SUNSHINE MINING & REFINING CO, 424B3, 1996-02-08

SUNSHINE MINING & REFINING CO
424B3, 1996-02-08
PRIMARY SMELTING & REFINING OF NONFERROUS METALS

Previous: PREMIER ACCEPTANCE CORP /MN/, 10-Q, 1996-02-08

Next: SOLECTRON CORP, 8-K, 1996-02-08

<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 33-98876

SUNSHINE MINING AND REFINING COMPANY
877 WEST MAIN STREET, SUITE 600
BOISE, IDAHO 83702
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
MARCH 29, 1996

A special meeting of shareholders of Sunshine Mining and Refining Company
("Sunshine" or the "Company") will be held on March 29, 1996, at 10:00 a.m.,
local time, at the office of the Company, 877 W. Main St., Suite 600, Boise,
Idaho, for the purpose of voting on the approval and adoption of an Agreement
and Plan of Merger (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 February 5, 1996 ( 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
February 9, 1996.
<PAGE> 2
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 MARCH 29, 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 March 29,
1996, at 10:00 a.m., local time, at the office of the Company, 877 W. Main
Street, Suite 600, 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 February 9, 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 six (6) 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. A maximum of 8.4 shares of Common Stock,
exclusive of Warrants or .9 (9/10) shares of Common Stock issuable in lieu of
Warrants, may be issued for each share of Preferred Stock under the formula.
The exercise price of Warrants issued may be decreased pursuant to a formula
based on the trading price of Common Stock after the Effective Date of the
Merger. These adjustments are intended to reduce the risk to holders of
Preferred Stock of a decline in the market value of Common Stock immediately
after consummation of the Merger. Because the maximum number of shares of
Common Stock is limited to 8.4, exclusive of Warrants or .9 shares of Common
Stock issuable in lieu of Warrants, the adjustments will not be sufficient to
maintain this estimated value if the average NYSE composite closing price of
the Common Stock for the 120 trading days following the Effective Date of the
Merger is less than $1.25. Based on the composite closing price of the Common
Stock on the New York Stock Exchange ("NYSE") of $1.75 per share on February 5,
1996, it is estimated that the value of the six (6) shares of New Common Stock
plus an additional .9 share of New Common Stock have an estimated value of
approximately $12.00. 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 66,645,530 shares of New Common Stock and up
to 14,332,372 Warrants to purchase New Common Stock pursuant to the terms of
the Merger.

(continued)
<PAGE> 3
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 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT STOCKHOLDERS SHOULD CONSIDER PRIOR TO EXECUTING A PROXY OR CASTING A VOTE.

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.

The date of this Proxy Statement/Prospectus is February 9, 1996.
<PAGE> 4
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 AND 3100 LEVELS (FACING NORTH)

The diagram above illustrates the projected advance of the 2700 Level
drift and the completed 3100 Level drift, in relation to drill data and
existing reserve blocks in the area. Mining has commenced from the 3100 Level
with reserves assigned to these blocks exceeding 3.5 million ounces. The 2700
Level drift will be in a position to begin evaluating the area by August 1996.
The introduction of trackless mining methods will allow the rapid development
of reserves found both above and below the drifts.

3700 LEVEL (FACING NORTH)

This diagram illustrates the advance of the 3700 Level drift in relation
to the assays of some of the recently completed drill holes in the area. The
drift is currently in the mineralized zone, which will allow better reserve
delineation on the level. No reserves have yet been assigned to this area.

4400 LEVEL CHANCE FOOTWALL (MAP VIEW)

The Company has delineated over 700 thousand ounces of reserves in the
CF4 reserve block. The above illustration shows the vein geometry and mining
grades encountered on floor 6 of the CF4 stope. Exploration drifting on the
east side discovered a mineralized hanging wall structure. Preliminary drilling
suggests that additional sub-parallel mineralized structures may be present.
<PAGE> 5
SUNSHINE MINING
WEST CHANCE DEVELOPMENT PROGRESS

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.

_________________
* indicates the location of certain ore grade drill intercepts, the true
width of the mineralized section, and the silver ounces per ton (opt).
[ ] indicates areas where drilling and/or drifting activity has resulted in
assigned reserves.
<PAGE> 6
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 SPECIAL MEETING OF SHAREHOLDERS

The Special Meeting of the Shareholders of the Company will be held on
March 29, 1996, at 10:00 a.m., local time, at the office of the Company, 877
West Main Street, Suite 600, Boise, Idaho. The purpose of the special meeting
is to vote upon approval of the Merger Proposal providing for the Merger of the
Company with and into Sunshine Merger Company, with Sunshine Merger Company as
the surviving corporation in the Merger. February 5, 1996, has been set as the
record date for the determination of the stockholders entitled to notice of and
to vote at the Special Meeting.

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, voting separately as a
class, are required for the approval of the Merger. 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., 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 ("broker
nonvotes"). Accordingly, broker nonvotes will also have the same effect as
votes against the Merger Proposal. Proxies are revocable prior to the date of
the Special Meeting, and may be revoked in writing by the person giving it at
any time before it is exercised by notice of such revocation to the Secretary
of the Company, by submitting a proxy having a later date, or by such person
appearing at the Special Meeting and electing to vote in person. UNMARKED BUT
PROPERLY EXECUTED PROXIES WILL BE VOTED FOR THE MERGER PROPOSAL.

As of the Record Date, the Company had 193,095,839 shares of Common Stock
outstanding, and 7,166,186 shares of Preferred Stock outstanding. As of the
record date the Company's directors and executive officers were entitled to
vote 176,741 shares of Common Stock and 20,500 shares of Preferred Stock,
representing less than 1% of the outstanding shares of Common Stock and
Preferred Stock, respectively. To the best knowledge of the Company, all of
the directors and executive officers of the Company intend to vote their shares
of stock in favor of the Merger Proposal.

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-

1
<PAGE> 7
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 December 31, 1995 in the West Chance area total 4.4 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.

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

2
<PAGE> 8
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").

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.

The Board of Directors of the Company, in reaching its determination to
approve the proposed Merger, considered a number of factors as described
herein. See, "BACKGROUND OF THE MERGER" and "DETERMINATION OF THE BOARD OF
DIRECTORS." The Board believes 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 by removing the aggregate redemption value for the
Preferred Stock, and also improve the income (loss) from operations per Common
share by eliminating the annual Preferred Stock dividend requirements, while
providing the Preferred Stockholders a security with more liquidity than the
Preferred Stock. See, "CAPITALIZATION" and "Comparative PER SHARE DATA." The
proposed Merger received the unanimous approval of the Board of Directors,
including the Directors elected by holders of Preferred Stock. The Board of
Directors determined that no conflict of interest was created by the
consideration of the proposed Merger by Directors elected by holders of
Preferred Stock.

If the Merger is approved, holders of Preferred Stock will receive
securities having a combined value that is less than the current redemption
value of the Preferred Stock, but which may be more liquid than the Preferred
Stock. See, "TERMS OF THE MERGER." If the Merger is approved, holders of
Common Stock will have their ownership interest in the Company diluted. See,
"CERTAIN RISK FACTORS - DILUTION." In the event that the Merger is not
approved, dividends and partial redemptions will continue to accrue on the
Preferred Stock. At the present time, the Company does not expect to resume
the payment of dividends until it has earnings sufficient to support such
payments. In addition, the accrued dividends and partial redemptions in
arrears affect the Company's financial statements, and as a result may affect
the Company's continued listing on the NYSE.

3
<PAGE> 9
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 six (6) 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 February 5, 1996, of
$1.75 per share, the total value of the six (6) 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 approximately $12.00, which is 33% below the
liquidation preference of $17.89 per share at December 31, 1995. However, it
is a 50% 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.
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 49,446,683 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

Upon consummation of the proposed Merger, Holders of the Company's
Preferred Stock will receive six (6) shares of New Common Stock for each share
of Preferred Stock held, which may be increased to 8.4 shares of New Common
Stock for each share of Preferred Stock held pursuant to the following
adjustment formula based on the average closing price of the New Common Stock
immediately after the Merger. In addition, each holder of Preferred Stock will
receive, for each share of Preferred Stock held, a choice to receive either two
Warrants to purchase New Common Stock or an additional .9 (9/10) shares of New
Common Stock. The exercise price of the Warrants may be

4
<PAGE> 10
decreased based on the average closing price of the New Common Stock after
consummation of the Merger. See, "DESCRIPTION OF THE WARRANTS."

ALTERNATIVES TO HOLDERS OF PREFERRED STOCK

A Preferred Stockholder's decision whether to receive two Warrants or .9
additional share of New Common Stock should be made after consideration of the
differences between the alternatives, which differences include, among others,
the potential decrease in the exercise price of the Warrants, the expiration of
the Warrants if not exercised prior to the expiration date, the lack of an
existing market for the Warrants, the lack of shareholder rights attributable
to Warrants, and the existing market for and the stockholder rights attendant
to the New Common Stock. See, "ALTERNATIVES TO HOLDERS OF PREFERRED STOCK."

At the NYSE Composite closing price of Existing Common Stock of $1.75 per
share on February 5, 1996, a total of up to 49,446,683 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 $1.75, the additional number of shares issuable will be determined by
the following formula:

<TABLE>
<S> <C>
$10.50/X - 6
Where,
X = Average New Common Stock closing price on NYSE Composite for
the first 120 NYSE trading days after the Effective Date; and

6 = Common Shares initially issuable per Preferred Share
</TABLE>

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 $1.92. 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 $1.75. 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 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, and if the maximum number of shares of New Common Stock are
issued pursuant to the foregoing formula, the total number of shares of New
Common Stock issued incident to the Merger will be 74.5 million shares,
representing approximately 28% of the New Common Stock outstanding after the
Merger (the "Maximum Dilution").

Record Date . . . . . . . . . . . . . . . . February 5, 1996

Procedure for Exchanging Shares
Preferred Stock for New Common
Stock and Warrants . . . . . . . . . . . . Following the Effective Date of
the Merger, holders of Preferred
of Stock will receive a
Transmittal Letter instructing
them on the 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

5
<PAGE> 11
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."

6
<PAGE> 12
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 1995 dollars.

<TABLE>
<CAPTION>
CONSTANT
NOMINAL DOLLARS 1995 DOLLARS
--------------- ------------
YEAR HIGH LOW AVG. AVG.
----- ---- ----- ----- ----
<S> <C> <C> <C> <C>
1983 . . . . . . . . . . . . . . . $14.74 $8.38 $11.46 $18.62
1984 . . . . . . . . . . . . . . . 10.17 6.25 8.15 12.44
1985 . . . . . . . . . . . . . . . 6.89 5.48 6.14 8.94
1986 . . . . . . . . . . . . . . . 6.32 4.85 5.49 7.79
1987 . . . . . . . . . . . . . . . 11.25 5.35 6.99 9.86
1988 . . . . . . . . . . . . . . . 8.06 6.01 6.53 8.63
1989 . . . . . . . . . . . . . . . 6.20 5.02 5.47 6.86
1990 . . . . . . . . . . . . . . . 5.35 3.94 4.82 5.64
1991 . . . . . . . . . . . . . . . 4.55 3.51 4.03 4.48
1992 . . . . . . . . . . . . . . . 4.32 3.63 3.94 4.24
1993 . . . . . . . . . . . . . . . 5.44 3.52 4.31 4.57
1994 . . . . . . . . . . . . . . . 5.78 4.61 5.28 5.47
1995 . . . . . . . . . . . . . . . 6.10 4.38 5.20 5.20
</TABLE>

7
<PAGE> 13
On February 5, 1996, the closing price of silver reported on the COMEX
was $5.79 per ounce. In constant 1995 dollars, the average silver price from
1968 through 1995 has been approximately $11.66.

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.

8
<PAGE> 14
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 66,645,531
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 $1.75 per share on February 5, 1996, it is estimated
that the value of the six (6) shares of New Common Stock plus an additional .9
share of New Common Stock have an estimated value of approximately $12.00. 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.

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 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

9
<PAGE> 15
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

From time to time, the Board of Directors of the Company, in response to
inquiries from Preferred Stockholders and during the Board's meetings incident
to considering whether the Company could declare dividends on and/or make
partial redemptions of the Preferred Stock, considered the related issue of
whether the Preferred Stock should be retired prior to final redemption.
During its regular meeting on September 19, 1995, the Board of Directors
determined that it was 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.

The Board of Directors, in its September 19, 1995 meeting, identified
three prerequisites to the proposed transaction. First, that the transaction
would retire all of the Preferred Stock; second, that the transaction have the
complete support of the three largest Preferred Stockholders; and third, that
the transaction result in an exchange of Preferred shares for Common shares,
using their recent relative trading values as the benchmark for establishing
the exchange ratios. Given these parameters, it was determined that a Merger,
as proposed, would be utilized to accomplish the transaction. No alternative
transactions were considered by the Board of Directors.

Shortly thereafter, management of the Company began discussions with the
three largest holders of Preferred Stock to explore the feasibility of the
proposed transaction. Through those negotiations, it was determined that the
securities to be issued in exchange for each share of Preferred Stock should
have a combined value of approximately $12.00 (of which approximately $10.50
was to be in the form of Common Stock and approximately $1.50 was to be in the
form of Warrants or an additional .9 share of Common Stock), although it was
recognized that variations in the market value of the securities may result in
the actual value being lower or higher. Because of potential post-merger
variations in the price of Common Stock, the holders of Preferred Stock
required that the actual number of shares of Common Stock received for each
share of Preferred Stock, exclusive of Warrants or shares of Common Stock
issued in lieu of Warrants, be subject to adjustment such that their collective
value would approximate $10.50. In order to accommodate this requirement, the
adjustment formula was approved. However, in order to limit the total number
of shares of New Common Stock that could be issued, management requested and
the three largest holders of Preferred Stock agreed that in no event would the
number of shares of Common Stock issuable in exchange for one share of
Preferred Stock, exclusive of Warrants or Common Stock issued in lieu of
Warrants, exceed 8.4.

The Board of Directors, after consideration of the negotiations between
management and the three largest holders of Preferred Stock, determined that
the exchange ratio as proposed was in the best interest of the Common
Shareholders and Preferred Shareholders. The ratio, and its potential
adjustment pursuant to the adjustment formula, provides Common Shareholders
with a measure of the maximum dilution to Common Stock that may occur incident
to the Merger, and provides Preferred Shareholders with consideration that, to
a limited extent, may maintain the value of the Common Stock to be received
despite fluctuations in the price of Common Stock for a period after the
consummation of the Merger.

10
<PAGE> 16
There can be no assurance that the New Common Stock and Warrants (or
shares issued in lieu of Warrants) will trade at prices sufficient to achieve
the combined estimated value of $12.00. The actual value of the securities 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.

DETERMINATION OF THE BOARD OF DIRECTORS

The Board of Directors of the Company, in reaching its determination to
approve the proposed Merger, considered a number of factors as described
herein. See, "BACKGROUND OF THE MERGER" and "DETERMINATION OF THE BOARD OF
DIRECTORS." The Board believes 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 by removing the aggregate redemption value for the
Preferred Stock, and also improve the income (loss) from operations per Common
share by eliminating the annual Preferred Stock dividend requirements, while
providing the Preferred Stockholders a security with more liquidity than the
Preferred Stock. See, "CAPITALIZATION" and "COMPARATIVE PER SHARE DATA." The
proposed Merger received the unanimous approval of the Board of Directors,
including the Directors elected by holders of Preferred Stock. The Board of
Directors determined that no conflict of interest was created by the
consideration of the proposed Merger by Directors elected by holders of
Preferred Stock.

In reaching its determination to approve the proposed Merger, the Board
considered the following factors:

1. The effect of the proposed Merger on the Company's Common
Stockholders. If the Merger is approved, holders of Common Stock will
have their ownership interest in the Company diluted. However, the Board
of Directors determined that the Merger would result in less dilution
than would be experienced if the Preferred Stock were redeemed pursuant
to the terms of the Designation of Rights and Preferences governing the
Preferred Stock.

2. The effect of the proposed Merger on the Company's Preferred
Stockholders. If the Merger is approved, the Preferred Stock will be
canceled and all dividend, redemption, liquidation, and voting rights
thereunder will be terminated. If the Merger is approved, holders of
Preferred Stock will receive securities having a value less than the
current redemption value of the Preferred Stock. However, the Board of
Directors determined that the value of the securities received is
expected to be higher than the trading price of the Preferred Stock
immediately prior to the announcement of the proposed Merger.

3. The continuing effect of the Preferred Stock on the Company's
balance sheet. As of December 31, 1995, accumulated dividends in arrears
and redemptions in arrears totalled $79,948,859. If the Merger is
approved, the book value per Common share and the results of operations
per Common share will be improved. This factor weighed in favor of the
proposed Merger.

4. The potential restrictions on future financing activities
imposed by the accumulated dividends on and unpaid partial redemptions
of the Preferred Stock, including their effect on the Company's continued
listing on the NYSE. Because of the elimination of the accumulated
dividends on and unpaid partial redemptions of the Preferred Stock, if
the Merger is approved the Company will

11
<PAGE> 17
no longer be below continued listing standards of the NYSE, although the
Company will continue to fall below certain original listing standards.
This factor weighed in favor of the proposed Merger.

5. Pending litigation against the Company by certain holders of
Preferred Stock. Grace Holdings, L.P., a major holder of Preferred
Stock, has agreed to dismiss with prejudice its pending litigation
against the Company if the Merger is approved. Similarly, Grace
Holdings, L.P., Elliott Associates, L.P., and Lloyd I. Miller III, the
three largest Preferred Stockholders, have agreed to not join,
participate in nor benefit from litigation commenced against the Company
by another holder of Preferred Stock. See, "LEGAL PROCEEDINGS - OTHER
LITIGATION." Although the Company believes that this litigation is
without merit, this factor weighed in favor of the proposed Merger.

The foregoing discussion of the information and factors considered by the
Board is not intended to be exhaustive but is believed to include all material
factors considered by the Board. In reaching its determination to approve and
recommend the Merger, the Board did not formally assign any relative or
specific weights to the foregoing factors, and individual directors may have
given differing weights to different factors. The Board determined that any
perceived adverse consequences were outweighed by the long-term positive
effects that the Merger will have on the Company's financial condition, net
income to Common Shares and continued NYSE listing, each of which were viewed
as positive consequences of the proposed Merger. The proposed Merger, and the
exchange ratio for Preferred Stock, received the unanimous approval of the
Board of Directors, including the three directors elected by holders of
Preferred Stock (Messrs. Elvin, Kaback and Stewart).

As described herein, the exchange ratio for the Preferred Stock was
approved by the Board of Directors in its consideration of the Merger, after
negotiations between the Company's management and the three largest Preferred
Stockholders. The relative market prices of the Common Stock to the Preferred
Stock prior to the announcement of the proposed Merger, the liquidation
preference of the Preferred Stock and the evaluation of the Company's future
prospects were considerations in the determination of the exchange ratio.

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.

The proposed Merger will have certain adverse impacts on holders of
Common Stock and holders of Preferred Stock.

1. If the Merger is approved, holders of Common Stock will have
their ownership interest in the Company diluted by up to 74.5 million
shares, representing approximately 28% of the Common Stock outstanding
after the Merger.

2. Holders of Preferred Stock will receive securities having a
combined value less than the current redemption value of the Preferred
Stock. Based on the closing price of the Common Stock on February 5,
1996, of $1.75 per share, the total value of the six (6) shares of New
Common Stock plus either .9 (9/10) share of New Common Stock or two
Warrants each to purchase one share of New

12
<PAGE> 18
Common Stock have an estimated value of approximately $12.00 which is 33%
below the liquidation preference of $17.89 per share of Preferred Stock
at December 31, 1995.

3. The value of the securities received by holders of Preferred
Stock for each share of Preferred Stock held may decrease, despite
operation of the adjustment formula. 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 lower than $12.00, as the
maximum number of Common Shares issuable per Preferred Share, exclusive
of shares issuable upon exercise of Warrants or in lieu of Warrants, is
8.4.

The following benefits are anticipated to result from the Merger:

1. Improved book value and earnings to Common Stock.
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. 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, which is
the difference between the carrying value of the Preferred Stock ($81.9
million) plus the amount of cumulative dividends in arrears ($42.6
million) and the aggregate fair value of Common Stock and Warrants, if
any, issued (approximately $86 million).

2. NYSE Listing. The Company has been below continued listing
standards at the NYSE for several years, and as a result, in danger of
being delisted from the Exchange. Upon completion of this transaction,
the Company will no longer be below continued listing standards, although
the Company will continue to be below certain original listing standards.

3. Enhancement of the Company's financial flexibility. By
eliminating the $128 million Preferred Stock liquidation preference
through this transaction, the Company's balance sheet will be
strengthened and its financing alternatives enhanced. 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.

4. Greater liquidity and value for Preferred Stockholders. The
New Common Stock and Warrants, if selected, to be received by the
Preferred Stockholders should enable them to realize greater liquidity
and value than the current Preferred Stock provides. Average daily
trading volume of the Preferred Stock was approximately 5,500 shares for
the first 9 months of 1995 (prior to the announcement of the proposed
Merger), compared to the average daily trading volume of approximately
389,000 shares for the Common Stock during the same period.

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 February 5, 1996, of $1.75 per share, the total value of six (6) 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 approximately $12.00, which is
33% below the liquidation preference of $17.89 per share at December 31, 1995.
However, it is a 50% 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

13
<PAGE> 19
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"). If the Merger Proposal is approved, it is
presently contemplated that the Certificate of Merger will be filed, and the
Effective Date will occur, on March 29, 1996, 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 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.

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.

14
<PAGE> 20
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 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.

TERMS OF THE MERGER

The following is a discussion of the material terms of the Agreement and
Plan of Merger (the "Merger Agreement") between the Company and Sunshine Merger
Company, a copy of which is attached as Annex A and is incorporated herein by
reference. All summaries of the provisions of that document in this Proxy
Statement/Prospectus are qualified by reference to the provisions set forth
therein.

Upon approval by the holders of a majority of the outstanding Common
Stock and by the holders of a majority of the outstanding Preferred Stock,
voting separately as a class, 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.

The following exchange ratio for the Preferred Stock was determined in
arms length negotiations between the Company's management and the three largest
Preferred Stockholders. This ratio was approved by the Company's Board of
Directors in its consideration of the Merger. The relative market prices of
the Common Stock to the Preferred Stock prior to the announcement of the
transaction, the liquidation preference of the Preferred Stock and the
evaluation of the Company's future prospects by Management, the Board and the
three largest Preferred Stockholders were considerations in the determination
of the exchange ratio.

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 six (6) 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 at an exercise price of $1.92.
Fractional shares will not be issued. Shares of New Common Stock

15
<PAGE> 21
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 $1.75, 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:

<TABLE>
<S> <C>
$10.50/X - 6
Where,
X = Average New Common Stock closing price on NYSE Composite for
the first 120 NYSE trading days after the Effective Date; and

6 = Common Shares initially issuable per Preferred Share
</TABLE>

The exercise price of the Warrants has been set $1.92 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 $1.75. 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 $1.75. 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 - $1.50; 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 6 6 6 6
Initial Warrant exercise price $1.92 $1.92 $1.92 $1.92
Additional shares issuable 0 1.0 2.4 2.4
Adjusted warrant exercise price $1.92 $ 1.65 $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 10,082,750 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
921,000 shares of Existing Common Stock under the Company's 1987 Employee
Non-Qualified Stock Option Plan; (iii) options to purchase up to 1,523,500
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."

16
<PAGE> 22
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, six
(6) shares of Common Stock and either .9 additional shares of Common Stock or
two Warrants, each to purchase one share of Common Stock at an exercise price
of $1.92.

Upon consummation of the proposed Merger, Holders of the Company's
Preferred Stock will receive six (6) shares of New Common Stock for each share
of Preferred Stock held, which may be increased to 8.4 shares of New Common
Stock for each share of Preferred Stock held pursuant to the adjustment formula
based on the average closing price of the New Common Stock immediately after
the Merger. In addition, each holder of Preferred Stock will receive, for each
share of Preferred Stock held, a choice to receive either two Warrants to
purchase New Common Stock or an additional .9 shares of New Common Stock. The
exercise price of the Warrants is subject to adjustment pursuant to the
formula. See, "DESCRIPTION OF THE WARRANTS."

A Preferred Stockholder's decision whether to receive two Warrants
or .9 additional share of New Common Stock should be made after consideration
of the differences between the alternatives. Among those differences, 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 to the adjustment formula. However, because a
market for the Warrants does not currently exist, holders electing to receive
two Warrants will bear the risk that a trading market in the Warrants may not
develop. In addition, the Warrants represent only a right to purchase Shares
of New Common Stock at a predetermined price, and do not entitle the holder to
exercise the rights of a holder of Common Stock, including the right to vote at
meetings of stockholders. Should the price of the New Common Stock decline
after the expiration of the adjustment period, the market for the Warrants may
deteriorate. Unexercised Warrants will expire, unless previously exercised, on
the fifth anniversary of the Effective Date; the .9 shares of Common Stock have
no such risk of expiration. Although it is estimated that the value of the two
Warrants will approximately equal the value of .9 shares of New Common Stock,
this estimate is based on the price of the Company's existing warrants ($2.12
exercise price). The actual value of the Warrants to be issued upon exchange
of Preferred Stock may be higher or lower, and may vary from the value of .9
shares of New Common Stock.

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.

17
<PAGE> 23
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 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 $1.92,
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
$1.75. 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.

18
<PAGE> 24
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

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.

19
<PAGE> 25
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 property.(3)

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 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, 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

__________________________________

(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.

20
<PAGE> 26
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.

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

21
<PAGE> 27
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 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 50.1 to 56.6 million shares of
New Common Stock will have been issued to retire the Preferred Stock. Up to 10
million 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. See
"CAPITALIZATION" AND "COMPARATIVE PER SHARE DATA."

22
<PAGE> 28
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.

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.

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 192 thousand tons at
an average grade of 23 ounces per ton, containing a total of 4.4 million ounces
of silver. Only a small portion of the potential ore body has been explored at
this time.

23
<PAGE> 29
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.

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.

24
<PAGE> 30
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.

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.

25
<PAGE> 31
Ore and metals produced during 1994 and 1993 were as follows:

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.

The Sunshine Mine accounted for all of the Company's 1993, 1994 and 1995
silver production, and approximately 85% of the Company's silver reserves at
December 31, 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,

26
<PAGE> 32
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.

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 property has been inactive since 1990.

27
<PAGE> 33
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.

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

28
<PAGE> 34
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.

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

29
<PAGE> 35
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 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.

DISCONTINUED OPERATIONS

30
<PAGE> 36
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, 1995 Sunshine and its subsidiaries, including SPMI,
employed approximately 240 persons; 217 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 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.

31
<PAGE> 37
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 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.

32
<PAGE> 38
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 February
5, 1996, 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>
1996 QUARTERS 1995 QUARTERS 1994 QUARTERS 1993 QUARTERS
------------------------------------------------------------------------------------------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter* 1 7/8 1 1/4 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 1/4 2 1/2 1 5/8 3 2 1/8
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
* Through February 5, 1996.

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, and through February 5, 1996 of
$11.125 and $6.375, respectively. At February 5, 1996, 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, and through February 5, 1996, 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 December 31, 1995, the Company was prohibited from
paying cash dividends on shares of its Common Stock and its Preferred Stock.

33
<PAGE> 39
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 six (6) 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 2,398
Paid-in capital 623,325 704,822
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 193,062,178 236,059,294
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Warrants ($1.92 exercise price) - 14,332,372
Pro Forma Shares Outstanding
Under Alternative Assumptions
Shares outstanding(2):
Preferred stock 7,166,186 -
Common stock 193,062,178 253,258,140
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Warrants ($1.92 exercise price) - 14,332,372
Shares outstanding(3):
Preferred stock 7,116,186 -
Common Stock 193,062,178 242,508,861
Warrants ($2.12 exercise price) 10,092,716 10,092,716
Shares outstanding(4):
Preferred stock 7,166,186 -
Common Stock 193,062,178 259,707,708
Warrants ($2.12 exercise price) 10,092,716 10,092,716
</TABLE>

34
<PAGE> 40
_________________
(1) Assumes all holders of Preferred Stock choose to convert their shares
into six (6) shares New Common Stock and two Warrants, resulting in the
issuance of 42,997,116 of New Common Stock and 14,332,372 Warrants upon
the conversion of all outstanding shares of Preferred Stock pursuant to
the Merger, based on the closing of the Company's Common Stock on
February 5, 1996, of $1.75 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 six (6) shares of New Common Stock and no Warrants, resulting in the
issuance of 49,446,683 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
February 5, 1996 of $1.75 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.

35
<PAGE> 41
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) $(0.25)
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) 0.44
September 30, 1995 (0.19) 0.38
</TABLE>
_______________
(1) Assumes the issuance of 42,997,116 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 six (6)
shares of New Common Stock (aggregating 49,446,683 shares of New Common
Stock and no Warrants), Pro Forma book value per outstanding common
share would be $0.41 and $0.37 at December 31, 1994, 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 February 5, 1996, of $1.75 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, which
is currently estimated to exceed $30 million, would increase income
applicable to common shares in the period the Merger is consummated.

36
<PAGE> 42
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.

=================================================================
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:

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
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>

37
<PAGE> 43
<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 . . . . . . . . . (18,723) (8,594)
Loss per common share . . . . . . . . . . . . . . (.10) (.05)
Weighted average common shares . . . . . . . . . . 193,031 184,188

PRICE AND PRODUCTION STATISTICS:

Sunshine Mine:
Average silver prices received . . . . . . . . . . $5.20 $5.35
Tons . . . . . . . . . . . . . . . . . . . . . 79,025 78,665
Silver grade (ounces per ton) . . . . . . . . . 17.46 21.44
Silver ounces . . . . . . . . . . . . . . . . . 1,336,823 1,632,007
Cash cost per ounce(6) . . . . . . . . . . . . $6.61 $5.58
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
============================================
AS OF SEPTEMBER 30, 1995
============================================
<S> <C>
Cash and cash investments . . . . . . . . . . . . $18,993
Working capital . . . . . . . . . . . . . . . . . 30,662
Total assets . . . . . . . . . . . . . . . . . . . 105,489
Long-term debt and capital lease obligations . . . 1,519
Stockholders' equity:
Preferred Stock . . . . . . . . . . . . . . . . 81,928
Other . . . . . . . . . . . . . . . . . . . . . 7,518
Book value per common share . . . . . . . . . . . (.19)
Common shares outstanding . . . . . . . . . . . . 193,062
</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.

38
<PAGE> 44
(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.

(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.

39
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

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. While these balances are deemed adequate to fund
the Company's expected cash requirements for several years, the Company is
contemplating the issuance of additional debt or equity securities to ensure
adequate funds are available to provide for development of opportunities in
Argentina and Peru. The issuance of such securities will be primarily
dependent on market conditions. There can be no assurance that any such
offering by the Company will be successful, nor that the proceeds received, if
any, will be sufficient to complete the development in Argentina or Peru.

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.

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 1995 dollars,
the price of silver averaged approximately $11.66 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,

40
<PAGE> 46
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
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.

41
<PAGE> 47
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.

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.

42
<PAGE> 48
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.

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.

43
<PAGE> 49
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.

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.

44
<PAGE> 50
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 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.

45
<PAGE> 51
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements filed herewith begin on page F-1 hereof.

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. The
beneficial owner of Bun Partners, Inc. is Mr. Bradford T. Whitmore.

(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.

46
<PAGE> 52
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 February 5, 1996. 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 267,805(1) --(2)
Preferred Stock -0- --
Robert B. Smith. Jr. Common Stock 10,000(1) --(2)
Preferred Stock 20,000(2) --(2)
Oren G. Shaffer Common Stock 22,625(1) --(2)
Preferred Stock -0- --
William W. Davis Common Stock 249,838(1) --(2)
Preferred Stock -0- --
Robert H. Peterson Common Stock 144,551(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 209,416(1) --(2)
Preferred Stock -0- --
All officers and Common Stock 999,993(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, 200,300 shares; Mr.
Davis, 201,218 shares; Mr. Elvin, 5,000 shares; Mr. Humphreys, 10,000
shares; Mr. Jackson, 18,809 shares; Mr. Kaback, 5,000 shares; Mr.
Peterson, 125,750 shares; Mr. Simko, 216,873 shares; Mr. Shaffer, 10,875
shares; Mr. Smith, 10,000 shares; and Mr. Stewart, 5,000 shares.

(2) Less than 1%.

(3) Includes 823,252 shares subject to purchase pursuant to stock options and
warrants exercisable within 60 days.

47
<PAGE> 53
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 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 past five 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 . . . 72 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.

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 . . . . . 46 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 . . . 44 Director since June, 1994. President (for more than five years) of Stewart &
Smith, Inc., a consulting firm providing securities analysis for institutional
investors.
</TABLE>

48
<PAGE> 54
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>
- ----------------

49
<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, 1995 297,832 0 100,000 0 15,525
CEO and President 1994 271,527 0 65,000 0 14,370
1993 258,086 38,727(1) 50,000 52,500(4) 11,103

William W. Davis, 1995 177,650 0 100,000 0 15,525
Exec. Vice Pres. & Chief 1994 166,096 25,000(2) 50,000 0 14,370
Financial Officer 1993 161,260 24,406(1) 50,000 0 4,308

Robert H. Peterson, 1995 182,348 0 75,000 0 15,525
Sr. Vice Pres. & Chief 1994 169,861 0 0 0 14,250
Operating Officer-Refining 1993 162,586 24,163(1) 50,000 0 4,497

Harry F. Cougher 1995 114,354 0 100,000 0 11,765
Sr. Vice Pres. & 1994 100,677 0 50,0000 0 8,925
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
$4,500, $4,620 and $4,497, in 1995, 1994 and 1993, respectively; payment
to Mr Simko under the DC Plan was $11,025 and $9,750 in 1995 and 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 $4,500, $4,620 and $4,308, in 1995, 1994 and 1993, respectively;
payment to Mr. Davis under the DC Plan was $11,025 and $9,750 in 1995 and
1994, respectively. Payments to Mr. Peterson under the Savings Plan were
$4,500, $4,500 and $4,497 in 1995, 1994 and 1993, respectively; payment
to Mr. Peterson under the DC Plan was $11,025 and $9,750 in 1995 and
1994, respectively. Payments to Mr. Cougher under the Savings Plan were
$3,360 and $2,945 for 1995 and 1994, respectively; payments to Mr.
Cougher under the DC Plan were $5,980 and $8,405 for 1995 and 1994,
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 1995, the Company chose to match employee deferrals up to

50
<PAGE> 56
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.

At December 31, 1995, there were approximately 70 participants in
the Savings Plan and DC Plan which together held approximately 150,000
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.

51
<PAGE> 57
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR

Incentive stock options were granted to the Named Executive Officers in
the year ended December 31, 1995, as follows:

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS(2) 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 . . . 100,000 shares - Common 8.9 1.50 12/07/05 $94,334 $239,061

William W. Davis . . . 100,000 shares - Common 8.9 1.50 12/07/05 $94,334 $239,061

Harry F. Cougher . . . 100,000 shares - Common 8.9 1.50 12/07/05 $94,334 $239,061

Robert H. Peterson . . 75,000 shares - Common 6.7 1.50 12/07/05 $70,751 $179,296
</TABLE>

_______________
(1) The options are exercisable on or after December 7, 1995.

(2) Subject to shareholder approval of the 1995 Employee Nonqualified Stock
Option Plan of Sunshine Mining and Refining Company (the "1995 Plan") the
Board of Directors granted 750,000, 500,000, 200,000, and 100,000 options
to Messrs. Simko, Davis, Cougher and Peterson, respectively. If the 1995
Plan is approved by shareholders at the Company's 1996 Annual Meeting,
the grants reflected in the table will become null and void. The grants
under the 1995 Plan have an exercise price of $1.50, expire December 7,
2005 and are exercisable after shareholder approval. If the 1995 Plan is
approved, the potential realizable value assuming 5% stock price
appreciation would be $707,505, $471,670, $188,668 and $94,334 for
Messrs. Simko, Davis, Cougher and Peterson, respectively. Assuming 10%
stock price appreciation, the potential realizable value would be
$1,792,958, $1,195,305, $478,122 and $239,061 for Messrs. Simko, Davis,
Cougher and Peterson respectively.

AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUES

The following table provides information on option/SAR exercises in
fiscal 1995 by the Named Executive Officers and the value of such officers'
unexercised options/SARs at December 31, 1995.

<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 (#) ($) OPTIONS/SARS AT FY-END (#) AT FY-END ($)(2)
------------ -------- ------------------------------ -----------------------------------
NAME EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John S. Simko, CEO . . 0 0 215,000 0 0 0
William W. Davis . . . 0 0 200,000 0 0 0
Robert H. Peterson . . 0 0 125,000 0 0 0
Harry F. Cougher . . . 0 0 200,000 0 0 0
</TABLE>

52
<PAGE> 58
- ---------------
(1) 100,000 options were granted to Messrs. Simko, Davis and Cougher, and
75,000 options to Mr. Peterson, on December 7, 1995, at the most recent
closing sale price of the Common Stock of $1.50. The remaining options
were granted on June 22, 1993 and December 8, 1994, at the most recent
closing sale price of the Common Stock of $1.625.

(2) Based on the NYSE closing per share sale price of the Common Stock on
December 29, 1995 of $1.25.

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR

The Company did not grant any long-term incentive plan awards in 1995,
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 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

53
<PAGE> 59
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 to non- employee directors under 1987
Plan vest on, and are exercisable on and after, the first anniversary of the
date granted. Vesting for options granted to employees is determined by the
directors when 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 7, 1995, the Company issued stock options to certain key
employees of the Company for a total of 1,122,000 shares of Common Stock;
437,000 under the 1993 Plan and 785,000 under the 1987 Plan. The per share
exercise price for those options is $1.50.

Subject to shareholder approval, the Board of Directors adopted the 1995
Employee Nonqualified Stock Option Plan (the "1995 Plan") and awarded 3,160,000
options to key employees and directors. To encourage stock ownership by key
employees and directors and provide an employment incentive, the 1995 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 or its
subsidiaries and, on December 7 each year, automatic grants of 25,000 options
to each nonemployee director. The total number of shares of Common Stock which
may be purchased pursuant to options granted under the 1995 Plan shall not
exceed 20,000,000 shares. Vesting for options granted to employees is
determined by the directors when granted and expire 10 years following date of
grant. The exercise price for options granted shall not be less than the fair
market value of Common Stock on the date of grant.

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 1995, non-employee directors received gold valued as
follows: Messrs. Andersen ($23,314.70), Babbitt ($26,019.15), Humphreys
($24,663.95), Jackson ($26,019.15), Shaffer ($21,979.45), Smith ($24,663.95),
Stewart ($26,013.20), Elvin ($24,663.95), and Kaback ($26,019.15). 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.

54
<PAGE> 60
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. Simko, Mr. Davis and
Mr. Cougher were amended to extend the term for each agreement for an
additional three years to December 31, 1999.

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.

55
<PAGE> 61
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, LLP, 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.
2121 San Jacinto St., 26th Floor
Dallas, Texas 75201
Telephone: (800) 747-2967
Telecopier: (214) 999-9348
(214) 999-9323

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.

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.

56
<PAGE> 62
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

February 9, 1996

57
<PAGE> 63

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> 64

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> 65

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> 66

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> 67

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> 68

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> 69

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> 70

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> 71

SUNSHINE MINING AND REFINING COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(IN THOUSANDS)

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> 72

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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)

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> 89
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
(Unaudited)

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> 90
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> 91

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> 92
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> 93
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.

F-31
<PAGE> 94
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> 95
ANNEX A

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER, dated as of December 19, 1995
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> 96
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> 97
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> 98
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> 99
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> 100
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 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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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 introduced
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 inspection, 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> 108
<TABLE>
<S> <C> <C>
TABLE OF CONTENTS

Prospectus Summary . . . . . . . . . . . . . 1
Certain Risk Factors . . . . . . . . . . . . 7
The Merger Proposal . . . . . . . . . . . . . 9
Description of the Warrants . . . . . . . . . 18
Accounting Treatment . . . . . . . . . . . . 19
Federal Income Tax Consequences . . . . . . . 19
Sunshine Merger Company . . . . . . . . . . . 22
Sunshine Mining and Refining Company . . . . 23 INFORMATION AGENT
Capitalization . . . . . . . . . . . . . . . 34
Comparative Per Share Data . . . . . . . . . 36
Selected Financial Data . . . . . . . . . . . 37 THE HERMAN GROUP, INC.
Management's Discussion And Analysis Of 2121 San Jacinto St., 26th Floor
Financial Condition And Results Of Dallas, Texas 75201
Operations . . . . . . . . . . . . . . . . . 40 Telephone: (800) 747-2967
Financial Statements And Supplementary Telecopier: (214) 999-9348
Data . . . . . . . . . . . . . . . . . . . . 46 (214) 999-9323
Security Ownership Of Certain Beneficial
Owners And Management . . . . . . . . . . . 46
Directors And Officers Of Sunshine . . . . . 48
Compensation And Transaction Committee
Interlocks And Insider Participation . . . . 55
Legal Opinion . . . . . . . . . . . . . . . . 56
Experts . . . . . . . . . . . . . . . . . . . 56
Exchange Agent . . . . . . . . . . . . . . . 56
Information Agent . . . . . . . . . . . . . . 56
Shareholder Proposals . . . . . . . . . . . . 56
Other Matters . . . . . . . . . . . . . . . . 56
</TABLE>

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> 109

[SUNSHINE LETTERHEAD]

February 9, 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 March 29, 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 purchase Common Stock.
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 6 shares of New Common Stock (a total of 43 million shares)
and, either two Warrants to purchase shares of the New Common Stock at a price
of $1.92 for a period of five years, (a total of up to 14.3 million warrants)
or, at the holder's option, .9 additional shares of New Common Stock (up to 6.4
million additional shares). Other provisions call for a limited number of
additional shares of New Common Stock (maximum of 2.4 shares per share of
Preferred Stock) to be issued to the Preferred stockholders should the trading
price of the New Common Stock average less than $1.75 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 130 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 proposed Merger will have certain adverse impacts on holders of
Common Stock and holders of Preferred Stock.

1) If the Merger is approved, holders of Common Stock will have
their ownership interest in the Company diluted by up to 74.5 million
shares (including 14.3 Million shares issuable upon the exercise of
Warrants assuming that all Preferred Shareholders elect to receive
Warrants, and further assuming that the maximum number of additional
shares of New Common Stock is issued pursuant to the adjustment
provisions described above), representing approximately 28% of
the Common Stock outstanding after the Merger.

2) Holders of Preferred Stock will receive securities having a
combined value less than the current redemption value of the Preferred
Stock. Based on the closing price of the Common Stock on February 5,
1996 of $1.75 per share, the total value of the 6 shares of New Common
Stock plus either .9 (9/10) share of New Common Stock or two Warrants
each to purchase one share of New Common Stock have an estimated value
of approximately $12.00, which is 33% below the liquidation preference
of $17.89 per share of Preferred Stock at December 31, 1995.
<PAGE> 110
3) The value of the securities received by holders of Preferred
Stock for each share of Preferred Stock held may decrease, despite
operation of the adjustment formula. 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 lower than $12.00,
as the maximum number of Common Shares issuable per Preferred Share,
exclusive of shares issuable upon exercise of Warrants or in lieu of
Warrants, is 8.4.

However, the benefits which will be derived as a result of the Merger
as detailed below are deemed in the long- term to outweigh the adverse effects:

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. 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 will no longer be below continued listing
standards, although the Company will continue to be below certain
original listing standards.

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., 2121 San Jacinto,
Suite 2600, Dallas, TX 75201. Facsimiles of your proxy will also be accepted
at (214) 999-9348 or (214) 999-9323. 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
<PAGE> 111

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 February 5, 1996, at the Special Meeting of Stockholders to be
held on March 29, 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., 2121 San Jacinto St.,
26th Floor, Dallas, Texas 75201. 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) 999-9348 or
(214) 999-9323
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> 112

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 February 5, 1996, at the
Special Meeting of Stockholders to be held on March 29, 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)

Dated: , 1996
---------------------

---------------------------------
Signature

---------------------------------
Signature (if held jointly)

---------------------------------
Title