FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ______________________ to _____________________
Commission File Number 1-10012
SUNSHINE MINING AND REFINING COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2618333
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5956 Sherry Lane, Suite 1621, Dallas, Texas 75225
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(Address of principal executive offices)
Registrant's telephone number including area code (214) 265-1377
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Number of Shares Outstanding
Title of Each Class of Common Stock at November 15, 2001
- ----------------------------------- ------------------------------
Common Stock, $.01 par value 50,000,000
Page 1 of 17
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
Reorganized Company Predecessor Company
September 30, December 31,
2001 2000
------------------- --------------------
ASSETS
- ------
Current assets:
Cash and cash investments $ 204 $ 291
Silver bullion 10 10
Accounts receivable 98 1,626
Inventories 304 1,500
Assets available for sale 121 1,006
Other current assets 792 731
------------------- --------------------
Total current assets 1,529 5,164
Property, plant and equipment, at cost 25,509 40,933
Less accumulated depreciation,
depletion and amortization (199) (26,262)
------------------- --------------------
25,310 14,671
Investments and other assets 1,333 2,757
------------------- --------------------
Total assets $ 28,172 $ 22,592
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------------
Liabilities not subject to compromise:
Current liabilities:
Accounts payable $ 355 $ 697
Accrued expenses 970 1,643
------------------- --------------------
Total current liabilities 1,325 2,340
Long-term debt 6,170 1,530
Accrued pension and other postretirement benefits 2,352 5,230
Other long-term liabilities and deferred credits 694 779
Liability for call option on Sunshine Argentina, Inc. 2,740 -
Liabilities subject to compromise - 48,991
Redeemable common stock (44,274 shares) 14,235 -
Stockholders' equity (deficit):
Common stock--$.01 par value; 75,000 shares authorized; shares issued:
September 30, 2001 - 5,726
December 31, 2000 - 49,264 57 493
Paid-in capital 2,938 729,956
Other comprehensive loss - (884)
Accumulated deficit (2,339) (764,733)
------------------- --------------------
656 (35,168)
Less treasury stock, at cost:
December 31, 2000 - 579 shares - (1,110)
------------------- --------------------
656 (36,278)
------------------- --------------------
Total liabilities and stockholders' equity (deficit) $ 28,172 $ 22,592
=================== ====================
-2-
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share amounts) (Unaudited)
Reorganized Predecessor Reorganized
Company Company Company Predecessor Company
Three Months Three Months Eight Months One Month Nine Months
Ended Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, January 31, Sept. 30,
2001 2000 2001 2001 2000
-------- -------- -------- -------- --------
Operating revenues $ - $ 5,139 $ 904 $ 2,015 $ 18,912
Costs and expenses:
Cost of revenues - (5,440) (784) (1,714) (18,144)
Depreciation, depletion
and amortization 0.00 (286) (5) (3) (921)
Property closing and holding costs (828) - (2,942) (96) -
Exploration - (638) - - (1,464)
Writedown of warehouse inventory (530) - (530) - -
General and administrative expense (724) (712) (2,117) (208) (2,887)
Net curtaiment gain on employee benefit plans 3,377 - 3,421 - -
------- ------- -------- -------- --------
1,295 (7,076) (2,957) (2,021) (23,416)
------- ------- -------- -------- --------
Other income (expense)
Interest income 2 23 9 - 69
Interest and debt expense:
Contractual interest and debt expense (515) (1,619) (905) (371) (5,535)
Reduction attributable to bankruptcy - 437 - 316 437
-------- -------- -------- -------- --------
(515) (1,182) (905) (55) (5,098)
Mark to market loss - (2) 0 - (166)
Other, net 280 668 610 6 455
-------- -------- -------- -------- --------
(233) (493) (286) (49) (4,740)
-------- -------- -------- -------- --------
Income (loss) before reorganization items 1,062 (2,430) (2,339) (55) (9,244)
Reorganization items:
Adjust accounts to fair value - - - 8,239 -
Professional fees - (1,348) - (785) (1,348)
Interest earned while in Chapter 11 - - - 2 -
-------- -------- -------- -------- --------
Net income (loss) before extraordinary item 1,062 (3,778) (2,339) 7,401 (10,592)
Extraordinary item:
Gain on debt discharge - - - 28,876 -
-------- -------- -------- -------- --------
Net income (loss) $ 1,062 $ (3,778) $ (2,339) $ 36,277 $(10,592)
======== ======== ======== ======== ========
Basic and diluted income (loss)
per common share: $ 0.02 $ (0.05)
======== ========
Weighted average common shares outstanding 50,000 50,000
======== ========
See accompanying notes.
-3-
SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, except per share amounts) (Unaudited)
Reorganized
Company Predecessor Company
Eight Months Ended One Month Ended Nine Months Ended
Sept. 3O, January 31, Sept. 31,
2001 2001 2000
--------------------- --------------------- -------------------
Cash used by operating activities:
Net income (loss) $ (2,339) $ 36,277 $ (9,244)
Adjustments to reconcile net income (loss)
to net cash used by operations:
Depreciation, depletion and amortization 5 3 921
Gain on sale of assets (875) - -
Interest on Senior Conv & 10% Notes paid
or payable in stock - - 3,029
Amortization of debt issuance costs, accretion of
debt discount and noncash interest 580
Adjust accounts to fair value - (8,239) -
Gain on debt discharge - (28,876) -
Net curtailment gain (3,421) - -
Net (increase) decrease in:
Silver bullion - - 152
Accounts receivable 1,847 (631) 1,142
Inventories 1,016 193 1,244
Other assets and deferred charges (112) (30) 111
Net increase (decrease) in:
Accounts payable and accrued expenses (1,638) 582 3,094
Accrued pension and other postretirement benefits (43) (46) (181)
Other liabilities and deferred credits (314) 84 (2,607)
-------- -------- --------
Net cash used by operations (5,874) (683) (1,759)
-------- -------- --------
Cash used by reorganization items:
Reorganization items - professional fees - - (1,348)
Professional fees accrued, not paid - - 327
-------- -------- --------
Net cash used by reorganization items 0 0 (1,021)
-------- -------- --------
Net cash used by operations (5,874) (683) (2,780)
-------- -------- --------
Cash provided (used) by investing activities:
Additions to property, plant and equipment - - (1,062)
Sale of property, plant and equipment 1,830 - -
Sale of silver bullion - - 3,936
-------- -------- --------
Net cash provided by investing activities 1,830 - 2,874
-------- -------- --------
Cash provided by financing activities:
Proceeds from issuance of common stock upon
exercise of options and warrants - - 4
Proceeds from issuance of long term debt 4,090 550 -
-------- -------- --------
Net cash provided by financing activities 4,090 550 4
-------- -------- --------
Increase (decrease) in cash and cash investments 46 (133) 98
Cash and cash investments, beginning of period 158 291 628
-------- -------- --------
Cash and cash investments, end of period $ 204 $ 158 $ 726
======== ======== ========
Supplemental cash flow information -
Interest paid in cash $ 559 $ 38 $ 199
======== ======== ========
Noncash financing transactions:
Common stock issued upon conversion of debt - - 1,031
Common stock issued for
mandatory prepayment of debt - - 1,250
Common stock issued for payment of interest - - 544
Cash flows related to reorganization items:
Operating activities:
Interest received on accumulated cash - 2 -
Payment of professional fees 1,174 102 -
Financing activities - - -
Investing activities - - -
See accompanying notes.
-4-
SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2001
1. VOLUNTARY FILING UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE
Sunshine's business and profitability have been negatively
affected by an extremely lengthy period of low silver prices. Since
1988, the price of silver has averaged less than $5.00 per ounce
compared to an average price of approximately $9.50 per ounce over the
prior 10 years. Given the depressed price of silver compared to the
Company's cash production costs, the Company's operations have
generated a negative cash flow for several years.
On August 23, 2000 (the "Petition Date") Sunshine Mining and
Refining Company ("Sunshine" or the "Company") and three of its
subsidiaries (the "Debtor Subsidiaries" and together with the Company,
the "Debtors") filed voluntary petitions for relief under Chapter 11 of
the federal bankruptcy laws in the United States Bankruptcy Court for
the District of Delaware (Case No. 00-3409 (MFW)).
The Third Amended and Restated Joint Chapter 11 Plan of
Reorganization as modified (the "Plan") was confirmed on December 5,
2000 (the "Confirmation Order"). Under the terms of the Confirmation
Order, certain conditions precedent existed to the effectiveness of the
Plan set forth in the Plan and the Confirmation Order, all of which
were satisfied. The effective date of the Plan was February 5, 2001
(the "Effective Date"). (See Note 2 to the Financial Statements for
discussion of the Plan.)
To fund continuing operations, the Company procured a $5
million Debtor-in-possession credit facility (the "DIP Facility").
2. PLAN OF REORGANIZATION
The Plan, cosponsored by four of the Company's major creditors,
became effective on February 5, 2001 and provided that:
- The "old common stock" of Sunshine was canceled (as were all
existing issues of warrants and options). Common stockholders with
100 or more shares of common stock as of the Effective Date
received a pro rata distribution of approximately 3.4% of the "new
common stock." Of the total new shares of stock outstanding (50
million shares) existing common stock holders received
approximately 1.7 million shares.
- All of the Company's pre-bankruptcy funded debt and certain other
liabilities (totaling approximately $49 million) was canceled and
converted to equity.
- Approximately 90% of the new common stock is held by affiliates of
Elliott Associates, L.P. and Stonehill Capital Management LLC (the
"Principal Shareholders") who have appointed four members to the
Company's five-member Board of Directors. The Principal
Shareholders also hold a Call Option which, upon the occurrence of
certain adverse events, may allow the holders to acquire Sunshine
Argentina, the owner of the Pirquitas Mine in Argentina, the
Company's principal asset.
- Prior to the Effective Date, the Company settled natural resource
damage claims with the United States and the Coeur d'Alene Indian
Tribe. The settlement resulted in a new Consent Decree from the
Idaho District Court releasing the Company from its obligation to
remediate certain property in the Bunker Hill Superfund Site. In
the new Consent Decree, entered on January 22, 2001, the United
States and the Coeur d'Alene Indian Tribe covenanted not to sue
the Company for environmental claims and granted contribution
protection from third party claims. In consideration for the
releases and agreement not to sue, the Company issued ten-year
warrants to acquire up to 4.975 million shares of the Company's
New Common stock at an exercise price of $.66 per share; deeded
surface rights to certain timberland in North Idaho; agreed to pay
a sliding scale royalty on production from the Sunshine Mine
commencing at silver prices in excess of $6.00 per ounce; and
performed certain test work and remediation at its ConSil mine
site.
- Registration Rights Agreement. Under the Plan of Reorganization,
Sunshine entered into a Registration Rights Agreement with its
Principal Shareholders under which the shares of new common stock
issued to them are to be registered under federal securities laws.
The agreement requires the filing and effectiveness of a
Registration Statement within specified periods of time and
5
other matters. In the event that certain of the commitments under
such agreement are not satisfied, each of the holders has a right
to provide Sunshine with written notice thereof (a "Put Notice")
which would require Sunshine to pay penalties to each such holder
(in cash or shares of common stock at the option of the holder),
and/or in certain instances, to repurchase the securities from the
holder for a "Mandatory Repurchase Price" equal to 115% of the
Market Price on the date the holder acquires the right to require
Sunshine to repurchase such shares. The Company does not have
adequate liquidity to satisfy such a put obligation. The
Registration Statement was not declared effective within the time
frame required by the Registration Rights Agreement. The Company
has not recorded any expense relative to penalties mandated by the
Registration Rights Agreement, nor made any provision in its
financials reflecting the potential requirement to repurchase the
common stock of the Elliott Group and the Stonehill Group. The
Elliott Group and the Stonehill Group agreed to forbear enforcing
or exercising the penalties and the repurchase requirement as part
of a refinancing of the Credit Facility. See Note 7 to the
Financial Statements. The forbearance currently extends through
November 30, 2001. The Registration Statement was declared
effective as of November 14, 2001.
3. 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 accounting principles
generally accepted in the United States of America 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 accounting principles
generally accepted in the United States of America 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. Operating results for the quarter
and nine months ended September 30, 2001 are not necessarily indicative
of the results that may be expected for the year ended December 31,
2001. 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, 2000.
The financial statements for the period ended September 30,
2001 reflect accounting principles and practices set forth in AICPA
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under The Bankruptcy Code" ("SOP 90-7"). Pursuant to the
guidance of SOP 90-7, the Company adopted "fresh start" reporting as of
January 31, 2001. Under "fresh start" reporting, the reorganization
value of the entity is allocated to the entity's assets. The net effect
of all fresh start reporting adjustments resulted in income of $8.2
million, which is reflected in the Statement of Operations for the one
month ended January 31, 2001 in accordance with SOP 90-7. The effective
date is considered to be the close of business on January 31, 2001 for
financial reporting purposes. The periods presented prior to January
31, 2001 have been designated "Predecessor Company" and the periods
subsequent to January 31, 2001 have been designated "Successor
Company." As a result of the implementation of fresh start reporting,
the financial statements of the Company after the effective date are
not comparable to the Company's financial statements for prior periods.
Net income (loss) per share data is not presented for periods
prior to January 31, 2001 because of the general lack of comparability
as a result of the reorganization of the Company and implementation of
fresh start reporting by the Company.
6
The reorganization and the adoption of fresh start reporting
resulted in the following adjustments to the Company's Condensed
Consolidated Balance Sheet as of January 31, 2001:
Predecessor Reorganization and Reorganized
Company Fresh Start Adjustments Company
------------------------------------------------------------------------------
January 31, January 31,
(In thousands) 2001 Debit Credit 2001
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------
Total current assets $ 5,195 $ - $ 71 (a) $ 5,124
Property, plant and equipment, net 14,669 10,794 (a) - 25,463
Other assets 2,780 - 1,530 (a) 1,250
-------------------------------------------------------------------------
$ 22,644 $ 10,794 $1,601 $ 31,837
=========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- -----------------------------------------------
Total current liabilities $ 2,641 $ - $ 321 (a) $ 2,962
Noncurrent liabilities 57,118 48,846 (b) 633 (a) 8,905
Liability for call option on Sunshine
Argentina, Inc. - - 2,740 (c) 2,740
-------------------------------------------------------------------------
Total Liabilities 59,759 48,846 3,694 14,607
Redeemable common stock - - 14,467 (d) 14,467
Stockholders' equity (deficit):
Common stock 492 492 (e) 50 (f) 50
Paid in capital 729,957 729,957 (e) 2,713 (f) 2,713
Accumulated other comprehensive
loss (884) - 884 (e) -
Accumulated deficit (765,570) - 765,570 (e) -
Less treasury stock at cost (1,110) - 1,110 (e) -
-------------------------------------------------------------------------
(37,115) 730,449 770,327 2,763
-------------------------------------------------------------------------
$22,644 $ 779,295 $788,488 $ 31,837
=========================================================================
Explanations of reorganization and fresh start adjustment columns of the balance
sheet are as follows:
(a) To adjust property, plant and equipment, other assets and liabilities to
estimated current fair value. The book value for the Pirquitas Mine is
increased by approximately $11 million and the book value of other
properties is reduced by approximately $200 thousand. Property, plant and
equipment after adjustments consists of the following
Pirquitas Mine $24,750
Land 380
Other mining interests 333
-------
$25,463
The fair value for the Pirquitas Mine was determined by an independent
fair-market evaluation in August of 2000. The Company believes that the
assumptions used are reasonable and representative of conditions as of
August 2000 and January 31, 2001, the date the Company adopted "fresh
start" reporting.
(b) To reflect the cancellation of debt and other liabilities pursuant to the
Plan.
(c) To record the estimated fair value of the liability for the Call Option
issued pursuant to the Plan. The Sunshine Argentina Call Option value was
determined using the Black-Scholes Option Pricing Model. The input
assumptions used included a ten year option term, volatility of 50%, a
5.93% risk free rate, a current price of $25 million (the estimated market
capitalization of the Company after reorganization) and a $15 million
strike price (the market capitalization that triggers the call option).
(d) To reflect the new common stock issued to the Principal Shareholders
which, in certain instances, the Company would be required to repurchase
from the Principal Shareholders.
(e) To eliminate the old stockholders' equity (deficit).
(f) To reflect the issuance of new common stock and warrants to other than
Principal Shareholders.
7
4. RECOVERABILITY OF INVESTMENT IN THE PIRQUITAS MINE
Under the terms of the Plan and the Confirmation Order on the
Effective Date, the capital stock of Sunshine Argentina, Inc.
("Argentina") was cancelled and Argentina issued the "New Argentina
Stock." Sunshine caused the incorporation and organization of Sunshine
International Mining, Inc., a Delaware corporation ("International"),
all of the issued and outstanding stock of which is owned by Sunshine.
Sunshine contributed to the capital of International all of the New
Argentina Stock such that Argentina became a wholly-owned subsidiary of
International which in turn is a wholly-owned subsidiary of Sunshine.
Simultaneously Sunshine, International and Argentina entered into a
Call Option Agreement dated February 5, 2001, with the Elliott Group
and the Stonehill Group, pursuant to which International granted (i) a
contingent call option to each holder within the Elliott Group and the
Stonehill Group to purchase, collectively, up to 100% of the shares of
New Argentina Stock for $1 million and (ii) a first priority perfected
security interest in the New Argentina Stock. Such call option(s) was
granted to purchase a maximum number of shares of New Argentina Stock
at a specified purchase price which option is to be reduced
proportionately in the event the Elliott Group holders and/or the
Stonehill Group holders sell more than 50% of their shares of New
Common Stock of Sunshine received. For example, if the Elliott Group
holders were to sell 55% of their shares of Sunshine Common Stock
initially received, then the maximum number of New Argentina Stock that
the Elliott Group holders could purchase in the aggregate upon exercise
of their Call Options would be reduced by a percentage equal to (55% -
50%) x 2, or 10%. The term of each Call Option expires at the time of
exercise in full of such Call Option, or if the market capitalization
of Sunshine shall exceed $150,000,000 for at least 60 consecutive days
or on the tenth anniversary of the Effective Date of the Plan. The Call
Option becomes exercisable upon the occurrence of any one or more of
nine separate events, including (i) the de-listing of the Sunshine New
Common Stock from an "Approved Market," (ii) suspension of the Sunshine
New Common Stock from trading on an Approved Market for at least seven
consecutive calendar days, (iii) reduction in the overall market
capitalization of Sunshine to less than $15,000,000 for at least
fifteen consecutive calendar days, (iv) a bankruptcy proceeding
occurring with respect to Sunshine or one of its subsidiaries, (v)
Sunshine fails to comply with its obligations in the Call Option
Agreement, and (vi) other events, including any default under the
Credit Facility. The Call Option, once exercisable, may be exercised at
any time by any of the holders thereof. The effect of the Call
Option(s) is to potentially allow the Elliott Group holders and the
Stonehill Group holders (and certain of their successors and assigns)
to acquire Sunshine Argentina which in turn owns the Pirquitas Mine and
other assets. Should such an event occur, Sunshine's investment in the
property, carried on the balance sheet at $24,750,000, would no longer
be an asset of Sunshine, nor would the assigned proven and probable
reserves totaling 129.6 million ounces of silver, along with 59,000
tons of tin and 273,000 tons of zinc. The New Argentina Stock has been
pledged under the Call Option Agreement under a separate Pledge
Agreement to the Elliott Group holders and the Stonehill Group holders
and delivered to Wells Fargo Bank Minnesota, N.A. as administrative and
pledge agent.
The Company's market capitalization in recent weeks has been
below $15 million, the level that could trigger exercise of the Call
Option. The Elliott Group and the Stonehill Group agreed to forbear
exercising the Call Option before November 30, 2001 as part of a
refinancing of the Credit Facility. See Note 7 to the Financial
Statements.
Current Activities at the Pirquitas Mine
In accordance with the Argentine law, the Company is required
to update its Environmental Impact Report no less than once every two
years. The Company completed the update and submitted it in June 2001.
On November 9, 2001 the update was approved. In compliance with the
terms of its operating permit, the Company continues ongoing
water-quality monitoring, its community development program and other
required activities.
The Company is exploring financing arrangements for Pirquitas.
Until such arrangements are finalized the Company will continue to
maintain the project ready for development with all permits up to date.
8
Impairment Review
As of September 30, 2001, the Company performed an impairment
review of the Pirquitas Mine. The undiscounted cash flows were well in
excess of the Pirquitas carrying value. Thus, no impairment writedown
was necessary.
5. EXTRAORDINARY ITEM
The extraordinary items recorded for the one month ended
January 31, 2001 are comprised of the write-off of the unamortized debt
issuance costs and the extraordinary gain on debt discharge recognized
as a result of the consummation of the Plan as follows (in thousands):
Write off of unamortized debt issuance costs $ (92)
Discharge of debt, liabilities and associated accrued interest 48,938
Value of securities issued (19,970)
-----------
Extraordinary gain $ 28,876
===========
6. INVENTORIES
The components of inventory consist of the following:
September 30, December 31,
2001 2000
------------------ ---------------
Precious metals inventories:
Work in process $ 0 $ 187
Finished goods 4 28
Materials and supplies inventories 300 1,285
-------- ------
$ 304 $1,500
======== ======
During the third quarter of 2001, materials and supplies
inventories were written down $530 thousand due to reduced demand and
prices for inventory for the mining industry.
7. DEBTOR-IN-POSSESSION FINANCING/REPLACEMENT CREDIT FACILITY/AMENDED
CREDIT FACILITY
The Company obtained a $5 million post-petition
debtor-in-possession financing facility (the "DIP Facility") with
affiliates of the Cosponsoring Bondholders. Sunshine Argentina, Inc., a
wholly-owned subsidiary, was the borrower under the DIP Facility, and
the Company and its other subsidiaries were guarantors. The base rate
of interest under the DIP Facility was 15% per annum with a $150
thousand commitment fee that was expensed in 2000. Borrowings under the
DIP Facility were secured by substantially all of the Company's assets.
After the Plan became effective, the outstanding balance under the DIP
facility of approximately $2.7 million was rolled into a replacement
secured Credit Facility with the same lenders with repayment due within
eighteen months. The Credit Facility has a maximum commitment of $5
million, an interest rate of 15% and a commitment fee of $150 thousand.
The Company borrowed the full $5 million under the Credit Facility and
in July, 2001, the lenders advanced an additional $420 thousand under a
secured demand note with the same interest rate and fees as the Credit
Facility. On September 7, 2001, the Company and the lenders entered
into the Second Amended and Restated Credit Agreement (the "Amended
Credit Facility") to supply the Company with sufficient financing to
maintain the Pirquitas property, complete the closing and securing of
the Sunshine Mine pending a substantial recovery in silver prices, and
fund necessary corporate overhead for a period of time.
The Amended Credit Facility refinanced the entire $5.42
million of advances made previously and provided for another $1.08
million in advances for a total commitment of $6.5 million, subject to
a five percent commitment fee. The Company has now borrowed the full
$6.5 million. At the option of the lenders, an additional $1.5 million
of advances may be available, which if exercised would bring the total
borrowing to $8 million. During October 2001, the lenders agreed to
advance $185 thousand of the optional commitment. Based on current
projections, the Company estimates that if the full amount of the
facility is made available, it would fund the Company's cash
requirements into at least the second quarter of 2002.
The principal amount of the advances are to be repaid on the
earlier of December 31, 2002 or the occurrence of an event of default
as defined in the Amended Credit Facility. Interest will continue to
accrue at 15% per annum.
9
In consideration for the increase in the commitment, the
extension of the maturity date of the Credit Facility and the
forbearance of affiliates of the lenders from exercising (before
October 15, 2001) the penalty and repurchase provisions of the
Registration Rights Agreement or the Call Option, the lenders were
granted a "Participation." The Participation provides that the lenders
will be entitled to the first $10 million above the outstanding loan
balance in certain future sales (other than operating revenues),
security offerings or receipts of judgments or awards. The Company can,
prior to December 7, 2001, refinance these loans, if more favorable
terms can be found, without paying the Participation. The Company is
looking for other options.
8. CLOSURE OF THE SUNSHINE MINE
On February 2, 2001, Sunshine's wholly owned subsidiary,
Sunshine Precious Metals, Inc. ("SPMI"), received notice that the
smelter to which the Sunshine Mine shipped concentrates was closing and
would no longer accept deliveries. Management sought alternatives for
the production from the Sunshine Mine but was not successful in
securing an economically viable alternate arrangement. As a result,
SPMI notified employees that a mass lay-off of the majority of the
Sunshine Mine employees would occur on February 16, 2001, and the mine
was then placed on a care and maintenance status. Since the closure of
the Sunshine Mine on February 16, the Company has no sources of
revenues.
During the second quarter, the Company determined that the
costs of holding the mine under its original care and maintenance plan
would be more than it could afford. Therefore, new plans were made to
secure the property, including closing off underground access after
removal of certain equipment, including electrical transformers and
substations. Pumps have been shut off and it is anticipated that over
the next two to four years the water level at the property will rise to
about the 3100 level. The Company does not anticipate attempting to
reopen the mine until such time as a substantial increase in the price
of silver would justify the required expenditure.
The cost to reopen the mine is not known. The longer the mine
remains closed in this manner, its cost to reopen will increase. Over
time underground shafts and drifts will deteriorate and eventually may
become unusable.
9. EMPLOYEE BENEFIT PLANS
The Company recognized the following curtailment gain and
loss:
2001 Quarter Ended: Eight Months Ended
June 30 September 30 September 30, 2001
-------------------------------------------------------------
Curtailment gain for
postretirement benefits $410 $3,377 $3,787
other than pensions
Curtailment loss for pensions (366) - (366)
-------------------------------------------------------------
Net curtailment gain $ 44 $3,377 $3,421
=============================================================
Curtailment Gain for post retirement benefits other than pensions
The collective bargaining agreements ("CBA's") entered into
between SPMI and United Steelworkers of America (which represents the
majority of the employees) and the International Brotherhood of
Electrical Workers Union (the "Unions") expired on April 30, 2001. As a
result, SPMI was no longer required to provide retiree life insurance
to all former employees covered by a collective bargaining agreement
("Post 87 Union Retirees") who retired after November 23, 1987. Also,
as a result of the expiration of the CBA's, SPMI is only required to
provide retiree medical benefits to qualified Post 87 Union Retirees
until April 30, 2002. SPMI recognized a curtailment gain of $410
thousand related to these changes in required postretirement medical
and life insurance benefits. In July 2001, SPMI appropriately notified
all Union Employees who retired prior to November 23, 1987 that their
retiree life insurance and medical benefits would be canceled as of
August 31, 2001. SPMI also appropriately notified employees not covered
by a collective bargaining agreement who retired prior to 1994 that
their retiree life insurance would be canceled as of August 31, 2001
and their retiree medical benefits would be canceled as of September
30, 2001. During the third quarter, SPMI recognized a curtailment gain
of $3.4 million as a result of these cancellations of retiree life
insurance and medical benefits.
10
Curtailment Loss for Pensions
The Sunshine Negotiated Plan provides for an early retirement
benefit equal to 100% of a participant's accrued benefit if the
participant has 30 or more years of service. As a result of the closure
of the Sunshine Mine, approximately 28 Union Employees with 30 or more
years of service elected to retire and receive their early retirement
benefit unreduced despite the fact that they were not 65 years of age.
This resulted in a curtailment loss for pension plans of approximately
$366 thousand due to the acceleration of the payment of benefits
compared to prior actuarial assumptions.
The Negotiated Pension Plan also provides that certain
employees who are "laid off due to the permanent shutdown of the total
plant covered by this Plan may retire and receive a "75/80" pension."
Eligibility requirements are ten years of service, and if at least 55
years of age, age and years of service total 75 years or more or if
younger than 55, age and years of service total 80. If eligible for the
75/80 retirement, a participant would receive an unreduced early
retirement benefit plus a $399.30 temporary monthly supplement payable
until age 65. SPMI does not believe that there has been "permanent
shutdown of the total plant." If it were determined that there has been
a permanent shutdown of the total plant," SPMI would incur an estimated
additional curtailment loss for pension plans of between $900 thousand
and $1.2 million.
SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Nine Months Ended September 30, 2001 and 2000
Certain matters discussed in this report are "forward-looking
statements" intended to qualify for the safe harbor from liability established
by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are all statements other than statements of historical fact,
including without limitation those that are identified by the use of the words
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts" and similar expressions. Such statements address future plans,
objectives, expectations and events or conditions concerning various matters
such as mining exploration, capital expenditures, earnings, litigation,
liquidity and capital resources and accounting matters. Actual results in each
case could differ materially from those currently anticipated in such
statements, by reason of factors including without limitation, actual results of
exploration, silver prices, imprecision of reserve estimates, future economic
conditions, regulations, competition and other circumstances affecting
anticipated revenue and costs. Any forward-looking statement speaks only as of
the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement. Readers are cautioned not to
place undue reliance on these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission.
MANAGEMENT CHANGES
John S. Simko, Chairman, has been re-appointed President of the
Company, a position he had previously held, and Messrs. M. Michael Owens and
William J. Pincus were appointed Vice Presidents of Finance and Operations,
respectively. William W. Davis resigned as an officer of the Company effective
October 1, 2001, to pursue other opportunities.
LIQUIDITY AND CAPITAL RESOURCES
The Company and three of its principal subsidiaries filed for
protection under Chapter 11 on August 23, 2000. The Elliott Group and the
Stonehill Group, whose affiliates were the Company's principal creditors, were
co-proponents with the Company of the Plan of Reorganization which was filed
contemporaneously with the bankruptcy filing. At the effective date of the Plan
of Reorganization, the Stonehill Group and the Elliott Group became the
Company's principal owners, owning approximately 90% of the Company's common
stock.
Highwood Partners, L.P. and Stonehill Capital Management, LLC,
affiliates of the Elliott Group and the Stonehill Group, provided the
Debtor-in-Possession (DIP) financing which was used by the Company and its
affiliates as its principal source of funding during the bankruptcy. Upon the
Effectiveness of the Plan, on February 5, 2001, approximately $2.7 million was
borrowed under the DIP facility. The Stonehill and Elliott affiliates are also
providing the Credit Facility, which repaid advances under the DIP facility and
has funded the Company since its emergence from bankruptcy. The Credit Facility
bears
11
interest at a fixed rate of 15% per annum in the maximum principal amount of
$5,000,000. The facility is secured by substantially all of the assets of
Sunshine and its subsidiaries, including the Pirquitas Mine. The proceeds of all
advances under such facility were to be utilized solely (a) to provide funds
necessary to the conduct of the business of Sunshine and its subsidiaries in the
ordinary course in accordance with an approved budget, (b) to reimburse fees and
disbursements paid by lenders and their professionals in accordance with the
budget, and (c) as otherwise contemplated or permitted by the budget. The Credit
Facility has been the Company's only source of working capital, other than asset
disposals. The Company borrowed the full $5 million available under the Credit
Facility and in July, 2001, an additional $420 thousand was advanced by the
lenders in the form of Demand Notes. On September 7, 2001 the Company and its
lenders entered into the Second Amended and Restated Credit Agreement (the
"Amended Credit Facility") to supply the Company with sufficient financing to
maintain the Pirquitas property, complete the closing and securing of the
Sunshine Mine pending a substantial recovery in silver prices, and fund
necessary corporate overhead for a period of time.
The Amended Credit Facility refinanced the entire $5.42 million of
advances made to date and committed to advance another $1.08 million for a total
commitment of $6.5 million, subject to a $325 thousand commitment fee. At the
option of the lenders, an additional $1.5 million of advances may be available,
which if exercised would bring the total borrowing to $8 million. During October
2001 the lenders agreed to advance $185 thousand of the optional commitment.
Based on current projections, the Company estimates that if the full amount of
the facility is made available, it would fund the Company's cash requirements
into at least the second quarter of 2002.
The principal amount of the advances are to be repaid on the earlier of
December 31, 2002 or the occurrence of an event of default as defined in the
Amended Credit Facility. Interest will continue to accrue at 15% per annum.
In consideration for the increase in the commitment, the extension of
the maturity date of the Credit Facility and the forbearance of affiliates of
the lenders from exercising (before October 15, 2001) the penalty and repurchase
provisions of the Registration Rights Agreement or the Call Option, the lenders
were granted a "Participation." The Participation provides that the lenders will
be entitled to the first $10 million above the outstanding loan balance in
certain future sales (other than operating revenues), security offerings or
receipts of judgments or awards. The Company can, within 90 days of the date of
the Amended Credit Facility, refinance these loans, if more favorable terms can
be found, without paying the Participation.
On September 17, 2001, the Company announced that SPMI had sold an
option to acquire its silver refinery, antimony plant, and tailings pond at the
Sunshine Mine in Kellogg, Idaho to Formation Capital Corporation ("Formation").
The initial option payment was $200 thousand. In order to maintain the option,
which can be extended until June 2003, Formation may make quarterly payments,
totaling an additional $2.3 million over the period. At any time, Formation may
exercise its option to acquire any or all of the optioned facilities. On
exercise, the option payments convert to installment payments on a note in the
same amounts as scheduled for the option payments. Formation made the second
scheduled quarterly option payment of $200 thousand on September 30, 2001.
Formation may prepay the obligation by paying an aggregate of $1.6 million in
cash (including the option payments already received) by March 2002, or a total
of $2.0 million in cash by December 2002.
The Company's strategy is to hold Pirquitas with the lowest level of
possible expenditures, pending an improvement in silver prices. The Company's
principal costs going forward are expected to be general and administrative,
including the cost of maintaining a public company, legal and other expenses
associated with a lawsuit against the Company's former auditor, cost of
maintaining security at Pirquitas, and of compliance with various Argentine
fiscal and mining laws.
On February 2, 2001, SPMI received Notice that the smelter to which the
Sunshine Mine shipped concentrates was closing and would no longer accept
deliveries. Management sought alternatives for the production from the Sunshine
Mine but was not successful in securing an economically viable alternate
arrangement. As a result, SPMI notified employees that a mass lay-off of the
majority of the Sunshine Mine employees would occur on February 16, 2001.
Since the closure of the Sunshine Mine on February 16, the Company has
no source of revenues, has been incurring significant costs associated with the
closure of the mine, including funding severance benefits and accrued vacation
liability and costs
12
associated with its closure. Offsetting a portion of these costs have been
proceeds from the liquidation of equipment at the property and the
aforementioned option proceeds.
It is expected that the reopening of the mine will require a
substantial improvement in silver prices because a substantial exploration and
development effort will be required. In addition, substantial equipment
additions will be required to replace the equipment sold and to replace
equipment removed since the decision to secure the mine was made.
Registration Rights Agreement. Under the Plan of Reorganization,
Sunshine entered into a Registration Rights Agreement with its Principal
Shareholders under which the shares of new common stock issued to them are to be
registered under federal securities laws. The agreement requires the filing and
effectiveness of a Registration Statement within specified periods of time and
other matters. In the event that certain of the commitments under such agreement
are not satisfied, each of the holders has a right to provide Sunshine with
written notice thereof (a "Put Notice") which would require Sunshine to pay
penalties to each such holder (in cash or shares of common stock at the option
of the holder), and/or in certain instances, to repurchase the securities from
the holder for a "Mandatory Repurchase Price" equal to 115% of the Market Price
on the date the holder acquires the right to require Sunshine to repurchase such
shares. The Company does not have adequate liquidity to satisfy such a put
obligation.
The Registration Statement was not declared effective within the time
frame required by the Registration Rights Agreement. The Company has not
recorded any expense relative to penalties mandated by the Registration Rights
Agreement, nor made any provision in its financials reflecting the potential
requirement to repurchase the common stock of the Elliott Group and the
Stonehill Group. The Elliott Group and the Stonehill Group agreed to forbear
enforcing or exercising the penalties and the repurchase requirement as part of
a refinancing of the Credit Facility. See Note 7 to the Financial Statements.
The forbearance currently extends through November 30, 2001. The Registration
Statement was declared effective as of November 14, 2001.
Argentina Transaction; Call Option Agreement. Under the terms of the
Plan and the Confirmation Order on the Effective Date, the capital stock of
Sunshine Argentina, Inc. was cancelled and Sunshine Argentina, Inc. issued the
"New Argentina Stock." Sunshine caused the incorporation and organization of
Sunshine International Mining, Inc., a Delaware corporation ("International"),
all of the issued and outstanding stock of which is owned by Sunshine. Sunshine
contributed to the capital of International all of the New Argentina Stock such
that Argentina became a wholly-owned subsidiary of International which in turn
is a wholly-owned subsidiary of Sunshine. Simultaneously Sunshine, International
and Argentina entered into a Call Option Agreement dated February 5, 2001, with
the Elliott Group and the Stonehill Group, pursuant to which International
granted (i) a contingent call option to each holder within the Elliott Group and
the Stonehill Group to purchase, collectively, up to 100% of the shares of New
Argentina Stock for $1 million and (ii) a first priority perfected security
interest in the New Argentina Stock. Such call option(s) was granted to purchase
a maximum number of shares of New Argentina Stock at a specified purchase price
which option is to be reduced proportionately in the event the Elliott Group
holders and/or the Stonehill Group holders sell more than 50% of their shares of
New Common Stock of Sunshine received. For example, if the Elliott Group holders
were to sell 55% of their shares of Sunshine Common Stock initially received,
then the maximum number of New Argentina Stock that the Elliott Group holders
could purchase in the aggregate upon exercise of their Call Options would be
reduced by a percentage equal to (55% - 50%) x 2, or 10%. The term of each Call
Option expires at the time of exercise in full of such Call Option, or if the
market capitalization of Sunshine shall exceed $150,000,000 for at least 60
consecutive days or on the tenth anniversary of the Effective Date of the Plan.
The Call Option becomes exercisable upon the occurrence of any one or more of
nine separate events, including (i) the de-listing of the Sunshine New Common
Stock from an "Approved Market," (ii) suspension of the Sunshine New Common
Stock from trading on an Approved Market for at least seven consecutive calendar
days, (iii) reduction in the overall market capitalization of Sunshine to less
than $15,000,000 for at least fifteen consecutive calendar days, (iv) a
bankruptcy proceeding occurring with respect to Sunshine or one of its
subsidiaries, (v) Sunshine fails to comply with its obligations in the Call
Option Agreement, and (vi) other events, including any default under the Credit
Facility. The Call Option, once exercisable, may be exercised at any time by any
of the holders thereof. The effect of the Call Option(s) is to potentially allow
the Elliott Group holders and the Stonehill Group holders (and certain of their
successors and assigns) to acquire Sunshine Argentina which in turn owns the
Pirquitas Mine and other assets. Should such an event occur, Sunshine's
investment in the property, carried on the balance sheet at $24,750,000, would
no longer be an asset of Sunshine, nor would the assigned proven and
13
probable reserves totaling 129.6 million ounces of silver, along with 59,000
tons of tin and 273,000 tons of zinc. The New Argentina Stock has been pledged
under the Call Option Agreement under a separate Pledge Agreement to the Elliott
Group holders and the Stonehill Group holders and delivered to Wells Fargo Bank
Minnesota, N.A. as administrative and pledge agent. If the lenders exercise the
repurchase option or fail to extend additional credit, it is likely that the
Call Option would be exercisable.
In addition, the Company's market capitalization in recent weeks has
been below $15 million, the level that could trigger exercise of the Call
Option. The Elliott Group and the Stonehill Group agreed to forbear exercising
the Call Option before November 30, 2001 as part of a refinancing of the Credit
Facility. See Note 7 to the Financial Statements.
Current Activities at the Pirquitas Mine
In accordance with the Argentine law, the Company is required to update
its Environmental Impact Report no less than once every two years. The Company
completed the update and submitted it in June 2001. On November 9, 2001 the
update was approved. In compliance with the terms of its operating permit, the
Company continues ongoing water-quality monitoring, its community development
program and other required activities.
The Company is exploring financing arrangements for Pirquitas. Until
such arrangements are finalized the Company will continue to maintain the
project ready for development with all permits up to date.
Impairment Review
As of September 30, 2001, the Company performed an impairment review of
the Pirquitas Mine. The undiscounted cash flows were well in excess of the
Pirquitas carrying value. Thus, no impairment writedown was necessary.
New Accounting Standards
The Financial Standards Board issued Statement of Financial Accounting
Standards NO. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144) in August 2001. SFAS No. 144 modifies existing standards
for recognizing impairment of long-lived assets and the accounting and reporting
of discontinued operations. As required, the Company will adopt SFAS No. 144 in
the first quarter of 2001. Adoption is not expected to have a material effect on
the financial statements of the Company."
The opinion of the Company's independent certified public accountants
covering the 2000 year expressed substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first nine months of 2001 was
$6.6 million compared to $2.8 million for the 2000 period.
In the first nine months of 2001, sale of property, plant and equipment
provided $1.8 million of cash. Investing activities in the 2000 period included
$3.9 million proceeds from sale of investment silver bullion and $1.1 million of
net additions to property, plant and equipment primarily for the development of
Pirquitas.
Cash provided by financing activities in 2001 primarily consists of
$4.6 million proceeds from borrowings under the DIP, Credit Facility and Amended
Credit Facility.
RESULTS OF OPERATIONS
On December 5, 2000, the Company's Plan was confirmed by the United
States Bankruptcy Court and the Company emerged from bankruptcy on February 5,
2001. As a result of the reorganization and the recording of the restructuring
transaction and implementation of fresh start reporting, the Company's results
of operations after February 5, 2001, are not comparable to results reported in
prior periods. See Notes 2 and 3 for information on consummation of the Plan of
Reorganization and implementation of fresh start reporting.
THE THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
The Company had no operating revenues in the 2001 quarter due to the
closure of the Sunshine Mine on February 16, 2001. In the third quarter of 2000,
the Company had $5.1 million of operating revenues solely from production from
the Sunshine Mine.
Due to the closure of the Sunshine Mine, the Company had no cost of
revenues in the 2001 quarter compared to $5.4 million of cost of revenues in the
third quarter of 2000.
14
Property shutdown and holding costs in the current quarter consisted
of approximately $465 thousand of costs incurred to secure the Sunshine Mine for
shutdown. The remaining holding costs of approximately $363 thousand were
primarily costs to hold the Pirquitas Mine and employee severance costs.
During the 2001 quarter, materials and supplies inventories were
written down $530 thousand due to reduced demand and prices for inventory for
the mining industry.
General and administrative costs increased $12 thousand due primarily
to $244 thousand for legal and other expenses associated with the Company's
lawsuit against Ernst & Young LLP, the Company's former auditor, partially
offset by reductions in staff.
In the 2001 quarter, the Company recognized a curtailment gain of $3.4
million for post retirement benefits other than pensions. See Note 9 to the
Financial Statements.
Interest and debt expense decreased $667 thousand primarily due to the
cancellation of debt pursuant to the Plan.
In the 2001 period, other income of $277 thousand was primarily due to
gains from the sale of certain equipment and option payments received with
regards to the sale of the silver refinery, antimony plant and tailings pond.
Other, net for the 2000 quarter includes gains from the sale of certain
properties.
Reorganization items - professional fees, including pre-petition fees
of counsel for the Cosponsoring Bondholders, represent the costs of legal
counsel and other professionals in the preparation and solicitation of approval
of the Company's Chapter 11 Plan of Reorganization and the associated financing
documents.
THE NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
Consolidated Results of Operations:
Predecessor and
(In thousands) Reorganized Company Predecessor Company
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
- -------------------------------------------------------------- ----------------------- -----------------------
Operating revenues $ 2,919 $ 18,912
Costs and expenses:
Cost of revenues (2,498) (18,144)
Depreciation, depletion and amortization (8) (921)
Property closing and holding costs (3,038) -
Exploration - (1,464)
Writedown of warehouse inventory (530) -
General and administrative expense (2,325) (2,887)
Net curtailment gain on employee benefit plans 3,421 -
----------------------- -----------------------
(4,978) (23,416)
----------------------- -----------------------
Other income (expense)
Interest income 9 69
Interest and debt expense:
Contractual interest and debt expense (1,276) (5,537)
Reduction attributable to bankruptcy 316 439
----------------------- -----------------------
(960) (5,098)
Mark to market loss - (166)
Other, net 616 455
----------------------- -----------------------
(335) (4,740)
----------------------- -----------------------
Loss before reorganization items (2,394) (9,244)
Reorganization items:
Adjust accounts to fair value 8,239 -
Professional fees (785) (1,348)
Interest earned while in Chapter 11 2 -
----------------------- -----------------------
Net income (loss) before extraordinary item $5,062 $ (10,592)
======================= =======================
Consolidated operating revenues decreased approximately $16.0 million
for the first nine months of 2001 compared to the 2000 period. The decrease in
operating revenues primarily resulted from the closure of the Sunshine Mine on
February 16, 2001.
Cost of revenues decreased $15.6 million primarily due to the closure
of the Sunshine Mine on February 16, 2001.
15
Property shutdown and holding costs in the first nine months consisted
of approximately $2.2 million of costs incurred to secure the Sunshine Mine for
shutdown. The remaining holding costs of approximately $813 thousand were
primarily costs to hold the Pirquitas Mine and employee severance costs.
Warehouse inventory was written down $530 thousand due to reduced
demand and prices for inventory for the mining industry.
General and administrative costs decreased $562 thousand due primarily
to reductions in staff, partially offset by $456 thousand for legal and other
expenses associated with the Company's lawsuit against Ernst & Young LLP.
In the 2001 period, the Company recognized a curtailment gain of $3.8
million for post retirement benefits other than pensions, partially offset by a
curtailment loss of $366 thousand for pensions. See Note 9 to the Financial
Statements.
Interest and debt expense decreased $4.1 million primarily due to the
cancellation of debt pursuant to the Plan.
Mark-to-market loss on silver held for investment amounted to $166
thousand in the 2000 period. No silver was held for investment during the 2001
period.
In the 2001 period, other income of $616 thousand was primarily due to
gains from the sale of certain equipment and option payments received with
regards to the sale of the silver refinery, antimony plant and tailings pond.
Other, net for the 2000 period included gains from the sale of certain
properties, partially offset by fees and expenses related to attempted financing
transactions and asset sales.
Reorganization items - professional fees, including pre-petition fees
of counsel for the Cosponsoring Bondholders, represent the costs of legal
counsel and other professionals in the preparation and solicitation of approval
of the Company's Chapter 11 Plan of Reorganization and the associated financing
documents.
SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 5. OTHER INFORMATION
On September 7, 2001, Registrant entered into the Second Amended and
Restated Credit Agreement dated as of September 7, 2001, among Sunshine
Argentina, Inc., as Borrower, Sunshine Mining and Refining Company and its
subsidiaries, as Guarantors, and Hillwood Partners, LP and Stonehill Capital
Management, LLC, as the Lenders. The Second Amended and Restated Credit
Agreement dated September 7, 2001 (the "Amended Credit Facility") continues a
basic commitment to provide funds to Registrant up to an amount of $6,500,000,
but also provides for an "optional commitment" at the option of the Lenders to
borrow up to an additional $1,500,000 (for a total of $8,000,000). The Amended
Credit Facility provides for Lenders to participate prorata in the first
$10,000,000 of proceeds received from certain specified sources in consideration
of the increase in the commitment, an extension of the maturity date, and the
forbearance of certain affiliates of the Lenders from exercising certain rights
and remedies through November 30, 2001. Such affiliates of the Lenders waived
any non-compliance of failures under as well as any right to enforce any
remedial or compensatory provision under the Registration Rights Agreement or
the Call Option Agreement arising out of non-compliance by the Registrant or any
affiliate with the terms of such agreements for any period prior to November 30,
2001.
On October 1, 2001, William W. Davis, President of the Registrant,
resigned as an officer of the Registrant to pursue other alternatives. On
October 5, 2001, the Board of Directors of Sunshine reappointed John S. Simko as
President and Chief Executive Officer of Registrant in addition to his duties as
Chairman of the Board. John S. Simko was President of Registrant from December
1992 through January 2001. In addition, the following individuals were elected
to the offices set forth opposite their respective names below:
NAME OFFICE
M. Michael Owens Vice President - Finance and Principal Financial
and Accounting Officer
William J. Pincus Vice President - Operations
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.3 Second Amended and Restated Credit Agreement dated as
of September 7, 2001 among Sunshine Argentina, Inc.,
Borrower, and Harwood Partners, L.P. and Stonehill
Capital Management LLC as Lenders.
(b) Reports on Form 8-K.
During the period covered by this Report, no current reports
on Form 8-K were filed during such period or with respect to events
occurring after the period covered by this Report but prior to the
filing of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
SUNSHINE MINING AND REFINING COMPANY
Dated: November 16, 2001 By: M. MICHAEL OWENS
----------------------------------
M. Michael Owens
Vice President-Finance
17
EXHIBIT INDEX
Exhibit
Number Description
10.3 Second Amended and Restated Credit Agreement dated as of
September 7, 2001 among Sunshine Argentina, Inc., Borrower, and
Harwood Partners, L.P. and Stonehill Capital Management LLC as
Lenders.