERGER COMPANY
Sunshine Merger Company, a corporation organized under the laws of the
State of Delaware, is a wholly owned subsidiary of the Company created
specifically for the purpose of effectuating the Merger. Upon consummation of
the Merger, the business, properties, assets, liabilities and capital structure
of Sunshine Merger Company will be substantially identical to that of the
Company, with the exception that the Preferred Stock of the Company will have
been retired in its entirety, and approximately ______________ million shares
of New Common Stock will have been issued. Up to [______] additional shares of
New Common Stock may be issuable depending on the average closing price of New
Common Stock as reported on the NYSE Composite transactions for the 120 NYSE
trading days immediately following the Effective Date. Also, up to an
additional 14,337,372 million shares of New Common Stock may be issuable upon
exercise of up to 14,332,372 newly issued Warrants. On the Effective Date, the
name of Sunshine Merger Company will be changed to Sunshine Mining and Refining
Company. See "THE MERGER PROPOSAL."
Pro forma and comparative financial information regarding Sunshine
Merger Company and its consolidated subsidiaries giving effect to the Merger,
and reflecting the issuance of additional New Common Stock and the elimination
of the Preferred Stock and its attendant redemption and accrued dividend
obligations, is set forth below. Immediately following the consummation of the
Merger, the consolidated financial statements of Sunshine Merger Company will
be the same as the consolidated financial statements of the Company immediately
prior to the Merger, except as changed incident to the issuance of additional
New Common Stock and Warrants, and the elimination of the Preferred Stock.
SUNSHINE MINING AND REFINING COMPANY
BUSINESS.
GENERAL
Sunshine, through its principal subsidiary, Sunshine Precious Metals,
Inc. ("SPMI"), owns and operates the Sunshine Mine located in the Coeur d'Alene
Mining District near Kellogg, Idaho. The Sunshine Mine began operations in
1884 and has produced in excess of 340 million ounces of silver since that
time. The mine also produces significant amounts of copper, lead and antimony
as by-products. The Sunshine Mine and Refinery Complex consists of the
Sunshine Mine, a 1,000-ton-per-day concentrator, an antimony refinery, a silver
refinery and associated facilities. These facilities form an integrated
operation which can produce refined silver with 99.99% purity. The silver
refinery has a capacity to recover up to 8 million ounces of silver and 4
million pounds of copper annually.
SPMI estimates that, as of January 1, 1995 the proven and probable ore
reserves at the Sunshine Mine were 1,320,600 tons of ore, at a weighted average
grade of 21.8 ounces per ton silver, containing 28,836,500 ounces of silver of
which SPMI's share is approximately 97%. Significant portions of the Sunshine
Mine remain unexplored and undeveloped, and the Company is presently actively
exploring one such area, the West Chance.
The Company's earnings are directly related to the price of silver,
which has been depressed since 1985. As a result, the Company has reported
operating losses and negative cash flow from operations for the last ten
years. In response to low silver prices, in June 1991 the Company curtailed
its annual silver production from approximately 1,000 tons of ore per day to
approximately 450-500 tons of ore per day. At low silver prices, curtailed
operations result in lower aggregate operating losses and cash requirements
than either full operations or the maintenance and holding costs associated
with a complete mine shutdown. However, production costs per ounce of silver
increased as a result of the curtailment.
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<PAGE> 30
The Company is actively exploring to develop new production sources to
achieve positive earnings and cash flow. As a result of exploration of
previously undeveloped areas of the Sunshine Mine and the successful testing of
a trackless mining method in the Sunshine Mine, the Company has recently
accelerated its development program at the Sunshine Mine, and is planning to
return the mine to full production by the end of 1996. The Company has also
initiated exploration programs at other locations than the Sunshine Mine in an
attempt to develop new sources of reserves and cash flow. As a result, the
Company is presently active in exploration projects in Argentina, Peru,
Colorado, and Arizona. Of particular significance is the Company's recent
acquisition of the Pirquitas property in Argentina for $1.7 million.
Exploration at its Sunshine Mine is currently focused on an area
called the West Chance, where the Company has identified at least two new vein
systems. Prior to June, 1995, the Company had drifts on four levels in various
stages of completion, from which it is conducting an extensive drilling program
to better delineate the ore bodies.
In June of 1995, because of encouraging results from exploration work
in the area, the Company decided to accelerate the pace of exploration work by
commencing two new exploration drifts and more than doubling the rate of
diamond drilling. The present status of the West Chance project is described
in detail in the map inset in the prospectus cover. The total proven and
probable reserves developed to date in the West Chance area total 150 thousand
tons at an average grade of 22.5 ounces per ton, containing a total of 3.4
million ounces of silver. Only a small portion of the potential ore body has
been explored at this time.
The Company has successfully tested the potential to introduce
trackless mining methods using diesel powered equipment in the development and
stoping (ore-extraction) operations at the Sunshine Mine. Through the use of
specially built low profile front-end loaders, certain ore reserves can now be
accessed and mined more productively at lower cost than the Company's
traditional mining methods.
As a result of the demonstrated success of these front-end loaders,
commonly referred to as LHD (load-haul- dump) units, and the expected additions
to production from the West Chance area in 1996, the Company anticipates silver
production to increase from approximately 1.7 million ounces in 1995 to between
2.7 and 3.2 million ounces in 1996.
The Company is also studying the potential for the LHD units
supporting various trackless mining methods to allow for the economic reopening
at current silver prices of the presently inactive eastern portion of the
Sunshine Mine. Production was curtailed in this portion of the mine in June of
1991 when the Company went to its reduced operating plan.
The Company is also actively engaged in exploration in Argentina and
Peru, as well as in other parts of the United States. Argentina is a highly
prospective geologic region, which, due to political and economic problems in
this century, has not had the necessary investment in exploration to fully
evaluate its mineral potential. Peru, a major mining area since colonial
times, had until recent years seen investments in mine maintenance and
development decline due to political and economic chaos. Both countries are
presently actively pursuing foreign investment, particularly in mining, and
have apparently stable, democratically elected governments. The Company has
recently opened exploration and development offices in Mendoza, Argentina and
in Lima, Peru.
In Argentina, the majority of the Company's exploration will be of a
"grass roots" nature. In Peru, many previously nationalized properties are
being returned to the private sector through a privatization process. The
Company will be actively participating in future privatizations in Peru. In
addition, the Company believes its metallurgical technology may have
application in Peru to restart certain inactive properties whose ores contain
elevated levels of arsenic and antimony.
21
<PAGE> 31
On March 9, 1994, the Company completed a Rights Offering to holders
of Common Stock, pursuant to which shareholders received one Right for each 17
shares of Common Stock held of record on February 7, 1994. Each Right entitled
the holder to purchase a Unit consisting of two shares of Common Stock and one
warrant to purchase an additional share of Common Stock. Each warrant entitles
the holder to purchase one share of Common Stock at a price of $2.12. The
warrants will expire on March 9, 1999, and are callable by the Company at any
time after March 9, 1996, at a price of $.50 each.
A total of 10.1 million Rights were exercised at a price of $3.08
each, resulting in net proceeds from the offering of approximately $30 million.
As a result of the Rights Offering, the Company issued 20.2 million new shares
of Common Stock and 10.1 million warrants to purchase Common Stock. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL RESOURCES."
For information regarding Sunshine's business, certain classes of
products or services and sales to certain significant customers of Sunshine,
see Notes 13 and 14 of Notes to Consolidated Financial Statements included
elsewhere herein.
SILVER SUPPLY, DEMAND, AND PRICES
According to studies published by the Silver Institute in its World
Silver Survey and/or by CPM Group (precious metal industry consultants),
approximately 837 million ounces of silver surplus to the market's needs
were generated in the period from 1979 to 1989. These surpluses were generated
in response to high silver prices, which, in constant 1994 dollars, averaged
approximately $18.38 per ounce in the eleven year period from 1974 to 1984,
inclusive. As a result, demand for silver dropped significantly, and supplies
increased during the period, resulting in production of surplus silver.
However, according to these same sources, since 1990 demand for silver has
exceeded supply, with the surplus silver generated previously available to
supply the market's needs. This availability has contributed to the continuing
low price of silver, which, for the ten years from 1985 through 1994 averaged,
in constant 1994 dollars, approximately $6.44, and in the five years ending
1994 averaged approximately $4.73 in constant 1994 dollars.
According to industry data, the cumulative deficits in the silver
market from 1990 to 1994 has totaled approximately 400 million ounces, with
projections for the deficit in supplies to the market to continue. The deficit
in 1994 has been estimated at between 150 to 220 million ounces by various
industry sources, and the projection for the 1995 deficit is in the same range.
This data suggests to the Company that, if deficits to the market continue in
the 150 million ounce per annum range, the cumulative deficit since 1990 would
approximately equal the 837 million ounce surpluses previously generated by
approximately the fourth quarter of 1997.
The Company believes that as the silver market approaches this point,
it will be more difficult for the deficits which are being accumulated to be
supplied from above-ground stocks, and that the silver price will be forced to
increase in response, and that such an increase could be significant.
OPERATIONS
THE SUNSHINE MINE AND REFINERY COMPLEX
The Sunshine Mine and Refinery Complex located in the Coeur d'Alene
Mining District near Kellogg, Idaho, is comprised of the Sunshine Mine, a
1,000-ton-per-day concentrator, an antimony refinery, a silver refinery and
associated facilities. The facility is an integrated operation which can
produce refined silver with 99.99% purity.
SPMI owns substantially all of the mining claims comprising the
Sunshine Mine. Electrical power from a local utility is utilized in the
Sunshine Mine and Refinery Complex. The facilities are in good and operable
condition. Access to the property is by paved roads maintained by the county.
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<PAGE> 32
The Sunshine Mine is a primary silver-producing underground mine which
began operations in 1884 and has produced approximately 340 million ounces of
silver since that time. Mining operations are currently focused at depths from
3,100 feet to 4,600 feet although the Mine's workings extend to 5,600 feet.
The ore extracted from the Sunshine Mine is introduced to the
1,000-ton-per-day flotation concentrator, where a high-grade silver concentrate
is produced and transferred to the antimony refinery for antimony removal.
After antimony removal, the concentrate can be either transferred to
the silver refinery for recovery of silver and copper, or sold to a commercial
smelter. Factors which influence the Company's decision to refine its products
internally or sell them to a smelter include levels of production, costs of
reagents and available smelter contract terms. The refinery was designed and
built to recover up to 8.0 million ounces of silver from concentrates annually.
The refinery has also processed dore' metal (an impure alloy of silver, gold
and other metals) produced by third parties. The refinery produced
approximately 2.7 and 2.5 million ounces of fine silver in 1994 and 1993,
respectively, including approximately 813,000 and 426,000 ounces of custom
material. As a result of the low level of through-put in recent years, the
silver refinery operations have become less efficient than optimum. Therefore,
the Company in 1995 temporarily suspended operations at the silver refinery
until higher levels of through-put are achievable either through increased
production from the Sunshine Mine or through the reopening of other mines in
the district. Until the refinery reopens, the Company will sell its
silver-copper concentrates to a nearby smelter for processing. This change is
not expected to have a material impact on the Company's results of operations
or cash flows.
To minimize cash used by operations, the Sunshine Mine adopted a
curtailed operating plan on June 1, 1991, reducing annual production from
approximately 1,000 tons per day to approximately 450-500 tons per day. At
present silver prices, curtailed mining operations result in lower aggregate
operating losses and cash requirements than either full operations or
maintenance and holding costs associated with a complete mine shutdown.
Ore and metals produced during 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Tons of Ore . . . . . . . . . . . . . . . . . . . . . . . 107,056 100,441
Metals Recovered:
Ounces of Silver . . . . . . . . . . . . . . . . . 2,079,290 2,298,155
Pounds of Copper . . . . . . . . . . . . . . . . . 826,058 770,616
Pounds of Antimony . . . . . . . . . . . . . . . . 474,271 587,137
</TABLE>
These metals were recovered from ore containing an average of 20.08
and 23.49 ounces of silver per ton, in 1994 and 1993, respectively. Production
levels in 1993 and in 1994 were adversely affected by rock burst activity in
areas of major production.
Proven and probable ore reserves at the Sunshine Mine, as estimated by
its in-house technical personnel at January 1, 1995, were as follows:(1)
<TABLE>
<S> <C>
Tons of Ore . . . . . . . . . . . . . . . . . . . . . . . 1,320,600
Metals Contained:
Ounces of Silver . . . . . . . . . . . . . . . . . 28,836,500
Pounds of Copper . . . . . . . . . . . . . . . . . 10,762,600
- ----------------
</TABLE>
(1) Includes mining dilution but is not reduced for estimated
metallurgical recovery of 97%.
The weighted average ore grades are 21.8 ounces per ton silver and
.4% copper.
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<PAGE> 33
The Sunshine Mine accounted for all of SPMI's 1993 and 1994 silver
production, and [_____%] of SPMI's silver reserves at [________], 1995. See
Note 14 of Notes to Consolidated Financial Statements included elsewhere
herein.
EXPLORATION ACTIVITIES AT THE SUNSHINE MINE
Significant portions of the Sunshine Mine remain unexplored and
undeveloped. Accordingly, given the nature of the mine's ore bodies, it is
believed that the proven and probable reserves set forth above do not
necessarily represent all of the economic mineralization (ore) which may be
recovered from the mine.
Historically, the largest ore bodies discovered in the Sunshine Mine
have been the Sunshine and Chester Vein systems, which have produced a total of
205 million ounces. Three other major veins have produced approximately 60
million ounces. Production from some of these areas began as early as 1884 and
all still contain ore reserves, some of which are being mined today.
The Company's geologic staff has analyzed the unexplored areas of the
Sunshine Mine which contain geologic characteristics analogous to the Sunshine
and Chester Vein systems and therefore offer the highest probabilities for
similar major discoveries. These projects included an analysis of structural
and stratigraphic controls responsible for developing the silver-rich
tetrahedrite siderite veins.
As a result, current exploration activity is focused on the West
Chance area, which offers potential for developing significant new ore reserves
as it is a large mineralized structure in a geologic environment analogous to
the Sunshine and Chester Veins.
The West Chance area exploration program is primarily being carried
out from the underground workings. The West Chance vein was initially
delineated by drifting operations on the 4200 Level between March 1992 and May
1993. The 4200 Level drift was advanced nearly due west from the mine's No. 12
shaft for a distance of 3,550 feet, exposing a heavily mineralized siderite
vein in excess of 800 feet in length in a previously unexplored area of the
Sunshine Mine. Core drilling from stations south of the drift established vein
continuity above, as well as below the 4200 Level. The exploration program has
expanded to five additional Levels beyond the 4200 Level and continues to
delineate the vein system between 2700 and the 4600 Levels. The 4400 and 4600
Levels' exploration activity consists of advancing lateral drifts in the walls
of the vein west from 12 Shaft, providing drilling platforms for delineating
the vein systems on these Levels. Drifting west from the Jewell Shaft on 3700,
3100, and 2700 Levels provides direct access to the vein system on these mine
Levels.
Parallel and adjacent to the West Chance structure is a footwall vein
system which includes the `413 Vein' and `140 Vein' reserve blocks, which are
being developed on the 4400 and 4600 levels. A stope, 44-CF2, was developed
and mining began in early 1994 on the "140 Vein" reserve block above the 4400
Level. Currently, an intermediate stope drift (I-drift) on the "413 Vein," has
exposed two very high-grade veins above the 4400 Level and below the 4200
Level. This I-drift from the 44-CF4 raise has delineated an ore body
consisting of a narrow vein system with vein widths from a few inches to nearly
two feet. To date, the vein averages 0.75 feet wide, with an average assay of
412 ounces silver per ton across the vein width and has been extended to 290
feet in strike length. Reserves in the 44-CF4 are estimated to be 598,000
ounces, contained in 13,500 tons at an average grade of 44 ounces per ton.
The 3100 level drift, commenced in the latter part of 1993, has
presently been driven 2800 feet and remains 575 feet from the Sunshine Mine
western property boundary. Two stopes, 31-E9 and 31-E10, have been developed
and commenced production in September and November, 1995. Close spaced (less
than 50 feet c-c) core drilling of the E10 ore block and initial I-drifting of
the E9 block has delineated an ore reserve of 101,000 tons containing 2,143,000
ounces of silver with an average grade of 21.2 ounces per ton.
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<PAGE> 34
Two drill stations have been constructed on the 3100 Level, and
drilling from these stations above and below the level is continuing.
Two new exploration drifts on the 2700 foot and 3700 foot Levels were
commenced in July/August of 1995. A long-range drill station has been
established on the 3700 Level, and drilling commenced in November, 1995. Based
on values recovered from drill intercepts (see map insert in prospectus cover)
and the demonstrated success of LHD mining methods, the Company expects
significant production increases in the 2700 Level and 3700 Level upon the
completion of the drifts and ramp development in late 1996 and early 1997.
The Company has also commenced core drilling from the surface into the
West Chance to determine if the vein extends into the areas nearer the surface.
To date, no mineralization in the West Chance area has been encountered in this
effort.
At September 30, 1995, total reserves added by the Company's efforts
in the West Chance area total approximately 3.4 million ounces of proven and
probable silver with mine grades of 22.5 ounces of silver per ton of ore (net
of 178,000 ounces mined in 1994 and 269,000 mined in 1995).
Although the Company's drilling program and drifting operations have
yielded encouraging results to date, including samples containing significant
ore concentrations, the Company's exploration program in the West Chance area
is still considered to be in the preliminary stage. No assurance can be given
that significant ore bodies of a consistent high grade will be discovered and
available for profitable commercial production.
OTHER EXPLORATION PROJECTS
PIRQUITAS
The Company acquired the Pirquitas property, located in the Jujuy
province of northwest Argentina, in November, 1995 for $1.7 million. Pirquitas
is Argentina's largest historic producer of silver and tin, producing 27
million ounces of silver and 20 thousand tonnes of tin from its underground
workings from 1936 to 1990. Historic production was confined to a system of
closely-spaced sheeted veins.
The Company has obtained data prepared by a third-party geologist in
1992 which indicates the property could host a vein and disseminated resource
totalling 35 million tonnes with grades ranging between 120 to 180 grams per
tonne silver and 0.2 and 0.4% tin. This indicates total contained metal of
between 134 million to 202 million ounces of silver, and 154 to 308 million
pounds of tin. The data also indicates that the limits of the deposit have not
yet been defined.
Immediate plans are being made to verify and, if possible, expand the
above resource potential. The Company's plans for the property include
drilling the property from the surface in a 7000 meter drilling program that is
expected to be completed in the first quarter of 1996. If the results of the
drilling is positive, after dewatering the underground workings, the Company
will conduct an underground program of resampling to verify the work which was
the source of the resource estimate cited above, and core drilling from
underground to attempt to further delineate the deposit.
The Company also expects to conduct metallurgical testing on sample
material recovered from underground. Additional work is planned to determine
optimum extraction methods, but Sunshine anticipates that, should development
proceed, it could develop the deposit using low cost open pit methods. A
significant amount of work remains to define processing economics and
determine if the material can be recovered economically.
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<PAGE> 35
The Pirquitas property will receive the bulk of the Company's
exploration emphasis away from the Sunshine Mine in 1996, with a budget of
approximately $2 million allocated to evaluate the property.
REVENUE-VIRGINIUS
The Revenue-Virginius project is located eight miles southwest of the
town of Ouray in southwestern Colorado. Primarily an underground silver
property, it also contains values in gold, base metals and antimony in narrow
veins in volcanics. Sunshine controls the property by virtue of a mining lease
which calls for minimal property payments and work commitment, with a sliding
scale net smelter revenue royalty to the owner based on silver price. The
property currently reports a reserve of over five million ounces of silver,
with excellent potential existing for expanding this figure.
ZEBRA
The Zebra project is located a few miles east of the historic mining
town of Tombstone in southern Arizona. The property is a gold exploration
project with widespread, anomalous gold values of the surface. The main target
here is a sediment-hosted gold deposit lying at moderate depths. The project,
which is on State lease land, is a 50-50 joint venture with an industry partner
and calls for Sunshine to spend not less than $300,000 in exploration at the
project over the three years commencing 1995 in order to maintain its interest
in the project. Sunshine has the option to discontinue work at any time and
drop its interests in the property. Sunshine plans to drill the property in
the near future.
MISHKI
Sunshine was recently chosen as the successful bidder on the Mishki
property, located about 115 miles northwest of Arequipa in Southern Peru.
Mishki is a former producing underground gold mine and currently reports a
resource of some 100,000 ounces in narrow, high grade veins. Once the
agreement is finalized, Sunshine will have the right to purchase the property
at any time during a three-year period from Minero Peru for $1.0 million,
during which time certain work requirements will have to be met. An
underground exploration program is planned for the property.
HUEMULES
The Huemules project is located 17 miles northwest of the town of
Esquel, Province of Chubut, in southern Argentina. Included in the large land
position (25,700 acres) is an underground gold property which has produced a
small quantity of very high grade ore in the past from veins in volcanics. The
project is a joint venture with an Argentine company, Empresa Argentina de
Cemento Armado, and requires that Sunshine spend $2.1 million over three years
to earn a 50% interest in the joint venture. Trenching and drilling conducted
by Sunshine in 1994 has uncovered previously unknown gold-bearing structures
with ore-grade mineralization, and the results of this work are presently being
evaluated. Sunshine has spent approximately $1 million on the project to date.
RINCONADA
The Rinconada project is located near the town of the same name,
Province of Jujuy, in northern Argentina. The property is a gold exploration
project with significant past production from both placer and vein workings.
Potential is believed to exist here for a large, open pit as well as a high
grade underground vein deposit. The central portion of the property is
controlled by way of a three-year, $300,000 purchase option with the owner.
Sunshine also holds two concessions adjacent to this central parcel. Detailed
geological mapping and sampling work followed by initial drilling is planned.
26
<PAGE> 36
OTHER EXPLORATION IN ARGENTINA AND PERU
Sunshine obtained seven additional concessions in Argentina it
believes could host economic gold mineralization. Four of these, Cerro
Choique, Loma Blanca, Don Gregorio and Maria Sol are located in Rio Negro
Province. Two concessions, Abra Rabon and Abra Huacar are located in Jujuy
Province, while one known as Cobre is located in Salta. Evaluation work is
currently being conducted on these concessions, which cover a total of
approximately 121,700 acres.
In Peru, the Company is aware of properties scheduled for
privatization in 1996, on which it has a interest in bidding. It is also
evaluating other previously producing properties which have been inactive due
to lack of access to capital and technology. Both privatizations and reopening
other inactive properties may present significant turnaround opportunities.
In addition to exploration at the Sunshine Mine, the Company expects
to spend approximately $5 million annually for exploration in Peru, Argentina
and in other exploration, in 1996 and 1997.
See "CERTAIN RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
REFINING TECHNOLOGY
Numerous ore bodies worldwide contain antimony and arsenic which, due
to environmental concerns, often must be removed before shipment to a smelter
for processing or the ore will be subject to significantly increased processing
costs. The Company possesses patented technology to safely remove these
materials, and in the case of antimony, to produce a marketable product. The
Company believes this technology may give it an advantage as a joint venture
partner in such mining operations. The Company is presently evaluating mining
projects which would make use of this technology in Peru.
MARKETING
The Company's primary product can be either refined silver which is
sold to industrial customers or precious metals dealers, or a silver-copper
concentrate which is sold to smelters. Prices received for refined silver are
based on market prices at the time of shipment. Prices received for the
silver-copper concentrate are based on prices for silver and copper during a
Quotational Period shortly after shipment. The Company bases its decisions on
whether to refine its products internally or sell them to a smelter based on
internal production costs versus available smelter contract terms. The
Company's refined antimony and copper products are generally marketed directly
to industrial customers. See Note 13 of Notes to Consolidated Financial
Statements included elsewhere herein.
OTHER BUSINESS AND REGULATORY FACTORS
The Company's precious metals operations are intensely competitive and
subject to risks and regulations inherent in and applicable to mining generally
and the precious metals industry specifically. Competition in the precious
metals mining industry, and particularly the silver mining industry, is very
volatile. The market for gold and silver is international and there is no
significant marketing advantage in domestic production versus international
production. No single source of silver is significant to the world market, and
many of the principal sources of silver as a primary metal have been forced to
close
27
<PAGE> 37
as a result of continued low silver prices over the past several years. As a
result, the largest sources of silver are presently gold, copper, lead, and
zinc mines which produce silver as a by-product.
In connection with its mining and other operations, the Company is
subject to a variety of extensive and changing federal, state and local laws,
regulations, and ordinances. These laws and regulations control exploration
and mining and the actual and potential effects of the Company's activities on
the environment, which directly and indirectly affect the operations of the
Company and could result in potential liability to the Company. No material
effect on the Company is currently anticipated from compliance with any such
provisions or controls.
ENVIRONMENTAL AND SAFETY MATTERS
In connection with its operations and properties, the Company is
subject to extensive and changing federal, state and local laws, regulations
and ordinances governing health and safety and the protection of the
environment, including, without limitation, laws and regulations relating to
air and water quality, mine reclamation, waste handling and disposal, the
protection of certain species, and the preservation of certain lands. These
environmental laws and regulations may require the acquisition of permits or
other authorizations for certain activities. These laws and regulations may
also limit or prohibit activities on certain lands lying within a wilderness
area, wetland area, area providing habitat for certain species, or other
protected area. The recent trend in environmental legislation and regulation
generally is toward stricter standards, and this trend will likely continue in
the future. The operations and activities of the Company require compliance
with such laws, regulations and ordinances.
One example of an environmental law affecting the Company is the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"). CERCLA imposes liability (without
regard to fault) on certain categories of persons for response and certain
costs related to releases of hazardous substances at a facility into the
environment, and for liability for natural resource damages. Liability under
CERCLA is strict and generally is joint and several. In addition to CERCLA,
similar state or other laws and regulations may impose the same or even broader
liability for discharges, releases, or the mere presence of certain substances
into and in the environment. For a discussion of potential liability under
CERCLA at specific sites, see "LEGAL PROCEEDINGS - ENVIRONMENTAL MATTERS."
Another example of an environmental law that affects the Company is the federal
Resource Conservation and Recovery Act ("RCRA"), which is the primary federal
statute governing the management of solid wastes and which includes stringent
regulation of solid waste that is considered hazardous waste. The Company's
operations generate solid wastes, including certain mining waste streams.
Currently, certain solid wastes generated from particular activities related to
the extraction and processing of ores and minerals are excluded from regulation
as hazardous wastes under RCRA.
The Company cannot predict what environmental legislation or
regulations will be enacted or adopted in the future or how future laws and
regulations will be administered or interpreted. Compliance with more
stringent laws and regulations, as well as potentially more vigorous
enforcement policies of regulatory agencies or stricter interpretation of
existing laws, may necessitate significant capital outlays, may materially
affect the Company's operations, or may cause material changes or delays in the
Company's intended activities. Currently, the Company does not expect to incur
any material capital expenditures associated with environmental regulations
(such as expenditures for relevant control facilities) during the fiscal years
1995 and 1996. See Note 12 of Notes to Consolidated Financial Statements
included elsewhere herein; and "LEGAL PROCEEDINGS - ENVIRONMENTAL MATTERS."
The Company also does not anticipate any material effect from compliance with
environmental, health, and safety laws, regulations and ordinances.
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<PAGE> 38
DISCONTINUED OPERATIONS
The Company sold substantially all of its domestic oil and gas
operations in 1991 for approximately $144 million. The remainder, consisting
principally of Canadian oil and natural gas properties, was sold in June and
October 1992 for approximately $10 million.
During 1992, the Company discontinued fabricating and marketing
precious metal bullion for retail sale and returned all properties in East
Tintic Mining District including the Burgin Mine, to the respective lessors.
As a result, the Company's investment in these properties, and related
inventories of $7.4 million, was written off as of September 30, 1992.
EMPLOYEES
At December 31, 1994, Sunshine and its subsidiaries, including SPMI,
employed approximately 229 persons; 220 of whom are located at the Kellogg
facilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES."
PROPERTIES.
The information regarding the properties of Sunshine is set forth
under BUSINESS, above, and in the Notes to Consolidated Financial Statements
included in Part II hereof.
LEGAL PROCEEDINGS.
ENVIRONMENTAL MATTERS
The EPA has identified the Company and SPMI as Potentially Responsible
Parties ("PRPs") at one site and SPMI as a PRP at another site under the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA" or "Superfund"), alleging that the Company and SPMI
at one site and SPMI at the other site arranged for the disposal of hazardous
substances. One of the sites is located in Kellogg, Idaho and the other site
is located in Spokane, Washington.
The EPA has named the Company and SPMI as PRPs at the Bunker Hill
Superfund Site in Kellogg, Idaho ("Bunker Hill"). Bunker Hill is on EPA's
National Priorities List under CERCLA.
EPA, the State of Idaho, and several of the PRPs, including the
Company and SPMI, have agreed to a site-wide clean-up plan, separating the site
into two distinct areas for remediation: the Bunker Hill Smelter Complex (the
"Smelter Area") and the residential and certain commercial areas primarily in
the cities of Kellogg, Smelterville and Pinehurst, Idaho encompassed by the
Site (the "Residential Areas"). Without admitting liability, the Company and
several PRPs have agreed to do the remediation work in the Residential Areas
pursuant to an EPA and State of Idaho approved work plan. In exchange
therefor, EPA and the State of Idaho released the settling PRPs from all
liability for cleanup of the Smelter Area, reduced the EPA's claim for
reimbursement of past costs from $17 million to $1 million plus a percentage of
proceeds received by the PRPs from insurance companies, if any, and agreed that
the work orders from 1990 through 1993 were deemed satisfied and discharged.
The remediation undertaken by the Company and the PRPs is expected to take
approximately seven years and the Company estimates its (including SPMI's)
share (12.4%) of the remediation costs will be approximately $3 million, of
which approximately $1.0 million has been spent to date.
On November 17, 1994, the United States District Court for the
District of Idaho entered a Consent Decree containing the terms of this
agreement. The liability for remediation costs under the consent decree is
joint and several. Thus, if any other settling party or parties does not
comply with the
29
<PAGE> 39
consent decree, the exposure for the Company and SPMI could increase
proportionately. The parties have reserved their claims and defenses with
respect to natural resource damages, except for the State of Idaho which has
agreed that its claim has been settled.
On July 31, 1991, the Coeur d'Alene Indian Tribe (the "Tribe") filed
an action in the United States District Court, District of Idaho against the
Company and seven other Bunker Hill Superfund Site PRPs seeking a declaratory
judgment that the Tribe has five years in which to file a natural resource
damage claim under CERCLA against the PRPs and others or, alternatively, for
damages in an unspecified amount resulting from the loss, destruction or injury
to natural resources allegedly caused by the defendants. The Company believes
that a settlement by SPMI of all natural resources claims with the State of
Idaho in May 1986 bars the Tribe's action.
On October 30, 1992, the United States District Court for the District
of Idaho issued an Order of Administrative Termination in the Tribe's action.
The case was administratively terminated because of the court's ruling in a
prior action that the State of Idaho has title to the beds and banks of all
navigable water courses and that the Tribe had no claim thereto. The decision
in the prior action between the State of Idaho and the Tribe, which was adverse
to the Tribe, was appealed to the Ninth Circuit Court of Appeals, which
affirmed in part and reversed in part the decision of the district court. The
Tribe's action against Sunshine, however, remains administratively terminated.
By letter dated July 17, 1995, Sunshine and SPMI were notified that
they have been identified by the United States Department of the Interior, Fish
and Wildlife Service, as PRPs for alleged natural resource damage in the Coeur
d'Alene Basin. The letter further served as notice that the Department of the
Interior intends to bring suit against Sunshine, SPMI and other identified PRPs
to recover natural resource damages under CERCLA. The Department of Interior
has not set forth any amount of damages. The Company believes that the
settlement by SPMI of all natural resource claims with the State of Idaho in
May, 1986, bars these claims.
The second site where EPA has identified SPMI as a PRP under CERCLA is
the Spokane Junkyard Site near Spokane, Washington. In November 1988, the EPA
notified SPMI that it is a PRP at that site. The EPA has documented the
threatened release of hazardous substances at the site and has initiated
response actions under CERCLA.
The Company does not believe that the designation of SPMI as a PRP at
the Spokane Junkyard Site will have a material impact on the Company's results
of operations and financial condition or on its liquidity or capital resources.
SPMI does not believe it will be required to pay any clean-up costs at the
Spokane Junkyard Site. No records of SPMI have been discovered by it or the
EPA showing SPMI ever sent any material to the site. The EPA's designation of
SPMI as a PRP was based on the oral statement of a former employee at the
junkyard that sometime in the 1940's or 1950's, he recalled a SPMI truck on the
site. To date, the EPA has not filed any action against SPMI or the Company in
relation to the Spokane Junkyard Site.
OTHER LITIGATION
On January 25, 1995, a complaint was filed against the Company in The
United States District Court for the District of Delaware by Grace Holdings,
L.P., a major holder of the Company's Preferred Stock, alleging that the rights
issued incident to the Company's rights offering were an impermissible
distribution or dividend under the Certificate of Designation, Rights, and
Preferences (the "Certificate") governing the Preferred Stock. Grace Holdings,
L.P. alleges damages of $3 million. The Company believes that the rights
issued were not a prohibited distribution or dividend under the terms of the
Certificate, and that the complaint is without merit. Grace Holdings, L.P. has
agreed with the Company that this litigation will be dismissed, with prejudice,
upon consummation of the Merger.
On March 29, 1995, a similar complaint was filed against the Company
in Delaware Chancery Court, New Castle County, by Harbor Finance Partners, a
Colorado Partnership, requesting class action
30
<PAGE> 40
status and alleging that the rights and warrants issued incident to the
Company's rights offering were an impermissible distribution or dividend under
the Certificate. Harbor Finance seeks injunctive relief to compel the Company
to pay dividends to holders of Preferred Stock and to otherwise comply with the
Certificate, and to prohibit any further distribution to holders of Common
Stock. The Company believes that the rights and warrants issued were not a
prohibited distribution or dividend under the terms of the Certificate, and
that the complaint is without merit. The Consenting Shareholders have agreed
not to join, participate in nor benefit from this lawsuit.
MARKET FOR THE SUNSHINE'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Sunshine's Common Stock is listed for trading on the New York Stock
Exchange (symbol "SSC"). Sunshine currently does not pay cash dividends on its
Common Stock and has not paid any since the third quarter of 1981. At December
18, 1995, Sunshine had approximately 36,000 holders of record of its Common
Stock.
The following table sets forth the range of high and low sales prices
for the Common Stock as reported on the New York Stock Exchange, Inc.,
composite tape for the periods indicated. Such quotations represent
inter-dealer prices without retail markup, markdown or commission, and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
1995 QUARTERS 1994 QUARTERS 1993 QUARTERS
-------------------------------------------------------------------
HIGH LOW HIGH LOW HIGH LOW
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 2 1 1/2 3 1/8 1 3/4 1 1/4 7/16
- -----------------------------------------------------------------------------------------------------------------
2nd Quarter 2 3/8 1 3/4 2 1/4 1 5/8 2 1/2 1
- -----------------------------------------------------------------------------------------------------------------
3rd Quarter 2 1/8 1 5/8 2 1/2 1 1/2 4 2
- -----------------------------------------------------------------------------------------------------------------
4th Quarter* 1 7/8 1 1/2 2 1/2 1 5/8 3 2 1/8
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
*Through December 18, 1995
Sunshine's $11.94 (Stated Value) Cumulative Redeemable Preferred Stock
(the "Preferred Stock") is also traded on the New York Stock Exchange (symbol
"SSC PR") with high and low sales prices as reported on the New York Stock
Exchange, Inc., composite tape during 1995, as of December 18, 1995 of $10.375
and $6.375, respectively. At December 18, 1995, Sunshine had approximately
2,831 holders of record of its Preferred Stock. The Company's common stock
purchase warrants are traded on the NASDAQ National Market System (symbol
"SILVW") with high and low sales prices as reported by NASDAQ during 1995, as
of December 18, 1995, of $1.0625 and $.50, respectively.
The indenture governing Sunshine's outstanding Convertible
Subordinated Reset Debentures due July 15, 2008, imposes certain restrictions
on Sunshine's ability to declare or pay cash dividends and make certain
distribution on its capital stock (including Sunshine's Common Stock).
Pursuant to these restrictions, at September 30, 1995, the Company was
prohibited from paying cash dividends on shares of its Common Stock and its
Preferred Stock.
31
<PAGE> 41
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company at September 30, 1995, and the pro forma capitalization reflecting the
Merger, assuming the conversion of each share of Existing Common Stock into one
share of New Common Stock and the conversion of each share of Preferred Stock
into seven (7) shares of New Common Stock and two Warrants, each to purchase
one share of New Common Stock and transaction costs of $500,000.
The pro forma capitalization is presented for informational purposes
only and is not necessarily indicative of the capitalization that would have
occurred if the Merger had been consummated on September 30, 1995, nor is it
necessarily indicative of the future capitalization of the Company.
<TABLE>
<CAPTION>
Historical Pro Forma(1)
----------- ------------
(Dollar Amounts in Thousands)
<S> <C> <C>
Long-term debt - 9% Convertible Subordinated
Reset Debentures due July 15, 2008 $ 1,519 $ 1,519
Stockholders' equity:
Preferred Stock --
aggregate redemption value:
Historical - $126,071
Pro forma - $0 81,928 -
Common stock -- $.01 par value;
400,000,000 shares authorized 1,967 2,432
Paid-in capital 623,325 704,788
Deficit (617,737) (618,237)
----------- ------------
89,483 88,983
Less treasury stock, at cost:
3,664,289 shares 37 37
----------- ------------
Total stockholders' equity 89,446 88,946
----------- ------------
Total capitalization $ 90,965 $ 90,465
=========== ============
Shares outstanding:
Preferred stock 7,166,186 -
Common stock 193,056,641 243,219,943
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Warrants ($1.65 exercise price) - 14,332,372
Pro Forma Shares Outstanding
Under Alternative Assumptions
Shares outstanding(2):
Preferred stock 7,166,186
Common stock 193,056,641 253,252,603
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Warrants ($1.65 exercise price) - 14,332,372
Shares outstanding(3):
Preferred stock 7,116,186 -
Common Stock 193,056,641 249,669,510
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Shares outstanding(4):
Preferred stock 7,166,186 -
Common Stock 193,056,641 259,702,171
Warrants ($2.12 exercise price) 10,092,716 10,092,716
</TABLE>
_________________
(1) Assumes all holders of Preferred Stock choose to convert their shares
into 7 shares New Common Stock and two Warrants, resulting in the
issuance of 50,163,302 of New Common Stock and 14,332,372 Warrants
upon the conversion of all outstanding shares of Preferred Stock
pursuant
32
<PAGE> 42
to the Merger, based on the closing of the Company's Common Stock on
December 18, 1995 of $1.50 per share.
(2) Assumes all holders of Preferred Stock choose to convert their shares
into the maximum of 8.4 shares of New Common Stock and two Warrants,
resulting in the issuance of 60,195,962 shares of New Common Stock and
14,332,372 Warrants upon the conversion of all outstanding shares of
Preferred Stock pursuant to the Merger, assuming the average closing
price of the Company's common stock for the 120 NYSE trading days
after the Effective Date is $1.25 or less per share.
(3) Assumes all holders of Preferred Stock choose to convert their shares
into 7.9 shares of New Common Stock and no Warrants, resulting in the
issuance of 56,612,869 of New Common Stock and no Warrants, upon the
conversion of all outstanding shares of Preferred Stock pursuant to
the Merger, based on the closing price of the Company's Common Stock
on December 18, 1995 of $1.50 per share.
(4) Assumes all holders of Preferred Stock choose to convert their shares
into the maximum of 9.3 shares of New Common Stock and no Warrants,
resulting in the issuance of 66,645,530 of New Common Stock and no
Warrants upon the conversion of all outstanding shares of Preferred
Stock pursuant to the Merger, assuming the average closing price of
the Company's common stock for the first 120 NYSE trading days after
the Effective Date is $1.25 or less per share.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of
the Company and on a pro forma basis after giving effect to the Merger on a
retroactive basis.
<TABLE>
<CAPTION>
Historical Pro Forma(1)(2)
---------- ---------
<S> <C> <C>
Income (loss) from continuing operations per
common share before extraordinary item and
cumulative effect of change in accounting
principle:
Fiscal year ended:
December 31, 1992 $(0.44) $(0.24)
December 31, 1993 (0.25) (0.14)
December 31, 1994 (0.08) (0.02)
Nine months ended:
September 30, 1994 (0.05) 0.00
September 30, 1995 (0.10) (0.05)
Book value per outstanding common share:
December 31, 1994 (0.10) 0.43
September 30, 1995 (0.19) 0.37
</TABLE>
_________________
(1) Assumes the issuance of 50,163,302 shares of New Common Stock and
14,332,372 Warrants upon the conversion of all outstanding shares of
Preferred Stock pursuant to the Merger, resulting in the cancellation
of the dividend and redemption rights of the Preferred Stock. Should
all holders of Preferred Stock choose to convert their shares into 7.9
shares of New Common Stock, Pro Forma book value per outstanding
common share would be $0.40 and $0.36 at December 31, 1994,
(aggregating 56,612,869 shares of New Common Stock and no Warrants)
and September 30, 1995, respectively. The number of shares of New
Common Stock assumed to be issued in these computations was based upon
the closing price of the Company's Common Stock on December 18, 1995,
of $1.50 per share. The number of shares of New Common Stock to be
issued is subject to adjustment. See "CAPITALIZATION" and "THE
MERGER PROPOSAL - CONVERSION OF SECURITIES IN THE MERGER."
(2) Excludes the positive contribution to income applicable to common
share of the difference between the carrying value of the Preferred
Stock, plus the amount of cumulative dividends in arrears, and the
aggregate fair value of common stock and warrants issued. Such
difference,
33
<PAGE> 43
which is currently estimated to exceed $30 million, would increase
income applicable to common shares in the period the Merger is
consummated.
SELECTED FINANCIAL DATA
The following table sets forth summary historical financial
information of Sunshine as of the dates and the periods set forth in the table
below. All amounts are in thousands, except price and production statistics
and per share amounts.
<TABLE>
<CAPTION>
==========================================================================
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1994(5) 1993(4) 1992(3) 1991 1990
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues . . . . . . . . . . . . . . . $ 17,412 $ 17,581 $ 12,926 $ 13,344 $ 31,918
Loss from continuing operations . . . . . . . . (4,923) (28,611) (40,261) (39,917) (71,793)
Loss before extraordinary item and
cumulative effect of change in
accounting principle . . . . . . . . . . . . . (4,923) (28,611) (40,664) (40,128) (102,533)
Net loss . . . . . . . . . . . . . . . . . . . . (4,923) (42,257) (13,372) (40,128) (102,533)
Loss applicable to common shares . . . . . . . . (15,383) (53,077) (24,860) (52,721) (115,473)
Loss per common share:
Continuing operations . . . . . . . . . . . . (.08) (.25) (.44) (.47) (.87)
Discontinued operations . . . . . . . . . . . -- --- --- --- (.32)
Extraordinary item . . . . . . . . . . . . . . -- (.09) .33 --- ---
Cumulative effect of change in
accounting principle . . . . . . . . . . . . -- --- (.10) --- ---
Net loss . . . . . . . . . . . . . . . . . . . (.08) (.34) (.21) (.47) (1.19)
Weighted average common shares . . . . . . . . . 185,634 155,383 118,740 111,258 96,736
PRICE AND PRODUCTION STATISTICS:
Sunshine Mine:
Average Silver prices received . . . . . . . . $ 5.29 $ 4.34 $ 3.95 $ 4.06 $ 4.82
Tons . . . . . . . . . . . . . . . . . . . . . 107,056 100,441 104,602 159,907 235,071
Silver grade (ounces per ton) . . . . . . . . 20.08 23.49 24.77 22.54 22.90
Silver ounces . . . . . . . . . . . . . . . . 2,079,290 2,298,155 2,540,363 3,495,885 5,260,452
Cash cost per ounce(6) . . . . . . . . . . . . $ 5.83 $ 5.10 $ 4.40 $ 4.76 $ 4.14
</TABLE>
<TABLE>
<CAPTION>
==========================================================================
AT DECEMBER 31,
--------------------------------------------------------------------------
BALANCE SHEET DATA: 1994 1993 1992 1991 1990
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash investments . . . . . . . . . . . . $ 26,581 $ 4,304 $ 4,654 $ 14,330 $ 19,019
Working capital . . . . . . . . . . . . . . . . . 38,537 15,651 13,399 22,389 40,423
Total assets . . . . . . . . . . . . . . . . . . 116,657 100,360 113,036 154,004 221,620
Long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . 1,519 9,493 19,669 71,012 80,355
Stockholders' equity:
Preferred Stock . . . . . . . . . . . . . . . 80,707 78,774 76,482 75,590 79,624
Other . . . . . . . . . . . . . . . . . . . . 19,701 (11,531) (9,282) (20,177) (1,407)
Book value per common share . . . . . . . . . . . (.10) (.26) (.24) (.36) (.18)
Common shares outstanding . . . . . . . . . . . . 192,995 168,559 146,478 115,080 101,576
</TABLE>
34
<PAGE> 44
<TABLE>
<CAPTION>
==================================
NINE MONTHS ENDED SEPTEMBER 30
==================================
1995 1994(5)
----------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues . . . . . . . . . . . . . . . . . $ 13,178 $ 12,492
Net loss . . . . . . . . . . . . . . . . . . . . . . (11,106) (692)
Loss applicable to common shares . . . . . . . . . . (13,323) (3,175)
Loss per common share . . . . . . . . . . . . . . . . (.07) (.02)
Weighted average common shares . . . . . . . . . . . 193,017 181,519
PRICE AND PRODUCTION STATISTICS:
Sunshine Mine:
Average silver prices received . . . . . . . . $ 5.12 $ 5.34
Tons . . . . . . . . . . . . . . . . . . . . . . 49,969 53,056
Silver grade (ounces per ton) . . . . . . . . . 15.99 22.65
Silver ounces . . . . . . . . . . . . . . . . . 772,996 1,162,296
Cash cost per ounce(6) . . . . . . . . . . . . . $ 7.67 $ 5.37
BALANCE SHEET DATA:
</TABLE>
<TABLE>
<CAPTION>
==================================
AS OF SEPTEMBER 30, 1995
----------------------------------
<S> <C>
Cash and cash investments . . . . . . . . . . . . . . $ 20,122
Working capital . . . . . . . . . . . . . . . . . . . 32,882
Total assets . . . . . . . . . . . . . . . . . . . . 108,695
Long-term debt and capital lease
obligations . . . . . . . . . . . . . . . . . . . 1,519
Stockholders' equity:
Preferred Stock . . . . . . . . . . . . . . . . . 81,560
Other . . . . . . . . . . . . . . . . . . . . . . 10,774
Book value per common share . . . . . . . . . . . . . (.16)
Common shares outstanding . . . . . . . . . . . . . . 193,057
- ----------------
</TABLE>
(1) All amounts reflect the oil and gas activities of Sunshine as discontinued
operations. The net loss for 1990 includes a $23.5 million loss on the
disposal of discontinued operations. The loss from continuing operations
in 1990 includes a loss of approximately $27.2 million on crude oil option
contracts.
(2) Cash cost per ounce includes all expenditures related to the operation of
the Sunshine Mine and Refinery Complex, less any by-product revenues.
Such costs include non-capital development costs, production and
maintenance costs, ad valorem taxes, insurance, and postemployment benefit
costs incurred on site. Cash costs per ounce increased from 1990 to 1991,
largely due to the fact that mine production was curtailed in June 1991.
Cash costs increased in 1993 and 1994 due primarily to rock bursts at the
Sunshine Mine which reduced production in each year.
(3) In 1992, the Company recorded an extraordinary gain of $38.6 million on
the extinguishment of eight series of silver indexed bonds issued between
1980 and 1986 by SPMI (the "Old Silver Indexed Bonds") and an $11.3
million charge due to the cumulative effect on prior years of a change in
the method of accounting for postretirement benefits other than pensions.
See Notes 2, 7 and 11 of Notes to Consolidated Financial Statements.
(4) In 1993, the Company recorded a charge of $12.5 million resulting from an
induced conversion of the 8% Silver Indexed Bonds, and extraordinary
losses aggregating $13.6 million resulting from redemptions of the 8%
Silver Indexed Bonds. See Note 7 of Notes to Consolidated Financial
Statements.
(5) In 1994, the Company recorded gains totalling $6.9 million due to the
curtailment of postretirement medical benefits for certain of its
employees and retirees. See Note 11 of Notes to Consolidated Financial
Statements.
35
<PAGE> 45
(6) Cash costs per ounce increased from 1994 to 1995 primarily due to a
decline in silver production. Production declined due to a reduction in
mill head grades as a result of extensive underground development
activities and adverse mining conditions in many of the mine's productive
stopes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
RIGHTS OFFERING
On March 9, 1994, the Company completed a Rights Offering to its
Shareholders, raising approximately $30 million in new equity capital after
expenses of the offering. Pursuant to the offering, shareholders were offered
one Right for each 17 shares of Common Stock owned. Each Right entitled the
holder to purchase a Unit consisting of two shares of Common Stock and a
warrant to purchase an additional share of Common Stock. A total of 10.1
million Rights were issued, and 100% of the issued Rights were exercised at a
final price of $3.08 per Unit. As a result, 20.2 million shares of Common
Stock and 10.1 million Warrants were issued on March 9, 1994. The Warrants
expire on March 9, 1999, and are callable by the Company after March 9, 1996 at
a price of $.50 each. Each Warrant entitles the holder to acquire one share of
Common Stock at a fixed price of $2.12.
At September 30, 1995, the Company had approximately $30.7 million of
working capital, including approximately $28.0 million of cash and silver
bullion held for investment. These balances are deemed adequate to fund the
Company's expected cash requirements for several years.
DEBT RETIREMENT
In 1992, the Company and its subsidiary, Sunshine Precious Metals, Inc.
("SPMI"), restructured $71.5 million principal amount of Old Silver Indexed
Bonds issued by SPMI and $9 million of associated accrued interest, through the
prepackaged bankruptcy plan of SPMI. Pursuant to the plan $57.2 million
principal amount of 8% Silver Indexed Bonds and 28.9 million shares of Common
Stock were issued in satisfaction of the Old Silver Indexed Bonds and accrued
interest obligations of approximately $9 million. Principal of and interest on
the 8% Silver Indexed Bonds were payable in cash or Common Stock of Sunshine in
accordance with a formula in the Bond Indenture. During 1993 and 1994, all of
the 8% Silver Indexed Bonds were retired in exchange for 20.7 million shares of
Common Stock.
EVALUATION OF RECOVERABILITY OF INVESTMENT IN SUNSHINE MINE.
As the price of silver since 1985 has been only slightly in excess of, or
less than, the Company's cash cost to produce an ounce of silver, the Company's
operations have not been able to generate cash flow sufficient to cover its
costs of exploration, research, general and administrative expenses, and
interest, as well as non-cash charges such as depreciation, depletion, and
amortization.
In order to minimize losses at the Sunshine Mine, in June of 1991 the
Company reduced ore tonnage produced from the Mine to about one-half its 1,000
tons-per-day capacity. While this reduction in output has caused an increase
in the per-unit cash cost of silver production due to certain fixed costs which
are not variable with production, it has served to minimize the aggregate
losses at the Sunshine Mine, while allowing the Company to pursue its new
exploration program in the western sections of the Mine.
36
<PAGE> 46
The Company periodically, and at least annually, evaluates its mining
properties for permanent impairment based on undiscounted expected future cash
flows. Such estimates are based on assumptions as to future silver prices,
mining costs, and recoverable reserves which management believes are reasonable
based on historical silver prices and production. In constant 1994 dollars,
the price of silver averaged approximately $11.48 per ounce over the 28 year
period since silver has been allowed to trade on an essentially free market
basis, including the most recent five-year period during which the price of
silver averaged only $4.74 per ounce. The Company currently believes that the
price of silver will increase to a more normal historical trading range in
constant dollars and that additional reserves of higher grades than have been
mined recently are present in the Sunshine Mine. Accordingly, the Company does
not believe it is probable that its investment in the Sunshine Mine has been
permanently impaired at December 31, 1994. However, unless the price of silver
increases or the cost of production per ounce is reduced, the Company will not
be able to recover its investment in the Sunshine Mine.
Beginning in 1996, the Company will be subject to the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets, and for Long-Lived Assets to be Disposed of"
("SFAS 121"). The adoption of SFAS 121 will have no impact on the Company's
financial condition as the Company's methodology for evaluating its mining
properties for impairment is consistent with SFAS 121.
LABOR AGREEMENTS AT THE SUNSHINE MINE
The hourly employees at the Sunshine Mine are represented by the United
Steelworkers of America (which represents the majority of the employees) and
the International Brotherhood of Electrical Workers Union (the "Unions").
Effective May 1, 1994, the Unions and SPMI entered into new six-year labor
agreements. The salient features of the agreements are (1) continuation of the
flexible wage scale making wages variable with silver prices, with some
increase in direct hourly wages; (2) the ability of either party to reopen
negotiations on wages and benefits at the end of the third year, subject to
mandatory arbitration if agreement is not reached; and (3) an increase in
pension benefits in exchange for the elimination of Company-provided retiree
medical benefits for the current work force.
As a result of the elimination of the Company's obligation to provide
retiree medical benefits for the current employees, the Company realized a gain
of $6.2 million. Pursuant to the labor agreements with the Unions, this gain
resulted in a profit sharing payment and related expenses for the hourly work
force of approximately $675 thousand, and a net gain to the Company of $5.5
million in the first quarter of 1994. See "RESULTS OF OPERATIONS."
The Company believes that the agreements with the Unions will result in no
significant increase or decrease in its future cost of production.
Union-represented employees will realize an increase in direct wages and
pension benefits, but these will be largely offset by the reduction in future
medical costs. The Company also believes the agreement will produce the basis
for a stable working relationship with its employees for its six year term.
OTHER POSTRETIREMENT MEDICAL BENEFITS
In the second quarter of 1994, the Company eliminated its commitment to
provide postemployment retiree medical benefits for its staff employees,
resulting in a net gain of $580 thousand. The commitment to provide such
benefits by the Company was not contractual and was done unilaterally by the
Company.
The Company's Union retirees since 1987 have retired under bargaining
agreements which limit the Company's obligation to provide postemployment
medical benefits to the period of time covered under each successive bargaining
agreement. These retirees were offered the option to eliminate retiree medical
coverage in exchange for increased pension benefits. Of the total 36 eligible
37
<PAGE> 47
personnel, 19 elected to eliminate such coverage in exchange for the increased
pension benefits, resulting in a gain to the Company of $1 million.
PREFERRED STOCK
Upon consummation of the Merger, the Preferred Stock of the Company, and
the Designation of Rights and Preferences governing the same, will be canceled
and all dividends, redemption, liquidation, voting and other rights thereunder
will be extinguished and will cease to exist. See "THE MERGER PROPOSAL."
The dividend on Sunshine's $11.94 (Stated Value) Cumulative Redeemable
Preferred Stock (the "Preferred Stock") has neither been declared nor paid
since December 31, 1990. Given current silver prices, the Company does not
expect any resumption of dividends in the foreseeable future. Dividends are
cumulative. The amount of aggregate redemption value disclosed on the
September 30, 1995, balance sheet includes $40.5 million in dividends in
arrears.
The Certificate governing the Preferred Stock prohibits partial redemptions
while dividends are in arrears. Therefore, the Company has not made annual
redemptions of approximately 808 thousand shares of the Preferred Stock since
1991.
Pursuant to the Certificate, the Company may make dividend payments and
redemptions of the Preferred Stock using cash or by issuing shares of its
Common Stock valued in accordance with a specified formula. If the Merger is
not consummated, the Company has stated that it intends to make dividend and
redemption payments, when and if resumed, using shares of its Common Stock.
There are no penalties for the Company failing to make dividend payments or
partial redemptions.
Holders of Preferred Stock are entitled to elect three directors to the
Company's board of directors. Upon consummation of the Merger, all directors
will thereafter be elected by holders of New Common Stock. See "DESCRIPTION OF
CAPITAL STOCK - PREFERRED STOCK"; "MANAGEMENT - DIRECTORS AND EXECUTIVE
OFFICERS"; "DIRECTORS AND OFFICERS OF SUNSHINE."
FUTURE CAPITAL AND EXPLORATION EXPENDITURES
Subject to positive confirmation of economic mineralization in the West
Chance area of the Sunshine Mine, the Company will attempt to restore the
Sunshine Mine to full production by the end of 1996. This advances the
schedule about one year ahead of when the Company previously expected to return
to full production. The expedited schedule is the result of the successful
testing of a trackless mining method in the Sunshine Mine using front-end
loaders. Testing indicated the LHD (short for load-haul-dump) cut-and-fill
method allows for greater productivity and quicker reserve access than the
traditional raise-up cut-and-fill mining method utilized at the Sunshine Mine.
As a result of the expedited schedule, the Company expects to spend
approximately $4.5 million in 1996 at the Sunshine Mine to acquire the
necessary LHD equipment, develop ventilation and ore passes in the area, and
expand the mill capacity in order to handle the increasing levels of lead which
are expected from the West Chance area. Additionally, $2.5 million is expected
to be spent on exploration activities involving completion of the 2700 and 3700
Level Drifts, commencement of a new drift on the 2300 Level, and drilling
50,000 feet of new core drill holes into the West Chance area.
An important assumption in the plan to return the mine to full production
is that the 2700 and 3700 Level drifts will encounter significant quantities of
ore grade mineralization when they reach the target areas. While assays from
core drilling indicate the presence of ore-grade mineralization, there can be
no assurance that the mineralization will be present in sufficient quantity or
with sufficient continuity to support the return to full production in the time
frame called for. In that event, certain of the capital expenditures outlined
above would be delayed or canceled.
38
<PAGE> 48
The Company has budgeted $5 million in other exploration expenditures for
1996. Of that amount, $2 million is allocated to the evaluation of the
Pirquitas property in Argentina, which was purchased for $1.7 million in
November, 1995. It is expected that this will allow the Company to do the
necessary work to confirm or refute the presence of the large resource which
appears to be present, and to do the necessary engineering and metallurgical
testing to determine if the property can be economically placed into
production. If the property is determined to be commercially viable, a
significant capital expenditure, currently estimated at in excess of $50
million, will be required for development. This would require the Company to
raise additional funds through debt or equity financing and/or joint venture
with industry partners to develop the property.
OTHER
The Company and SPMI have has been identified by the EPA as a PRP at the
Bunker Hill Superfund Site and SPMI has been identified as a PRP at the Spokane
Junkyard Site. The Company believes that its status as a PRP will not have a
material adverse effect on its consolidated financial position or results of
operations. See "LEGAL PROCEEDINGS -- ENVIRONMENTAL MATTERS" and Note 12 of
Notes to Consolidated Financial Statements.
OPERATING, INVESTING AND FINANCING ACTIVITIES
Cash used in operating activities in the first nine months of 1995 was $5.1
million compared to $7.2 million in the first nine months of 1994. Cash
operating losses increased in the first nine months of 1995 by $1.4 million.
This was offset by changes in working capital components, principally
inventories.
Cash used in operating activities in 1994 was $8.4 million compared to $7.6
million in 1993. This is primarily due to an increase in cash operating losses
in 1994 of $2.3 million, offset by changes in working capital components.
Cash used by investing activities during the nine month periods ended
September 30, 1995 and 1994 was $2.5 million and $1.5 million respectively,
including $4 million and $1.4 million, respectively, for exploration
expenditures offset in the 1995 period by $1.8 million of cash proceeds from
the sale of certain marketable securities. In 1993, investing activities
provided $5.2 million of cash through the liquidation of certain marketable
securities, offset by investment of approximately $1 million in new plant and
equipment.
There were no cash financing activities during the nine months ended
September 30, 1995. Cash provided by financing activities was $31.1 million in
1994 ($29.7 million during the nine months ended September 30, 1994),
principally as a result of the Company's rights offering. Financing activities
provided $2.0 million of cash in 1993 as a result of the release of
approximately $3.0 million of previously restricted cash, offset by the
retirement of approximately $1.0 million of debt.
In 1993, cash used in operating activities declined to $7.6 million from
$12.0 million in 1992, principally as a result of the decrease in operating
losses, excluding non-cash charges, of $8.0 million, partially offset by
working capital changes, principally in-process inventories and accrued
expenses. The Company's discontinued oil and gas operations provided $1.2
million of cash in 1992, prior to their sale.
Investing activities produced $9.4 million of cash in 1992, principally
from the sale of the Company's remaining oil and gas operations. Such
activities provided $5.2 million in 1993, principally through the liquidation
of marketable securities, partially offset by investment in plant and equipment
of approximately $1 million.
39
<PAGE> 49
Financing activities used $7.0 million in cash in 1992, as $2.0 million of
debt was repaid, and $5.0 million of cash was reclassified as restricted as it
was used to secure certain debt obligations. In 1993, financing activities
provided $2.0 million of cash, as $1.0 million principal amount of debt was
retired, and $3.0 million of previously restricted cash was released.
RESULTS OF OPERATIONS
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
Consolidated operating revenues increased approximately $686 thousand
(5.5%) for the first nine months of 1995 compared to the first nine months of
1994 due to higher sales volume (2.0 million ounces in the first nine months of
1995 compared to 1.9 million ounces in the same period of 1994) due to the
inventory drawdown discussed below.
During the first quarter of 1995 the Company suspended operation of its
silver refinery. As a result, the Company began selling silver and copper
concentrate to a third-party smelter instead of refining silver bullion and
copper metal for sale to commercial and industrial customers. This result in a
shorter processing time before sales recognition, causing a drawdown of
work-in-process inventories versus an inventory buildup in the first nine
months of 1994. Cost of sales increased $2.2 million from the first nine
months of 1995 compared to 1994, due to this drawdown in inventories and an
increase in unit production costs. Unit production costs increased primarily
due to declines in silver production from 1994 to 1995 (1.3 million ounces
produced from 79,025 tons at 17.46 ounces per ton in 1995 versus 1.6 million
ounces from 78,655 tons at 21.44 ounces per ton in 1994). Mine production
declined due to a reduction in mill head grades as a result of extensive
underground development activities. Additionally, the operation experienced
earlier than expected mineout and adverse mining conditions in many of the
mine's productive stopes. Production levels have been improving gradually
since April, and the third quarter production more nearly approximates
production objectives during this exploration period.
Exploration expense increased $2.6 million (187%) for the first nine months
of 1995 compared to the same period in 1994 in keeping with the Company's plan
to increase exploration spending at the Sunshine mine and as well as other
sites in Arizona, Colorado, Argentina, and Peru.
Depreciation, depletion, and amortization declined by approximately $508
thousand. Lower depletion expense is a result of lower production figures in
the nine month period.
Interest income increased by $232 thousand (29.3%) due to higher cash
balances after the Company's rights offering in March, 1994.
Interest expenses was reduced $378 thousand (39.7%) due to the reduction of
approximately $8 million (84%) in the aggregate principal amount of debt
outstanding in the first quarter of 1994.
Sunshine's net income in 1994 included a $6.9 million gain on the
curtailment of certain postretirement medical benefits for certain of its
employees and retirees.
1994 COMPARED TO 1993
Consolidated operating revenues decreased approximately $.2 million (1%) in
1994 compared to 1993. Price increases on silver sold ($5.29 per ounce in the
1994 period versus $4.34 per ounce in 1993), which increased revenues by $2.0
million, and increased sales of custom material (813 thousand ounces in 1994
versus 426 thousand in 1993), which increased revenues by $1.9 million, were
offset by reductions in sales volumes of Sunshine Mine material (2.1 million
ounces in 1994 versus 2.3 million ounces in 1993), which decreased revenues by
$1.2 million, and by mark-to-market adjustments in the value of the Company's
in-process inventories and silver bullion held for investment.
40
<PAGE> 50
In 1994, due to the decline in silver prices from the beginning of the year of
$5.09 per ounce to the year end price of $4.88, the Company posted a
mark-to-market writedown of $.3 million. During 1993, due to an increase in
silver prices from $3.67 to $5.09, the Company posted a favorable
mark-to-market adjustment of $3.3 million.
Consolidated operating costs increased $2.7 million from 1993 due primarily
to increases in sales volumes of custom materials as discussed above.
Depreciation, depletion and amortization declined by approximately $1.8
million principally as a result of increasing the remaining useful life of the
Company's silver refinery. Selling, general and administrative expense
increased approximately $370 thousand over the 1993 period due primarily to
expenses incurred in studying potential foreign joint venture opportunities.
During 1994, the Company recognized gains totalling $6.9 million due to the
curtailment of post retirement medical benefits for certain of its employees
and retirees, net of associated profit sharing payments and related expenses to
the affected employees aggregating $803 thousand. SEE "LIQUIDITY AND CAPITAL
RESOURCES."
Interest income increased $800 thousand due to higher cash balances after
the Company's Rights Offering.
Interest expense was reduced $4.2 million (77%) primarily due to
elimination of the 8% Silver Indexed Bonds.
Sunshine's net loss in 1993 included a $12.5 million charge for the loss
associated with the modified "put" terms of the 8% Silver Indexed Bonds which
were offered to induce conversion of the Bonds to Common Stock, and an
extraordinary charge of $13.6 million related to the Company's decision to call
the remaining Bonds.
1993 COMPARED TO 1992
The loss from continuing operations for 1993 was $28.6 million, or $0.25
per share, an improvement of 29.7% when compared to the loss from continuing
operations for 1992 of $40.3 million, or $0.44 per share. Included in the loss
from continuing operations for 1993 is a charge of approximately $12.5 million
representing a loss on the induced conversion of the 8% Silver Indexed Bonds.
See Note 7 of Notes to Consolidated Financial Statements.
Operating revenues increased approximately $4.7 million (36.0%) from 1992
to 1993, principally as a result of (1) an increase of approximately $3.3
million in the mark-to-market adjustment on silver inventories in 1993; (2) an
increase of approximately 268 thousand ounces (9.9%) in silver sales volume in
1993; and (3) an increase of $0.44 (11.3%) in the average price received per
ounce of silver sold in 1993; all of which were partially offset by decreased
production resulting from the suspension of all operations in the East Tintic
Mining District in 1992.
Cost of revenues increased approximately $1.4 million (9.9%) from 1992 to
1993, primarily due to increased silver sales from inventory and an increase of
approximately $0.70 in the cash cost per ounce of silver produced in 1993. The
higher unit costs at the Sunshine Mine resulted from a decrease in silver
production due to a rock burst in the fourth quarter of 1993 which reduced
production by approximately 200 thousand ounces. These increases in the cost of
revenues were partially offset by the suspension of operations and the return
of the Trixie Mine to the lessors in 1992.
Other operating costs and expenses decreased approximately $13.2 million
(51.1%) from 1992 to 1993, principally as a result of (1) a decrease of
approximately $0.5 million (23.8%) in exploration
41
<PAGE> 51
costs related to projects other than the Sunshine Mine in 1993; (2) a decrease
of approximately $1.9 million (27.6%) in selling, general and administrative
expenses in 1993, reflecting the cost savings associated with the completion of
the Company's restructuring program in 1992; (3) a decrease of approximately
$0.4 million in depreciation, depletion and amortization in 1993, primarily due
to lower production volumes at the Sunshine Mine; (4) a restructuring charge of
$3.0 million in the third quarter of 1992 representing severance costs
associated with the relocation of the Company's headquarters from Dallas, Texas
to Boise, Idaho, and the expenses incurred in the renegotiation and
cancellation of the former Chief Executive Officer's employment contract; and
(5) a charge of approximately $7.4 million for the write-off of SPMI's
investment in the properties held in the East Tintic Mining District in the
third quarter of 1992.
Interest income decreased by approximately $0.4 million (52.6%) from 1992
to 1993 due to the reduction in the Company's average cash balances.
Interest expense decreased by approximately $5.8 million (51.8%) from 1992
to 1993 as a result of (1) the restructuring of approximately $57.2 million and
the retirement of approximately $14.3 million of the Old Silver Indexed Bonds
in December of 1992; (2) a decrease of approximately $49.6 million (86.8%) of
the 8% Silver Indexed Bonds outstanding principal amount through redemptions
for Common Stock in 1993; and (3) a decrease of approximately $5.1 million
(72.0%) in other long term debt in 1993.
In the fourth quarter of 1993, the Company recorded a charge of
approximately $13.6 million as a result of its decision to call the remaining
8% Silver Indexed Bonds. See Note 7 of Notes to Consolidated Financial
Statements.
In the fourth quarter of 1992, the Company recorded an extraordinary gain
of approximately $38.6 million representing the completion of the restructuring
of the Old Silver Indexed Bonds. See Note 2 of Notes to Consolidated Financial
Statements.
In 1992, the Company recorded a charge of approximately $11.3 million
representing Sunshine's estimate of the cumulative effect on prior years of a
change in the method of accounting for postretirement benefits other than
pensions. See Note 12 of Notes to Consolidated Financial Statements.
THE EFFECTS OF CHANGING PRICES
Substantially all of the Company's revenues are from sales of silver.
Volatility in the price of silver causes substantial fluctuations in the
Company's revenues and financial condition. There are many factors which
influence the volatility of silver prices. Changes in supply and demand,
worldwide economic and political conditions, expectations as to inflation and
speculative activity in the market all cause fluctuations in prices received.
As previously discussed, the price of silver in recent years has been
depressed.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed herewith begin on page F-1 hereof.
42
<PAGE> 52
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Company, the following persons own five percent (5%) or
more of the Preferred Stock of the Company:
<TABLE>
<CAPTION>
(1) (2) (3) (4)
TITLE OF NAME & ADDRESS OF AMOUNT & NATURE OF PERCENT
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$11.94 Preferred Stock Grace Holdings, L.P.(1) 844,200 shares - direct 11.78%
1000 W. Diversey Pkwy., Ste. 233
Chicago, IL 60614
- -------------------------------------------------------------------------------------------------------------
$11.94 Preferred Stock Elliott Associates, L.P.(2) 635,800 shares - direct 8.87%
712 5th Avenue, 36th Fl.
New York, NY 10019
- -------------------------------------------------------------------------------------------------------------
$11.94 Preferred Stock Lloyd I. Miller III 430,100(3) 6%
4550 Gordon Drive
Naples, Florida 33940
</TABLE>
(1) Bun Partners, Inc. is the general partner of Grace Holdings, L.P.
(2) Paul E. Singer and Braxton Associates, L.P. are the general partners of
Elliott Associates, L.P. Paul E. Singer is the General Partner of Braxton
Associates, L.P.
(3) Mr. Miller has sole voting power and sole dispositive power with respect to
190,500 shares and shared voting power and shared dispositive power with
respect to 239,600 shares, based upon his Schedule 13D dated July 24, 1995.
To the knowledge of the Company, no other person owns five percent (5%) or
more of any class of the Company's voting securities.
The following table presents certain information regarding the number of
shares of each class of the Company's equity securities beneficially owned by
each director, Named Executive Officer, and by all directors and officers as a
group as of December 5, 1995. All individuals have sole voting and
investment power with respect to the shares owned. To the best knowledge of
the Company, all of the officers and directors of the Company intend to vote
their shares of stock in favor of the Merger Proposal.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL TITLE OF CLASS BENEFICIAL OWNERSHIP OF CLASS
------------------ -------------- -------------------- --------
<S> <C> <C> <C>
G. Chris Andersen Common Stock 30,517(1) --(2)
Preferred Stock -0- --
V. Dale Babbitt Common Stock 11,264(1) --(2)
Preferred Stock 500 --(2)
Fred C. Humphreys Common Stock 19,050(1) --(2)
Preferred Stock -0- --
Daniel D. Jackson Common Stock 19,927(1) --(2)
Preferred Stock -0- --
John S. Simko Common Stock 167,805(1) --(2)
Preferred Stock -0- --
</TABLE>
43
<PAGE> 53
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME OF INDIVIDUAL TITLE OF CLASS BENEFICIAL OWNERSHIP OF CLASS
------------------ -------------- -------------------- --------
<S> <C> <C> <C>
Robert B. Smith. Jr. Common Stock 10,000(1) --(2) --
Preferred Stock 20,000 (2)
Oren G. Shaffer Common Stock 22,625(1) --(2)
Preferred Stock -0- --
William W. Davis Common Stock 126,153(1) --(2)
Preferred Stock -0- --
Robert H. Peterson Common Stock 69,551(1) --(2)
Preferred Stock -0- --
Hoffer Kaback Common Stock 5,000 --(2)
Preferred Stock -0- --
Douglas K. Stewart Common Stock 5,000 --(2)
Preferred Stock -0- --
George M. Elvin Common Stock 5,000 --(2)
Preferred Stock -0- --
Harry F. Cougher Common Stock 109,416(1) -(2)
Preferred Stock -0- --
All officers and Common Stock 601,308(3) --(2)
directors as a group Preferred Stock 20,500 --(2)
- ------------------------------------------
</TABLE>
(1) Includes the following shares subject to purchase pursuant to stock
options and warrants exercisable within sixty days: Mr. Andersen, 19,339
shares; Mr. Babbitt, 10,088 shares; Mr. Cougher, 100,300 shares; Mr.
Davis, 101,218 shares; Mr. Elvin, 5,000 shares; Mr. Humphreys, 10,000
shares; Mr. Jackson, 18,809 shares; Mr. Kaback, 5,000 shares; Mr.
Peterson, 50,750 shares; Mr. Simko, 116,873 shares; Mr. Shaffer, 10,875
shares; Mr. Smith, 10,000 shares; and Mr. Stewart, 5,000 shares.
(2) Less than 1%.
(3) Includes 448,252 shares subject to purchase pursuant to stock options and
warrants exercisable within 60 days.
DIRECTORS AND OFFICERS OF SUNSHINE
The Board of Directors of the Company consists of the following ten
directors. Upon consummation of the Merger, the Board of Directors of Sunshine
Merger Company will consist of the same directors, with the exception of
Messrs. Elvin, Kaback and Stewart, who were elected to the Company's Board of
Directors by holders of Preferred Stock and who, incident to the elimination of
the Preferred Stock, will not be directors of Sunshine Merger Company.
<TABLE>
<CAPTION>
Position(s) with Company, Principal Occupation
Name Age and Business Histories
---- --- ----------------------
<S> <C> <C>
G. Chris Andersen . . . . . . 57 Director since May 1983; until [August 3,
1995], was Vice Chairman -- PaineWebber
Incorporated for more than five years prior
thereto.
V. Dale Babbitt . . . . . . . 59 Director since December 1992; President (for
more than the pastfive years) and CEO of N.L.
Terteling Family Interest, Inc. (dba) J.A.
Terteling & Sons Co., the Managing General
Partner for investments consisting of mining
interests, oil & gas, real estate and
securities.
Fred C. Humphreys . . . . . . 71 Director since May 1981; Previously was
Chairman of the Board and Chief Executive
Officer (1984 to 1987) of West One Bancorp, a
regional bank holding company with operations
in Idaho, Utah, Oregon and Washington.
</TABLE>
44
<PAGE> 54
<TABLE>
<CAPTION>
Position(s) with Company, Principal Occupation
Name Age and Business Histories
---- --- ----------------------
<S> <C> <C>
Daniel D. Jackson . 67 Director since May 1983; Managing Director of
Hambrecht & Quist, Inc., a San Francisco,
California based investment banking firm since
February 1990.
Oren G. Shaffer . 53 Director since June 1993. Since October 1994,
Executive Vice-President and Chief Financial
Officer of Ameritech; previously was President
of Vigrocap, a venture capital company
(October 1991 to October 1994); and was
Executive Vice President, Chief Financial
Officer and Director of Goodyear Tire and
Rubber Co. from January, 1990 to October 1992.
John S. Simko . . . 56 Director and President since October 1992, and
Chief Executive Officer of the Company since
December, 1992; previously (since 1984) served
the Company as Senior Vice President and
General Counsel.
Robert B. Smith, Jr. 58 Director since June 1993. Mr. Smith has been
a private investor since 1984 and Trustee of
the Dalkon Shield Trust since 1989.
George M. Elvin . . 53 Director since June 1994. Financial
Consultant (for more than the past five years)
and since August 1992 is the owner and
President of Windsor IBC, Inc., a brokerage
firm member of the NASD.
Hoffer Kaback . . 45 Director since June, 1994. President (for
more than the past five years) of Gloucester
Capital Corporation (financial consulting);
and General Partner, Bosworth Partners
(investments).
Douglas K. Stewart 43 Director since June, 1994. President (for
more than five years) of Stewart & Smith,
Inc., a consulting firm providing securities
analysis for institutional investors.
</TABLE>
CERTAIN OTHER MATTERS
No family relationship exists among the directors or executive officers of
the Company or its subsidiaries or divisions.
Mr. Andersen is a director of Terex Corporation; Mr. Jackson is a director
of InfoVest Corporation; Mr. Kaback is a director of Biotechnology General
Corporation and Lewis Galoob Toys, Inc.; Mr. Shaffer is a director of Taiwan
Equity Fund, Inc.; and Mr. Stewart is a director of Grant Geophysical, Inc.
Each of these companies has a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
The following are the executive officers of the Company (the "Named
Executive Officers"). Upon consummation of the Merger, these individuals will
continue in their respective positions as executive officers of Sunshine Merger
Company.
<TABLE>
<CAPTION>
Position(s) with Company, Principal Occupation
Name Age and Business Histories
---- --- ----------------------------------------------
<S> <C> <C>
John S. Simko 56 Director and President since October 1992, and Chief Executive Officer of the Company since December
1992; previously (since 1984) served the Company as Senior Vice President and General Counsel.
William W. Davis 42 Executive Vice President and Chief Financial Officer since December, 1995, and Senior Vice President
and Chief Financial Officer of the Company since September 1992. Previously, from 1983, served in
various capacities as an employee of the Company.
Robert H. Peterson 58 Senior Vice President and Chief Operating Officer-Refining of the Company since September 1992.
Previously since 1980, served in various capacities as an employee of the Company.
Harry F. Cougher 53 Senior Vice President and Chief Operating Officer-Mining since January 1994. Previously, since 1984,
served in various capacities as an employee of the Company.
- ------------------------------------------
</TABLE>
45
<PAGE> 55
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------------------------- --------- -------
(A) (B) (C) (D) (G) (H) (I)
SECURITIES
UNDERLYING LTIP ALL OTHER
SALARY BONUS OPTIONS/SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($) ($)(3)
--------------------------- ---- ------- --- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
John S. Simko, 1994 271,527 0 65,000 0 14,370
CEO and President 1993 258,086 38,727(1) 50,000 52,500(4) 11,103
1992 267,215 0 0 52,500(4) 4,740
William W. Davis, 1994 166,096 25,000(2) 50,000 0 14,370
Exec. Vice Pres. & Chief 1993 161,260 24,406(1) 50,000 0 4,308
Financial Officer 1992 168,278 0 0 0 0
Robert H. Peterson, 1994 169,861 0 0 0 14,250
Sr. Vice Pres. & Chief 1993 162,586 24,163(1) 50,000 0 4,497
Operating Officer-Refining 1992 168,062 0 0 39,150(5) 6,820
Harry F. Cougher 1994 100,677 0 50,000 0 8,925
Sr. Vice Pres. &
Chief Operating Officer-
Mining
- ------------------------------------------
</TABLE>
(1) Consists of stock bonuses awarded to Messrs. Simko, Davis and Peterson
valued at $38,727, $24,406, and $24,163 respectively. Stock distributed
was adjusted to account for estimated taxes, resulting in net stock
issuance of 13,676 shares, 9,752 shares, and 8,533 shares to Messrs.
Simko, Davis and Peterson respectively. The sale of these shares was
restricted until June 16, 1994.
(2) Cash bonus paid to Mr. Davis in December, 1994.
(3) Includes income received pursuant to the Company's Employees Savings and
Security Plan (the "Savings Plan") and the Sunshine Defined Contribution
Plan (the "DC Plan"). Payments to Mr. Simko under the Savings Plan were
$4,620, $4,497 and $4,740, in 1994, 1993 and 1992, respectively; payment
to Mr Simko under the DC Plan was $9,750 in 1994. In 1993, Mr. Simko
received reimbursement for moving expenses, pursuant to Company policy of
$6,606. Payments to Mr. Davis under the Savings Plan were $4,620 and
$4,308, in 1994 and 1993, respectively; payment to Mr Davis under the DC
Plan was $9,750 in 1994. Payments to Mr. Peterson under the Savings Plan
were $4,500, $4,497 and $6,820, in 1994, 1993 and 1992, respectively;
payment to Mr. Peterson under the DC Plan was $9,750 in 1994. Mr. Cougher
received payments of $2,945 and $5,980 under the Savings Plan and DC Plan,
respectively. The Savings Plan is an individual account plan which
provides for deferred compensation as described in Section 401(k) of the
Internal Revenue Code and is subject to and complies with all of the
principal protective provisions of Titles I and II of the Employee
Retirement Income Security Act of 1974 ("ERISA"). The DC Plan replaced
the Company's Defined Benefit Pension Plan as of January 1, 1994, and is
subject to and complies with ERISA.
All employees of the Company, other than those covered by a collective
bargaining agreement, may elect to participate in the Savings Plan and
systematically save a portion of their compensation and defer federal
income taxes on such portion. In addition, the Company may, at its
discretion, match a portion of the individuals employee's elected
deferrals. For 1994, the Company chose to match employee deferrals up to
a maximum of 6% of their salary at a rate of 50% of the amount so
deferred. Employees' elective deferrals may be used to purchase shares of
Common Stock and the Company may make its contribution to the Savings Plan
in cash or Common Stock. Unless otherwise elected, distributions from the
Savings Plan are made in lump sum payments. Employees may not withdraw
funds from the Savings Plan except upon termination of employment or
special hardship.
46
<PAGE> 56
At December 31, 1994, there were approximately 60 participants in the
Savings Plan and DC Plan which together held 150,574 shares (less than 1%
of the outstanding) of Common Stock in addition to its other investments.
Shares purchased in accordance with the direction of participating
employees are voted in accordance with their instructions. Shares
contributed by the Company are voted by the Trustee.
(4) Payments received by Mr. Simko as a result of the termination of the
Deferred Performance Incentive Compensation ("DPIC") Plan. In December
1992, that plan, which had been frozen since 1991 at 1990 levels, was
terminated as to all employees other than Mr. Simko; with respect to Mr.
Simko, that plan was terminated in February 1993. The DPIC Plan was
established in 1989 with a term of six (6) years, and provided for the
annual vesting of benefits after 1991. Upon termination of the DPIC Plan,
only those benefits that had vested were paid to participants. No
specified performance target, goal or condition to payment was waived with
respect to the payment of benefits under the DPIC Plan.
(5) Includes $19,575 payment to Mr. Peterson that was accelerated as a result
of termination of the Deferred Performance Incentive Compensation Plan.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
Incentive stock options were granted to the Named Executive Officers in
the year ended December 31, 1994, as follows:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERMS
--------------------------------------- -----------------------
(A) (B) (C) (D) (E) (F) (G)
----- --------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARS
NUMBER OF SECURITIES GRANTED TO EXERCISE OR
UNDERLYING OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ------------------------ -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John Simko, CEO . . . . 65,000 shares - Common 11.6 1.625 12/08/04 $66,426 $168,339
William W. Davis . . . . 50,000 shares - Common 8.9 1.625 12/08/04 $51,097 $129,491
Harry F. Cougher . . . . 50,000 shares - Common 8.9 1.625 12/08/04 $51,097 $129,491
- ------------------------------------------
</TABLE>
(1) The options are exercisable on or after December 8, 1995.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information on option/SAR exercises in fiscal
1994 by the Named Executive Officers and the value of such officers'
unexercised options/SARs at December 31, 1994.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
----- ---------- --------- ------------------------------ ----------------------------
SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
EXERCISE (#) ($) OPTIONS/SARS AT FY-END (#) AT FY-END ($)
------------ --------- ----------------------------- ----------------------------
NAME EXERCISABLE(1)UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE (3)
---- ------------------------------ ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
John S. Simko, CEO . . 0 0 50,000 65,000 0 0
William W. Davis . . . 0 0 50,000 50,000 0 0
Robert H. Peterson . . 0 0 50,000 0 0 0
Harry F. Cougher . . . 0 0 50,000 50,000 0 0
</TABLE>
47
<PAGE> 57
- ------------------------------------------
(1) Options were granted on June 22, 1993, at the most recent closing sale
price of the Common Stock of $1.625.
(2) Options were granted on December 8, 1994, at the most recent closing sale
price of the Common Stock of $1.625.
(3) Based on the NYSE closing per share sale price of the Common Stock on
December 30, 1994 of $1.625.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The Company did not grant any long-term incentive plan awards in 1994, and
currently does not maintain a long-term incentive plan. See footnote 4 to the
Summary Compensation Table with respect to the termination of the Company's
Deferred Performance Incentive Compensation Plan.
PENSION PLANS
On December 31, 1993, the Company froze its Defined Benefit Pension Plan
(the "Pension Plan"), which was replaced as of January 1, 1994, by the
Company's DC Plan. The Pension Plan was maintained for the benefit of
employees, except those covered by a collective bargaining agreement. The
following table shows the estimated annual benefits payable under the Pension
Plan as in effect on December 31, 1993; after that date benefits ceased to
accrue under the Pension Plan. The examples assume retirement at normal
retirement age of 65 after assumed periods of service, and a fixed level of
social security benefits.
<TABLE>
<CAPTION>
RETIREMENT BENEFIT AT AGE 65(1)(2)
-------------------------------------------------------------------------------------------------
YEARS OF SERVICE
----------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 30
------------ ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
75,000 $ 6,000 $ 12,000 $ 18,500 $ 24,000 $ 30,000 $ 36,500
100,000 8,000 16,000 25,000 33,000 41,000 49,000
150,000 13,000 25,000 38,000 51,000 64,000 76,000
200,000 17,000 34,000 52,000 69,000 86,000 103,000
250,000 22,000 43,000 65,000 87,000 109,000 115,641
300,000 26,000 52,000 79,000 105,000 115,641 115,641
350,000 31,000 61,000 92,000 115,641 115,641 115,641
- ------------------------------------------
</TABLE>
(1) On December 31, 1993, the maximum allowable annual benefit was $115,641
under the 1982 Tax Equity and Fiscal Responsibility Act ("TEFRA"), as
adjusted.
(2) Because of the termination of the Company's previous defined benefit
retirement plan during 1986, salaried employees received annuities.
Messrs. Simko, Peterson, Davis, and Cougher received annuities providing
for annual payments of $10,572, $15,803, $7,320, and $4,638, respectively,
at age 65. All officers as a group who were participants (4 persons,
Messrs. Simko, Peterson, Davis and Cougher) would receive a minimum of
$38,333 per year in the aggregate at their normal retirement date. Upon
retirement, the annuity payments will be offset against the retirement
benefits payable pursuant to the above table.
At the time that benefits ceased to accrue under the Pension Plan
(December 31, 1993), the covered compensation of the person listed in the
Summary Compensation Table above who participated in the Pension Plan did not
differ substantially from the aggregate cash compensation set forth in the
table and footnotes thereto, except that Mr. Simko's compensation for pension
purposes was limited to $235,840, the then maximum recognizable pay for
tax-qualified retirement plans. The
48
<PAGE> 58
years of credited service at December 31, 1993, for Mr. Simko was nine years;
for Mr. Davis was ten years; for Mr. Peterson was thirteen years; and for Mr.
Cougher was nine years. Pursuant to the early retirement program, employees
who are age 55 and who have fifteen years of employment with the Company are
eligible for early retirement, and will receive approximately 75% of the
accrued benefits they would have received at age 65. Mr. Simko's employment
contract provides that he shall be eligible for early retirement
notwithstanding that he will have less than fifteen years of service with the
Company upon expiration of his employment contract. See EMPLOYMENT CONTRACTS.
OPTIONS GRANTED TO MANAGEMENT
The Company currently has in effect two stock option plans, the 1987
Employee Non-Qualified Stock Option Plan ("the 1987 Plan") and the 1993
Incentive Stock Option Plan (the "1993 Plan"). The 1987 Plan provides for the
granting from time to time of options to purchase shares of Common Stock to key
employees or potential key employees of the Company and its subsidiaries. The
1987 Plan also provides that all non-employee directors automatically receive
an option for 5,000 shares of Common Stock on August 30 each year during the
term of the 1987 Plan. Options granted under 1987 Plan vest on, and are
exercisable on and after, the first anniversary of the date granted. Options
granted under 1987 Plan prior to June 20, 1994, expire 5 years following the
date of the grant; options granted under the 1987 Plan after that date expire
10 years following the date of grant.
The 1993 Plan provides for the granting, from time to time, to key
employees (including officers and directors who are employees) of the Company
and its subsidiaries of options including Incentive Stock Options ("ISOs") to
purchase up to an aggregate of 2,000,000 shares of the Common Stock. Under the
1993 Plan, the Compensation and Transaction Committee of the Company is
authorized to determine the individuals to whom and the time or times at which
options will be granted, the number of shares to be subject to each option and
to interpret the provisions and supervise the administration of the 1993 Plan.
Subject to adjustment in the event of stock dividends, stock splits or similar
recapitalization, the shares of Common Stock subject to option under the 1993
Plan are purchased at a price which will not be less than 100% of the fair
market value of the Common Stock on the date of the grant. Each option granted
under the 1993 Plan vests one year from the date of grant, and shall be for a
term not in excess of ten years from the date the option is granted.
On December 8, 1994, the Company issued stock options to certain key
employees of the Company for a total of 560,000 shares of Common Stock; 556,500
under the 1993 Plan and 3,500 under the 1987 Plan. The per share exercise
price for those options is $1.625.
COMPENSATION OF DIRECTORS
Directors of the Company who are full-time employees do not receive any
additional compensation for their services on the Board of Directors or
committees thereof. Each non-employee director receives an annual retainer of
3,350 troy ounces of silver or 50 troy ounces of gold, in addition to 235 troy
ounces of silver or 3.5 troy ounces of gold per day for each Board or committee
meeting attended. During 1994, non-employee directors received gold valued as
follows: Messrs. Andersen ($22,026), Babbitt ($27,420), Humphreys ($24,721),
Jackson ($27,420), Shaffer ($24,721), Smith ($24,721), Stewart ($23,393), Elvin
($23,393), and Kaback ($26,092). In addition, pursuant to the 1987 Plan, all
non- employee directors automatically receive an option for 5,000 shares of
Common Stock on August 30 of each year during the term of the 1987 Plan.
EMPLOYMENT CONTRACTS
Effective January 1, 1994, Mr. Simko, Mr. Davis, Mr. Peterson and Mr.
Harry F. Cougher entered into written employment agreements (the "Employment
Agreements") with the Company. Each of the Employment Agreements is for a term
of three years. In 1995, the Employment Agreements for Mr. Semko, Mr. Davis
and Mr. Cougher were amended to extend the term for each agreement for an
additional three years to December 31, 1999.
49
<PAGE> 59
Pursuant to the Employment Agreements, Messrs. Simko, Davis, Peterson, and
Cougher (collectively the "Contracting Employees") are to receive annual base
compensation of $250,000, $160,000, $156,000 and $92,000, respectively, which
may be increased by the Board of Directors. In the event of the disability or
death of a Contracting Employee, the Employment Agreement provides for the
continued payment of the base compensation for the remaining term of the
agreement, subject to reduction for disability payments separately provided by
the Company. In addition, the Contracting Employees may receive such annual
incentive compensation based on the performance of the Company or other
criteria as may be awarded in the discretion of the Board of Directors, and
will participate in any employee benefit plan, employee welfare plan, deferred
compensation plan, stock option plan, or any other plan or arrangement of the
Company now or hereafter adopted for the benefit of officers or employees
generally. In addition, Mr. Simko's agreement provides that he is deemed to
have qualified for early retirement under the Company's pension plan for staff
employees, notwithstanding that at the expiration of the agreement he shall
have less than 15 years of service with the Company.
Pursuant to the Employment Agreements, the Company will indemnify each
Contracting Employee in the event that he is made, or threatened to be made, a
party to any action or proceeding, including any action by or in the right of
the Company by reason of the provision of services by him to the Company.
Claims or controversies arising under the Employment Agreement will be resolved
through arbitration, and all resulting legal and accounting fees and other
expenses will be paid by the Company.
Pursuant to the Employment Agreements, a Contracting Employee's employment
may be terminated by mutual agreement between the Contracting Employee and the
Company, by the death of the Contracting Employee, or for cause.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since the beginning of the last fiscal year, the following transactions
occurred between the Company and certain officers and directors or affiliates
thereof. With respect to each transaction, the Company has determined that the
terms of each arrangement were as fair as could have been obtained from
unaffiliated persons.
PaineWebber, Incorporated was retained by the Company to act as a
financial advisor in connection with the Company's Rights Offering in 1994.
The Company paid a fee of $250,000 to PaineWebber in connection with those
services (plus reimbursement of certain expenses). Mr. G. Chris Andersen, a
director of the Company, was, until August of 1995, Vice Chairman of
PaineWebber, Incorporated.
Effective January 1, 1994, the Company entered into employment agreements
with Messrs. Simko, Davis, Peterson and Cougher. See "EMPLOYMENT CONTRACTS."
COMPENSATION AND TRANSACTION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The following non-employee directors served on the Compensation and
Transaction Committee of the Company's Board of Directors during the last
completed fiscal year: Daniel D. Jackson, Chairman, V. Dale Babbitt and Hoffer
Kaback. There are no compensation committee interlocks.
50
<PAGE> 60
LEGAL OPINION
The validity of the authorization and issuance of the securities of
Sunshine Merger Company offered hereby is being passed upon for Sunshine Merger
Company by Evans, Keane, of Boise, Idaho. The Company has received an opinion
from Hawley, Troxell, Ennis & Hawley, of Boise, Idaho, regarding the material
Federal income tax consequences of the Merger.
EXPERTS
The consolidated financial statements of Sunshine at December 31, 1994 and
1993, and for each of the three years in the period ended December 31, 1994,
appearing in this Proxy Statement/Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
EXCHANGE AGENT
Sunshine Merger Company has appointed American Stock Transfer & Trust
Company, as Exchange Agent for the Merger. Certificates representing shares of
Preferred Stock should not be submitted for exchange until the holder thereof
receives a letter of transmittal from the Exchange Agent following the
Effective Date of the Merger. It will not be necessary for the holders of
Common Stock to surrender or exchange their Common Stock certificates for new
certificates representing New Common Stock. Sunshine Mining and Refining
Company will pay the fees and expenses of the Exchange Agent.
INFORMATION AGENT
Sunshine Merger Company has appointed The Herman Group, Dallas, Texas, as
Information Agent for the Merger. Any questions regarding or requests for
additional copies of this Proxy Statement/Prospectus may be directed to the
Information Agent at the telephone number and address below:
The Herman Group, Inc.
13760 Noel Road, Suite 320
Dallas, Texas 75240
Telephone: (800) 747-2967
Telecopier: (214) 991-4422
(214) 991-4432
Sunshine Mining and Refining Company will pay the fees and expenses of the
Information Agent.
SHAREHOLDER PROPOSALS
Shareholder proposals submitted for inclusion in Sunshine Merger Company's
(the corporate name of which will be changed to Sunshine Mining and Refining
Company upon consummation of the Merger) 1996 proxy materials and consideration
at its 1996 annual meeting must be received on or before January 6, 1996.
Proposals should be sent to: Sunshine Mining and Refining Company, Attention
Corporate Secretary, 877 West Main Street, Suite 600, Boise, Idaho 83702.
VOTING SECURITIES AND RECORD DATE
The Common Stock and Preferred Stock constitute the only classes of the
Company's capital stock entitled to vote at the Special Meeting.
51
<PAGE> 61
The close of business on [______], 1996, has been fixed as the record date
(the "Record Date") for the determination of stockholders entitled to notice of
and to vote at the Special Meeting. At the Record Date, [__________ ] shares
of Common Stock of the Company and [______________] shares of Preferred Stock
of the Company were outstanding and entitled to vote. Each stockholder is
entitled to one vote for each share of Common Stock and one vote for each share
of Preferred Stock held on the Record Date. Unless otherwise indicated, all
information herein concerning ownership of the Company's securities is as of
the Record Date.
The favorable vote of the holders of a majority of the shares of Common
Stock outstanding and entitled to vote at the Special Meeting, and the
favorable vote of the holders of a majority of the shares of Preferred Stock
outstanding and entitled to vote at the Special Meeting are required for the
approval of the Merger Proposal. Holders of the Company's capital stock have
no appraisal or similar rights with respect to any of the matters being voted
on at the Special Meeting.
Votes may be cast for or against the Merger Proposal or shareholders may
abstain from voting. Abstentions will be counted as present for purposes of
establishing a quorum, and will have the effect of a vote against the Merger
Proposal. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER PROPOSAL. Under the rules of the New York Stock Exchange, Inc.
("NYSE"), brokers who hold shares in street name for customers will not have
authority to vote on the Merger Proposal if they have not received instructions
from beneficial owners. Proxies are revocable prior to the date of the special
meeting. Shareholders giving proxies who attend the special meeting may
withdraw their proxies and vote their shares.
OTHER MATTERS
At the date of this Proxy Statement/Prospectus, the Board of Directors
knows of no other matters which will be presented for consideration at the
Special Meeting. If any such other matters are properly presented for action
at the Special Meeting, it is the intention of the persons named in the
accompanying form of proxy to vote the shares represented by the proxy in
accordance with their judgment on such matters.
All expenses in connection with this solicitation of proxies will be borne
by the Company. In addition to solicitation by mail, directors, officers and
regular employees of the Company may solicit proxies by telephone, telegram,
mail or in person. The Company may also reimburse brokers and other
custodians, nominees and fiduciaries holding shares in their names, for their
reasonable expenses in sending material to the beneficial owners of shares and
obtaining their proxies.
Copies of the Company's annual report on Form 10-K for the year ended
December 31, 1994, may be obtained without charge by writing to the Company at
877 West Main Street, Suite 600, Boise, Idaho 83702, Attn: Rebecca L.
Saunders, Secretary, or by telephone request to (208) 345-0660.
The Company has engaged The Herman Group, Dallas, Texas to solicit
proxies. The Herman Group will be paid a fee of [$______] plus actual expenses
incurred, for this service.
BY ORDER OF THE BOARD OF DIRECTORS
-----------------------------------
Rebecca L. Saunders, Secretary
[________], 1996
52
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated financial statements:
Consolidated balance sheets at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated statements of operations for the years ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated statements of cash flows for the years ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated statements of stockholders' equity for the years ended
December 31, 1994, 1993, and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sunshine Mining and Refining Company
We have audited the accompanying consolidated balance sheets of
Sunshine Mining and Refining Company (the "Company") as of December 31, 1994
and 1993, and the related consolidated statements of operations, cash flows,
and stockholders' equity for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Sunshine Mining and Refining Company at December 31, 1994 and 1993,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 28, 1995
F-2
<PAGE> 64
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1994 1993
------------ ---------
<S> <C> <C>
Current assets:
Cash and cash investments . . . . . . . . . . . . . . . . . $ 26,581 $ 4,304
Silver bullion (Note 4) . . . . . . . . . . . . . . . . . . 8,408 8,873
Accounts receivable . . . . . . . . . . . . . . . . . . . . 416 308
Inventories (Note 4) . . . . . . . . . . . . . . . . . . . . 3,151 3,664
Marketable securities . . . . . . . . . . . . . . . . . . . 1,097 -
Restricted cash (Note 2) . . . . . . . . . . . . . . . . . . - 1,486
Other current assets . . . . . . . . . . . . . . . . . . . . 1,367 1,225
------------ ---------
Total current assets . . . . . . . . . . . . . . . . . 41,020 19,860
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 4,229 5,150
Property, plant, and equipment, at cost (Note 5) . . . . . . . 137,798 137,573
Less accumulated depreciation, depletion, and amortization . (66,390) (62,223)
------------ ---------
71,408 75,350
------------ ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 116,657 $ 100,360
============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 65
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS - (CONTINUED)
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1994 1993
------------ ---------
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 435 $ 1,035
Accrued expenses (Note 6) . . . . . . . . . . . . . . . . . 2,048 3,109
Current portion of long-term debt (Note 8) . . . . . . . . . - 65
------------ ---------
Total current liabilities . . . . . . . . . . . . . . . 2,483 4,209
8% Silver Indexed Bonds (Notes 2 and 7) . . . . . . . . . . . - 7,571
Other long-term debt (Note 8) . . . . . . . . . . . . . . . . . 1,519 1,922
Accrued pension and other postretirement benefits (Note 11) . . 6,811 14,348
Other long-term liabilities and deferred
credits (Notes 9 and 12) . . . . . . . . . . . . . . . . . . 5,436 5,067
Commitments and contingencies (Notes 4, 5, 9, and 12)
Stockholders' equity (Notes 8 and 10):
Cumulative redeemable preferred stock - aggregate
redemption value: 1994 - $119,675; 1993 - $111,148 . . 80,707 78,774
Common stock - par value: $0.01; 400,000 shares authorized;
shares issued: 1994 - 196,659; 1993 - 172,223 . . . . . 1,967 1,722
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . 623,181 585,338
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (605,410) (598,554)
------------ ---------
100,445 67,280
Less treasury stock, 3,664 shares, at cost . . . . . . . . . (37) (37)
------------ ---------
100,408 67,243
------------ ---------
Total liabilities and stockholders' equity . . . . . . $ 116,657 $ 100,360
============ =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 66
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating revenues (Note 13) . . . . . . . . . . . . . . . . $ 17,412 $ 17,581 $ 12,926
Costs and expenses:
Cost of revenues . . . . . . . . . . . . . . . . . . . . . 18,530 15,817 14,398
Depreciation, depletion, and amortization (Note 5) . . . . 4,167 5,916 6,291
Exploration . . . . . . . . . . . . . . . . . . . . . . . 1,888 1,480 1,942
Metallurgical research . . . . . . . . . . . . . . . . . . 230 201 239
Selling, general, and administrative expense . . . . . . . 5,449 5,080 7,017
Curtailment gain on postretirement benefits other than
pensions (Note 11) . . . . . . . . . . . . . . . . . . (6,936) - -
Restructuring expense . . . . . . . . . . . . . . . . . . - - 3,000
Loss on disposal of mineral interests (Note 5) . . . . . . - - 7,411
-------- -------- --------
23,328 28,494 40,298
-------- -------- --------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . (5,916) (10,913) (27,372)
Other income (expense):
Interest income . . . . . . . . . . . . . . . . . . . . . 1,134 338 713
Interest expense . . . . . . . . . . . . . . . . . . . . . (1,222) (5,401) (11,210)
Loss on induced conversion of 8% Silver Indexed Bonds
(Note 7) . . . . . . . . . . . . . . . . . . . . . . . - (12,467) -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 1,081 (168) (2,392)
-------- -------- --------
993 (17,698) (12,889)
-------- -------- --------
Loss from continuing operations . . . . . . . . . . . . . . . (4,923) (28,611) (40,261)
Discontinued operations, net of applicable
income taxes (Note 3) . . . . . . . . . . . . . . . . . . - - (403)
Loss before extraordinary item and cumulative effect of a
change in accounting principle . . . . . . . . . . . . . . (4,923) (28,611) (40,664)
Extraordinary item - gain (loss) on extinguishments of Silver
Indexed Bonds (Notes 2 and 7) . . . . . . . . . . . . . . - (13,646) 38,638
Cumulative effect on prior years of a change in the method
of accounting for postretirement benefits other than
pensions (Note 11) . . . . . . . . . . . . . . . . . . . . - - (11,346)
-------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . (4,923) (42,257) (13,372)
Preferred dividend requirements (Note 10) . . . . . . . . . . 10,460 10,820 11,488
-------- -------- --------
Loss applicable to common shares . . . . . . . . . . . . . . $(15,383) $(53,077) $(24,860)
======== ======== ========
Loss per common share:
Continuing operations . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.25) $ (0.44)
Discontinued operations . . . . . . . . . . . . . . . . . - - -
Extraordinary items . . . . . . . . . . . . . . . . . . . - (0.09) .33
Cumulative effect of change in accounting principle . . . - - (0.10)
-------- -------- --------
Loss per common share . . . . . . . . . . . . . . . . . . $ (0.08) $ (0.34) $ (0.21)
======== ======== ========
Weighted average common shares outstanding . . . . . . . . . 185,634 155,383 118,740
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 67
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Cash used by operating activities:
Loss from continuing operations . . . . . . . . . . . . . $(4,923) $(28,611) $(40,261)
Adjustments to reconcile loss from continuing operations
to net cash used by continuing operations:
Depreciation, depletion, and amortization . . . . . . 4,167 5,916 6,291
Curtailment gain on postretirement benefits other than
pension (Note 11) . . . . . . . . . . . . . . . . (6,936) - -
Amortization of discount on Silver Indexed Bonds . . - 682 2,992
Loss on induced conversion of 8% Silver Indexed
Bonds (Note 7) . . . . . . . . . . . . . . . . . . - 12,467 -
Interest accrued but not paid . . . . . . . . . . . . - - 6,559
Provision for restructuring expense . . . . . . . . . - - 3,000
Realized and unrealized (gains) losses:
Disposal of mineral interests (Note 5) . . . . . . - - 7,411
Disposal of other property . . . . . . . . . . . . - - 644
Marketable equity securities . . . . . . . . . . . - 324 215
Issuances of common stock:
Interest on 8% Silver Indexed Bonds . . . . . . . 449 3,519 -
Services provided and other . . . . . . . . . . . - 780 178
Net (increase) decrease in:
Silver bullion . . . . . . . . . . . . . . . . . . 465 (2,051) (2,464)
Accounts receivable . . . . . . . . . . . . . . . (109) 1,146 791
Inventories . . . . . . . . . . . . . . . . . . . 513 (704) 4,204
Other current assets . . . . . . . . . . . . . . . (142) (578) 492
Other assets and deferred charges . . . . . . . . - - 396
Net increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . . . (600) 232 137
Accrued expenses . . . . . . . . . . . . . . . . . (1,061) 266 (4,634)
Accrued pension and other postretirement benefits (601) 595 (336)
Other liabilities and deferred credits . . . . . . 369 (1,581) 1,150
------- -------- --------
Net cash used by continuing operations . . . . . . . (8,409) (7,598) (13,235)
Net cash provided by discontinued operations . . . . - - 1,217
------- -------- --------
Net cash used by operating activities . . . . . . . . $(8,409) $ (7,598) $(12,018)
------- -------- --------
</TABLE>
F-6
<PAGE> 68
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Cash provided (used) by investing activities:
Additions to property, plant, and equipment . . . . . . . $ (225) $ (1,047) $ (90)
Proceeds from the disposal of property, plant, and
equipment . . . . . . . . . . . . . . . . . . . . . . . - - 5
Other, principally sale of marketable equity securities and
investments . . . . . . . . . . . . . . . . . . . . . . (175) 6,258 122
Investing activities of discontinued operations:
Proceeds from sale of oil and gas properties (Note 3) . - - 10,043
Expenses of sale . . . . . . . . . . . . . . . . . . . - - (725)
--------- -------- --------
Net cash provided (used) by investing activities . . (400) 5,211 9,355
--------- -------- --------
Cash provided (used) by financing activities:
Proceeds from issuance of common stock and warrants
upon sale of units, net (Note 10) . . . . . . . . . . . 29,763 - -
Proceeds from issuance of common stock upon exercise
of stock options and warrants . . . . . . . . . . . . . 142 - -
Principal repayments and retirements of long-term debt . . (305) (1,026) (1,950)
Decrease (increase) in restricted cash . . . . . . . . . . 1,486 3,063 (5,063)
--------- -------- --------
Net cash provided (used) by financing activities . . 31,086 2,037 (7,013)
--------- -------- --------
Increase (decrease) in cash and cash investments . . . . . . 22,277 (350) (9,676)
Cash and cash investments, January 1 . . . . . . . . . . . . 4,304 4,654 14,330
--------- -------- --------
Cash and cash investments, December 31 . . . . . . . . . . . $ 26,581 $ 4,304 $ 4,654
========= ======== ========
Supplemental cash flow information:
Interest paid in cash - continuing operations . . . . . . $ 329 $ 425 $ 914
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 69
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE
PREFERRED STOCK COMMON STOCK PAID-IN TREASURY STOCK
----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1991 . . . . . . . . . . . . 7,366 $75,590 115,084 $57,542 $459,985 $(537,674) 4 $(30) $ 55,413
Issuance of common stock for
Cumulative Redeemable
Preferred Stock (Note 10) . (200) (2,067) 600 300 1,767 - - - -
Issuance of common stock
upon conversion of
Convertible Subordinated
Reset Debentures . . . . . . - - 382 191 478 - - - 669
Issuance of common stock for
services and other, net . . - - 227 113 60 - 3 5 178
Issuance of common stock
upon conversion of note
payable to former
officer . . . . . . . . . . - - 1,333 667 333 - - - 1,000
Issuance of common stock
pursuant to restructuring of
Old Silver Indexed Bonds
(Note 2) . . . . . . . . . . - - 28,858 14,429 8,883 - - - 23,312
Net loss . . . . . . . . . . . - - - - - (13,372) - - (13,372)
Amortization of difference
between carrying amount
and redemption value of
preferred stock . . . . . . - 2,959 - - - (2,959) - - -
----------------------------------------------------------------------------
Balances at
December 31, 1992 . . . . . 7,166 $76,482 146,484 $73,242 $471,506 $(554,005) 7 $(25) $ 67,200
</TABLE>
F-8
<PAGE> 70
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE
PREFERRED STOCK COMMON STOCK PAID-IN TREASURY STOCK
-----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Decrease in par value of common
stock from $0.50 per share
to $0.01 per share (Note 10) - $ - - $(71,777) $ 71,777 $ - - $ - $ -
Issuance of common stock upon
redemption of 8% Silver
Indexed Bonds (Note 7) . . . - - 16,921 169 33,290 - - - 33,459
Issuance of common stock for
interest on 8% Silver Indexed
Bonds . . . . . . . . . . . - - 2,747 28 3,491 - - - 3,519
Issuance of common stock upon
conversion of Convertible
Subordinated Reset Debentures - - 922 9 1,604 - - - 1,613
Issuance of common stock to
retire notes payable . . . . - - 4,825 48 2,917 - 3,613 (36) 2,929
Issuance of common stock for
services and other, net . . - - 324 3 753 - 44 24 780
Net loss . . . . . . . . . . . - - - - - (42,257) - - (42,257)
Amortization of difference
between carrying amount and
redemption value of preferred
stock . . . . . . . . . . . - 2,292 - - - (2,292) - - -
-----------------------------------------------------------------------------------
Balances at
December 31, 1993 . . . . . 7,166 78,774 172,223 1,722 585,338 (598,554) 3,664 (37) 67,243
Issuance of common stock
and warrants upon sale of units
(Note 10) . . . . . . . . . - - 20,200 202 29,561 - - - 29,763
Issuance of common stock upon
exercise of stock options and
warrants . . . . . . . . . . - - 84 1 141 - - - 142
Issuance of common stock upon
redemption of 8% Silver
Indexed Bonds (Note 7) . . . - - 3,824 39 7,532 - - - 7,571
Issuance of common stock for
interest on 8% Silver Indexed
Bonds . . . . . . . . . . . - - 221 2 447 - - - 449
Issuance of common stock upon
conversion of Convertible
Subordinated Reset Debentures - - 94 1 162 - - - 163
Other, net . . . . . . . . . . - - 13 - - - - - -
Net loss . . . . . . . . . . . - - - - - (4,923) - - (4,923)
Amortization of difference
between carrying amount and
redemption value of preferred
stock . . . . . . . . . . . - 1,933 - - - (1,933) - - -
-----------------------------------------------------------------------------------
Balance at December 31,
1994 . . . . . . . . . . . . 7,166 $80,707 196,659 $ 1,967 $623,181 $(605,410) 3,664 $(37) $100,408
===================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 71
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Statement Presentation
Sunshine Mining and Refining Company ("Sunshine" or the "Company") is a
holding company whose principal subsidiary is Sunshine Precious Metals, Inc.
("Sunshine Precious Metals"). Sunshine Precious Metals mines, refines, and
markets silver and certain byproduct metals to commercial customers. The
consolidated financial statements include the accounts of Sunshine and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
During 1992, the Company sold substantially all of the remaining assets
of its other principal subsidiary, Woods Research and Development Corporation
("Woods"), which was engaged in the development and production of oil and
natural gas. On March 9, 1992, Sunshine Precious Metals filed a proceeding
under Chapter 11 of Title 11 of the U.S. Bankruptcy Code. The plan of
reorganization, as amended, was consummated on December 2, 1992. In December
1992, the Company discontinued minting and marketing precious metal bullion for
retail sale. See Notes 2 and 3.
Certain previously reported amounts have been reclassified to conform to
the 1994 presentation.
Cash and Cash Investments
Cash and cash investments include certificates of deposit and other
highly liquid investments with maturities of three months or less when
purchased.
Inventories and Silver Bullion
Precious metals inventories and silver bullion are stated at estimated
net realizable prices. Materials and supplies are carried at the lower of cost
(principally average cost) or market.
Revenue Recognition
Sales of refined metals are recognized as revenue at the time of shipment
to the customer. Sales of refinery residue sold directly to smelters are
recorded upon settlement with the smelters. Adjustments to the carrying value
of inventories held for sale or investment are included in revenues.
F-10
<PAGE> 72
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Marketable Securities and Investments
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Adoption of SFAS No. 115 did not have a
significant effect on the Company's financial position at January 1, 1994, or
the results of its operations for the year ended December 31, 1994.
All marketable securities are classified as available-for-sale securities
under SFAS No. 115. Unrealized holding gains and losses on securities
available-for-sale have not been significant.
Other investments are carried at cost, which does not exceed net
realizable value.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation on
buildings, leasehold improvements, and equipment is provided by straight-line
or declining-balance methods at rates based on the estimated lives of the
respective assets. The principal lives range from 12 to 30 years for buildings
and from 3 to 10 years for equipment. See Note 5.
Depletion of precious metal mineral interests is computed using the
unit-of-production method based on estimated mineral reserves. Mine exploration
costs are charged to expense as incurred. Costs of major mine improvements,
including interest, are capitalized and amortized in relation to the production
of estimated ore reserves.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS No. 109"), which requires the use of
the asset and liability method of accounting for income taxes. Under the asset
and liability method, a deferred tax asset or liability is recognized for
estimated future tax effects attributable to temporary differences and
carryforwards. The measurement of deferred income tax assets is adjusted by a
valuation allowance, if necessary, to recognize future tax benefit only to the
extent, based on available evidence, it is more likely than not it will be
realized. The effect on deferred taxes, of a change in income tax rates, is
recognized in the period that includes the enactment date.
Environmental Expenditures
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated. Generally, the timing of these accruals will
coincide with completion of a feasibility study or the Company's commitment to
a formal plan of action.
F-11
<PAGE> 73
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share
Earnings (loss) per common share is computed by dividing the loss
applicable to common stockholders by the weighted average number of common
shares and common share equivalents represented by options and warrants, if
such common share equivalents have a dilutive effect. Fully diluted earnings
(loss) per common share computations also assume conversion of the Convertible
Subordinated Reset Debentures and the 8% Silver Indexed Bonds, if such
conversion has a dilutive effect.
For the years ended December 31, 1994, 1993, and 1992, neither the common
share equivalents nor the assumed conversion of the debentures had a dilutive
effect on the loss per share calculations. Accordingly, the loss per share
calculations for such periods are based on the weighted average number of
common shares outstanding during each year.
2. BANKRUPTCY PLAN OF SUNSHINE PRECIOUS METALS AND RESTRUCTURING
On March 9, 1992, Sunshine Precious Metals filed a prepackaged bankruptcy
plan of reorganization (the "Plan") with the objective of restructuring eight
separate series of silver indexed bonds (the "Old Silver Indexed Bonds") issued
from 1980 to 1986 by Sunshine Precious Metals. The Plan, as amended, was
consummated on December 2, 1992. Pursuant to the amended Plan, holders of the
Old Silver Indexed Bonds received: (i) $800 principal amount of a new issue of
silver indexed bonds of Sunshine Precious Metals, bearing interest at an annual
rate of 8%, due December 1, 2006 (the "8% Silver Indexed Bonds"), and (ii)
shares of common stock having a value of $200, as determined by the Plan, for
each outstanding $1,000 principal amount of Old Silver Indexed Bonds, and (iii)
additional shares of common stock in satisfaction of accrued and unpaid
interest. As a result, an aggregate of approximately 28.9 million shares of
common stock were issued upon consummation of the Plan. See Note 7 for a
summary of the terms of the 8% Silver Indexed Bonds. No other liabilities were
compromised as a result of the consummation of the Plan.
Under the Plan, the Company established a special deposit of $1 million
to fund the operating deficits of Sunshine Precious Metals, in certain
circumstances. These funds were released to the Company upon redemption of the
remaining 8% Silver Indexed Bonds in 1994.
As a result of the restructuring of the Old Silver Indexed Bonds in 1992,
the Company recognized an extraordinary gain of approximately $38.6 million,
representing the difference between the aggregate carrying value of the Old
Silver Indexed Bonds and related liability for accrued interest extinguished,
and the estimated aggregate fair value of the 8% Silver Indexed Bonds and the
Company's common stock issued to the bondholders.
During 1992, the Company recorded a restructuring charge of $3.0 million
representing severance costs associated with the relocation of the Company's
headquarters from Dallas, Texas to Boise, Idaho and costs incurred in
connection with the renegotiation and cancelation of the former chief executive
officer's employment contract.
F-12
<PAGE> 74
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
3. DISCONTINUED OPERATIONS
In 1992, substantially all of Woods' remaining oil and natural gas
operations, consisting principally of Canadian oil and natural gas properties,
were sold for approximately $10.0 million. In 1992, the Company also
discontinued fabricating, minting, and marketing precious metal bullion for
retail sale. The results of operations of Woods' and the retail precious metal
bullion business are presented as "Discontinued operations" in the accompanying
consolidated statements of operations.
The loss from discontinued operations for the year ended December 31,
1992 is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1992
-------
<S> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,097
Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,500)
-------
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . . $ (403)
=======
</TABLE>
4. INVENTORIES, SILVER BULLION, AND SILVER CALL OPTIONS
Inventories at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Precious metals inventories:
Work in process . . . . . . . . . . . . . . . . . . . . . . $2,241 $2,766
Finished goods . . . . . . . . . . . . . . . . . . . . . . 173 210
Materials and supplies inventories . . . . . . . . . . . . 737 688
------ ------
$3,151 $3,664
====== ======
</TABLE>
Beginning in 1991, management of the Company decided to hold as an
investment, a portion of Sunshine Precious Metals' silver production, pending
the recovery of silver prices. As a result, the Company held as an investment,
$8.4 million and $8.9 million of silver bullion, in excess of normal operating
requirements at December 31, 1994 and 1993, respectively.
At December 31, 1994, the Company had sold covered call options on
500,000 ounces of the silver bullion held for investment. The options had
strike prices ranging from $6.00 per ounce to $6.50 per ounce and were
exercisable by the holders between January 31 and February 28, 1995. Option
premiums received, which have not been material, are deferred and recognized at
the end of the option period. At February 28, 1995, the Company had no open
options outstanding.
F-13
<PAGE> 75
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Precious metals mineral interests . . . . . . . . . . . . . $ 82,847 $ 82,847
Mine improvements . . . . . . . . . . . . . . . . . . . . . 16,849 16,849
Buildings, leasehold improvements, and equipment . . . . . 37,052 36,833
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050 1,044
--------- ---------
137,798 137,573
Less accumulated depreciation, depletion, and amortization (66,390) (62,223)
--------- ---------
$ 71,408 $ 75,350
========= =========
</TABLE>
The principal mineral interest of the Company at December 31, 1994, is
the Sunshine Mine located in Kellogg, Idaho. The Company curtailed operations
at the Sunshine Mine in 1991, reducing production to approximately 500 tons of
ore per day, resulting in an annual production rate of approximately 2.2 to 2.5
million ounces of silver. The Company is presently exploring new areas of the
Sunshine Mine with the intent of significantly improving the grade of ore
mined, which, if successful, would significantly reduce the cost of production
per ounce.
Since 1982, the Company owned leasehold interests in the Burgin and
Trixie Mines located in the East Tintic Mining District (the "District") near
Eureka, Utah. In 1992, the Company suspended operations at the Trixie Mine and
returned all properties held in the District, including the Burgin Mine, to the
respective lessors. As a result, the investment in these properties ($7.1
million) and related inventories ($.3 million) was written-off as of September
30, 1992.
Effective January 1, 1994, the Company extended the estimated remaining
useful lives of the buildings and equipment of the silver refinery six to ten
years based upon available technology and anticipated severity of service. The
effect of this change in accounting estimate was to decrease depreciation
expense and the net loss for the year ended December 31, 1994, by approximately
$1.1 million or $.01 per common share.
The Company periodically, and at least annually, evaluates its mining
properties for permanent impairment, based on undiscounted expected future cash
flows. Such estimates are based on assumptions as to future silver prices,
mining costs, and recoverable reserves which management believes are
reasonable, based on historical silver prices and production. The Company
currently believes that the price of silver will increase to its normal
historical trading range and that additional reserves of higher grades than
have been mined recently are present in the Sunshine Mine. Accordingly, the
Company does not believe it is probable that its investment in its mining
properties, including the Sunshine Mine, has been permanently impaired at
December 31, 1994. However, unless the price of silver increases or the cost of
production per ounce is reduced, the Company will not be able to recover its
investment in the Sunshine Mine.
As a result of low through-put resulting from curtailed operations at the
Sunshine Mine, the Company expects to temporarily suspend operation of the
silver refinery in 1995. Operations will be
F-14
<PAGE> 76
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
5. PROPERTY, PLANT, AND EQUIPMENT (CONTINUED)
suspended until higher levels of through-put are achievable either through
increased production from the Sunshine Mine or through the reopening of other
mines in the Coeur d'Alene Mining District.
6. ACCRUED EXPENSES
Accrued expenses at December 31 consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Compensation, vacation, and severance . . . . . . . . . . . $ 788 $ 762
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 63 126
Taxes, other than income taxes . . . . . . . . . . . . . . 182 1,138
Environmental remediation (Note 12) . . . . . . . . . . . . 400 400
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 615 683
------- -------
$ 2,048 $ 3,109
======= =======
</TABLE>
7. 8% SILVER INDEXED BONDS
During 1993 and 1994, the Company retired all of its outstanding 8%
Silver Indexed Bonds through various redemption transactions for the Company's
common stock, which are described below. As a result of these transactions, in
1993, the Company recorded a charge of $12.5 million, representing the loss on
an induced conversion, and an extraordinary charge of $13.6 million, relating
to the redemption of the remaining outstanding bonds.
Bondholders had the right on each quarterly interest payment date to put
each $1,000 principal amount 8% Silver Indexed Bond to Sunshine Precious Metals
for, initially, 300 shares of the Company's common stock. During 1993, 2.6
million shares of the Company's common stock were issued to redeem $8.4 million
principal amount ($2.1 million carrying amount) of 8% Silver Indexed Bonds
tendered pursuant to such put option.
During 1993, the Company and Sunshine Precious Metals amended the
indenture governing the 8% Silver Indexed Bonds to allow bondholders to put the
bonds to the Company on August 16, 1993 and September 1, 1993, in exchange for
$1,000 of the Company's common stock valued pursuant to a formula in the
indenture. As a result of the modification, 10.0 million shares of the
Company's common stock were issued to redeem $30.2 million principal amount
($7.8 million carrying amount) of 8% Silver Indexed Bonds that were put to the
Company, resulting in a loss from the induced conversion of $12.5 million.
Sunshine Precious Metals was entitled to call the 8% Silver Indexed Bonds
at par, plus accrued interest, in cash or in stock. However, no more than 20%
of the amount initially issued could be called during any 12-month period. In
December 1993, 4.2 million shares of the Company's common stock were issued to
redeem $11.0 million principal amount ($2.9 million carrying amount) of 8%
Silver Indexed Bonds that were called by Sunshine Precious Metals, resulting in
an
F-15
<PAGE> 77
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
7. 8% SILVER INDEXED BONDS (CONTINUED)
extraordinary loss of $8.1 million. In addition, in November 1993, the
Company's Board of Directors determined that the remaining $7.6 million
principal amount of 8% Silver Indexed Bonds would be called on December 1,
1994, and the Company communicated this decision to the bondholders. As a
result, the Company accrued an extraordinary charge of $5.5 million in 1993
related to its obligation to call the bonds in 1994. In December 1994, 3.8
million shares of the Company's common stock were issued to redeem the
remaining $7.6 million principal amount of 8% Silver Indexed Bonds. No gain or
loss was recognized in 1994 as a result of the call and redemption of these
bonds. Interest expense for 1994 includes interest on the outstanding bonds at
their stated rate of 8% through the date of redemption. If the loss had not
been recorded until the bonds were actually redeemed, the loss from continuing
operations and the net loss for the year ended December 31, 1994, would have
increased approximately $180,000 and $5.5 million ($0.03 per common share),
respectively, and the net loss for the year ended December 31, 1993 would have
decreased approximately $5.5 million ($0.04 per share).
Interest on the 8% Silver Indexed Bonds was payable quarterly in cash or,
at the option of Sunshine Precious Metals, in shares of the Company's common
stock.
8. OTHER LONG-TERM DEBT
Other long-term debt at December 31 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
9% Convertible Subordinated Reset Debentures, due
July 15, 2008 . . . . . . . . . . . . . . . . . . . . . . $1,519 $1,682
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . - 305
------ ------
1,519 1,987
Less current maturities . . . . . . . . . . . . . . . . . . - (65)
------ ------
$1,519 $1,922
====== ======
</TABLE>
The Convertible Subordinated Reset Debentures due July 15, 2008 (the
"Debentures") are convertible at any time prior to maturity or redemption into
shares of common stock of the Company at a conversion price of $1.66 per share,
subject to adjustment.
The Debentures are redeemable, at the option of the Company, in whole or
in part, at redemption prices declining from 103% in 1995 to 100% in 1998,
together with accrued and unpaid interest. The Debentures are unsecured and
subordinated in right of payment to senior indebtedness (as defined).
The indenture governing the Debentures contains certain covenants
restricting the ability of the Company to declare or pay cash dividends and
make certain distributions on its capital stock. Pursuant to these covenants,
the Company is prohibited from paying cash dividends on shares of its common
stock and its preferred stock.
F-16
<PAGE> 78
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
9. INCOME TAXES
Revenue Canada has examined Woods' tax returns for various prior years
and has proposed certain adjustments for additional taxes. The proposed
adjustments are being contested by the Company; therefore, no payments have
been made for the proposed additional taxes. Based on an analysis of the
proposed adjustments, the Company has accrued $1.0 million for additional
income taxes, plus interest at December 31, 1994. Management believes that such
provision is adequate to cover the additional income taxes that may ultimately
result from the resolution of these matters.
The Company has incurred losses during each of the three years in the
period ended December 31, 1994, and accordingly, provisions for income taxes
were not required.
The computation of the net deferred tax asset (liability) at December 31
is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant, and equipment . . . . . . . . . . . . . $(19,399) $(20,062)
Deferred tax assets:
Accrued pension and other postretirement benefits . . . . 2,384 5,257
Net operating loss carryforward . . . . . . . . . . . . . 82,250 70,000
-------- --------
84,634 75,257
Less valuation allowance . . . . . . . . . . . . . . . . . (65,235) (55,195)
-------- --------
$ - $ -
======== ========
</TABLE>
At December 31, 1994, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $235 million. The loss
carryforwards expire principally in the years 1997 through 2009.
10. STOCKHOLDERS' EQUITY
The Company has authorized 20.0 million shares of preferred stock, of
which 7.2 million shares, designated as the $11.94 (Stated Value) Cumulative
Redeemable Preferred Stock ("Preferred Stock"), were issued and outstanding at
December 31, 1994 and 1993.
The Preferred Stock accrues dividends at an annual rate of $1.19 per
share, payable quarterly. If a dividend is not paid in cash, the Company may
issue to the holders of Preferred Stock, shares of the Company's common stock,
having a value of 111% of the amount of the cash dividend requirement. The
Company has not made any dividend payments subsequent to 1990, either in cash
or in shares of its common stock. At December 31, 1994, dividends in arrears
aggregated approximately $34.1 million. The Preferred Stock is subject to
optional redemption at any time and mandatory annual redemptions of 808,279
shares. In the event a mandatory redemption payment is not timely-made in cash,
the Company is required, in certain circumstances, to redeem such shares by
issuance of common stock, utilizing the same valuation method as is applied in
the payment of
F-17
<PAGE> 79
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
10. STOCKHOLDERS' EQUITY (CONTINUED)
dividends. As a result, the Company has the unconditional right to redeem the
Preferred Stock for shares of its common stock, pursuant to the terms of the
Preferred Stock agreement. The Company intends to make dividend and redemption
payments, when paid, through the issuance of shares of its common stock.
Accordingly, the Preferred Stock is included as a component of stockholders'
equity in the accompanying consolidated balance sheets.
The Company has not made any mandatory redemption payments either in cash
or in shares of its common stock because the terms of the Preferred Stock do
not permit such mandatory redemption if any dividends are in arrears. There are
no penalties to the Company for failing to make such mandatory redemptions.
Pursuant to the Certificate of Designation, Rights, and Preferences, the final
mandatory redemption is to be made by the Company, on or prior to, July 31,
2000. The Company takes no position as to whether dividend arrearages at July
31, 2000 would also prohibit the redemption of the Preferred Stock.
Holders of the Preferred Stock are entitled to vote as a class to elect
one director of the Company, if dividends are paid in common stock for four
consecutive dividend payments. Holders of the Preferred Stock are also entitled
to vote, as a class, to elect two additional directors upon the failure of the
Company to pay two consecutive dividend payments. As a result of the quarterly
dividends being paid in common stock through 1990 and because the Company
elected not to declare a dividend for any quarter subsequent to 1990, holders
of the Preferred Stock are entitled to elect three members of the Company's
Board of Directors.
The difference between the carrying amount and the stated value of the
Preferred Stock is being accrued ratably over the period the Preferred Stock is
expected to be outstanding under the provisions of the mandatory redemption
requirements. Accordingly, $1.9 million, $2.3 million, and $3.0 million has
been charged to the deficit for the years ended December 31, 1994, 1993, and
1992, respectively, and added to the carrying amount of the Preferred Stock.
In February 1994, the Company distributed to holders of its common stock,
transferable rights to purchase units, each unit consisting of two shares of
the Company's common stock and one warrant to purchase one share of common
stock. Stockholders received one right for each 17 shares of common stock
held. Pursuant to the offering, the Company issued 20.2 million shares of
common stock and 10.1 million warrants and received net proceeds of
approximately $29.8 million. The initial exercise price of the warrants is
$2.12 per share. The exercise price and number of shares purchasable upon
exercise of the warrants are subject to antidilution adjustments. The warrants
expire on March 9, 1999 and may be redeemed at the option of the Company, in
whole or in part, at any time on or after March 9, 1996, at a redemption price
of $0.50 per warrant.
F-18
<PAGE> 80
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
10. STOCKHOLDERS' EQUITY (CONTINUED)
The Company has two stock option plans under which options may be granted
to key members of management. The stock option plans, as amended, cover a total
of 3.0 million shares of the Company's common stock, with 1.6 million options
being available for grant at December 31, 1994. The option price may not be
less than the market price of the common stock on the date granted. Payment of
the exercise price may be made in cash or by delivery of shares of the
Company's common stock, having a market value equal to the exercise price.
Stock option activity for the years ended December 31, 1994, 1993, and
1992, is summarized as follows (dollar amounts in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTION PRICE
-------------------------------------
NUMBER OF PRICE RANGE PER
SHARES SHARE TOTAL
------------ --------------------- ----------
<S> <C> <C> <C>
Options outstanding, December 31, 1991
(401,250 exercisable) . . . . . . . . . . . 611,400 $1.375-$6.375 $ 2,215
Options canceled . . . . . . . . . . . . (481,400) $2.625-$6.375 (1,797)
Options granted . . . . . . . . . . . . . 20,000 $0.875 17
------------ ----------
Options outstanding, December 31, 1992
(100,000 exercisable) . . . . . . . . . . . 150,000 $ 0.875-$4.00 435
Options canceled . . . . . . . . . . . . (90,000) $ 0.875-$4.00 (309)
Options granted . . . . . . . . . . . . . 821,000 $1.625-$2.875 1,371
------------ ----------
Options outstanding, December 31, 1993
(50,000 exercisable) . . . . . . . . . . . 881,000 $0.875-$3.125 1,497
Options canceled . . . . . . . . . . . . (76,000) $1.625-$3.125 (146)
Options exercised . . . . . . . . . . . . (70,000) $1.625 (113)
Options granted . . . . . . . . . . . . . 605,000 $1.625-$1.875 994
------------ ----------
Options outstanding, December 31, 1994
(723,750 exercisable) . . . . . . . . . . . 1,340,000 $0.875-$3.00 $ 2,232
============ ==========
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Pensions have been under trusteed defined benefit plans covering
substantially all employees. The benefits under the plans are based on years of
service and, for employees not covered by a collective bargaining agreement,
compensation levels. The plan for hourly employees covered by collective
bargaining agreements also includes provisions that would apply in the event of
the permanent shutdown of the Sunshine Mine for present employees who were also
covered by a predecessor plan terminated in 1986.
F-19
<PAGE> 81
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension costs relating to continuing operations for the
Company's defined benefit plans for the years ended December 31, 1994, 1993,
and 1992, consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ------ -----
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . $ 294 $ 255 $ 427
Interest cost . . . . . . . . . . . . . . . . . . 343 185 247
Actual return on plan assets . . . . . . . . . . 162 (123) (56)
Net amortization and deferrals . . . . . . . . . (230) (137) (264)
Curtailment gain . . . . . . . . . . . . . . . . - (241) -
----- ------ -----
Net periodic pension cost . . . . . . . . . . . . $ 569 $ (61) $ 354
===== ====== =====
</TABLE>
The following table sets forth the funded status of the Company's
trusteed defined benefit plans and the related amounts included in other
long-term liabilities and deferred credits at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,165 $ 2,510
Actuarial present value of projected benefit obligation:
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,283 2,352
Nonvested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 298 349
------- ------
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . 3,581 2,701
------- ------
Plan assets less than projected benefit obligation . . . . . . . . . . . . (1,416) (191)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . 1,461 198
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . (653) (594)
Unrecognized transition net asset . . . . . . . . . . . . . . . . . . . . . (171) (199)
Additional minimum liability . . . . . . . . . . . . . . . . . . . . . . . (1,002) (437)
------- ------
Accrued pension liability recognized in the
consolidated balance sheets . . . . . . . . . . . . . . . . . . . . . . $(1,781) $(1,223)
======= ======
</TABLE>
The following significant assumptions were used in computing pension
costs for the Company's trusteed defined benefit plans:
<TABLE>
<CAPTION>
1994 1993 1992
----- ------- -------
<S> <C> <C> <C>
Discount rate . . . . . . . . . . . . . . . . . . . . . . 8.25% 7.00% 7.00%
Rate increase in compensation . . . . . . . . . . . . . . 0% 0%-4.8% 0%-6.5%
Expected long-term rate of return on assets . . . . . . . 9.0% 9.0% 9.0%
</TABLE>
F-20
<PAGE> 82
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's funding policy, with respect to trusteed defined benefit
plans, is to make contributions annually equal to, or in excess of, the minimum
funding requirements of the Employee Retirement Income Security Act of 1974.
Trusteed assets of the plans consist of pooled fixed income securities, pooled
equity securities, and cash or cash equivalents.
The Company's pension plan for employees not covered by a collective
bargaining agreement was amended to freeze all participants' benefits as of
December 31, 1993. The Company recognized a $241,000 curtailment gain as a
result of this plan amendment. In 1994, the Company negotiated the termination
of certain postretirement medical and dental benefits in exchange for
amendments to pension benefits. Such amendments resulted in an increase in
pension costs in 1994 of $524,000.
Effective January 1, 1994, the Company established a defined contribution
plan ("DC Plan") for employees not covered by a collective bargaining
agreement. The Company's Board of Directors will determine annually if a
contribution will be made, and if so, what percentage will be contributed. For
1994, the Company contributed approximately 6.5% of each employee's eligible
1993 compensation to the DC Plan, resulting in a charge to continuing
operations of $164,000.
The Company also sponsors a plan to provide retirement benefits under the
provisions of Section 401(k) of the Internal Revenue Code (the "401(k) Plan")
for all employees not covered by a collective bargaining agreement who have
completed a specified term of service. Company contributions may range from 0%
to 100% of employee contributions, up to a maximum 6% of eligible employee
compensation, as defined. Employees may elect to contribute up to 10% of their
eligible compensation on a pretax basis. Benefits under the 401(k) Plan are
limited to the assets of the 401(k) Plan. Company contributions charged to
continuing operations during 1994, 1993, and 1992 were $64,000, $59,000, and
$121,000, respectively.
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS No. 106"). The effect of adopting the new standard was to
increase accrued postretirement benefit costs and the accumulated deficit at
January 1, 1992, by $11.3 million and to increase net periodic postretirement
benefit cost and the net loss for 1992 by $.7 million.
During 1994, the Company negotiated the termination of postretirement
medical and dental benefits for the Company's existing hourly workforce and
certain retired hourly employees and eliminated such benefits for salaried
employees. As a result, the Company recognized net curtailment gains
aggregating $6.9 million in 1994. Postretirement medical and dental benefits
are currently provided only to certain employees who retired before 1997. The
Company's policy is to fund the cost of these plans as claims are incurred.
F-21
<PAGE> 83
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the computation of the accrued liability
for postretirement medical, dental, and life insurance benefits at December 31
(in thousands):
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,368 $ 6,739
Fully eligible active participants . . . . . . . . . . . . . 62 1,405
Other active plan participants . . . . . . . . . . . . . . . 93 5,254
------- --------
5,523 13,398
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . (493) (273)
------- --------
Accrued postretirement benefit cost . . . . . . . . . . . . . . . $ 5,030 $13,125
======= ========
</TABLE>
Net periodic postretirement benefit cost for these plans includes the
following components for the years ended December 31, 1994, 1993, and 1992 (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ------ ------
<S> <C> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . $115 $ 318 $ 300
Interest cost . . . . . . . . . . . . . . . . . . 608 945 889
---- ------ ------
Net periodic cost . . . . . . . . . . . . . . . . $723 $1,263 $1,189
==== ====== ======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita
cost of covered medical and dental benefits is 8.5% for 1995 (9.0% for 1994)
and is assumed to decrease gradually to 5% for 2003 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, changing the assumed health care cost
trend rates by one percentage point each year would change the accumulated
postretirement benefit obligation as of December 31, 1994, by $347,600 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1994 by $56,200. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
8.5% at December 31, 1994, and 7% at December 31, 1993.
Interest costs on the projected benefit obligations and the actual
returns on plan assets of the postretirement benefit plans are included in
interest expense and other income, respectively, in the accompanying
consolidated statements of operations.
F-22
<PAGE> 84
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
12. COMMITMENTS AND CONTINGENCIES
In December 1989, the United States Environmental Protection Agency
("EPA") notified Sunshine Precious Metals that it is a "Potentially Responsible
Party" ("PRP") at the Bunker Hill Superfund Site in Kellogg, Idaho. During 1990
and 1991, the Company and other PRPs, without admitting liability, funded soil
removal and remediation programs at the site. The Company's share of the cost
of these programs totaled approximately $239,000.
Without admitting liability, the Company and several PRPs have agreed to
do remediation work in the residential and certain commercial areas encompassed
by the Bunker Hill Superfund Site pursuant to an EPA and State of Idaho
approved work plan. In exchange, the EPA and the State of Idaho released the
settling PRPs from all liability for cleanup of the Bunker Hill Smelter
Complex, reduced the EPA's claim for reimbursement of past costs from $17
million to $1 million, plus a percentage of proceeds received by the PRPs from
insurance companies, if any, and agreed that the work orders from 1990 through
1993 were deemed satisfied and discharged. The remediation to be undertaken by
the Company and the PRPs is expected to take approximately seven years.
On November 17, 1994, the United States District Court for the District
of Idaho agreed to enter a Consent Decree containing the terms of this
agreement. At December 31, 1994, the Company has accrued $2.5 million
representing management's estimate of the remaining liability for its share
(12.4%) of the remediation costs at the Bunker Hill Superfund Site. The
liability for remediation costs under the Consent Decree is, however, joint and
several. Thus, if any other settling party or parties does not comply with the
Consent Decree, the exposure for the Company and Sunshine Precious Metals could
increase. However, management does not believe that the ultimate liability that
may result from this matter will have a material adverse effect on the
Company's consolidated financial position or results of operations.
In November 1988, the EPA notified Sunshine Precious Metals that it is a
PRP at the Spokane Junkyard site near Spokane, Washington. The Company does not
believe it will be required to pay any cleanup costs at the Spokane Junkyard
site. No records of Sunshine Precious Metals have been discovered by it or the
EPA showing that Sunshine Precious Metals ever transmitted any material to the
site.
The Company is subject to certain other legal proceedings and claims that
arise in the conduct of its business. Although it is not possible to predict
the outcome of such matters, in the opinion of management, the ultimate
outcomes of these matters will not have a material adverse effect on the
Company's consolidated financial position or consolidated results of
operations.
In September 1994, the Company entered into an agreement with Empresa
Argentina de Cemento Armado, S.A., whereby the Company will earn a 50% interest
in certain mineral concessions in the Chubut province of Argentina by spending
$2.1 million in exploration and development on the concessions during the next
three years. The Company can terminate the agreement at any time.
F-23
<PAGE> 85
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In August 1994, the Company entered into a lease agreement with American
Gold Resources Corporation in which the Company agreed to spend a minimum of $3
million over a five-year period in exploration, development, or mining on
certain gold mining properties in Colorado. The Company can terminate the
agreement at any time.
13. SIGNIFICANT CUSTOMERS
In 1994, two customers accounted for sales of refined silver aggregating
approximately $12.5 million. In 1993, one customer accounted for sales of
refined silver aggregating approximately $9.9 million. In 1992, one customer
accounted for sales of refined silver aggregating approximately $4.8 million,
and one other customer accounted for sales of ore aggregating approximately
$2.0 million.
14. PRECIOUS METALS RESOURCES (UNAUDITED)
The table below presents data on proved and probable ore reserves,
production and average prices for each of the years in the five-year period
ended December 31, 1994 (in thousands, except average prices):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sunshine Mine:
Reserves at December 31:
Ounces of silver . . . . 27,908 29,961 29,461 30,584 36,537
Pounds of copper . . . . 10,266 10,969 10,855 11,253 13,359
Production:
Tons of ore . . . . . . . 107 100 105 160 235
Ounces of silver . . . . 2,079 2,298 2,540 3,496 5,260
Pounds of copper . . . . 722 813 883 1,272 1,807
Revenue - Virginius Mine:
Reserves at December 31:
Ounces of silver . . . . 5,098 - - - -
East Tintic Mining District:
Reserves at December 31:
Ounces of silver . . . . - - - 24,246 24,284
Ounces of gold . . . . . - - - 7 9
Pounds of copper . . . . - - - 1,324 1,412
Production:
Tons of ore . . . . . . . - - 37 41 31
Ounces of silver . . . . - - 159 201 208
Ounces of gold . . . . . - - 6 8 9
Pounds of copper . . . . - - 221 281 231
Average prices:
Ounce of silver . . . . . . $ 5.29 $ 4.30 $ 3.94 $ 4.04 $ 4.82
Ounce of gold . . . . . . . $ 384.03 $ 359.77 $ 343.73 $ 362.08 $ 383.59
Pound of copper . . . . . . $ 1.07 $ 0.85 $ 1.03 $ 1.06 $ 1.18
</TABLE>
F-24
<PAGE> 86
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
14. PRECIOUS METALS RESOURCES (UNAUDITED) (CONTINUED)
The ore reserves and production information relate to mines in operation
or development. In June 1991, the Company curtailed its mining operations at
the Sunshine Mine, reducing production to approximately 500 tons per day, which
has resulted in an annual production rate of approximately 2.1 to 2.5 million
ounces of silver. During October 1992, the Company suspended operations at the
Trixie Mine and returned all properties held in the East Tintic Mining
District, including the Burgin Mine, to the respective lessors. See Note 5.
The decrease in silver reserves of the Sunshine Mine in 1991, resulted
principally from the reclassification of certain ore bodies as a result of
mining activities and certain areas not being fully developed because of the
curtailed operations.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1994:
Operating revenues . . . . . . . . . . . . $ 4,026 $ 3,458 $ 5,009 $ 4,919
Operating income (loss) . . . . . . . . . . 3,505 (1,971) (2,894) (4,556)
Income (loss) from continuing operations . 3,196 (1,060) (2,828) (4,231)
Income (loss) applicable to common shares . 540 (3,715) (5,419) (6,789)
Income (loss) per common share . . . . . . .00 (.02) (.03) (.03)
1993:
Operating revenues . . . . . . . . . . . . $ 2,913 $ 4,408 $ 3,150 $ 7,110
Operating income (loss) . . . . . . . . . . (3,912) (3,069) (4,157) 225
Loss from continuing operations . . . . . . (5,322) (4,365) (17,413) (1,511)
Loss applicable to common shares . . . . . (8,030) (7,129) (20,105) (17,813)
Loss per common share . . . . . . . . . . . (.05) (.05) (.13) (.11)
</TABLE>
Operating income for the three months ended March 31, 1994, includes a
gain of $5.5 million resulting from the negotiated termination of
postretirement medical and dental benefits for the Company's existing hourly
workforce. See Note 11.
The loss from continuing operations for the three months ended September
30, 1993, includes a loss of $12.5 million resulting from an induced conversion
of the 8% Silver Indexed Bonds. See Note 7. The loss applicable to common
shares for the three months ended December 31, 1993, includes extraordinary
losses aggregating $13.6 million resulting from redemptions of the 8% Silver
Indexed Bonds. See Note 7.
F-25
<PAGE> 87
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
September 30,1995
-----------------
<S> <C>
Current assets:
Cash and cash investments $ 18,993
Silver bullion 8,987
Accounts receivable 2,013
Inventories (Note 2) 1,698
Marketable securities 39
Other current assets 1,455
----------------
Total current assets 33,185
Property, plant and equipment, at cost 138,002
Less accumulated depreciation,
depletion and amortization (69,113)
----------------
68,889
Investments and other assets 3,415
----------------
Total assets $ 105,489
================
</TABLE>
See accompanying notes.
F-26
<PAGE> 88
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30,1995
-----------------
<S> <C>
Current liabilities:
Accounts payable 719
Accrued expenses $ 1,804
----------------
Total current liabilities 2,523
Long-term debt 1,519
Accrued pension and other postretirement benefits 6,561
Other long-term liabilities and deferred credits 5,440
Stockholders' equity:
Cumulative redeemable preferred stock--
aggregate redemption value- $126,071 81,928
Common stock--$.01 par value;
400,000 shares authorized; shares issued-
196,726 1,967
Paid-in capital 623,325
Deficit (617,737)
----------------
89,483
Less treasury stock, at cost:
3,664 shares 37
----------------
89,446
----------------
Total liabilities and
stockholders' equity $ 105,489
================
</TABLE>
See accompanying notes
F-27
<PAGE> 89
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
September 30, 1995 AND 1994
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
-----------------------------
1995 1994
------------- -------------
<S> <C>
Operating revenues $ 13,178 $ 12,492
Costs and expenses:
Cost of sales 14,203 12,035
Depreciation, depletion
and amortization 2,724 3,232
Exploration 4,045 1,408
Selling, general and
administrative expense 4,263 4,114
Curtailment gain on postretirement benefits
other than pensions (Note 3) - (6,936)
------------- -------------
25,235 13,853
------------- -------------
Operating income (loss) (12,057) (1,361)
Other income (expense):
Interest income 1,024 792
Interest expense (575) (953)
Other, net 502 830
------------- -------------
951 669
------------- -------------
Net income (loss) (11,106) (692)
Preferred dividend requirements (7,617) (7,902)
------------- -------------
Income (loss) applicable to common shares $ (18,723) $ (8,594)
============= =============
Income (loss) per common share $ ($0.10) $ ($0.05)
============= =============
Weighted average common
shares outstanding 193,031 184,188
============= =============
</TABLE>
See accompanying notes.
F-28
<PAGE> 90
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
September 30, 1995 AND 1994
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Cash used by operating activities:
Net loss $ (11,106) $ (692)
Adjustments to reconcile loss from operations
to net cash used by operations:
Depreciation, depletion and amortization 2,724 3,232
Exploration Expenditures 4,045 1,408
Curtailment gain on postretirement benefits - (6,936)
Realized and unrealized (gains) losses on
marketable equity securities (134) -
Issuances of common stock for interest
on Silver Indexed Bonds and other 143 379
Net (increase) decrease in:
Silver bullion (579) 102
Accounts receivable (1,597) (751)
Inventories 1,453 (2,252)
Other assets and deferred charges 148 (63)
Net increase (decrease) in:
Accounts payable and accrued expenses 40 (1,331)
Accrued pension and other postretirement benefits (250) 79
Other liabilities and deferred credits 4 (415)
------------ ----------
Net cash used by operations (5,109) (7,240)
------------ ----------
Cash provided (used) by investing activities:
Additions to property, plant and equipment and
exploration expenditures (4,249) (1,512)
Proceeds from investments 1,770 52
------------ ----------
Net cash provided by investing activities (2,479) (1,460)
------------ ----------
Cash provided by financing activities:
Issuance of common stock (Note 4) - 29,735
Decrease in restricted cash - 236
Principal repayments and retirements of long-term debt - (305)
------------ ----------
Net cash provided by financing activities - 29,666
------------ ----------
Increase (decrease) in cash and cash investments (7,588) 20,966
Cash and cash investments, January 1 26,581 4,304
------------ ----------
Cash and cash investments, September 30 $ 18,993 $ 25,270
============ ==========
Supplemental cash flow information -
Interest paid in cash $ 146 $ 329
============ ==========
</TABLE>
See accompanying notes.
F-29
<PAGE> 91
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Sunshine Mining and Refining Company ("Sunshine" or the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Certain previously reported amounts have been
reclassified to conform to the September 1995 presentation. Operating
results for the nine month period ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Sunshine's report on Form 10-K for the year ended December 31, 1994.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
------------ -----------
<S> <C> <C>
Precious Metals Inventories:
Work in process $ 723 $ 2,241
Finished goods 256 173
Materials and supplies inventories 719 737
--------- ---------
$ 1,698 $ 3,151
========= =========
</TABLE>
F-30
<PAGE> 92
3. CURTAILMENT GAIN
During the first nine months of 1994, the Company recognized a
curtailment gain of $6.9 million due to the termination of certain
employee postretirement medical benefits. See "Management's
Discussion and Analysis of Financial Condition."
4. COMMON STOCK OFFERING
During the first nine months of 1994, the Company realized net
proceeds of $30.1 million from a Rights Offering of Units to its
stockholders. See "Management's Discussion and Analysis of Financial
Condition."
5. CONTINGENCIES
In December 1989, the United States Environmental Protection Agency
("EPA") notified Sunshine Precious metals, Inc. ("SPMI"), a wholly
owned subsidiary of the Company, that it is a "Potentially Responsible
Party" ("PRP") at the Bunker Hill Superfund Site in Kellogg, Idaho.
During 1990 and 1991, the Company and other PRPs, without admitting
liability, funded soil removal and remediation programs at the site.
The Company's share of the cost of these programs totaled
approximately $239,000.
Without admitting liability, the Company and several PRPs have agreed
to do remediation work in the residential and certain commercial areas
encompassed by the Bunker Hill Superfund Site pursuant to an EPA and
State of Idaho approved work plan. In exchange, the EPA and the State
of Idaho released the settling PRPs from all liability for cleanup of
the Bunker Hill Smelter Complex, reduced the EPA's claim for
reimbursement of past costs from $17 million to $1 million, plus a
percentage of proceeds received by the PRPs from insurance companies,
if any, and agreed that the work orders from 1990 through 1993 were
deemed satisfied and discharged. The remediation to be undertaken by
the Company and the PRPs is expected to take approximately seven
years.
On November 17, 1994, the United States District Court for the
District of Idaho agreed to enter a Consent Decree containing the
terms of this agreement. At December 31, 1994, the Company has
accrued $2.5 million representing management's estimate of the
remaining liability for its share (12.4%) of the remediation costs at
the Bunker Hill Superfund Site. The liability for remediation costs
under the Consent Decree is, however, joint
F-31
<PAGE> 93
and several. Thus, if any other settling party or parties does not
comply with the Consent Decree, the exposure for the Company and SPMI
could increase. However, management does not believe that the
ultimate liability that may result from this matter will have a
material adverse effect on the Company's consolidated financial
position or results of operations.
In November 1988, the EPA notified Sunshine Precious Metals that it is
a PRP at the Spokane Junkyard site near Spokane, Washington. The
Company does not believe it will be required to pay any cleanup costs
at the Spokane Junkyard site. No records of SPMI have been discovered
by it or the EPA showing that SPMI ever transmitted any material to
the site.
By letter dated July 17, 1995, The Company and SPMI were notified that
they have been identified by the United States Department of the
Interior, Fish and Wildlife Service, as PRPs for alleged natural
resource damage in the Coeur d'Alene Basin. The letter further served
as notice that the Department of the Interior intends to bring suit
against the Company, SPMI and other identified PRPs to recover natural
resource damages under CERCLA. The Department of Interior has not set
forth any amount of damages. The Company believes that the settlement
by SPMI of all natural resource claims with the State of Idaho in May,
1986, bars these claims.
The Company is subject to certain other legal proceedings and claims
that arise in the conduct of its business. Although it is not
possible to predict the outcome of such matters, in the opinion of
management, the ultimate outcomes of these matters will not have a
material adverse effect on the Company's consolidated financial
position or consolidated results of operations.
F-32
<PAGE> 94
ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of [____________________],
among SUNSHINE MERGER COMPANY, a Delaware corporation ("New Company") and
SUNSHINE MINING AND REFINING COMPANY, a Delaware corporation ("Sunshine").
WITNESSETH:
WHEREAS, each of New Company and Sunshine is a corporation duly
organized and existing under the laws of the State of Delaware; and
WHEREAS, the respective Boards of Directors of New Company and
Sunshine deem it advisable that Sunshine merge with and into New Company, which
shall be the surviving corporation, upon the terms and conditions set forth
herein and in accordance with the laws of the State of Delaware, and that the
shares of stock of Sunshine shall be converted upon such merger (the "Merger")
as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
TERMS
1.1 At the Effective Time (as hereinafter defined) of the Merger,
Sunshine shall be merged with and into New Company, which shall be the
surviving corporation (hereinafter sometimes called the "Surviving
Corporation").
1.2 Shares of Sunshine shall be converted into shares of New
Company at the Effective Time in the following manner. Shares of capital stock
of Sunshine issued and outstanding immediately prior to the Effective Time
shall be converted into shares of capital stock of New Company as follows:
(a) Each share of Common Stock of Sunshine shall by virtue of the
Merger and without any action by the holder thereof, be converted into one
share of Common Stock of New Company;
(b) Each share of $11.94 (Stated Value) Cumulative Redeemable
Preferred Stock (the "Redeemable Preferred Stock") of Sunshine shall be
converted into (i) a number of shares of Common Stock of New Company, the
number of such shares of Common Stock to be determined as set forth in
paragraph 1.2(b)(i) below, and (ii) .9 (9/10) of an additional share of Common
Stock of New Company, or at the option of the holder, two (2) Warrants, each
for the purchase of one (1) share of Common Stock of New Company as described
in paragraph 1.2(b)(ii):
i. The number of shares of Common Stock will be that
number of shares determined by dividing the closing price of Sunshine Common
Stock on the latest date practical prior to mailing the prospectus into $10.50
(at $1 7/8 Common Stock price, 5.6 shares). If the average closing price of
the Common Stock on the NYSE Composite for the first 120 trading days after the
Effective Date of the Merger is less than the initial price used to determine
the number of shares issuable, additional Common Shares will be issued as soon
as practical after the end of the 120-trading day period. The additional
number of shares issuable will be determined by the following formula,
10.50 - Y.
-----
X
where:
<PAGE> 95
ANNEX A
X = Average Common Stock closing price on the
NYSE Composite for 120 NYSE trading days
after issuance, and
Y = Common shares initially issuable per
Preferred share
In no event will the total number of shares of New
Common Stock issuable upon conversion of a share of
Preferred Stock, exclusive of shares issuable upon
exercise of Warrants or in lieu of Warrants, exceed
8.4.
and,
ii. The holder will also receive, for each share of
Preferred Stock held, either .9 (9/10) of another share of Common Stock in
addition to the share of Common Stock determined by the above formula or, at
the option of the holder, two (2) Warrants, each having the following terms and
conditions:
Shares purchasable: One (1)
Exercise Price: 110% of the Common Stock
NYSE Composite closing price on the latest date
practical prior to mailing the prospectus; resettable
to 110% of average closing price of the Common Stock
on the NYSE Composite for the first 120 trading days
after the Effective Date on the Merger, if such price
is less than the initial price.
Expiration: 5 years from issuance.
1.3 Prior to the Effective Time, New Company will execute and
deliver, in form satisfactory to Sunshine, (i) a supplemental warrant agreement
to the Warrant Agreement dated as of February 3, 1994, between Sunshine and
American Stock Transfer and Trust Company relating to Sunshine's redeemable
Warrants to purchase Common Stock, and (ii) a supplemental indenture to the
Indenture (the "Convertible Indenture") between Sunshine and MTrust Corp.,
N.A., as Trustee, relating to Sunshine's Convertible Subordinated Debentures
Due April 15, 2008. The Convertible Indenture, as supplemented, shall allow
the holder of each outstanding debenture thereunder shall have the right (until
expiration of the respective conversion rights therein) to convert such
debentures into the same number of shares of New Company Common Stock as the
number of shares of Sunshine Common Stock into which such debenture would have
been convertible immediately prior to the Effective Time.
1.4 At the Effective Time, each outstanding stock option,
convertible debenture, warrant or any other right to acquire shares of Common
Stock of Sunshine (but not including any such rights existing prior to the
Effective Time incident to the Redeemable Preferred stock) outstanding
immediately prior to the Effective Time shall be converted into a stock option,
convertible debenture, warrant or other right to acquire the shares of Common
Stock of New Company, giving the holder the same rights with respect to the
same number of shares of Common Stock of New Company as such
AGREEMENT AND PLAN OF MERGER - 2
<PAGE> 96
ANNEX A
holder had with respect to Common Stock of Sunshine under such outstanding
stock option, convertible debenture, security, warrant or other right.
1.5 At the Effective Time, each outstanding share of Common Stock
of Sunshine held as treasury stock by Sunshine shall automatically, and without
any action by Sunshine or New Company, be converted into one share of Common
Stock of New Company.
1.6 Each outstanding certificate which immediately prior to the
Effective Time represented shares of Common Stock or warrants to purchase
Common Stock of Sunshine shall be deemed for all purposes to evidence ownership
of an equal number of shares of Common Stock or warrants to purchase Common
Stock of New Company, respectively. No exchange of such certificates will be
required in order to evidence such ownership. Immediately after the Effective
Time, the transfer books of Sunshine will be deemed closed, and no transfer of
shares of Common Stock, Redeemable Preferred Stock, or warrants to purchase
Common Stock shall thereafter be made or consummated.
1.7 If any certificate representing stock of New Company is to be
issued in a name other than that in which a surrendered certificate theretofore
representing stock of Sunshine is registered, it shall be a condition of such
issuance that the surrendered certificate shall be properly endorsed or
otherwise in proper form for transfer, and that the person requesting such
issuance shall either pay to New Company or its transfer agents any transfer or
other taxes required by reason of the issuance of a certificate or certificates
representing New Company stock in a name other than that of the registered
holder of the certificate surrendered, or establish to the satisfaction of New
Company or its transfer agents that such tax has been paid or is not
applicable.
1.8 Unless otherwise provided for by the parties to this Agreement
and Plan of Merger, upon and after the Effective Time of the Merger, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises, and be subject to all the restrictions, disabilities and duties, of
Sunshine; and all rights, privileges, powers and franchises of Sunshine, and
all property, real, personal and mixed, and all debts due to Sunshine shall be
vested in and be the property of the Surviving Corporation; and all debts,
liabilities and duties of Sunshine shall thenceforth attach to the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.
SECTION 2
EFFECTIVE TIME
2.1 Subsequent to the execution of this Agreement and Plan of
Merger, Sunshine shall submit this Agreement and Plan of Merger to its
stockholders for their approval pursuant to the applicable provisions of the
General Corporation Law of the State of Delaware.
2.2 Following the approval of the Merger by the stockholders of
Sunshine and upon fulfillment or waiver of the conditions specified in Section
5.1 hereof, and provided that this Agreement and Plan of Merger has not been
terminated and abandoned pursuant to Section 5.3 hereof, Sunshine will cause a
Certificate of Merger to be executed, acknowledged and filed with the Secretary
of State of the State of Delaware as provided in Section 251 of the General
Corporation Law of the State of Delaware and a copy of the Certificate of
Merger, certified by the Secretary of State of the State of Delaware, to be
recorded thereafter in the Office of the Recorder of New Castle
AGREEMENT AND PLAN OF MERGER - 3
<PAGE> 97
ANNEX A
County in the State of Delaware, all in accordance with the provisions of
Section 103 of the General Corporation Law of the State of Delaware.
2.3 The Merger shall become effective immediately upon the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware (the date and time of such filing being herein sometimes referred to
as the "Effective Time").
SECTION 3
COVENANTS AND AGREEMENTS
3.1 Sunshine (i) shall present this Agreement and Plan of Merger
for adoption or rejection by vote of the stockholders of Sunshine at a special
Meeting of Stockholders; (ii) shall furnish to such holders such documents and
information in connection therewith as is required by law, (iii) shall
recommend approval of this Agreement by such holders, and (iv) shall, as sole
stockholder of New Company, vote all shares of New Company Common Stock owned
by it to approve this Agreement and Plan of Merger as provided by law.
3.2 New Company (i) shall not, prior to the Effective Time of the
Merger, without obtaining the written consent of Sunshine, permit any change in
the Certificate of Incorporation of New Company or its capital stock.
3.3 Unless otherwise provided for by the parties to this Agreement
and Plan of Merger, New Company as the Surviving Corporation shall be liable
for all the obligations of Sunshine outstanding as of the Effective Time and
hereby expressly assumes all such obligations as of the Effective Time.
3.4 At the Effective Time, the Certificate of Incorporation of New
Company shall be amended to change the name of New Company to "Sunshine Mining
and Refining Company."
3.5 From and after the Effective Time, the directors of Sunshine
elected at its 1995 Annual Meeting of Stockholders, with the exception of
Messrs. George M. Elvin, Hoffer Kaback and Douglas K. Stewart, who were elected
as directors by the holders of Sunshine's Redeemable Preferred Stock and who
will cease to be directors incident to the elimination of the Redeemable
Preferred Stock, and the officers of Sunshine at the Effective Time shall
become the directors and officers of New Company, to hold office until the
expiration of their current terms, or their prior resignation, removal or
death.
SECTION 4
CERTIFICATE OF INCORPORATION, BYLAWS AND
BOARD OF DIRECTORS OF SURVIVING CORPORATION
4.1 The Certificate of Incorporation of Sunshine Merger Company as
constituted at the Effective Time shall thereafter be the Certificate of
Incorporation of the Surviving Corporation, until it shall be amended as
provided by law; provided, however, that Article First of the Certificate of
Incorporation of Sunshine Merger Company, at the Effective Time and upon the
filing of the Certificate of Merger, shall be amended to read as follows:
AGREEMENT AND PLAN OF MERGER - 4
<PAGE> 98
ANNEX A
"First: The name of the corporation is Sunshine Mining and
Refining Company."
4.2 The Bylaws of Sunshine as in effect at the Effective Time, but
subject to alteration, amendment or repeal from time to time by the Board of
Directors or the stockholders of the Surviving Corporation, shall govern the
Surviving Corporation.
4.3 From and after the Effective Time the members of the Board of
Directors of the Surviving Corporation shall consist of the following persons,
to hold office until the expiration of their current terms, or their prior
resignation, removal or death: G. Chris Andersen, V. Dale Babbitt, Fred C.
Humphreys, Daniel D. Jackson, Oren G. Shaffer, John S. Simko and Robert B.
Smith, Jr.
From and after the Effective Time the officers of the Surviving
Corporation shall consist of those persons serving as officers of Sunshine, and
in their respective positions, to hold office until the expiration of their
current terms, or their prior resignation, removal or death.
AGREEMENT AND PLAN OF MERGER - 5
<PAGE> 99
ANNEX A
SECTION 5
CONDITIONS, AMENDMENTS, TERMINATION AND MISCELLANEOUS
5.1 The respective obligations of New Company and Sunshine to
consummate the Merger under this Agreement and Plan of Merger are subject to
the following conditions, any and all of which (other than the conditions set
forth in Section 5.1 (c) or (d)), may be waived by New Company and Sunshine:
(a) All third-party consents which are required in order
to consummate the Merger and to effectuate the contemplated
transactions incidental or related thereto shall have been obtained.
(b) The shares of Common Stock and Warrants of New
Company to be issued or reserved for issuance pursuant to the Merger
shall have been approved for listing, upon official notice of
issuance, by the New York Stock Exchange and the Nasdaq National
Market, respectively.
(c) Sunshine shall have received either an opinion of
Hawley, Troxell, Ennis & Hawley, legal counsel to the Company or a
ruling of the Internal Revenue Service (or, at the option of Sunshine,
an opinion of counsel) in form and substance satisfactory to Sunshine
with respect to the tax consequences of the Merger.
(d) The stockholders of Sunshine shall have adopted and
approved this Agreement and Plan of Merger.
5.2 New Company and Sunshine, by mutual consent of their
respective Boards of Directors, may amend, modify or supplement this Agreement
and Plan of Merger in such manner as may be agreed upon by them in writing at
any time before or after approval hereof by the stockholders of Sunshine;
provided, however, that after the adoption and approval of this Agreement and
Plan of Merger by the stockholders of Sunshine no such amendment, modification
or supplement shall:
(a) alter or change the amount or kind of securities to
be received in exchange for or upon conversion of all or any of the
shares of any class or series of stock of such Constituent
Corporation;
(b) alter or change any term of the Certificate of
Incorporation of New Company to be effected by the Merger, or
(c) alter or change any of the terms and conditions of
this Agreement and Plan of Merger if such alteration or change would
adversely affect the holders of any shares of any class or series of
stock of such Constituent Corporation.
5.3 This Agreement and Plan of Merger may be terminated and the
Merger may be terminated and abandoned for any reason by resolution adopted by
either of the respective Boards of Directors of New Company and Sunshine at any
time prior to the Effective Time, even though this Agreement and Plan of Merger
shall have been approved by the Stockholders of New Company and Sunshine or of
either thereof.
AGREEMENT AND PLAN OF MERGER - 6
<PAGE> 100
ANNEX A
5.4 From time to time on and after the Effective Time, each party
hereto agrees that it will execute and deliver or cause to be executed and
delivered all such further assignments, assurances or other instruments, and
shall take or cause to be taken all such further actions as may be necessary or
desirable to consummate the Merger provided for herein and the other
transactions contemplated by this Agreement and Plan of Merger.
5.5 This Agreement and Plan of Merger shall be construed under and
in accordance with the laws of the State of Delaware.
5.6 This Agreement and Plan of Merger shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto.
5.7 For the convenience of the parties hereto, this Agreement and
Plan of Merger may be executed in separate counterparts, each of which, when so
executed, shall be deemed to be an original, and all such counterparts when
taken together shall constitute but one and the same instrument.
SUNSHINE MINING AND REFINING COMPANY
By:
----------------------------------
ATTEST: John S. Simko, President
- ------------------------------
SUNSHINE MERGER COMPANY
By:
----------------------------------
ATTEST: John S. Simko, President
- ------------------------------
AGREEMENT AND PLAN OF MERGER - 7
<PAGE> 101
ANNEX B
CERTIFICATE OF INCORPORATION
OF
SUNSHINE MERGER COMPANY
FIRST: The name of the Corporation is Sunshine Merger Company.
SECOND: The registered office of the Corporation in the state of
Delaware is located at 1013 Centre Road in the City of Wilmington, County of
New Castle. The name and address of its registered agent is Corporation
Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
THIRD: The nature of the business, objects and purposes to be
transacted, promoted or carried on by the Corporation are as follows:
To engage in and carry on the business of exploring for,
developing and utilizing natural resources of every kind and
description; to explore for, to develop and to mine, mill,
concentrate, convert, smelt, treat, refined, prepare for market,
manufacture, buy, sell, exchange, and otherwise to produce, process
and deal in natural resources of every kind and description, including
without limitation, ores, metals, minerals, oil, natural gas, timber,
water, and all other natural products and the products and by-products
thereof of every kind and description and by whatever means the same
can be and may hereafter be bought, sold, conveyed, transferred,
produced, processed, handled or otherwise dealt in; to buy, sell,
exchange, lease, acquire and otherwise deal in real property, mines,
mineral rights and claims of any nature whatsoever, timber rights, and
interests of any nature whatsoever in oil and gas; to own, lease,
hire, rent, as lessee or lessor, operate and manage all types of real
property, buildings and fixtures, and the machinery, equipment and
other personal property and facilities necessary to the conduct,
operation and management of such business and all other activity in
connection therewith;
To manufacture, purchase or otherwise acquire, invest in, own,
mortgage, pledge, sell, assign and transfer or otherwise dispose of,
trade, deal in and with goods, wares and merchandise and personal
property of every class and description;
To acquire, and pay for in cash, stock, or bonds of this
Corporation or otherwise, the goodwill, rights, assets and property,
and to undertake or assume the whole or any part of the obligations or
liabilities of any person, partnership, trust, joint stock company,
syndicate, firm, association or corporation;
To acquire, hold, use, sell, assign, lease, grant licenses in
respect of, mortgage or otherwise dispose of letters patent of the
United States or any foreign country, patent rights, licenses and
privileges, inventions, improvements and processes, copyrights,
trademarks and trade names, relating to or useful in connection with
any business of this Corporation;
To acquire by purchase, subscription or otherwise, and to
receive, hold, own, sell, assign, exchange, transfer, mortgage, pledge
or otherwise dispose of or deal in and with any of the shares of the
capital stock, or any voting trust certificates in respect of the
shares of capital stock, scrip, warrants, rights, bonds, debentures,
notes, trust receipts and other securities, obligations, chooses in
action and evidences of indebtedness or interest issued or created by
any corporations, joint stock companies, syndicates, associations,
firms, trusts or persons, public or private, or by the government of
the United States of America, or by any foreign government, or by any
state, territory, province municipality or other political subdivision
or by any governmental agency, and as owner thereof to possess and
exercise all rights, powers and privileges of ownership, including the
right to execute consents and vote thereon,
<PAGE> 102
ANNEX B
and to do any and all acts and things necessary or advisable for the
preservation, protection, improvement and enhancement in value
thereof;
To borrow or raise moneys for any of the purposes of the
Corporation and, from time to time without limit as to amount, to
draw, make, accept, endorse, execute and issue promissory notes,
drafts, bills of exchange, warrants, bonds, debentures and other
negotiable or non-negotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the
interest thereon by mortgage upon or pledge, conveyance or assignment
in trust of the whole or any part of the property of the Corporation,
whether at the time owned or thereafter acquired, and to sell, pledge
or otherwise dispose of such bonds or other obligations of the
Corporation for its corporate purposes;
To purchase, receive, take by grant, gift, devise, bequest or
otherwise, lease, or otherwise acquire, own, hold, improve, employ,
use and otherwise deal in and with, real or personal property, or any
interest therein, wherever situated, and to sell, convey, lease,
exchange, transfer or otherwise dispose of, or mortgage or pledge, all
or any of the Corporation's property and assets, or any interest
therein, wherever situated; and
To engage in any lawful act or activities for which
corporations may be organized under the General Corporation Law of
Delaware.
The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the business and purposes specified in each
of the foregoing clauses of this Article shall be regarded as independent
business and purposes.
FOURTH: The total number of shares which the Corporation shall have
authority to issue is Four Hundred Twenty Million (420,000,000), of which stock
Four Hundred Million (400,000,000) shares of the par value of $0.01 each shall
be designated Common Stock and of which Twenty Million (20,000,000) shares of
the par value of $1.00 each shall be designated Preferred Stock.
Section 1. Power of Board to Issue Preferred Stock. Shares of
Preferred Stock may be issued from time to time in one or more series, each of
such series to have distinctive serial designations, which may be by
distinguishing number, letter or title, as shall hereafter be determined in the
resolution or resolutions providing for the issue of such Preferred Stock from
time to time adopted by the Board of Directors of the Company at a regularly
called meeting without dissenting vote, pursuant to authority so to do which is
hereby conferred upon and vested in the Board of Directors.
Section 2. Terms of Preferred Stock. Each series of Preferred Stock
(i) may have such number of shares; (ii) may have such voting powers,
including, without limitation, the right to vote as a class in connection with
a Business Combination (as defined in Article Fifth), full or limited, or may
be without voting powers; (iii) may be subject to redemption at such time or
times and at such price or prices; (iv) may be entitled to receive dividends,
which may be cumulative or noncumulative, at such rate or rates, on such
conditions, from such date or dates, and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other class
or classes or series of stock; (v) may have such rights upon the dissolution
of, or upon any distribution of the assets of, the Corporation; (vi) may be
convertible into, or exchangeable for, shares of any other class or classes of
CERTIFICATE OF INCORPORATION - 2
<PAGE> 103
ANNEX B
stock of the Corporation at such price or prices or at such rates of exchange,
and with such adjustments; (vii) may be entitled to the benefit of a sinking
fund or purchase fund to be applied to the purchase or redemption of shares of
such series in such amount or amounts; (viii) may be entitled to the benefit of
conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional stock
(including, without limitation, additional shares of such series or of any
other series) and upon the payment of dividends or the making of other
distributions on and the purchase redemption or other acquisition by the
Corporation or any subsidiary of any outstanding stock of the Corporation; and
(ix) may have such other relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof; all as shall
be stated in said resolution or resolutions adopted by the Board of Directors
providing for the issue of such Preferred Stock. Except where otherwise set
forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock, the number of shares
comprising such series may be increased or decreased (but not below the number
of share then outstanding) from time to time by like action of the Board of
Directors.
Section 3. Redemption or Purchase of Preferred Stock. Shares of any
series of Preferred Stock which have been redeemed (whether through the
operation of a sinking fund or otherwise) or purchased by the Corporation, or
of which, if convertible or exchangeable, have been converted into or exchanged
for shares of stock of any other class or classes, shall have the status of
authorized and unissued shares of Preferred Stock and may be reissued as a part
of the series of which they were originally a part or may be reclassified and
reissued as part of a new series of Preferred Stock to be created by resolution
or resolutions of the Board of Directors or as part of any other series of
Preferred Stock, all subject to the conditions or restrictions on issuance set
forth in the resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock and to any filing
required by law.
Section 4. Voting Rights. Except as otherwise provided by law or by
the resolution or resolutions adopted by the Board of Directors providing for
the issue of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, each holder of the Common Stock being entitled to one vote for each
share held.
Section 5. Dividends. Subject to all the rights of the Preferred
Stock or any series thereof, the holders of the Common Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, dividends payable in cash, stock or otherwise.
Section 6. Liquidation. Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, and after the holders
of the Preferred Stock of each series shall have been paid in full the amounts
to which they respectively shall be entitled, or a sum sufficient for such
payments in full shall have been set aside, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights in interest, to the exclusion of the
holders of the Preferred Stock.
FIFTH: Vote Required to Approve Business Combinations. In addition
to the vote of stockholders otherwise required by law or by the terms of any
other Article of this Certificate of Incorporation, the affirmative vote or
consent of the holders of a majority of all shares of outstanding stock
entitled to vote thereon, and a majority of each series or class of Preferred
Stock which under this Certificate of Incorporation or by the resolution or
resolutions of the Board of Directors authorizing the issuance of such
Preferred Stock is entitled to vote thereon as a class, shall be required to
approve any Business Combination. As used in this Article Fifth, the term
"Business Combina-
CERTIFICATE OF INCORPORATION - 3
<PAGE> 104
ANNEX B
tion" shall include any merger or consolidation of the Corporation with or into
any other corporation, firm or entity which under the applicable provisions of
Delaware law is required to be submitted to a vote of stockholders, or the
sale, lease, exchange or other disposition (including, without limitation, any
disposition in connection with any dissolution, liquidation or winding up of
the Corporation) of all or substantially all of the property and assets of the
Corporation (including its good will and corporate franchises) to any other
corporation, firm or entity.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred
by statute, the power to adopt, amend or repeal the bylaws of the Corporation
is hereby conferred upon and vested in the Board of Directors.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the state of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provision of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH: Meetings of stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of this Corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the bylaws of the Corporation. Elections
of directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided, however,
that no amendment to this Certificate of Incorporation shall, directly or
indirectly, amend, alter, change or repeal any of the provisions of Article
Fourth, Section 1 or any of the provisions of Article Fifth, unless the
amendment effecting such amendment, alteration, change or repeal shall receive
the affirmative vote or consent of the holders of (i) 66 2/3% of the
outstanding stock of the Corporation entitled to vote thereon, and (ii) 66 2/3%
of each class or series of Preferred Stock which under this Certification of
Incorporation or by the resolution or resolutions of the Board of Directors
authorizing the issuance of such class of Preferred Stock is entitled to vote
thereon as a separate class.
CERTIFICATE OF INCORPORATION - 4
<PAGE> 105
ANNEX B
ELEVENTH: The name and mailing address of the incorporator is as
follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Rebecca L. Saunders 877 W. Main St., Suite 600
Boise, ID 83702
</TABLE>
TWELFTH: To the fullest extent permitted by the Delaware General
Corporation Law, as it now exists or may hereafter be amended, a director of
the Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except to the
extent that such exemption from liability or limitation thereof is not
permitted under the Delaware General Corporation Law as the same exists or may
hereafter be amended. Any repeal or modification of this paragraph by the
stockholders of the Corporation shall be prospective only and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
THIRTEENTH: Any director may be removed, with or without cause, by a
vote of the holders of a majority of the shares then entitled to vote thereon.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 25th day of October, 1995.
/s/ Rebecca L. Saunders
Rebecca L. Saunders, Incorporator
CERTIFICATE OF INCORPORATION - 5
<PAGE> 106
GLOSSARY OF CERTAIN MINING TERMS
ASSAY -- To analyze the proportions of metals in ore, to test an ore or mineral
for composition, purity, weight, or other properties of commercial interest.
The word "assay" also refers the test or analysis itself.
CONCENTRATE -- A product containing the valuable metal and from which most of
the waste material in the ore has been eliminated.
CONCENTRATOR -- A plant for recovery of valuable minerals from ore. Ore in the
form of concentrate must then be treated in some other type of plant, such as a
smelter, to effect recovery of the pure metal.
DILUTION -- An estimate of the amount of waste or low-grade mineralized rock
which will be mined with the ore as part of normal mining practices in
extracting an ore body.
DRIFT -- An underground horizontal passage which provides access to a
mineralized area.
DRILL -- A device with an edged or pointed end or compound contacts, used for
making circular holes in rock or earth. "Diamond drill" refers to a
cylindrical drill, with a diamond-surfaced cutting edge, used to extract
samples of ore for analysis.
DRILL INTERCEPT -- The distance, measured in feet, from the initial contact by
a diamond drill of a vein of ore to the diamond drill's exit from that vein.
EXPLORATION -- Work involved in searching for ore, usually by drilling or
driving a drift.
FAULT -- A fracture or a zone of fractures along which there has been
displacement of the sides relative to one another parallel to the fracture.
FOOTWALL -- The underlying side of a fault, orebody, or mine working; esp. the
wall rock beneath an inclined vein or fault.
GRADE -- The metal content of ore and drill samples. With precious metals,
grade is expressed as troy ounces per ton of rock.
GRADE THICKNESS -- The average grade of a drill hole intersection(s) multiplied
by the thickness of the intersection(s). The resulting figure indicates the
concentration of mineralization in that hole. When the value for each hole is
plotted, the mineral intensity of a deposit can be identified.
MILL -- A processing plant that produces a concentrate of the valuable minerals
or metals contained in an ore. The concentrate must then be treated in some
other type of plant, such as a smelter, to effect recovery of the pure metal.
MINERALIZATION - A valuable or potentially valuable deposit of a mineral or
minerals. It is a general term, incorporating deposits resulting from various
types of process or processes by which a mineral or minerals are intro- duced
into a rock, e.g. fissure filling, impregnation, replacement.
ORE BODY -- An economically recoverable deposit of minerals, the extent and
grade of which has been defined through exploration and development work.
ORE RESERVE -- That part of a mineral deposit which at the time of the reserve
determination could be economically and legally extracted or produced.
PROBABLE RESERVES -- Resources for which tonnage and grade are computed
primarily from specific measurements, samples or production data, and partly
from projection for a reasonable distance on geologic evidence. The sites
available for in- spection, measurement and sampling are too widely or
otherwise inappropriately spaced to permit the mineral bodies to be outlined
completely, or the grade established throughout.
PROVEN RESERVES -- Resources for which tonnage is computed from dimensions
revealed in workings and drill holes and for which the grade is computed from
the results of detailed sampling. The sites for inspection, sampling and
measurement are spaced so closely and the geologic character is so well defined
that size, shape and mineral content are all established. The computed tonnage
and grade are judged to be accurate, within limits which are stated, and no
such limit is judged to be different from the computed tonnage or grade by more
than 20%.
RESERVES -- That part of a mineral deposit that can be economically and legally
extracted or produced at the time of the reserve determination. Reserves are
customarily stated in terms of "ore" when dealing with metals.
ROCK BURST -- Explosive rock failures caused by the pressure exerted by rock
adjacent to mine openings far below the surface.
STOPE -- An excavation from which ore has been excavated in a series of steps.
To excavate ore in a vein by driving horizontally upon it a series of workings,
one immediately over the other, or vice versa. Each horizontal working is
called a stope because when a number of them are in progress, each working face
under attack assumes the shape of a flight of stairs.
TON -- A short ton of 2,000 pounds, dry weight basis.
TONNE -- Metric ton, equal to 2,204.62 pounds.
TROY OUNCE -- Unit if weight measurement used for all precious metals. The
familiar 16-ounce avoirdupois pound equals 14.583 troy ounces.
VEIN -- An epigenetic mineral filling of a fault or other fracture in a host
rock, in tabular or sheetlike form, often with associated replacement of the
host rock; a mineral deposit of this form and origin.
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Certain Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Merger Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Description of the Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Sunshine Merger Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Sunshine Mining and Refining Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Directors and Officers of Sunshine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Compensation and Transaction Committee Inter
locks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Information Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Voting Securities and Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
INFORMATION AGENT
THE HERMAN GROUP, INC.
13760 NOEL ROAD, SUITE 320
DALLAS, TEXAS 75240
TELEPHONE: (800) 747-2967
TELECOPIER: (214) 991-4422
(214) 991-4432
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR SUNSHINE MERGER COMPANY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF THE COMPANY OR SUNSHINE MERGER COMPANY OR ANY OF THEIR RESPECTIVE
SUBSIDIARIES SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
<PAGE> 108
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law gives corporations
the right to indemnify their directors, officers and agents.
With respect to Sunshine Merger Company, Article Twelfth of Sunshine
Merger Company's Certificate of Incorporation provides as follows:
Twelfth: To the fullest extent permitted by the Delaware
General Corporation Law, as it now exists or may hereafter be amended,
a director of the Corporation shall not liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as
a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the Delaware General
Corporation Law as the same exists or may hereafter be amended. Any
repeal or modification of this paragraph by the stockholders of the
Corporation shall be prospective only and shall not adversely affect
any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
In addition, Article X of Sunshine Merger Company's Bylaws provides as
follows:
ARTICLE X
Indemnification
Section 10.1 Third Party Actions. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed 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 such person is or was a
director, trustee, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, 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 such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person 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 reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person 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 reasonable cause to believe that such
person's conduct was unlawful.
Section 10.2 Derivative Actions. The corporation shall 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 the corporation's favor by reason of the
fact that such person is or was a director,
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<PAGE> 109
trustee, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, trustee, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the defense or settlement of such action or suit if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed
to the best interests of the corporation, and with respect to amounts paid in
settlement, the settlement of the suit or action was in the best interests of
the corporation, provided, however, that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for gross negligence or willful misconduct in the
performance of such person's duty to the corporation unless and only to the
extent that, the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of such liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper. The
termination of any action or suit by judgment or settlement shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the
best interests of the corporation.
Section 10.3. Successful Defense. To the extent that a director,
trustee, officer, employee or agent of the corporation has been successful on
the merits or otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in Sections (1) and (2) of this Article X, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 10.4. Authorization. Any indemnification under Sections (1)
and (2) of this Article X (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, trustee, officer, employee or agent is proper
in the circumstances because such person has met the applicable standard of
conduct set forth above in Sections (1) and (2) of this Article X. Such
determination shall be made (a) by the Board of Directors of the corporation by
a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, by
a majority vote of directors who were not parties to such action, suit or
proceeding, or (c) by independent legal counsel (selected by one or more of the
directors, whether or not a quorum and whether or not disinterested) in a
written opinion, or (d) by the shareholders. Anyone making such a
determination under this Section (4) may determine that a person has met the
standard therein set forth as to some claims, issues or matters but not as to
others, and may reasonably prorate amounts to be paid as indemnification.
Section 10.5. Advances. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the corporation, at any
time or from time to time in advance of the final disposition of such action,
suit or proceeding as authorized in the manner provided in Section 10.4 of this
Article X upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article X.
Section 10-6. Non-Exclusivity. The indemnification provided by this
Article X shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any law, by-law, agreement, vote of
shareholders or disinterested
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<PAGE> 110
directors or otherwise, both as to action in such person's official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, trustee, officer,
employee or agent and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
Section 10.7. Insurance. The corporation shall have the powers to
purchase and maintain insurance on behalf of any person who is or was a
director, trustee, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against such person and
incurred by such person in any such capacity or arising out of such person's
status as such, whether or not the corporation would have the power to
indemnify such person against such liability.
Section 10.8. "Corporation" Defined. For purposes of this Article X,
references to the "corporation" shall include, in addition to the corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
trustees, officers, employees or agents, so that any person who is or was a
director, trustee, officer, employee or agent of such constituent corporation
or of any entity a majority of the voting stock of which is owned by such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand the same position under the provisions of this Article X with
respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
2.1 Form of Agreement and Plan of Merger to be entered into by and among Sunshine and Sunshine Merger Company,
annexed as Exhibit A to the Prospectus/Proxy Statement and incorporated herein by reference.
3.1 Form of Certificate of Incorporation of Sunshine Merger Company annexed as Exhibit B to the Prospectus/Proxy
Statement and incorporated herein by reference.
*3.2 Form of Bylaws of Sunshine Merger Company.
*4.1 Form of Warrant Agreement, dated as of [ ], between Sunshine Merger Company and American Stock
Transfer & Trust Company, as Warrant Agent.
4.2 Form of Warrant Agreement, dated as of February 3, 1994, between Sunshine and American Stock Transfer
& Trust Company, as Warrant Agent, filed as Exhibit 4.3 to Sunshine's Registration Statement on Form
S-1 (Registration No. 33-73608), as amended and incorporated herein by reference.
**4.3 Form of Warrant Certificate.
4.4 Form of Warrant Certificate, filed as Exhibit 4.4 to Sunshine's Registration Statement on Form S-1
(Registration No. 33-73608), as amended and incorporated herein by reference.
</TABLE>
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<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
4.5 Certificate of Designation, Rights and Preferences of $11.94 Cumulative Redeemable Preferred Stock of
Sunshine, filed as Exhibit 3.3 to Sunshine's Registration Statement on Form S-4 (Registration No.
33-22250) and incorporated herein by reference.
4.6 Specimen Stock Certificate of the Common Stock, $0.01 par value, of Sunshine, filed as Exhibit 4.2 to
Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446) as amended, and incorporated
herein by reference.
4.7 Form of Indenture dated as of July 15, 1988, between Sunshine and MTrust Corp., National Association,
with respect to Sunshine's Convertible Subordinated Debentures due July 15, 2008, filed as Exhibit
4.25 to Sunshine's Registration Statement on Form S-3 (Registration No. 33-21159) and incorporated
herein by reference.
4.8 First Supplemental Indenture, dated as of August 8, 1988, Second Supplemental Indenture dated as of
November 10, 1988, and Third Supplemental Indenture, dated as of April 10, 1991, by and between the
Company and Ameritrust Texas, N.A., the successor to MTrust Corp., National Association relating to
the issuance of the Debentures, filed as Exhibit 4.3 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by reference.
*4.9 Form of Supplemental Warrant Agreement dated as of [________] between Sunshine Merger Company and
American Stock Transfer & Trust Company, as Warrant Agent, relating to the Warrants ($2.12 exercise
price).
*5.1 Opinion of Evans, Keane.
*8.1 Opinion of Hawley, Troxell, Ennis & Hawley.
10.1 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.9 to Sunshine's Annual
Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by reference.
10.2 Amendment No. 1 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.8
to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and
incorporated herein by reference.
10.3 Amendment No. 2 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.1
to Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1994, and incorporated
herein by reference.
10.4 1993 Incentive Stock Option Plan of Sunshine, filed as Exhibit 10.18 to Sunshine's Registration
Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference.
10.5 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and John
S. Simko, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-
73608), as amended and incorporated herein by reference.
10.6 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and
William W. Davis, filed as Exhibit 10.9 to Sunshine's Registration Statement on Form S-1 (Registration
No. 33-73608), as amended and incorporated herein by reference.
10.7 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Robert
H. Peterson, filed as Exhibit 10.10 to Sunshine's Registration Statement on Form S-1 (Registration No.
33-73608), as amended and incorporated herein by reference.
</TABLE>
II-4
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
10.8 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Harry
F. Cougher, filed as Exhibit No. 10.10 to Sunshine's Annual Report on Form 10-k for the fiscal year
ended December 31, 1993, and incorporated herein by reference.
10.9 Mining Lease, dated March 15, 1994, by and between Revenue-Virginius Mines Corporation, a Colorado
corporation, as lessor, and Sunshine, as lessee, filed as Exhibit No. 10.1 to Sunshine's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, and incorporated herein by reference.
10.10 Agreement dated March 24, 1994, by and between Diamond Field Resources, Inc., and Sunshine, filed as
Exhibit No. 10.2 to Sunshine's Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference.
10.11 Mining Lease, dated August 18, 1994, by and between American Gold Resources Corporation, a Delaware
corporation, as lessor, and Sunshine Precious Metals, Inc., as lessee, filed as Exhibit No. 10.1 to
Sunshine's Quarterly Report on Form 10-Q for the period ended September 30, 1994, and incorporated
herein by reference.
10.12 Agreement dated September 23, 1994 by and between Sunshine Argentina, Inc. and Empresa Argentina de
Cemento Armado S.A., filed as Exhibit No. 10.12 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and incorporated herein by reference.
10.13 Agreement dated July 1, 1995 by and between Consolidated Silver Corporation and Sunshine Precious
Metals, Inc., as purchaser, for the purchase of a certain mining property, filed as Exhibit 10.1 to
Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1995, and incorporated herein
by reference.
22.1 Subsidiaries of Sunshine, filed as Exhibit 22.1 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by reference.
*23.1 Consent of Ernst & Young LLP.
***24.1 Power of attorney of the officers and directors of the Company, included on the signature page hereof.
99.1 Agreement dated October 19, 1995, by and between Sunshine and Elliott Associates, L.P., filed as
Exhibit 99.1 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
99.2 Agreement dated October 23, 1995, by and between Sunshine and Grace Holdings, L.P., filed as Exhibit
99.2 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
99.3 Agreement dated October 20, 1995, by and between Sunshine and Lloyd I. Miller, III, filed as Exhibit
99.3 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
*99.4 Form of Proxy for holders of Common Stock.
*99.5 Form of Proxy for holders of $11.94 (Stated Value) Cumulative Redeemable Preferred Stock.
*99.6 Form of Transmittal Letter to Common and Preferred Stockholders.
</TABLE>
__________________________________
* Filed herewith/** To be filed/*** Previously filed.
II-5
<PAGE> 113
b. FINANCIAL STATEMENT SCHEDULES
Schedules other than those included in the Consolidated Financial
Statements, if any, are omitted for the reason that they are either not
required, not applicable or the required information is included in the
Consolidated Financial Statements or notes thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(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) 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 percent 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;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8, or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference 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.
(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who maybe
II-6
<PAGE> 114
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-7
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement or amendment thereto, as the case may
be, to be signed on its behalf by the undersigned thereunto duly authorized, in
the City of Dallas, State of Texas, on December 27, 1995.
SUNSHINE MERGER COMPANY
By: /s/ William W. Davis
----------------------------------
William W. Davis
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed by the following
persons in the capacities indicated December 27, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
<S> <C>
* John S. Simko Director, President and
- ---------------------------
John S. Simko Chief Executive Officer
Director
- --------------------------- -
G. Chris Andersen
* Fred C. Humphreys Director
- --------------------------
Fred C. Humphreys
* Daniel D. Jackson Director
- ---------------------------
Daniel D. Jackson
* V. Dale Babbitt Director
- ---------------------------
V. Dale Babbitt
/s/ William W. Davis Executive Vice President,
- ---------------------------
William W. Davis Chief Financial and
Accounting Officer
Director
- ---------------------------
Robert B. Smith, Jr.
* Oren G. Shaffer Director
- ---------------------------
Oren G. Shaffer
/s/ William W. Davis
- ---------------------------
William W. Davis
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
2.1 Form of Agreement and Plan of Merger to be entered into by and among Sunshine and Sunshine Merger
Company, annexed as Exhibit A to the Prospectus/Proxy Statement and incorporated herein by reference.
3.1 Form of Certificate of Incorporation of Sunshine Merger Company annexed as Exhibit B to the
Prospectus/Proxy Statement and incorporated herein by reference.
*3.2 Form of Bylaws of Sunshine Merger Company.
*4.1 Form of Warrant Agreement, dated as of [ ], between Sunshine Merger Company and American Stock
Transfer & Trust Company, as Warrant Agent.
4.2 Form of Warrant Agreement, dated as of February 3, 1994, between Sunshine and American Stock Transfer
& Trust Company, as Warrant Agent, filed as Exhibit 4.3 to Sunshine's Registration Statement on Form
S-1 (Registration No. 33-73608), as amended and incorporated herein by reference.
**4.3 Form of Warrant Certificate.
4.4 Form of Warrant Certificate, filed as Exhibit 4.4 to Sunshine's Registration Statement on Form S-1
(Registration No. 33-73608), as amended and incorporated herein by reference.
4.5 Certificate of Designation, Rights and Preferences of $11.94 Cumulative Redeemable Preferred Stock of
Sunshine, filed as Exhibit 3.3 to Sunshine's Registration Statement on Form S-4 (Registration No.
33-22250) and incorporated herein by reference.
4.6 Specimen Stock Certificate of the Common Stock, $0.01 par value, of Sunshine, filed as Exhibit 4.2 to
Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446) as amended, and incorporated
herein by reference.
4.7 Form of Indenture dated as of July 15, 1988, between Sunshine and MTrust Corp., National Association,
with respect to Sunshine's Convertible Subordinated Debentures due July 15, 2008, filed as Exhibit
4.25 to Sunshine's Registration Statement on Form S-3 (Registration No. 33-21159) and incorporated
herein by reference.
4.8 First Supplemental Indenture, dated as of August 8, 1988, Second Supplemental Indenture dated as of
November 10, 1988, and Third Supplemental Indenture, dated as of April 10, 1991, by and between the
Company and Ameritrust Texas, N.A., the successor to MTrust Corp., National Association relating to
the issuance of the Debentures, filed as Exhibit 4.3 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990, and incorporated herein by reference.
*4.9 Form of Supplemental Warrant Agreement dated as of [________] between Sunshine Merger Company and
American Stock Transfer & Trust Company, as Warrant Agent, relating to the Warrants ($2.12 exercise
price).
*5.1 Opinion of Evans, Keane.
*8.1 Opinion of Hawley, Troxell, Ennis & Hawley.
10.1 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.9 to Sunshine's Annual
Report on Form 10-K for the fiscal year ended December 31, 1986, and incorporated herein by reference.
10.2 Amendment No. 1 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.8
to Sunshine's Registration Statement on Form S-1 (Registration No. 33-63446), as amended and
incorporated herein by reference.
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
10.3 Amendment No. 2 to the 1987 Employee Nonqualified Stock Option Plan of Sunshine, filed as Exhibit 10.1
to Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1994, and incorporated
herein by reference.
10.4 1993 Incentive Stock Option Plan of Sunshine, filed as Exhibit 10.18 to Sunshine's Registration
Statement on Form S-1 (Registration No. 33-63446), as amended and incorporated herein by reference.
10.5 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and John
S. Simko, filed as Exhibit 10.8 to Sunshine's Registration Statement on Form S-1 (Registration No. 33-
73608), as amended and incorporated herein by reference.
10.6 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and
William W. Davis, filed as Exhibit 10.9 to Sunshine's Registration Statement on Form S-1 (Registration
No. 33-73608), as amended and incorporated herein by reference.
10.7 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Robert
H. Peterson, filed as Exhibit 10.10 to Sunshine's Registration Statement on Form S-1 (Registration No.
33-73608), as amended and incorporated herein by reference.
10.8 Form of Executive Employment Agreement entered into as of January 1, 1994, between Sunshine and Harry
F. Cougher, filed as Exhibit No. 10.10 to Sunshine's Annual Report on Form 10-k for the fiscal year
ended December 31, 1993, and incorporated herein by reference.
10.9 Mining Lease, dated March 15, 1994, by and between Revenue-Virginius Mines Corporation, a Colorado
corporation, as lessor, and Sunshine, as lessee, filed as Exhibit No. 10.1 to Sunshine's Quarterly
Report on Form 10-Q for the period ended March 31, 1994, and incorporated herein by reference.
10.10 Agreement dated March 24, 1994, by and between Diamond Field Resources, Inc., and Sunshine, filed as
Exhibit No. 10.2 to Sunshine's Quarterly Report on Form 10-Q for the period ended March 31, 1994, and
incorporated herein by reference.
10.11 Mining Lease, dated August 18, 1994, by and between American Gold Resources Corporation, a Delaware
corporation, as lessor, and Sunshine Precious Metals, Inc., as lessee, filed as Exhibit No. 10.1 to
Sunshine's Quarterly Report on Form 10-Q for the period ended September 30, 1994, and incorporated
herein by reference.
10.12 Agreement dated September 23, 1994 by and between Sunshine Argentina, Inc. and Empresa Argentina de
Cemento Armado S.A., filed as Exhibit No. 10.12 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and incorporated herein by reference.
10.13 Agreement dated July 1, 1995 by and between Consolidated Silver Corporation and Sunshine Precious
Metals, Inc., as purchaser, for the purchase of a certain mining property, filed as Exhibit 10.1 to
Sunshine's Quarterly Report on Form 10-Q for the period ended June 30, 1995, and incorporated herein
by reference.
22.1 Subsidiaries of Sunshine, filed as Exhibit 22.1 to Sunshine's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated herein by reference.
*23.1 Consent of Ernst & Young LLP.
***24.1 Power of attorney of the officers and directors of the Company, included on the signature page hereof.
99.1 Agreement dated October 19, 1995, by and between Sunshine and Elliott Associates, L.P., filed as
Exhibit 99.1 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<S> <C>
99.2 Agreement dated October 23, 1995, by and between Sunshine and Grace Holdings, L.P., filed as Exhibit
99.2 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
99.3 Agreement dated October 20, 1995, by and between Sunshine and Lloyd I. Miller, III, filed as Exhibit
99.3 to Sunshine's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1995, and
incorporated herein by reference.
*99.4 Form of Proxy for holders of Common Stock.
*99.5 Form of Proxy for holders of $11.94 (Stated Value) Cumulative Redeemable Preferred Stock.
*99.6 Form of Transmittal Letter to Common and Preferred Stockholders.
</TABLE>
__________________________________
* Filed herewith/** To be filed/*** Previously filed.
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
SUNSHINE MERGER COMPANY
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle, and the name of its registered agent shall be The Corporation
Trust Company.
Section 1.2 Other offices. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meeting. All meetings of stockholders for the
election of directors shall be held at such place, either within or without the
State of Delaware, as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting.
Section 2.2 Annual Meeting. The annual meeting of stockholders shall
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting.
Section 2.3 Voting List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list
required by this Section 2.3 or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders.
<PAGE> 2
Section 2.4 Special Meeting. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, the
President or by the Board of Directors or by written order of a majority of the
directors. The President or directors so calling any such meeting shall fix
the time and any place, either within or without the State of Delaware, as the
place for holding such meeting.
Section 2.5 Notice of Meeting. Written notice of each meeting of
stockholders, stating the place, date and hour of the meeting, and in the case
of a special meeting, the purpose or purposes for which the meeting is called,
shall be given to each stockholder entitled to vote thereat not less than ten
(10) nor more than sixty (60) days before the meeting.
Section 2.6 Quorum. The holders of a majority of the shares of
capital stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders for the transaction of business, except as otherwise provided by
statute or by the Certificate of Incorporation. Notwithstanding the other
provisions of these bylaws, the holders of a majority of the shares of capital
stock entitled to vote thereat, present in person or represented by proxy,
whether or not a quorum is present, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the original meeting.
Section 2.7 Voting. When a quorum is present at any meeting of the
stockholders, the vote of the holders of a majority of the shares of capital
stock entitled to vote thereon, present in person or represented by proxy,
shall decide any question brought before such meeting, unless the question is
one upon which, by express provision of the statutes, of the Certificate of
Incorporation or of these bylaws, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
Every stockholder having the right to vote shall be entitled to vote in person,
or by proxy appointed by an instrument in writing subscribed by such
stockholder, bearing a date not more than three years prior to voting, unless
such instrument provides for a longer period, and filed with the Secretary of
the corporation before, or at the time of, the meeting. If such instrument
shall designate two or more persons to act as proxies, unless such instrument
shall provide to the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby
BYLAWS - 2
<PAGE> 3
conferred, or if only one be present, then such powers may be exercised by that
one, or, if an even number attend and a majority do not agree on any particular
issue, each proxy so attending shall be entitled to exercise such powers in
respect of the shares proportionately.
Section 2.8 Consent of Stockholders. Any action required by statute
to be taken at any annual or special meeting of stockholders, or any action
which may be taken, at any annual or special meeting of stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be required by statute, the Certificate of Incorporation or these bylaws
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted; provided, however, that prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Section 2.9 Voting of Stock of Certain Holders. Shares standing in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors or a duly authorized
managing director of such corporation may determine. Shares standing in the
name of a deceased person may be voted by the executor or administrator of such
deceased person, either in person or by proxy. Shares standing in the name of
a guardian, conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no such fiduciary shall be entitled to vote shares held
in such fiduciary capacity without a transfer of such shares into the name of
such fiduciary. Shares standing in the name of a receiver may be voted by such
receivers. A stockholder whose shares are pledged shall be entitled to vote
such shares, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent the stock and vote thereon.
Section 2.10 Treasury Stock. The corporation shall not vote,
directly or indirectly, shares of its own stock owned by it; and such shares
shall not be counted in determining the total number of issued and outstanding
shares for the purposes of determining the presence of a quorum at any meeting
of stockholders.
Section 2.11 Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or
BYLAWS - 3
<PAGE> 4
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than
sixty (60) nor less than ten (10) days before the date of such meeting no more
than sixty (60) days prior to any other action, for the determination of the
stockholders entitled to notice of and to vote at, any such meeting or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action. If the Board of Directors fix, in advance, a record
date as herein provided, then, in such case, such stockholders, and only such
stockholders, as shall be stockholders of record on the date so fixed shall be
entitled to such notice of , and to vote at, any such meeting or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, as the case may be, notwithstanding any transfer of
any stock on the books of the corporation after any such record date is fixed
as aforesaid.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 Powers. The business and affairs of the corporation
shall be managed by or under the direction of its Board of Directors, which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
bylaws directed or required to be exercised or done by the stockholders.
Section 3.2 Number, Selection and Term. The number of directors
which shall constitute the whole Board shall from time to time be fixed and
determined by resolution adopted by the Board of Directors. The number to be
elected at any meeting of stockholders shall be set forth in the notice of any
meeting of stockholders held for such purpose. The directors shall be elected
at the annual meeting of stockholders, except as provided in Section 3.3, and
each director elected shall hold office until his successor shall be elected
and shall qualify, or until his earlier death, resignation, retirement,
disqualification or removal. Directors need not be residents of Delaware or
stockholders of the corporation.
Section 3.3 Vacancies, Additional Directors and Removal From Office.
If any vacancy occurs in the Board of Directors caused by the death,
resignation, retirement, disqualification or removal from office of any
director, or otherwise, or if any new
BYLAWS - 4
<PAGE> 5
directorship is created by an increase in the authorized number of directors, a
majority of the directors then in office, though less than a quorum, or a sole
remaining director, may choose a successor to fill such vacancy or the newly
created directorship, and a director so chosen shall hold office for a term
that shall coincide with the term of the class, if any, to which such director
shall have been elected and until his successor is duly elected and qualified,
or until his earlier resignation or removal. Any director may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors at any special meeting of stockholders duly
called and held for such purpose.
Section 3.4 Resignation. Any director may resign at any time by
written notice to the corporation. Any such resignation shall take effect at
the date of receipt of such notice or at any later time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective. Any director who does not, for any
reason whatsoever, stand for election at any meeting of stockholders called for
such purpose shall be conclusively deemed to have resigned, effective as of the
date of such meeting, for the purposes of these bylaws, and the corporation
need not receive any written notice to evidence such resignation.
Section 3.5 Regular Meeting. A regular meeting of the Board of
Directors shall be held each year, without other notice then this bylaw, at the
place of, and immediately following, the annual meeting of stockholders, and
other regular meetings of the Board of Directors shall be held each year, at
such time and place as the Board of Directors may provide, by resolution,
either within or without the State of Delaware, without other notice than such
resolution.
Section 3.6 Special Meeting. A special meeting of the Board of
Directors may be called by the Chairman of the Board or by the President. The
Chairman or President so calling any such meeting shall fix the time and any
place, either within or without the State of Delaware, as the place for holding
such meeting.
Section 3.7 Notice of Special Meeting. Written notice of special
meetings of the Board of Directors shall be given to each director at least
forty-eight (48) hours prior to the time of such meeting. Any director may
waive notice of any meeting. The attendance of a director at any meeting shall
constitute a waiver of notice of such meeting, except where a director attends
a meeting solely for the purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting, except that notice shall be given with respect to any matter to be
acted upon at such special meeting where notice is required by statute.
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Section 3.8 Quorum. A majority of the Board of Directors shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board of Directors, except
as may be otherwise specifically provided by statute, by the Certificate of
Incorporation or by these bylaws. If a quorum shall not be present at any
meeting of the Board of Directors, a majority of the directors present thereat,
though less than a quorum, may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 3.9 Action Without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof as provided in Article IV of these bylaws, may be taken
without a meeting, if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
Section 3.10 Compensation. Directors, as such, shall not be entitled
to any stated salary for their services unless voted by the stockholders or the
Board of Directors; but by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board of Directors or any meeting of a
committee of directors. No provision of these bylaws shall be construed to
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
ARTICLE IV
COMMITTEE OF DIRECTORS
Section 4.1 Designation, Powers and Name. The Board of Directors
may, by resolution passed by a majority of the whole Board, designate one or
more committees, including, if they shall so determine, an Executive Committee,
each such committee to consist of two or more of the directors of the
corporation. The committee shall have and may exercise such of the powers of
the Board of Directors in the management of the business and affairs of the
corporation as may be provided in such resolution, provided, however, that no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, provided further, that, unless
the resolution establishing the committee expressly so provides, no such
committee shall have the power
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or authority to declare a dividend or to authorize the issuance of stock. The
committee may authorize the seal of the corporation to be affixed to all papers
which may require it. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting.
Section 4.2 Minutes. Each committee of directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
Section 4.3 Compensation. Members of special or standing committees
may be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
ARTICLE V
NOTICE
Section 5.1 Methods of Giving Notice. Whenever under the provisions
of any statute, the Certificate of Incorporation or these Bylaws notice is
required to be given to any director, member of any committee or stockholder,
such notice shall be in writing and delivered personally or mailed to such
director, member or stockholder; provided, however, that in the case of a
director or a member of any committee, such notice, unless required by statute,
the Certificate of Incorporation or these bylaws to be in writing, may be given
orally or by telephone or telegram. If mailed, notice to a director, member of
a committee or stockholder shall be deemed to be given when deposited in the
United States mail first class in a sealed envelope, with postage thereon
prepaid, addressed, in the case of a stockholder, to the stockholder at the
stockholder's address as it appears on the records of the corporation or, in
the case of a director or a member of a committee, to such person at his
business address. If sent by telegraph, notice to a director or member of a
committee shall be deemed to be given when the telegram, so addressed, is
delivered to the telegraph company.
Section 5.2 Written Waiver. Whenever any notice is required to be
given under the provisions of any statute, the Certificate of Incorporation or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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ARTICLE VI
OFFICERS
Section 6.1 Officers. The officers of the corporation shall be a
Chairman of the Board (who may be designated the Chief Executive Officer or the
Chief Operating Officer) and a Vice Chairman of the Board (if such office be
created by resolution adopted by the Board), a President (who may also be
designated the Chief Executive Officer or the Chief Operating Officer), one or
more Vice Presidents (any one or more of whom may be designated Executive Vice
President or the Senior vice President and any one of whom may also be
designated as the Chief Operating Officer or the Chief Financial Officer), a
Secretary and a Treasurer. The Board of Directors may by resolution create the
office of Vice Chairman of the Board and define the duties of such office. The
Board of Directors may appoint such other officers and agents, including
Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, as
it shall deem necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined by the
Board. Any two or more offices, other than the offices of President and
Secretary, may be held by the same person. No officer shall execute,
acknowledge, verify or countersign any instrument on behalf of the corporation
in more than one capacity, if such instrument is required by law, by these
bylaws or by any act of the corporation to be executed, acknowledged, verified
or countersigned by two or more officers. The Chairman and Vice Chairman of
the Board and the President shall be elected from among the directors. With
the foregoing exceptions, none of the other officers need be a director, and
none of the officers need be a stockholder of the corporation.
Section 6.2 Election and Term of Office. The officers of the
corporation shall be elected annually by the Board of Directors at its first
regular meeting held after the annual meeting of stockholders or as soon
thereafter as conveniently practicable. Each officer shall hold office until
his successor shall have been elected or appointed and shall have qualified or
until his death or the effective date of his resignation or removal, or until
he shall cease to be a director in the case of the Chairman and Vice Chairman
of the Board or the President.
Section 6.3 Removal and Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the corporation shall be served thereby, but
such removal shall be without prejudice to the contractual rights, if any, of
the person so removed. Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take effect at the
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date of the receipt of such notice or at any later time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 6.4 Vacancies. Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
Section 6.5 Salaries. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or pursuant to its
direction; and no officer shall be prevented from receiving such salary by
reason of his also being a director.
Section 6.6 Chairman of the Board. The Chairman of the Board (who
may also hold the office of President or other offices) shall preside at all
meetings of the Board of Directors or of the stockholders of the corporation.
In the Chairman's absence, such duties shall be attended to by the Vice
Chairman of the Board or the President. The Chairman shall formulate and
submit to the Board of Directors or the Executive Committee matters of general
policy for the corporation and shall perform such other duties as usually
appertain to the office and such other duties as may be prescribed by the
stockholders, the Board of Directors or the Executive Committee from time to
time. If the Chairman be so designated, he shall also serve as the Chief
Executive Officer of the corporation and shall perform such other duties
exercise such other powers as usually appertain to such title, including,
without limitation, the power to appoint and remove subordinate officers,
agents and employees, including Assistant Secretaries and Assistant Treasurers,
except that the Chairman may not remove those elected or appointed by the Board
of Directors. The Chairman of the Board may sign, with the Secretary or any
other. officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any deed, bonds,
mortgages, contracts, checks, notes, drafts or other instruments the issue or
execution of which shall have been authorized by resolution of the Board of
Directors, except in cases where the signing and execution thereof has been
expressly delegated by these bylaws or by the Board of Directors to some other
officer or agent of the corporation, or shall be required by law to be
otherwise executed.
Section 6.7 President. In the absence of the Chairman of the Board
or the Vice Chairman of the Board (if such office be created by the Board), or
in the event of their inability or refusal to act, the President shall preside
at all meetings of the Board of Directors and of the stockholders. The
President may also preside at any such meeting attended by the Chairman or Vice
Chairman of the Board if so designated by the Chairman, or in the Chairman's
absence, by the Vice Chairman. If the President be designated as the Chief
Executive Officer of the corporation, the President shall perform
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such duties and exercise such powers as usually appertain to such title and
such other duties as may be prescribed by the stockholders, the Board of
Directors or the Executive Committee from time to time. The President, if
designated as the Chief Executive Officer of the corporation, shall have the
power to appoint and remove subordinate officers, agents and employees,
including Assistant Secretaries and Assistant Treasurers, except that the
President may not remove those elected or appointed by the Board of Directors.
The President shall keep the Board of Directors and the Executive Committee
fully informed and shall consult them concerning the business of the
corporation. The President may sign, with the Secretary or any other officer
of the corporation thereunto authorized by the Board of Directors, certificates
for shares of the corporation and any deeds, bonds, mortgages, contracts,
checks, notes, drafts or other instruments the issue or execution of which
shall have been authorized by resolution of the Board of Directors, except in
cases where the signing and execution thereof has been expressly delegated by
these bylaws or by the Board of Directors to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed. The
President shall vote, or give a proxy to any other officer of the corporation
to vote, all shares of stock of any other corporation standing in the name of
the corporation. In general, the President shall perform all other duties
normally incident to or as usually appertain to the office of the President and
such other duties as may be prescribed by the stockholders, the Board of
Directors of the Executive Committee from time to time.
Section 6.8 Vice Presidents. In the absence of the President, or in
the event of his inability or refusal to act, the Executive Vice President (or
in the event there shall be no Vice President designated Executive Vice
President, any Vice President designated by the Board) shall perform the duties
and exercise the powers of the President. Any Vice President may sign, with
the Secretary or Assistant Secretary, certificates for shares of the
corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts
or other instruments the issue or execution of which shall have been authorized
by resolution of the Board of Directors, except in cases where the signing and
execution thereof has been expressly delegated by these bylaws or by the Board
of Directors to some other officer or agent of the corporation, or shall be
required by law to be otherwise executed. The Vice Presidents shall perform
such other duties as from time to time may be assigned to them by the Chairman
of the Board, the President, the Board of Directors or the Executive Committee.
Section 6.9 Secretary. The Secretary shall (a) record the
proceedings of the meetings of the stockholders, the Board of Directors and
committees of directors in the permanent minute books of the corporation kept
for that purpose; (b) see that all notices are duly given in accordance with
the provisions of these bylaws and as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation or a facsimile thereof is affixed to all certificates for
shares
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of the corporation prior to the issue thereof and to all documents, the
execution of which on behalf of the corporation under its seal is duly
authorized in accordance with the provisions of these bylaws; (d) keep or cause
to be kept a register of the post office address of each stockholder which
shall be furnished by such stockholder; (e) sign with the Chairman of the
Board, the President, or an Executive Vice President or Vice President,
certificates for shares of the corporation and any deeds, bonds, mortgages,
contracts, checks, notes, drafts or other instruments the issue or execution of
which shall have been authorized by resolution of the Board of Directors,
except in cases where the signing and execution thereof has been expressly
delegated by these bylaws or by the Board of Directors to some other officer or
agent of the corporation, or shall be required by law to be otherwise executed;
(f) have general charge of the stock transfer books of the corporation; and (g)
in general, perform all duties normally incident to the office of Secretary and
such other duties as from time to time may be assigned by the Chairman of the
Board, the President, the Board of Directors or the Executive Committee.
Section 6.10 Treasurer. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his or her duties in
such sum and with such surety or sureties as the Board of Directors shall
determine. The Treasurer shall (a) have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Section 7.3 of these bylaws; (b) prepare, or cause to be
prepared, for submission at each regular meeting of the Board of Directors, at
each annual meeting of the stockholders, and at such other times as may be
required by the Board of Directors, the Chairman of the Board, the President or
the Executive Committee, a statement of financial.condition of the corporation
in such detail as may be required; (c) sign with the Chairman of the Board, the
President, or an Executive Vice President or Vice President, certificates for
shares of the corporation and any deeds, bonds, mortgages, contracts, checks,
notes, drafts or other instruments the issue or execution of which shall have
been authorized by resolution of the Board of Directors, except in cases where
the signing and execution thereof has been expressly delegated by these bylaws
or by the Board of Directors to some other officer or agent of the corporation,
or shall be required by law to be otherwise executed, and (d) in general,
perform all the duties incident to the office of Treasurer and such other
duties as from time to time may be assigned by the Chairman of the Board, the
President, the Board of Directors or the Executive Committee.
Section 6.11 Assistant Secretary or Treasurer. The Assistant
Secretaries and Assistant Treasurers shall, in general, perform such duties as
shall be assigned to them by the Secretary or the Treasurer, respectively, or
by the Chairman of the Board, the President, the Board of Directors or the
Executive Committee. The Assistant Secretaries
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and Assistant Treasurers shall, in the absence of the Secretary or Treasurer,
respectively, or in their respective inability or refusal to act, perform all
functions and duties which such absent officers may delegate, but such
delegation shall not relieve the absent officer from the responsibilities and
liabilities of their office. The Assistant Secretaries may sign, with the
Chairman of the Board, the President or Executive Vice President, certificates
for shares of the corporation and any deeds, bonds, mortgages, contracts,
checks, notes, drafts or other instruments the issue or execution of which
shall have been authorized by a resolution of the Board of Directors, except in
cases where the signing and execution thereof has been expressly delegated by
these bylaws or by the Board of Directors to some other officer or agent of the
corporation, or shall be required by law to be otherwise executed. The
Assistant Treasurers shall respectively, if require by the Board of Directors,
give bonds for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine.
Section 6.12 General Counsel. The General Counsel shall be the chief
legal officer of the corporation; shall advise the Board of Directors and
officers on all legal matters, and shall perform such other additional duties
as may be assigned to him by the Board of Directors, Chairman or Chief
Executive Officer.
ARTICLE VII
CONTRACTS, CHECKS AND DEPOSITS
Section 7.1 Contracts. Subject to the provisions of Section 6.1, the
Board of Directors may authorize any officer, officers, agent or agents, to
enter into any contract or execute and deliver any instrument for and in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
Section 7.2 Checks, etc. All checks, demands, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in
the name of the corporation, shall be signed by such officer or officers or
such agent or agents of the corporation, and in such manner, as shall be
determined by the Board of Directors.
Section 7.3 Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
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ARTICLE VIII
CERTIFICATES OF STOCK
Section 8.1 Insurance. Each stockholder of this corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in such stockholder's name on the books of the corporation. The
certificates shall be in such form as may be determined by the Board of
Directors, shall be issued in numerical order and shall be entered in the books
of the corporation as they are issued. They shall exhibit the holder's name
and number of shares and shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary.
Any or all the signatures on the certificate may be a facsimile. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and rights shall be set forth in full or summarized on the
face or back of the certificate which the corporation shall issue to represent
such class or series of stock; provided, however, that, except as otherwise
provided by statute, in lieu of the foregoing requirements, there may be set
forth on the face or back of the certificate which the corporation shall issue
to represent such class or series of stock, a statement that the corporation
will furnish without charge to each stockholder who so requests a copy of the
powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
All certificates surrendered to the corporation for transfer shall be canceled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in the
case of a lost, stolen, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and with such indemnity, if any, to the
corporation as the Board of Directors may prescribe. Certificates shall not be
issued representing fractional shares of stock.
Section 8.2 Lost Certificates. The corporation may issue a new
certificate or certificates in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. The corporation may
in its discretion and a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a bond sufficient to indemnify it against any claim
that may be made against the corporation with respect to the certificate or
certificates alleged to have been lost, stolen or destroyed or the issuance of
such new certificate.
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Section 8.3 Transfers. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the
books of the corporation by the registered holder thereof, or by such holder's
attorney thereunto authorized by power of attorney and filed with the Secretary
of the corporation or the transfer agent.
Section 8.4 Registered Stockholders. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of Delaware.
ARTICLE IX
DIVIDENDS
Section 9.1 Declaration. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 9.2 Reserve. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
INDEMNIFICATION
Section 10.1 Third Party Actions. The corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or
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investigative (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, trustee, officer,
employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, 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 such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person 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 reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contenders or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person 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 reasonable cause to believe that such
person's conduct was unlawful.
Section 10.2 Derivative Actions. The corporation shall 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 the corporation's favor by reason of the
fact that such person is or was a director, trustee, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and amounts paid in settlement actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to amounts paid in settlement, the settlement of
the suit or action was in the best interests of the corporation, provided,
however, that no indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
gross negligence or wilful misconduct in the performance of such person's duty
to the corporation unless and only to the extent that, the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of such liability, but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper. The termination of any action or
suit by judgment or settlement shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
corporation.
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Section 10.3 Successful Defense. To the extent that a director,
trustee, officer, employee or agent of the corporation has been successful on
the merits or otherwise, in whole or in part, in defense of any action, suit or
proceeding referred to in Sections (1) and (2) of this Article X, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 10.4. Authorization. Any indemnification under Sections (1)
and (2) of this Article X (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, trustee, officer, employee or agent is proper
in the circumstances because such person has met the applicable standard of
conduct set forth above in Sections (1) and (2) of this Article X. Such
determination shall be made (a) by the Board of Directors of the corporation by
a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, by
a majority vote of directors who were not parties to such action, suit or
proceeding, or (c) by independent legal counsel (selected by one or more of the
directors, whether or not a quorum and whether or not disinterested) in a
written opinion, or (d) by the shareholders. Anyone making such a
determination under this Section (4) may determine that a person has met the
standard therein set forth as to some claims, issues or matters but not as to
others, and may reasonably prorate amounts to be paid as indemnification.
Section 10.5 Advances. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the corporation, at any
time or from time to time in advance of the final disposition of such action,
suit or proceeding as authorized in the manner provided in Section 10.4 of this
Article X upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he is entitled to be indemnified by the
corporation as authorized in this Article X.
Section 10.6 Non-Exclusivity. The indemnification provided by this
Article X shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any law, bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
trustee, officer, employee or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
Section 10.7 Insurance. The corporation shall have the powers to
purchase and maintain insurance on behalf of any person who is or was a
director, trustee, officer, employee or agent of the corporation, or is or was
serving at the request of the
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corporation as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such
liability.
Section 10.8 "Corporation" Defined. For purposes of this Article X,
references to the "corporation" shall include, in addition to the corporation,
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
trustees, officers, employees or agents, so that any person who is or was a
director, trustee, officer, employee or agent of such constituent corporation
or of any entity a majority of the voting stock of which is owned by such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article X with
respect to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence had
continued.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Seal. The corporate seal shall have inscribed thereon
the name of the corporation, and the words "Corporate Seal, Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or otherwise reproduced.
Section 11.2 Books. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at the offices of the corporation at Dallas, Texas, or at such other
place or places as may be designated from time to time by the Board of
Directors.
ARTICLE XII
AMENDMENT
These, bylaws may be altered, amended or repealed at any regular or
special meeting of the Board of Directors, without prior notice, by resolution
adopted thereat.
BYLAWS - 17
<PAGE> 1
EXHIBIT 4.1
SUNSHINE MERGER COMPANY
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
------------------------------------------------
AS WARRANT AGENT
------------------------------------------------
WARRANT AGREEMENT
DATED AS OF [ ]
------------------------------------------------
<PAGE> 2
WARRANT AGREEMENT
TABLE OF CONTENTS
<TABLE>
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RECITALS: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Appointment of Warrant Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Issuance. Form and Execution of Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Issuance of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Form of Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Execution of Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Temporary Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Procedures for Global Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 3. Registration: Countersignature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.1 Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.2 Countersignature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4. Transfer and Registration of Warrants and Warrant Shares. . . . . . . . . . . . . . . . . . . . . . 4
4.1 Disposition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.2 Registration Undertakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 5. Registration of Transfers: Exchanges of Warrant Certificates. . . . . . . . . . . . . . . . . . . . 4
5.1 Registration of Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2 Exchanges of Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 6. Term of Warrants; Exercise of Warrants; Exercise Price. . . . . . . . . . . . . . . . . . . . . . . 5
6.1 Term of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.2 Exercise of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.3 Exercise Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 7. Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 8. Mutilated or Missing Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 9 Reservation of Warrant Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.1 Reservation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9.2 Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 10. Adjustments to Exercise Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10.1 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Reclassification, Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Adjustment for Change in Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(c) Adjustments to Exercise Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.2 Notice of Adjustment to Exercise Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.3 Voluntary Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10.4 Deferral of Issuance or Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.5 Form of Warrant Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.6 No Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 11. Fractional Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<TABLE>
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SECTION 12. Notices to Warrantholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 13. Reports to Warrantholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 14. Concerning the Warrant Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14.1 Warrant Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14.2 Conditions of Warrant Agent's Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
14.3 Resignation and Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 15. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 16. Identity of Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 17. Notices and Demands to the Company and Warrant Agent. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 18. Notices to Company and Warrant Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 19. Notices to Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 20. Provision of Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 21. Amendment; Merger; Consolidation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 22. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 23. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 24. Benefits of this Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 25. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 26. Severability of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 27. Obtaining of Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 28. Delivery of Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<PAGE> 4
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of [ ] ("Agreement"),
between SUNSHINE MERGER COMPANY, a Delaware corporation (the "Company"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY, a New York corporation, as Warrant
Agent (with any successor warrant agent, the "Warrant Agent").
RECITALS:
WHEREAS, the Company entered into an Agreement and Plan of Merger
dated [ , 1995] with Sunshine Mining and Refining
Company, upon the consummation of which the Company will be the surviving
entity (the "Merger"), incident to which all of the $11.94 (Stated Value)
Preferred Stock (the "Preferred Stock") of Sunshine Mining and Refining Company
will be canceled and extinguished in its entirety;
WHEREAS, incident to the Merger, the Company is issuing to the holders
Preferred Stock, for each share of Preferred Stock held, [ ] shares of the
Company's common stock, par value $.01 (the "Common Stock") and, at the option
of the holder, either .9 shares of Common Stock or two warrants each to
purchase one share of Common Stock (such warrants being herein referred to as
the "Warrants" and the certificates evidencing the Warrants being herein
referred to as "Warrant Certificates") at the exercise price and on the terms
and subject to the conditions set forth herein. The shares of Common Stock
and, pursuant to Section 10 hereof, other securities issuable upon exercise of
the Warrants, are referred to herein as the "Warrant Shares";
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, transfer, exchange and exercise of Warrants and other matters as
provided herein; and
WHEREAS, the Company and the Warrant Agent wish to define the terms
and provisions of the Warrants and the respective rights and obligations
thereunder of the Company and the registered holders of the Warrants (such
registered holders being herein referred to as the "Warrantholders").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Issuance. Form and Execution of Warrant Certificates.
2.1 Issuance of Warrants. Warrants shall be originally issued by
the Company in connection with the Merger.
Each Warrant Certificate shall evidence the number of Warrants
specified therein, and each Warrant evidenced thereby shall represent the
right, subject to the provisions contained herein and therein, to purchase from
the Company (and the Company shall issue and sell to the registered holder of
such Warrant) one fully paid and nonassessable share of Common Stock and,
pursuant to Section 10 hereof, such other securities as may be issuable to the
Warrantholder upon exercise of such Warrant, at the price specified herein and
therein.
2.2 Form of Warrant Certificates. The certificates evidencing the
Warrants (the "Warrant Certificates" shall be in registered form only and shall
be substantially in the form set forth in Annex I attached hereto, shall be
dated the date on which countersigned by the Warrant Agent and may have such
letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed, engraved or otherwise
affixed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required
<PAGE> 5
to comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of the NSM or of any stock exchange or inter-dealer
quotation system on which the Warrants may from time to time be listed or
quoted, or to conform to usage.
2.3 Execution of Warrant Certificates. Warrant Certificates shall
be executed on behalf of the Company by its Chairman of the Board, its
President, any Vice President or its Treasurer, and signed by its Secretary or
any Assistant Secretary and have affixed thereon the Company's seal. Each such
signature and such seal may be manual or facsimile.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before countersignature and
delivery by the Warrant Agent, such Warrant Certificates, nevertheless, may be
countersigned, issued and delivered with the same force and effect as though
such person had not ceased to be such officer of the Company; and any Warrant
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date
of the execution of this Agreement any such person was not such an officer.
Upon countersignature by the Warrant Agent and delivery, the Warrant
Certificate shall be valid and binding upon the Company, and the Warrantholder
thereof shall be entitled to all of the benefits of this Agreement.
2.4 Temporary Certificates. Until definitive Warrant Certificates
are ready for delivery, the Company may prepare and execute and the Warrant
Agent shall countersign and deliver temporary Warrant Certificates. Temporary
Warrant Certificates shall be substantially in the form of the definitive
Warrant Certificates but may have variations that the Company considers
appropriate for temporary Warrant Certificates. After the preparation of
definitive Warrant Certificates, the temporary Warrant Certificates shall be
exchangeable for definitive Warrant Certificates upon surrender of the
temporary Warrant Certificates at the corporate trust office or agency of the
Warrant Agent in the Borough of Manhattan, The City of New York (the "Office").
Except as set forth in Section 7 hereof, such exchange shall be without charge
to the holders. Upon surrender for cancellation of any one or more temporary
Warrant Certificates, the Company shall execute and the Warrant Agent shall
countersign and deliver in exchange therefor one or more definitive Warrant
Certificates representing in the aggregate a like number of Warrants. Until
exchanged, the temporary Warrant Certificates, if any, shall in all respects be
entitled to the same benefits under this Agreement as definitive Warrant
Certificates.
2.5 Procedures for Global Warrants.
Upon issuance, the Warrants may be represented by one or more fully
registered Warrants in global form ("Global Warrants") as well as by Warrant
Certificates registered in the name of individual purchasers or their nominees.
If the Warrants are to be represented by one or more Global Warrants,
the Company shall execute, and the Warrant Agent shall countersign and deliver,
such Global Warrant which (i) shall represent, and shall be denominated in an
amount equal to, the aggregate number of Warrants to be represented by such
Global Warrant, (ii) shall be registered in the name of the Depositary or in
the name of Cede & Co. or of another nominee, as nominee of the Depositary,
(iii) shall be delivered by the Warrant Agent to the Depositary or pursuant to
the Depositary's instructions and (iv) shall bear a legend substantially to the
following effect:
Unless and until it is exchanged in whole or in part for
Warrants in definitive form, this Warrant may not be transferred
except as a whole by the Depositary to a nominee of the Depositary or
by a nominee of the Depositary to the Depositary or another nominee of
the Depositary or by the Depositary or any such nominee to a successor
Depositary or a nominee of such successor Depositary. Unless this
WARRANT AGREEMENT - 2
<PAGE> 6
certificate is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York, New York)
("DTC"), to the issuer or its agent for registration of transfer,
exchange, exercise or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as requested
by an authorized representative of DTC (and any payment is made to
Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
A Global Warrant may be transferred, in whole but not in part, only to
a nominee of the Depositary for such Global Warrant, or to the Depositary, or
to a successor Depositary selected or approved by the Company, or to a nominee
of such successor Depositary.
If at any time the Depositary for a Global Warrant notifies the
Company that it is unwilling or unable to continue as Depositary for such
Global Warrant or if at any time the Depositary for such Global Warrant shall
no longer be eligible or in good standing under the Exchange Act, or other
applicable statute or regulation, the Company shall appoint a successor
Depositary with respect to such Global Warrant. If a successor Depositary for
such Global Warrant is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such ineligibility, the
Company will execute, and the Warrant Agent will countersign and deliver,
definitive Warrant Certificates in exchange for such Global Warrant, an
aggregate amount equal to the number of Warrants represented by the Global
Warrant exchanged for such definitive Warrant Certificates.
The Company may at any time and in its sole discretion determine that
the Warrants or any portion thereof issued or issuable in the form of one or
more Global Warrants shall no longer be represented by such Global Warrant or
Warrants. In such event the Company will execute, and the Warrant Agent, at
the Office, will countersign and deliver, definitive Warrant Certificates in
exchange in whole or in part for such Global Warrant or Warrants in an
aggregate amount equal to the number of Warrants represented by such Global
Warrant or Warrants or portion thereof exchanged for such definitive Warrant
Certificates.
In any exchange provided for in either of the two preceding
paragraphs, the Company will execute and the Warrant Agent, at the Office, will
countersign and deliver definitive Warrant Certificates. Upon the exchange of
the entire number of Warrants represented by a Global Warrant, such Global
Warrant shall be canceled by the Warrant Agent. Except as provided in the
preceding paragraph, definitive Warrant Certificates issued in exchange for a
Global Warrant pursuant to this Section shall be registered in such names and
in such amounts as the Depositary for such Global Warrant shall instruct the
Warrant Agent The Warrant Agent shall deliver such definitive Warrant
Certificates to the Persons in whose names such Warrant Certificates are so
registered.
SECTION 3. Registration: Countersignature.
3.1 Registration. The Warrant Agent, on behalf of the Company,
shall number and register the Warrant Certificates in a register (the "Warrant
Register") maintained at the Office as they are issued by the Company. The
Company and the Warrant Agent may deem and treat the registered holder of any
Warrant as the absolute owner thereof (notwithstanding any notation of
ownership or other writing thereon made by anyone), for all purposes, and
neither the Company nor the Warrant Agent shall be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any
other person, notwithstanding any notice to the Company or the Warrant Agent to
the contrary.
The Warrant Agent shall keep copies of this Agreement available for
inspection by the Warrantholders during normal business hours at the Office.
The Company shall supply the Warrant
WARRANT AGREEMENT - 3
<PAGE> 7
Agent from time to time with such number of copies of this Agreement as the
Warrant Agent may request.
3.2 Countersignature. The Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. The Warrant Agent shall, upon written instructions of
the Chairman of the Board, the President, a Vice President or the Treasurer of
the Company, initially countersign, issue and deliver Warrant Certificates
entitling the holders thereof to purchase not more than 14,332,372 Warrant
Shares and shall countersign and deliver Warrant Certificates as otherwise
provided in this Agreement.
The Warrant Agent's countersignature on all Warrant Certificates shall
be in substantially the form set forth in Annex I hereto.
SECTION 4. Transfer and Registration of Warrants and Warrant Shares.
4.1 Disposition. The Warrants and the Warrant Shares, and any
interest in either, may be sold, assigned, pledged, encumbered or in any other
manner transferred or disposed of, in whole or in part only in accordance with
Section 5 hereof and in compliance with applicable United States federal and
state securities laws and the terms and conditions hereof.
4.2 Registration Undertakings. The offer and sale of the Warrants
and the Warrant Shares have been registered under the Securities Act pursuant
to the Company's registration statement on Form S-4 Registration No. 33- 98876,
initially filed by the Company with the SEC on November 1, 1995 and declared
effective under the Securities Act on [ ] (the
"Registration Statement"). The Company covenants and agrees:
(a) to prepare and file with the SEC such amendments and
supplement to each Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
through the Expiration Date or until such earlier time as no Warrants remain
outstanding;
(b) to maintain the registration or qualification of the
Warrants and the Warrant Shares to be delivered upon exercise of the Warrants
under the securities or "blue-sky" laws of each state or jurisdiction in which
such Warrants and Warrant Shares have been so registered or qualified; and
(c) to pay all expenses incurred by the Company in
complying with this Section 4.2, including, without limitation, (i) all
registration and filing fees, (ii) all printing expenses, (iii) all fees and
disbursements of counsel and independent public accountants for the Company,
(iv) all blue-sky fees and expenses (including fees and expenses of counsel in
connection with any blue-sky surveys), and (v) the entire expense of any
special audits incident to or required by any such registration.
SECTION 5. Registration of Transfers: Exchanges of Warrant
Certificates.
5.1 Registration of Transfers. Subject to Section 7 hereof, the
Warrant Agent shall from time to time register the transfer of any outstanding
Warrant Certificate on the Warrant Register maintained at the Office, upon
surrender thereof accompanied by a written instrument or instruments of
transfer in form satisfactory to the Warrant Agent, duly endorsed by the
registered holder thereof or by such Warrantholder's appointed legal
representative or attorney-in-fact, or accompanied by proper evidence of
succession, assignment or authority to transfer. The signature of such
Warrantholder, legal representative or attorney-in-fact shall be guaranteed by
an "eligible guarantor institution" (an "Eligible Guarantor Institution")
within the meaning of Rule 17Ad-15 under the Exchange Act. In all cases of
transfer by an attorney, the original power of attorney, duly approved,
WARRANT AGREEMENT - 4
<PAGE> 8
or an official copy thereof, duly certified, shall be deposited and remain with
the Warrant Agent. In case of transfer by executors, administrators, guardians
or other legal representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited and remain with the
Warrant Agent in its discretion. Upon any such registration of transfer in
such name or names as may be directed in writing, by the Warrantholder, the
Company shall execute and the Warrant Agent shall countersign and deliver (or
cause to be delivered) a new Warrant Certificate(s) without charge to such
Warrantholder, except as set forth in Section 7 hereof, to the person or
persons entitled to receive the same, and the surrendered Warrant Certificate
shall be canceled by the Warrant Agent. Canceled Warrant Certificates shall
thereafter be disposed of in a manner satisfactory to the Company and in
compliance with applicable rules and regulations promulgated by the SEC.
5.2 Exchanges of Warrant Certificates. Each Warrant Certificate
may be exchanged at the option of the Warrantholder without charge to such
Warrantholder when surrendered to the Warrant Agent at the Office properly
endorsed in the manner described in subsection 5.1 hereof for another Warrant
Certificate(s) of like tenor and representing in the aggregate a like number of
Warrants. Thereupon, the Warrant Agent shall countersign and deliver to the
person(s) entitled thereto a new Warrant Certificate(s) as so requested.
Warrant Certificates surrendered for exchange shall be canceled by the Warrant
Agent. Such canceled Warrant Certificates shall then be disposed of by such
Warrant Agent in a manner satisfactory to the Company and in compliance with
applicable SEC rules and regulations.
SECTION 6. Term of Warrants; Exercise of Warrants; Exercise Price.
6.1 Term of Warrants. Subject to the provisions of this
Agreement, each Warrantholder shall have the right, which may be exercised
during the period commencing at the time of original issuance of the Warrants
and ending (the "Expiration Date") at 5:00 p.m., New York City time on the
fifth anniversary of the Effective Date of the Merger, to purchase from the
Company the number of fully paid and-nonassessable Warrant Shares that the
Warrantholder may at the time be entitled to purchase on exercise of such
Warrants and payment of the Exercise Price (as defined below) for such Warrant
Shares. To the extent the Expiration Date does not fall on a business day, the
Expiration Date shall occur on the next following business day. The Company
shall certify to the Warrant Agent the Effective Date of the Merger as promptly
as practicable following such date, and the Warrant Agent shall, in reliance on
such certification, insert the Expiration Date in the form of Warrant
Certificate.
Each Warrant not exercised prior to 5:00 p.m., New York City time, on
the Expiration Date shall automatically become void and no longer outstanding.
6.2 Exercise of Warrants. Subject to the provisions of this
Agreement, a Warrant may be exercised by the Warrantholder in whole or in part
upon surrender at the Office to the Warrant Agent of the Warrant Certificate(s)
evidencing the Warrants to be exercised, together with the form of election to
purchase (the "Election to Purchase"), in the form set forth on the reverse
side of the Warrant Certificate, duly completed and signed by such
Warrantholder or by such Warrantholder's appointed legal representative or
attorney-in-fact, which signature shall be guaranteed by an Eligible Guarantor
Institution, and upon payment in full to the Warrant Agent, for the account of
the Company, of the Exercise Price for each Warrant exercised and any other
amounts required to be paid pursuant to Section 7 hereof. Payment of the
aggregate Exercise Price and such additional amounts, if any, shall be made by
certified or official bank check payable to the order of the Company.
Subject to the provisions of Section 7 hereof, upon due exercise of
the Warrants and surrender of the Warrant Certificate, duly completed and
signed, and payment of the exercise Price as aforesaid, the Company shall cause
to be issued and delivered with all reasonable dispatch to or upon the written
order of the Warrantholder and in such name or names as the Warrantholder may
designate in the Election to Purchase, a certificate or certificates for the
number of full Warrant Shares so purchased,
WARRANT AGREEMENT - 5
<PAGE> 9
together with cash in respect of any fractional Warrant Shares otherwise
issuable upon exercise in accordance with Section 11. If all of the items
referred to in the first sentence of the preceding paragraph are received by
the Warrant Agent at or prior to 2:00 p.m., New York City time, on a business
day, the exercise of the Warrant to which such items relate will be effective
on such business day. If all of such items are received after 2:00 p.m., New
York City time, on a business day, the exercise of the Warrants to which such
items relate will be effective the next business day. Notwithstanding the
foregoing, in the case of any exercise of Warrants on the Expiration Date, if
all of such items are received by the Warrant Agent at or prior to 5:00 p.m.,
New York City time, on the Expiration Date, the exercise of the Warrants to
which such items relate will be effective on the Expiration Date.
The number and kind of Warrant Shares for which a Warrant may be
exercised shall be subject to adjustment from time to time as set forth in
Section 10.
The Warrants shall be exercisable as provided herein at the election
of the Warrantholder either in whole or from time to time in part. Only whole
numbers of Warrants may be exercised. In the event that prior to the
Expiration Date the holder of a Warrant Certificate shall exercise fewer than
all of the Warrants evidenced thereby, a new Warrant Certificate(s) evidencing
the remaining unexercised Warrants shall be issued to such Warrantholder, and
the Warrant Agent is hereby irrevocably authorized to countersign and to
deliver the required new Warrant Certificate(s) pursuant to the provisions of
this Section 6 and subsection 3.2 hereof, and the Company, whenever required by
the Warrant Agent, shall supply the Warrant Agent with Warrant Certificates
duly executed on behalf of the Company for such purpose.
All Warrant Certificates surrendered upon exercise of Warrants shall
be canceled by the Warrant Agent. Such canceled Warrant Certificates shall
then be disposed of by the Warrant Agent in a manner satisfactory to the
Company. The Warrant Agent shall (i) account promptly to the Company with
respect to Warrants exercised, and concurrently pay to the Company all monies
received by the Warrant Agent for the purchase of the Warrant Shares through
the exercise of such Warrants and (ii) as soon as practicable, advise the
Company in writing of the number of Warrants exercised in accordance with the
provisions of this Agreement and the Warrant Certificates and the instructions
of each exercising holder of the Warrant Certificates with respect to the
issuance and delivery of the Warrant Shares to which such holder is entitled
upon such exercise.
6.3 Exercise Price. The price per share at which each Warrant
Share shall be purchased upon exercise of the Warrant (the "Exercise Price")
shall be [ ], subject to adjustment to 110% of the average closing price
of the Company's Common Stock as reported on the NYSE Composite Transactions
for the first 120 NYSE trading days after the Effective Date of the Merger, if
such average price is less than [$ ]. In the event the Exercise
Price is required to be adjusted as provided in this Paragraph 6.3, the Company
shall forthwith compute the adjusted Exercise Price and shall prepare a
certificate setting forth such adjusted Exercise Price and showing in
reasonable detail the facts upon which such adjustment is based. A copy of
such certificate, accompanied by a certification of the independent public
accountants regularly employed by the Company to the effect that they have
reviewed the Company's certificate and are in agreement with the computations
set forth therein, shall forthwith be filed with the Warrant Agent and the
Transfer Agent; and thereafter, until the same may be further adjusted pursuant
to Section 10.3(b), the adjusted Exercise Price shall be as set forth in such
certificate. Neither the Warrant Agent nor the Transfer Agent shall be under
any duty or responsibility with respect to any such certificate except to
exhibit the same to any Warrantholder desiring inspection thereof. In the
event that the Exercise Price is adjusted, the Company shall mail, or cause to
be mailed, to the Warrantholders a statement setting forth the adjustment and
the reason for such adjustment.
SECTION 7. Payment of Taxes. The Company covenants and agrees that
it will pay when due and payable all documentary, stamp and other taxes
attributable to the issuance or delivery of the
WARRANT AGREEMENT - 6
<PAGE> 10
Warrant Certificates or of the Warrant Shares purchasable upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes that may be payable in respect of any transfer involving the issue
of any Warrant Certificate(s) or any certificate(s) for Warrant Shares in a
name other than that of the Warrantholder of such exercised Warrant
Certificate(s), and the Company shall not be required to issue or deliver such
Warrant Certificate(s) or such certificate(s) for Warrant Shares unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In the event
that any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall execute, and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the Warrant Certificate lost,
stolen or destroyed, a new Warrant Certificate of like tenor and representing a
like number of Warrants, but only, in case of a lost, stolen or destroyed
Warrant Certificate, upon receipt of evidence satisfactory to the Company and
the Warrant Agent of such loss, theft or destruction and the absence of notice
to the Company or the Warrant Agent that such Warrant Certificate has been
acquired by a bona fide purchaser or holder in due course. A Warrantholder
applying for such substitute Warrant Certificate shall also comply with such
other reasonable requests (including, without limitation, in the case of a
lost, stolen or destroyed Warrant Certificate, a request to provide a letter of
indemnification or an indemnity bond sufficient in the reasonable judgment of
the Company and the Warrant Agent to protect the Company and the Warrant Agent
from any loss that either of them may suffer if a Warrant Certificate is
replaced) and pay such other reasonable charges as the Company or the Warrant
Agent may reasonably prescribe. Every substitute Warrant Certificate executed
and delivered pursuant to this Section in lieu of any lost, stolen or
destroyed Warrant Certificate shall constitute an additional contractual
obligation of the Company, whether or not the lost, stolen or destroyed Warrant
Certificate shall be at any time enforceable by anyone, and shall be entitled
to the benefits of (but shall be subject to all the limitations of rights set
forth in) this Agreement equally and proportionately with any and all other
Warrant Certificates duly executed and delivered hereunder. The provisions of
this Section 8 are exclusive with respect to the replacement of mutilated,
lost, stolen or destroyed Warrant Certificates and shall preclude (to the
extent lawful) any and all other rights or remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of mutilated, lost, stolen or destroyed securities certificates.
SECTION 9. Reservation of Warrant Shares.
9.1 Reservation. The Company shall at all times keep reserved,
free from preemptive rights, out of its authorized Common Stock or other
securities of the Company issuable upon the exercise of the Warrants, a number
of shares of Common Stock or such other securities sufficient to provide for
the exercise of the right of purchase represented by all outstanding Warrants.
The Company covenants that the transfer agent for the Common Stock or other
securities of the Company issuable upon the exercise of the Warrant (the
"Transfer Agent") will be irrevocably authorized and directed at all times to
reserve such number of shares of Common Stock or such other securities as shall
be required for such purpose. The Company shall keep a copy of this Agreement
on file with the Transfer Agent. The Company shall furnish the Transfer Agent
a copy of all notices of adjustments and certificates related thereto that are
delivered to the Warrant Agent or transmitted to each Warrantholder pursuant to
subsection 10.2 and Section 12 hereof.
9.2 Covenant. The Company covenants that all Warrant Shares will,
upon issuance, be fully paid, nonassessable, free of preemptive rights and free
from all taxes payable by the Company, liens, charges and security interests
(except any liens, charges or security interests created or suffered to be
created by any of the Warrantholders), and will not be subject to any
restrictions on voting or
WARRANT AGREEMENT - 7
<PAGE> 11
transfer thereof that are created by the Company except for such restrictions
on voting or transfer provided in this Agreement, the Certificate of
Incorporation or as otherwise provided by law.
SECTION 10. Adjustments to Exercise Rate.
10.1 Adjustments. The number and kind of Warrant Shares
purchasable upon the exercise of each Warrant (the "Exercise Rate") shall be
subject to adjustment from time to time as follows:
(a) Reclassification, Merger, etc. If, after the date
hereof, the Company, in a single transaction or through a series of related
transactions, consolidates with or merges with or into any other entity or
transfers (by lease, assignment, sale or otherwise) all or substantially all of
its properties and assets to another entity or group of affiliated entities
(other than a sale of all or substantially all of the assets of the Company in
a transaction in which the holders of Common Stock immediately prior to such
transaction do not receive securities, cash, or other assets of the Company or
any other entity) or is a party to a merger or binding share exchange which
reclassifies or changes its outstanding Common Stock, the entity thereafter
obligated to deliver securities, cash or other assets upon exercise of Warrants
shall enter into a supplemental warrant agreement with the Warrant Agent. If
the issuer of securities deliverable upon exercise of Warrants is an Affiliate
of the successor to the Company, that issuer shall join in the supplemental
warrant agreement.
The supplemental warrant agreement shall provide that the
holder of a Warrant may exercise such Warrant for the kind and amount of
securities, cash or other assets which such holder would have received
immediately after the consolidation, merger, binding share exchange or transfer
if such holder had exercised such Warrant immediately before the effective date
of the transaction, assuming (to the extent applicable) that such holder (i) is
not a constituent person or an Affiliate of a constituent person to such
transaction; (ii) made no election with respect thereto; and (iii) was treated
alike with the plurality of non-electing holders. The supplemental warrant
agreement shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 10. The
successor to the Company shall mail to the holders of Warrants at the addresses
appearing on the Warrant Register a notice briefly describing the supplemental
warrant agreement.
If this subsection 10.1(a) applies, subsection 10.1(b) shall
not apply. The provisions of this subsection 10.1(a) shall similarly apply to
successive consolidations, mergers, binding share exchanges or transfers.
(b) Adjustment for Change in Capital Stock. If, after
the date hereof, the Company:
(i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares; or
(iv) issues by reclassification of its Common Stock any
other shares of its capital stock,
then the Exercise Rate in effect immediately prior to such action shall be
adjusted so that the holder of a Warrant thereafter exercised shall receive the
number of shares of Common Stock or other shares
WARRANT AGREEMENT - 8
<PAGE> 12
of capital stock of the Company which such holder would have received
immediately following such action if such holder had exercised such Warrant
immediately prior to such action.
An adjustment to the Exercise Rate pursuant to this Section 10.1 (b)
shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case
of a subdivision, combination or reclassification. In the event that such
dividend or distribution is not so paid or made or such subdivision,
combination or reclassification is not effected, the Exercise Rate shall again
be adjusted to be the Exercise Rate which would then be in effect if such
record date or effective date had not been so fixed.
(c) Adjustments to Exercise Rate. If after an adjustment
pursuant to this Section 10.1 a holder of a Warrant upon exercise of such
Warrant may receive shares of two or more classes of capital stock of the
Company, the Exercise Rate shall thereafter be subject to adjustment upon the
occurrence of an action taken with respect to any such class of capital stock
as is contemplated by this Section 10 with respect to the Common Stock, on
terms comparable to those applicable to the Common Stock in this Section 10.1.
10.2 Notice of Adjustment to Exercise Rate. Whenever the Exercise
Rate is required to be adjusted as provided in this Section 10, the Company
shall forthwith compute the adjusted Exercise Rate and shall prepare a
certificate setting forth such adjusted Exercise Rate and showing in reasonable
detail the facts upon which such adjustment is based. A copy of such
certificate, accompanied by a certification of the independent public
accountants regularly employed by the Company to the effect that they have
reviewed the Company's certificate and are in agreement with the computations
set forth therein, shall forthwith be filed with the Warrant Agent and the
Transfer Agent; and thereafter, until further adjusted, the adjusted Exercise
Rate shall be as set forth in such certificate. Neither the Warrant Agent nor
the Transfer Agent shall be under any duty or responsibility with respect to
any such certificate except to exhibit the same to any Warrantholder desiring
inspection thereof. Whenever the Exercise Rate is adjusted, the Company shall
promptly mail, or cause to be mailed, to the Warrantholders a statement setting
forth the adjustment and the reasons for such adjustment.
10.3 Voluntary Reduction. (a) The Company may at its option, but
shall not be obligated to, at any time during the term of the Warrants provided
for in subsection 6.1 hereof, increase the then current Exercise Rate by any
amount selected by the Board; provided, that if the Company elects so to
increase the then current Exercise Rate, such increase shall be irrevocable
during its effective period and remain in effect for a minimum of 20 business
days following the date of such election, after which time the Company may, at
its option, reinstate the Exercise Rate in effect prior to such increase.
Whenever the Exercise Rate is increased, the Company shall mail or cause to be
mailed to the Warrantholders a notice of the increase at least 15 days before
the date the increased Exercise Rate takes effect, stating the increased
Exercise Rate and the period for which such increased Exercise Rate will be in
effect.
(b) The Company may at its option, but shall not be obligated to,
at any time during the term of the Warrants provided for in subsection 6.1
hereof, decrease the then current Exercise Price by any amount selected by the
Board; provided, that if the Company elects so to decrease the then current
Exercise Price, such decrease shall be irrevocable during its effective period
and remain in effect for a minimum of 20 business days following the date of
such election, after which time the Company may, at its option, reinstate the
Exercise Price in effect prior to such decrease. Whenever the Exercise Price
is decreased pursuant to this Section 10.3(b), the Company shall mail or cause
to be mailed to the Warrantholders a notice of the decrease at least 15 days
before the date the decreased Exercise Price takes effect, stating the
decreased Exercise Price and the period for which such decreased Exercise Price
will be in effect.
WARRANT AGREEMENT - 9
<PAGE> 13
(c) The Company may make such increases in the Exercise Rate or
decreases in the Exercise Price, as the case may be, in addition to those
required or allowed by this Section 10 or Section 6, as shall be determined by
it, as evidenced by a certified resolution of the Board delivered to the
Warrant Agent, to be advisable in order to avoid or diminish any income tax to
Warrantholders resulting from any dividend or distribution of stock or issuance
of rights or warrants to purchase or subscribe for stock or from any event
treated as such for income tax purposes.
10.4 Deferral of Issuance or Payment. In any case in which
subsection 10.1 hereof shall require that an adjustment in the Exercise Rate be
made effective as of a record date for a specified event, the Company may elect
to defer until the occurrence of such event (i) issuing to the holder of any
Warrant exercised after such record date the Warrant Shares issuable upon such
exercise over and above the Warrant Shares issuable upon such exercise on the
basis of the Exercise Rate in effect immediately prior to such adjustment and
(ii) paying to such Warrantholder any amount in cash in lieu of a fractional
share pursuant to Section 11 hereof; provided, however, that the Company shall
deliver to such Warrantholder a due bill or other appropriate instrument
evidencing such Warrantholder's right to receive such additional Warrant Shares
and cash upon the occurrence of the event requiring such adjustment.
10.5 Form of Warrant Certificates. Irrespective of any adjustments
in the Exercise Rate, the kind of Warrant Shares purchasable upon the exercise
of the Warrants, or the Exercise Price, Warrant Certificates evidencing such
Warrants theretofore or thereafter issued may continue to express the same
number and kind of Warrant Shares, and Exercise Price, as are stated in the
Warrant Certificates initially issuable pursuant to this Agreement.
10.6 No Impairment. Without limiting the generality of the
foregoing, the Company (i) shall take all such action as may be necessary or
appropriate in order that the Warrant Shares to be issued upon the exercise of
the Warrants from time to time outstanding will, when issued, be fully paid and
nonassessable, and (ii) will not take any action that results in any adjustment
to the Exercise Rate if after such adjustment the total number of shares of
Common Stock issuable upon the exercise of all of the outstanding Warrants
would exceed the total number of shares of Common Stock or other capital stock
of the Company then authorized by the Amended Certificate of Incorporation and
available for the purpose of issuance upon such exercise.
SECTION 11. Fractional Interests. The Company shall not issue
fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise at the same time by the same
Warrantholder, the number of full Warrant Shares that shall be issuable upon
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would be issuable on the exercise of any Warrants,
the Company shall pay to the Warrantholder an amount in cash equal to the
product of such fraction times the Quoted Price for such Warrant Share on the
business day next preceding the latest of the date of the surrender of the
Warrant Certificate(s) evidencing the Warrants to be exercised, with the
Election to Purchase duly completed and signed, and payment of the Exercise
Price and any other amounts required to be paid pursuant to Section 7 hereof.
"Quoted Price" means, for any given day, the last reported per share sale price
(or, if no sale price is reported, the average of the bid and ask prices or, if
more than one, in either case, the average of the average bid and average ask
prices) on such day of such Warrant Share on the principal national or regional
securities exchange upon which such Warrant Share is listed, or if such Warrant
Share is not listed on a national or regional securities exchange, as quoted on
the National Association of Securities Dealers Automated Quotation System or by
the National Quotation Bureau Incorporated. In the absence of one or more such
quotations, the Board shall be entitled to determine the Quoted Price on the
basis of such quotations as it considers appropriate.
SECTION 12. Notices to Warrantholders. In the event:
WARRANT AGREEMENT - 10
<PAGE> 14
(i) of any consolidation or merger or binding share
exchange to which the Company is a party and for which approval of any
shareholders of the Company is required, or of the conveyance or sale
of all or substantially all of the assets of the Company, or of any
reclassification or change of the Common Stock or other securities
issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par
value or as a result of a subdivision or combination), or a tender
offer or exchange offer for shares of Common Stock (or other
securities issuable upon the exercise of the Warrants); or
(ii) the Company shall declare any dividend or
distribution, other than regular cash dividends, on the Common Stock
or other securities; or
(iii) the Company shall authorize the granting to the holders
of Common Stock of rights or warrants to subscribe for or purchase any
shares of any class or series of the Company; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company.
then the Company shall cause to be filed with the Warrant Agent and shall cause
to be sent to each Warrantholder at such Warrantholder's address appearing on
the Warrant Register, at least 30 days prior to the applicable record date
hereinafter specified, or promptly in the case of events for which there is no
record date, by first class mail, postage prepaid, written notice stating (x)
the date for the determination of the holders of record of shares of Common
Stock (or other securities issuable upon the exercise of the Warrants) entitled
to receive any such dividends or other distribution, (y) the initial expiration
date set forth in any tender offer or exchange offer for shares of Common Stock
(or other securities issuable upon the exercise of the Warrants) or (z) the
date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, issuance, consolidation,
merger, conveyance, transfer, dissolution, liquidation, or winding up, or the
vote upon any action.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the Warrantholder thereof
any rights of a shareholder of the Company.
SECTION 13. Reports to Warrantholders. The Company will cause to be
delivered, by first-class mail, postage prepaid, to each Warrantholder at such
Warrantholder's address appearing on the Warrant Register, a copy of any
reports delivered by the Company to the holders of Common Stock or other
securities of the Company.
SECTION 14. Concerning the Warrant Agent.
14.1 Warrant Agent. The Company hereby appoints American Stock
Transfer & Trust Company as Warrant Agent of the Company in respect of the
Warrants and the Warrant Certificates upon the terms and subject to the
conditions herein and in the Warrant Certificates; and American Stock Transfer
& Trust Company hereby accepts such appointment. The Warrant Agent shall have
the powers and authority granted to and conferred upon it in the Warrant
Certificates and hereby. All of the terms and provisions with respect to such
powers and authority contained in the Warrant Certificates are subject to and
governed by the terms and provisions hereof. The Warrant Agent shall
WARRANT AGREEMENT - 11
<PAGE> 15
at all times hereunder satisfy all of the requirements of Rule 496 or any
successor rule thereof of the NYSE and all applicable rules and regulations of
the NSM.
14.2 Conditions of Warrant Agent's Obligations. The Warrant Agent
accepts its obligations herein set forth upon the terms and conditions hereof
and in the Warrant Certificates, including the following, to all of which the
Company agrees and to all of which the rights hereunder of the holders from
time to time of the Warrant Certificates shall be subject:
(a) The Warrant Agent shall be entitled to compensation
at its applicable rates in effect from time to time for all services rendered
by it and the Company agrees promptly to pay such compensation and to reimburse
the Warrant Agent for its reasonable out-of-pocket expenses (including
reasonable fees and expenses of counsel) incurred without gross negligence or
willful misconduct on its part in connection with the services rendered by it
hereunder. The Company also agrees to indemnify the Warrant Agent for, and to
hold it harmless against, any loss, liability or expense incurred without gross
negligence or willful misconduct on the part of the Warrant Agent, including
the costs and expenses of defending itself against any claim or liability
arising out of or in connection with its acting as such Warrant Agent
hereunder. The obligations of the Company under this subsection 14.2 shall
survive the exercise and the expiration of the Warrant Certificates and the
resignation and removal of the Warrant Agent.
(b) In acting under this Agreement and in connection with
the Warrant Certificates, the Warrant Agent is acting solely as agent of the
Company and does not assume any obligation or relationship of agency or trust
for or with any of the owners or holders of the Warrant Certificates and owes
no fiduciary duty to any Person by reason of this Agreement.
(c) The Warrant Agent may consult with counsel and any
advice or written opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with such advice or
opinion.
(d) The Warrant Agent shall be protected and shall incur
no liability for or in respect of any action taken or omitted to be taken or
thing suffered by it in reliance upon any Warrant Certificate, notice,
direction, consent, certificate, affidavit, opinion of counsel, instruction,
statement or other paper or document reasonably believed by it to be genuine
and to have been presented or signed by the proper parties. In the absence of
bad faith or negligence on its part, the Warrant Agent shall not be liable for
any action taken, suffered or omitted or for any error of judgment made by it
in the performance of its duties under this Agreement. The Warrant Agent shall
not be so liable for any error of judgment made in good faith unless the
Warrant Agent shall have been negligent in ascertaining the pertinent facts.
(e) The Warrant Agent, and its officers, directors and
employees, may become the owners of, or acquire any interest in, Warrant
Certificates, shares or other obligations of the Company with the same rights
that it or they would have if it were not the Warrant Agent hereunder and, to
the extent permitted by applicable law, it or they may engage or be interested
in any financial or other transaction with the Company and may act on, or as
depositary, trustee or agent for, any committee or body of holders of shares or
other obligations of the Company as freely as if it were not the Warrant Agent
hereunder. Nothing in this Agreement shall be deemed to prevent the Warrant
Agent from acting in any other capacity for the Company.
(f) The Warrant Agent shall not be under any liability
for interest on, and shall not be required to invest, any monies at any time
received by it pursuant to any of the provisions of this Agreement or of the
Warrant Certificates.
(g) The Warrant Agent shall not be under any
responsibility in respect of the validity of this Agreement or the execution
and delivery hereof (except the due execution hereof by
WARRANT AGREEMENT - 12
<PAGE> 16
the Warrant Agent) or in respect of the validity or execution of any Warrant
Certificate (except its countersignature thereof).
(h) The recitals and other statements contained herein
and in the Warrant Certificates (except as to the Warrant Agent's
countersignature thereon) shall be taken as the statements of the Company and
the Warrant Agent assumes no responsibility for the correctness of the same.
The Warrant Agent does not make any representation as to the validity or
sufficiency of this Agreement or the Warrant Certificates, except for its due
execution and delivery of this Agreement; provided, however, that the Warrant
Agent shall not be relieved of its duty to countersign the Warrant Certificates
as authorized by this Agreement. The Warrant Agent shall not be accountable
for the use or application by the Company of the proceeds of the exercise of
any Warrant.
(i) The Warrant Agent shall be obligated to perform such
duties as are herein and in the Warrant Certificates specifically set forth and
no implied duties or obligations shall be read into this Agreement or the
Warrant Certificates against the Warrant Agent. The Warrant Agent shall be
under no obligation to institute any action, suit or legal proceeding or to
take any other action likely to involve expense unless the Company shall
furnish the Warrant Agent with reasonable security and indemnity for any costs
or expenses which may be incurred. The Warrant Agent shall not be accountable
or under any duty or responsibility for the use by the Company of any of the
Warrant Certificates countersigned by the Warrant Agent and delivered by it to
the Company pursuant to this Agreement.
(j) The Warrant Agent shall have no duty or
responsibility in case of any default by the Company in the performance of its
covenants or agreements contained in the Warrant Certificates or in the case of
the receipt of any written demand from a holder of a Warrant Certificate with
respect to such default, including, without limiting the generality of the
foregoing, any duty or responsibility to initiate or attempt to initiate any
proceedings at law or otherwise or, except as provided in Section 17 hereof, to
make any demand upon the Company.
(k) The Warrant Agent shall have no responsibility in
respect of any adjustment pursuant to Section 10 hereof.
(l) The Company agrees that it will perform, execute,
acknowledge and deliver, or cause to be performed, executed, acknowledged and
delivered, all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or performing
by the Warrant Agent of the provisions of this Agreement.
(m) The Warrant Agent is hereby authorized and directed
to accept written instructions with respect to the performance of its duties
hereunder from any one of the chairman of the board, any vice chairman of the
board, the president, the treasurer, the controller, any vice president or the
secretary of the Company and to apply to such officers or officials for advice
or instructions in connection with its duties, and it shall not be liable for
any action taken or suffered to be taken by it in good faith in accordance with
instructions of any such officer or official. At any time the Warrant Agent
may apply to the Company for written instructions with respect to any matter
arising in connection with the Warrant Agent's duties and obligations arising
under this Agreement. Such application by the Warrant Agent for written
instructions from the Company may, at the option of the Warrant Agent, set
forth in writing any action proposed to be taken or omitted by the Warrant
Agent with respect to its duties or obligations under this Agreement and the
date on or after which such action shall be taken and the Warrant Agent shall
not be liable for any action taken or omitted in accordance with a proposal
included in any such application on or after the date specified (which date
shall be not less than three business days after the Company receives such
application unless the Company consents to a shorter period) unless, prior to
taking or omitting any such action, the Warrant Agent has received written
instructions in response to such application specifying the action to be taken
or omitted.
WARRANT AGREEMENT - 13
<PAGE> 17
(n) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, such fact or matter (unless other evidence in respect
thereof be herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by any one of the chairman of
the board, any vice chairman of the board, the president, the treasurer, the
controller, any vice president or the secretary of the Company and delivered to
the Warrant Agent; and such certificate shall be full authorization to the
Warrant Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(o) The Warrant Agent shall not be required to risk or
expend its own funds in the performance of its obligations and duties
hereunder.
(p) The Warrant Agent is hereby authorized to requisition
from time to time from the Transfer Agent stock certificates required to honor
outstanding Warrants. The Company hereby authorizes any Transfer Agent to
comply with all such requests. The Company will supply such Transfer Agent
with duly executed stock certificates for such purpose and will provide or
otherwise make available any cash which may be payable as provided in Section
11 hereof, and the Warrant Agent shall not be responsible for any delay or
failure by such Transfer Agent in supplying such stock certificates.
(q) Anything in this Agreement to the contrary
notwithstanding, in no event shall the Warrant Agent be liable for special,
indirect or consequential loss or damages of any kind whatsoever (including but
not limited to lost profits), even if the Warrant Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
14.3 Resignation and Appointment of Successor.
(a) The Company agrees, for the benefit of the holders,
from time to time, of the Warrant Certificates, that there shall at all times
be a Warrant Agent hereunder.
(b) The Warrant Agent may at any time resign as Warrant
Agent by giving written notice to the Company of such intention on its part,
specifying the date on which its desired resignation shall become effective,
provided that such date shall be at least 30 calendar days after the date on
which such notice is given unless the Company agrees to accept less notice.
Upon receiving such notice of resignation, the Company shall promptly appoint a
successor Warrant Agent, qualified as provided in subsection 14.3(d), by
written instrument in duplicate signed on behalf of the Company, one copy of
which shall be delivered to the resigning Warrant Agent and one copy to the
successor Warrant Agent. As provided in subsection 14.3(d), such resignation
shall become effective upon the acceptance of the appointment by the successor
Warrant Agent. The Company may, and upon any event set forth in the next
succeeding sentence shall, remove the Warrant Agent and appoint a successor
Warrant Agent by written instrument in duplicate, specifying such removal and
the date on which it is intended to become effective, signed on behalf of the
Company, one copy of which shall be delivered to the Warrant Agent being
removed and one copy to the successor Warrant Agent. The Warrant Agent shall
be removed if it shall become incapable of acting, or shall be adjudged a
bankrupt or insolvent, or a receiver of the Warrant Agent or of its property
shall be appointed, or any public officer shall take charge or control of it or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation. Any removal of the Warrant Agent and any appointment of a
successor Warrant Agent shall become effective upon acceptance of appointment
by the successor Warrant Agent as provided in subsection 14.3(d). As soon as
practicable after appointment of the successor Warrant Agent, the Company shall
cause written notice of the change in the Warrant Agent to be given to each of
the registered holders of the Warrants in the manner provided for in Section
18.
WARRANT AGREEMENT - 14
<PAGE> 18
(c) Upon resignation or removal of the Warrant Agent, if
the Company shall fail to appoint a successor Warrant agent within a period of
30 days after receipt of such notice of resignation or removal, then the holder
of any Warrant Certificate or the Warrant Agent may apply to a court of
competent jurisdiction for the appointment of a successor to the Warrant Agent.
Pending appointment of a successor to the Warrant Agent, either by the Company
or by such a court, the duties of the Warrant Agent shall be carried out by the
Company.
(d) Any successor Warrant Agent, whether appointed by the
Company or by a court, shall be a bank or trust company in good standing,
incorporated under the laws of the United States of America or any State
thereof and satisfying, at the time of its appointment, all of the requirements
of Rule 496 or any successor rule thereof of the NYSE and all applicable rules
and regulations of the NSM. Such successor Warrant agent shall execute and
deliver to its predecessor and to the Company an instrument accepting such
appointment hereunder and all the provisions of this Agreement, and thereupon
such successor Warrant agent, without any further act, deed or conveyance,
shall become vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Warrant Agent
hereunder, and such predecessor, upon payment of any amounts then due it
pursuant to subsection 14.2(a), shall thereupon become obligated to transfer,
deliver and pay over, and such successor Warrant Agent shall be entitled to
receive, all moneys, securities, records or other property on deposit with or
held by such predecessor as Warrant Agent hereunder.
(e) Any corporation or bank into which the Warrant Agent
hereunder may be merged or converted, or any corporation or bank with which the
Warrant Agent may be consolidated, or any corporation or bank resulting from
any merger, conversion or consolidation to which the Warrant Agent shall be a
party, or any corporation or bank to which the Warrant Agent shall sell or
otherwise transfer all or substantially all of its corporate trust business,
shall be the successor to the Warrant Agent under this Agreement (provided that
such corporation or bank shall be qualified as aforesaid) without the execution
or filing of any document or any further act on the part of any of the parties
hereto.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name; and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases, such Warrant Certificates shall have the
full force and effect provided in the Warrant Certificates and in this
Agreement.
SECTION 15. Certain Definitions. As used in this Agreement, the
following terms have the meanings specified below:
"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling, 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 specified 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 "controlling" and "controlled" have meanings
correlative to-the foregoing; provided, that, in any event, any "person" or
"group" (each as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act)
that is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 10% of the capital stock having or voting power in the
election of directors of such Person (if a corporation) or more than 10% of the
partnership or other ownership interests of such Person (if other than a
corporation) will be deemed to control such Person.
WARRANT AGREEMENT - 15
<PAGE> 19
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as filed with the Secretary of State of the State of Delaware
on [ ], 1995, as such certificate may be amended, modified, changed
or restated from time to time in accordance with its terms, this Agreement and
the applicable provisions of the General Corporation Law of the State of
Delaware.
"Board" means the Board of Directors of the Company, as such Board may
be constituted from time to time.
"business day" means any Monday, Tuesday, Wednesday, Thursday or
Friday on which (1) banking institutions in the City of New York, (ii) the
principal national securities exchange or inter-dealer quotation system, if
any, on which the Common Stock is listed or quoted and (iii) the principal
national securities exchange or inter-dealer quotation system, if any, on which
the Warrants are listed or quoted, are open for business and not authorized or
obligated by law, regulation or executive order to close.
"Deposit" means, unless otherwise specified by the Company pursuant to
subsection 2.5, The Depositary Trust Company, New York, New York, or any
successor thereto registered as a clearing agency under the Exchange Act or
other applicable statute or regulation.
"Effective Date of the Merger" means the date on which the Merger
becomes effective under the Delaware General Corporation Law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"NSM" means The Nasdaq Stock Market, Inc. or, if the Warrants are not
then traded on The Nasdaq Stock Market, Inc., the principal national securities
exchange on which the Warrants are then traded or, if the Warrants are not then
traded on The Nasdaq Stock Market, Inc., the national securities exchange or
principal over-the-counter market in which the Warrants are then traded.
"NYSE" means the New York Stock Exchange, Inc., or, if the Common
Stock is not then traded on the New York Stock Exchange, Inc., the principal
national securities exchange on which the Common Stock is then traded or, if
the Common Stock is not then traded on any national securities exchange, the
principal over-the-counter market in which the Common Stock is then traded.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity.
"Prospectus" means the prospectus, dated [ ] included as part
of the Registration Statement, as such prospectus may be supplemented or
amended from time to time.
"SEC" means the Securities and Exchange Commission or any successor
thereof.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
SECTION 16. Identity of Transfer Agent. Forthwith upon the
appointment of any Transfer Agent for the Common Stock or any other securities
of the Company issuable upon the exercise of the Warrants or any successor
thereto, the Company shall file with the Warrant Agent a statement setting
forth the name and address of such Transfer Agent.
SECTION 17. Notices and Demands to the Company and Warrant Agent. If
the Warrant Agent shall receive any notice or demand addressed to the Company
by the holder of a Warrant
WARRANT AGREEMENT - 16
<PAGE> 20
Certificate pursuant to the provisions of the Warrant certificates, the Warrant
Agent shall promptly forward such notice or demand to the Company.
SECTION 18. Notices to Company and Warrant Agent. Any notice or
demand authorized by this Agreement to be given or made by the Warrant Agent or
by any Warrantholder to or on the Company shall be delivered in person or by
facsimile transmission, by courier guaranteeing overnight delivery or mailed by
first-class mail or registered mail postage prepaid, (i) to the Company (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Sunshine Mining and Refining Company
877 W. Main St., Suite 600
Boise, ID 83702
Attention: President
With a copy to: Sunshine Mining and Refining Company
P.O. Box 1080
Big Creek Road
Kellogg, Idaho 83837
Attention: Randal L. Hardy
And to: Evans, Keane
1101 W. River Street, Suite 200
P.O. Box 959
Boise, Idaho 83701-0959
Attention: James D. Hovren
and (ii) to the Warrant Agent (until another address is filed in writing by the
Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Executive Vice President
With a copy to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: General Counsel
Notices delivered personally shall be effective at the time delivered
by hand, notices sent by mail shall be effective four days after mailing,
notices sent by facsimile transmission shall be effective when receipt is
acknowledged and notices sent by courier guaranteeing next day delivery shall
be effective on the next business day after timely delivery to such courier.
SECTION 19. Notices to Holders. Notices to holders of Warrants shall
be mailed to such holders at the addresses of such holders as they appear in
the Warrant Register. Any such notice be sufficiently given if sent by
first-class mail, postage prepaid.
SECTION 20. Provision of Information. The Company shall provide the
holders of Warrants, on the same day it files with the SEC, copies of the
annual reports and of the information, documents, and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and
WARRANT AGREEMENT - 17
<PAGE> 21
regulations prescribe) which the Company is required to file with the SEC
pursuant to Sections 13 or 15(d) of the Exchange Act.
SECTION 21. Amendment; Merger; Consolidation. This Agreement and the
terms of the Warrants may be amended by the Company and the Warrant Agent,
without the consent of the holder of any Warrant Certificate, for the purpose
of curing any ambiguity, or of curing, correcting or supplementing any
defective or inconsistent provision contained herein or therein, or to effect
any assumptions of the Company's obligations hereunder and thereunder by a
successor corporation under the circumstances described in Section 10.1 (a) or
in any other manner which the Company may deem necessary or desirable and which
shall not adversely affect in any material respect the interests of the holders
of the Warrant Certificates.
The Company and the Warrant Agent may modify this Agreement and the
terms of the Warrants with the consent of not less than a majority in number of
the then outstanding Warrants for the purpose of adding any provision to or
changing in any manner or eliminating any of the provisions of this Agreement
or modifying in any manner the rights of the holders of the outstanding
Warrants; provided, however, that no such modification that (i) decreases the
Exercise Rate, changes the Exercise Period, or otherwise materially or
adversely affects the exercise rights of the holders of the Warrants, (ii)
amends this Section or (iii) reduces the percentage required for modification,
may be made without the consent of the holder of each outstanding Warrant.
Any such modification or amendment will be conclusive and binding on
all present and future holders of Warrant Certificates whether or not they have
consented to such modification or amendment or waiver and whether or not
notation of such modification or amendment is made upon such Warrant
Certificates. Any instrument given by or on behalf of any holder of a Warrant
Certificate in connection with any consent to any modification or amendment
will be conclusive and binding on all subsequent holders of such Warrant
Certificate.
Except as otherwise provided herein, the Company will not merge into
or consolidate with any other person, or sell or otherwise transfer its
property, assets and business substantially as an entirety to a successor of
the Company, unless the person resulting from such merger or consolidation (if
other than the Company), or such successor of the Company, shall expressly
assume, by supplemental agreement satisfactory in form to the Warrant Agent and
executed and delivered to the Warrant Agent, the due and punctual performance
and observance of each and every covenant and condition of this Agreement to be
performed and observed by the Company.
SECTION 22. Termination. This Agreement shall terminate on the
fifteenth day following the first to occur of (i) the Expiration Date, (ii) the
date on which Warrant Shares have been issued upon the exercise of all Warrants
pursuant hereto or (iii) the date on which all Warrants have been redeemed or
are otherwise no longer outstanding.
SECTION 23. Governing Law. The laws of the State of New York shall
govern this Agreement and the Warrant Certificates without regard to principles
of conflict of law.
SECTION 24. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Warrant
Agent, the Warrantholders and the holders of shares of Common Stock any legal
or equitable right, remedy or claim under this Agreement; this Agreement shall
be for the sole and exclusive benefit of the Company, the Warrant Agent, the
Warrantholders and the holders of Warrant Shares.
SECTION 25. Counterparts. This Agreement may be executed in any
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
WARRANT AGREEMENT - 18
<PAGE> 22
SECTION 26. Severability of Provisions. Any provision of this
Agreement that 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 provisions in any other
jurisdiction.
SECTION 27. Obtaining of Governmental Approvals. The Company will
from time to time take all action which may be necessary to obtain and keep
effective any and all permits, consents and approvals of governmental agencies
and authorities and securities acts filings under United States Federal and
State laws, and the rules and regulations of all stock exchanges on which the
Warrants are listed which may be or become requisite in connection with the
issuance, sale, transfer, and delivery of the Warrant Certificates, the
exercise of the Warrants or the issuance, sale, transfer and delivery of the
Warrant Shares issued or delivered upon exercise of the Warrants.
SECTION 28. Delivery of Prospectus. The Company shall furnish to the
Warrant Agent sufficient copies of the most recent Prospectus relating to the
Warrant Shares, and the Warrant Agent shall, upon the exercise of any Warrant
Certificate by the holder thereof, deliver to such holder, prior to or
concurrently with the delivery of the Warrant Share issued upon such exercise,
a copy of such Prospectus.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
SUNSHINE MERGER COMPANY
[Corporate Seal] By:
-----------------------------------
John S. Simko, President
AMERICAN STOCK TRANSFER & TRUST
COMPANY, as Warrant Agent
[Corporate Seal] By:
-----------------------------------
Name:
-----------------------------
Title:
--------------------------
WARRANT AGREEMENT - 19
<PAGE> 1
EXHIBIT 4.9
SUNSHINE MERGER COMPANY
AS SUCCESSOR TO SUNSHINE MINING AND REFINING COMPANY
AND
AMERICAN STOCK TRANSFER & TRUST COMPANY
_______________________________________
AS WARRANT AGENT
_______________________________________
SUPPLEMENTAL WARRANT AGREEMENT
DATED AS OF [___________]
<PAGE> 2
SUPPLEMENTAL WARRANT AGREEMENT, dated as of [____________]
("Agreement"), between SUNSHINE MERGER COMPANY, a Delaware corporation (the
"Company") and successor by merger (the "Merger") to Sunshine Mining and
Refining Company, a Delaware corporation ("Sunshine"), and AMERICAN STOCK
TRANSFER & TRUST COMPANY, a New York corporation, as Warrant Agent (with any
successor warrant agent, the "Warrant Agent").
RECITALS:
WHEREAS, the Company was organized as a wholly-owned subsidiary of
Sunshine; and
WHEREAS, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated [_________], Sunshine was merged with and into the Company,
with the Company being the surviving entity, and upon the effective date of
which the Company changed its name to Sunshine Mining and Refining Company;
WHEREAS, pursuant to the terms of the Merger Agreement, on the
effective date of the Merger, each share of Common Stock, par value $.01 of
Sunshine became one share of Common Stock, par value $.01 of the Company,
without any action by the holder thereof;
WHEREAS, pursuant to the terms of the Merger Agreement, each
warrant to purchase Common Stock, par value $.01, of Sunshine became a warrant
to purchase a like number of shares of Common Stock, par value $.01, of the
Company on the same terms and conditions; and
WHEREAS, pursuant to the terms of that certain Warrant Agreement dated
as of February 3, 1994, between Sunshine and Warrant Agent (the warrants
identified therein are herein referred to as the "Warrants"), the Company, as
the entity under the Merger Agreement obligated to deliver securities upon
exercise of Warrants, is required to enter into this Supplemental Warrant
Agreement with Warrant Agent.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Consent to Warrant Agreement. The Company, upon the
effective date of the Merger, consents to and agrees to be bound by all of the
terms and conditions of the Warrant Agreement and all of Sunshine's duties and
obligations thereunder.
SECTION 2. Exercise of Warrants. On and after the effective date
of the Merger, each Warrant shall represent the right, subject to the
provisions specified in the Warrant Agreement and Warrant Certificate, to
purchase from the Company (and the Company shall issue and sell to the
registered holder of such
<PAGE> 3
Warrant) one fully paid and nonassessable share of Common Stock, par value
$.01, of the Company, together with such additional securities as may
thereafter be issuable to the Warrantholder pursuant to Section 11 of the
Warrant Agreement, at the price and on the terms specified in the Warrant
Agreement and Warrant Certificate.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
SUNSHINE MERGER COMPANY
By:____________________
Its:___________________
AMERICAN STOCK TRANSFER
& TRUST COMPANY,
As Warrant Agent
By:____________________
Its:___________________
<PAGE> 1
EXHIBIT 5.1
[EVANS, KEANE LETTERHEAD]
JAMES D. HOVREN
December 27, 1995
Sunshine Mining and Refining Company
877 W. Main Street, Suite 600
Boise, ID 83702
Gentlemen:
We have acted as counsel to Sunshine Mining and Refining Company, a
Delaware corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 (Registration No. 33-98876, the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to the merger of the Company with
and into its wholly-owned subsidiary Sunshine Merger Company, and the resulting
issuance of the following securities of Sunshine Merger Company: up to
206,917,404 shares of Common Stock, par value $.01, issuable in exchange for
existing shares of Common Stock, par value $.01 of the Company, including shares
issuable upon exercise of existing Warrants ($2.12 exercise price), 8 7/8%
Convertible Subordinated Debentures and stock options of the Company; 10,086,076
Warrants ($2.12 exercise price) to purchase Common Stock and 1,519,000 8 7/8%
Convertible Subordinated Debentures issuable in exchange for existing Warrants
($2.12 exercise price) and Convertible Subordinated Debentures of the Company;
up to 66,645,531 shares of Common Stock to be issued in exchange for existing
Preferred Stock of the Company; up to 14,332,372 Warrants to purchase Common
Stock to be issued in exchange for existing Preferred Stock of the Company,
together with up to 14,332,372 shares of Common Stock to be issued on exercise
of such Warrants (collectively, the "Securities").
In connection therewith, we have examined and relied upon the original,
or copies certified to our satisfaction, of (i) the Certificate of Incorporation
and the Bylaws of the Company, as amended and of Sunshine Merger Company; (ii)
minutes and records of the corporate proceedings of the Company with respect to
the Merger of the Company with and into Sunshine Merger Company, and the
resulting issuance of shares of Common Stock and Warrants to purchase Common
Stock in exchange for Preferred Stock of the Company; (iii) the Registration
Statement and any and all exhibits thereto; and (iv) such other documents as we
have deemed necessary for the expression of the opinions contained herein.
<PAGE> 2
Sunshine Mining and Refining Company
December 27, 1995
Page 2
In making the foregoing examinations, we have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents submitted
to us as certified or photostatic copies. As to various questions of fact
material to this opinion, where such facts have not been independently
established, and as to the content and form of the Certificate of
Incorporation, Bylaws, minutes, records, resolutions and other documents or
writings of the Company, we have relied, to the extent we deemed reasonably
appropriate, upon representations or certificates of officers or directors of
the Company, without independent check or verification of their accuracy.
Based upon the foregoing, and having due regard for such legal
considerations as we deem relevant, we are of the opinion that, upon approval
of the holders of the Company's Common Stock and Preferred Stock and upon
consummation of the Merger as described in the Registration Statement, the
Securities, when issued, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
reference to our firm under "Legal Matters" in the Prospectus forming a part of
such Registration Statement.
Very truly yours,
EVANS, KEANE
James D. Hovren
JDH:kmp
#7-1
<PAGE> 1
EXHIBIT 8.1
[HAWLEY TROXELL ENNIS & HAWLEY LETTERHEAD]
ROBERT S. ERICKSON
December 27, 1995
Sunshine Mining and Refining Company
c/o John S. Simko
President and Chief Executive Officer
877 W. Main Street, Suite 600
Boise, Idaho 83702
Re: Merger Of Sunshine Mining and Refining Company Into Its
Wholly Owned Subsidiary, Sunshine Merger Company
Ladies and Gentlemen:
We have acted as counsel to Sunshine Mining and Refining Company, a
Delaware corporation (the "Company"), in connection with the transaction
contemplated by the Merger Agreement (the "Merger Agreement") between the
Company and its wholly owned subsidiary, Sunshine Merger Company, a Delaware
corporation (the "Merger Company"), pursuant to which the Company is being
merged with and into the Merger Company, which will be the surviving
corporation (the "Merger"), as described in the Registration Statement on Form
S-4 filed or to be filed by the Company with the Securities and Exchange
Commission (the "Registration Statement"). All capitalized terms herein,
unless otherwise specified, have the meanings assigned thereto in the
Registration Statement. This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended.
In connection with our opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Merger Agreement, Registration Statement, and such other documents as we
have deemed necessary or appropriate for the opinion set forth below. As to
any facts material to this opinion which we did not independently establish or
verify, we have relied upon the foregoing documents and statements and
representations of officers and other representatives of the Company, including
certain written representations of the Company.
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended, (the "Code"), Treasury
Regulations, pertinent
<PAGE> 2
Sunshine Mining and Refining Company
December 27, 1995
Page 2
judicial authorities, interpretive rulings of the Internal Revenue Service (the
"Service"), and such other authorities as we have considered relevant. In
addition, we give no opinion as to any state, local and foreign tax
consequences or as to the consequences to stockholders other than individual
United States citizens who hold their shares in the Company stock as a capital
asset.
Based solely upon the foregoing and upon the assumptions set forth
herein, and subject to the caveats set forth herein, the discussion contained
in the prospectus included as part of the Registration Statement (the
"Prospectus") under the caption "Federal Income Tax Consequences," except as
otherwise indicated, expresses our opinion as to the material federal income
tax consequences of the Merger. You should be aware, however, that the
discussion under the caption "Federal Income Tax Consequences" in the
Prospectus represents our conclusions as to the application of existing law, as
of the date of this letter, to the instant transactions. There can be no
assurance that contrary positions may not be taken by the Internal Revenue
Service or that the laws affecting the consequences of the Merger will not
change.
Except as set forth above, we express no other opinion as to the tax
consequences of the Merger. We hereby consent to the reference to the
undersigned under the heading "Federal Income Tax Consequences" in the
Prospectus included in the Registration Statement, and in all amendments
thereto, and to the filing of this opinion by the Company as an exhibit to the
Registration Statement. We are furnishing this opinion to you solely for use
in connection with the Registration Statement, and this opinion is not to be
used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
HAWLEY TROXELL ENNIS & HAWLEY
/s/ ROBERT S. ERICKSON
Robert S. Erickson
RSE/mlv
enclosure
cc: James Hovren
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 28, 1995, in the Registration Statement (Form
S-4 No. 33-98876) and related Prospectus of Sunshine Mining and Refining
Company filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
December 27, 1995
<PAGE> 1
Exhibit 99.4
PROXY FOR COMMON STOCK
SUNSHINE MINING AND REFINING COMPANY
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints John S. Simko, William W. Davis and
Robert H. Peterson, or any of them, with full power of substitution, as Proxies
and hereby authorizes them to represent and to vote as designated on the
reverse side of this proxy all of the shares of Common Stock, par value $.01,
of Sunshine Mining and Refining Company (the "Company") held of record by the
undersigned on __________________, 1996, at the Special Meeting of Stockholders
to be held on ___________, 1996 or any adjournment(s) thereof.
The Proposal to authorize is:
1. Approval to merge the Company with and into Sunshine Merger Company, a
wholly owned subsidiary of the Company, with Sunshine Merger Company
being the surviving entity.
You may vote on the Proposal described above by marking one of the following
boxes:
[ ] For [ ] Against [ ] Abstain
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE ON THIS CARD, THE
PROXY WILL BE VOTED "FOR" PROPOSAL NO. 1.
(Please See Reverse Side)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: The Herman Group, Inc., 13760 Noel Road,
Suite 320, Dallas, Texas 75240. If you have any questions, please call (800)
747-2967. Facsimile copies of the front and reverse sides of this Proxy,
properly completed and duly executed, will be accepted at (214) 991-4422 or
(214) 991-4432.
Dated: , 1996
--------------------
---------------------------------
Signature
---------------------------------
Signature (if held jointly)
---------------------------------
Title
Please sign exactly as name
appears hereon. When interests
are held by joint tenants, both
should sign. When signing as an
attorney, as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in name by President
or other authorized officer. If
a partnership, please sign in
partnership name by authorized
person.
<PAGE> 1
Exhibit 99.5
PROXY FOR PREFERRED STOCK
SUNSHINE MINING AND REFINING COMPANY
SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints John S. Simko, William W. Davis and
Robert H. Peterson, or any of them, with full power of substitution, as Proxies
and hereby authorizes them to represent and to vote as designated on the
reverse side of this proxy all of the shares of $11.94 (Stated Value)
Cumulative Redeemable Preferred Stock of Sunshine Mining and Refining Company
(the "Company") held of record by the undersigned on __________________, 1996,
at the Special Meeting of Stockholders to be held on ___________, 1996 or any
adjournment(s) thereof.
The Proposal to authorize is:
1. Approval to merge the Company with and into Sunshine Merger Company, a
wholly owned subsidiary of the Company, with Sunshine Merger Company
being the surviving entity.
You may vote on the Proposal described above by marking one of the following
boxes:
[ ] For [ ] Against [ ] Abstain
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE ON THIS CARD, THE
PROXY WILL BE VOTED "FOR" PROPOSAL NO. 1.
(Please See Reverse Side)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: The Herman Group, Inc., 13760 Noel Road,
Suite 320, Dallas, Texas 75240. If you have any questions, please call (800)
747-2967. Facsimile copies of the front and reverse sides of this Proxy,
properly completed and duly executed, will be accepted at (214) 991-4422 or
(214) 991-4432.
Dated: , 1996
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Signature
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Signature (if held jointly)
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Title
Please sign exactly as name
appears hereon. When interests
are held by joint tenants, both
should sign. When signing as an
attorney, as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in name by President
or other authorized officer. If
a partnership, please sign in
partnership name by authorized
person.
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Exhibit 99.6
_____, 1996
To Our Common and Preferred Stockholders:
The enclosed Proxy Statement/Prospectus is being sent to you with
respect to a Special Meeting of Stockholders to be held on ______________,
1996. It discusses an important transaction in the future development of your
Company. PLEASE READ AND CAREFULLY CONSIDER THE PROPOSAL BEING SUBMITTED FOR
YOUR APPROVAL BY THE BOARD OF DIRECTORS OF THE COMPANY.
The purpose of the transaction is to convert all of the preferred
stock of the Company into common stock and warrants. To accomplish this
requires your approval of a merger of Sunshine Mining and Refining Company into
a wholly- owned special-purpose subsidiary, Sunshine Merger Company (the
"Merger Proposal"). After the Merger is effective, Sunshine Merger Company,
the new surviving parent company, will immediately change its name to Sunshine
Mining and Refining Company (the "New Sunshine").
Your shares of Common stock will automatically convert after the
Merger into an equal number of shares of Common Stock of New Sunshine, with no
further action required on your part. Each share of Preferred Stock will be
converted into ___________ shares of New Common Stock and, either two Warrants
to purchase shares of the New Common Stock at a price of $________ for a period
of five years, or, at the holder's option, .9 additional shares of New Common
Stock. Other provisions provide for a limited number of additional shares of
New Common Stock to be issued to the Preferred stockholders should the trading
price of the New Common Stock fall below certain minimum trading levels during
the first 120 trading days following the Effective Date of the Merger.
In the last three years, the Company has made a great deal of progress
in positioning itself to survive and prosper despite the prolonged slump in
silver prices. We have eliminated substantially all of the Company's debt,
raised significant new capital, embarked on a very promising program of
exploration and development at the Sunshine Mine, and begun an intensive search
for new reserves in Argentina and Peru. Our exciting new Pirquitas property,
which potentially contains more than 140 million ounces of silver, is an
example of the type of property we are looking for in South America.
During 1996 we will gain significantly improved access to the West
Chance area, and as a result, we expect to increase silver production at the
Sunshine Mine by over 1 million ounces from 1995 levels. We also expect to do
the development work and acquire the equipment necessary, to return the mine to
its full production rate of 1,000 tons of ore per day by the end of this year.
In South America, we will do the work necessary to determine if the Pirquitas
property can be placed into production economically.
The proposed Merger will allow the benefit of these operational
improvements to flow more directly to the stockholders. The following
additional benefits will be derived as a result of the Merger:
o IMPROVED BOOK VALUE AND EARNINGS TO COMMON. Elimination of the
Preferred Stock from the Company's capital structure will improve the
book value and the results of operations per common share, by
eliminating the annual $10.5 million charge to earnings of the
Preferred stock dividend.
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Additionally, in the period the transaction is effective, it will
generate a positive contribution to earnings attributable to common
stock estimated to exceed $30 million.
o NYSE LISTING - The Company has been below continued listing standards
at the New York Stock Exchange for several years, and as a result, in
danger of being delisted from the Exchange. Upon completion of this
transaction, the Company has been advised by the Exchange that it will
no longer be on the "watch" list and, therefore, no longer in danger
of delisting.
o ENHANCEMENT OF THE COMPANY'S FINANCIAL FLEXIBILITY. By eliminating
the $128 million Preferred Stock liquidation preference through this
transaction we strengthen the Company's balance sheet and improve its
financial alternatives with a minimum of dilution. For the Company to
redeem the Preferred Stock pursuant to its terms would require the
issuance of 50% or more shares of Common Stock than anticipated in the
proposed transaction.
o GREATER LIQUIDITY AND VALUE FOR PREFERRED STOCKHOLDERS. The
combination of both New Common Stock and Warrants to be received by
the Preferred Stockholders should enable them to realize greater
liquidity and value than the current Preferred Stock provides. The
market price for the Preferred Stock increased by approximately 25%
immediately after the announcement of the Merger, reflecting this
benefit. The Company has reached agreement with the three largest
Preferred Stockholders, holding approximately 25% of the issue, to
vote "For" the proposal.
YOUR VOTE IS IMPORTANT
To be approved, the Merger Proposal must receive the affirmative vote
of the majority of the outstanding shares of both Common and Preferred Stock,
voting separately as a class. As a result, the failure to vote or an "Abstain"
vote will have the same effect as a "No" vote. Therefore, it is important that
you sign the enclosed Proxy card quickly and return it to the Proxy Agent, so
that your vote will be received in time to be voted at the Meeting. A business
reply envelope has been provided for your mailing convenience or proxies can be
delivered by hand or overnight to: The Herman Group, Inc., 13760 Noel Road,
Suite 320, Dallas, TX 75240. Facsimiles of your proxy will also be accepted
at (214) 991-4422 or (214) 991-4432. Delivery of your proxy does not prohibit
you from attending the Special Meeting.
For further information regarding the Merger transaction or procedures
for submitting your proxy call (800) 747-2967.
Very truly yours,
John S. Simko
President & Chief Executive Officer
